Georgopoulos v Sclavos
[2010] NSWSC 1341
•15 November 2010
CITATION: Georgopoulos v Sclavos [2010] NSWSC 1341 HEARING DATE(S): 12 November 2010
JUDGMENT DATE :
15 November 2010JURISDICTION: Equity JUDGMENT OF: White J EX TEMPORE JUDGMENT DATE: 15 November 2010 DECISION: Refer to paras 81 and 82 of judgment. CATCHWORDS: PROCEDURE – application under Uniform Civil Procedure Rules, r 36.16(2)(b) to set aside orders made in defendant’s absence – where partnership dissolved and receiver and manager appointed to realise assets and pay proceeds into court pending finalisation of proceedings – where unjust for orders challenged to stand –further steps for progressing the taking of the partnership accounts and passing of receiver’s accounts LEGISLATION CITED: Corporations Act 2001 (Cth) CATEGORY: Procedural and other rulings PARTIES: Plaintiff: Victoria Georgopoulos
1st Defendant: Phillip Sclavos
2nd Defendant: Lauriston & Marsden Pty Ltd
3rd Defendant: Arristo Pty LtdFILE NUMBER(S): SC 2007/258413 COUNSEL: Plaintiff: C Evatt with M K Rollinson
1st Defendant: M CondonSOLICITORS: Plaintiff: David White & Associates
1st Defendant: Bateman Battersby
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE’S LIST
WHITE J
Monday, 15 November 2010
2007/258413 Victoria Georgopoulos v Phillip Sclavos & Ors
JUDGMENT
1 HIS HONOUR: This is an application under r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 to set aside orders 2 and 4 made by Tamberlin AJ on 1 November 2010.
2 The proceedings concern a partnership conducted by the plaintiff and the first defendant and the affairs of companies, namely, the second and third defendants of which they are equal shareholders. They are the directors of the corporate defendants.
3 The plaintiff and the first defendant were the owners of land at 146 Marsden Road, Dundas on which was located a function centre known as Lauriston House. The business of the function centre was carried on by the third defendant, Arristo Pty Ltd.
4 Other land adjacent to 146 Marsden Road was owned by the second defendant, Lauriston & Marsden Pty Ltd.
5 The plaintiff and the first defendant also owned land at Bellevue Street, Blacktown.
6 On 24 December 2007 the plaintiff commenced proceedings against the first defendant and against Lauriston & Marsden Pty Ltd as second defendant and Arristo Pty Ltd as third defendant.
7 The orders sought included an enquiry as to damages allegedly sustained by the plaintiff by reason of the conduct of the first defendant, including for that purpose the taking of accounts.
8 On 23 September 2008 Macready AsJ made orders for the dissolution of the partnership conducted by the plaintiff, the first defendant, the second defendant and the third defendant, comprising the acquisition and the conduct of the business known as Lauriston House.
9 Mr David Hurst of Armstrong Wily was appointed receiver and manager of the partnership and authorised to sell the partnership business and assets.
10 Order 7 made on 23 September 2008 provided that the receiver and manager should pay the net proceeds of sale of the partnership property into Court to be invested pending determination of the balance of the proceedings. Macready AsJ declared that the receiver and manager was entitled to take possession of the property of the second and third defendants and sell such property.
11 Order 13 required the receiver and manager to pay the net proceeds of sale of the assets of the second and third defendants into Court pending determination of the balance of the proceedings.
12 In his reasons of 23 September 2008 His Honour stated that:
It seems the plaintiff has taken from Aristo [sic] funds generated from the operation of the functions centre, and that the first defendant has also withdrawn funds from Aristo's accounts without the consent of the plaintiff. It would be appropriate to reserve any further consideration in respect of the taking of accounts ".“ Once assets are realised and the balance paid into Court to be invested there will be a need for an accounting between the parties.
13 The receiver sold the land and business of Lauriston House at about the end of 2008. The sale was completed on 23 January 2009.
14 The sale was effected by private contract after a tender process. The land and business were sold to the plaintiff for $1.8 million. Part of the proceeds were used to pay off secured debt. The balance, after expenses, of $1,198,921.53 was paid by cheque drawn to Arristo Pty Ltd.
15 The receiver provided reports of 8 September 2009 and 5 May 2010. As well as selling the Lauriston House land and business, he sold the Bellevue Street, Blacktown property, the proceeds of which were used to reduce a debt due to the ANZ Bank.
16 On 14 December 2009 the Court approved the receiver's remuneration in respect of his appointment to the partnership and to the two corporate defendants for the period up to 31 August 2009.
17 There has been no subsequent application for approval of the receiver's remuneration since that time.
18 The receiver has realised the assets to which he was appointed. On 15 October 2010 he deposed that the funds presently held by him (subject to payment of tax liabilities and receiver's fees) was $1,129,952.74. He applied to pay 75 per cent of the moneys received into court whilst retaining 25 per cent to enable him to pay any tax liabilities and his fees, when approved by the Court.
19 The first defendant has given notice that he will be seeking leave to bring proceedings against the receiver on behalf of the second and third defendants pursuant to s 237 of the Corporations Act 2001 (Cth). The first defendant has also threatened to bring proceedings against the receiver on his own behalf.
20 The receiver stated in his affidavit of 15 October 2010 that he was entitled to be indemnified against such claims from the assets of the companies to which he was appointed as receiver.
21 It is not clear from the receiver's affidavit whether the 25 per cent of funds retained by him includes a component for the anticipated costs of defending such claims.
22 On 5 May 2010 in his second report the receiver included a statement of funds then available for distribution and set out a suggested basis for distribution.
23 The report stated:
“ 3. Estimated Funds Available
The estimated funds available (subject to adjustments as discussed above and payment of tax liabilities and Receiver’s fees) is presently an amount of $1,045,238 and is summarised as follows:-
Summary of Position as at 5 May 2010
Description Mr Sclavos Mrs Georgopoulos Total Arristo Pty Ltd (R & M Appointed) Loan accounts Share of Net Assets Victoria Georgopoulos & Phillip Sclavos Partnership (R & M Appointed) Loan accounts Net Partnership Assets Lauriston & Marsden Pty Ltd (R & M Appointed) Loan accounts Loan accounts – Gardens Distributed profits Undistributed profits
4. Income Tax returns for the periods
With the exception of the current financial year all income tax returns have been finalised pending finalisation of the accounts and the necessary tax accruals for all periods have been made. ”
24 In his affidavit of 15 October 2010 the receiver stated:
“ iii. In my report dated 5 May 2010, I estimated that the funds available for distribution were $477,779 to Mr Sclavos and $567,459 to the plaintiff.
iv. The funds presently held by me (subject to payment of tax liabilities and Receiver’s fees) is $1,129,952.74. I attach as Annexure A , a schedule of receipts and payments for the period to 15 October 2010.
v. On 13 August 2010 I received notification from the first defendant, Mr Sclavos pursuant to Section 237(2) of the Corporations Act, wherein I have been put on notice of Mr Sclavos’ intention to seek leave to bring proceedings on behalf of the Company against me, in respect of alleged negligence by me in discharging my duties pursuant to the Court Order, in affecting a sale of part of the property at 146 Marsden Road, Dundas. Attached as Annexure B , is the notice from Mr Sclavos dated 12 August 2010.
vi. Accordingly, as I have been formally put on notice by the first defendant on [sic] his intention to commence proceedings against me personally, I am entitled to be indemnified from the assets of the company. In this regard I intend to retain 25% of the estimated funds available in order to enable me to pay any tax liabilities, my fees (when approved by the Court) and pay the balance of the funds presently held by me into Court. ”
25 On 8 October 2010 the plaintiff filed a notice of motion seeking an order that the receiver pay her the amount of $567,459 forthwith. That is the sum which the receiver estimated as an amount available for distribution to her on the basis set out in the table in his report of 5 May 2010 set out above.
26 The plaintiff's notice of motion was returnable on 18 October 2010. There was no appearance for the first defendant on the return of the notice of motion. It was stood over to 1 November 2010. Again there was no appearance for the first defendant.
27 The solicitor retained by the first defendant understood that counsel would appear himself on each occasion and seek directions, or would arrange for another counsel to appear. It seems that counsel briefed was engaged in another hearing.
28 As matters turned out no one appeared.
29 I am not presently concerned with the question of who, as between solicitor and counsel, has the primary responsibility for that failure, but it does not seem that the first defendant was in any way personally at fault. (The counsel retained was not counsel who appeared on the present application.)
30 On 1 November 2010 Tamberlin AJ made the following orders:
- “ 1. That David Anthony Hurst, the Receiver and Manager of the assets the subject of these proceedings (so appointed by order dated 23 September 2008), pay into Court, within 7 days after the date of these Orders, 75% of the funds presently held by him in that capacity (being the sum of approximately $847,488.00).
- 2. That subject to receipt by the Registrar of the funds described in Order No. 1, the Registrar pay out of court from those funds, to the Plaintiff, Victoria Georgopoulos, the sum of $567,459.00.
- 3. That the Receiver and Manager’s costs of the Plaintiff’s motion be paid from the funds so held by him, on the indemnity basis.
- 4. That the Plaintiff’s costs of the motion be payable from those funds, on the ordinary basis. ”
31 For the reasons which follow, had there been an appearance for the first defendant on 1 November it is clear that the orders would not have been made.
32 The plaintiff has been put to unnecessary expense, but that will be dealt with by an appropriate order for indemnity costs in respect of her notice of motion of 8 October 2010 up to and including 1 November 2010.
33 There is jurisdiction to set aside the orders as they were made in the absence of the first defendant.
34 Whilst the explanation for the failure of the first defendant's legal representatives to appear is far from satisfactory, for the reasons which follow I am satisfied that it would be unjust for the orders now challenged to stand.
35 The first defendant does not seek to set aside all of the orders made by Tamberlin Aj on 1 November 2010. He seeks to set aside orders 2 and 4. That is to say, there is no challenge to the order permitting the receiver to retain 25 per cent of the funds presently held by him. The issue is whether or not it is just that the sum of $567,459 be paid to the plaintiff.
36 The estimate by the receiver in his report of 5 May 2010 that that was an amount available for distribution to the plaintiff was based upon the total sum available for distribution being $1,045,238. The proposed distribution was calculated as an equal distribution between the plaintiff and the first defendant adjusted for a debit of $17,774 against the first defendant and by crediting two sums of $3,103 and $68,804 to the plaintiff. But the amount paid into Court is not $1,045,238 but was to be $847,488, being the estimated 75 per cent of moneys held by the receiver. I am informed that the actual amount paid into court was $847,464.
37 The receiver has retained $282,520.62 to cover estimated tax liabilities, his estimated fees from 31 August 2009, and, possibly, although this is not clear from his affidavit, a sum from which he can be indemnified in respect of his costs of defending the proceedings threatened by the first defendant.
38 On any view, the burden of the tax liabilities and fees should be borne by the plaintiff and the first defendant equally. But if the order challenged were to stand, its effect would be that burden of outstanding tax liabilities and fees would be borne, at least in the first instance, by the first defendant. That is so because the plaintiff would receive $567,459 out of $847,464, leaving $280,005 available for distribution to the first defendant. That is plainly unjust.
39 The second reason why the order cannot stand is that the moneys held as at 5 May 2010 of $1,045,238 were to be accounted for partly to the plaintiff and first defendant as partners, and partly to the second and third defendants.
40 The plaintiff and the first defendant are equal shareholders in the second and third defendants, but those companies are not being wound up.
41 The moneys were primarily held by the third defendant. Its accounts, as prepared in draft by the receiver, show an indebtedness of the third defendant to the plaintiff, the first defendant and the second defendant. For the moneys owned by the third defendant, and for moneys payable by the third defendant to the second defendant, to be paid to the plaintiff and the first defendant, would be to make an unauthorised return of capital to the plaintiff and the first defendant as shareholders of the second and third defendants.
42 The calculation of the return of $567,459 in the receiver's report shows that only $261,318 would be paid to the plaintiff as a partner in her own right. The balance would be paid to her as a shareholder of the second and third defendants and as an alleged creditor on a loan account with the second defendant.
43 There is no legal basis for distributing the moneys paid into court as a return of capital to shareholders.
44 The third reason for setting aside the order is that the calculation of the distribution of $567,459 to the plaintiff included a payment of $68,804 to her as an alleged creditor of the second defendant. There has been no determination of that alleged debt.
45 The materials provided to the receiver in support of the alleged debt indicate that invoices were rendered not to the second defendant, but to one Peter George. It may be that Mr George incurred the debts for the company's benefit and is entitled to reimbursement. The invoices pre-dated the receivership. There is no basis for paying the money in court to a third party creditor whose debt has not been accepted by the directors of the second defendant. Nor is there a basis for paying moneys to the plaintiff for what may or may not be a debt due to a third party.
46 Fourthly, the calculation of the payment of $567,459 as money owed to the plaintiff assumes that the first defendant is to be debited with the sum of $17,774 as a sum owed by him to the third defendant. He disputes that debt. There has been no determination that he owes it.
47 The plaintiff filed a statement of claim on 2 December 2009 which included this claim. The statement of claim was struck out by Macready AsJ on 21 September 2010 with liberty to the plaintiff to replead the claim, including by seeking leave under s 237 of the Corporations Act to bring the claim on behalf of the third defendant. A re-pleaded statement of claim was to be filed within 14 days. No new statement of claim has been filed.
48 Hence the orders made on 1 November are clearly unjust to the first defendant.
49 Notwithstanding the inadequate explanation for the first defendant's non-appearance, justice requires that orders 2 and 4 of 1 November 2010 be set aside.
50 There will be no injustice to the plaintiff as I will order the first defendant to pay her costs of her notice of motion of 8 October 2010 up to and including 1 November 2010 on the indemnity basis.
51 I would not expect the first defendant to have to bear the burden of that costs order personally.
52 The responsibility lies with his barrister for not appearing on the return of the motion, and perhaps with his solicitor for not ensuring that there was an appearance. At least prima facie the first defendant would be entitled to an order that he be indemnified by his barrister and/or solicitor in respect of that liability. I trust it will not be necessary for anyone to make further orders about that.
53 The question is what is to be done next. The plaintiff's counsel did not dispute that if I concluded that the orders were unjust because the plaintiff was not entitled to the relief sought in her notice of motion I should dismiss that notice of motion. I will do so.
54 The affidavit of the first defendant's solicitor challenged the right of the receiver to retain funds on the basis that he was entitled to be indemnified out of the assets of the partnership and the corporate defendants against the costs of defending the claims threatened by the first defendant against him. However, the first defendant does not challenge the order permitting payment of only $847,488 into court.
55 The further questions are whether any of the moneys paid into court should be paid out, and what order should be made for the taking of accounts.
56 No moneys can be paid out to the second and third defendants unless the plaintiff and the first defendant agree to the giving of a receipt and agree as to how those companies should deal with the funds.
57 Prima facie, those defendants should be wound up on the just and equitable ground. The plaintiff and the first defendant do not agree to a voluntary liquidation but no steps have been taken to place either company into liquidation. Both parties have foreshadowed seeking leave under s 237 of the Corporations Act to bring proceedings by one or other of the companies against the other party.
58 That would not be possible if the companies are wound up. The question of institution of proceedings would be a matter then for a liquidator, with the possibility of appeal against a liquidator's refusal to bring proceedings.
59 In my view the possibility of such actions, and the possibility of the wider actions threatened by the first defendant against the receiver and against third parties either on his own behalf or on behalf of the corporate defendants, should not affect the taking of the partnership accounts and should not delay the passing of the receiver's accounts.
60 No specific complaint has been made in respect of the receiver's proposal that on the basis that the sum of $1,045,238 was available for distribution, $519,534 should be distributed to the plaintiff and the first defendant in the proportions of $261,318 to the plaintiff and $258,216 to the first defendant.
61 The first defendant says that the proposal is based on only draft accounts, but points to no ground to challenge that at least this amount (that is, $519,534) is distributable to the partners if the amount then held by the receiver of $1,045,238 was available for distribution. Nor did the first defendant challenge the plaintiff's loan account with the partnership of $3,103.
62 In my view these amounts should be distributed to both the plaintiff and the first defendant in the proportion that the actual sum paid into court bears to $1,045,238. That proportion is 81.07856 per cent.
63 If, on the taking of accounts, it appears that money has been distributed in excess of that to which the plaintiff or first defendant is entitled, the party concerned will be required to make reimbursement.
64 It appears that there are no third party creditors, except possibly the Australian Tax Office and the receiver. The receiver has retained sums he considers sufficient to satisfy any such tax liability and to meet his fees.
65 For reasons previously given, the sums payable to the second and third defendants should not be paid out at this stage. A fortiori there should be no distribution to the plaintiff and first defendants as shareholders of the second and third defendants.
66 The receiver sent draft accounts to the parties on 2 March 2010. These were made up to 31 January 2010. He asked for the parties' comments on the accounts.
67 The first defendant, through his solicitor, responded by asking for various source records. This request produced a chain of correspondence resulting in the receiver's saying that the cost of photocopying would be $2,680, said to be at a cost of $0.80 a page plus an estimate of the time for photocopying.
68 Ultimately, the receiver's position was that the first defendant should subpoena the documents.
69 The first defendant is entitled to the documents he has requested either as a partner or as a director of the second and third defendants. No subpoena is necessary.
70 The receiver should provide a copy of the documents requested by the first defendant and his solicitors, and provide them to both parties.
71 The receiver will be entitled to his reasonable costs of doing so as part of his remuneration.
72 For the benefit of a Registrar on the passing of the receiver's accounts, I should say that subject to any submission the receiver may make, prima facie the receiver is entitled to his reasonable costs of photocopying, which should be a reasonable charge for the time of the person or persons in selecting the documents to be photocopied and photocopying the same, plus the actual costs of photocopying. The actual costs may or may not equate to $0.80 per page.
73 The provision of such documents is the first thing that needs to be done to progress the taking of accounts.
74 The second thing is for the receiver to provide full accounts of the receivership.
75 The draft accounts of 2 March 2010 for Arristo Pty Ltd did not include detailed statements of income and expenses, although there were pages headed as such. The "Detailed Income Statement" of Arristo Pty Ltd included one line items:
“ Asset realisation account $150,389
Gross profit from trading $140,481 ".
There was no accounting in respect of these items.
76 The third task is that the receiver needs to bring the accounts up to date. At the moment there is no break-up of the assets held by the receiver of $1,129,952.74 immediately before payment into court. That is, there is no break-up of that sum between different entities.
77 The receiver needs to obtain an assessment of the outstanding tax liabilities and he also needs to file his application for approval of remuneration and expenses.
78 When the receiver's accounts are provided the parties should file any surcharges or falsifications of the receiver's accounts or the partnership accounts.
79 In my view the taking of the receivership and partnership accounts is not the appropriate vehicle for the parties to maintain claims of the partnership or the corporate defendants against third parties, such as the firm of solicitors that formerly acted on an aborted sale. Nor is the taking of such accounts the appropriate vehicle for the determination of claims of creditors against the corporate defendants. Nor, in my view, is it the appropriate vehicle for the determination of claims that the corporate defendants might have against the plaintiff or the first defendant. Such claims should be dealt with either by proceedings commenced under s 237 of the Corporations Act, if leave is given, or by a liquidator in a winding-up.
80 Because the receiver's participation is essential to the taking of accounts and because the receiver has not appeared on the present application (no order having been sought which would affect him), I will re-list the matter for the purpose of making necessary orders for the taking of accounts when the receiver can participate.
81 For these reasons I make the following orders:
1. Orders 2 and 4 made by Tamberlin AJ on 1 November 2010 be set aside.
2. Order that the plaintiff's notice of motion of 8 October 2010 be dismissed.
3. Order that the first defendant pay the plaintiff's costs of her notice of motion of 8 October 2010 up to and including 1 November 2010 on the indemnity basis.
4. Direct that from the moneys paid into court by David Anthony Hurst pursuant to order 1 made by Tamberlin AJ on 1 November 2010, the Registrar pay:
(a) the sum of $211,872.87 to the plaintiff; and
and the balance remain invested until further order.(b) the sum of $209,357.81 to the first defendant,
82 I will stand over the proceedings to a date to be fixed to make orders for the taking of partnership and receivership accounts.
0
0
1