Gallieni & Gallieni & Ors
[2012] FamCAFC 205
•7 December 2012
FAMILY COURT OF AUSTRALIA
| GALLIENI & GALLIENI AND ORS | [2012] FamCAFC 205 |
| FAMILY LAW – APPEAL – PROPERTY – Where the appellant husband appealed from property orders providing inter alia that the subject company be wound up pursuant to s 233(1)(a) or s 461(1) of the Corporations Act 2001 (Cth) – Where there was no challenge to the trial Judge’s findings that a purported share issue to the husband’s parents was oppressive and void, and it was conceded that an order for the winding up of the subject company was one which was open to his Honour in the exercise of his discretion – Where the appellant husband asserted that the trial Judge erred in failing to consider other available remedies given the subject company was solvent – No appealable error established. FAMILY LAW – APPEAL – PROPERTY – Where the appellant husband asserted that the trial Judge erred in finding that meetings did not take place as alleged by the appellant husband – Where there was an application to adduce further evidence by the appellant husband to support this challenge – Where it was conceded by senior counsel for the appellant husband that, if the application to adduce the further evidence was not successful, this challenge must fail – Where the propounded further evidence was beset with controversy – No appealable error established. FAMILY LAW – APPEAL – PROPERTY – Where the appellant husband asserted that the trial Judge erred in restraining the parties from submitting any proof of debt in the winding up of the subject company in that the order amounted to a denial of natural justice and/or it was beyond the jurisdiction and/or power of the Court – No appealable error established. FAMILY LAW – APPEAL – PROPERTY – Where the appellant husband asserted that the trial Judge erred in ordering, without sufficient specificity, the liquidator to rectify the records of the subject company; and, in particular, in failing to specify the source of the power by which the order was made – No appealable error established. FAMILY LAW – APPEAL – PROPERTY – Where the appellant husband asserted that the trial Judge erred in ordering the appellant husband and the respondent wife to bear two thirds of the liquidator’s costs in that the order amounted to a denial of natural justice and/or the trial Judge failed to identify the source of the jurisdiction and/or power by which the order was made – Where it was common ground that no party sought the order – Where the appellant husband had no notice of the making of the order – A denial of natural justice demonstrated – Appealable error established. |
| Corporations Act 2001 (Cth) Family Law Act 1975 (Cth) Federal Proceedings (Costs) Act 1981 (Cth) |
| Ascot Investments Pty Ltd v Harper and Harper (1981) FLC 91-000 CDJ v VAJ (1998) 197 CLR 172 Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336 Hollen Australia Pty Ltd (ACN 004 380 572) and Others v Burnside and Hollen Australia Pty Ltd [2009] VSC 95 JohnJ Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd and Others (1991) 6 ACSR 63 Lint & Lint [2011] FamCAFC 115 Re Bodaibo Pty Ltd (1992) 6 ACSR 509 Scottish Co-operative Wholesale Society v Meyer [1959] AC 324 Vigliaroni and Ors v CPS Investment Holdings Pty Ltd and Ors (2009) 74 ACSR 282 |
| APPELLANT: | Mr Gallieni |
| FIRST RESPONDENT: | Ms Gallieni |
| FIRST AND SECOND INTERVENERS: | Mr D and Mrs D |
| FILE NUMBER: | MLC | 7541 | of | 2008 |
| APPEAL NUMBER: | SA | 76 | of | 2011 |
| DATE DELIVERED: | 7 December 2012 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Thackray, Strickland & Ainslie-Wallace JJ |
| HEARING DATE: | 10 July 2012 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 5 October 2011 |
| LOWER COURT MNC: | [2011] FamCA 791 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr North SC & Mr Matta |
| SOLICITOR FOR THE APPELLANT: | Septimus Jones & Lee |
| COUNSEL FOR THE FIRST RESPONDENT: | Mr O’Shanessy & Mr Glass |
| SOLICITOR FOR THE FIRST RESPONDENT: | Slater & Gordon |
| COUNSEL FOR THE FIRST & SECOND INTERVENERS: | Ms Smallwood |
| SOLICITOR FOR THE FIRST & SECOND INTERVENERS: | King & Wood Mallesons |
Orders
The appeal be allowed in part.
Order 15 of the orders made by Benjamin J on 5 October 2011 be set aside.
The appellant husband’s application to adduce further evidence filed on 28 May 2012 be dismissed.
The respondent wife and the interveners each file and serve submissions on the issue of the apportionment of the liquidator’s costs as between the parties within 28 days of these orders.
The appellant husband file and serve submissions in response to the respondent wife and the interveners’ submissions within 28 days of the receipt of those submissions.
The respondent wife and the interveners each file and serve any submissions in reply within a further 21 days of the receipt of the appellant husband’s submissions.
The appellant husband pay the costs of and incidental to the appeal of the respondent wife and the interveners, such costs to be as assessed in default of agreement.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Gallieni & Gallieni and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE |
Appeal Number: SA 76 of 2011
File Number: MLC 7541 of 2008
| Mr Gallieni |
Appellant
And
| Ms Gallieni |
First Respondent
And
| Mr D and Mrs D |
First and Second Interveners
REASONS FOR JUDGMENT
Mr Gallieni (“the husband”), appeals against orders made by Benjamin J on 5 October 2011 (as amended 13 October 2011) in relation to property proceedings between the husband and Ms Gallieni (“the wife”). The wife’s sister and her husband, Mrs and Mr D, had intervened in the proceedings as did the husband’s parents Mr and Mrs H.
The appeal is opposed by the wife and Mr and Mrs D. There was no appearance by the husband’s parents and no submissions were made on their behalf.
The significant asset of the parties and principal subject of the proceedings is a company K Pty Ltd (“the Company”). It is in respect of his Honour’s orders in relation to the Company that the appeal is brought.
His Honour ordered:
1.[K] Pty Ltd (“the Company”) be wound up pursuant to
s 233(1)(a) of the Corporations Act 2001 (Cth) (“Corporations Act”), or alternatively, pursuant to s 461(1) of the Corporations Act.2,Mr [L]… is appointed liquidator of the Company, subject to these orders and the conditions of appointment (set out in the liquidator’s consent dated 16 March 2011).
3.[Mr D] and [Mrs D] (the First and Second Interveners), are not required to publish a notice in accordance with Rule 5.6 of the Federal Court (Corporations) Rules 2000 (Cth).
4.The purported issue of:-
· 20 shares in the Company to the husband,
· two shares in the Company to the wife, and
· four shares in the Company to [Mr H] and [Mrs H],
effected on or about 18 March 1997 are declared void and are set aside. Consequently the liquidator shall do all acts, sign all documents such that the Register kept by the Company is corrected and such share issues are removed pursuant to s 175 of the Corporations Act.
5.The appointment of [Mr H] and [Mrs H] (the Third and Fourth Interveners) as directors of the Company on or about 18 March 1997 is declared void and is consequently set aside. Consequently the liquidator shall do all acts, sign all documents such that register kept by the Company is corrected pursuant to s 175 of the Corporations Act.
6. It is declared that the shareholding of the Company is as follows:-
(a)the husband holds two of the six issued shares in the Company;
(b)the wife holds two of the six issued shares in the Company
(c)Mr [D] (the First Intervener) holds one of the six issued shares in the Company; and
(d)Mrs [D] (the Second Intervener) holds one of the six issued shares in the Company.
Consequently the liquidator shall do all acts, sign all documents such that the Register kept by the Company is corrected and such shareholding is shown on the said Register.
7.The parties and liquidator do all things necessary to have the mortgage, registered in favour of St George Bank (being the mortgage securing advances to the Company) over the [T property] discharged. The parties do all things necessary to have the mortgage, registered in favour of St George Bank (being the mortgage securing advances to the Company) over the [E property] be discharged.
8.Subject to these orders (including order 10), the parties to these proceedings, in their personal capacities or as a director of any corporate entity, are restrained from submitting any proof of debt in the winding up of the Company.
9.It is declared that the Company owes Mr and Mrs [H], (the Third and Fourth Interveners), a sum of $28,000 (together with interest unpaid, if any, since June 2010) in respect of the loan entered into between the Company and the Third and Fourth Interveners on or about 26 March 1997.
10.In respect of such of the payments referred to below:-
Such payments as were made on or before 30 June 2008, the husband and wife pay to the Company (or have set off against any proposed distribution of income and/or capital to them) such sums; and
Such payments as were made after 30 June 2008, the husband pay to the Company (or have set off against any proposed distribution of income and/or capital to him) such sums;
These being monies of the Company improperly had and received by the husband, or entities controlled by the husband including:-
(a)$114,111.80 in respect of the husband’s legal costs of this proceeding;
(b)$208,276.34 in respect of Citibank loan repayments made by [C] Pty Ltd from 30 June 1991 to 30 June 2008 (excluding interest on that loan from 1991 to 31 March 1997);
(c)$57,501.30 in respect of the tax liability of [C] Pty Ltd paid by the Company on 26/08/09; and
(d)$63,834.20 in respect of other payments made to bank accounts controlled by the husband.
Such other money as is determined by the liquidator in accordance with these orders (subject to the overriding supervision of the Court).
Such payments to be made by the husband or the husband and wife (as the case may be) within three (3) months from the date of this order. If such payment/s are not made then the liquidator shall deduct any such amount/s (together with interest calculated as and from three (3) months from the date of this order and at a rate in accordance with the Rules of this Court) from the amount to be otherwise distributed to the husband and/or the wife. The return of such money and any and interest shall be assets and/or income of the Company.
11.If necessary, the liquidator is directed to undertake an investigation into, and take an account of, monies (other than the monies specifically referred to at orders 9 and 10 above) received by the husband or related entities of the husband from the Company, and to report to the shareholders in relation to his findings in that regard prior to any distribution being made to members of the Company.
12.The liquidator shall bring to the accounts of the Company money taken from it by the husband (and/or his related entities) so as to rectify the books and records of the Company having regard to these orders and the findings of fact contained in the reasons for the orders.
13.The liquidator shall inform the Australian Securities and Investments Commission (ASIC) within twenty eight (28) days of the date of this order of the amendment to the Company Register as to shareholders and directors made pursuant to these orders.
14.The liquidator has leave to apply to the Court for directions pursuant to s 79(3) of the Corporations Act.
15.As to the costs of the liquidator:-
(a)one-third of the costs of the liquidation will be paid out of the assets of the company,
(b)two-thirds of the costs of liquidation are to be set off against the amount otherwise payable on liquidation to the husband and the wife (in equal shares).
(c)if there is insufficient capital due to the husband and wife on liquidation, such shortfall shall be paid out of the capital due to [Mr D] and [Mrs D] (the First and Second Interveners). They are in turn are indemnified, as to half each by the husband and the wife.
(d)if the capital due to the husband is insufficient to meet the whole or part of his share of the two-thirds cost of liquidation then the shortfall shall be paid out of the capital to be otherwise paid to the wife, who in turn is indemnified by the husband in respect of such sum.
(e)the liquidator shall be entitled to draw against the assets and income of the company to pay his fees as and when they fall due.
16.At or about the time of completion of the liquidation, the liquidator shall:-
(a) determine and inform the shareholders of the Company as to the amount payable to each of them in accordance with these orders for liquidation of the company.
(b)pay to [Mr D] and [Mrs D] (the First and Second Interveners) their respective entitlements.
(c)in respect of the husband and the wife, pay from each of their respective entitlements one half of the wife’s tax liability of $36,202 and one half of the Citibank liability of about $69,000 (secured over the H’s home).
(d)calculate the amount due to each of the husband and wife having regard to:-
i) the net entitlement of each of the husband and wife on the liquidation of the Company;
ii)a division of non superannuation matrimonial property of the husband and wife as to 65 per cent to the wife and 35 per cent to the husband;
iii)the wife retaining [the E property] at a value of $750,000 (less the amount due to the St George Bank – being the housing loan of about $114,475) and her motor vehicle at a value of $500.
iv)the husband retaining his motor vehicle with a value of $8,000, his household contents of $1,500 and the legal fees he paid for his parents of $50,089;
(e) after giving at least twenty eight (28) days notice pay to the husband and wife their respective entitlements, subject to any further deductions that many arise in any costs determinations in these proceedings.
17. The husband and wife shall otherwise retain the property in his or her possession or control.
18.IT IS DECLARED that the asset of the $50,089 being legal fees paid by the husband on behalf of Mr and Mrs [H] (the Third and Fourth Interveners) is an asset of the husband.
19.The husband and wife shall indemnify Mr and Mrs [H] (the Third and Forth (sic) Interveners) in respect of the amounts outstanding to Citibank secured by a mortgage over the home of the H’s. Such indemnity shall expire when that loan is paid out by the liquidator in accordance with these orders.
20.With regard to [the] Mortgage… secured over [the E property]… Mr and Mrs [H] (Third and Forth (sic) Interveners) shall within seven (7) days of the date of this order do all acts and sign all documents to provide discharge of that mortgage; and if they fail to provide the discharge of the said mortgage a Registrar of this Court shall execute such discharge of mortgage pursuant to s106A of the Family Law Act.
21. Within sixty (60) days of the date of this order:-
(a)the husband will do all acts and sign all documents to transfer his interest in [the E property] to the wife.
(b)at the time of transfer, the wife will do all acts and sign all documents necessary to either discharge or release the husband in respect of the mortgage to the St George Bank secured against the subject property and the wife shall indemnity the husband in respect of the housing loan mortgage (but not the mortgage being the collateral security in respect of the Company) and other liabilities against the said property including council rates, water rates and land taxes, but excluding the alleged liability to Mr and Mrs [H] (the Third and Forth (sic) Interveners).
22.The husband, wife, [Mr D] and [Mrs D] (the First and Second Interveners) have liberty to apply in terms of the liquidation of the Company and the implementation of these orders. Such leave shall continue for the period of the liquidation, two (2) years from the date of this order or such other period as is determined by this Court.
His Honour made further orders by agreement relating to the parties’ superannuation entitlements and other, procedural orders.
Few of his Honour’s findings of fact were challenged in the appeal. On that basis the background facts to the appeal may be shortly given.
Background
The husband is an engineer and described himself as an entrepreneur. The wife had been the primary carer for the parties’ three children (now adult) and did not work outside the marriage although she obtained employment after separation. They married in 1987 and separated in mid-2008.
At the time of the marriage the husband was the director of C Pty Ltd which was the trustee of the CH Family Trust. The income of the trust was provided by the husband’s earnings.
After the marriage the husband undertook some property developments and acquired various properties through C Pty Ltd including, relevantly to this appeal, a block of land at J purchased in 1988 for $263,000. The purchase price of the J property was secured by mortgage.
The property development ventures were not particularly successful. In 1991 the parties’ finances were in a dire state and in 1990 they sold their home and moved in to live with the husband’s parents.
K Pty Ltd (“the Company”)
In about July 1990 the Company was incorporated. It seems that at this time the husband proposed to buy a shopping centre. He proposed the purchase as a joint venture with the wife and Mr and Mrs D. The issued shareholding of the Company was six shares; four shares were allocated to the husband and wife and two shares allocated to Mr and Mrs D.
The proposed purchase of the shopping centre did not proceed.
In November 1990 the husband proposed the purchase of a factory at J then held by B Pty Ltd. The purchase price was $1,310,000 inclusive of costs of purchase. It was agreed that in payment of the purchase price, the Company would transfer the land at J to B Pty Ltd and the Company would pay a further $950,000 to complete the purchase.
The purchase funds were provided by a loan back from B Pty Ltd of $125,000 and two loans from Challenge Bank, one for $837,000 secured over the factory property and one for $98,000 secured over Mr and Mrs D’s property.
At the time of the purchase of the J property there remained a mortgage over the land at J. In order to discharge that mortgage the husband borrowed $187,000 from Citibank. That borrowing was secured over his parents’ home. In turn, the husband and the wife provided an indemnity to his parents and, later, a mortgage in their favour secured over the parties’ E property which was acquired in 1993. The husband and wife made the repayments in relation to the Citibank loan. No repayments on that loan were made by the husband’s parents. At the date of hearing before his Honour there was about $69,000 owing on that loan and it was uncontentious that it would be discharged by the husband and the wife.
There then remained a further amount of $43,000 required to completely discharge the mortgage on the J property. The husband said that $30,000 in cash was “left over” from the B Pty Ltd loan and “would have been used” to discharge the balance of the mortgage. His Honour observed at [285] that the evidence as to the source of the balance of $13,000 was quite unclear. In any event, his Honour accepted the evidence of Mrs D that she and her husband lent $21,000 to the purchase. Of that amount $15,000 had been repaid to them but $6,000 was unpaid.
In 1996 Challenge Bank and B Pty Ltd both sought additional security for the loans.
In February 1997 the husband negotiated refinancing of the Challenge Bank loans with St George Bank. As a result the Challenge Bank loan was paid out and the loan to B Pty Ltd significantly paid down. St George Bank provided three loans, the first to pay out the $98,000 from Challenge Bank secured on the property of Mr and Mrs D and two further loans of $450,000 and $400,000 to the Company to refinance the Challenge Bank loans. The two loans to the Company were secured by mortgage and guarantees given by the husband, wife and Mr and Mrs D. These two loans have been repaid.
To complete the refinancing the parties were required to provide about $100,000 as a capital contribution.
This was funded as to $45,000 by Mr and Mrs D, $28,000 from the husband’s parents and $29,000 from the husband’s brother, Mr NH.
As to the loans from the husband’s parents and his brother, both were recorded in written agreements. The agreement with Mr and Mrs H was that the loan was to be repaid after one year and that interest would accrue at 6 per cent per annum. That loan has not been repaid but interest has been paid at the agreed rate. The terms of the loan from the brother also required interest to be paid at 6 per cent per annum. That loan was repaid.
The loan of $98,000 from the Challenge Bank secured over Mr and Mrs D’s property was refinanced by St George. Although Mr and Mrs D were not required to make any payments in relation to the loan provided by Challenge Bank, when it was refinanced by St George, they agreed to pay out that loan which they did over a number of years.
At the date of the hearing before the trial judge, the shareholding of the Company had significantly changed.
In March 1997 further shares were issued in the Company bringing the total shares to 32. Of the further shares, 20 were issued to the husband, two to the wife and two each to Mr and Mrs H. No further shares were issued to
Mr and Mrs D who thus retained their original two shares or were entitled to. The husband asserted that as a result of an agreement, Mr and
Mrs H were entitled to receive 11 additional shares being one of the two issued to the wife and 10 of those issued to the husband. The result was that Mr and Mrs H had or were entitled to 15 shares, the husband 12 shares, the wife three shares and Mr and Mrs D two shares. In March 1997 Mr and Mrs H were appointed directors of the Company.
The wife and Mr and Mrs D alleged that the share issue was effected by the husband without notice to them and is a sham.
His Honour found that the purported share issue and the appointment of Mr and Mrs H as directors was a sham. He ordered that the Company be wound up, declared the disputed share issue void and set the issue aside, and declared the appointment of Mr and Mrs H as directors of the Company void. His Honour declared the shareholding in the Company to consist of two shares held by the husband, two shares held by the wife and two shares held by Mr and Mrs D and ordered the share register of the Company be corrected to reflect his orders.
His Honour ordered that the Company be wound up, and appointed a liquidator for that purpose.
His Honour also made orders requiring the payment back to the Company of funds used by the husband for his own purposes.
His Honour, in coming to his decision in the matter made damning findings about the husband’s credibility and found that the husband had fabricated documents and lied about events. His Honour made similar findings about the credibility of Mr and Mrs H.
Meetings of the Company in March 1997
In order to understand the matters argued on appeal it is necessary to set out an account of the circumstances of the share issue as asserted by the husband and his parents on the one hand and the wife and Mr and Mrs D on the other.
The husband said that on 7 March 1997 he, the wife and his parents met and agreed to issue further shares in the Company. According to the husband,
Mr and Mrs D did not attend. The husband said that the issue of shares would “reflect the wife’s minimal input into [K] Pty Ltd and [Mr and Mrs D’s] failure to contribute $1,162 per month” towards the mortgage secured over their property. It was the husband’s contention that when Mr and Mrs D agreed to allow their property to be used as security for the loan of $98,000 from Challenge Bank, they also agreed to make monthly payments towards the loan. The husband said that Mr and Mrs D initially had made some payments towards this loan but then stopped. He asserted that because Mr and
Mrs D had failed to meet these monthly payments it had resulted in a shortfall of funds of $73,000 in the Company. The husband said that at this meeting the wife agreed that, in the event they separated, she would “only claim the value of her four shares”. The husband said that the wife and he agreed to Mr and Mrs H becoming directors of the Company.
The husband said that there was another meeting on 18 March 1997 at which Mrs D was present and although Mr D did not attend, she was holding Mr D’s proxy. The husband said that all present at this meeting agreed that the Company needed an input of capital. He said that he told
Mrs D that they were required to put in $130,000 being $57,000 by way of new capital and the balance of $73,000 being repayment of unpaid monthly payments on the secured sum of $98,000. It was at this meeting the husband said his parents offered a loan to the Company of $28,000 at 6 per cent interest and his brother offered a loan of $29,000 on the same terms.
The husband said that although at this meeting Mrs D acknowledged that she and her husband had failed to make the monthly payments under the mortgage as they had agreed, she said they would not put in $73,000 but only $45,000.
According to the husband, at this meeting the new share certificates relating to the issue of shares to his parents and to him and the wife were signed as were the documents appointing his parents as directors.
The husband asserted that at this meeting he offered Mr and Mrs D a further eight shares contingent on their contributing $57,000. He said that the “documents regarding the eight shares to be offered to [Mr and
Mrs D]” had not been signed at this meeting.
The husband said that there was a third meeting on 31 March 1997 at the offices of a solicitor where the husband and the wife attended to sign the documents necessary to effect the refinancing with St George Bank. He said that at this meeting Mr and Mrs D declined to pay any further funds to the Company and, as he said, “take up the offer of eight new shares”. Thus, he said, Mr and Mrs D’s shareholding remained at two shares.
The wife and Mr and Mrs D deny any meeting on 18 March or 31 March 1997 and any agreement to issue more shares in the Company to the advantage of the husband and his parents.
His Honour rejected the husband’s assertions about the circumstances in which the shares were issued and in which Mr and Mrs H became directors. He found at [163] that when the purchase of the factory was first proposed,
Mr and Mrs D agreed to take a 1/3 interest in the Company and they provided security for the loan of $98,000. The agreement did not require them to pay that loan but that the repayments would be made through rent received from the factory by the Company. His Honour also accepted that in about 1995 Mr and Mrs D made a number of payments to that loan at the husband’s request because he told them that there was no tenant in the factory and the loans needed to be met. His Honour did not accept the husband’s assertion that it was always agreed that Mr and Mrs D would make the monthly payments in relation to that loan. When the loans from Challenge Bank were refinanced a new loan of $98,000 was secured against their home which they paid off in full. His Honour accepted that in 1997, at the request of the husband, they paid a further $45,000 to the Company on the assurances of the husband that it would secure their 1/3 shareholding in the Company. At no time have Mr and Mrs D received a share of the rental income received by the Company from the factory.
His Honour found at [466] and following:
·That the purported issue of additional shares in the Company to the husband and the wife and the issue of shares to Mr and Mrs H was a sham conducted without the knowledge of the wife and Mr and Mrs D and constituted oppression on the minority being Mr and Mrs D.
·That the share issue was void and invalid.
·
That apart from lending the Company $28,000 on which interest has been paid and in relation to which there is an obligation to repay,
Mr and Mrs H have no interest in the Company.
·
There was no meeting of the shareholders on 18 March 1997 in which the Company was authorised to issue additional shares and appoint
Mr and Mrs H as directors.
The appeal
By Amended Notice of Appeal filed on 25 May 2012 the husband asserted
eight grounds of appeal.
Ground 1. The Learned Trial judge erred in concluding that the appointment of a liquidator was the only appropriate remedy applicable to the company [K] Pty Ltd.
Ground 2. The Learned Trial Judge failed to give any, or adequate reasons, why other remedies available pursuant to the Corporations Act were not appropriate.
These two grounds were argued together.
Where pursuant to s 232(d) of the Corporations Act2001 (Cth) (“the Corporations Act”), a court finds the conduct of a company’s affairs is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members, it may make an order under s 233 including that the company be wound up (s 233(1)(a)).
There was no challenge to his Honour’s findings that the purported share issue to the husband’s parents was oppressive and void and it was conceded that an order for the winding up of the Company was one which was open to his Honour in the exercise of his discretion.
The complaint is that his Honour, mindful that the Company was solvent, ought to have considered other remedies provided in s 233 rather than order the Company to be wound up.
It was argued for the husband that to wind up a solvent company was, in effect, a remedy of last resort, and he relied on Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd (1977) 13 ALR 561 cited with approval in French v Smith [2004] VSCA 207 at 122, Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247, at 252; Fexuto v Bosnjak Holdings Pty Ltd (1998) 28 ASCR 688, at 742; Short v Crawley (No 30) [2007] NSWSC 1322, at [1222] per White J; Holt v Burnside & Hollen Australia Pty Ltd [2009] VSC 95, at [78]-[81] per Robson J.
In JohnJ Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd and Others (1991) 6 ACSR 63 Young J said at page 74:
It is incumbent upon the court when making an order under s 320 to endeavour to find a scheme, short of winding up, if possible, which will “put the company back on the rails” and avoid the causes of conflict and oppression, yet will as far as possible allow all members to participate in the business.
In Hollen Australia Pty Ltd (ACN 004 380 572) and Others v Burnside and Hollen Australia Pty Ltd [2009] VSC 95, Robson J said, expressing similar views, at [78]:
In Re Dernacourt Investments Pty Ltd Powell J of the Supreme Court of New South Wales said the purpose of granting a remedy under s 233 of the Corporations Act 2001 is to bring an end to the oppression. He said the remedies should be used “if it be possible, to bring the ‘oppression’ to an end without recourse to a cure [winding up] the effects of which would, in many cases, be worse than the disease”. (Footnotes omitted)
His Honour went on to cite with approval the above passage from the judgment of Young J in John J Starr. He continued at [79]:
Courts are generally reluctant to order that a solvent company be wound up on grounds of oppressive conduct.
These pronouncements though have been put into context in Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336 where the Full Court of the Federal Court said:
[7] The appeal raised three distinct issues for consideration. First, the appellants adopted the position that, even if all the findings made by the trial judge remained undisturbed, nevertheless an order that BMG be wound up was not justified. The appellants contended that there was a general principle, which was not observed by the trial judge, that a solvent company will not be wound up by court order except in extreme circumstances. …
[8] For reasons to be explained, we reject the appellants’ first proposition. It is always necessary to formulate relief having the circumstances of the particular case in mind. A decision to make an order to wind up a solvent company falls into no different category. While we accept that consideration of an order to wind up a solvent company should be approached with caution, the exercise of the discretion is not to be approached on the basis that there is an unexpressed limitation in s 233 of the Act (or in s 232) to the effect that the discretion should not be exercised where a company is solvent. That would amount to an implicit direction that a company should only be wound up in insolvency.
Thus, we proceed on the basis that where as here the company concerned is solvent, that per se does not exclude a winding up, but that factor is just one of many to be taken into account in exercising the discretion as to which remedy is appropriate.
It was then argued that his Honour failed to consider or failed to give adequate reasons for finding that a winding up order was appropriate. It was said (summary of argument, paragraph 3):
… In arriving to a decision as to whether or not an order should be made to appoint a liquidator, his Honour was bound to consider the myriad of options available to cure the oppression before making an order to wind up the company. …
True it is that s 233 provides a number of orders available to a court in determining what remedy to provide on having found oppression. We do not accept though that his Honour was “bound” to consider each and every one of those before making a winding up order.
This is particularly so in this case, where it was conceded no submissions were made to his Honour about other remedies, and no evidence was presented as to the viability of other remedies. The wife and Mr and Mrs D sought an order that the Company be wound up. The husband sought an order that he transfer two shares allocated to him to the wife and he purchase her (then) six shares from her. As to the other shares, the husband sought an order that they be held until such time as a “willing buyer and willing seller agree on the sale of … shares” (at [50]).
Senior counsel for the husband submitted that an alternative remedy open to his Honour was to order that one party acquire the shares of the other parties and for the appointment of a provisional liquidator to take control of the Company and conduct the sale, and he took us to passages in the transcript from which it might be inferred that the husband suggested he could buy out the shares of
Mr and Mrs D and the wife. No submission to that effect was made to his Honour. In fact his Honour accepted the submission of Mr and Mrs D that the husband had made no offer to purchase their shares (at [400]).
Thus here, given the state of the evidence and the submissions of the parties as to the orders that should be made, all his Honour had to be satisfied about was that the order to wind up the Company was appropriate in the circumstances of the matter.
His Honour’s judgment provides abundant reasons as to why in the circumstances of this case the order for winding up was appropriate. In particular he said at paragraph 392:
Having regard to the evidence, particularly in terms of the events around March and April 1997, I am satisfied that the husband conducted the affairs of [K Pty Ltd] in a manner which was contrary to the interests of the members of [K Pty Ltd] as a whole and unfairly prejudicial to and unfairly discriminatory against Mr and Mrs [D] as members of [K Pty Ltd]. The 1997 share issues occurred without the knowledge and consent of the wife and Mr and Mrs [D]. The effect of that share issue was the dilution of [Mr and Mrs D’s] equity in [K Pty Ltd] and an increase of the husband’s shareholding. The husband used company funds in breach of his fiduciary duties to [K Pty Ltd] and the other directors and in circumstances where he was trusted and relied upon by Mr and Mrs [D] as well as the wife.
As a result, correctly in our view, his Honour concluded at [399] that it was therefore appropriate to order that K Pty Ltd be wound up and the share register rectified in accordance with his findings.
We find no merit in Grounds 1 and 2
We turn to Ground 3.
Ground 3. The learned Trial Judge erred in finding that the meetings of 18 and 31 March 1997 did not take place.
In support of this ground, the husband sought to adduce and rely on further evidence not given at the trial. It was conceded by senior counsel for the husband that if the application to adduce this further evidence was not successful, this ground must fail.
By Application in an Appeal filed 28 May 2012 the husband sought the admission of further evidence. The husband said in his affidavit in support of the application that while moving items from his apartment, he had cause to open a “glory box” belonging to the wife which was padlocked and had been padlocked for many years. He said at paragraph 4:
Upon unpacking the chest in order to move it, I discovered (at the bottom of it and under blankets) a file containing a number of documents. Included in those documents was a photocopy of handwritten Minutes of Extraordinary General Meeting of [K] Pty Ltd dated 31 March 1997. …
The husband said that because the meeting on 31 March was urgent, the minutes were not recorded in the minute book of the Company but written on a piece of paper, a copy sent to each of the signatories and the original placed in the minute book. He said that the minute book cannot be found.
The husband went on to say that the signatures on the documents were those of his wife and Mr and Mrs D.
He further said that he found a copy of an application for the allocation of four shares in the Company to Mrs D and the share certificate in relation to those four shares signed by him and the wife and dated 18 March. The husband deposes that on 18 March 1997 Mrs D took away from the meeting an unsigned application for the issue of those shares.
The wife opposed the application and filed an affidavit disputing the facts asserted by the husband in his affidavit in support of the application. She said that she had emptied the box since separation and no documents were in it. She denied that the documents said to have been discovered by the husband were genuine.
In CDJ v VAJ (1998) 197 CLR 172, McHugh, Gummow and Callinan JJ said:
109. One consideration in construing s 93A(2) is its remedial nature. Its principal purpose is to give to the Full Court a discretionary power to admit further evidence where that evidence, if accepted, would demonstrate that the order under appeal is erroneous. The power exists to facilitate the avoidance of errors which cannot be otherwise remedied by the application of the conventional appellate procedures. …
After considering the nature of the jurisdiction of the Full Court to hear appeals, their Honours said:
111. … Nor can the availability of further evidence relevant to the issues in the appeal be treated as equivalent to a ground of appeal, proof of which prima facie entitles the appellant to a new trial. The power to admit the further evidence exists to serve the demands of justice. Ordinarily, where it is alleged that the admission of new evidence requires a new trial, justice will not be served unless the Full Court is satisfied that the further evidence would have produced a different result if it had been available at the trial. Without that condition being satisfied, it could seldom, if ever, be in the interests of justice to deprive the respondent of the benefit of the orders made by the trial judge and put that person to the expense, inconvenience and worry of a new trial.
Further it was said:
114. … Where there is no need for a new trial or extensive taking of evidence, other discretionary factors such as the availability of the evidence at the trial and the need for finality of litigation are likely to be more relevant in the exercise of the discretion than the effect that the evidence would have had at the trial.
It was argued that if the documents said to have been discovered by the husband were admitted into evidence they would strike at the heart of the decision and require the matter to be reheard. His Honour’s findings and associated orders were inextricably linked with his rejection of the husband’s credibility and his assertions, inter alia, of various meetings of the Company in March 1997.
For the respondent and interveners it was argued that his Honour’s findings as to the husband’s credit were so strong that had the documents been produced to his Honour during the trial, they would not have led to a different result. To a degree this argument is somewhat circular because his Honour’s findings adverse to the husband’s credit may have been ameliorated had he produced documents supporting the meetings of 18 and 31 March 1997.
It is clear that if the documents were to be admitted, a retrial of all of the issues before his Honour would be inevitable. That would entail considerable time and expense for the parties.
There is a strong challenge to the genuineness of the document. It was argued that if, as the husband asserts, five copies of the minutes of the meeting were made and four circulated to the parties, one would have expected one of those copies, that held by the husband or that held by his parents to have been produced or at least mentioned during the lengthy proceedings, but not only was no copy produced, none was referred to. It is said that this casts significant doubt on the bona fides of the documents and the husband’s claim to have “discovered” them late in the litigation, after the trial and his Honour’s judgment delivered.
It was further argued that the wife’s signature and those of Mr and Mrs D apparently being on the document do not lend authenticity to the documents. His Honour found that the wife and Mr and Mrs D, being naïve about business matters, regularly signed documents at the husband’s request without knowing or even sometimes enquiring as to the contents or purpose. In any event, it was submitted, the wife denies any such meeting and asserts that the documents are shams.
The propounded further evidence is in our view beset with controversy. The nature of the documents, the timing of their production, the failure of any party associated with the husband to have produced the document at any earlier time in the trial and the failure of the husband to mention the fact that minutes were taken of this highly contentious asserted meeting all lead us to the view that the evidence cannot be safely relied on in considering this appeal. It should not be overlooked that in paragraph 109 of CDJ v VAJ the majority emphasised that for the further evidence to be relied upon it needs to be evidence that can be “accepted” (see Lint & Lint [2011] FamCAFC 115). That is a significant issue here. Thus, given the controversy about this evidence we would reject its tender. We also take into account the fact that were it to be admitted and accepted as being at least prima facie credible, it would require the expense, time and worry to the parties of another trial.
That being the case, Ground 3 must also fail.
Next we address Ground 4.
Ground 4. The Trial Judge erred in law in making Order 8 in that:
(a) it amounted to a denial of natural justice;
(b) it was beyond the jurisdiction and/or power of the Court.
Order 8 is in the following terms:
Subject to these orders (including order 10), the parties to these proceedings, in their personal capacities or as a director of any corporate entity, are restrained from submitting any proof of debt in the winding up of the company.
For the husband it was argued that the extent to which Order 8 purports to limit or restrict the rights of C Pty Ltd or any other company, it was beyond the power of the Court and, because C Pty Ltd was not a party to the proceedings natural justice was not afforded it.
As part of this argument it was asserted that his Honour’s reliance on accrued jurisdiction to determine the issues as between the Company and Mr and Mrs D was in error. We agree. The court has jurisdiction in relation to companies in two ways; through the operation of s 1337C of the Corporations Act and by reason of s 33 of the Family Law Act 1975 (Cth) (“the Family Law Act”). There were no “non-federal aspects” of the matter which would have required a consideration of any accrued jurisdiction of the court. However as it is our view that his Honour did have jurisdiction to make the orders this error has no impact on the appeal.
His Honour did not identify the source of the power of the Court to make the order that he did, although it must be acknowledged that this was not an issue raised with his Honour at trial.
The only possible sources of power are the Corporations Act or Family Law Act. The husband argued that the source cannot be found in the Corporations Act and submitted that having determined to make a winding up order the court has no power to interfere with the rights and obligations of the liquidator in the conduct of the winding up. It is said that the Corporations Act and the Regulations made thereunder contain detailed provisions which govern the acceptance and rejection of proofs of debt by the liquidator with which the court cannot interfere.
There is no doubt that acceptance or rejection of a proof of debt in a winding up is ordinarily a matter for the liquidator in compliance with well established principles, however, in our view, it does not follow that this Court has no power to restrain parties (including entities) from attempting to prove debts in any winding up. Indeed, we consider that such power can be found for example in s 233(1)(i) of the Corporations Act.
As to this, it is submitted on behalf of the husband that having made an order for winding up, the court is not entitled to have recourse to any other remedy contained in s 233(1) in support of the orders. However, we do not agree; an ordinary reading of s 233(1) does not support that argument.
Section 233(1) is in the following terms (our emphasis):
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)that the company be wound up;
(b)that the company’s existing constitution be modified or repealed;
(c)regulating the conduct of the company’s affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company’s share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h)appointing a receiver or a receiver and manager of any or all of the company’s property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;
(j)requiring a person to do a specified act.
In Vigliaroni and Ors v CPS Investment Holdings Pty Ltd and Ors (2009) 74 ACSR 282, Davies J said, referring to the scope of s 233 at [64]:
The Court is given the power under s 233 to make any order “that it considers appropriate in relation to the company”. The legislature deliberately conferred a wide discretion on the court, giving it extensive powers, so that the remedy will eliminate the oppression and enable the causes of any future oppression to be avoided. The High Court in Campbell v Backoffice Investments Pty Ltd very recently affirmed that ss 232 and 233 are to be read broadly and that “[t]he imposition of judge-made limitations on their scope is to be approached with caution”. (Footnotes omitted)
Section 233 is remedial in nature and nothing in the terms of the section supports the argument that, having made a winding up order, a court is not entitled to have recourse to any other order available under that section. No authority was cited for the argument and we reject it.
We are accordingly satisfied that s 233(1)(i) provided his Honour with the power to make the injunction. On that basis we do not need to address the question whether the Family Law Act provides a source of power to make the order, but as there was argument put to us on this topic we propose to make some comment.
There can of course be no issue about the power of the Court to make the injunction as between husband and wife, but the real question is whether there is power to restrain C Pty Ltd. The order of course applied to any corporation or entity of which a party was a director, but as was plain on the evidence the only possible entities in this category were C Pty Ltd and perhaps KX Pty Ltd.
On behalf of the wife (and the first and second interveners) it was put that because it was not only common ground but also clearly the husband’s case that C Pty Ltd was his alter ego, as was KX Pty Ltd, the order could be made under Part VIII of the Family Law Act. The husband and the wife were the only shareholders and directors of C Pty Ltd, and KX Pty Ltd was included by the husband in a list of joint assets of him and the wife and clearly fell into the same class of entity as C Pty Ltd. Further, it was argued that even if these companies were not the husband’s alter egos, Part VIIIAA of the Family Law Act would then apply, and specifically s 90AE.
There can be no doubt that in the circumstances of these companies being the alter egos of the husband the order could be made under Part VIII of the Family Law Act (Ascot Investments Pty Ltd v Harper and Harper (1981) FLC 91-000).
As to s 90AE, there is also no doubt that that provides a source of power to make the order, but we agree with the submission made on behalf of the husband that his Honour could not have relied on this section here because his Honour did not address the conditions of the exercise of power set out in
s 90AE (3) and (4).
Before turning to the issue of procedural fairness we observe that it was further argued that, if the injunction was within power, it ought to have been restricted to identified parties and identified debts and not, as made, with a wide and apparent unlimited reach. That of course is answered by the circumstance that the possible creditors and their debts were known. Accordingly, this cannot invalidate his Honour’s order.
As to the issue of procedural fairness, it is said that C Pty Ltd and KX Pty Ltd should have been joined as parties, and that they were not given any prior notice that the order subject to this challenge would be made.
However, given that these companies were the alter egos of the husband, not only was there no need to join them, but clearly there was no requirement that they be given separate prior notice of the proposed order. Accordingly, this argument cannot succeed.
In these circumstances there is no merit in this ground of appeal.
Grounds 5 and 6 were argued together.
Ground 5. The learned Trial Judge, having accepted the possibility that the husband and wife be liable for some taxation arising from the operation of the Orders made by the Court, failed to apportion that liability in accordance with the percentages determined in Order 10.
Ground 6. The Trial Judge erred in law in determining that the husband (and wife) reimburse [K] Pty Ltd in the sums set out in Order 10 without making any finding as to the legal basis for such reimbursement to be ordered.
Order 10 made by his Honour is as follows (emphasis in the original):
In respect of such of the payments referred to below:-
Such payments as were made on or before 30 June 2008, the husband and wife pay to the Company (or have set off against any proposed distribution of income and/or capital to them) such sums; and
Such payments as were made after 30 June 2008, the husband pay to the Company (or have set off against any proposed distribution of income and/or capital to him) such sums;
These being monies of the Company improperly had and received by the husband, or entities controlled by the husband including:-
(a)$114,111.80 in respect of the husband’s legal costs of this proceeding
(b)$208,276.34 in respect of Citibank loan repayments made by [C] Pty Ltd from 30 June 1991 to 30 June 2008 (excluding interest on that loan from 1991 to 31 March 1997);
(c)$57,501.30 in respect of the tax liability of [C] Pty Ltd paid by the Company on 26/08/09; and
(d)$63,834.20 in respect of other payments made to bank accounts controlled by the husband.
Such other money as is determined by the liquidator in accordance with these orders (subject to the overriding supervision of the Court).
Such payments to be made by the husband or the husband and wife (as the case may be) within three (3) months from the date of this order. If such payment/s are not made then the liquidator shall deduct any such amount/s (together with interest calculated as and from three (3) months from the date of this order and at a rate in accordance with the Rules of this Court) from the amount to be otherwise distributed to the husband and/or the wife. The return of such money and any and (sic) interest shall be assets and/or income of the Company.
In oral argument counsel for the husband indicated that no submission was to be made in relation to Ground 5 other than as appears in the written argument. No discernible argument in support of Ground 5 appears in the written document, nor does perusal of the order support the ground which asserts a finding by his Honour of percentages. We do not understand how Ground 5 arises from Order 10 and, in the absence of cogent argument on the ground, do not propose to consider it further.
As to Ground 6, it was argued for the husband (summary of argument, paragraph 13) that:
Order 10 relates back to arrangement made with [K] Pty Ltd at the time of the acquisition of the factory, which including the following:
(a)The accounts show that [C] Pty Ltd lent $240,211 to [K] Pty Ltd in 1991. The Citibank loan repayments were the payments due on the [H’s] home on [the J property]. It appears from the records that, from time to time, [K] Pty Ltd reimbursed [C] Pty Ltd for the payments made to Citibank under the mortgage on the [J property].
(b)[Mr and Mrs D] also borrowed $98,000 from Challenge Bank and advanced that sum to [K] Pty Ltd. The advance may have been by way of loan because the Court found that [K] Pty Ltd was responsible for the repayments due on the Challenge Bank Loan until 1997.
(c)In 1997 [Mr and Mrs D] paid out the Challenge Bank loan with finance from St George Bank and [K] Pty Ltd financial statements do not appear to record any amount due to [Mr and Mrs D] with respect to the $98,000. The Court seems to have inferred that there must have been an agreement under which [C] Pty Ltd similarly agreed to forgive its loan to [K] Pty Ltd and take responsibility for the payments due under the Citibank loan.
However there was no evidence led by any party in support of the contention that there was any such agreement.
We were not assisted by any oral submissions in further elucidation of Ground 6. We find the written argument difficult to understand and it is equally difficult to discern the error of law asserted to have been made by the trial judge.
The trial judge made clear findings that the husband had misused the funds of the Company in paying personal debts and in claiming funds said to be owed to him by the Company in respect of agreements (found by his Honour not to exist). At [406] and following, the trial judge sets out the funds that his Honour found were wrongfully removed by the husband. He said at [409]:
These were sometimes described as repayment of loans to the husband and at other times they were described as repayment of loans to [C] Pty Ltd. In any event the husband took significant money from [K] Pty Ltd. His explanation was generally that it was either repayments of loans made to [K] Pty Ltd by [C] Pty Ltd or payment to him in respect of the 5 per cent which he said he was entitled to pursuant to the contract between himself Mr and Mrs [D] and the wife or the 10 per cent in relation to the capital.
To repeat, his Honour found at [422] and [425] that the agreements that the husband said entitled him to significant payments from the Company were fabricated.
Further, from paragraphs [436] to [466], his Honour reiterated his findings as to the contribution of the parties to the acquisition of the factory and its refinancing, the responsibility for the repayments of the loans and his findings as to the shareholdings in the Company from time to time including the purported issue of shares to Mr and Mrs H and their appointment as directors of the Company.
The broad sweep of assertion contained in the written argument for the husband does not appear to challenge examination of his Honour’s many and detailed findings about the husband’s financial dealings with the funds of the Company and the true characterisation of loans made to the Company from time to time.
Paragraph 14 of the husband’s summary of argument asserts a lack of procedural fairness in relation to C Pty Ltd in that “no notice given to [C] Pty Ltd of the intention to seek reimbursement of the loan repayments made by the Company to [C] Pty Ltd until notice was given in the [D’s] outline of submissions on 21 April 2011”. In the submissions made on behalf of the wife, counsel observed that the issue of the legitimacy of the husband’s use of company money and his claims and those of C Pty Ltd were squarely in issue at the trial. Indeed the husband had called evidence from his accountant, Mr M on the issue of the sums of money purportedly paid into the Company by C Pty Ltd.
As we have recorded, we do not accept that C Pty Ltd was a true third party to these proceedings and in the circumstances of this case, there was no unfairness in the approach taken by his Honour. The arguments and the evidence in the case squarely raised the legitimacy of the husband’s claim that C Pty Ltd was owed money by the Company. We find no procedural unfairness in respect of C Pty Ltd.
We find no substance in Ground 6
Turning to Ground 7.
Ground 7. The Trial Judge erred in ordering the liquidation (sic) to rectify the records of the Company to accord with “findings of fact” without specifying which findings were being referred to.
This ground relates to Order 12 in which his Honour ordered:
The liquidator shall bring to the accounts of the Company money taken from it by the husband (and/or his related entities) so as to rectify the books and records of the Company having regard to these orders and the findings of fact contained in the reasons for the orders.
In oral argument, senior counsel for the husband submitted not that the “findings of fact” were unspecified but that nowhere in his Honour’s reasons did he articulate the source of the power by which he made the order, and absent that, this Court cannot determine whether the order is properly made. In response counsel for the wife argued that his Honour was entitled to make directions as to how the liquidator acts and, further, s 233(1) of the Corporations Act gave power for his Honour to make orders of that nature.
We accept the argument of counsel for the wife. As we have already noted, s 233(1) provides the court with wide powers to remedy oppression. Nothing in the terms of the Corporations Act speaks against the court being able to make orders as to how the liquidator might act. It might be expected that a liquidator in the process of winding up the Company would in any event, call in money found by his Honour to have been wrongfully used or removed by the husband from the Company.
To the extent that it is still argued that the order lacked sufficient particularity, we are not persuaded that that is the case. His Honour’s reasons clearly indicate the way in which the Company records were to be rectified and indeed as we have noted, reiterated his findings from [436] in order to make them clear for the parties and the liquidator. Further, at [466] his Honour specified the orders that directly related to the Company records. We find no merit in this ground of appeal.
Turning to Ground 8.
Ground 8: The Trial Judge erred in ordering the husband and wife to bear two thirds of the liquidator’s costs in that:
(a) he failed to identify the jurisdiction or power to make such an order; and
(b) natural justice was denied to the husband.
Order 15 made by his Honour is as follows:
As to the costs of the liquidator:-
(a)one-third of the costs of the liquidation will be paid out of the assets of the company,
(b)two-thirds of the costs of liquidation are to be set off against the amount otherwise payable on liquidation to the husband and the wife (in equal shares).
(c)if there is insufficient capital due to the husband and the wife on liquidation such shortfall shall be paid out of the capital due to [Mr D] and [Mrs D] (the First and Second Interveners). They are in turn are (sic) indemnified, as to half each by the husband and the wife.
(d)if the capital due to the husband is insufficient to meet the whole or part of his share of the two-thirds cost of liquidation then the shortfall shall be paid out of the capital to be otherwise paid to the wife, who in turn is indemnified by the husband in respect of such sum.
(e)the liquidator shall be entitled to draw against the assets and income of the company to pay his fees as and when they fall due.
It is common ground that no party sought this order and that provides the basis for the husband’s claim that he was denied procedural fairness.
His Honour found at [411] that the costs of the winding up would be $50,000 unless there needed to be financial investigation of the accounts of the Company, in which case the cost of the winding up would be in the order of $150,000.
He said at [411]:
…It is the husband’s behaviour, alluded to elsewhere in these reasons, which has added significant costs to winding up [K Pty Ltd]. Accordingly, the costs of the $100,000 should be set off against the share which would otherwise be payable to the husband and the wife and the balance of $50,000 (which is the cost of a simple winding up) should be set off against each of the shareholders in their respective percentages, that is, one-third to Mr and Mrs [D] and two-thirds to the husband and the wife.
Again, senior counsel for the husband argued that there was no apparent power to enable his Honour to make that order. Counsel for the interveners argued that s 477(6) of the Corporations Act provides power in that it subjects the liquidator’s actions to the control of the court. Section 477 concerns the powers of a liquidator on a winding up, noting that some actions may only be taken with leave of the court. Subsection (6) though must be read in the context of the section as a whole. It does not readily admit of the interpretation for which the wife and interveners contend which is that the supervisory role of the court in sub-s (6) extends to controlling the way in which the costs of the liquidation are borne.
However, we do accept the argument of the wife that s 233(1)(i) and (j) provide the source of power to make the order. As we have said, the section is remedial in nature. Once conduct of a type to which s 232 refers is found, the court may then exercise the wide powers in s 233 and which extend to directing the liquidator as to how costs of the winding up are to be borne. As part of the remedial nature of the section, the court can make orders to ensure that the members who have been oppressed are not further prejudiced as a consequence of the behaviour of the party whose conduct has necessitated the winding up.
The authorities cited in Hollen Australia Pty Ltd are apposite to this issue. In considering the question of what relief to grant, Robson J reviewed the authorities on the issue of ordering the oppressor to buy out the shares of the minority. At paragraph 86 he said:
In Re Bodaibo Pty Ltd (1992) 6 ACSR 509, Vincent J cited with approval Scottish Co-operative Wholesale Society v Meyer [1959] AC 324 and said:
The court is clearly endowed with a wide discretion in order that justice can be achieved in the variety of circumstances encompassed by the statute. As Lord Denning pointed out, in some situations an element of compensation is integral to the determination of a fair price. ... In other words, as far as reasonably practicable, the court must endeavour to achieve equity between the parties and to ensure that an oppressor does not profit from the wrongful behaviour in which that party engaged to the detriment of those against whom it has so acted. (Footnotes omitted)
It is clear from the judgment as a whole and from the context in which the orders were made that his Honour’s order as to the payment of the costs of the liquidation was to preserve the entitlements of Mr and Mrs D in the winding up rather than them having to shoulder the burden (if it occur) of any costs over and above those ordinarily incurred in the winding up and being associated with the conduct of a financial enquiry.
As to the claim that the husband was denied procedural fairness in having no notice of the proposed order, it was argued for the wife that the husband was cross-examined sufficiently to put him on notice that additional costs in the winding up consequent on the need for a financial inquiry would be laid at his feet. In support of this argument we were directed to questions asked of the husband during his cross-examination. However, we are not persuaded that the evidence demonstrates a concession by the husband that the financial records of the Company were “in a mess”. Even if the answers to the questions amounted to that concession, so far as being an admission that it may be necessary to engage a forensic accountant to sort out the Company accounts, it falls far short of the husband being made aware that any costs of liquidation caused by a financial investigation should be his financial responsibility.
In these circumstances we do not consider that the husband was afforded procedural fairness. Where no party sought the order for apportionment of the costs in the way ordered by the trial judge it was unfair for the husband not to have the opportunity of considering the implications and making submissions in relation to the order before it was made. We thus find that part of the challenge to Ground 8 made out.
Conclusion
We have found no merit in any of the grounds of appeal save for one aspect of Ground 8, namely that the husband was denied procedural fairness in relation to the issue of the apportionment of the costs of the liquidation, and, accordingly the appeal should be allowed to that extent.
The question then becomes whether we should re-exercise the discretion or remit that aspect of the appeal for rehearing.
We are loathe to remit the matter given the inevitable delay that would arise in finalising the proceedings. Accordingly, we propose to re-determine this issue.
Given the nature of the issue, we consider that that redetermination can be undertaken on the basis of the evidence before the trial judge, but we do require submissions from the husband, the wife and the first and second interveners as to whether or not an order for the apportionment of the costs of the liquidation should be made, and if so in what terms. Accordingly we will set up a regime in the orders that we make for those submissions to be provided.
Costs
As is usual, we took submissions from the parties at the conclusion of the appeal hearing on the issue of costs. Senior counsel for the husband submitted that should the appeal succeed, he would seek an order for costs. In the event that no costs order was made, he would ask for a certificate under the Federal Proceedings (Costs) Act 1981 (Cth). He submitted that if the appeal failed there was “little” to be said against a costs order being made against the husband. Counsel for the wife (whose submissions were adopted by counsel for the interveners) submitted that if the appeal succeeded, the wife sought a certificate. If the appeal failed, the wife and interveners sought an order for costs against the husband.
Although the husband was successful on one aspect of the appeal, we are of the view that the appeal was substantially unsuccessful and he should bear the costs of the wife and the interveners.
I certify that the preceding one hundred and twenty-nine (129) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 7 December 2012.
Associate:
Date: 7 December 2012
2
10
3