GM Coles v Exceler8 Contracting P/L - [2018] SADC 66

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application)
GM COLES & ORS v EXCELER8 CONTRACTING P/L & ORS
[2018] SADC 66
Decision of His Honour Judge Chivell
21 June 2018
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - FUNDS IN COURT AND DISPOSAL THEREOF
$50,000 paid into court pursuant to DCR 248 by a stranger to the litigation on application of the first defendant; order was made in relation to money ‘due to be paid to Exceler8 Contracting Pty Ltd’; order incorrectly sealed as ‘due to be paid to Exceler8 Contracting’; money paid into court in obedience to incorrectly sealed order; application for payment out of court pursuant to DCR 190 by the first defendant not pursued; application by interveners for payment out of court to their solicitors’ trust account.
Held: Application granted.
District Court Civil Rules 2006 (SA) r 190, r 248; ANZ v Maunder & Anor [2009] NSWSC 1356; Duncan v National Australia Bank (2006) 95 SASR 208; Pilmer v HIH Casualty & General Insurance Ltd (No 2) (2004) 90 SASR 465; Harmer v Commissioner for Taxation (Cth) (1991) 173 CLR 264; Fingal Glen Pty Ltd v Riviera Holdings Pty Ltd [2012] SASC 156, referred to.

GM COLES & ORS v EXCELER8 CONTRACTING P/L & ORS
[2018] SADC 66

This is an interlocutory application dated 15 May 2018[1] for money to be paid out of the Suitors Fund.
[1] FDN 71.
The application is made pursuant to DCR 190. The applicant must establish:[2]
·an entitlement to the funds;
·that there are no competing claims to the funds;
·where other claimants may be affected, that he or she has notified them;
·the amount to be paid out, or provide a formula for the calculation of the amount to be paid out.
[2] ANZ v Maunder & Anor [2009] NSWSC 1356 per Slattery J at [8].
An earlier application[3] was made by Exceler8 Contracting Pty Ltd. That company is the first defendant/cross respondent in this action. I will refer to it as ‘the company’.
[3] FDNs 56 & 62.
To explain the context in which the application was made, it is necessary to outline the somewhat complex history of the litigation.
The principal shareholder and director of the company is Mathew Wandel. Mr Wandel started his business in about 2004. The business initially involved baling hay and straw, and developed into buying and selling hay.
In July 2008, Mr Wandel and his wife, Ms Zoe Grivell, set up the Exceler8 Contracting Trust. The trust deed was executed, and the trust was registered and received ABN status on 10 July 2008. From then on, Mr Wandel operated his business as trustee of that trust.
The company was first registered on 30 June 2015. From that time on, Mr Wandel appears to have used the company and the trust interchangeably in his contractual dealings.
Mr Wandel developed a business relationship with Mr Stuart Price. In 2015, they formed a joint venture using a company called Hay Direct Australia Pty Ltd, which is the second defendant in this action.
In late 2010, the relationship between Mr Wandel and Mr Price broke down. Disputes arose between them as to the operation of Hay Direct and its eventual insolvency.
In this litigation, the plaintiffs have sued the company for non-payment for hay supplied by them. The company defends the action on the basis that the company had ‘novated’ the contract to Hay Direct.
SP Hay Pty Ltd, Mr Price’s trading company, is a third party. SP Hay has counterclaimed against the company.
On 24 November 2017, SP Hay made an application that:[4]
… the sum of $50,000.00 due to be paid to Exceler8 Contracting Pty Ltd be paid into Court in this action and held by the Court until further order.
[4] FDN 43.
In his affidavit sworn on 22 November 2017 and filed in support of the application [5] Mr DeRuvo, solicitor for SP Hay, exhibited a letter to Mr Wandel and to the company dated 17 November 2017,[6] part of which stated:
We are instructed that Exceler8 has recently resolved a claim commenced against a grower by the name of Jacka and that as part of that resolution Exceler8 is due to receive the sum of $25,000.00 on 30 November 2017 and a further sum of $25,000.00 on 29 December 2017.
As Exceler8 is no longer trading, it is our view that no ordinary and proper business expenses would exist on which these funds could be expended. In the circumstances, we seek written confirmation from you, as the sole director of Exceler8, that you undertake to hold all funds received from or on behalf of Jacka in your bank account until such time as Exceler8 is released from the Freezing Order.
[5] FDN 44.
[6] Ibid, Exhibit “JPD2”.
It is noteworthy that Mr DeRuvo referred to the company in his application and in the letter, and sought an undertaking from Mr Wandel as ‘director of Exceler8’, and not in his personal capacity.
Mr Wandel replied by email dated 20 November 2017, and confirmed that Mr DeRuvo’s assertions about the ‘Jacka resolution’ were correct. He said he proposed to apply the money to business expenses, legal costs and ordinary living expenses. In his letter, Mr Wandel referred to ‘Exceler8’, without distinguishing between the trust and the company.
The solicitors for SP Hay were alive to the issue of which entity was entitled to the Jacka settlement money. In a further affidavit,[7] sworn on 24 November 2017, Ms Danby, a solicitor employed in the same firm as Mr DeRuvo, referred to a letter from the solicitors for Mr and Mrs Jacka, Kelly Kelly Legal, to Mr Price:
4. As a result of that letter, on 23 November 2017 I telephoned Kelly Kelly Legal and spoke to Daniel Sparrow in relation to the matter. Mr Sparrow informed me:
4.1that it was not clear to Kelly Kelly Legal or their client whether Mr Wandel personally or Exceler8 Contracting Pty Ltd was the party trading as Exceler8 Contracting when Mr Charles and Ms Marie Jacka dealt with Mr Wandel. The cause of action against the Jackas was on the basis of Exceler8 Contracting in its corporate capacity;
4.2that the Jackas were about to pay $50,000.00 in respect of that work to a bank account in Mr Wandel’s name;
4.3that the Plaintiff of the Proceedings in the Adelaide Magistrates Court Action AMCCI 1557 of 2017 was Mr Wandel trading as Exceler8 Contracting ABN 12 095 046 893; and
4.4.that the monies from the Jackas were directed to be paid into Mr Wandel’s personal account pursuant to the settlement document between the two parties.
[7] FDN 45.
This affidavit was handed up in court by SP Hay’s counsel, Mr Bullock, on 24 November 2017. Mr Wandel did not appear that day. I had previously refused permission for him to appear for the company. The issue of which Exceler8 entity was entitled to the money was discussed in the course of Mr Bullock’s submissions. At this point, it is necessary to note that in addition to the freezing order that I made against the company on 23 October 2017, another freezing order had been made against Mr Wandel personally in the Supreme Court in the course of litigation between Mr Price and Mr Wandel in their personal capacities. In that context, I observed to Mr Bullock, referring to the Jacka settlement money:[8]
HIS HONOUR:    It is something of a predicament they are in because if the money is in right of the company then to use it to pay living expenses would be a breach of my order.
MR BULLOCK:      That's right.
HIS HONOUR:    And if it's to him personally then to spend it on a company debt is a breach of the Supreme Court order.
MR BULLOCK: That's right, and even in his own email he talks about Exceler8 accountant and living expenses, he can't have it both ways, one way or another he is going breach one of these freezing orders.
[8]    Transcript 24.11.17, page 8.
The order sought by SP Hay was pursuant to DCR 248(1), which provides:
(1)The Court may make orders for the preservation of property subject to or connected with proceedings before the Court.
I was satisfied that the Jacka settlement money was connected with the proceedings before the court in that the money was owed by Mr and Mrs Jacka for hay sold by Exceler8 in the context of the business relationship between the trust and/or the company, SP Hay and Hay Direct, which is the subject of these proceedings.
On 24 November 2017, I made an order consistent with the application in the following terms:[9]
There will be an order that the sum of $50,000 due to be paid to Exceler8 Contracting Pty Ltd by Mr Charles and Ms Marie Jacka be paid into court in this action forthwith and held by the court until further order, and note that the order is made pursuant to rule 248(1).
(My emphasis)
The draft minutes of order and the order sealed by the Registrar[10] are in different terms. They read:
1. That the sum of $50,000 due to be paid to Exceler8 Contracting by Mr Charles Jacka and Ms Marie Jacka be paid into Court in this action forthwith and held by the Court until further order, pursuant to Rule 248(1).
(My emphasis)
[9] Ibid, page 12.
[10] FDN 46.
I accept Mr DeRuvo’s explanation that the discrepancy was inadvertent. The draft minutes of order were sent to my chambers ‘for his Honour to consider and seal’.[11] This email was sent on Friday, 24 November 2017. The email and draft minutes of order were forwarded to the registry, where they were sealed in that form.[12] Mr Wandel was ‘cc’d’ into the email. There was clearly no intent to mislead.
[11] Exhibit “JPD25” to the Fifth Affidavit of Joseph Philip DeRuvo sworn 29.3.18 (FDN 66).
[12] See DCSR 103.
A letter to the Court from the solicitors from Mr and Mrs Jacka dated 4 December 2017[13] indicates that the order was served on them on 27 November 2017. They confirmed that the litigation involving their clients was against ‘Matthew Wandel of Exceler8 Contracting’ and not the company. In compliance with the purported order as sealed, the solicitors paid the money into court.
[13] FDN 47.
At a hearing on 3 April 2018, Mr Hagivassilis appeared for the then applicant and Mr Ross-Smith for the respondent. Mr Hagivassilis made lengthy and helpful submissions as to why the money should be paid out to Mr Wandel and Ms Grivell. As things have transpired, I do not need to deal with those submissions now.
In opposing the order, Mr Ross-Smith made the following submissions, which I briefly summarise as follows:
·the application is made by the company. The company is in ‘egregious breach’ of freezing orders made against the company by me on 23 October 2017, particularly as to the financial position of the company;
·having regard to further material to be provided, the sealed order would be made again – the result would be the same;
·there was no wrongdoing in the circumstances leading up to the sealing of the order.
After further discussion on the first of Mr Ross-Smith’s points, I suggested that Mr Hagivassilis take further instructions from Mr Wandel and Ms Grivell about whether they would make an application to have the money paid out of court to them. They claim to be the only ones who have a rightful claim to it. The application was adjourned to 17 May 2018.
On 17 May 2018, the landscape had changed considerably. Mr Thomas now appeared for the trustees of Mr Wandel’s bankrupt estate (he was declared bankrupt on 3 May 2018) and for Ms Grivell. They made a further application[14] seeking permission to intervene in the action, and seeking an order for payment out of the Suitors Fund of the $50,000 in question plus accrued interest and ancillary orders.
[14] FDN 71, 15 May 2018.
Mr Ross-Smith indicated that his client had no objection to Ms Grivell’s intervention, but it objected to intervention by the bankruptcy trustees. He submitted that before I make an order for payment out of the Suitors Fund, I need to be satisfied as to the capacity in which Ms Grivell would hold the money, and what she intends to do with it. He submitted that Ms Grivell and Mr Wandel were trading as trustees of the Exceler8 Contracting Trust when they entered a contract with Mr and Mrs Jacka, and so they must have been suing in that capacity in the Magistrates Court.
According to the Magistrates Court record,[15] Ms Grivell and Mr Wandel sued the Jackas as Mathew Wandel and Zoe Grivell ‘trading as Exceler8 Contracting ABN 12 095 046 893’. I accept that it is consistent with this description that Mathew Wandel and Zoe Grivell were suing as trustees of the Exceler8 Contracting Trust and not in their personal capacities. If Ms Grivell receives the money as a trustee of the trading trust, Mr Ross-Smith submitted that the interests of the trading creditors of the trust would be ignored.
[15] Refer Exhibit “SMH-8” to the Second Affidavit of Steven Michael Hagivassilis sworn 22.2.18 (FDN 55).
There is clear evidence that the Exceler8 Contracting Trust was the entity operating the business name Exceler8 Contracting in 2015. The trustee for the trust was registered as the holder of the business name on 2 March 2015, according to the ASIC record exhibited to the Third Affidavit of Steven Michael Hagivassilis.[16]
[16] Exhibit “SMH-16” to the Third Affidavit of Steven Michael Hagivassilis sworn 13.3.18 (FDN 60).
Many of the business records of Exceler8 Contracting indicate that the business was operated by the trust.
Confusingly, in a letter to Mr and Mrs Jacka’s solicitors from the then solicitors for Exceler8 Contracting Pty Ltd dated 7 October 2016,[17] the solicitors refer to ‘services provided by our client, Exceler8 Contracting Pty Ltd’. This assertion is inconsistent with the tax invoice rendered by Exceler8 to Mr and Mrs Jacka on 3 May 2016, which clearly states that the Jacka debt was to the Exceler8 Contracting Trust.[18]
[17] Exhibit “JPD11” to the Third Affidavit of Joseph Philip DeRuvo sworn 7.3.18 (FDN 59).
[18] Exhibit “JPD7”, ibid.
There is no evidence in the voluminous material before me on this application that Exceler8 Contracting Pty Ltd ever became the trustee of the Exceler8 Contracting Trust, or that it assumed proprietorship of the registered business name. It may be that Mr Wandel gave the instructions to his solicitors that the debt was due to the company, but that must have been in error.
There are no grounds to suspect, on the basis of this material, that the company has a legal interest in the money paid into court.
Mr Ross-Smith made a number of further submissions asserting the interests of trade creditors, but I am not convinced that any of them have a legal interest in the outcome of this application.
Eventually, Mr Ross-Smith withdrew his client’s opposition to the bankruptcy trustees being given leave to intervene, so orders were made giving permission to both Ms Grivell and the bankruptcy trustees to intervene.[19]
[19] Transcript 17.5.18, page 14.
The submissions of Mr Thomas, in summary, were:
·the order for payment into court made on 24 November 2017 was ancillary to the freezing order against the company made on 23 October 2017. It had no operation in relation to Mr Wandel, Ms Grivell or the Exceler8 Contracting Trust;
·there is no evidence that SP Hay, Mr Ross-Smith’s client, had any dealings with the Exceler8 Contracting Trust – all its dealings were with the company;
·Ms Grivell, Mr Wandel and now the bankruptcy trustees had a legal right to the money by virtue of the judgment in the Magistrates Court. That money was paid into court pursuant to a representation by SP Hay’s solicitors that it was the subject of an order by this court when it was not. Clearly, the solicitors for the Jackas relied upon that representation, and the provision of the incorrect minutes of order to reach a conclusion that the order related to the business name and not the company. The money was not ‘connected with the proceedings’ within the meaning of DCR 248(1), because it was not due to the company;
·the order for payment into court was made for the purpose of preventing dissipation of the assets of the company. It was intended as an ancillary order to the freezing order. The money was never an asset of the company. It was not relevant to the freezing order against the company;
·even if SP Hay had some claim, presently not apparent, to the money, any such claim would not be ‘subject to or connected with (these) proceedings’ as presently pleaded;
·not being a creditor of the trading trust, SP Hay does not have standing to advance arguments on behalf of creditors of the trading trust. There is no suggestion that the money will be dissipated. (I would add that dissipation is also unlikely having regard to the involvement of the bankruptcy trustees, who are appointed by a court and have both legal and ethical obligations to act in good faith towards creditors.)
In my view, that last point is sufficient to satisfy Mr Ross-Smith’s objections that I should be satisfied as to how the money will be applied before ordering it to be paid out of court.
Mr Ross-Smith submitted that since Mr Wandel had been declared bankrupt, he was no longer entitled to be a beneficiary of the Exceler8 Contracting Trust, having regard to an exclusion clause in the definition of ‘beneficiary’ in the trust deed.[20]
[20] Paragraph 1.1. of Exhibit “SMH-15” to the Third Affidavit of Steven Michael Hagivassilis sworn 13.3.18 (FDN 60).
There is nothing to suggest that any other person or entity has such an interest either. I reject Mr Ross-Smith’s submissions that the creditors of the trading trust have any such interest.
In particular, Mr Ross-Smith’s client, SP Hay, has no such interest. It has no right to secure its counterclaim against Exceler8 Contracting Pty Ltd by ensuring that this money remains in court.
In Duncan v National Australia Bank,[21] White J, with whom Vanstone and Layton JJ agreed, made the following observations about the discretion to order payment out of court:
Given this variety of circumstances, it is to be expected that the decision by the court as to payment out in a particular case is to be determined by a consideration of the relevant statutory or rule regime governing the payment in, the rule regime concerning the holding of the moneys in court, the purpose for which the moneys have been paid in, any relevant decision of the court concerning the legal or beneficial ownership of the moneys or the entitlement to them, and any relevant event in the litigation in relation to which the moneys have been paid, rather than by reference to any rule of general application.
One matter that is clear is that in all cases moneys paid into court vest in the registrar on behalf of the court. The registrar becomes the legal owner of the money. The moneys are to be dealt with by the registrar in accordance with the rules of court and in accordance with any order of the court.
(Citations omitted)
[21] (2006) 95 SASR 208, [30]-[31].
In that case, a judge had ordered that mortgagors of property to the bank pay into court the equivalent of the interest payable pursuant to the mortgage as a condition of their refusal to grant the bank possession of the property pursuant to a power of sale in the mortgage pending trial, and the grant of an injunction against the bank. The mortgagors again defaulted, after making some payments into court, and the judge granted possession to the bank and discharged the injunction. The bank applied for an order that the money paid into court be paid out to it.
The court in Duncan declined to follow the judgment of Mullighan J in Pilmer v HIH Casualty & General Insurance Ltd (No 2),[22] in which his Honour applied Harmer v Commissioner for Taxation (Cth)[23] to hold:
[Harmer] establishes that while the money was in court, none of the claimants had an interest in the money until an order for payment out was made. Clearly, the party paying the money into court had no legal or equitable interest in the money.
Consequently it acknowledges that no-one has an interest in the money until an order for payment out is made.
[22] (2004) 90 SASR 465.
[23] (1991) 173 CLR 264.

In Duncan, White J commented:[24]
In my respectful opinion, for the reasons already given, Harmer does not stand as authority for such a universal proposition. Whether or not the payer or another party has a beneficial interest in the moneys will depend upon all the circumstances to which I have already referred. Further, whether or not a payer retains a beneficial interest, the effect of the payment may be to establish an interest in the nature of a lien or equitable charge in that money in the other party. The line of English authority which commenced with Ex parte Bouchard; Re Moojen and which concluded with the decision of the Court of Appeal in WA Sherratt Ltd v John Bromley (Church Stretton) Ltd to which Mullighan J referred indicates that this is so.
(Citations omitted)
[24] At [39].
White J went on to illustrate the various ways in which a person entitled to money retains a beneficial interest in the money after it has been paid into court.[25]
[25] At [40]-[41].
Mr Thomas did not seek to argue that Mr Wandel’s trustee and Ms Grivell retained a beneficial equitable interest in the money paid into court here, but I think that they did.
In concluding that the bank retained an interest in the money in Duncan, White J had regard to the purpose for which the money was paid into court. Firstly, having regard to the purpose in that case, his Honour concluded that the mortgagors (who paid it in) were divested of any interest in the money.[26] Secondly, it was the bank’s contractual entitlement, which the mortgagors sought to challenge, which was paid into court. Finally, the money was paid into court to secure the bank’s entitlement.[27]
[26] At [47].
[27] At [49].
In this case, the Jackas clearly divested themselves of any interest in the money when they paid it into court. Mr Wandel and Ms Grivell were, at that point, contractually entitled to the money. Finally, and unlike the case in Duncan, the money was paid into court pursuant to a mistake, induced by the party now seeking to prevent payment out, and was not paid into court for any purpose the subject of, or connected with, the proceedings.
There is authority for the proposition that unless money is paid into court pursuant to some Act or rule or pursuant to an order of the court, it has been paid in improperly and should be refunded.[28]
[28] Fingal Glen Pty Ltd v Riviera Holdings Pty Ltd [2012] SASC 156.
It cannot be asserted that the money in this case was paid into Court pursuant to an order of the Court. The order I made related to moneys purportedly owed to the company, not to Mr Wandel or Ms Grivell, whether as trustees or otherwise. On the basis of Fingal, it should be paid out immediately, but the question is, to whom?
I conclude that Mr Wandel and Ms Grivell had an equitable interest in the money amounting to a lien or charge over the money which is sufficient in itself to justify payment out of court.
In case I am wrong about that, the ‘relevant events in the litigation’ which I have discussed above amply justify an order for payment out of court of the money held in the Suitors Fund, together with interest accrued.
I note that the money is sought to be paid to the benefit of Ms Grivell and Messrs Rudaks and Scott as joint and several trustees of the bankrupt estate of Mathew Corey Ryan Wandel by being paid into the trust account of Charlton Rowely. I accept that payment to the solicitors makes adequate provision for the resolution of any dispute as between the trustees in bankruptcy and Ms Grivell, in particular since the money would appear to be trust money rather than owed personally. There are mechanisms to resolve any such dispute available if agreement cannot be reached.
For those reasons, I make an order in terms of paragraph 3 of the application dated 15 May 2018 (FDN 71), namely:
That the monies standing in the District Court to the credit of this action together with all interest accrued thereon to the date of payment out be paid out of Court to the benefit of Ms Grivell and Messrs Rudaks and Scott as joint and several trustees of the bankrupt estate of Mathew Corey Ryan Wandel by being paid into the trust account of Charlton Rowley.
I will hear the parties as to any ancillary orders.