Hayden, Rodney James v Teplitzky, David Raymond
[1997] FCA 1344
•28 NOVEMBER 1997
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 855 of 1996
BETWEEN:
RODNEY JAMES HAYDEN
First ApplicantPETER SCHWEITZER
Second ApplicantDAYA JAYASINGHE
Third ApplicantGORDON WRIGHT
Fourth ApplicantAND:
DAVID RAYMOND TEPLITZKY
First RespondentRUSSELL JOHN HODGE
Second RespondentJOHN JOHNSON
Third RespondentANTHONY STAVRIANOS
Fourth RespondentTOP OF THE CROP NQ PTY LTD
(ACN 001 018 645)
Fifth RespondentLIVERPOOL GROWERS (AUSTRALASIA) PTY LIMITED
(ACN 003 950 105)
Sixth RespondentJUDGE:
EMMETT J
DATE OF ORDER:
28 NOVEMBER 1997
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
UPON the Applicants undertaking to the Court to pay to any person or corporation adversely affected by Order 1, or the undertaking by the Third Respondent set out below, such compensation (if any) as the Court thinks just in such manner as the Court directs, and
UPON the Third Respondent undertaking to the Court that:
(a)he will procure that Charjon Holdings Pty Limited will not at any time pending the final determination of these proceedings or before further order of the Court knowingly permit the net assets of Charjon to fall below the amount permitted to be paid out to Charjon Pty Limited by the Fifth Applicant under Order 3(c); and
(b)if any event occurs which comes to the notice of Charjon Holdings Pty Limited or the Third Respondent which creates a risk that the net assets of Charjon Holdings may fall below that amount, Charjon Holdings Pty Limited or the Third Respondent will inform in writing the solicitors for the Applicants of the happening of that event.
THE COURT ORDERS:
that within 7 days of the preparation of audited accounts of the Fifth Respondent as at 30 June 1997 the Fifth Respondent forward to the solicitor for the Applicants a copy of such accounts.
that the Fifth Respondent be restrained pending the final determination of these proceedings or further order of the Court from disposing of and/or dealing with its assets and/or removing any of its assets from the jurisdiction and shall not, pending the final determination of these proceedings or further order of the Court pay, disburse or deal with the whole or any part of the balance of proceeds of sale of the land of the Fifth Respondent being Lots 9-94 on Registered Plan 735491, Lots 95 and 96 on Registered Plan 735492, Lot 81 on Registered Plan 735493 and Lots 77 and 78 on Registered Plan 735494 contained in Title references Z1119114 to Z1119120 (inclusive), Z1126007, Z1126013 and Z1126014 standing in a trust account in the name of the solicitor for the Fifth Respondent other than
(a)for the purposes of paying debts bona fide incurred; and
(b)defraying the reasonable legal expenses of the Fifth Respondent in these proceedings, and
(c)if audited accounts of the Fifth Respondent as at 30 June 1997 are furnished to the applicants in accordance with Order 1 and such accounts treat the payment made by the Fifth Respondent to Joseph Anthony Prestia and Julie Prestia of $500,000 as part payment of the balance of indebtedness of the Fifth Respondent to Charjon Holdings Pty Limited, in payment, no earlier than 14 days after such accounts have been so furnished, of the amount shown in those audited accounts as the amount owing by the Fifth Respondent to Charjon Holdings Pty Limited; or
(d)if audited accounts are furnished to the applicants in accordance with Order 1 and such accounts do not treat the said payment as part repayment of the balance of indebtedness of the Fifth Respondent to Charjon Holdings Pty Limited, in payment, no later than 14 days after such accounts have been so furnished, of the amount shown in those audited accounts as the debt owing by the Fifth Respondent to Charjon Holdings Pty Limited reduced by the amount of $500,000.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 855 of 1996
BETWEEN:
RODNEY JAMES HAYDEN
First ApplicantPETER SCHWEITZER
Second ApplicantDAYA JAYASINGHE
Third ApplicantGORDON WRIGHT
Fourth ApplicantAND:
DAVID RAYMOND TEPLITZKY
First RespondentRUSSELL JOHN HODGE
Second RespondentJOHN JOHNSON
Third RespondentANTHONY STAVRIANOS
Fourth RespondentTOP OF THE CROP NQ PTY LTD
(ACN 001 018 645)
Fifth RespondentLIVERPOOL GROWERS (AUSTRALASIA) PTY LIMITED
(ACN 003 950 105)
Sixth Respondent
JUDGE:
EMMETT J
DATE:
19 NOVEMBER 1997
PLACE:
SYDNEY
EX TEMPORE REASONS FOR JUDGMENT
HIS HONOUR: On 9 April 1997, Lindgren J made certain orders on the application of the Applicants. The order which is presently relevant is an order that the fifth respondent, Top of the Crop NQ Pty Ltd (“Top of the Crop”), shall not, pending the final hearing and determination of this proceeding or further order of the Court, pay, disburse or deal with the whole or any part of the balance of the proceeds of sale of a certain parcel of land.
In his reasons for making that order, his Honour outlined the nature of the claims made by the Applicants against the Respondents. His Honour concluded that the Applicants have established an arguable right to recover damages from Top of the Crop to the extent of $511,048.47.
One of the issues before his Honour was whether Top of the Crop should be restrained from disbursing those proceeds of the sale in payment of a debt said to be due by Top of the Crop to a non-party, namely Charjon Holdings Pty Limited (“Charjon”). In dealing with that aspect of the application before him his Honour said that he was not persuaded that Top of the Crop “is not indebted to Charjon in some amount” (at p.62). He referred to the fact that, as at 1 July 1992, Top of the Crop gave a crop lien to Charjon to secure an advance of $47,000 and Top of the Crop's indebtedness to Charjon from time to time. His Honour said that it seemed clear that Top of the Crop has had difficulty in paying its way and indicated that it was understandable that Top of the Crop's most substantial shareholder might have seen fit to fund it from time to time, confidently expecting that the land would ultimately provide the moneys out of which the advance would be repaid. Charjon owns a little less than one half of the issued capital of Top of the Crop.
His Honour indicated, in his reasons for making the orders, that there were aspects of the evidence relating to the genuineness of the Charjon debt that gave cause for concern. Three matters were referred to. The first was that a review of the accounts of Top of the Crop and Charjon indicated that there were many inconsistencies in the accounts which his Honour did not find it necessary to specify. A report by Mr R.J. Brooks of KPMG Chartered Accountants, concluded that there was before him insufficient information to enable him “to confirm that the debt of $747,934 was due to Charjon by Top of the Crop” as claimed.
Second, his Honour indicated that there was considerable doubt as to the propriety of the treatment of a transaction involving Top of the Crop, Charjon and Joseph Anthony Prestia and Julie Prestia. His Honour referred to an arrangement whereby Charjon agreed to lend to Mr and Mrs Prestia and they agreed to borrow from Charjon the sum of $500,000. Payment of that sum was to be secured by a mortgage over shares in Top of the Crop and Charjon was to have an option to acquire the shares at any time within 12 months after default. The loan was to be a non-recourse one such that if Charjon acquired the shares it could no longer look to Mr or Mrs Prestia for payment.
In fact, the sum of $500,000 was paid to Mr and Mrs Prestia, not by Charjon but by Top of the Crop. That of course raises some question as to whether there might have been some assistance given by Top of the Crop in connection with the purchase of its own shares. His Honour concluded from the material before him that Top of the Crop had in fact funded the loan by Charjon and that, on that basis, Charjon owed Top of the Crop $500,000 possibly with interest. That matter has not been pursued in any detail before me and I shall come back to it in a moment.
Third, his Honour concluded that there had not been tendered by Top of the Crop any underlying documents showing how the alleged Charjon debt came into being. His Honour referred to entries in the latest financial statements of Top of the Crop. His Honour was not satisfied that Top of the Crop is or is not indebted to Charjon for the sum shown in the most recent accounts and concluded that there was reason to think that it may not be indebted and that Charjon may be indebted to it.
His Honour concluded that an order should be made which in effect restrained Top of the Crop from repaying any amount to Charjon in satisfaction of any indebtedness. However, his Honour considered that it was appropriate to reserve liberty to apply for a variation permitting payment in the light of any further evidence which might then be presented. His Honour considered that it was appropriate the Top of the Crop's right to lead further evidence with a view to establishing the existence of the Charjon debt be recognised by the reservation of leave to apply.
There are now before me two notices of motion. One is brought by Top of the Crop for variation of his Honour's order to exclude from the prohibition payments of:
(a)an amount of $444,366 to Charjon in repayment of a bona fide debt due by Top of the Crop to Charjon;
(b) debts of Top of the Crop bona fide incurred and which remain unpaid;
(c) reasonable legal expenses incurred in defending the present proceedings.
The second motion is brought by the Applicants and seeks a variation of his Honour’s order so that it be extended to restrain Top of the Crop from disposing of any of its assets other than for the purpose of:
(a)paying debts bona fide incurred other than the alleged debt owing to Charjon;
(b)defraying the reasonable legal expenses of Top of the Crop in defending the present proceedings.
Senior counsel for Top of the Crop has indicated that there is no real opposition to the extension of the order to cover all assets of Top of the Crop. His Honour, in his reasons for making the earlier orders, referred to two other possible assets. One was a proposed distribution from the trust to which his Honour referred in some detail; the second was the possible proceeds from the sale of the 1996-1997 mango crop of Top of the Crop. It is common ground before me that the anticipated distribution from the trust will be the order of $190,000 although there is no evidence as to the proceeds of the mango crop which his Honour noted had been estimated at $125,000.
The distribution has not yet been received from the trustee of the trust but will be received, as I understand it, once the matter before me is resolved. In essence, therefore, the issue arising on the two notices of motion before me is whether Top of the Crop has adduced sufficient additional evidence to overcome the reservations which his Honour had as to the existence of the debt alleged to be owing by Top of the Crop to Charjon.
The principal material before me relied upon by Top of the Crop is an affidavit of Grant Brian Arnold who is retained by both Top of the Crop and Charjon to prepare taxation returns, financial statements and records. He has been retained by Charjon since 1991 and by Top of the Crop since around November 1994. In his affidavit he states that he had examined certain records of Charjon and Top of the Crop and from those records had compiled a summary which he said showed all money lent by Charjon to Top of the Crop and repaid by Top of the Crop to Charjon from 1 July 1992 to 23 April 1997.
The starting point for his exercise was an entry in the general ledger of Charjon showing that Top of the Crop was indebted to Charjon at that time in the sum of $120,000. That sum is corroborated by the published accounts of both companies as at 30 June 1992. There is also evidence before me from Mr Stephen David Houlahan who was responsible for the preparation of the accounts of Top of the Crop during the years ending 30 June 1993 and 30 June 1994. Mr Houlahan also said that he was satisfied that the 30 June 1992 balance of $120,000 was correct.
Accounts had been prepared for both Top of the Crop and Charjon in respect of the years ended 30 June 1993, 1994 and 1995. Those accounts record indebtedness of Top of the Crop to Charjon. The accounts as at 30 June 1993 and 1995 show the same figure. However, the accounts as at 30 June 1994 are not consistent. The accounts of Charjon show indebtedness of $544,434, whereas the accounts of Top of the Crop show indebtedness of $439,887.
That discrepancy of $104,547 has not been satisfactorily explained. Mr Arnold said that the discrepancy was brought about because the accounts for Charjon were completed on 14 February 1995 at a time prior to completing the Top of the Crop financial accounts. It was said that that was to ensure that Charjon lodged its tax return on time. At that time the loan accounts had not been reconciled. However, he said that the fact that they had not been reconciled had no effect on the taxable income of Charjon and therefore the financial accounts of Charjon were completed and lodged without the reconciliation. That suggests that the figure shown in the Top of the Crop accounts is more reliable than that shown in the Charjon accounts. In any event, as I have said, the accounts for both companies as at 30 June 1995 were consistent.
I have seen accounts of Charjon as at 30 June 1996 and draft accounts as at 30 June 1997. Accounts of Top of the Crop as at 30 April 1996 are also in evidence, but there are no corresponding accounts of Charjon at that date and no accounts for Top of the Crop after 30 April 1996.
The contention of the Applicants before me was essentially that the accounting as between Top of the Crop on the one hand and Charjon and other companies controlled by Mr John Johnson, (the Third Respondent) on the other hand, is such as to render unreliable the figures contained in the published accounts.
There is evidence that throughout the period, transactions were entered into between Top of the Crop, Charjon, Liverpool Growers Australasia Pty Limited (the Sixth Respondent), and other companies which have a connection with Mr Johnson. There was certainly evidence that cash transactions occurred whereby cheques were paid by Charjon to Top of the Crop and also evidence that cheques were drawn by Top of the Crop payable to various other parties.
I am oversimplifying it to some extent but the evidence demonstrated that, from time to time, transactions involving payments from one company or another were the subject of journal entries such that, in effect, all loans to Top of the Crop by the companies controlled or connected with Mr Johnson were treated as advances by Charjon to Top of the Crop and payments made by Top of the Crop to various companies were treated as repayments of such advances. There is nothing unusual in such a practice nor is there anything improper in such a practice so long as the journal entries which are made are genuine reflections of the arrangements between the relevant companies.
The complaint, however, is that there was no real evidence to indicate whether the transactions which had been journalised were proper transactions. The journals were not in evidence before me. Mr Arnold’s exercise of examining the cash book of Top of the Crop did not go beyond the examination of the cash book. In other words he did not verify the source of the funds received by Top of the Crop nor the destination of funds dispersed by Top of the Crop, except to the extent that that information is contained in the cash book.
The evidence before me goes considerably further than that which was before Lindgren J. However, I am not, on the basis of that evidence, satisfied that one can be confident as to the current balance of the account as between Charjon and Top of the Crop. The material before me indicates that, without taking into account the Prestia transaction to which I have referred, it is likely to be in the order of $842,000. That is the figure shown in the draft accounts of Charjon as at 30 June 1997 and also the figure shown in the published accounts as at 30 June 1996.
Mr Arnold's exercise included adjustment of the figure shown in the Top of the Crop accounts as at 30 April 1996 of $747,933 by the entries in the cash book after that time. His exercise produced a balance as at 23 April 1997 of $944,366 although that figure of course is without the benefit of any journal entries which might have been appropriate.
As Lindgren J observed (at p. 49), (and I agree entirely with his observation):
...it is not the purpose of a Mareva injunction to convert an unsecured creditor or claimant into a secured one, or to permit a re-writing of the order of priorities as between creditors established by the law relating to bankruptcy or insolvency, or, in substance, to put a claimant for unliquidated damages in a position to bankrupt an individual or wind up a company.
On the other hand, of course, if there is evidence that a payment were intended to be made by a respondent to proceedings of a sum in circumstances where there was a genuine doubt as to the liability of the respondent to make the payment, the Court may intervene by making an order in the nature of a Mareva injunction.
There has been proffered to the court an undertaking on behalf of Mr Johnson, who is a party to the proceedings, that Charjon will not at any time during the continuation of the present proceedings and any appeal therefrom, knowingly permit the net assets of Charjon to fall below the Charjon debt, that is the amount owing to Charjon by Top of the Crop, and that if any event occurs which comes to the notice of Charjon and creates a risk that its net assets may fall below the Charjon debt, Charjon will inform the solicitors to the Applicants of the happening of that event in writing.
The accounts of Charjon as at 30 June 1997 indicate shareholders funds of $760,276. That is on the assumption, of course, that there is a debt owing by Top of the Crop in the sum of $842,934. If the $500,000 Prestia transaction is to be treated as a repayment by Top of the Crop to Charjon, that would reduce the asset comprising the indebtedness to $342,934 and would reduce the shareholders equity by the same sum. There was default by the Prestias in the repayment of the loan and, while theoretically there is an asset comprising the shares in Top of the Crop previously owned by the Prestias, those are apparently of no value.
As I have said, the evidence indicates that there is some doubt as to the reliability of the published accounts. However, I do not consider that it is the function of the Court in a case such as this, to take accounts as between the relevant companies.
I consider that the appropriate course is to order that if audited accounts of Top of the Crop are prepared and show an amount of indebtedness as at 30 June 1997 repayment of that indebtedness would be permitted so long as account is taken of the Prestia transaction to which I have referred.
In the circumstances, I propose to make orders which will permit the repayment of indebtedness of Top of the Crop to Charjon but only to the extent that such indebtedness is shown in audited accounts of Top of the Crop.
I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett
Associate:
Dated: 19 November 1997
Counsel for the Applicant: R. Dubler Solicitor for the Applicant: James G. Sloan Counsel for the Fifth Respondent: J.J. Garnsey QC Solicitor for the Fifth Respondent: David Hand Dates of Hearing: 18 - 19 November 1997 Date of Judgment: 19 November 1997
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