Grace v Grace (No 7)
[2013] NSWSC 1745
•15 October 2013
Supreme Court
New South Wales
Medium Neutral Citation: Grace v Grace (No 7) [2013] NSWSC 1745 Hearing dates: 15 October 2013 Decision date: 15 October 2013 Jurisdiction: Equity Division Before: Brereton J Decision: Rulings on objections
Catchwords: CORPORATIONS - examinations relating to insolvency - generally - objections Cases Cited: Grace v Grace [2012] NSWSC 976
Grace v Grace (No. 6) [2013] NSWSC 897Category: Separate question Parties: David Alexander Grace (plaintiff)
Deborah Sharon Grace (first defendant)
Julienne Grace (second defendant)
Nevilda Holdings Pty Ltd (third defendant)
Nevilda Investments Pty Ltd (fourth defendant)
Dutchie Pty Ltd (sixth defendant)
Phoenix Rising Investments Pty Ltd (seventh defendant)Representation: Counsel:
Mr Williams SC with Mr S Goodman (plaintiff)
Mr Stewart (first, second, seventh defendants)
Solicitors:
James Tuite & Associates (plaintiff)
Clinch Long Letherbarrow Pty Ltd (first, second & seventh defendants)
File Number(s): 2006/ 259566
Judgment - EX TEMPORE
HIS HONOUR: The Court is hearing an examination of the first defendant post the delivery of accounts pursuant to orders made on 9 November 2012 and before the plaintiff is required to give notice of surcharges, falsifications and objections in respect of those accounts. As I have observed in the course of argument, this examination is in the nature of discovery and while, for convenience, it is proceeding before the Judge who heard the trial and who is to take the accounts in the absence of an Associate Judge, such an examination might, as the cases to which I referred in Grace v Grace (No. 6) [2013] NSWSC 897 indicate, have proceeded before a Registrar or examining officer.
Objection is taken to a question - but, more pertinently, to a line of questioning - on which counsel for the plaintiff has embarked, on the grounds of relevance.
It is useful to remember that the orders for accounts (made on 9 November 2012) were relevantly, in the following form:
4 ORDER THAT an account be taken of the benefits derived by the First Defendant, as the accounting party, from the 667 cumulative preference shares in the Third Defendant whilst held by her.
...
17 ORDER THAT an account be taken of the benefits derived by the First Defendant, as the accounting party, from each of:
a) the 1 cumulative preference share in the Third Defendant whilst held by her;
b) the 1 ordinary share in the Fourth Defendant whilst held by her;
c) the 1 ordinary share in the Sixth Defendant whilst held by her.
...
51 DIRECT THAT, in respect of the accounts referred to in Orders 4, 10, 17, 24 and 38 above:
a) each of the accounting parties shall within 28 days of the date of these orders, serve on the Plaintiff their detailed account, verified by Affidavit of all of the benefits derived by them from the property the subject of the account;
b) such verifying Affidavits are to annex or exhibit all documents relevant to the detailed account as are in the possession, custody or power of the accounting parties;
c) the items of each said account and each statement shall be numbered consecutively;
d) the Plaintiff be at liberty within 30 days after service upon him of the said accounts and statements, to apply to an Associate Judge of Equity Division to examine the accounting party or parties viva voce or upon interrogatories in respect of the said accounts and statements;
e) the Plaintiff, within 30 days after service upon him of the said accounts, or within 30 days of the conclusion of the examination of the accounting party or parties referred to in direction, have liberty to file and serve upon the accounting parties his surcharges, falsifications and objections (if any) thereto;
f) that all vouching be done out of Court prior to the matter being relisted;
liberty to each party to apply on 3 days notice.
The defendants' accounts contain and refer to dividends admitted to have been received by the first defendant in respect of the shares in question. The plaintiff wishes to contend that, for the purpose of the taking of accounts, the "benefits derived" from the shares in question are not limited to dividends, but extend to other direct and indirect benefits gained by virtue of the control that some of the shares in question gave in respect of the companies. It is said that it will become apparent that numerous payments not included in the accounts were made to the first defendant, sometimes denoted as dividends, sometimes as loans and sometimes in other capacities.
It is also to be remembered that at the principal trial and in the judgment given on 23 August 2012 (Grace v Grace [2012] NSWSC 976) the plaintiff's oppression claim failed, and I concluded that the plaintiff had not established a case for relief for oppression.
As it seems to me, the intent of the orders that an account be taken was not that the defendants be required to give, in effect, an account of their stewardship as directors while in control of the relevant companies, but that they be required to give an account of the particular benefits that they derived from holding the shares, when those shares and the benefits attached to them ought to have been held by the plaintiff and not by them.
While it would be entirely permissible, in the course of this examination, for any payments that had been recorded or denoted as dividend in the original accounts but not now disclosed as dividend to be the subject of examination, and also for other payments to be examined on the basis that they ought to have been treated as dividend, I do not agree that the taking of accounts extends to include benefits not attached or not flowing from the rights attached to the shares, but rather flowing from the control that those shares gave. To take the other course would effectively reinstate the unsuccessful oppression case.
For those reasons, I propose to disallow the line of questioning currently under objection.
OBJECTION TO QUESTION RELATING TO MEMBER BENEFIT ACCOUNT BALANCE
The defendants are required by order to account for the moneys received by them in their actual or de facto capacity as trustees of the NISF and have filed accounts setting out the amounts received by them in that capacity and how they have been expended.
The purpose of the process, so far as it concerns the NISF is to ascertain what if any amount ought to be restored by the defendants to the fund, if it be established that they cannot account for any amount received by them.
As things appear, it is likely that the major issue in this respect will be the propriety of some of the expenditure and, in particular, payments made to the defendants or to the Phoenix Rising Superannuation Fund which the defendants say were or reflected a very substantial part of the balances standing to the credit of their accounts in the superannuation fund.
As Mr Stewart, with respect, I think entirely correctly accepted in the course of argument, the plaintiff would plainly be entitled to ask questions to the effect: "By what right do you claim to have paid those moneys out as trustee?" Presumably the answer to that question would be, based on the evidence so far known, that that amount was not greater than the amount to which the payees were entitled, by way of payment or rollover, having regard to their existing account balances. Evidence adduced at the trial, however, suggested that the existing account balances were of dubious accuracy. Since the trial, it would seem that the defendants have contended that the account balances, on the other hand, should have been higher, not lower, than they were thought to be. For this purpose they apparently rely on a report obtained from Accru Felsers Accountants.
The plaintiff wishes to ask questions directed to the Accru Felsers report and the proposition that the account balances may be higher than they had previously been thought to be. Although that is less direct than asking: "By what right did you pay out that sum?", in cross-examination it is often better to proceed in an indirect manner at the outset. In substance, the question asked is no different from one that challenges the authority or propriety for the payments out. On that basis, it seems to me that it is within the legitimate scope of the examination, and I allow it.
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Decision last updated: 03 April 2014
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