Inform Numbers Australia Pty Ltd v Angelovski
[2014] VSC 537
•28 October 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
S CI 2013 1134
IN THE MATTER OF:
| INFORM NUMBERS AUSTRALIA PTY LTD (formerly known as FLY PELICAN PTY LTD (ACN 077 049 412) EXCEL PHONE WORDS PTY LTD (ACN 111 409 066) | |
| BETWEEN | |
| INFORM NUMBERS AUSTRALIA PTY LTD (ACN 110 809 133) (formerly known as FLY PELICAN PTY LTD ) & ORS | First Plaintiff |
| and | |
| LAZO ANGELOVSKI & ORS | First Defendant |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20, 21 and 22 October 2014 |
DATE OF JUDGMENT: | 28 October 2014 |
CASE MAY BE CITED AS: | Inform Numbers Australia Pty Ltd & Anor v Angelovski & Ors |
MEDIUM NEUTRAL CITATION: | [2014] VSC 537 |
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CORPORATIONS ‑ Derivative action ‑ Leave to commence proceeding ‑ Corporations Act 2001 (Cth), s 237.
CORPORATIONS ‑ Director ‑ Breach of duties ‑ Damages ‑ Corporations Act 2001 (Cth), s 180-183; s 1324(10).
CORPORATIONS ‑ Deadlock ‑ Oppression ‑ Appropriate form of orders ‑ Wide discretion ‑ Corporations Act 2001 (Cth), s 233.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T J Scotter | Lennon Mazzeo Lawyers |
| For the Defendants | No appearance |
HIS HONOUR:
A. Introduction
Inform Numbers Australia Pty Ltd (‘Inform’) acts solely as the trustee of the Fly Pelican Unit Trust (‘the Trust’). The business of the Trust comprised the acquisition and ownership of phone words. Phone words are 13/1300/1800 telephone numbers that spell words. For example 13 872 835 spells 13 TRAVEL which is a useful and valuable phone word to have.
Excel Phone Words Pty Ltd (‘Excel’) is the operating entity that leases phone words to customers and holds the bank accounts, (Inform and Excel are together ‘the Excel Companies’).
James Corbaleski (’Corbaleski’) and his entities and Lazo Angelovski (’Angelovski’) and his entities are equal owners of Inform, equal unit holders in the Trust, and equal owners of Excel. It is common ground that they are, in effect, partners.[1] They are both directors of Inform and Excel.
[1]As pleaded and admitted in the Statement of Claim and Defence.
It is also common ground that there has been a complete breakdown in relations between Corbaleski and Angelovski.
As a result of the breakdown and consequent deadlock there have been no accounts done or tax returns filed for the Excel Companies since 2009.
Telsmart Pty Ltd (’Telsmart’) and Facility Services Pty Ltd (’Facility Services’) are companies controlled by Angelovski.
The plaintiffs allege that in the course of the operation of the Excel Companies Angelovski:
(a)between April 2009 and November 2010 transferred sums from Excel’s bank account without any authorisation and in breach of his statutory and fiduciary duties to Excel (“the Payments”);
(b)between 2009 and 2012 transferred from Inform, phone words (’Phone Words’) to entities owned or associated with him namely Telsmart and Facility Services and has subsequently dealt with those phone words, some of which have been on sold to My Phone Words Pty Ltd (‘MPWA’)[2] and other parties (‘the Transferred Phone Words’);
(c)has denied Corbaleski access to financial records and excluded him from management of the Excel Companies;
(d)engaged in oppressive conduct in the conduct of the Excel Companies.
[2]A company admitted to be associated with Angelovski (see Exhibit JC 16 to the Affidavit of James Corbaleski sworn on 8 March 2013: Copy of E-mail from Eales & Mckenzie to Robert Taylor dated 29 March 2011 regarding reimbursement of funds).
In late 2010 Corbaleski discovered the Payments and as a result transferred funds in Excel’s bank account to a solicitor’s trust account in Excel’s name. There is no issue that these funds are company property. Corbaleski also wrote to the National Australia Bank and told the bank that both directors were required to authorise transactions.
Leave is therefore sought by Corbaleski to bring these proceedings on behalf of the Excel Companies as derivative claims pursuant to s 237 of the Corporations Act 2001 (Cth) (‘the Act’). Damages and compensation are sought against all defendants in respect of the Payments and the Transferred Phone Words.[3]
[3]On the morning of the trial, the Court was advised that Administrators had been appointed to each of the Second and Third Defendants that morning. The plaintiffs did not seek leave to proceed against these defendants. The solicitor for the defendants was given leave to cease acting on the basis that his instructions were withdrawn. All defendants were advised of this course on the first day of the trial, namely Monday 20 October 2014. The trial commenced on Tuesday 21 October 2014. There was no appearance on behalf of the Administrators or Angelovski. The matter proceeded on an undefended basis.
Further orders are sought[4] pursuant to s 233(1)(d) of the Act that:
(a)Corbaleski purchase Angelovski’s shares in Inform;
(b)Corbaleski purchase Angelovski’s share in Excel at values to be fixed by the court.[5]
[4]Pursuant to an amended Originating Process.
[5]Alternative orders are also sought.
Finally, as Inform acts only as the trustee of the Trust, the vesting date of the trust is sought to be brought forward to a date to be fixed by the Court or alternatively that the Court make a vesting order in respect to the trust pursuant to s 51(2)(o) of the Trustee Act 1958 (’the Trustee Act’).
The first main issue therefore is whether Corbaleski should be given leave to bring these proceedings in the name of the Excel Companies against Angelovski.
The second main issue is the amount of damages or compensation, if any, that Angelovski should pay to the Excel Companies as a result of the Payments and the Transferred Phone Words.
The third main issue is what if any orders should be made as a result of the deadlock and alleged oppression.
B. Leave to proceed against Angelovski
In my opinion this is a classic case where leave should be granted to Corbaleski to sue Angelovski in the name of the Excel Companies.
As a member and officer of Inform and Excel, Corbaleski has standing to bring a derivative action on behalf of each company against Angelovski.[6]
[6]Section 236 of the Act.
Under s 237(2) of the Act the Court must grant the application if it is satisfied of the following matters ‑
·It is probable that the company will not itself bring the proceeding.
·The applicant is acting in good faith.
·It is in the best interests of the company that the applicant be granted leave.
·There is a serious question to be tried by the Court.
·At least 14 days prior to making the application, notice was given to the company.
There is no opposition to the application. Further, and in any event I am satisfied that each requirement has been met. This is almost self-evident from the way in which the matter has unfolded including the unusual and perhaps even bizarre events that happened on the first day of the trial.
It is obvious enough that each of Inform and Excel will not bring a proceeding against Angelovski. He is an equal owner or partner and will not authorise proceedings against himself and his entities. This is obvious enough but is all the more so in light of the defensive position he has taken in the pleading filed.
I have read the affidavit of Corbaleski sworn 8 March 2013 (’Corbaleski Affidavit’) and observed him give evidence in Court. It is beyond question that he is acting in good faith and there is no suggestion to the contrary.
Each company (and the Trust) has been significantly impoverished by the actions of Angelovski and it is in their interests to recover from Angelovski any equitable compensation or damages that they may be entitled to.
It is obvious enough particularly in light of the defence filed that there are serious questions to be tried. Leave is sought nunc pro tunc and the required notice has been given.
In all of the circumstances there will be an order pursuant to s 237 of the Act granting Corbaleski leave to proceed against Angelovski in the name of each corporate plaintiff, that is, Inform and Excel.
C. The claim against Angelovski. Is Angelovski liable?
The claim for damages or equitable compensation is based on the breach of duty (both statutory and fiduciary) by Angelovski, a director of Excel and Inform, in relation to the Payments and the Transferred Phone Words. In my opinion each claim has been made out.
C1 Payments
It is pleaded and admitted[7] that from April 2009 to November 2010 Angelovski caused the Payments in the sum of $174,340[8] to be made from the bank account of Excel.
[7]As pleaded and admitted in the Statement of Claim and Defence.
[8]A number of documents refer to the sum of $172,340. This is an arithmetical error. The correct amount is $174,340.
The main defence to the allegation that the Payments were improper is that they were for “management fees” paid pursuant to an oral agreement between Angelovski and Corbaleski.[9]
[9]Paragraph 12 of the Defence.
Corbaleski gave uncontradicted evidence which I accept that there was never any agreement for management fees to be taken and the invoices rendered in relation thereto are simply bogus.
It should be noted that there is nothing in writing to back up or evidence any management fee agreement. Nor is there any evidence in respect of the alleged agreement for rent, pleaded in the defence as a further basis for withdrawing the amounts. Any such agreement is denied by Corbaleski and I accept his evidence.
Further, the payments include a cheque for $52,000 dated 15 April 2009 which is payable to Robert Plant Real Estate for a deposit on a property purchased by Angelovski or one of his entities. The narration on that cheque butt is ’Laz loan’. This is entirely inconsistent with the defendants’ pleaded position, that the amount was in relation to management fees and rental.
The invoices are completely devoid of detail and there is no correlation between the invoices and payments. Further, even if the invoices were legitimate, Angelovski in advance of any monies being raised, withdrew considerable sums.
Further the total payments are $174,340 and the amount of the invoices is $140,346. There is no explanation for the difference of $33,994.
I find that the Payments were made in circumstances where there was no obligation on the part of Excel or Inform to make such payments. They were unauthorised withdrawals made by Angelovski in breach of his statutory and fiduciary duties to Excel. The breaches are clear and do not require further identification or analysis.
Excel is also entitled to interest on the Payments at the Penalty Interest rate.[10] The total amount owing as at 28 October 2014 is the sum of $266,220.09.
[10]Pursuant to s 58 of the Supreme Court Act 1986 (Vic). There was no argument put to the contrary, either in regard to the rate or the date from which interest should run.
C2 Transferred Phone Words
It is alleged and admitted that between 2009 and 2012 Angelovski transferred from Inform, Phone Words being assets of Inform to Telsmart and Facility Services and then to others. To deal with Phone Words one requires the right of use PIN (ROUPIN). These have always been in the possession of Angelovski.
The exhibits to the Corbaleski Affidavit list the relevant Phone Words transferred by Angelovski without any authority and self-evidently in breach of duty. They are best and conveniently dealt with under the following headings ‑
(a)Exhibit JC 41 lists Phone Words (44) that were owned by Inform and subsequently owned by MPWA;
(b)Exhibit JC 42 lists Phone Words (92) that were previously owned by Inform but that were then owned by Telsmart;
(c)Exhibit JC 43 lists Phone Words (23) that were previously owned by Inform and subsequently owned by Facility Services.
Exhibits JC 41, 42 and 43 as refined and updated[11] by attachments B, C and D to the expert report of Dr Hung Chu,[12] a director of Lonegran Edwards and Associates Limited (’Expert Report’), represent all of the Phone Words transferred out of Inform without any authority and clearly in breach of duty. Some Phone Words remain with Inform and they are contained in Attachment A, which forms part of the Expert Report.
[11]Given the ease with which Phone Words can be transferred the information and identity of the various transferees has changed. The attachments represent the position as at 22 October 2014. Evidence to this effect was given by Corbaleski.
[12]Tab D of the Court Book as tendered (Exhibit P1).
This aspect of the case only concerns the Transferred Phone Words. The reason why they are divided into three categories is to better reflect the way in which the defendants have endeavoured to defend their actions. Other than to address the defence, the distinctions are not relevant.
Attachment B and Exhibit JC 41
There were a number of Phone Words, which were transferred from Inform to Telsmart and sold to MPWA in May 2012. As pointed out, these are listed in Exhibit JC 41, and were 44 in number as at the date of the Corbaleski Affidavit. As reflected in Attachment B they are no longer in the name of MPWA.
Angelovski says that the phone words in JC 41 were:
… forfeited by the Excel companies as no reconnection fee was paid by the due date which allowed them to be reconnected in the name of Telsmart.
Unlike other Phone Words which were lost as they were not reconnected and so fell back to the Australian Communications and Media Authority for public auction, these numbers were reconnected in the name of Telsmart while registered to Inform.
There is no suggestion that Inform or the Trust received anything for these numbers. The reconnection of the Phone Words in Telsmart’s name was a breach of Angelovski’s statutory and fiduciary duties to Inform. The breach was facilitated by the possession by Angelovski of the ROUPINs. Angelovski’s defence is disingenuous. First, if the Phone Words were able to be reconnected in the name of Telsmart, they could have been reconnected in the name of Inform. Secondly, to the extent that the reconnection fee was not paid because of a lack of funds this was caused by the Payments. Finally, the ability to reconnect and control of the Phone Words was at all times under Angelovski’s control.
On the basis that the Phone Words transferred from Inform were Trust property, it was submitted that these proceeds of sale must also be Trust property. The breaches of duty are self-evident and further elaboration is not required.
There is a dispute as to the ownership of one half share of the phone word 13 TRAVEL. This Phone Word is included in JC 41 and Attachment B. This is the single most valuable number that is in dispute. The plaintiffs’ case is that one half of the ownership of this phone word is the property of Inform. The plaintiffs accept that Mr John Paris (’Paris’) is the other 50% owner of 13 TRAVEL.
The plaintiffs contend that there was an agreement that 50% of the cost of this number was to be paid by Paris,[13] and 50% by Corbaleski and Angelovski on behalf of Inform. Corbaleski gave evidence to this effect and I accept his evidence.
[13]Mr Paris is an associate of Angelovski. He is the godfather to all of Angelovski’s children.
It is admitted that 13 TRAVEL was registered in the name of the Excel Companies and was transferred out.[14]
[14]See Exhibit JC 22 to the Affidavit of James Corbaleski sworn on 8 March 2013: Copy of Facsimile from Eales & Mckenzie to Lennon Mazzeo Lawyers dated 20 October 2011 regarding outstanding issues .
The plaintiffs contend, correctly in my view, that this is another example of a diversion of company property to Angelovski.
Dr Chu values 13 Travel at between $682,500 and $747,500. 50% of that figure gives an amount between $341,250 and $373.750. Further loss of profits has been calculated at $225,500. One half is $112,750.[15]
[15]Schedule 5 to Plaintiff’s submissions.
The expert evidence, which I accept is that damages in respect of the present value of the Phone Words in Attachment B (Exhibit JC 41) is $885,120. To this must be added the sum of $112,750 representing loss of profits. These figures include damages and loss of profits in respect of 13 TRAVEL. The total amount is $997,870.
Attachment B (Exhibit JC 41) contains 43 numbers. These Phone Words were owned by Inform but were transferred out through Telsmart to MPWA. They are now either in the name of Prefix Communications, a company with a connection to Angelovski or available in the auction pool. I have rejected the defence that the numbers were forfeited because the reconnection fee was not paid. Dr Chu has calculated damages at $885,120.
Other than three Phone Words which are leased, the remaining Phone Words (40) which are not leased are valued at $538 each. The sum of $538 is an average value and is arrived at by using the value of the total portfolio of 65 non-leased Phone Words ($35,000). This value, divided by the 65 Phone Words, gives an average of $538 per Phone Word. This methodology and calculation is set out at paragraphs 78(b) and 125 of the Expert Report which I accept.
The three Phone Words comprising numbers 5 (133262 Donate), 23 (137384 Retire) and 39 (138728 Travel) on Attachment B are dealt with differently. These Phone Words are all leased. By reference to the specific leases, Dr Chu has calculated a capital value based on the discounted future maintainable earnings methodology. In evidence and in the Expert Report (paragraphs 117, 120, 129) Dr Chu said that this was the most acceptable method. I accept his evidence. The capital values are $159,600 (paragraph 120 Expert Report), $346,500 (paragraph 117 Expert Report) and $357,500 (paragraph 129 Expert Report).[16]
Attachment C and Exhibit JC 42
[16]This represents 50% of the value because of the 50% interest held by Mr Paris, a close friend of Angelovski.
Angelovski says that the Phone Words in Exhibit JC 42:
… were transferred from the Excel companies to Telsmart to compensate Angelovski for the unauthorised withdrawal by Corbaleski of $116,804 from the Excel company’s bank accounts in November and December 2010.[17]
[17]Defence paragraph 16.
There can be no sensible suggestion, it was submitted, that Phone Words unilaterally taken to “compensate” Angelovski are not Trust property. Even if the allegations against Corbaleski are accurate (especially bearing in mind that the funds were transferred from Excel’s bank account to the solicitors, not from the Trust), the remedy is to come to the Court not to simply help oneself to the Trust’s property. The defence is nonsense and there is substance in this submission. The breaches of statutory and fiduciary duty are again very much self-evident and no further analysis is required.
The expert evidence which I accept is that damages in respect of the current value of the Phone Words in Attachment C (Exhibit JC 42) is $451,286. To this must be added the sum of $97,530 representing loss of profits in respect of 137366 Removal. The total amount is $548,816.
Attachment C (Exhibit JC 42) contains 92 numbers. These Phone Words were owned by Inform but were transferred to Telsmart or through Telsmart (or directly) to other entities connected with Angelovski. These Phone Words are now either in the name of Telsmart or another associated company of Angelovski or available in the auction pool. I have rejected the ridiculous defence that the Phone Words (trust property) were taken to somehow compensate Angelovski for the actions of Corbaleski in paying funds into the solicitor’s trust account. Dr Chu has calculated damages at $451,286.
Most of the Phone Words (79 out of 92) in Annexure C are not leased and are valued at $845 each. The methodology is explained in paragraphs 59 and 85 of the Expert Report. The methodology, which I accept, is the same as the calculation of $538 in relation to Attachment B and Exhibit JC 41.
A further four Phone Words in Annexure C are not leased and are, based on the same methodology valued at $934 each. This slightly different calculation, based on a different portfolio and which I accept is explained in paragraphs 59 and 110 of the Expert Report.
A further four Phone Words in Annexure C are valued at lower amounts as follows:
·Number 9 - $400
·Number 50 - $500
·Number 62 - $275
·Number 72 - $500
The explanation, which I accept, is given in paragraph 78(c) of the Expert Report.
The three Phone Words comprising numbers 7 (137366 Removal), 30 (1300 338 328 Detect) and 77 (1800 284 533 1800 Builder) on Annexure C are leased and capital values ($336,000, $37,800 and $3,630 respectively) have been calculated by Dr Chu in accordance with the discounted future maintainable earning methodology previously referred to. I accept the evidence and valuation. The calculations are at paragraphs 107, 77 and 78(c) of the Expert Report.
Attachment D and Exhibit JC 43
The Phone Words in Attachment D (Exhibit JC 43) were ones which were not reconnected, went back into the public auction pool and were then purchased by Facility Services.
Angelovski says that Phone Words in Exhibit JC 43:
… were forfeited by the Excel companies as no reconnection fee was paid by the due date as a result of which they were then allocated to the public auction pool and purchased at public auction.
Again, the breach of statutory and fiduciary duties is self-evident. Clearly, Angelovski took advantage of a commercial opportunity by reason of his knowledge as a director of Inform. Further, as pointed out, it arises due to the very deadlock created by the making of the Payments, in breach of duty.
The expert evidence which I accept is that damages in respect of the current value of the Phone Words in Attachment D (JC 43) is $12,098.
Attachment D (Exhibit JC 43) contains 23 numbers. These Phone Words were owned by Inform. These Phone Words went back into the public auction pool and were acquired by Facility Services. These Phone Words are either back in the auction pool or in the name of Prefix Communications Pty Ltd or another associated company or person of Angelovski, or indeed an unrelated third party. I have rejected the defence that the numbers were forfeited because the reconnection fee was not paid. Dr Chu has calculated damages at $12,098.
Most of the Phone Words (21 out of 23) are valued at $538 each and the calculation is exactly the same as in relation to Attachment B (Exhibit JC 41) (see paragraph 50 above). The remaining two Phone Words comprising numbers 10 and 16 in the attachment are valued at $400 each. The explanation is in paragraph 78(a) of the Expert Report which I accept. The amounts are actual amounts.
Conclusion
The total amount in respect of damages is the sum of $1,558,784.[18]
[18]The calculation specifically does not take into account any allowances. It is not for the Court to speculate what if any allowances should be permitted or the precise amount paid for any reconnection.
Further, I find based on the Expert Report which I accept that the value of the Phone Words that remain registered in the name of Inform and Excel (Attachment A) is $1,321,846.[19]
[19]The methodology is set out in paragraphs 58 and 82 of the Expert Report.
C3 Total amount of damages
It follows that in making the Payments and the Transferred Phone Words, Angelovski has failed to act in good faith in the best interests of the Excel and Inform and for proper purposes. He has also used the information of Excel and Inform and in the process gained an advantage for himself and caused detriment to Excel and Inform. He is accordingly in breach of ss 181, 182 and 183 of the Act and his fiduciary duties to each of Excel and Inform. Accordingly, he is liable for damages or equitable compensation in the total sum of $1,825,004.
D. Deadlock, oppression and consequences
Corbaleski alleges that he has been systematically excluded from the management of the Excel companies and relies upon the matters set out in his affidavit at [35], [40], [45], [48], [49], [51], [60]-[67], [80]-[83].
The remaining question is the fate of the ‘partnership’ or more particularly Inform and the Trust and Excel.
It is obvious enough that there is a deadlock and that the Excel Companies cannot continue to operate. How is the ‘partnership’ to be dissolved.
Under s 233 of the Act the Court has a very wide discretion. I will not order a winding up of each company. It is not sought and is not desirable.
Originally Corbaleski sought orders to the effect that his interests be bought out by Angelovski and his interests. By his Amended Application and Amended Statement of Claim ‑ all served on all defendants ‑ he now seeks orders to the effect that his interests to the exclusion of the Angelovski interests take control of the Excel Companies either by way of a buy-out or buy-back procedure. The precise mechanism and manner remains to be determined. In my opinion and in the exercise of my wide discretion this approach is the most desirable for the following reasons.
First, these are the orders sought by Corbaleski in preference to any other disposition. There being no opposition, there is no reason why this course should not be followed. It is available and in my opinion, and in any event, desirable.
Secondly, given the conduct of Angelovski as a director of the Excel Companies I do not consider that it is desirable that he remain at the helm of these Companies, particularly in circumstances where tax returns, accounts and other matters need to be attended to. Also it is of significance that he is a substantial debtor of the Excel Companies.
Thirdly, the decision by Angelovski not to appear, despite the matters raised in his defence and to appoint Administrators to the corporate defendants on the morning of the hearing reinforce my opinion and decision that he should not be permitted to take control of the very companies that he has mismanaged.
In all of the circumstances, it is most undesirable that the Angelovski interests be the acquiring party.
Accordingly, I propose to make orders that will have the effect of dissolving ‘the partnership’ and permitting the Corbaleski interests to in effect be the acquiring party.
E. Disposition
For the reasons given there will be orders giving effect to the following ‑
(a)giving Corbaleski leave pursuant to s 237 of the Act to commence proceedings against Angelovski in the name of Inform and Excel;
(b)appropriate orders for damages or equitable compensation against Angelovski and in favour of Inform and Excel for breach of statutory and fiduciary duties;
(c)that the Corbaleski interests, in a manner to be determined, acquire ownership and control of the Excel Companies, and that pending such determination Angelovski be removed as a director of Excel and Inform and deliver up all books and records of each of Inform and Excel to Corbaleski. Further, it is desirable at this stage that Angelovski transfer his $1 share in Inform to Corbaleski for $1.
(d)that the proceeding be adjourned sine die for the purpose of making further appropriate orders as and when necessary;
(e)that Angelovski pay the plaintiffs’ costs of this proceeding including reserved costs on an indemnity basis.
I will hear from the parties as to the precise form of the orders and the further disposition of the matter.
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