In the matter of Jewels of Sydney Pty Ltd (in liquidation)

[2024] NSWSC 538

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Jewels of Sydney Pty Ltd (in liquidation) [2024] NSWSC 538

Hearing dates:

07 May 2024

Date of orders:

07 May 2024

Decision date:

07 May 2024

Jurisdiction:

Equity - Corporations List

Before:

McGrath J

Decision:

Court approval of the costs agreement entered into by the liquidator and confidentiality orders granted: see [45]

Catchwords:

CORPORATIONS — liquidators — application by liquidator seeking court approval of entry into costs agreement with solicitors — where liquidator also seeks confidentiality orders in respect of material concerning entry into deed of assignment — where costs agreement entered into appropriately and for the benefit of the companies — where public interest in the proper administration of justice in respect of the liquidation outweighs open justice concerns to justify confidentiality orders

Legislation Cited:

Corporations Act 2001 (Cth), Schedule 2, s 477(2B)

Courts Suppression and Non-publication Orders Act 2010 (NSW), ss 7, 8(1)(a) and 8(1)(e)

Cases Cited:

In Alfonso, in the matter of Pinnacle Fire Protection Pty Ltd (in liq) v Woods (2021) 157 ACSR 217; [2021] FCA 1402

In the matter of One.Tel Limited [2014] NSWSC 457; (2014) 99 ACSR 247

Jahani, in the matter of Ralan Property Services Pty Ltd (receivers and managers appointed) (in liq) [2023] FCA 738

Kitay v Frigger [No 2] [2024] WASC 113

Welker & Ors v Rinehart [2011] NSWSC 1094

Category:

Principal judgment

Parties:

Jewels of Sydney Manufacturing Pty Ltd (in liquidation) (First Plaintiff)
Jewels of Sydney Pty Ltd (in liquidation) (Second Plaintiff)
Jamieson Andre Louttit (Third Plaintiff)
Valtimo Holdings Pty Ltd (Interested Party)

Representation:

Counsel:
D Edney (Plaintiffs)
D Stack (Interested Party)

Solicitors:
Cornwalls (NSW) (Plaintiffs)
ERA Legal (Interested Party)

File Number(s):

2024/00085875

Publication restriction:

Nil

JUDGMENT — EX TEMPORE

INTRODUCTION

1. This is an application made by the third plaintiff, Jamieson Louttit (Liquidator), in his capacity as the liquidator of each of the first plaintiff, Jewels of Sydney Manufacturing Pty Ltd (in liquidation) (JOS Manufacturing), and the second plaintiff, Jewels of Sydney Pty Ltd (in liquidation) (JOS). I will collectively refer to JOS Manufacturing and JOS as the JOS Companies.

2. The application is made pursuant to s 477(2B) of the Corporations Act 2001 (Cth) for the court’s approval nunc pro tunc of the Liquidator’s entry into, and his causing the JOS Companies to enter into, each of the following:

1. the deed of assignment dated 23 February 2024 (Deed of Assignment) in respect of any chose in action the JOS Companies have or may have against Pierre Germani, Joey Germani, Jack Germani, Pro Diamonds Pty Ltd and Pierre & Sons Holdings Pty Ltd.

2. the costs agreement made on 2 February 2024 between the Liquidator and solicitors, Cornwalls (NSW) Pty Ltd, pursuant to which Cornwalls acts for the Liquidator in his capacity as liquidator of the JOS Companies across the following three stages:

1. reviewing the previous solicitor file, negotiating the terms of the Deed of Assignment and corresponding with the counterparties to it;

2. seeking court approval of the Deed of Assignment; and

3. any other works required by the Liquidator in connection with the liquidations of the JOS Companies.

3. In addition, the Liquidator seeks orders pursuant to ss 7, 8(1)(a) and 8(1)(e) of the Courts Suppression and Non-publication Orders Act 2010 (NSW) (Courts Suppression Act) prohibiting disclosure of the Deed of Assignment, the confidential affidavit of the Liquidator sworn 28 February 2024 (First Confidential Affidavit), the documents contained in exhibit JL-2 to the First Confidential Affidavit (First Confidential Exhibit), the confidential affidavit of the Liquidator sworn 3 May 2024 (Second Confidential Affidavit), and the documents contained in exhibit JL-4 to the Second Confidential Affidavit (Second Confidential Exhibit) (collectively the Confidential Bundle). These orders are sought on the basis that:

1. such orders are necessary to prevent prejudice to the proper administration of justice; and/or

2. it is otherwise necessary in the public interest for the orders to be made and that this public interest significantly outweighs the public interest in open justice.

4. In light of the fact that the Liquidator is required to give notice of this application and the nature of the assignment proposed under the Deed of Assignment to the creditors of the JOS Companies pursuant to s 100-5 of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Corporations Act) and has not yet done so, at the hearing the Liquidator only sought orders in relation to the costs agreement and the non-publication of the Confidential Bundle. The application for approval of the Deed of Assignment will be dealt with at a subsequent hearing by which time the appropriate notice will have been given, any responses of creditors received and any interested party wishing to do so can make submissions in respect of that application.

RELEVANT FACTS

5. Pierre Germani is a jeweller by trade. Without intending any disrespect or overfamiliarity, I will refer to Pierre Germani by his first name to distinguish him from other members of the Germani family.

6. Frederick Grotte is a chartered accountant and principal of Carruthers, an accounting firm. Also without intending any disrespect or overfamiliarity, I will refer to Frederick Grotte by a shortened version of his first name, Fred.

7. JOS was registered on 19 July 2018 with Pierre as a director and Frank Robinson a director for a short period. Pierre has remained as a director from 7 August 2018 to the present time. Pierre G Holdings Pty Ltd (PGH, a company associated with Pierre) originally held 60% of the issued shares of JOS and Overture Pty Ltd (a company associated with Fred) originally held the other 40% of the issued shares of JOS.

8. JOS was established by Pierre and Fred to conduct a jewellery business selling diamonds and other gemstones to both retail customers and wholesale to other retail jewellery businesses.

9. On about 6 March 2019, JOS secured a lease for a shop in the Strand Arcade, Sydney (Strand Shop) for a term of 5 years, trading as Pierre Jewellers.

10. On 12 April 2019, JOS obtained commercial other goods registrations for the supply of diamonds and other associated gemstones.

11. JOS Manufacturing was registered on 11 February 2021 for the purpose of taking over JOS’ wholesale, manufacturing, and online jewellery operations. Since its registration, the sole director and company secretary has been Pierre. PGH holds 60% of the issued shares of JOS Manufacturing and Overture holds the remaining 40% of the issued shares of JOS Manufacturing.

12. Soon after, JOS became wholly owned by JOS Manufacturing.

13. Carruthers acted as accountant for the JOS Companies.

14. On 11 August 2022, JKR Lawyers, on behalf of the lessor of the lease for the Strand Shop, sent a letter containing a notice of breach of covenant and requiring that outstanding rent owed by JOS be paid within 14 days.

15. On 24 August 2022, the Liquidator was appointed as voluntary administrator of the JOS Companies. On the same day, the JOS Companies ceased trading, the Liquidator took possession of the jewellery at the premises and the lease of the Strand Shop was surrendered.

16. On 29 September 2022, during the second creditors’ meeting of the JOS Companies, the creditors resolved to wind up the JOS Companies and the Liquidator was appointed as the liquidator of the JOS Companies.

17. Shortly after the appointment of the Liquidator, Pro Diamonds Pty Ltd, whose business was substantially similar to that of the JOS Companies, commenced trading out of the Strand Shop.

18. Pro Diamonds was registered on 8 April 2022 and since its registration has had the following directors:

1. Jack Germani (Pierre’s son) between 8 April 2022 and 25 April 2023;

2. Joey Germani (Pierre’s son) between 8 April 2022 and 25 April 2023; and

3. Pierre (as sole director and secretary) from 25 April 2023 to date.

19. Without intending any disrespect or overfamiliarity, I will refer to each of Jack Germani and Joey Germani by their respective first names to distinguish them from other members of the Germani family.

20. Pro Diamonds’ shares are wholly owned by Pierre & Sons Holdings Pty Ltd.

21. On 3 November 2022, Carruthers sent the Liquidator a letter outlining a shareholders’ dispute between Pierre and Fred.

22. On 22 December 2022, the Liquidator sought orders in the Federal Court of Australia to examine Pierre, Jack, Joey and Harry Mavrolefterou with respect to the examinable affairs of the JOS Companies as well as various orders for production against those persons and others.

23. On 4 and 5 April 2023, pursuant to ss 596A and 596B of the Corporations Act, the Liquidator conducted examinations in the Federal Court of Australia of Pierre, Jack, Joey and Harry Mavrolefterou and obtained production of documents pursuant to the order for production issued in those proceedings. Carruthers paid the costs of those examinations.

24. During the examinations, Pierre gave evidence to the effect that he knowingly diverted various sales of jewellery from the JOS Companies to Pro Diamonds and thereafter deposited the proceeds of those sales to the bank accounts of either Pro Diamonds or himself and on many occasions withdrew those funds for his own personal use with the knowledge of Joey, Jack and Pro Diamonds.

25. The Liquidator is of the view that Pierre used his position as a director to steal away the business of the JOS Companies.

26. The Liquidator is also of the view that the conduct of Pierre, Joey, Jack and Pro Diamonds potentially gives rise to various claims available to the JOS Companies, including:

1. a possible claim for damages for the value of the business taken over by Pro Diamonds (if any), the goodwill of the JOS Companies (if any), the assets acquired and an account of profits;

2. possible claims for recoveries of voidable transactions available to the Liquidator under Part 5.7B of the Corporations Act; and

3. possible claims against Pierre on account of his breaches of statutory duties, and against Jack, Joey, Pro Diamonds and Pierre & Sons Holdings Pty Ltd arising out of their knowing assistance in those breaches (if any).

27. However, the Liquidator lacks sufficient funds in the liquidations of the JOS Companies to pursue litigation of any these claims.

28. Carruthers offered to purchase from the Liquidator in his capacity as liquidator of the JOS Companies any causes of action that the Liquidator or the JOS Companies may have against Pierre, Joey, Jack, Pro Diamonds and Pierre & Sons Holdings Pty Ltd. This offer led to negotiations and then the entry into the Deed of Assignment on 23 February 2024.

29. Following execution of the Deed of Assignment, Pierre has put offers to the Liquidator as an alternative proposal to that in the Deed of Assignment. The Liquidator has made a commercial assessment of the alternatives and continues to seek approval of the Deed of Assignment and not to accept the offers made by Pierre.

30. The Liquidator has entered into the Deed of Assignment on confidential terms. Without disclosing the substantial commercial terms of the Deed of Assignment, the Liquidator has summarised the effect of it as the assignment of the claims of the Liquidator and the JOS Companies against each of Pierre, Joey, Jack, Pro Diamonds and Pierre & Sons Holdings Pty Ltd, the consideration for which is that the JOS Companies are to receive a share of the net recoveries from any resulting litigation.

31. The Liquidator also entered into the costs agreement with Cornwalls for the provision of legal services relating to the Deed of Assignment and any other works required by the Liquidator in connection with the liquidations of the JOS Companies.

CONFIDENTIALITY

Legal Principles

32. The relevant provisions of the Courts Suppression Act are:

7 Power to make orders

A court may, by making a suppression order or non-publication order on grounds permitted by this Act, prohibit or restrict the publication or other disclosure of—

(a)   …

(b)   information that comprises evidence, or information about evidence, given in proceedings before the court.

8 Grounds for making an order

(1)   A court may make a suppression order or non-publication order on one or more of the following grounds—

(a)   the order is necessary to prevent prejudice to the proper administration of justice,

…

(e)   it is otherwise necessary in the public interest for the order to be made and that public interest significantly outweighs the public interest in open justice.

(2)   A suppression order or non-publication order must specify the ground or grounds on which the order is made.

…

33. In Welker & Ors v Rinehart [2011] NSWSC 1094, Brereton J considered an application under s 8(1)(e) of the Courts Suppression Act, saying at [8] and [14]:

[8]   … [Section] 8(1)(e) involves the following concepts: first that it is necessary in the public interest for a suppression order to be made; secondly that that public interest outweighs the public interest in open justice (which is, by s 6, a primary objective of the administration of justice); and thirdly, that the imbalance in favour of suppression be significant , that is to say that the mere tilting of the balance "ever so slightly" in favour of suppression would be insufficient to justify the making of an order. …

…

[14]   While there is, as the legislation emphasises, a powerful public interest in open justice, there is an even greater public interest in the attainment of justice. And so the ends of the attainment of justice prevail, where they must, over open justice. If open justice would practically defeat the purpose for which proceedings are brought, or result in the practical circumvention of the relief being sought, the public interest in upholding the rights of litigants will usually prevail over the public interest in open justice.

34. Confidentiality orders are commonly made where a liquidator has obtained litigation funding for recovery proceedings or to investigate the possibility of available claims in a winding up, so as not to prejudice the liquidators in their pursuit of those potential claims: Jahani, in the matter of Ralan Property Services Pty Ltd (receivers and managers appointed) (in liq) [2023] FCA 738, Stewart J at [11] and the authorities cited there.

Consideration

35. The Confidential Bundle contains the Deed of Assignment as executed together with the First Confidential Affidavit, the First Confidential Exhibit, the Second Confidential Affidavit and the Second Confidential Exhibit. From my review of them, I am satisfied that all of the materials contained in the Confidential Bundle are commercially sensitive because they relate to the commercial terms on which the assignment has been made (including the way in which any potential recoveries might be divided), the Liquidator’s assessment of the potential value of the claims to be assigned, the merits of the Deed of Assignment and the commercial assessment of the offers put by Pierre as an alternative to the Deed of Assignment.

36. I am satisfied that any disclosure of these matters to the defendants in the proposed litigation which is the subject of the Deed of Assignment would give a tactical benefit to those defendants in that litigation and therefore disadvantage the interests of the JOS Companies given that they have an interest in the outcome of the litigation. It would therefore interfere with the attainment of justice.

37. I also agree with the submission made by the Liquidator that I should treat the Deed of Assignment as indistinguishable from that of a liquidator obtaining approval to enter into a litigation funding agreement, where it is commonplace for suppression orders to be made to ensure that the terms of the litigation funding agreement and the liquidator’s assessment of the proceedings to be funded remain restricted from disclosure.

38. Accordingly, I am satisfied that it is appropriate to make the confidentiality orders that are sought in relation to the Confidential Bundle to prevent prejudice to the proper administration of justice in the future proceedings, and also because it is otherwise necessary in the public interest for the order to be made, in circumstances where that public interest significantly outweighs the public interest in open justice.

APPROVAL OF COSTS AGREEMENT

Legal principles

39. Section 477(2B) of the Corporations Act provides:

Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:

(a)   without limiting paragraph (b), the term of the agreement may end; or

(b)   obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;

more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.

40. The principles pursuant to which the court exercises the discretion under s 477(2B) are well settled. In Alfonso, in the matter of Pinnacle Fire Protection Pty Ltd (in liq) v Woods (2021) 157 ACSR 217; [2021] FCA 1402, Cheeseman J at [14] set out the lengthy analysis of those principles developed by Brereton J In the matter of One.Tel Limited [2014] NSWSC 457; (2014) 99 ACSR 247 at [26]–[30], and then at [15] summarised them as follows:

… [I]n considering whether to grant approval under either ss 477(2A) or (2B):

(1)   the Court is not to second guess the liquidator’s judgment but rather to satisfy itself that there is no error of law, bad faith or impropriety, and ensure that the proposal is consistent with the expeditious and beneficial administration of the winding up.

(2)   it must be borne in mind that (unlike in an application for judicial advice), the Court’s approval does nothing more than empower the liquidator to proceed as he or she proposes – the Court is not approving the underlying transaction itself, such that the approval does not exonerate the liquidator from any liability he or she may have in respect of the transaction.

(3) where only approval under s 477(2B) is sought, the consideration is whether it is reasonable and in the interests of the liquidation to permit the liquidator to enter into an agreement that will not be completed within 3 months (though it is still necessary for the Court to be satisfied that the transaction is a proper realisation of the assets of the company or otherwise assists its winding up): Re Stewart (in his capacity as official liquidator of Newtronics Pty Ltd (recs and mgrs apptd) (in liq)) [2007] FCA 1375 at [26(6)] (Gordon J).

41. In respect of costs agreements being approved under s 477(2B), Hill J in Kitay v Frigger [No 2] [2024] WASC 113 at [91] said:

… I consider that approval under s 477(2B) of the Act is required for agreements entered into by the liquidator as agent for or representative of the company, as well as agreements in the name of the company. However, approval is not required for entry into agreements by the liquidator in their own name. In determining whether the agreement has been entered into by the liquidator as agent for or representative of the company or in their own name, it is necessary to consider the substance of the agreement, whether the company is a party to the agreement or appears to have the status of a party under the agreement, and who receives the benefit of the services provided under the agreement.

Consideration

42. In the present case, the costs agreement has been entered into for the benefit of the JOS Companies and they will benefit in relation to the services provided under it.

43. I consider that it is appropriate for the Liquidator to retain solicitors to assist him in relation to the Deed of Assignment, these proceedings and the liquidation of the JOS Companies generally. It also appears to me that the costs agreement is not limited in time and it will operate as and when the Liquidator seeks services under it, so it does not in any real sense impact on the duration of the liquidations of the JOS Companies.

42. For these reasons, I propose to give approval nunc pro tunc under s 477(2B) of the Corporations Act for the Liquidator’s entry into the costs agreement.

ORDERS

45. For the reasons given above, I propose to make the following orders and directions:

1. Pursuant to section 477(2B) of the Corporations Act 2001 (Cth) the entry by the third plaintiff on behalf of the first and second plaintiffs into the costs agreement made on 2 February 2024 at pages 1 to 8 of Exhibit JL-1 to the affidavit of Jamieson Andre Louttit sworn 5 March 2024 is approved.

2. Pursuant to sections 7, 8(1)(a) and 8(1)(e) of the Courts Suppression and Non-publication Orders Act 2010 (NSW):

1. Disclosure of the documents contained in the bundle labelled “Confidential Supplementary Bundle” is prohibited except by order of the court made on application of which the plaintiffs have been given at least three business days’ prior notice;

2. The bundle referred to in (a) above is to be marked “Confidential: to be opened only by order of the court”;

3. This order has effect in the Commonwealth of Australia, and until further order; but

4. This order does not prevent the plaintiffs from voluntarily disclosing the documents the subject of this order.

3. The balance of the originating process is adjourned to 10am on 21 May 2024 before me for further hearing.

4. Any further evidence and submissions are to be provided by email to my associate by 3pm on 20 May 2024.

5. Costs reserved.

**********

Amendments

24 May 2024 - Amendment

24 May 2024 — Order 1 amended to read "third plaintiff on behalf of the first and second plaintiffs" (where previously "defendant/s").

Decision last updated: 24 May 2024