JEREMY JOSEPH NIPPS as liquidator of DKC (WA) PTY LTD (In Liq) - [2020] WASC 328

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   JEREMY JOSEPH NIPPS as liquidator of DKC (WA) PTY LTD (In Liq) [2020] WASC 328
CORAM:   MASTER SANDERSON
HEARD:   9 JUNE 2020
DELIVERED          :   15 SEPTEMBER 2020
PUBLISHED           :   15 SEPTEMBER 2020
FILE NO/S:   COR 22 of 2020
BETWEEN:   JEREMY JOSEPH NIPPS as liquidator of DKC (WA) PTY LTD (In Liq)
Plaintiff
JACQUE CYRILLE PTY LTD
First Interested Party
DEARNE KATHLEEN CANT
Second Interested Party

Catchwords:

Corporation law - Application by liquidator for direction - Turns on own facts

Legislation:

Supreme Court (Corporations) (WA) Rules 2004

Result:

Direction given

Representation:

Counsel:

Plaintiff	:	P Mac
First Interested Party	:	C K Pearce & J R Shepherd
Second Interested Party	:	T Darbyshire

Solicitors:

Plaintiff	:	Edwards Mac Scovell Legal
First Interested Party	:	Blackwall Legal LLP
Second Interested Party	:	Kott Gunning

Case(s) referred to in decision(s):

Nil

MASTER SANDERSON:

By originating process filed 25 February 2020 the plaintiff, as liquidator of DKC (WA) Pty Ltd sought relevantly the following order:
A direction pursuant to section 90‑15(1) of the Schedule that the plaintiff is justified in treating the Disputed Inventory (as defined in the supporting affidavit of Jeremy Joseph Nipps sworn 25 February 2020) as assets of the Company.
In response to the application two interested parties sought and were granted leave under r 2.13 of the Supreme Court (Corporations) (WA) Rules 2004 to appear and file evidence and submissions in these proceedings. These parties were Jacque Crille Pty Ltd, a company described in these reasons as the 'first interested party' and Dearne Kathleen Cant, described in these reasons as the 'second interested party'. It is first necessary to give an outline of events from the liquidator's point of view.
On 19 September 2019 the plaintiff was appointed as liquidator of the company pursuant to a resolution of the company's sole director and shareholder, the second interested party.[1] Prior to the plaintiff's appointment, the company carried on business as a jewellery retailer and operated that business from a premises situated in Claremont.[2] The company carried on and sold jewellery supplied by various suppliers. One of those suppliers was the first interested party.[3] Upon the plaintiff's appointment the liquidator caused all of the company's stock to be secured from the premises.[4] The stock secured (588 individual pieces of jewellery) had a retail value of approximately $3 million.[5] The first interested party has asserted that the stock secured included items which were held by the company on consignment.[6] Upon his review of the company's books and records and documentation provided by the first interested party, the plaintiff formed the view that there was insufficient evidence upon which he could be satisfied that a consignment arrangement existed between the company and the first interested party.[7] Further it emerged that there was a factual controversy between the interested parties as to matters which underpinned the first interested party's claim to the disputed inventory and which the plaintiff was not in a position to resolve on the basis of information available to him.
[1] Affidavit of Jeremy Joseph Nipps sworn 25 February 2020, [6].
[2] Affidavit of Jeremy Joseph Nipps sworn 25 February 2020, [7].
[3] Affidavit of Jeremy Joseph Nipps sworn 25 February 2020, [8].
[4] Affidavit of Jeremy Joseph Nipps sworn 25 February 2020, [9].
[5] Affidavit of Jeremy Joseph Nipps sworn 25 February 2020, [9].
[6] Affidavit of Hung Yee Chan sworn 12 May 2020, [5].
[7] Affidavit of Jeremy Joseph Nipps sworn 25 February 2020, [27].
At pars 10 and 11 of their written submissions the first interested party sets out matters which are agreed and the matters which are in dispute. These paragraphs read as follows:
10. Based on the evidence filed to date, at least the following common facts can be discerned from the affidavits filed by the Plaintiff, JC and Ms Cant:
(a) The Company was registered in June 2018.
(b) There was an agreement between Ms Cant and the director of JC, Ms Hung Yee Chan (Ms Chan), that Ms Cant would pay ~$425,000 to purchase the business of Jools, a jewellery retail store leased by Silvermist Investments Pty Ltd.
(c) The Company, trading as Charles Edward Jools (Jools) opened for trade in July 2018 at Unit 5, 20 St Quentin Avenue Claremont (Store).
(d) Ms Cant did not work at the Store at all from its commencement of trading in July 2018 until 9 January 2019.
(e) Ms Chan caused staff to be employed to work in the Store on the Company’s behalf, including Ms Barbara Gould, who worked in the Store from when it opened until administrators were appointed, and Elise Kwek, who worked in Ms Chan’s head office until around January 2019 when she started to work at the Store.
(f) Between July 2018 and September 2019, Ms Cant worked a total of 46 shifts in the Store.
(g) Ms Cant contributed just under $435,000 to the Company, including the initial payment of $425,000.
(h) Jools obtained stock on consignment from various retailers.
(i) Ms Cant did not negotiate any of the consignment arrangements entered into by the Company, and instead all such negotiations were arranged by Ms Chan on the Company’s behalf.
(j) Stock was moved between JC and the Company on a regular basis. Stock movements tended to be recorded by way of stock movement forms in the following manner:
(i) a staff member at the Store would contact JC’s head office and request a certain style of jewellery at a certain price point;
(ii) the stock would be prepared at JC’s head office and a stock movement form would be generated; and
(iii) the stock would be delivered to the Store with the stock movement form where a staff member would check the stock against the stock movement form.
(k) The stock movement forms did not indicate that the jewellery had been purchased.
(l) All jewellery that came into the store was labelled with a Recommended Retail Price.
(m) Ms Cant placed JC into liquidation around 16 September 2019.
(n) Ms Cant withdrew $289 from the Company’s bank account on 18 September 2019, after the appointment of the Plaintiff as liquidator.
Disputed facts
11. The following relevant facts are disputed:
(a) that a consignment arrangement was discussed between Ms Chan and Ms Cant (Ms Chan attests to the fact that she had a conversation with Ms Cant in which this arrangement was discussed, whereas Ms Cant denies that this conversation occurred); and
(b) whether JC or the Company owned the stock that was being rotated through the store (Ms Chan states that DKC purchased $400,000 worth of jewellery when it first commenced trading from the Shop, whereas Ms Cant says that nobody ever suggested to her that the Company had not paid for the stock that was being delivered from time to time by JC).
The circumstances in which the second interested party came to own and operate the business are set out in an affidavit of Hung Yee Chan sworn 26 March 2020. Paragraphs 11 through to 23 of that affidavit read as follows:
11.I first met Dearne Kathleen Cant (Dearne), the director of DKC, in or about 2012 or 2013 at a store called Jools in Claremont Quarter.
12.At the time, JC was sending consignment stock to Jools and Dearne was a customer.
13.Jools had a lot of social functions at the store and I came to know Dearne through those social functions.
14.At that time, DKC had not yet been incorporated and Dearne was not employed but was looking for temporary work. I know this because Dearne told me this. I tried to assist Dearne with obtaining work by speaking to my acquaintances in the jewellery industry.
15.To the best of my information and belief, Dearne had no experience selling jewellery prior to setting up DKC. However, Dearne does own a lot of jewellery and it was natural for me to assist her as we had become friends over time.
16.In early 2018, Dearne approached me and said to me, words to the effect, that she had inherited some money from her mother and wanted to invest the money because the banks were only paying 1-2% interest.
17.At that time, another company of which I am a director, Silvermist Investments (WA) Pty Ltd, was leasing a store at Shop 5, 20 St Quentin Avenue, Claremont (premises) from which it was operating a retail jewellery business.
18.At the time, I was considering closing the shop and so, rather than close the business, I offered to Deane for her to lease the premises from me and to set up DKC from the premises.
19.As the premises was already set up to trade as a retail jewellery store, I offered to sell the fixtures and fittings to DKC for $20,000.
20.Dearne said to me, words to the effect, that she had $400,000 to invest in stock for the store.
21.I responded to Dearne, with words to the effect, that $400,000 was not enough to fill the store so:
(a)JC could consign to DKC about $1 million worth of stock (on top of the $400,000 stock that DKC purchased);
(b)JC would own the stock while DKC tried to sell it;
(c)DKC would have no liability to pay for the stock unless it sold the stock, at which time JC would issue an invoice to DKC;
(d)JC could take the stock back at any time; and
(e)DKC could return the stock at any time.
22.Dearne accepted the offer.
23.I recall that Dearne also asked me to assist with setting up DKC as she had never run a business before. I responded that I could provide 2 staff members to show her how to run the store. Those two staff members were Maria Samnino and Theresa Spence.
There is some minor dispute between the parties as to the basis upon which the second interested party took over the business. At best the position is murky. There was never any sale agreement which set out the terms and conditions upon which the business was transferred to the second interested party. In the end, the arrangements for the sale of the business are probably of no consequence. All that can be said is that there was nothing in the sale agreement which touched upon the alleged consignment agreement between the company and the first interested party.
At the commencement of the hearing counsel for the interested parties took objection to certain parts of the affidavit material filed.[8] Agreement was reached in relation to the affidavit of the plaintiff sworn 16 April 2020. In relation to the affidavit of the second interested party sworn 17 April 2020 objection was taken to parts of pars 34, 36 and 54. Essentially these objections were either that the deponent did not provide first‑hand evidence of what she saw, heard or did or that she was offering a legal opinion. In relation to the objections as to pars 34 and 36, I was satisfied the deponent was giving evidence as to her understanding of the relationship with Ms Chan. On that basis the statements were unobjectionable. In relation to par 54, the statement that 'the stock was on consignment' might be interpreted as a legal conclusion. It could also be interpreted as the deponent's understanding of the actual position. In other words, a statement of her belief rather than a statement of what she believed the position to be at law. On that basis I allowed the material to stand.
[8] Schedule of objections to evidence of the plaintiff and Dearne Kathleen Cant filed 24 April 2020 and list of objections to affidavit material filed 5 June 2020.
Objection was taken to par 10 of the affidavit of Piah Noi Kwek sworn 26 March 2020. The paragraph deals with the mechanics of stock delivery. The objection was that the evidence was a conclusion and did not deal with the underlying evidence. With respect, the evidence recounts what in normal circumstance would occur. It is evidence of the fact. In my view it is admissible.
Objection was taken to pars 10, 32 and 33 of the affidavit of Ms Chan sworn 26 March 2020. In relation to par 10 it was said that the evidence was of opinion and was vague and irrelevant. It is true the evidence deals with what Ms Chan says is the norm in the jewellery business. But Ms Chan is providing nothing more than background to the arrangement she says applied in this case and why it applied. The evidence can be seen as what it actually is – background. It is not probative but it does provide context. As such it can stand.
The objection to pars 32 and 33 largely mirrored the objection to par 10 of Ms Kewk's affidavit. For the same reason I was prepared to allow those paragraphs into evidence. They seem to me to be direct evidence of the practice followed by the first interested party.
Objection was also taken to the second affidavit of Alexander Shing Sheng Ooi sworn 5 June 2020. In particular objection was taken to the use of the word 'consignment' in pars 4 and 5. For the reasons given earlier I am satisfied the use of that word is inoffensive and can stand.
Ms Chan says in her affidavit sworn 26 March 2020 that in or around July 2018 she reached what she calls the 'consignment agreement'. That paragraph reads as follows:
26.The arrangement that I reached with Dearne was that:
(a)JC would supply jewellery to DKC by way of consignment;
(b)when the jewellery was delivered to DKC, the employee would sign a stock movement form;
(c)the consigned jewellery would not be put into the DKC books unless it was sold, at which time JC would issue an invoice;
(d)JC would retain ownership of the jewellery supplied to DKC;
(e)JC could take back possession of the jewellery supplied by way of consignment at any time;
(f)DKC could return the jewellery supplied by way of consignment at any time with no obligation to pay for the jewellery;
(g)DKC would only be obliged to pay for the jewellery if it was sold to a third‑party;
(h)when the jewellery was delivered to DKC it would include a Recommended Retail Price (RRP);
(i)whilst JC stock was in the possession of DKC it would be insured by DKC's insurance policy; and
(j)when DKC did sell an item of jewellery:
(i)if the RRP was less than $100,000, the RRP would be divided by 2.8 to determine the amount to be paid to JC (exclusive of GST);
(ii)if the RRP was greater than $100,000, the sum to be paid to JC would be determined at the point of sale by Dearne (or the relevant DKC employee selling the jewellery) calling me; and
(iii)JC would issue a tax invoice to DKC for payment of its share of the proceeds of the sale,
(consignment arrangement).
Although it is not entirely clear from her affidavit, Ms Chan, in cross‑examination, said discussions took place with the second interested party and an oral agreement was concluded. For her part, the second interested party said no such discussion took place and she had no clear idea of the arrangement for the supply of jewellery to the company.
Having heard both witnesses cross‑examined, I am satisfied that no such discussion, as alleged by Ms Chan, took place. What is remarkable about this case is the lack of any understanding on the part of the second interested party about the internal workings of the business. She clearly had no business experience at all. She appears to have made no endeavour to familiarise herself with the workings of the jewellery business generally and this business in particular. I am not satisfied Ms Chan ever took it upon herself to explain the way the business would operate as reflected in what she alleges was the agreement detailed in par 26.
Having said that, I am also satisfied that is the basis upon which the business operated. In his cross‑examination of Ms Chan, counsel for the second interested party went to some lengths to show there was documentation, which on its face appeared to be inconsistent with the consignment arrangement. The plaintiff, in his examination of the books and records of the company, appears to have reached the same conclusion. As the plaintiff acknowledges, the books and records of the company were not properly maintained making it difficult to ascertain just what arrangements were in place. But taken in the overall, I can see no basis for concluding other than the consignment arrangement was in place.
Accordingly, I am not satisfied the orders sought by the plaintiff should be made. Rather, directions should be given which reflect an entitlement to the disputed goods, based upon the consignment agreement. I will hear the parties as to the precise form of orders and as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CB
Associate to Master Sanderson

15 SEPTEMBER 2020

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: JEREMY JOSEPH NIPPS as liquidator of DKC (WA) PTY LTD (In Liq) [2020] WASC 328 (S)
CORAM:   MASTER SANDERSON
HEARD:   ON THE PAPERS
DELIVERED          :   13 NOVEMBER 2020
PUBLISHED           :   13 NOVEMBER 2020
FILE NO/S:   COR 22 of 2020
BETWEEN:   JEREMY JOSEPH NIPPS as liquidator of DKC (WA) PTY LTD (In Liq)
Plaintiff
JACQUE CYRILLE PTY LTD
First Interested Party
DEARNE KATHLEEN CANT
Second Interested Party

Catchwords:

Costs – Turns on own facts

Legislation:

Legal Profession Act 2008 (WA)

Result:

Plaintiff's costs to be paid out of assets
No other order as to costs

Category: B

Representation:

Counsel:

Plaintiff	:	No appearance
First Interested Party	:	No appearance
Second Interested Party	:	No appearance

Solicitors:

Plaintiff	:	Edwards Mac Scovell Legal
First Interested Party	:	Blackwall Legal LLP
Second Interested Party	:	Kott Gunning

Case(s) referred to in decision(s):

Preston (as receivers and managers of Sandalwood Properties Ltd (administrators appointed) (receivers and managers appointed)) [2018] FCA 816

MASTER SANDERSON:

These reasons deal with the question of costs, which was left open in my published reasons. Each of the three parties takes a different position. The plaintiff contends his costs and expenses of the application should be paid from the assets of the company, with each of the interested parties to bear their own costs. The first interested party seeks an order the plaintiff and the second interested party pay its costs to be taxed if not agreed with the scale limit under Item 11(a) of the Determination to be removed pursuant to s 280(2) of the Legal Profession Act 2008 (WA). The second interested party does not appear to contest the plaintiff's view his costs should be paid out of the assets of the company, but says the first interested party should bear her own costs and should pay the costs of the second interested party. It is difficult to imagine the parties could be further apart.
All parties accept the law relating to the award of costs following an application for directions by an external administrator, as set out by Colvin J in Preston (as receivers and managers of Sandalwood Properties Ltd (administrators appointed) (receivers and managers appointed)) [2018] FCA 816. In his submissions, counsel for the second interested party summarises the principles as follows:
(1)the awarding of costs is discretionary;
(2)judicial discretion must be exercised according to principles;
(3)in adversarial proceedings, the ordinary rule is that costs follow the event on a party party basis;
(4)in applications for directions that are essentially non‑adversarial, the ordinary rule is that costs be paid out of the fund in question on an indemnity basis; and
(5)the ordinary rule as to costs may be displaced by disentitling conduct.

The starting point is to acknowledge the plaintiff was in a position where he was not able to ascertain the ownership of the disputed goods. The records of the company were not such as to confirm ownership one way or the other. The first interested party asserted a right to the goods based on the consignment agreement. The second interested party disputed any such agreement existed. In all the circumstances, the plaintiff really had no choice but to make the application. Accordingly, his costs ought be paid out of the assets of the company. In no way could it be said he engaged in disentitling conduct.
The same cannot be said for the interested parties. Ms Chan, the main witness for the first interested party gave evidence of an oral agreement which I was satisfied was never reached with Ms Cant, the second interested party. If that agreement, which was very much in favour of the first interested party, had been documented or if the contemporaneous records had provided a reasonable paper trail, the plaintiff's application may not have been necessary. So there are two aspects of the first interested party's conduct which are problematic. First, and most importantly, the failure to document the consignment agreement. Second, Ms Chan giving evidence of an oral agreement, which I am satisfied was never reached.
So far as the second interested party is concerned, her failure to manage the affairs of the company in any reasonable fashion was inexcusable. It may well have been the case this business would have failed no matter what management practices were used. But given the second interested party's lack of attention to the running of the business, it was almost doomed to fail. It is not to the point to say that Ms Chan was effectively running the business. It was for the second interested party to exercise the control vested in her as a director.
In summary then, I am not satisfied that either of the interested parties should have their costs paid from the assets of the company. Nor am I satisfied there should be an order for costs one against the other. Really there are no winners in this unhappy saga. The best outcome is costs should lie where they fall. Accordingly, in broad terms, the orders should be as follows:
(1)The plaintiff's costs and expenses of the application be paid out of the assets of the company.
(2)There be no further order as to costs.
The parties should confer as to the form of orders generally and the form of the costs order in particular. If no agreement can be reached, then competing minutes of orders ought be filed within seven days of the date of these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

TM
Associate to Master Sanderson

13 NOVEMBER 2020