Jones as Trustee of Bankrupt Estate of R v The Queen (No 2)

[2009] NSWSC 1241

CITATION:	Jones as Trustee of Bankrupt Estate of R v R (No 2) [2009] NSWSC 1241
HEARING DATE(S):	24 September 2009
JUDGMENT DATE :	19 November 2009
JUDGMENT OF:	Smart AJ
DECISION:	Application for costs order in favour of the Liquidator and of the family company (in Liquidation) against the former wife in respect of the vacated hearing stood over, pending determination of the motion of the former wife for a costs order against George [R]. (Plaintiff not appearing.)
CATCHWORDS:	costs - outstanding motion of former wife for costs order to be determined before order for costs made against her
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CATEGORY:	Principal judgment
PARTIES:	Michael Gregory Jones as the Trustee of the Bankrupt Estate of R (Plaintiff) [R] (former wife) (First Defendant) RM Sutherland, Liquidator (Second Defendant) [R] Enterprises Pty Ltd (In Liq) (Third Defendant)
FILE NUMBER(S):	SC 5487/05
SOLICITORS:	No appearance for Plaintiff Adrian Twigg & Co (First Defendant) SJ Gallant (Second & Third Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Smart AJ

Thursday 19 November 2009

Publication Restricted

(Nothing tending to identify the parties
or their children is to be published.)

JUDGMENT – as to costs between the first defendant and second and third defendants

1 This judgment should be read with that of 8 September 2009. As mentioned, the plaintiff, as trustee of the bankrupt estate of R, the former husband, is seeking the sale of a valuable property in suburban Sydney in which the former wife resides with the children of the marriage.

2 By her first cross-claim she is claiming an 83.57% interest in the property. By the second cross Summons of 5 July 2006, the liquidator of the family company and that company seek a declaration that neither the former wife nor the former husband, either in their own names or on behalf of any third party, have any beneficial interest in the property, and a declaration that the family company (in liquidation) was the beneficial owner of the property. An order was sought for the sale of the property. Alternate relief was sought including an order that the former wife pay to the family company $816,587.00 in accordance with section 588M of the Corporations Act 2001 (Cth). The liquidator had applied to be joined as a party in February 2006. Although the former wife initially opposed this application, she consented to it in late June 2006.

3 On 19 December 2008 the hearing of these proceedings was fixed for 6 – 10 July 2009 by a Registrar.

4 It seems that, by facsimile of 9 June 2009 to the liquidator’s solicitor received at 5:39 pm on that day, the former wife’s solicitor advised that she wished to vacate the hearing of the matter fixed for 6 – 10 July 2009.

5 On 10 June 2009 the former wife filed a motion to vacate the hearing. That motion could not be heard by the Court until 25 June 2009 as it was expected to take some hours. On that occasion the family company (in liquidation) and the Liquidator strongly opposed the wife’s application. I vacated those hearing dates and stood the matter over to 11 September 2009 for argument on the question of costs and for directions. That date was shifted to 24 September 2009 due to the Court’s other commitments.

6 The second and third defendants seek their costs of the motion of 10 June 2009 of the former wife and the costs thrown away by the adjournment.

7 The former wife submitted that, whilst in many cases an adjournment application might result in an order for costs against the party seeking the adjournment, there was no rule to that effect.

8 In the judgment of 8 September 2009 I recorded that when the former wife’s solicitor took the trial dates in December 2008 he anticipated that shortly thereafter he would have funding for the hearing and that unexpected difficulty was experienced in obtaining the anticipated funds.

9 On the costs issue the former wife relied on her affidavit of 16 June 2009 and the affidavits of her solicitor of 16 June 2009, 26 June 2009 and 28 August 2009.

10 In his affidavit of 16 June 2009 the former wife’s solicitor details the funds he expected to become available to the wife. That affidavit refers to extended proceedings in the Family Court. In his affidavit of 22 June 2009 that solicitor summarises what occurred in the Family Court on 19 June 2009 and further matters as to the availability of funds.

11 I have assumed that the reference in the former wife’s submissions to the solicitor’s affidavit of 26 June 2009 is a reference to the solicitor’s affidavit of 22 June 2009. The former wife’s solicitor provided an updating affidavit of 28 August 2009. That traced further the course of proceedings in the Family Court, particularly in relation to the funds expected to be received from the liquidator of Spincast Pty Ltd. After deposing to two issues which had been raised in the Family Court proceedings, the solicitor stated:

“The liquidator, who had, prior to yesterday, proposed a dividend of up to 30 cents in the dollar, now has reduced that because of the legal proceedings involving Cavalock Pty Limited and George and Nouha [R] to only 16 cents in the dollar. The proceedings against Cavalock and George and Nouha [R] will also delay payment of any further distributions.”
(George and Nouha [R] are the parents of the former husband.)

12 At the hearing on 24 September 2009 I was told that the former wife expected to receive $70,000.00 from the Liquidator of Spincast within the next seven days.

13 The solicitors for the second and third defendants relied on the affidavit of Roderick Mackay Sutherland of 7 March 2006, the affidavit of Sule Arnautovic of 28 February 2006 and the solicitor’s affidavit of 19 June 2009. On 19 December 2002, by order of this Court, Mr Sutherland was appointed as liquidator of the family company. He prepared an insolvency report. It appears from the materials that the former wife and husband lived in the suburban property from about 1996 to 2000 and that since their separation she and the children have continued to live in that property. The former wife and husband were formally divorced in January 2002 and the former husband was made bankrupt on 28 November 2002 on his own petition. His bankruptcy came to an end in November 2005 by operation of law. On 10 June 2003, pursuant to s 436B(2) of the Corporations Act, Mr Sutherland was granted leave by the Court to appoint himself as administrator of the family company. On 7 July 2003 the creditors of the company in attendance at the meeting of the creditors resolved that the family company should enter into a Deed of Company Arrangement (DOCA). Such a deed was executed.

14 The second and third defendants submitted that, far from the former wife’s lack of funds being unexpected, her lack of funds and assets was known at least on 19 December 2008, if not earlier. Further, she did not raise these financial difficulties at the time the proceedings were fixed for hearing and raised them at the last moment.

15 The second and third defendants submitted that they were entitled to oppose the vacation of the hearing and that they had relied upon valid and reasonable grounds in so doing. It was contended that the former wife had not submitted that the second and third defendants had acted other than appropriately and that it was open to her to ask the Court substantially earlier than 10 June 2009 to vacate the hearing. Reliance was placed by the second and third defendants on what they described as the late application by the wife for vacation of the hearing dates in circumstances where, it was alleged, that she was unlikely to be able to be ready for the hearing.

16 The former wife has filed a motion in which she seeks an order that George [R] (the father of her former husband) pay her costs of, and incidental to, the motion filed by her on 10 June 2009. She sought in the alternative that, in the event that an order for costs is made by the Court against her in favour of the Liquidator, George [R] indemnify, be responsible for and pay those costs as and when they fall due.

17 In the further alternative she sought that each of the parties to the proceedings bear their own costs of the motion for adjournment.

18 At the hearing on 24 September 2009 I was told that George [R] was overseas and that he was not expected to return to Australia prior to November 2009. The former wife’s solicitor intimated that she wished to proceed with her motion and accepted that there was little that could be done until George [R] returned from overseas.

19 As to the order sought against George [R], the former wife stated that she was relying on his conduct in relation to Spincast in that it prevented, or tended to prevent, funds being made available to the former wife to contest these proceedings.

20 The former wife further submitted that the preferable course would be to order George [R] to pay the costs of the second and third defendants of the vacation of hearing application and the costs thrown away by the vacation of the hearing dates so that the second and third defendants would be looking to George [R] rather than her. In amplification, the former wife contended that the ultimate beneficiary of any moneys received by the Liquidator will be George [R] and those companies associated with him, even assuming that the liquidator operates independently. She submitted that the Court should look past the cross claimant named in the pleadings and look to the real beneficiary. If that real beneficiary is actively doing things to nobble the former wife’s ability to run this case, the Court should not make “an order for costs in favour of the Liquidator” because of who the ultimate beneficiary would be and potentially the effect it would have on the former wife’s continued ability to conduct her case.

21 The Liquidator submitted that much of the case advanced by the former wife was relevant only to the former wife’s motion against George [R]. That was not being heard. The matters raised were not related to the question whether a costs order should be made in favour of the second and third defendants as against the former wife. On any view they were entitled to such an order. She had made the late application to vacate and that occasioned them to incur legal costs.

22 The Liquidator, by his solicitor, stated that an order was not sought that the costs he incurred be payable forthwith. An ordinary costs order payable at the end of the proceedings was sought. There was no reason, it was submitted, why the costs orders that are sought in the motion cannot deal with the apprehension that the former wife has about the ultimate benefit position. It was submitted that she sought an indulgence from the Court six months after she told the Court she was ready to proceed to a five-day hearing.

23 In paragraph 8 of her written submissions, the former wife sets out in summary form the reasons which she alleges would justify the making of the orders sought against George [R]. As George [R] has not been served or heard, I will not comment upon any of these or the merits of the application.

24 The DOCA required Cavalock and/ or George [R] to pay $140,000.00 to the Deed’s administrator, which amount constituted the Deed Fund (clause 4.1). Clause 5.1 requires Cavalock and/or George must procure that neither it nor him nor any related creditor lodges a proof of debt with the Deed’s administrator for the purposes of participating in a distribution of the Deed Fund. “Related creditor” is stated to mean “any person who is a related entity to the company ([R] Enterprises Pty Ltd (In Liquidation) (Administrator Appointed) within the meaning ascribed to that term in Section 9 of the Corporations Act and the term Related Creditor includes, without limiting, the generality of the foregoing George, Mark (aka Maroun) [R], Nu-Rock Technology, Nu-Rock Corporation and G & N Developments”.

25 Clause 7.1 provides that the Company, the Administrator, Deed’s Administrator and/ or Liquidator (as appropriate) releases

7.1.4 any insolvent trading by [the former husband] pursuant to Part 5.7B, Division 3 of the Corporations Act.

26 There was some material, the truth of which has not been investigated, suggesting that the former husband was responsible for running the business of the family company and any insolvent trading.

27 The Liquidator is seeking, by alternative relief, to hold the former wife responsible to the extent mentioned for insolvent trading.

28 The Deed provides for the Deed’s Administrator, for acting as administrator of the Deed, to receive fixed remuneration of $10,000.00 plus GST and, for acting as Administrator of the Company, remuneration of $17,000.00 plus GST. Clause 13.1.2. provides for the payment of Liquidator’s costs and expenses (including legal costs) incurred during the liquidation period.

29 Clause 9 contains various moratorium provisions.

30 Clause 10.1 provides that creditors, except for Related Creditors, must accept their entitlements under the Deed in complete discharge of all claims.

31 Clause 15.1 provides the arrangement will have been given effect when all parties to the Deed have fulfilled their obligations in full and the Deed Fund has been distributed to Creditors.

32 I have referred to the terms of DOCA because of the terms of paragraphs 14, 15, 16 and 17 of the affidavit of 28 August 2009 of the former wife’s solicitor. Paragraph 16 records that Cavalock Pty Limited, a company associated with George [R], has appealed against a rejection by the Liquidator of Spincast of its (Cavalock’s) claim to be entitled to approximately $290,000.00. A significant part of that claim is an assertion by Cavalock that both the funding of the DOCA of the family company and the funding of the subsequent expenses of the Liquidator of the family company in the present case, and their lawyers, was to be met by Spincast Pty Ltd. Paragraph 17 of the affidavit alleges that Cavalock asserts that some eight payments totalling in excess of about $190,000.00 said to have been paid by Cavalock were in fact paid on behalf of Spincast.

33 I have also noted paragraph 18 of the affidavit of 28 August 2009.

34 In paragraph 6 of his affidavit of 28 August 2009, the former wife’s solicitor stated that the source of funding for her for these proceedings “was anticipated (at lease since the second half of 2008) to be the funds to which she would be entitled (via the [R] Family Trust) as a consequence of orders made in the Family Court from the proceeds of a loan account [of a little over $430,000.00] and the shares in … Spincast Pty Limited”. As at 28 August 2009 no funds had come to the former wife from the Liquidator of Spincast. However, as at 24 September 2009, $70,000.00 was anticipated.

35 There were extended proceedings over the entitlement to moneys to come from Spincast. The Spincast proceedings were listed on 25 June 2009, 7 July 2009 and 29 August 2009 before the Family Court.

36 The claim by Cavalock in respect of funds held by Spincast was made after 19 June 2005 and after G&N Developments Pty Ltd, a company associated with George [R], withdrew its application on 19 June 2005 for the Court to reverse the decision of the Liquidator of Spincast Pty Limited (In Liquidation) rejecting its proof of debt.

37 The former wife also contends that George and Nouha [R] have failed to repay Spincast approximately $893,000.00 and that this has reduced in the short term the money to come to her.

38 I express no view in relation to the various claims and counter claims in respect of the funds held by or claimed to be due to Spincast. These have advisedly not been investigated before me.

39 The former wife is in substance complaining and alleging that George [R] has, by himself and his associated companies, been endeavouring to prevent the former wife from obtaining sufficient funds to be able to adequately resist the claims made against her in these proceedings and to prevent her advancing her cross claim and providing finance to the Liquidator of the family company to enable him to advance his claims against her in these proceedings.

40 In pressing for an order for costs at this stage of the proceedings, the Liquidator referred to the rising indebtedness under the mortgage over the former matrimonial home and the continuing decrease in the possible funds available to meet any judgment and associated costs orders given in favour of the family company and the Liquidator of that company. I have given consideration and weight to these submissions.

41 The application of the Liquidator of the family company and that company for a costs order at this stage reflects a conventional approach. However, the financial matters that have to be considered are complex and the factual circumstances are exceptional. I do not think that any order should be made as to the costs of the Liquidator of the family company and that company as against the former wife until I have determined the motion of the former wife for a costs order as against George [R].

42 Accordingly, I stand over the question of making a costs order in favour of the Liquidator of the family company and that company against the former wife, in respect of the vacated hearing, until I have determined the motion of the former wife for a costs order as against George [R].

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