JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) (No 3)
[2010] VSC 623
•23 December 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
S CI 2009 05417
| JGM NOMINEES PTY LTD (ACN 006 210 402) | Firstnamed plaintiff |
| - and - | |
| SEVENTH ASTEROID PTY LTD (ACN 006 077 256) | Secondnamed plaintiff |
| - and - | |
| ROCCO ANTONIO CALDERONE | Thirdnamed plaintiff |
| v | |
| TULIP INVESTMENTS PTY LTD (ACN 112 507 221) | Firstnamed defendant |
| - and - | |
| AUSTRALVIC PROPERTY MANAGEMENT PTY LTD (ACN 113 858 021) (in liquidation) | Secondnamed defendant |
APPEAL – decision of associate judge – funds in court – balance of proceeds of mortgagee’s sale of property – who entitled to funds – whether property held on trust under joint venture agreement – whether trust a sham – whether property subject of charges – whether debts owing and secured by charges - appeal do novo - appeal dismissed - Supreme Court (General Civil Procedure) Rules 2005, r 77.06.
PRACTICE AND PROCEDURE – costs – appeal against decision of associate judge - order that liquidator should pay costs personally – whether should have been order for liquidator to recover costs and expenses from disputed funds in court – liquidator at all times reasonably conducted defence of company – liquidator performed statutory function as officer of the court – appeal allowed.
JUDGE: | BELL J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 June 2010 | |
DATE OF JUDGMENT: | 23 December 2010 | |
CASE MAY BE CITED AS: | JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) (No. 3) | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 623 | |
APPEARANCES: | Counsel | Solicitors |
| For the plaintiffs | Mr I Upjohn | John Matthies and Co |
| For the firstnamed defendant | No appearance | |
| For the secondnamed defendant | Mr G McCormick | Goldsmiths |
HIS HONOUR:
INTRODUCTION
Rocco Calderone was a property developer. He and his associated companies entered into a joint venture agreement with Michael Kyriakou and his associated companies, including Australvic Property Management Pty Ltd. Under the joint venture arrangements, Mr Calderone transferred his property at 23 Oxford Street, Oakleigh to Australvic to be held on trust for him.
The joint venture failed causing Mr Calderone substantial losses. Australvic has gone into liquidation. Mr Calderone has fallen out with Mr Kyriakou.
Australvic mortgaged the property but defaulted. The property was sold by the mortgagee, who took most of the proceeds to satisfy the amount due, paying the balance of $123,649.09 into court. Mr Calderone also contends that certain loans were secured by charges which Australvic gave over the property.
Mr Calderone and his companies, on the plaintiffs’ side, and Australvic’s liquidator, on the defendant’s side, are now dispute over who is entitled to the funds in court. Mr Calderone says the funds should go to him and his companies for he was beneficially entitled to the property under the trust, and there are unpaid loan funds which were secured by the charges. The liquidator says he should have the funds in court as the trust was a sham and nothing is owing under the security of the charges.
Associate Justice Daly decided in favour of Mr Calderone and made orders giving him access to the funds in court. Her Honour also ordered the liquidator personally to pay a substantial portion of the costs of Mr Calderone and his companies. The liquidator now appeals against those orders, for which he needs leave to appeal.
LEAVE TO APPEAL TO THE LIQUIDATOR
The application was commenced by originating motion dated 13 March 2009. On the plaintiffs’ side, the parties were JGM Nominees Pty Ltd and Seventh Asteroid Pty Ltd (which Mr Calderone controlled) and Mr Calderone personally. On the defendants’ side, the parties were Tulip Investments Pty Ltd and Australvic. Tulip Investments did not participate in the proceeding as it made no claim to the funds in court. The plaintiffs sought orders for the payment of the funds in court to them.
The proceeding was closely managed by the associate judges, who made various orders for the preparation and conduct of the hearing.
The substantive application was heard by Associate Justice Daly on 13, 14 and 15 October 2009. At the hearing, the plaintiffs relied on affidavits of Mr Calderone dated 23 February 2009, 6 October 2009 and 13 October 2009. Mr Calderone was extensively cross‑examined at the hearing. Australvic relied on an affidavit of the liquidator, Michael McCann, dated 14 May 2009. Other affidavits were filed and served in relation to a security for costs application which was made by the plaintiffs.
Associate Justice Daly determined the application in favour of Mr Calderone by judgment delivered on 4 December 2009.[1] She said she would hear the parties on the appropriate form of orders and the question of costs.
[1]JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) [2009] VSC 545.
On 15 December 2009, Australvic applied by summons for orders that the liquidator’s costs and expenses, and the liquidator’s costs of the proceeding (taxed on a solicitor‑client basis), be paid out of the funds in court. The hearing on the question of costs occurred on 17 December 2009. There the plaintiffs relied on an affidavit of Mr Calderone dated 17 December 2009. The liquidator relied on an affidavit of his own dated 14 December 2009.
Associate Justice Daly delivered judgment on the question of costs on 31 March 2009.[2]
[2]JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) (No. 2) [2010] VSC 104.
The notice of appeal was filed on 8 April 2010. It states that ‘the Secondnamed Defendant and its liquidator Michael McCann does hereby appeal the judgment and orders of Associate Justice Daly made 31 March 2010 pursuant to Rule 76.06’.
While Associate Justice Daly determined the costs application on 31 March 2010, her Honour did not make any orders on that day. However, I was told that Australvic’s solicitors lodged the notice of appeal on the basis that the final orders in respect of both judgments were made on 31 March 2010. I think that was a reasonable assumption to make. Her Honour’s final orders were in fact made on 14 April 2010.
These are the orders which Associate Justice Daly made on 14 April 2010:
1.The remuneration of the liquidator of the Second Defendant and the party/party legal costs of the Second Defendant, up to and including 15 July 2009, be paid from the funds held in Common Fund No. 1 and debited to account No. 70877, such remuneration and costs to be assessed and taxed (respectively) in default of agreement.
2.The balance of such funds be paid to the solicitors for the Plaintiffs.
3.The liquidator pay the Plaintiffs’ costs of the proceeding (save for the costs of the Plaintiffs’ application for security for costs filed 18 September 2009) to be taxed on a party/party basis otherwise there be no order as to the parties’ costs, including the costs of the Plaintiffs’ application for security for costs filed 18 September 2009.
4.Subject to the retention of a sum sufficient to cover any taxation liability, as an interim distribution of the funds in court pending assessment of the liquidator’s remuneration and taxation of the parties’ costs, the sum of $105,000 be paid to the solicitors for the Plaintiffs, with the balance to the Second Defendant.
5.Following assessment of the liquidator’s remuneration and taxation of the parties’ costs, the Plaintiff and the Second Defendant and the liquidator of the Second Defendant shall adjust the interim distribution effected by paragraph 4 above between themselves to give effect to paragraphs 1 and 2 above.
6.The costs of the liquidator’s summons filed 16 December 2009 be reserved until after the assessment of such remuneration and taxation of such costs has been completed.
7.This order be stayed until after the final hearing and determination of the Second Defendant’s appeal pursuant to Rule 77.06 brought by notice filed 8 April 2010.
8.There be liberty to apply with respect to the working out of this order and the question of the costs reserved pursuant to paragraph 6 of these orders.
In the appeal, the plaintiffs relied on an affidavit of Mr Fox dated 14 April 2010 and an affidavit of Mr Calderone dated 24 June 2010, as well as his earlier affidavits. Australvic relied on Mr McCann’s earlier affidavits.
No evidence was given in the appeal of the oral evidence which was given to Associate Justice Daly. No transcript of that evidence was available. All parties to the appeal submitted I should conduct the appeal as a re‑hearing de novo under rule 76.06(7) on the basis of the “objective evidence”, giving whatever weight was proper to the findings and decision of her Honour.
Under rule 76.06(2), no order or judgment as to costs shall be the subject of appeal under rule 76.06(1) except by leave of a judge of the court or the associate judge who determined the matter. Associate Justice Daly has not given that leave. Against the plaintiffs’ opposition, Australvic applies for that leave from me.
As this judgment will demonstrate, the decision in relation to the costs question raises issues of substantial importance. A number of issues of principle are involved. A large amount of money is at stake. This is a case in which leave to appeal a costs order should be granted.
The notice of appeal specifies the judgment and orders made on 31 March 2010. As we have seen, on that date Associate Justice Daly determined the costs application but did not make any orders. The orders were made on 14 April 2010 (and were issued in authenticated form on 19 April 2010).
Rule 76.06(4) requires appeals to be issued within five days of the judgment or order appealed from. Australvic has not amended its notice of appeal to include the orders made by Associate Justice Daly on 14 April 2010. Against the plaintiffs’ opposition, Australvic applies for leave to appeal out of time for the orders made on 14 April 2010.
It has been quite clear since Associate Justice Daly issued the determination of the costs question on 31 March 2010 that Australvic has wished to appeal against both the substantive determination made on 14 December 2009 and that cost determination. It has been equally clear that Australvic has wished to appeal against the final orders which her Honour made as a group on 14 April 2010, being after the notice of appeal was filed. It would have been better for Australvic to amend its notice of appeal to refer to those orders, but the plaintiffs have not been substantially prejudiced (if at all) by its failure to do so.
I will grant all necessary leave (including leave to make the applications for leave nunc pro tunc) to Australvic to appeal against the costs orders made by Associate Justice Daly and to bring the overall appeal out of time. I will determine Australvic’s appeal against her Honour’s determination of the substantive application on 14 December 2009 and the costs questions on 31 March 2009, as reflected in the orders made on 14 April 2010.
PLAINTIFFS’ ENTITLEMENT TO FUNDS IN COURT
Claims of parties
By their amended points of claim, each of the three plaintiffs claimed an entitlement to the funds in court on a separate basis. Little attempt was made by them to explore how these claims might rank in priority.
The first plaintiff, JGM Nominees, was a nominee company associated with the plaintiffs’ solicitors. It contended that it had lent certain monies to Australvic under a deed dated 25 September 2006, and that Australvic had charged the Oxford Street property with repayment of those monies. JGM Nominees contended that the amount owing under the deed greatly exceeded the amount of the funds in court.
The second plaintiff, Seventh Asteroid, was a Calderone family company. It contended that it was owed money by Mr and Mrs Calderone and the amount owed was secured by a charge over the Oxford Street property which had been given by Mr Calderone on 19 May 2005 before he transferred the property to Australvic.
The third plaintiff, Mr Calderone, contended that he was the beneficial owner of the Oxford Street property under trust arrangements which he had with Australvic.
Decision of associate judge
As to the claim of JGM Nominees, Associate Justice Daly decided that money was owing to the company by Australvic which was secured by the charge. However, it was not necessary to determine who had priority to the funds in court as between JGM Nominees and Mr Calderone because he was the ultimate beneficiary of the debt. I agree.
As to the claim of Seventh Asteroid, her Honour decided that she could not be satisfied that any money was owing to that company by Australvic which was secured by the charge. In my view, the charge does not cover the joint debts of Mr and Mrs Calderone on which Seventh Asteroid relies, and alternatively I am not satisfied of the existence of any such debt.
As to the claim by Mr Calderone, her Honour decided that the Oxford Street property was held by Australvic on trust for Mr Calderone. He was beneficially entitled to the whole of the funds in court, which represented the balance of the proceeds of the sale of this property. I agree.
As can be seen by paragraph 2 of the orders made by the associate judge on 14 April 2010, her Honour ordered that the balance of the proceeds of the funds in court be paid to the solicitors for the plaintiffs, after payment of certain remuneration and costs of the liquidator up to 15 July 2009.
Determining entitlement issues
Entitlement of JGM Nominees
Australvic submitted that there was no admissible evidence as to any of the payments made by JGM Nominees and how any payments linked with the deed of 25 September 2006. There were no receipts for the alleged payments. The payments were not proved and the amount owing was not proved. The only possible payment which could have been covered by the latter deed was one of $10,296.56 which was made to MK River Pty Ltd on 25 September 2006. Yet there was no admissible evidence of this payment. The other payments relied on by JGM Nominees were made before the deed of 25 September 2006 and were not covered by that deed.
Australvic further submitted that JGM Nominees had not established the relationship between the deed of 25 September 2006 and an earlier deed of 20 September 2006. The advances made on 20 September 2006 were made under the earlier deed, to which Australvic was not a party, not the latter deed, to which it was a party.
Australvic further submitted that the deed of 25 September 2006 created at best an equitable mortgage and did not evince any intention to cover payments made under the deed of 20 September 2006. The court should find that the payments which were made before the deed of 25 September 2006 was entered into were in fact covered under the deed of 20 September 2006, not the latter deed.
JGM Nominees submitted that the two charges were separate and created independent legal relations. It submitted the payment of $46,000 under the second deed had been proved, as had the full amount owing, which exceeded the funds in court.
The company further submitted that it was a solicitors nominee company. Mr Calderone had money in a company called RAC Investments Pty Ltd, which he controlled. That money was being held by Mr Calderone’s solicitors on that company’s behalf. Mr Calderone directed that the money be lent by RAC Investments to Australvic via JGM Nominees.
In my view, the evidence has established the existence of two deeds.
The first was the deed dated 20 September 2006 and the parties to it were JGM Nominees and MK River. Only those parties executed the deed. Australvic did not.
Clauses 1-6 of that deed were in these terms:
1.The Mortgagee agrees to lend and the Mortgagors agree to borrow the sum of $46,000.00 on the terms and conditions which follow.
2.The term of the loan shall be for a period of 30 days from this date.
3.At the expiration of the term of the loan (the due date) the mortgagors shall pay to the mortgagee the sum of $60,000.00 as and by way of consideration for the making of the loan and the risks associated with it.
4.In the event that the sum of $60,000.00 is not paid on the due date, interest shall accrue on such sum from such date at the rate of 65% per annum, compounded monthly until repaid.
5.The mortgagors shall pay all costs and disbursements incurred by the mortgagee associated with the preparation of this agreement, associated security documentation, and the lodging of caveats on a solicitor and own client basis, (which shall not be less than the sum of $1,750.00 plus GST plus disbursements) and which will be deducted from the monies to be advanced, and all costs and disbursements associated with any default by the mortgagors on a solicitor and own client basis.
6.In order to secure the monies owing pursuant to this agreement, the mortgagors hereby charge all land owned by each of them with the repayment of the monies owing under this agreement and specifically charge the land situate at and known as 14 Loddon Court, Thomastown, 50 Koriella Drive, Sunbury and 570 Wallan Road, Whittlesea and agree to immediately execute such mortgages and other securities and guarantees as the mortgagee’s solicitors shall require to secure the repayment of the monies owing under this agreement and do further appoint the Mortgagee as their attorney for such purposes.
This deed did not apply to money lent to Australvic. It did not purport somehow to charge the property of that company with debts owing by MK River.
The second deed was the one dated 25 September 2006 and the parties to it were JGM Nominees, MK River and Australvic. All three of these parties executed the deed.
Clauses 1-6 of this deed were identical to those clauses in the deed of 20 September 2006.
The deed of 25 September 2006 applied to money lent to MK River and Australvic (clause 1). It charged the land of those companies with respect to monies so lent (clause 6).
Like the first deed, the second deed applied to $46,000 which those companies agreed to borrow from JGM Nominees (clause 1). The term of the loan was 30 days from the date of the deed (25 September 2006). Clause 9 of the deed allowed payment of loan monies to be made by instalments.
The payments relied on by JGM Nominees, as established by the evidence of Mr Calderone, were made by that company (as nominee for RAC Investments) on 20 September 2006 ($25,474.40 paid to the Magistrates’ Court at Seymour), 20 September 2006 ($7,000 paid to John Buxton) and 25 September 2006 ($10,296.56 paid to MK River). The first two payments were made after the first deed, but before the second deed, was entered into. Mr Calderone’s evidence was that all three payments were covered by the second deed. The total of these three payments was $42,770.96. His evidence was that the balance of $3,229.04 was represented by solicitors’ costs for which Australvic was invoiced in 2007, bringing the total lent to $46,000.
I accept the evidence of Mr Calderone in all these respects. His evidence accords with the terms of the deeds and the objective evidence of the payments and invoice. There was evidence about the destination and purpose of the payments, but this is not material. What is material is that the payments represented loan monies under the deed of 25 September 2006. There was evidence of a third deed dated 30 November 2006. This did not alter the application of the charge in the second deed to the three payments.
The associate justice found and decided that the second deed superseded the first and that, as a deed, payments made before that second deed was entered into were legally capable of being, and were, monies lent under that deed. I agree with that analysis.
The main difference between the two deeds was that Australvic did not execute the first, although it was included in the attestation provisions. This omission was corrected when it executed the second deed. The clear intention of the parties was that the second deed would apply to the $46,000 which was lent by JGM Nominees (at the direction of Mr Calderone). I reject Australvic’s submission that the second deed could only apply to the third payment. That submission defies the terms of that deed, the evidence of Mr Calderone and the objective circumstances. The three payments were all legally capable of coming within, and as a fact did come within, the second deed. A contrary conclusion is not demanded by In re Gundry; Mill v Mills,[3] which was relied on by Australvic, for that decision turned on its own facts
[3][1898] 2 Ch 504.
I therefore dismiss Australvic’s appeal with respect to the entitlement of JGM Nominees to the funds in court. In practical terms, effect can be given to this outcome by making an order in favour Mr Calderone. As the associate judge found, he was the ultimate beneficiary of the debt which was due to JGM Nominees. There is no need to determine who ranks in priority between JGM Nominees and Mr Calderone.
Entitlement of Seventh Asteroid
Associate Justice Daly rejected the claim by Seventh Asteroid. Her Honour found that she could not be satisfied about the existence of any amount of debt said to be secured by the relevant charge. Australvic told me that it did not appeal against this decision.
Faced with the possibility that I might grant Australvic leave to appeal against the substantive determination of the associate judge, counsel for Seventh Asteroid contended that her Honour’s decision with respect to the entitlement of this company was incorrect. It was submitted that I should uphold Seventh Asteroid’s claim to the funds in court.
The claim of Seventh Asteroid was based on a charge in an agreement dated 19 May 2005 which was made between that company as the chargee and Ninth Greenjo Pty Ltd, Mr Calderone and R & A Cab Co Pty Ltd as chargors. By clause 1 of the agreement, the chargors did ‘charge all their right title and interest in and to the land set out in the Schedule to secure the repayment of all monies owing by the Chargors to the Chargee on any account whatsoever or howsoever arising.’ The schedule specified the Oxford Street property, of which Mr Calderone was then the registered proprietor. Seventh Asteroid submitted this charge constituted an equitable mortgage.
Mr Calderone’s evidence was that he executed the charge to secure loan accounts which were owing by himself or the two companies to Seventh Asteroid. His evidence was that monies were drawn from that company by himself and his wife. An amount of $91,379, representing accumulated drawings, has appeared in the accounts of the company as owing by ‘R A and A Calderone’ since 2001 and has not been repaid.
Like Associate Justice Daly, I am not satisfied that there is any money owing by Mr Calderone to Seventh Asteroid which is secured by the charge. Seventh Asteroid relies on a bare entry in the loan accounts of the company showing that Mr and Mrs Calderone owed money to it. If that is correct, the debt is a joint debt and not one that is owed by Mr Calderone.
I do not accept the charge applies to joint debts of Mr and Mrs Calderone. Clause 1 of the charge refers to ‘all monies owing by the Chargors to the Chargee on any account whatsoever and howsoever arising’. It does not refer to monies owing jointly with debtors who were not chargors. The charge refers to ‘the Chargors [charging] all their right title and interest in and to the land set out in the Schedule’, that is, land of the chargors personally, which suggests that the debts being secured by the agreement were their debts alone. Mrs Calderone is not a chargor.
In his affidavit evidence, I think Mr Calderone accurately describes the charge as having been executed in favour of Seventh Asteroid ‘to secure loan accounts which were owing by either myself or R & A Cab Co Pty Ltd and Ninth Greenjo Pty Ltd to Seventh.’ In his various capacities, representing all of the parties to the charge, Mr Calderone was the sole signatory to it. He signed the charge as the sole director of Seventh Asteroid, Ninth Greenjo, and R & A Cab Co, as well as for himself. There is no reference in the charge to any other individual or to joint debts with non‑chargors. There is no reference to Mrs Calderone.
Even if the charge secured debts of Mr Calderone and his wife jointly, I am not satisfied that the debts relied on by Seventh Asteroid are truly owing. The alleged debts arose by reason of drawings made in favour of Mr and Mrs Calderone from Seventh Asteroid which Mr Calderone controlled and controls. The ‘debt’ has been outstanding since 2001 yet there is no evidence of any intention on the part of the company to enforce the debt or on the part of Mr and Mrs Calderone to repay the debts. It is not necessary for me to draw the positive inference that the debts, if they existed, have been forgiven, although that inference may be open. On the meagre evidence which has been presented, it is enough for me to say, and I so find, that I am not satisfied that the amounts are owing.
I therefore reject Seventh Asteroid’s contention that it is entitled to the funds in court.
Entitlement of Mr Calderone
Mr Calderone’s evidence was that he was the beneficial owner of the Oxford Street property under trust arrangements which he entered into with Australvic.
According to Mr Calderone’s evidence, he needed to raise money in order to meet expenses which he was incurring in his business as a property developer. In about May 2005, a syndicate of lenders from whom he had borrowed money and whose loans were in default introduced him to Michael Kyriakou. Mr Calderone and Mr Kyriakou agreed to form a joint venture which would refinance and complete the development of the properties concerned. Mr Calderone’s evidence was that Mr Kyriakou said the joint venture company would be Australvic and Mr Calderone ‘was to transfer my portfolio of properties to that company to be held on trust by Australvic pursuant to the terms of the joint venture agreement we entered into.’ The Oxford Street property was one of the properties to be so transferred on trust. Mr Kyriakou represented Australvic to be a substantial company with sufficient lines of credit to carry out the refinancing which would be needed to support the activities of the joint venture.
The Oxford Street property was transferred by Mr Calderone to Australvic pursuant to a transfer of land dated 27 September 2005. Consideration was expressed to be payable in the amount of $530,000. The transfer was stamped with stamp duty in the sum of $27,460 on 30 September 2005. Two existing mortgages on the property were discharged and the further mortgage in favour of Perpetual Trustee was entered into and registered on the title. It was Australvic’s default under that mortgager which led to the Oxford Street property being sold.
A declaration of trust was made under the joint venture agreement. However, an unusual feature of the transaction between Mr Calderone and Mr Kyriakou, and their associated companies, was that a written declaration of trust was not executed until about October 2006, or later in that year, although it was dated 12 August 2005. Be that as it may, I am satisfied on the balance of probabilities that the declaration is genuine.
The declaration of trust was signed by Walter Edwards as the sole director and secretary of Australvic. Mr Edwards was Mr Kyriakou’s solicitor. Mr Kyriakou was also Mr Edwards’ law clerk. It was executed as a deed. Here are the material parts:
1.That the property named and described in the Schedule as the Trust Property is and has at all times material been held by the Trustee as trustee for the benefit of the beneficiary named and described in the schedule as ‘the Beneficiary’.
2.That no monies were paid by the Trustee to the Beneficiary as and by way of consideration for the prior transfer by the Beneficiary to the Trustee of the Trust Property.
3.That the Trustee will deal with the Trust Property as the Beneficiary shall direct and will, if called upon so to do, transfer the Trust Property to the Beneficiary or, in the event of prior sale by the Trustee account to the Beneficiary for the proceeds of sale.
SCHEDULE
The Trust Property: 23 OXFORD STREET, OAKLEIGH, VIC, 3166
More particularly described in Certificate of Title
Volume No. 7045 Folio No. 968
The Beneficiary: ROCCO ANTONIO CALDERONE
64 EUSTON ROAD
HUGHESDALE, VIC, 3166
In my view, Mr Calderone is entitled to the funds in court because he was the beneficial owner of the Oxford Street property under this deed. The funds in court represent the balance of the monies which were realised by the sale of the property by the mortgagee. I agree with the decision of Associate Justice Daly in this regard, but have come to this view independently after my own examination of the evidence.
In the light of the terms of the deed, to defeat Mr Calderone’s claims to the funds in court Australvic would have to establish that the trust arrangements were a sham. That was the company’s submission to the associate judge and also to me on appeal. I reject this submission.
That the declaration of trust was made after October 2006 and back-dated to 12 August 2005 raises suspicions about the genuineness of the trust. These suspicions are increased by the contract of sale dated 12 August 2005 between Mr Calderone and Australvic by which the Oxford Street property was sold to Australvic for a consideration of $530,000, being the consideration specified in the transfer of land dated 27 September 2005. According to the liquidator’s evidence, settlement of this contract took place on that day. The transaction was supported by a statement of adjustments. There is no mention in the contract of sale or the supporting documentation of any trust.
I think Mr Calderone has removed these suspicions by his evidence, which I accept on the balance of probabilities. The associate judge had the advantage of seeing Mr Calderone give evidence and be extensively cross‑examined. While her Honour had some doubts about aspects of Mr Calderone’s evidence, she did not find him generally to be an unreliable witness. I have no basis for doubting his evidence as a whole, although I would be cautious about accepting certain parts of it without corroboration.
Mr Calderone’s explanation for the late preparation of the trust documents, and for the specification of consideration in the contract of sale and the supporting documentation, was that Mr Kyriakou and Mr Edwards controlled the process by which the joint venture documentation was prepared and the way in which the venture was implemented. On their insistence, the property was transferred by means of a contract of sale which specified consideration, on the basis that a refund of stamp duty would be sought later. According to Mr Calderone:
Kyriakou also said that in order to establish a value for the properties for the refinancing arrangements it would be necessary to enter into Contracts of Sale, as if the properties were being sold to Australvic, notwithstanding that they were in fact being held on trust. I objected to this concept of purporting to sell the properties when no sale was taking place saying that such transactions would operate to incur stamp duty on the transfer of the properties to Australvic as Trustee when no such stamp duty should in fact be incurred. Again Edwards assured me that my concerns were misplaced and that Kyriakou knew what he was doing. He said that after transfer application would be made to the State Revenue Office for the refund of the stamp duty. He said they had done this procedure many times before. Kyriakou said that an attraction of this process was that when the stamp duty was refunded by the State Revenue office it would be returned to me on account of my share of the Joint Venture profits.
Australvic did later make an application for a refund of the stamp duty which it paid. Perhaps unsurprisingly, the application was rejected. The letter of rejection dated 11 May 2007 from the State Revenue Office refers to the application for refund having been made on 28 December 2006. The rejection was based on the contents of the contract and transfer documentation, which made no reference to a trust and specified dutiable consideration. In the present proceeding, the court has received evidence from Mr Calderone which explains more fully how the trust arrangements were put in place. I accept this evidence despite the rejection by the State Revenue Office of Australvic’s refund application.
While the evidence establishes that the deed of trust dated 12 August 2005 was signed in or after October 2005, there is objective evidence to show that the parties had agreed by mid‑August of that year to have a trust of this nature. By a letter dated 12 August 2005, Mr Calderone’s solicitors (John Matthies and Co) wrote to Mr Edwards (marked to the attention of Mr Kyriakou) making certain suggestions about the contents of the joint venture documentation. The draft memorandum of agreement which was attached to that letter contains these recitals:
WHEREAS the Developer is the Director of a number of companies being –
(a)Seventh Asteroid Pty. Ltd.
(b)Ninth Greenjo Pty. Ltd
(c)R & A Cab Co Pty. Ltd.
(d)R.A.C. Investments
all of which are owned either personally or through the companies of which the Developer is the sole director;
AND WHEREAS the Developer requires borrowing capacity to proceed with the development of the properties that the companies own as well as the personal properties which he owns;
AND WHEREAS the Company is able to provide a service by providing borrowing capacity and property management through its consultants, agents and servants which will require the Company to have the properties for which funding is being prepared transferred into its name;
AND WHEREAS the Company is willing to be appointed Trustee of the properties whilst the development and management of the properties is undertaken as provided by this agreement;
This supports Mr Calderone’s evidence about the purpose of the joint venture agreement. Further, cl 1 of the draft agreement provided in part:
NOW THIS AGREEMENT WITNESSES:
1.In consideration for the Company obtaining funding for the Developer –
(a)The company will sign with the Developer a Declaration of Trust which will acknowledge that the Company holds the ‘funded properties’ in trust for the Developer and such other deeds or documents as may be appropriate, including deeds of appointment of a new trustee of the Trusts ‘the Trust documents’.
(b)The Developer acknowledges and authorises the Company to produce the Trust documents to appropriate Government Authorities such as State Revenue Office, Land Titles Office and Land Tax Office as and when required.
(c)The Developer acknowledges and agrees to the Company having full control and management over the properties subject to consultation and input from the Developer with regard to each individual property.
(d)The Developer acknowledges that on the signing of this agreement the Developer will be committed to transferring the funded properties to the Company to be held in trust by the Company for the Developer whilst construction, management and development of the property and or properties (if required) are being undertaken according to the terms of this Agreement.
This is also consistent with Mr Calderone’s evidence about the nature of the trust arrangements.
As regards the recitals and clauses just referred to, the memorandum of agreement dated 3 August 2005 (but actually signed later) between Mr Calderone (personally and on behalf of his associated companies) and Australvic is in the same terms. This is objective corroboration of Mr Calderone’s evidence that, although the trust and joint venture documents were signed later, they represented the agreement of the parties reached in August 2005. In referring to this contemporaneous documentation, I am not interpreting the terms of the memorandum of agreement or the deed of trust, but rather forming a view about whether the were genuine.
Mr Calderone relied on an affidavit of Brian Fisher dated 23 April 2008 which had been filed in separate caveat removal proceedings in this court. At this time, Mr Fisher was the sole director and secretary of Australvic. He deposed that he was duly authorised to make the affidavit on behalf of Australvic. The affidavit gives an account of the joint venture transaction which supports Mr Calderone’s evidence. For example, here are paragraphs 11 and 12:
11.In or about June 2005 pursuant to an oral agreement between Rocco Calderone on his own behalf and on behalf of the companies, on the one hand, and the plaintiff on the other:
(a)the plaintiff undertook to assist Rocco Calderone and the companies in relation to the re‑financing of various mortgages which were due and owing by Rocco Calderone and the companies on their various development properties;
(b)the plaintiff undertook that it would itself contribute finance to the development of the properties and would arrange further re‑financing to enable the developments to continue to completion;
(c)for the purposes of facilitating the re‑financing and to secure the plaintiffs’ contribution, it was agreed that Rocco Calderone and the companies would transfer the properties (‘the funded properties’) to the plaintiff and that the plaintiff would hold the properties on trust.
12.Further to the Agreement referred to in paragraph 11, by a Memorandum of Agreement dated 3 August 2005 (‘the Agreement’) Rocco Calderone, acting on his own behalf and on behalf of the companies, and the plaintiff agreed (inter alia):
(a)that the plaintiff would obtain funding for Rocco Calderone;
(b)the plaintiff would sign declarations of trust acknowledging that the plaintiff held the funded properties on trust for Rocco Calderone;
(c)that Rocco Calderone and the companies would transfer the funded properties to the plaintiff to be held on trust by the plaintiff for Rocco Calderone and the companies whilst construction and development of the property and/or properties (if required) was being undertaken according to the terms of the agreement;
(d)upon completion of the development of each individual property and sale thereof Rocco Calderone and the companies, on the one hand, and the plaintiff, on the other, would be joint venture partners as to 50 per cent each of the net profit derived from the sale of each such property and would account accordingly.
Australvic took objection to the admission of this affidavit, both before the associate judge and me. I reject the objection. The affidavit is a clear admission against interest by a party to this proceeding on the matter which is primarily in issue – whether the Oxford Street property was held on trust by Australvic for Mr Calderone. It is admissible as an admission by Australvic that the property was held on trust for Mr Calderone. Under s 81(1) of the Evidence Act 2008, the hearsay and opinion rules do not apply to evidence of an admission. The admission was proved by tendering the affidavit and it was not necessary for Mr Calderone to call Mr Fisher to give the evidence independently or to prove his affidavit.
I also reject the submission that the affidavit was but a continuation of the ‘repositioning’ of the joint venture transaction. However, in assessing the weight to be given to the admission in the affidavit, I take into account that the affidavit comes from someone who was in the management of the company before it went into liquidation, who has not given evidence in the proceeding and whose statements need to be considered with care. On the other hand, the affidavit is of assistance, because it fits with the objective evidence and tends to confirm the account given by Mr Calderone in his evidence.
By early 2007, Mr Calderone had come to the view that Mr Kyriakou had no intention of promoting a joint venture, but was rather intent on ‘plundering’ the equity in Mr Calderone’s assets, and those of his associated companies. A substantial body of evidence was given by Mr Calderone about the defensive steps which he thereafter took to protect his position. Those steps included lodging caveats and terminating the joint venture agreement by a letter dated 5 February 2007.
It is not necessary for me to go into this evidence in detail. I do note that it further corroborates Mr Calderone’s evidence about the nature of the transactions which were entered into. For example, Mr Calderone lodged a caveat (No. AE8679431) in respect of the Oxford Street property on 30 January 2007. The interest claimed was: ‘Pursuant to a declaration of trust made 12 August 2005 by Australvic Property Management Pty Ltd that it hold the land on trust for the Caveator’. Further, the letter of termination dated 5 February 2007 refers to Australvic’s unfitness to act as a trustee of Mr Calderone’s property.
In Australvic’s submissions, the evidence established that the parties created the trust arrangements artificially to ‘re-position’ the transaction for the purposes of attaining a stamp duty refund. Associate Justice Daly rejected these submissions, as do I.
Australvic criticised the reasoning of the associate judge that there was a fundamental inconsistency between the two courses which were open. Her Honour found that Australvic could not have it both ways – the scheme was either designed to lead potential financiers into believing that Australvic held legal and beneficial ownership of the property, or to defraud the State Revenue Office, but not both. Her Honour found that the former was the more probable.
With respect, there is some truth in this criticism. However, on the evidence of Mr Calderone and the objective documentation I do not find that he either intended to mislead potential investors or to defraud the State Revenue Office. I consider that he transferred the Oxford Street property to Australvic believing the company would hold it for him on the trust which had been agreed to. In my view, the deed of trust gave effect to that transaction and was genuine. It may be that Australvic intended to mislead potential investors into thinking that, contrary to the actual position, it held the legal and beneficial ownership of the property, and thus had the capacity to mortgage the property to raise finance. Whatever representations it made to potential investors, in my view the company only ever had the legal ownership. At all times the beneficial ownership stayed with Mr Calderone.
In reaching this conclusion, I have taken into account the fact that there was full discovery of the relevant documentation in the proceeding before Associate Justice Daly. Further, Mr Calderone was extensively cross‑examined in the hearing before her Honour. Mr Calderone withstood that discovery process and cross‑examination. Further, the liquidator has had access to Australvic’s business records. Quite appropriately, I do not think the liquidator has left any stone unturned in attempting to discover the truth about the joint venture arrangements. In that regard, the liquidator has had available his statutory powers of enquiry, investigation and examination. Yet nothing has been produced in evidence which, considered as a whole, undermines Mr Calderone’s account of what happened.
I therefore dismiss the appeal with respect to Mr Calderone’s entitlement to the funds in court.
That brings me to the appeal against the costs orders.
COSTS ORDERS
As can be seen from the order of Associate Justice Daly, the costs orders which her Honour made had the following components:
· the liquidator’s remuneration and the party/party legal costs of Australvic from the commencement of the proceeding up to and including 15 July 2009 (the date of the mediation) were to be paid out of the funds in court
· the liquidator was to pay personally the party/party costs of the plaintiffs (other than the costs of their application for security for costs) from the commencement of and up to the determination of the proceeding
· the costs of the liquidator’s summons in relation to costs would be reserved until after the assessment of the liquidator’s remuneration and taxation of costs had been completed
· otherwise there was no order as to costs (including the costs of the plaintiffs’ application for security for costs)
The security for costs application was commenced by a summons dated 18 September 2009 which was issued by the plaintiffs. It sought an order that Australvic provide security for costs. On 28 September 2009, Associate Justice Evans held this application to be misconceived because Australvic was a defendant and not a counterclaimant. His Honour held Australvic would automatically be entitled to the funds in court as the registered proprietor of the Oxford Street property if the plaintiffs’ application in the proceeding was to fail. His Honour adjourned the further hearing of the application to the judge in charge of the trial of the proceeding, but solely to enable the application to be renewed if Australvic altered its position at trial, which it did not. I respectfully agree with this decision.
Associate Justice Daly did not award the plaintiffs’ costs of the application for security for costs against the liquidator. Nor did her Honour award the costs of Australvic or the liquidator of that application against the plaintiffs. She allowed the costs of the application to lie where they fell.
Turning to the costs of the substantive application, before Associate Justice Daly the plaintiffs sought their costs against the liquidator personally or alternatively against Australvic. They submitted the company had failed in the proceeding and further it had refused a Calderbank offer. The plaintiffs were highly critical of the liquidator’s opposition to their application. The associate judge partly accepted these criticisms.
As claimed in the summons of 16 December 2009, the liquidator sought an order that his remuneration, and Australvic’s solicitor‑client costs of the proceeding, be paid out of the funds in court. He opposed the plaintiffs’ application for a costs order against the him personally. The parties did agree that the amount of the liquidator’s remuneration had to be determined by the Federal Court of Australia.
Associate Justice Daly held, first, that the liquidator had no automatic right of indemnity for his remuneration and Australvic’s legal costs out of the funds in court. Her Honour held, second, that the liquidator did not have to do any work to realise or protect the assets of the company, as the funds in court were deposited before he was appointed. Her Honour held, third, that the liquidator’s remuneration and expenses were referable solely to Australvic’s defence of the plaintiffs’ claim, which was not reasonably undertaken in the liquidation of the company. I respectfully agree with the first of these propositions, but not the second and the third.
The liquidator had relied on the analogy between his role and that of an executor under a will. Her Honour accepted the application of this analogy up to a point. She held the liquidator had a responsibility to evaluate the competing claims, but he went beyond this legitimate role as the proceeding progressed. She held the liquidator’s role
shifted from being an independent evaluator and arbiter of competing claims to that of a competing beneficiary. It vigorously resisted the claims advanced by each of the plaintiffs in circumstances where the claims of two of the plaintiffs were established on the basis of the objective documentary evidence.
Her Honour took the view that the point at which that shift occurred was the mediation which was held on 17 July 2009. In her view, after that the liquidator should receive no costs or expenses:
Accordingly, while in the early stage of the proceeding it might be reasonable for the liquidator’s role to be considered analogous to that of an executor of a deceased estate, defending the fund against claims by competing beneficiaries, at least by the time that the mediation was concluded, it was apparent that the liquidator was an active protagonist in the litigation. In those circumstances, it is difficult to see why the liquidator should receive the costs and expenses of adopting what ultimately proved to be an unsuccessful position.
Her Honour went on to determine that the liquidator should pay all of the plaintiffs’ costs personally. Accepting that a court should exercise its discretion to do so cautiously and sparingly, she held that the plaintiffs had been ‘successful in a hard‑fought case over a modest sum’.
It was fundamental to the determination of the associate judge on the liquidator’s personal liability for costs that, in her Honour’s view, Australvic and the liquidator should not have resisted the claims of JGM Nominees and Mr Calderone with respect to the funds in court after the mediation. That was because, by that time, there was sufficient objective evidence to establish that those claims were largely correct. Further, the discovery process had been completed and the parties had exchanged their affidavits and points of claim. Her Honour also referred to a letter from the plaintiffs’ solicitors dated 25 February 2008 in which the claims of the plaintiffs were put in substantially the same terms as were upheld by her Honour in the proceeding.
In conclusion, her Honour determined that:
While there were some inconsistencies in Mr Calderone’s evidence, and the rationale for the original arrangements between Mr Calderone and Australvic upon which Mr Calderone ultimately succeeded was arguably commercially disreputable, the plaintiffs’ position was unwavering during the course of the proceeding. It is apparent from the timesheets exhibited to the liquidator’s affidavit of 14 December 2009 that the liquidator and his staff undertook investigations into the plaintiffs’ claim (including consulting with Mr Kyriackou), but the results of these investigations did not result in evidence being uncovered which negated the first and third plaintiffs’ claims. While the liquidator was defending the proceeding, he was of course making his own implied claim to the funds, despite not formally issuing a counterclaim. The liquidator’s decision not to file and serve a counterclaim deprived the plaintiffs of the opportunity to protect themselves from a claim by an impecunious claimant to make a successful application for security for costs.
Finally, even after the trial had concluded, the liquidator failed to take an opportunity to resolve the matter by accepting the plaintiffs’ offer of 20 October 2009, which was less favourable to the plaintiffs than the outcome of the substantive hearing, after having had the benefit of hearing the evidence. Instead, from my review of the timesheets annexed to the liquidator’s affidavit of 14 December 2009, the liquidator apparently continued investigating the plaintiffs’ claims, focusing upon a further potential claim which had emerged during the course of the proceeding, that is, Mr Calderone’s claim to alien over the funds in court as an unpaid vendor.
In the light of these circumstances, including the erroneous assessment of the liquidator that the plaintiffs’ case was ‘weak and unlikely to be successful’, I will order that the liquidator be personally liable for all costs incurred by the first and third plaintiffs on a party‑party basis. I see no reason to carve out the costs incurred by the first and third plaintiffs prior to the mediation, or to order costs be paid on anything other than a party-party basis. I will hear the parties on the question of the costs of the liquidator’s summons filed 15 December 2009.
Under r 77.06(2), no judgment or order of an associate judge as to costs can be the subject of appeal except by leave of a judge or the associate judge. If that leave is granted, under r 77.06(7) the appeal ‘shall be by re-hearing de novo’. As the appeal is by re‑hearing de novo, it would not be appropriate to apply the rules governing appeals against orders as to costs which are applied by the Court of Appeal[4]. Under those rules, the function of the Court of Appeal when determining an appeal on a question of costs is more limited than the function of a judge when conducting a re‑hearing de novo under an appeal from a decision of an associate judge on such a question. Nor do the principles enunciated in House v R[5] apply in such a hearing de novo. As I apprehend my function in an appeal of this nature, I must myself exercise the discretion to make an order as to costs, not just determine whether the order made by the associate judge was in error.
[4]See Spotless Group Limited v Premier Building and Consulting Pty Ltd [2008] VSCA 115 and A Team Diamond Headquarters Pty Ltd v Main Road Property Group Pty Ltd [2009] VSCA 208.
[5](1936) 55 CLR 499.
Nevertheless, even in a re‑hearing de novo under r 77.06 I would hesitate to reach a different view from an associate judge on a question of costs. Making an order as to costs involves matters of practice and procedure as to which the associate judge conducting the trial had considerable natural advantages. Therefore, in determining what order as to costs was appropriate in the proceeding giving rise to the appeal, I would give considerable weight to the decision of the associate judge, unless it was apparent that a manifest error or some mistake of principle had been made.
With respect, I think it was a mistake in principle for the associate judge to treat the liquidator as having conducted the litigation in his own interests after the mediation. It was legitimate – indeed appropriate – for the liquidator to put the plaintiffs to their proof, and subject their witnesses to searching cross‑examination, at a final hearing. It was legitimate and appropriate for the liquidator to do so because the objective documentation and other evidence gave rise to suspicions which it was the liquidator’s responsibility – as a liquidator – to address. On the state of the evidence just prior to trial, a reasonable liquidator performing their functions properly as an officer of the court could still have maintained suspicions. In the absence of evidence which resolved the suspicions satisfactorily, the liquidator could reasonably have decided vigorously to prosecute the company’s defence until the court determined the issues in dispute. That position did not change just because there was an unsuccessful mediation. I must therefore disagree with the major premise on which the costs order against the liquidator personally was based.
Despite the affidavit evidence of Mr Calderone which the associate judge and I have largely accepted, despite the deed of trust and the joint venture agreement which objectively proved the trust in issue, despite the admissions made in the affidavit of Australvic’s officer (Mr Fisher) and despite the ultimate judgment of the associate judge and me, the transaction between Mr Calderone and Mr Kyriakou (and their associated companies) had a number of unsatisfactory features. I would especially refer to the specification of consideration in the sale and transfer documentation relating to the Oxford Street property, to the back‑dated trust and joint venture documentation, to the application for stamp duty being made on the basis of the trust arrangements when the consideration was specified in and the stamp duty was actually paid on the transfer and to Mr Calderone’s explanation that he left (or was required to leave) the detail of the arrangements and the relative documentation to Mr Kyriakou and Mr Edwards.
I have resolved these matters in favour of Mr Calderone after considering the whole of the evidence, but especially his evidence personally. That resolution has depended in large measure on the kind of careful scrutiny of the evidence which the liquidator’s participation in the final hearing has helped to make possible. In the circumstances which I have described, the liquidator was not obliged to accept Mr Calderone’s affidavit evidence simply because it gave a plausible explanation of the trust and joint venture arrangements. It was open to the liquidator to put that the arrangements, and the documentation which supported them, were a sham. It would be particularly inappropriate for the reasonableness of the liquidator’s conduct of the proceeding to be tested against the standard of the ultimate judgment, which is just the wisdom of hindsight. Rather, the liquidator’s conduct must be tested against the standard of what could reasonably be expected of the liquidator when performing his important public duty as an officer of the court, having regard to the state of the evidence and the positions of the parties at trial.
I am respectfully unable to accept that the date of the mediation marks a point after which the liquidator’s participation in the proceeding became self-interested. Other than that the mediation was unsuccessful, the court has no information about the outcome of the mediation or what occurred there. That is entirely appropriate, for the mediation is confidential to the parties. On the state of the evidence which was filed in court at and after the mediation, I could not conclude that the only reasonable course open to the liquidator was to concede the claims of the plaintiffs. At all material times, the plaintiffs’ prospects of success depended almost entirely on whether Mr Calderone’s evidence would be accepted. In the light of the unusual and unsatisfactory arrangements that he entered into with Mr Kyriakou, it was reasonably open to the liquidator to consider that this should be determined at trial.
Counsel for Australvic submitted that it could not be right for the plaintiffs to succeed in establishing their entitlement to the funds in court, yet for those funds to be reduced or consumed entirely with a costs order in favour of the liquidator. I must reject that submission. It is an unfortunate reality of litigation that sometimes the victory of a party is pyrrhic. If it is otherwise appropriate to allow the expenses and legal costs of an unsuccessful liquidator to be put against the disputed estate of the company, the court can make such an order even though it will prevent a successful party from being able to realise their judgment. This outcome is but a product of the liquidation of the company which is a party to the proceeding and the proper performance of the liquidator’s functions as a liquidator. In the present case, it is the outcome of the dispute which has arisen between the parties in relation to a joint venture transaction which they freely entered into. Any other outcome would involve qualifying the legitimate access by the liquidator to the estate of the company which it is in the public interest to preserve.
The associate judge took into account against the liquidator that the liquidator had access to Mr Kyriakou and apparently interviewed him. In a case where a former manager of the company to be liquidated appears to be a reliable witness, this may be a relevant consideration. In the present case, it would have been reasonably open to the liquidator to consider that Mr Kyriakou did not fall into that category. Further, the court does not know what Mr Kyriakou told the liquidator. Mr Kyriakou did not give evidence. I can understand why the liquidator might have considered that information supplied by Mr Kyriakou was not a reliable basis on which to proceed.
Associate Justice Daly also took into account the substantial funds which had been spent by the liquidator in preparation for the mediation. In her Honour’s words, the preparation was ‘presumably substantially focussed on the strengths and weaknesses of the plaintiffs’ and the liquidators’ claims’. Spending substantial sums in preparation for a mediation in a case of this nature is not surprising. It cannot be inferred from the fact that the mediation failed, or from the fact that the liquidator failed in the hearing before the associate judge, that this expenditure should have resulted in the liquidator conceding the plaintiffs’ claims.
The associate judge was critical of Australvic’s failure to counterclaim. Her Honour took this into account when ordering the liquidator personally to pay the plaintiffs’ costs. I do not think this was a relevant consideration to that question. As I have said, Associate Justice Evans was right to hold that Australvic was entitled to defend the plaintiffs’ application without issuing a counterclaim. Australvic being entitled so to proceed, the liquidator should not have been at risk of having the matter taken into account on the issue of costs.
Generally speaking, the responsibility of a liquidator is to take control and management of the company, to get in and realise its assets, to identify its liabilities, to meet the debts of the creditors as far as is possible, to distribute the balance (if any) to the shareholders and to take all necessary other steps to wind the company up. In performing this function, a liquidator is an officer of the court and is answerable to the court. The courts are therefore loathe ‘to discourage liquidators from performing their public duty in pursuing litigation by an undue readiness to impose on them personal liability for the costs of successful parties.’ Those words were spoken by Northrop and Ryan JJ in Bent v Gough.[6] Their Honours went on to say that the correct approach was that the discretion to order a liquidator personally to pay costs
should be exercised sparingly, not by way of punishing an imprudent liquidator, but only where the circumstances may make it just or appropriate for the successful party to be indemnified against his or her costs.[7]
[6](1992) 36 FCR 204, 219.
[7]Ibid.
In the present case, I apply that principle to reject the plaintiffs’ application for the liquidator personally to pay the plaintiffs’ costs and I uphold Australvic’s appeal to that extent.
I would not grant special leave under r 77.06(7)(b) for the affidavit of Mr Calderone dated 24 June 2010 to be relied on in the appeal. But I would in any event reject the criticisms of the liquidator in the affidavit. I would not infer from the facts alleged that the liquidator was not properly conducting the liquidation or that the liquidator’s conduct of the proceedings in this court was improper in any way.
I do not accept the liquidator’s submissions that he had no notice of the plaintiffs’ submission that a costs order should be made against him personally. Notice of that submission was given in the plaintiffs’ outline of submissions on costs to the Associate Justice Daly. I also reject his submission that the liquidator had to be party to the proceeding before such an order could be made. The liquidator was a de facto party and costs orders can exceptionally be made against or in favour of actual third parties. I note that, through Australvic, the liquidator was seeking an order for costs in his favour personally.
Turning now to the liquidator’s application with respect to costs, whether the liquidator is entitled to be indemnified for his remuneration and Australvic’s legal costs must be considered on the basis that the liquidator’s participation in the proceeding was appropriate at all times.
This was a case in which the plaintiffs and the company being liquidated were in dispute about whether the funds in court belonged to the plaintiffs or the company. The ultimate destination of the funds depended on the resolution of that question. The funds would follow that resolution either to the plaintiffs or the company. The company was a proper party to the proceeding, which necessitated the participation of the liquidator. The liquidator’s participation in the proceeding was an incident of the discharge by the liquidator of his functions in that capacity. That was so even though the property was sold and the funds were paid into court during a period when the order appointing the liquidator was stayed, for that did not alter the issues in, the parties to, or the need for the liquidator’s participation in the proceeding.
Liquidators are entitled to access estate funds for their reasonable remuneration and legal costs. As was held by Finkelstein J in the Federal Court of Australia in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq):[8]
provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to persons beneficially entitled to them.
This principle is applied in this court, even in respect of trust property of a trading trust.[9]
[8](1999) 30 ACSR 377.
[9]See Nolan v Connie (2003) 7 VR 287 and Re Enhill Pty Ltd [1983] VR 561.
In the present case, the Oxford Street property was trust property of Australvic. The company was not a trading trust as such, but that makes no material difference. After the property was sold by the mortgagee, the balance of the funds were paid into court, not to Australvic, to await an entitlement determination. Australvic is entitled to the funds in law, but Mr Calderone has a superior entitlement to the funds in equity. That is court’s determination of the legal position, but it has been in legitimate dispute in the proceedings at first instance before the associate justice and on appeal before me.
In my view, in such proceedings the same principle should inform the exercise of the court’s discretion as to the liquidator’s costs and expenses. The company was properly named as a defendant in legal proceedings in which the plaintiffs have asserted an entitlement to the property constituted by the funds in court. The liquidator has incurred reasonable costs and expenses in prosecuting the company’s competing entitlement to the funds, as was his duty and function as a liquidator. Those costs and expenses (including the liquidator’s remuneration) may be recovered against the funds on the discretionary order of the court.
Likewise the executor of a will is the trustee of the testator’s estate on behalf of the beneficiaries. The same principle applies. The executor is entitled to access the funds of the estate to meet their reasonable legal and like expenses as an executor. Where the executor is a proper party to legal proceedings over a trust estate (actual or disputed) which is constituted by funds in court, the court can order that their costs be paid from those funds even where they are not successful.
In the present case, Associate Justice Daly held that the analogy between the executor of a deceased estate and a liquidator had some merit. Her Honour applied that analogy when she ordered that the liquidator’s remuneration and legal costs be paid from the funds in court up to the date of the mediation. In my respectful view, the principle which her Honour applied in so doing was correct, but that principle applied to the whole remuneration and costs of the liquidator, not just those up to the date of the mediation.
The Calderbank letter relied on by the plaintiffs falls away as a consideration. The amount of remuneration and costs to which the liquidator was entitled greatly exceeds the amount of the plaintiffs’ offer.
On the issue of costs, the appeal by Australvic will therefore be allowed.
There should be an order that the liquidator’s remuneration, and Australvic’s legal costs in the proceeding on a party/party basis, both at first instances and on appeal, should be paid from the funds in court to the liquidator. The remuneration will have to be determined by the Federal Court of Australia and the legal costs will have to be taxed in default of agreement.
Australvic was the successful party in the plaintiffs’ application for security for costs and it should have its party/party costs in that regard. Those costs should be included in the legal costs to be paid out of the funds in court to the liquidator. The costs will have to be taxed in default of agreement.
On the issue of entitlement, the appeal of Australvic will be dismissed.
The successful parties in the appeal on the issue of entitlement have been JGM Nominees and Mr Calderone. They should have their costs against Australvic in the application before Associate Justice Daly. The costs will have to be taxed in default of agreement. There should be an order giving effect to the entitlement of Mr Calderone, for he is the person ultimately entitled under the claim by JGM Nominees. There will be no orders as the costs of Seventh Asteroid.
I will hear the parties on the form of the orders which need to be made to give effect to the outcome of the appeal. Having regard to that outcome, it will be necessary to consider what, if any, of the ancillary orders made by the associate judge should be made by me. I will also hear the parties on the costs of the appeal.
CONCLUSION
Funds in the amount of $123, 649.09 have been paid into court. The funds represent the balance of the proceeds of the sale of the property at 23 Oxford Street, Oakleigh. The property was sold by the mortgagee after Australvic Property Management Pty Ltd defaulted under the mortgage.
Rocco Calderone and his companies applied to the court for orders that the funds be paid to him. He contended that he and his companies were beneficially entitled to the funds under a joint venture agreement and trust which he entered into with Michael Kyriakou and his companies. Mr Kyriakou’s companies, including Australvic, were named as defendants.
Australvic is in liquidation. In the proceedings, the liquidator has asserted a competing claim to the funds. He submitted the joint venture agreement and trust were a sham.
In a hard-fought trial, an associate judge of the court heard the evidence. In a carefully considered decision, her Honour upheld Mr Calderone’s entitlement to the funds, rejecting the competing claim by Australvic. She made orders giving Mr Calderone access to the funds. Having found that, after an unsuccessful mediation, the liquidator should not have opposed Mr Calderone’s claim, her Honour also made costs orders (among other things) that the plaintiffs’ cost be paid by the liquidator personally.
The liquidator has appealed against the decision of the associate judge. I have granted leave to him to challenge both the entitlement and the costs aspects of the decision. Appeals of this nature are conducted by hearing de novo.
I am satisfied that, although there was good reason on the evidence to be suspicious, the joint venture transaction which Mr Calderone and Mr Kyriakou entered into was genuine. Under the agreement and trust, the Oxford Street property was transferred to Australvic to be held on trust for Mr Calderone. That gives Mr Calderone a superior entitlement to the funds in court. I agree with the decision of the associate judge in this respect.
I have also upheld the decision of the associate judge with respect to the claim made by JGM Nominees Pty Ltd. It has established that Australvic is liable for a debt which was secured by a change over the Oxford Street property. However, this does not add anything to the substantive outcome of the case. Mr Calderone is the ultimate beneficiary of that debt. Like the associate judge, I have rejected the claim by a Calderone’s family company, Seventh Asteroid Pty Ltd, under another charge. There is no relevant debt owing under it.
The appeal will therefore be dismissed with respect to Mr Calderone’s entitlement to the funds in court.
As to the appeal against the costs orders, I must respectfully disagree with the order that the liquidator personally pay the plaintiffs’ costs. The liquidator’s conduct of the case of the company in the proceeding was reasonable at all times. In prosecuting the competing claim of the company, he was properly performing his statutory function as a liquidator and an officer of the court. On the evidence, it was not unreasonable for the liquidator to oppose Mr Calderone’s claim and to submit Australvic’s alternative claim to judicial determination.
Further, the liquidator incurred reasonable costs and expenses by participating in legal proceedings over disputed property of a company in liquidation which was constituted by funds in court. In the circumstances, the liquidator was entitled to an order that those costs and expenses be paid out of the funds in court. The liquidator was entitled to such an order even though there may be nothing left of the funds to satisfy the judgment in favour of Mr Calderone. That is a risk which all parties experience in proceedings involving companies in liquidation.
The appeal will therefore be allowed with respect to the costs orders made in respect of the liquidator. I will hear the parties on the form of the orders which should be made and other consequential matters.
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Key Legal Topics
Areas of Law
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Civil Litigation & Procedure
Legal Concepts
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Appeal
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Costs
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Res Judicata
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