JLLJ Nominees Pty Ltd v Conspect Construction Pty Ltd [No 2]
[2016] WASC 21
•28 JANUARY 2016
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: JLLJ NOMINEES PTY LTD -v- CONSPECT CONSTRUCTION PTY LTD [No 2] [2016] WASC 21
CORAM: MASTER SANDERSON
HEARD: 8 DECEMBER 2015
DELIVERED : 28 JANUARY 2016
FILE NO/S: COR 267 of 2013
BETWEEN: JLLJ NOMINEES PTY LTD as Trustee for the PIPPO FAMILY TRUST
Plaintiff
AND
CONSPECT CONSTRUCTION PTY LTD (ADMINISTRATORS APPOINTED)
First DefendantVALOKO PTY LTD as Trustee for the GAVIN LEE FAMILY TRUST
Second DefendantSPADANUDA HOLDINGS PTY LTD as Trustee for RG SPADA TRUST
Third DefendantCAYENNE PTY LTD as Trustee for KCE FAMILY TRUST
Fourth DefendantTORQUE RECRUITMENTS PTY LTD
Fifth DefendantBOWDEN SELECT PTY LTD
Sixth DefendantCONSTRUCTION CONCRETE WA PTY LTD
Seventh Defendant
Catchwords:
Costs - Application for costs order against person not party to the litigation - Turns on own facts
Legislation:
Nil
Result:
Costs awarded against non-party
Category: B
Representation:
Counsel:
Plaintiff: Mr J A Robertson
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : No appearance
Non-party: Mr R Gillon
Solicitors:
Plaintiff: William & Hughes
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : No appearance
Non-party: Lawton Gillon
Case(s) referred to in judgment(s):
Knight v FP Special Assets Ltd (1992) 174 CLR 178
Murabito v Conspect Construction Pty Ltd [2014] WASC 474
MASTER SANDERSON: This is the plaintiff's application seeking a non‑party costs order against Mr Robert Foti. Mr Foti is the sole director and shareholder of the fourth defendant. The costs order is sought in relation to proceedings which culminated in a judgment delivered on 20 November 2014: Murabito v Conspect Construction Pty Ltd [2014] WASC 474. In dealing with the application it is necessary to say something about the background facts.
Mr Foti is and was at all material times during the proceedings the sole director and shareholder of the fourth defendant. The plaintiff alleges Mr Foti was the 'real party' to the litigation as the fourth defendant was at all material times the trustee of Mr Foti's private family trust. This formulation of the position is disputed by Mr Foti and I will deal with that issue below.
The action was commenced by originating process in December 2013. The plaintiff sought an order the first defendant purchase its shares in the first defendant or alternatively, on order that any one or more of the second to fourth defendants acquire the plaintiff's shares in the first defendant. Programming orders were made on 5 March 2014 and the matter was listed for hearing on 19 May 2014. Prior to the hearing Mr Foti swore an affidavit dated 5 March 2014 in which he deposed to details of the shareholding of the first defendant. That affidavit revealed only that the second, third and fourth defendants were shareholders of the first defendant. The second and third defendants were the trustee companies of the other two directors of the first defendant. At the hearing it emerged the first defendant had issued more share capital between December 2013 and the hearing date. This was not disclosed in Mr Foti's affidavit. It is clear the information must have been available to Mr Foti when he swore that affidavit.
When it was realised not all shareholders were before the court the matter was adjourned to allow the other shareholders - now the fifth and sixth defendants - the opportunity to appear. I made certain programming orders and reserved the costs.
On 3 June 2014, Torque Recruitments Pty Ltd, Bowden Select Pty Ltd and Construction Concrete WA Pty Ltd were joined as fifth, sixth and seventh defendants respectively. They have taken no part in the proceedings.
The matter was relisted for 21 July 2014. The day prior to the resumed hearing date the first defendant terminated the retainer of their solicitors. It would appear the second, third and fourth defendants took the same action. That meant none of the defendants was represented at the hearing. The hearing proceeded on the basis of the affidavit material filed by the defendants. In the event I ordered the defendants to purchase the plaintiff's shares in the first defendant. The defendants have never complied with that order.
After being given notice of the judgment, and upon becoming aware of the plaintiff's attempts to enforce the judgment debt, the fourth defendant joined in an application for a suspension order under the Civil Judgments Enforcements Act 2004 (WA) and lodged an appeal. Both the application for the suspension order and the appeal were abandoned but only after the plaintiff had filed the respondent's case in the appeal and had prepared to resist the suspension order.
In par 18 of its written submissions in support of this application the plaintiff makes a number of further points. Rather than paraphrase these submissions I will set them out in full:
Against the above background the Court should consider the following further conduct of Mr Foti:
18.1the Defendants filed submissions on 16 May 2014 immediately prior to the First Hearing Date stating, relevantly:
'...Conspect Construction is a significant ongoing business. In 2011 total sales were approximately $20 million, in 2012 sales were approximately $27 million and in 2013 sales were approximately $34 million ..."
18.2less than 60 days later Conspect was in insolvent administration proposing a Deed of Company Arrangement;
18.3between the 16 May 2014 submissions and appointment of administrators, on 29 July 2014, Conspect had gone from a 'significant ongoing business' to a basket case;
18.4the grounds of the Appeal Case and the merit of the Suspension Order Application were dubious and appeared to be designed to occasion delay;
18.5curiously both the Appeal Case and the Suspension Order Application were abandoned after Mr Murabito had sunk considerable costs preparing for the same;
18.6Messrs Spadanuda and Lee, the principals of the Second Defendant and the Third Defendant respectively filed for bankruptcy;
18.7Mr Foti practices as an accountant and it is submitted that it is reasonable to infer that he would have been aware, at all times, of the parties' financial position (of each entity involved). This inference can be drawn from the fact that Mr Foti's office, an accounting practice and financial advisory business, is the registered office for all Defendants. Mr Foti is known to be the accountant for Conspect and Cayenne and is believed to be the accountant for all Defendants;
18.8put another way, Mr Foti would have been expected to realise the situation of Conspect and Cayenne was hopeless yet he made positive statements to the Court about the solvency of Conspect and he resisted the action, then resisted the Judgment Debt and then visited extensive further costs on Mr Murabito in the conduct of the Appeal Case and Suspension Order Application;
18.9it follows that it is reasonable to infer that Mr Foti, the only solvent person remaining, must have been funding Conspect, Cayenne, the Suspension Order Application and the Appeal Case;
18.10the fact that Mr Foti was doing all of this with Conspect in a parlous financial position means he was acting outside his interests as a shareholder of Conspect and for his own interest in escaping liability for his private trustee company Cayenne.
In responding to the plaintiff's submissions counsel for Mr Foti first dealt with the financial position of the fourth defendant. Counsel referred to an affidavit of Mr Foti sworn 15 October 2015. As the affidavit filed in opposition to the application in the main proceedings was not admitted into evidence this was the only affidavit from Mr Foti as to his financial position, the financial position of the fourth defendant and his involvement in the affairs of the first defendant. Counsel for Mr Foti also relied on the affidavit material filed by the plaintiff together with conclusions which could be drawn from various company searches.
Mr Foti points out he was never a director of the first defendant, he did not fund its defence to the action and he only stood to benefit from the action to the extent of his being a beneficiary of a family trust of which the fourth defendant was trustee. He also mentions he provided a guarantee to the ANZ Bank which is now being called upon. I will have more to say about this issue below.
Counsel submitted the principal asset of the fourth defendant was at all material times its shareholding in the first defendant. An ASIC search shows the fourth defendant holds 186 ordinary shares in the first defendant. Counsel pointed out evidence adduced by the plaintiff in the main proceedings showed the shareholding of the fourth defendant in the first defendant was estimated to be worth $947,200. The first defendant was placed in administration during the course of proceedings. It was subsequent to the appointment of the administrator that the fourth defendant did not take part in the proceedings. Counsel submitted at the commencement of the proceedings there was no suggestion the fourth defendant was insolvent. Its principal asset ensured that was the case.
Two points can be made about these submissions. First, there is no evidence as to what assets the fourth defendant might hold. The record shows it holds shares in the first defendant but there is nothing in the evidence to say what other assets it might hold. Second, while the first defendant went into administration during the course of the proceedings it did not go into administration prior to the hearing of the plaintiff's claim.
Counsel submitted the fourth defendant became insolvent when the judgment was handed down on 20 November 2014. He pointed out the primary relief sought by the plaintiff at the commencement of the proceedings was the first defendant acquire its shareholding. It was only when the first defendant was placed in administration the plaintiff sought orders that the second, third and fourth defendants acquire his shareholding. That submission accurately represents the position.
Counsel then turned to Mr Foti's role in the litigation. He pointed out Mr Foti had never been a director of the first defendant. He further submitted Mr Foti had never been involved in the day to day management of that company. Mr Foti's evidence is to that effect. A Mr Spadanuda and a Mr Lee were at all relevant times directors of the first defendant. The evidence that it was these two men who were instructing lawyers in the defence of the plaintiff's claim is supported by the evidence of Mr Foti. However, Mr Foti's affidavit ignores the fact that the same lawyers were acting for the fourth defendant. Presumably they were instructed by Mr Foti and he must have had some involvement in the defence of the proceedings. While it is true Mr Foti was not a director of the first defendant and he had no capacity to cause shares in that company to be issued he nonetheless swore an affidavit in the proceedings which omitted to mention the fifth, sixth and seventh defendants as shareholders.
Counsel pointed out Mr Foti is the sole director and shareholder of the fourth defendant. The fourth defendant was at all material times the trustee for the KCE Family Trust. Counsel submitted Mr Foti was not the beneficial owner of the share he held in Cayenne. With respect that misstates the position. The fourth defendant was the holder of the shares in the first defendant but it did not hold those shares beneficially - they were held on trust. Mr Foti was the beneficiary of the trust. Accordingly, as the fourth defendant was the trustee of the family trust Mr Foti or his family are entitled to the benefits of the property. But as the fourth defendant was the trustee of a family trust either Mr Foti or his family were entitled to the benefits of the property held by the fourth defendant.
Counsel submitted there was 'nothing improper in the manner in which Cayenne conducted the proceedings'. In my view that statement is too broad. As at the date the matter came on for hearing no issue was raised as to the solvency of the first defendant. Mr Foti was the first defendant's accountant and his family trust was a substantial shareholder. He swore an affidavit which was filed with the court and served on the plaintiff in which no issue was taken as to the solvency of the company. Mr Foti neither in the affidavit which was filed and served nor otherwise alerted the court to the existence of shareholders who were not then parties to the proceedings. It was only the day before the resumed hearing the fourth defendant, along with the first, second and third defendants, terminated their solicitor's instructions and indicated they would not participate in the action. While none of that may be regarded as 'improper' it is certainly not a course of action consistent with proper case management and does not support any suggestion the fourth defendant was bona fide in its resistance to the application.
In response to these submissions a further set of submissions was filed on behalf of the plaintiff. It is not necessary to deal in any detail with those submissions save for making one point. Between 2012 and July of 2014 the fourth defendant and Mr Foti were guarantors of debts of up to $7 million of the first defendant payable to ANZ Bank. In his affidavit Mr Foti confirms that at present the ANZ Bank is seeking from him an amount of $3.5 million. That suggests two things. First, Mr Foti must have had some real involvement in the business of the first defendant - no one guarantees debts of $7 million unless they have a deep knowledge of the business which is incurring the primary debt. Second, Mr Foti had a real interest in the outcome of the main proceedings. If the first defendant was ordered to purchase the plaintiff's shares that would have a financial impact on the first defendant and the prospect the guarantee might be called upon. In my view it is simply at odds with the available evidence to suggest that Mr Foti was not deeply involved in this litigation.
There was no real difference between the parties as to the legal principles to be applied in an application such as this. Both parties referred to the High Court decision of Knight v FP Special Assets Ltd (1992) 174 CLR 178, and the principles set out at (192 ‑ 193). The plaintiff referred to 'a general category of case' in which an order for costs should be made against a non‑party. The category included circumstances where:
1.the party to the litigation is an insolvent person or a man of straw;
2.the non‑party has played an active part in the conduct of the litigation; and
3.the non‑party or some person on whose behalf he or she is acting or by whom he or she has been appointed has an interest in the subject of the litigation.
In my view Mr Foti in this case should be ordered to pay the costs of the action. The first defendant and indeed the second, third and fourth defendants are all insolvent. I am satisfied for reasons set out above Mr Foti played an active part in the conduct of the litigation. Finally, Mr Foti clearly had an interest in the litigation. It is only necessary to refer to the guarantee he provided to the ANZ Bank on behalf of the first defendant to make good that point.
Accordingly, I am satisfied that this is one of those unusual circumstances where Mr Foti ought be ordered to pay the costs of the litigation.
There is one final matter to which I should make passing reference. Subsequent to the hearing of this application the parties for the plaintiff and Mr Foti engaged in a correspondence war over certain references made during the course of submissions. In my view the particular issue at the centre of that dispute had no effect on the outcome of this application. Other than to acknowledge that there was such a dispute and to say that I have read the rather acrimonious correspondence I have taken none of the matters raised into account.
I will hear the parties as to the form of orders and as to costs.
0
2
1