Kation Pty Ltd v Lamru Pty Ltd - [2009] NSWCA 145

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: KATION PTY LTD v LAMRU PTY LTD; LEWIS v NORTEX PTY LTD (In liq) [2009] NSWCA 145

HEARING DATE(S): 27-30 October 2008

JUDGMENT DATE:
12 June 2009

JUDGMENT OF: Allsop P at 1; Hodgson JA at 12; Basten JA at 36

DECISION:
(1) Grant leave to the appellants and cross-appellants to appeal with respect to the matters raised in their notices of appeal and cross-appeal filed in this Court so that all steps purportedly taken shall be treated as properly taken in the appeal and cross-appeal respectively.
(2) The appeal be dismissed.
(3) The cross-appeal be allowed in part and the orders made by the trial judge in matter nos 3081 of 1997 and 1750 of 2002 be varied so that:
(i) in order 1, the reference to order “3(iii)(d)” be amended to order “3(d)”;
(ii) in order 3 delete paragraphs (d)-(f) and in lieu thereof insert the following:“
(d) order that Lewis and Kation pay to Lamru:
(i) in respect of the 1995 financial year, $23,228, together with interest calculated from 30 June 1995;
(ii) in respect of the 1996 financial year, $40,650, together with interest calculated from 30 June 1996;
(iii) in respect of the 1997 financial year, $55,493, together with interest calculated from 30 June 1997;
(e) order that Lewis and Kation reconstitute the Nortex unit trust by paying into the trust fund:
(i) in respect of the 1996 financial year, an amount of $60,976, together with interest calculated from 30 June 1996;
(ii) in respect of the 1997 financial year, an amount of $83,240, together with interest calculated from 30 June 1997;
(f) in respect of the calculations of interest, the amount is calculated on the sum to which it relates at the rate specified in Schedule 5 to the Uniform Civil Procedure Rules 2005 and compounded on annual rests until payment.”
(4) In relation to order 4, set aside paragraph (b) and (c), and in lieu thereof insert:
“(b) declare that the amounts of the trust were erroneous by reason of the taking and selling of stock:
(i) by understating the value of stock at the end of the 1996 financial year by $210,000;
(ii) by understating the profits for the 1997 financial year by a further $150,000;
(c) order Lewis reconstitute the Nortex Trust Fund by paying into the Trust Fund sixty per cent of the amounts referred to in par (b), together with interest at the rates payable under Schedule of the Uniform Civil Procedure Rules 2005, calculated on 30 June in respect of each financial year, compounded at annual rests;
(d) order that Lewis pay to the liquidator to be placed in an interest-bearing account (if the liquidator and Lamru give written consent to the Court and to Lewis within seven days) or into Court (if they do not) forty per cent of the amount referred to in par (b), together with interest at the rates payable under Schedule 5 of the Uniform Civil Procedure Rules 2005, calculated from 30 June in respect of each financial year, compounded at annual rests;
(e) liberty to Lamru to apply to the Court for payment of the amounts referred to in par (d) to it on the basis of evidence that it has made full disclosure to the Australian Tax Office of tax evasion by Mr Lamb and Lamru in connection with Nortex stock and has made appropriate arrangements to pay any additional tax and penalties;
(f) liberty to the liquidator to apply to the Court after twelve months for release to him of the amounts in par (d), in the event that no application has been made by Mr Lamb and Lamru in the meantime or in the event that such an application has been refused.”
(5) Set aside order 7.
(6) Set aside order 12 and in lieu thereof order that the Liquidator pay 30% of Lamru’s costs of the claims:
(i) with respect to the Mark Lewis bonuses, and
(ii) its entitlement to costs at trial.
(7) Add a new order:
“14. To the extent that the Liquidator’s costs diminish Lamru’s interest in the assets of the company, order that Kation and Mr Peter Lewis indemnify Lamru.”
(8) Order that Mr Peter Lewis and Kation pay Lamru’s costs:
(a) of the appeal;
(b) of the stock fraud, “unclean hands” issue of the cross-appeal, and
(c) the application for leave to appeal against the interlocutory judgment of Palmer J.
(9) Order that Mr Peter Lewis and Kation pay the liquidator’s costs of the application for leave to appeal against the judgment of Palmer J.
(10) Dismiss the application for leave to appeal against the judgment of Palmer J.
(11) Order that the Liquidator pay 50% of Lamru’s costs of its cross-appeal with respect to the issues identified in (6) above.
(12) Direct that these orders not be entered for 28 days and thereafter only with leave of a judge of the Court and that, within 28 days, the parties shall:
(a) apply by notice of motion for variation of these orders on the basis of -
(i) any suggested failure to deal with an issue addressed on the appeal or cross-appeal, or
(ii) any suggested failure of the orders to accord with the reasons for judgment;
(b) provide to the Court agreed figures, or submissions in support of their separate calculations, with respect to the terms of a declaration as to the respective loan account balances of Kation and Lamru as at 2 September 1997, and
(c) provide submissions (if any) as to the orders proposed in [185] with respect to Nortex’ costs.

CATCHWORDS: APPEAL – leave to appeal – Anshun estoppel – abuse of process – unfairness – challenge to granting liquidator extension of time to file cross-claim – whether party would have taken different course to giving evidence - CORPORATIONS – winding up – trustee – appointment of liquidator – challenge to accounts in statutory appeal from liquidator’s rejection of proof of debt – whether challenge barred by unclean hands - COSTS – liquidator’s costs – neutrality – active resistance – whether liquidator entitled to costs where active contradictor defending liquidator’s action –liquidator’s active defence in relation to accounting conventions – substantial costs accrued by liquidator - COSTS – trustee's costs – ratified by resolution – whether properly referable to concerns of company – apportionment between trustee and beneficiary – whether to be referred to referee - EQUITY – equitable defences – “unclean hands” – abandonment – acquiescence – long delay in seeking remedy – whether trust accounts should be reopened – where party had engaged in malpractice in preceding years – connection with Limitation Act 1969 (NSW), s 9 - EVIDENCE – evidence of unlawful conduct – protection of certificate under Evidence Act 1995 (NSW), s 128 – relationship to equitable defence of “unclean hands” - TRUSTS – accounting conventions – addbacks convention – differential interest convention – whether liquidator should have applied accounting conventions between unitholders following breakdown of relationship – consistency with trust deed - TRUSTS – breach of trust – dishonesty of trustee – distinction between principal and accessorial liability – whether payments by way of “bonuses” were in breach of trust – whether payments made pursuant to binding contract – liquidator’s approval fraudulently induced - TRUSTS – breach of trust – remedies – stock fraud – unclean hands – scope of defence – whether party could claim relief directly through party rather than through trustee – reliance on evidence that taxable income understated in previous years – whether cause of action depended on improper conduct - TRUSTS – breach of trust – remedies – whether reconstitution of trust appropriate remedy – court’s discretion to award interest compounded annually - TRUSTS – distribution of profits – whether accounts should be reopened – availability of equitable defences –effectiveness of resolution distributing profits – compliance of resolution with trust deed requirements - WORDS AND PHRASES – “net income” – “unclean hands”

LEGISLATION CITED: Corporations Act 2001 (Cth), s 473
Corporations Law, s 471A
Evidence Act 1995 (NSW), s 128
Evidence Act 1995 (Cth), s 128
Income Tax Assessment Act 1936 (Cth), Part III, Div 6
Industrial Relations Act 1996 (NSW), s 106
New South Wales Consolidated Equity Rules 1902, r 82
Supreme Court Act 1970 (NSW), s 101
Uniform Civil Procedure Rules 2005 (NSW), r 9.1

CATEGORY: Principal judgment

CASES CITED: Aliprandi v Griffith Vintners Pty Ltd (In liq) (1991) 6 ACSR 250
Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220
Barnes v Addy (1874) LR 9 Ch App 244
Black Uhlans Inc v NSW Crime Commission [2002] NSWSC 1060; 12 BPR 22,421
Carantinos v Magafas [2008] NSWSC 304
Commissioner of Taxation v Bruton Holdings Pty Limited (in liq) [2008] FCAFC 184; 70 ATR 903
Corin v Patton [1990] HCA 12; 169 CLR 540
Craven-Ellis v Canons Ltd [1936] 2 KB 403
Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184
Deweese v Reinhard 165 US 386 (1897)
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89
Gascoigne v Gascoigne [1918] 1 KB 223
Griffiths v Griffiths [1973] 1 WLR 1454
Harrison v Schipp [2001] NSWCA 13
In re Diplock; Diplock v Wintle [1948] Ch 465
In re Emery’s Investments Trusts; Emery v Emery [1959] Ch 410
In re Robinson; McLaren v Public Trustee [1911] 1 Ch 502
Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 143
Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 189
Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 1063
Lewis v Nortex Pty Ltd (In liq) [2006] NSWSC 768
Meyers v Casey [1913] HCA 50; 17 CLR 90
Ministry of Health v Simpson [1951] AC 251
Moody v Cox [1917] 2 Ch 71
National Trustees and Executors and Agency Co of Australasia Ltd v Barnes [1941] HCA 3; 64 CLR 268
Nelson v Nelson [1995] HCA 25; 184 CLR 538
Ogilvie-Grant v East (1983) 7 ACLR 669
Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589
Rippon v Chilcotin Pty Ltd [2001] NSWCA 142; 53 NSWLR 198
Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 17 FCR 344
Tanning Research Laboratories Inc v O’Brien [1990] HCA 8; 169 CLR 332
Target Holdings Ltd v Redferns [1996] AC 421
Williams v Wilcox (1838) 8 Ad & E 314; 112 ER 857
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484

TEXTS CITED: Ford and Lee, Principles of the Law of Trusts at [17,140]
Meagher and Gummow’s Jacobs’ Law of Trusts in Australia (6th ed, 1997) at [1334]
Jacobs’ Law of Trusts in Australia (7th ed, 2006) at [1334], [2209]
R Meagher, J D Heydon and M Leeming Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4th Ed (2002) Butterworths at 98-102 [3-110] – [3-135], [36-090]
W A Parker The Practice in Equity (1930) (Law Book Co at 178-179
Pomeroy’s Equity Jurisprudence, 5th Ed (1941) Vol 2 at 90 – 143 [397]-[404]
Spence’s Equitable Jurisdiction (1846), London, Vol 1 at 339
J Story Commentaries on Equity Pleadings (1865, Little Brown) at 15-16

PARTIES: Matter No. 40366/06:
Kation Pty Ltd (Appellant and First Cross-respondent)
Peter Lawrence Lewis (Second Appellant and Second Cross-respondent)
Lamru Pty Ltd (First Respondent and First Cross-appellant)
Russell William Lamb (Second Respondent and Second Cross-appellant)
Nortex Pty Ltd (In liq) (Third Respondent and Third Cross-Respondent)
Brian Raymond Silvia (Fourth Cross-respondent)
Matter No. 40523/06:
Peter Lawrence Lewis (Applicant)
Nortex Pty Ltd (In liq) (Respondent)

FILE NUMBER(S): CA 40366/06; CA 40523/06

COUNSEL: IM Jackman SC/J Baird (Kation, Peter Lawrence Lewis)
SJ Motbey (Lamru, Russell William Lamb)
VR Gray (Nortex, Brian Raymond Silvia)

SOLICITORS: Kemp Strang Lawyers (Kation, Peter Lawrence Lewis)
Lyons & Lyons Solicitors (Lamru, Russell William Lamb)
Somerset Ryckmans (Nortex, Brian Raymond Silvia)

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S): SC 3081/1977; SC 1750/2002; SC 3354/2002

LOWER COURT JUDICIAL OFFICER: Young CJ in Eq; Hamilton J; Palmer J

LOWER COURT DATE OF DECISION: 22 June 2001; 19 July 2001; 19 April 2002; 9 December 2002; 20 December 2002; 29 April 2003; 20 June 2003 (Tcpt 2689); 20 June 2003 (Tcpt 2692); 26 June 2003; 2 March 2004; 29 November 2004; 19 May 2005; 13 October 2005; 23 May 2006; 27 July 2006

LOWER COURT MEDIUM NEUTRAL CITATION: [2001] NSWSC 511; [2001] NSWSC 610; [2002] NSWSC 337; [2002] NSWSC 1192; [2002] NSWSC 1245; [2003] NSWSC 354; [2003] NSWSC 581; [2004] NSWSC 121; [2004] NSWSC 1143; [2005] NSWSC 482; [2005] NSWSC 1062; [2006] NSWSC 480; [2006] NSWSC 768

CA 40366/06
CA 40523/06
SC 3081/97
SC 1750/02
SC 3354/02

ALLSOP P
HODGSON JA
BASTEN JA
12 JUNE 2009

KATION PTY LTD v LAMRU PTY LTD;

LEWIS v NORTEX PTY LTD (In liquidation)

Headnote

Mr Peter Lewis and Mr Graeme Dufty ran a business through a trading trust, constituted as a unit trust. The trustee was Nortex Pty Ltd (“Nortex”). Companies controlled by Mr Lewis and Mr Dufty each held units in the trust. By a document bearing the date 12 April 1991 and signed by Mr Lewis and Mr Dufty, a resolution was passed by them as Nortex’s directors stating the estimated net income of the trust fund for the period ending 12 April 1991 and directing how this net income would be distributed.

In April 1991, Mr Russell Lamb, through a company controlled by him, Lamru Pty Ltd (“Lamru”), acquired units in the trust from Mr Dufty’s company. Following the change in ownership, Mr Lewis’ company, Kation Pty Ltd (“Kation”), held 60% of the units and Lamru held 40% of the units. Mr Dufty resigned as a director of Nortex and Mr Lamb was appointed director.

In 1996, a dispute arose between Mr Lewis and Mr Lamb in relation to the conduct of each with respect to the business. On 28 June 1996, Mr Lamb ceased to attend at Nortex’s premises. On 30 September 1996, Lamru issued a statutory notice of demand to Nortex claiming $611,000, said to be owing to it on its loan account with Nortex.

On 3 July 1997, Mr Lewis sought the appointment of a provisional liquidator in the Supreme Court. Five days later, a provisional liquidator was appointed and in August the Nortex business was sold. The liquidator was appointed as official liquidator on 3 September 1997.

On 10 December 1998, Lamru lodged with the liquidator a proof of debt which was admitted and rejected in part. Lamru’s proof of debt included a claim that the figures for stock held on account at the end of the 1996 and 1997 financial years were falsified. There were other claims of fraudulent conduct on the part of Kation, Mr Peter Lewis and his son, Mr Mark Lewis, who also worked in the business and received a share of profits in certain years. On 4 February 2000, Lamru appealed against the liquidator’s decision with respect to rejected debts by notice of motion filed in the winding up proceedings. On 31 July 2000, Lamru filed an amended notice of motion seeking to be admitted as a creditor of Nortex for just over $1 million.

On 22 June 2001, Young CJ in Eq held that a document, appointing Mr Lewis as the sole appointer of the trust, had been executed by Messrs Lewis and Dufty on or shortly after 16 April 1991, but had no effect until it was served in 1997.

The claims of fraud in Lamru’s proof of debt led to an order in March 2002 that Lamru commence separate proceedings against Kation and the Lewises, identifying its claims and the relief sought. Kation and Mr Peter Lewis filed cross-claims. Both sets of proceedings were heard before Hamilton J intermittently between 10 April 2002 and 8 November 2004. On 29 November 2004, Hamilton J delivered the principal judgment. In 2005 and 2006, he delivered three supplementary judgments. Mr Lewis and Kation appealed against these judgments and Lamru cross-appealed. The orders made by Hamilton J were interlocutory; therefore, leave was required with respect to the appeal and cross-appeal. Leave was granted.

Following Hamilton J’s second supplementary judgment on 12 October 2005, the liquidator took steps to file and serve a cross-claim, which sought payment from Mr Peter Lewis of $360,000 on account of the falsified stock, for the proceeds of which it was said Mr Lewis and Kation were liable to account to Nortex. Palmer J granted leave to file the claim on 27 July 2006. Mr Lewis sought leave to appeal against Palmer J’s decision.

The issues for determination on appeal were:

(i) whether the parties could reopen the Nortex accounts because there was a failure to divide profits in the 1991 and 1992 financial years in accordance with the Nortex trust deed;

(ii) whether the trial judge’s findings that payments made to Mr Mark Lewis as “bonuses” out of Nortex’s profits in 1995, 1996 and 1997 were in breach of trust were correct;

(iii) whether the liquidator should have applied the addbacks and differential interest accounting conventions between the unitholders;

(iv) whether the defence of unclean hands was available to Nortex or Kation and Mr Lewis with respect to Lamru’s claim to a 40% share of the proceeds of the stock sales which had been misappropriated by Mr Lewis and Kation, and, if not, whether Lamru was entitled to recoup its loss directly from Kation and Mr Peter Lewis;

(v) whether Mr Lewis should be granted leave to appeal from Palmer J’s decision;

(vi) whether legal expenses incurred by Nortex pursuant to ratification resolutions were properly referable to the concerns of the company; and

(vii) whether the liquidator could recover its costs of defending its position in relation to the non-application of the accounting conventions.

The Court held, dismissing the appeal, and allowing the cross-appeal in part:

In relation to (i)

(per Basten JA, Allsop P and Hodgson JA agreeing)

1. The parties prepared accounts and tax returns and conducted their business generally on the basis of the distribution of profits as proposed by Mr Lewis in late 1991. The 1992 accounts operated in a similar fashion to the 1991 accounts. The trial judge’s conclusion that the accounts for those financial years should not be reopened was correct: [72].

2. The difficulty of producing, on the basis of the evidence, a consistent and coherent understanding of the financial arrangements made in 1991 militated against any reopening of the 1991 and 1992 accounts: [67], [81].

3. No element of fraud having been established and no deliberate breach of trust having been proved, questions of equitable defences were not directly invoked. Assuming that a prima facie case of underpayment were established by Lamru, the fact that Mr Lamb was content, for at least six years, to acquiesce in the arrangements was sufficient to justify the Court refusing leave to reopen accounts for those years: [83]–[84].

Spellson v George [1992] NSWCA 254; 26 NSWLR 666, applied.

In relation to (ii)

(per Basten JA, Allsop P and Hodgson JA agreeing)

4. At its highest, Kation’s argument was that Mr Mark Lewis’ remuneration was unfair, given the work he performed, and that this might have supported proceedings in the Industrial Relations Commission. However, no such proceedings had been commenced (more than a decade after the termination of his employment) and the payments were not made on that basis: [100].

5. The bonus payments were not made pursuant to a binding contract between Nortex and Mr Mark Lewis because no evidence was given by Mr Peter Lewis or Mr Mark Lewis about this. The bonuses constituted payments by Nortex in breach of trust: [101].

6. As Mr Mark Lewis did not have a contractual entitlement to the bonuses, the trust’s net profits were increased by that amount and Lamru’s claim for 40% of that amount was made good. In adopting the accounts prepared by Mr Peter Lewis, the liquidator gave written approval to the transaction. Knowing that the payment was not a true liability of Nortex, that approval was fraudulently induced by Mr Peter Lewis: [104]—[106].

7. The order that interest should be paid on the bonus amounts, compounded annually, was within the Court’s general discretion. No basis was demonstrated for interfering with the trial judge’s exercise of that discretionary power: [110]—[111].

Harrison v Schipp [2001] NSWCA 13, referred to.

8. Mr Peter Lewis’ acts were Nortex’s acts and his intention and state of mind were Nortex’s intention and state of mind. It was he who procured the company to act in the way that it did. Similarly, in so far as Kation was the recipient of the first bonus payment in breach of trust, its state of mind was that of Mr Peter Lewis. There was no error in the way the trial judge approached the question of the trustee’s dishonesty: [116]—[118].

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89; Barnes v Addy (1874) LR 9 Ch App 244, considered.

In relation to (iii)

(per Basten JA, Allsop P and Hodgson JA agreeing)

9. Once the relationship had broken down between the unitholders, a proper accounting under the trust deed required application of the addbacks and differential interest conventions. There was no basis upon which those arrangements could be said to have terminated when Mr Lamb departed from Nortex’s premises on 28 June 1996. The conventions were appropriate and not inconsistent with the trust deed: [133], [139], [141].

In relation to (iv)

(per Allsop P)

10. The evidence alleged to give rise to a defence of unclean hands was probative of a wrong having been committed, not by the giver of the evidence, but by a third party. Such evidence was given under the protection of a certificate under the Evidence Act, and thus the protection of Mr Lamb and Lamru derives from the operation of an Act of Parliament. However the exercise of discretion to refuse relief or the imposition of conditions upon relief does not undermine the policy of the Evidence Act: [10].

11. The bad conduct engaged in by Mr Lamb had a close temporal connection to the wrong committed by Mr Lewis, a close forensic connection, and a close practical human connection in terms of inducement or formation of habit. It thus had an immediate and sufficiently close relation to the equity sued on to invoke the defence: [8]—[9].

Meyers v Casey [1913] HCA 50; 17 CLR 90; Dering v Earl of Winchelsea (1787) 1 Cox 318, referred to.

(per Hodgson JA, Allsop P agreeing)

12. The requirement that the bad conduct, alleged to give rise to the defence, have "an immediate and necessary relation to the equity sued for" is not one that the relation be of the nature of contributing to or constituting the equity sued for. Since this is merely a principle guiding the exercise of discretion, it should not be given a narrow or technical construction: [28].

13. The bad conduct established practices conducive to the misappropriation of stock, and provided an essential part of the evidentiary material supporting the finding on which the claim for equitable relief was based. That relationship justified the application of the defence: [29].

14. The discretion should not be exercised, without conditions attaching, in circumstances where it would both give Lamru the forensic benefit of dishonest conduct of its principal and the principal's evidence of that conduct, but also leave its principal immune from any consequences arising from his voluntary decision to proffer that evidence for the benefit of Lamru: [31].

15. The considerations that a person who dishonestly takes trust property should not be allowed to keep it, and that previous tax evasion should be declared and remedied, support the giving of conditional relief. That condition ought to be that Mr Lamb undertake to provide to the Australian Tax Office a statement disclosing all matters disclosed in his evidence: [31]—[32].

Carantinos v Magafas [2008] NSWSC 304, applied.

(per Hodgson JA, Allsop P and Basten JA agreeing)

16. Nortex was entitled to an order reimbursing it for Kation’s share of the misappropriated stock, at the suit of Lamru. The defence of unclean hands failed because Lamru was exercising a statutory right under the Corporations Law, not seeking equitable relief; therefore, it did not preclude the order made at the suit of Lamru: [1], [17]-[21], [163], [170]

(per Basten JA dissenting)

17. The right which Lamru relies upon arises from the trust deed. There was no sense in which the establishment of the trust was tainted. Nor was the fraudulent misappropriation conduct in which either Lamru or Mr Lamb was implicated because Mr Lamb had ceased to have a role in the administration of the business prior to Mr Peter Lewis’ misappropriations: [151].

Nelson v Nelson [1995] HCA 25; 184 CLR 538; Gascoigne v Gascoigne [1918] 1 KB 223; In Re Emery’s Investments Trusts; Emery v Emery [1959] Ch 410; Griffiths v Griffiths [1973] 1 WLR 1454, distinguished.

18. The defence of “unclean hands” has no application in the present case because Mr Lamb’s conduct did not have an immediate and necessary relation to the equity sued for: [159]—[160].

Moody v Cox [1917] 2 Ch 71, applied.
Carantinos v Magafas [2008] NSWCA 304, distinguished.
Meyers v Casey [1913] HCA 50; 17 CLR 90; Black Uhlans Inc v NSW Crime Commission [2002] NSWSC 1060; 12 BPR 22,421, considered.
Corin v Patton [1990] HCA 12; 169 CLR 540, referred to.

19. Lamru was entitled to recoup its loss directly from Kation and Mr Peter Lewis, given the trial judge’s findings as to their conduct; that is, that they had misappropriated stock from the business: [161].

In relation to (v)

(per Basten JA, Allsop P and Hodgson JA agreeing)

20. There was no evidence given by Mr Lewis, or anyone else on his or Kation’s behalf, to support the inference that Mr Lewis might have taken a different position with respect to giving evidence had the liquidator raised before the trial the same claim for relief in relation to the misappropriated stock as was now sought to be pursued. In the absence of such evidence, there is no basis for the Court to infer that Mr Lewis would have made a different decision had the liquidator’s cross-claim been raised prior to the trial: [169]. No error was shown in the judgment of Palmer J.

Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589, applied.

In relation to (vi)

(per Basten JA, Allsop P and Hodgson JA agreeing)

21. The trial judge had erred in failing to consider whether particular matters were outside the scope of the retainer: [180].

22. The circumstances of the dispute were such that the trustee must have possessed an interest, albeit substantially less than that of Kation and Mr Peter Lewis, in its resolution. In the absence of a breach of trust, the proper course is to apportion the expenses accordingly: [184]

23. The apportionment of expenses can be undertaken by this Court rather than by a referee, on the basis that the relative interests of the parties have remained reasonably constant throughout the litigation: [185].

In relation to (vii)

(per Basten JA, Allsop P and Hodgson JA agreeing)

24. The proper course for the liquidator to take with respect to a dispute between the unitholders was simply to explain the position taken in formulating the accounts and then adopt a neutral stance in respect of the proceedings: [190].

25. The liquidator was not entitled to obtain his own legal costs from the company assets in respect of his active defence of his own accounting practice, in circumstances where his approach was actively and aggressively supported by Kation as contradictor and which tended to diminish the resources available for unsecured creditors: [210], [214]—[215].

National Trustees and Executors and Agency Co of Australasia Ltd v Barnes [1941] HCA 3; 64 CLR 268; Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, considered.

CA 40366/06
CA 40523/06
SC 3081/97
SC 1750/02
SC 3354/02

ALLSOP P
HODGSON JA
BASTEN JA
12 JUNE 2009

KATION PTY LTD v LAMRU PTY LTD;

LEWIS v NORTEX PTY LTD (In liquidation)

Judgment

1 ALLSOP P: I have had the considerable advantage of reading the reasons of both Hodgson JA and Basten JA. I agree with the reasons of Hodgson JA, with the minor exception of his Honour’s disposition of the application for leave to appeal against the order of Palmer J granting the liquidator of Nortex leave to bring the cross-claim. The removal of the cause for the making of that application, by the correction of Hamilton J’s refusal to grant Lamru relief as to the reconstitution of the trust fund does not lead to the conclusion of error in the making of the order by Palmer J. It may be that the proceedings will be otiose and should now be discontinued. A question of costs may arise in relation to that. That can be dealt with when, or if, it arises, no doubt in the context of how it arose and Mr Lewis’ responsibility for the underlying wrong. I agree with the reasons of Basten JA, with the exception of his Honour’s reasons on unclean hands. I agree with the orders proposed by Basten JA, but subject to the orders proposed by Hodgson JA dealing with the conditional relief by reason of the operation of the doctrine of unclean hands. I would add some comments of my own.

2 I have not found the resolution of the issue of unclean hands easy. The principles were applied and discussed in Carantinos v Magafas [2008] NSWCA 304 by Hodgson JA (with whom Campbell JA and Handley AJA agreed). The principles are largely uncontroversial: R Meagher, J D Heydon and M Leeming Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4^th Ed (2002) Butterworths at 98-102 [3-110] – [3-135]; and Pomeroy’s Equity Jurisprudence, 5^th Ed (1941) Vol 2 at 90 – 143 [397]-[404]. The expression of the matter by Hodgson JA in Carantinos at [58]-[59] was whether the disentitling conduct had a sufficiently close relationship to the equity sued for to justify the exercise of a discretion to refuse or otherwise qualify relief. That flexible way of expressing the matter recognises the underlying requirements of the principles on which a court of equity will act: honesty, equity and conscience: Spence’s Equitable Jurisdiction (1846), London, Vol 1 at 339. The expression of the matter in terms of “discretion” reflects the underlying conception of equity to enforce conscience and good faith, these matters being, to a significant degree, necessarily evaluative: Pomeroy at 92-93 [398]; and see Deweese v Reinhard 165 US 386 at 390 (1897). The limitation of the operation of the principle to circumstances where there is the necessary connection with the equity invoked was introduced to avoid the barring of justice, through equity’s orders, to persons who may not be morally or legally blameless, but whose behaviour that could be so described had no relevant connection with the equity they sought to invoke. Just as the underlying concepts are evaluative and, to a degree, reflective of contemporary social morality, the degree of proximity of the iniquity to the equity is equally necessarily evaluative. Pomeroy’s expression of the matter at 94-95 [399] is helpful:

“… The maxim, considered as a general rule controlling the administration of equitable relief in particular controversies, is confined to misconduct in regard to, or at all events connected with, the matter in litigation, so that it has in some measure affected the equitable relations subsisting between the two parties, and arising out of the transaction; it does not extend to any misconduct, however gross, which is unconnected with the matter in litigation, and with which the opposite party has no concern. When a court of equity is appealed to for relief it will not go outside of the subject-matter of the controversy, and make its interference to depend upon the character and conduct of the moving party in no way affecting the equitable right which he asserts against the defendant, or the relief which he demands.” [footnote omitted]

3 The necessary measure of the conduct’s removal from, or proximity to, the equity will be affected, as here, by the consequences of withholding relief. Here Peter Lewis was involved in a fraud on the trust and on the Revenue. To withhold any remedy to repair the damage caused by that fraud would be to see him retain the fruits of his conduct. The orders and conditions suggested by Hodgson JA, however, do not permit that wrong to go unremedied; rather they see the equity vindicated, but the relative advantage of the remedy to Mr Lamb and Lamru being dictated by their choice whether to have their prior conduct set right with the Revenue.

4 I do not think that the flexible expression of the principle by Hodgson JA in Carantinos is easily reconcilable with a distinction between an equitable “cause of action” and evidence being the operating discriminant. That is not to criticise the use of the expression “equitable cause of action”. It is a legitimate way of expressing a suit in equity, including the relief or equity claimed and the facts on which that relief or equity will be based. It is helpful, however, to recognise the personal nature of equity’s operation and the manner of expressing, and seeking to vindicate, a prayer for relief. A bill in equity would claim or pray for some relief. In order to enable the court and the other party to understand the case and for the court to be in a position to administer justice the bill would contain a clear and exact statement of all material facts: J Story Commentaries on Equity Pleadings (1865), Little Brown at 15-16. Story referred to a modern (in 1865) bill as having a number of parts. The first was the nature of relief sought. The third was the “premises” or the “stating part” of the bill which contained a narrative of the facts and circumstances of the plaintiff’s case and of the wrong or grievance of which he or she complained. Story op cit at 20 [28] said that:

“every material fact, to which the plaintiff means to offer evidence, ought to be distinctly stated in the premises; for otherwise he will not be permitted to offer or require any evidence of such fact.”

“… A general charge or statement, however, of the matter of fact is sufficient; and it is not necessary to charge minutely all the circumstances, which may conduce to prove the general charge; for these circumstances are properly matters of evidence, which need not be charged in order to let them in as proofs. Thus, under a bill to set aside an award for fraud and partiality, a general charge of the fraud and partiality will authorize the plaintiff to give evidence of circumstances tending to establish it, although those circumstances are not charged in the bill.” (footnotes omitted)

5 Rule 82 of the New South Wales Consolidated Equity Rules of 1902 drew a distinction, for statements of claim in equity, between “material facts and circumstances” and evidence: W A Parker The Practice in Equity (1930 Law Book Co) at 178-179 and see Williams v Wilcox (1838) 8 Ad & E 314 at 331; 112 ER 857 at 863.

6 Methods of pleading of years past do not, of course, dictate an answer to a modern problem. The potential breadth of the bill in equity (which at times led to problems of prolixity) does, however, militate against a bright line distinction between the equity (or equitable cause of action) and the evidence to justify its vindication.

7 Here, Mr Lamb (with the protection of a certificate under the Evidence Act 1995 (NSW), s 128) gave evidence that he and Mr Lewis had a practice of abstracting stock from Nortex and selling it for private gain in fraud of the trust and the Revenue. This evidence assisted in proof of the fact of Mr Lewis’ continuation of the practice, of which Mr Lamb, through Lamru, now complained in respect of later years after Mr Lamb’s departure from the business. Whilst Rule 82 might have required only a statement or allegation of the fraud in later years, a bill in equity passing muster in 1865 following the guidance of Story may have legitimately seen (and perhaps required) an allegation of the past practice about which evidence was to be given.

8 The “immediate and necessary relation to the equity sued for” (to use the words of Eyre LCB in Dering v Earl of Winchelsea (1787) 1 Cox 318 at 319; 29 ER 1184 at 1185) was in contradistinction to “general depravity”. In Meyers v Casey [1913] HCA 50; 17 CLR 90 at 124, Isaacs J spoke of the right or equity being “to some extent brought into existence or induced by some illegal or unconscionable conduct of the plaintiff”.

9 Here, the fraudulent practice engaged in by the pair of Mr Lewis and Mr Lamb was continued in later years by Mr Lewis. It had a close temporal connection with the wrong of Mr Lewis; it had a close (indeed decisive) forensic connection with proving the wrong of Mr Lewis; and it had a close practical human connection with Mr Lewis’ wrong as a kind of inducement or habit. It had, in my view, an immediate and sufficiently close relation to the equity sued on. Would there be any difference if the claim was in relation to one year in which Mr Lamb took a leave of absence from the business and complained that Mr Lewis had, for his sole benefit, engaged in the practice which (on this hypothesis) both had done in previous years and both did and intended to do in later years? The answer is, no. Both are sufficiently close to invoke the maxim.

10 One issue of some concern to me in considering the application of the unclean hands maxim was the question of the effect of the Evidence Act, s 128. It is to be recalled that a law of the New South Wales Parliament was held by the primary judge to permit the evidence to be given under the protection of a certificate. No challenge was made to the operation of the Evidence Act in that facultative or advantageous way for the witness. In those circumstances, relevant evidence of persuasive probative value was given which raised a clear inference of a wrong, not of the giver of the evidence, but of a third party, but by reference to a practice which in the past involved the giver of the evidence. The protection of Mr Lamb was derived from the operation of an Act of Parliament. I considered whether this militated against exercising the discretion to refuse relief or to require conditions of unqualified disclosure to be attached to relief. However, on reflection, there is no undermining of the policy of the Evidence Act. Mr Lamb has a choice between two ways of vindicating his equity. To obtain the more advantageous outcome, in practical terms, he must confront his past conduct by disclosure to the Australian Tax Office.

11 For the above reasons I agree with the orders proposed by Basten JA with the exception of his order (4). In lieu of that order (4) I agree with the order (4) proposed by Hodgson JA.

12 HODGSON JA: I agree with the reasons of Basten JA, except concerning the issue he has identified as The Stock Fraud: “Unclean Hands”; and this has some consequences in relation to costs and the orders to be made.

13 There are two important sub-issues concerning the stock fraud on which I need to give reasons:

(2) The defence of unclean hands.

14 The primary judge’s identification of relevant issues and his resolution of them are in par [5]-[18] of his judgment of 19 May 2005 ([2005] NSWSC 482):

[6] As to (a) & (b), these are claims that Lamru is entitled to orders in these terms based upon [129] of my judgment to the effect that Lewis (with the knowledge and acquiescence of Kation), during the 1997 year took and sold stock of Nortex and did not pay or account to the company for the proceeds. To conceal this, the stock figure at the end of the 1996 year was falsely adjusted down. Equitable relief was held not to be available to Lamru in respect of this subject matter by virtue of the unclean hands defence: see my judgment [153]. However, Lamru contends that it is still entitled to have a determination that the liquidator was wrong in rejecting so much of Lamru’s proof of debt as depended upon the acceptance of these claims and to have the accounts of Nortex adjusted accordingly. These orders would be made in the determination of the statutory appeal proceedings. As the relief in those proceedings is not equitable, but statutory, the unclean hands defence does not apply.

[7] Mr Cotman, of Senior Counsel for the Lewis interests, protests that by doing this the Court would give indirectly what it could not give directly and that this a court of equity could not or would not do. However, it seems to me that that proposition is not sound. The Supreme Court is, of course, a court of equity, a court of law and a court which exercises statutory jurisdiction. There will be many circumstances where the withholding or granting of relief by reference to the clean hands doctrine will turn on what some would perceive as the technical distinction between whether the cause of action relied on is legal or equitable. It is clear that, if the relief sought is purely legal, the clean hands doctrine has no operation and the unclean hands defence is unavailable. Despite Mr Cotman’s submission that the Court will not do indirectly what it could not do directly, there are many instances where there are different avenues to, in effect, the same relief. Often, upon the same set of facts, there will be available potentially a judgment at common law and relief in equity. Even if the equitable relief will be precluded by unclean hands, the purely legal relief, if otherwise available (eg, not depending upon the establishment of an illegal transaction) may be obtained: see Meagher, Gummow & Lehane’s Equity Doctrines and Remedies (4th ed, 2002) [3–135]; Nelson v Nelson (1995) 184 CLR 538 at 550 per Deane & Gummow JJ. There is no room in this area for the operation of the doctrine enunciated by Mr Cotman. The situation is the same in respect of the Court’s exercise of its statutory jurisdiction to review decisions of liquidators under s 1321 of the Corporations Law (“the CL”), which was the relevant legislation when Nortex was wound up in 1997 and which continues to apply to the winding up. This relief is not equitable in nature, unclean hands do not preclude the relief and operation should not be given to the doctrine enunciated by Mr Cotman: Lodge v National Union Investment Co Ltd [1907] 1 Ch 300; and see generally Meagher, Gummow and Lehane ibid.

[8] As the clean hands doctrine does not preclude relief in the statutory appeal, the findings in [129] of my judgment entitle Lamru to have a determination that the liquidator was wrong in rejecting so much of Lamru’s proof of debt as depended upon the acceptance of these claims and to have the accounts of Nortex adjusted accordingly.

[9] As to (c), the claim that there should be an order that Lewis and Kation pay to the trust the value of the abstracted stock and the profit derived from its sale, this is based on the proposition that Lamru as beneficiary made at the trial a claim on behalf of the trustee. Whether the claim seeks to navigate around the unclean hands defence by being a common law claim or by being a claim made on behalf of the trustee, the viability of the argument depends on the proposition that the case was conducted as a claim brought by the beneficiary on behalf of the trustee.

PARTICULARS

…

57 Those units of stock had a sale value of $383,253.00 translating to a gross profit of $164,038.00 which sums should be, included in the free nett income as at the 97 vesting day (ie the $1,425,079.84 referred to in 55) with the result that Lamru is entitled to 40% of that concealed profit ($65,615.20).

[12] It is said that these provisions are to be read as enunciating not only Lamru’s claim under Barnes v Addy (1874) LR 9 Ch App 244, but a claim made by Lamru on the trust’s behalf for recovery from Lewis of the value of the goods wrongly taken. This, it is said, would be a purely legal claim on behalf of the trust against a third party to recover trust property. An analogy would be the claim of a trustee who was the registered proprietor of a piece of real property occupied by squatters. The trustee’s remedy would be to bring an action for judgment for possession, which would undoubtedly be a legal claim. To a legal claim, the defence of unclean hands is no defence and it would offer no bar. Equally, if it is regarded as an equitable claim in fraud made on behalf of the trustee, the fact that it is in substance the trustee’s claim would avoid the effect of the unclean hands defence.

[13] Claims such as those outlined may have been propounded, had Lamru chosen to do so. But there are a number of objections to this being regarded as a correct characterisation of what has occurred in the present proceedings.

[14] First, the pleading allegations set out above are not an adequate allegation of such a claim. The “pleading” does not make such a claim in terms and is not recognisable as making such a claim. There is no allegation that the trustee has declined to bring such a claim. However, there is some doubt as to whether that is a necessary ingredient of a cause of action by a beneficiary for such relief. It is said that this is a matter that goes to standing, not to the existence of the cause of action: see IV Scott on trusts para 294.1. In my view, under modern pleading practice, that matter should be pleaded to eliminate surprise. Additionally, it is said that any problem is solved by Pt 15 r 11 of the Supreme Court Rules 1970, which dispenses with the pleading of conditions precedent. But that is not a solution. The plaintiff must in its pleading show its entitlement to bring the action. And Pt 15 r 11 does not operate to dispense with the pleading of a necessary ingredient of a cause of action: May v Chidley [1894] 1 QB 451; Roberts v Plant [1895] 1 QB 597; and see generally Ritchie’s Supreme Court Procedure NSW [15.11.1].

[15] Whether or not it needs to be specifically alleged in the pleading that the trustee has failed to bring the action or that the beneficiary sues on behalf of the trustee, stating the facts that entitle it to do so, this “pleading” is inadequate to bring to attention the causes of action now sought to be relied on, rather than only Lamru’s Barnes v Addy claim. On the authority of McDougall J’s decision in White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220, this would be sufficient to preclude relief in respect of these causes of action. In that case, the wider case was opened. But, as the defendants could not have been taken to have consented to the case being conducted on that basis, the plaintiff was confined to its case as pleaded and particularised.

Barnes v Addy

His Honour : I think I understand; equally bearing in mind the White ACT point, you agree that there is no direct case of fraud against Lewis. You have not pleaded that. It is not now made. Your claim against Lewis is for accessorial liability only through the breaches of trust that we have just discussed.

Mr Motbey

[17] In my view, these derivative claims were not made and the proceedings were not conducted on the basis that they were made. No direct claim of fraud was made against Lewis, much less any common law claim for conversion in respect of the goods. It is now too late and Lamru cannot succeed upon claims propounded in this way at this stage.

15 The primary judge’s resolution of this matter has been challenged in the cross-appeal: 2 Red 384L and 389I-Q (grounds 30-32), 1 Orange 114-116 (par 90-104), appeal transcript 202-204.

16 In my opinion, this challenge to the primary judge’s decision should succeed.

17 I agree with the primary judge that the pleaded claim was limited to a claim of accessory liability of Mr Lewis and Kation to a breach of trust by Nortex; but that has to be understood in the light of the circumstance that at the time of the alleged breach of trust, Nortex was wholly under the control of Mr Lewis. In my opinion, it would have been no answer by Mr Lewis to the claim made on this basis to say that it was he and not Nortex that was the principal perpetrator. There is in my opinion no inconsistency or incongruity in Lamru seeking, as part of its remedy for this accessory liability, that Nortex (now under the control of the liquidator) be reimbursed by those with accessory liability.

18 Thus the primary judge’s determination that there was no pleading of a legal claim by the trust for recovery direct from Mr Lewis and no claim of fraud made directly against Mr Lewis is not to the point. The claim on the basis of accessory liability was made, and the claim for relief by way of Mr Lewis indemnifying Nortex was squarely made.

19 This leaves the question of whether the pleading was deficient in that there was no allegation that the trustee had declined to bring the claim. The primary judge expressed the view that this should have been pleaded to avoid surprise, and also that a plaintiff must in its pleadings show its entitlement to bring the action.

20 Clearly, there was no deficiency in the pleading of a cause of action available to the trust, of which Lamru was a beneficiary. In circumstances where the trustee was a defendant to the proceedings, and did not itself in the proceedings seek the relief sought by the beneficiary, it is in my opinion overly technical to say that the beneficiary should have pleaded the unwillingness of the trustee, in order to show its standing to pursue this cause of action on behalf of the trustee. Failure to plead this is hardly, in my opinion, a matter that could lead to a defendant being taken by surprise: the trustee was in the proceedings as a defendant, it was not pursuing this cause of action, and the beneficiary was plainly seeking to do so. In those circumstances, if anyone was to be surprised, it would be the plaintiff in circumstances where the defendant does not suggest a lack of standing to pursue the proceedings.

21 For those reasons, in my opinion, subject to the questions of Lamru’s claim on its own behalf, and Lamru’s lack of clean hands, an order should be made that Mr Lewis indemnify the trust by paying to it the value of the stolen stock and the profits made from it.

22 This order would make the liquidator’s cross-claim superfluous; and for that reason, I would grant leave to appeal from the decision of Palmer J, allow that appeal, set aside the order giving leave to the liquidator to bring the cross-claim, and make an order dismissing that cross-claim. In the circumstances, I would propose that each party pay its own costs of that cross-claim and of the application before Palmer J, and also of the application for leave and appeal.

Unclean hands

23 In this case, in order to advance Lamru’s case that Mr Peter Lewis had been guilty, during the 1997 financial year, of fraudulently taking and selling stock of Nortex and not paying or accounting to Nortex for the proceeds thereof, Mr Lamb gave evidence that he had participated together with Mr Lewis in the same practice in fraud on the revenue up to the time of his departure from Nortex on 28 June 1996.

24 When called to give this evidence, Mr Lamb asked for and was given a certificate under s 128 of the Evidence Act 1995 (NSW). That section is in the following terms:

128 Privilege in respect of self-incrimination in other proceedings

Evidence Act

25 There may be a question as to whether this was a correct application of s 128. Although Mr Lamb was not a party to the proceedings, he was the principal and directing mind of the plaintiff Lamru, and he was called to give evidence by Lamru’s counsel on what effectively must have been his own instructions. Thus there may be a question whether it can truly be said that he “objected” to giving the evidence, when his own purpose in instructing Lamru’s counsel to call him must have been that he give that very evidence. However, that question does not arise in this appeal, and I will say no more about it.

26 The primary judge, at par [153] of his judgment of 29 November 2004, noted that the particular acts of fraud complained of were committed in the 1997 year, while the course of fraud in which Lamru participated was in earlier years; but he held that the earlier conduct had a close relationship with the conduct the subject of the claim, that there was in effect a continuum between the conduct complained of and the conduct relied on to prove it, that Lamru still enjoyed the profit from the fraudulent enterprise, and that the earlier conduct was an integral part of Lamru’s case on this cause of action. On that basis, the primary judge held that the unclean hands defence applied; and he also held that it was not appropriate to grant conditional relief, and so he refused Lamru any relief on this cause of action.

27 On appeal, it was put for Lamru that, since the relation between Lamru’s own fraudulent conduct and the cause of action was evidentiary only, it was not a sufficiently close relation for the unclean hands defence to arise at all.

28 The relief sought was equitable relief. The Court has the discretion whether or not to grant such relief, but there are principles guiding the exercise of that discretion. Some of those principles relate to the circumstances in which equitable relief may be refused because of unclean hands; and these principles require that the bad conduct in question have “an immediate and necessary relation to the equity sued for”. However, this is not a requirement that the relation be of the nature of contributing to or constituting the equity sued for; and since this requirement is not a rule of law but merely an aspect of principles guiding the exercise of discretion, it should not in my opinion be given a narrow or technical construction.

29 In the present case, the relation between the bad conduct and the equity sued for was that the bad conduct established practices conducive to the understatement of stock as at 30 June 1996, and to the disposal of abstracted stock in the year ended 30 June 1997; and that it provided an essential part of the evidentiary material supporting the finding that the equity sued for existed. In my opinion, that relation was sufficiently close to justify application of the unclean hands doctrine.

30 A further reason for regarding the relation as being sufficiently close to enliven a direct discretion to refuse relief, or at least to make it conditional, is the effect of the s 128 Certificate. The transcript of Mr Lamb’s evidence could be sent to the Australian Taxation Office. However, the effect of s 128(7) of the NSW Act and s 128(12)-(14) of the Commonwealth Act is that, not only could Mr Lamb’s evidence not be used in any proceedings in New South Wales or Commonwealth courts against him, but also that evidence obtained as a consequence of Mr Lamb’s having given that evidence could not be so used. The evidence could be used against Lamru, but if Lamru is or becomes impecunious, this may be worthless.

31 Accordingly, I am not prepared to exercise a discretion in favour of Lamru in relation to this cause of action, at least without the imposition of conditions, in circumstances where so to exercise the discretion would not merely give Lamru the forensic benefit of dishonest conduct of its principal and the principal’s evidence of that conduct, but also leave its principal immune from any consequences arising from his voluntary decision to proffer that evidence for the benefit of Lamru. As in Carantinos v Magafas [2008] NSWSC 304, however, the considerations that a person who dishonestly takes trust property should not be allowed to keep it, and that previous tax evasion should be declared and remedied, support the giving of conditional relief in this case.

32 In my opinion, the appropriate course would be to order Lewis to pay the amounts of $210,000 and $150,000 plus interest, as to sixty per cent to the liquidator, and as to the remaining forty per cent either to the liquidator to be placed in an interest-bearing account (if the liquidator and Lamru consent to this) or into Court (if they do not), such sum to remain there until the further order of the Court. Lamru would be given liberty to apply to the Court for payment of the money to it on the basis of evidence that it has made full disclosure to the Australian Taxation Office of tax evasion by Mr Lamb and Lamru in connection with Nortex stock and has made appropriate arrangements to pay any additional tax and penalty; and the liquidator would have liberty to apply after twelve months for release of the money to him in the event that no application is made by Mr Lamb and Lamru in the meantime.

ORDERS

33 I note that Basten JA has proposed an order for costs in relation to the cross-appeal by Lamru. Although I would give effect to the defence of unclean hands, I would grant Lamru conditional relief and also grant it relief for the benefit of the trust; and in my opinion the order proposed by Basten JA in that paragraph is appropriate.

34 Accordingly, I would propose the following variations to the orders proposed by Basten JA, which otherwise I agree with:

(ii) by understating the profits for the 1997 financial year by a further $150,000;

Uniform Civil Procedure Rules

(d) order that Lewis pay to the liquidator to be placed in an interest-bearing account (if the liquidator and Lamru give written consent to the Court and to Lewis within seven days) or into Court (if they do not) forty per cent of the amount referred to in par (b), together with interest at the rates payable under Schedule 5 of the Uniform Civil Procedure Rules 2005, calculated from 30 June in respect of each financial year, compounded at annual rests;

(e) liberty to Lamru to apply to the Court for payment of the amounts referred to in par (d) to it on the basis of evidence that it has made full disclosure to the Australian Tax Office of tax evasion by Mr Lamb and Lamru in connection with Nortex stock and has made appropriate arrangements to pay any additional tax and penalties;

(f) liberty to the liquidator to apply to the Court after twelve months for release to him of the amounts in par (d), in the event that no application has been made by Mr Lamb and Lamru in the meantime or in the event that such an application has been refused.”

(12) Direct that these orders not be entered for twenty-eight days, and liberty to any party to apply by notice of motion brought within fourteen days for variation of these orders on the basis that some issue has not been dealt with or that the orders do not appropriately give effect to the Court’s reasons.

35 The last proposed order is not an invitation for reargument but is a failsafe provision in a matter of extreme complexity to be availed of only in circumstances where it is thought that the orders omit a matter of substance or do not accord with the reasons in a substantial way.

:

INDEX

Paragraph
1.	Nature of Proceedings	37
2.	Issues for Determination
(1) Issues on appeal	49
(2) Issues on cross-appeal	51
3.	Distribution of Profits
(1) 1991 financial year	57
(2) 1992 financial year	73
4.	Bonuses paid to Mark Lewis
(1) Background	85
(2) Breach of trust – a severed question?	91
(3) Efficacy of 1997 bonus payment	102
(4) Interest on bonuses	107
(5) Finding of dishonesty of trustee	114
(6) Equitable compensation	119
5.	Use of Accounting Conventions	132
6.	The Stock Fraud: “Unclean Hands”	143
7.	Nortex’ Costs	172
8.	Liquidator’s Costs	187
9.	Grant of Leave to Appeal	220
10.	Costs in this Court	238
11.	Conclusions	242

1. Nature of proceedings

37 For some years prior to April 1991 Mr Peter Lewis and Mr Graeme Dufty ran a business which involved the importing and wholesaling of manchester goods in Australia and New Zealand. The business was run through a trading trust, constituted as a unit trust, of which the trustee was Nortex Pty Ltd (“Nortex”). Companies controlled by Mr Lewis and Mr Dufty each held units in the trust.

38 In late 1990, Mr Russell Lamb became an employee in the business. In April 1991 Mr Lamb, through a company controlled by him, Lamru Pty Ltd (“Lamru”), acquired units in the trust from Mr Dufty’s company, Hirmanu Pty Ltd (“Hirmanu”). Following the change in ownership, Mr Lewis’ company, Kation Pty Ltd (“Kation”) held 60% of the units and Mr Lamb’s company, Lamru, held 40% of the units. Mr Dufty resigned as a director of Nortex and Mr Lamb was appointed director.

39 The business remained profitable for several years after the change in ownership, but in 1996 a dispute arose between Mr Lewis and Mr Lamb in relation to the conduct of each with respect to the business. On 28 June 1996 Mr Lamb ceased to attend at Nortex’ premises. On 30 September 1996 Lamru issued a statutory notice of demand to Nortex claiming an amount of some $611,000 said to be owing to it on its loan account with Nortex.

40 On 3 July 1997 Mr Lewis commenced proceedings in the Supreme Court seeking the appointment of a provisional liquidator. Five days later Mr Brian Silvia was appointed as a provisional liquidator of Nortex and in August sold the Nortex business.

41 On 10 December 1998 Lamru lodged with the liquidator a proof of debt which was admitted in part and rejected in part. On 4 February 2000 Lamru appealed against the liquidator’s decision with respect to rejected debts by notice of motion filed in the winding up proceedings. On 31 July 2000 Lamru filed an amended notice of motion seeking to be admitted as a creditor of Nortex in a sum of just over $1 million.

42 In September and October 2000 Young CJ in Eq ordered that five questions concerning the authenticity and efficacy of a document executed in April 1991, appointing Mr Peter Lewis as the sole appointor of the trust (in place of Mr Lewis and Mr Dufty) be heard separately and before other issues in the statutory appeal. On 22 June 2001 his Honour held that the document had in fact been executed by Messrs Lewis and Dufty on or shortly after 16 April 1991 but had no effect until it was served in 1997: Lewis v Nortex Pty Ltd [2001] NSWSC 511; 10 BPR 19,035. There was no challenge in these proceedings to the answers given by his Honour to the separate questions, but there was a live issue as to the scope of the matters decided by that judgment.

43 The proof of debt lodged by Lamru with the liquidator included a claim that the figures for stock held on account at the end of the 1996 and 1997 financial years were falsified. There were other claims made by Lamru of fraudulent conduct on the part of Kation, Mr Peter Lewis and his son, Mr Mark Lewis, who also worked in the business and received a share of profits in certain years. The claims of fraud led to an order in March 2002 that Lamru commence separate proceedings against Kation and the Lewises, identifying its claims and the relief it sought: Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 143. Kation and Mr Peter Lewis filed cross-claims. Both sets of proceedings were set down for hearing before Hamilton J on 10 April 2002. Various attempts were made to contain the proceedings, some aspects of which will be considered below, but the hearing nevertheless proceeded intermittently from 10 April 2002 until 8 November 2004 and ultimately ran for more than 100 hearing days.

44 On 29 November 2004 Hamilton J delivered the principal judgment which is the subject of the present appeal: Lewis v Nortex Pty Ltd (In liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 1143; 214 ALR 634. In 2005 and 2006 his Honour delivered three supplementary judgments in the same matters: see [2005] NSWSC 482 (19 May 2005), [2005] NSWSC 1062 (13 October 2005) and [2006] NSWSC 480 (23 May 2006). The orders which are in part the subject of this appeal were made on 23 May 2006.

45 One of the complaints made by the Lamb interests was that the liquidator had acted in various respects in the interests of and at the direction of Mr Peter Lewis. For reasons which will be considered further below, the liquidator took an active role in the proceedings. One issue raised on the appeal was the entitlement of the liquidator to his costs.

46 Following the second supplementary judgment of Hamilton J, the liquidator took steps to file and serve a cross-claim which sought payment from Mr Peter Lewis of an amount of $360,000 on account of the falsified stock sales, for the proceeds of which it was said Mr Peter Lewis and Kation were liable to account to Nortex. Leave to file the claim was granted by Palmer J on 27 July 2006: Lewis v Nortex Pty Ltd (In liq) [2006] NSWSC 768. Mr Peter Lewis seeks leave to appeal against the decision of Palmer J.

47 There were in addition a number of issues raised by way of cross-appeal filed by Lamru.

48 It may be noted that Mr Lamb was originally a respondent to the appeal filed by Mr Lewis and Kation: however, it was agreed in the course of the hearing of the appeal that Mr Lamb should properly be removed as a party from the appeal. That order was made.

49 Although the notice of appeal originally contained 68 grounds, only three issues were pressed. These involved challenges to his Honour’s findings that:

(1) payments made to Mr Mark Lewis by way of “bonuses” out of the profits of Nortex in 1995, 1996 and 1997 were made in breach of trust;

(2) certain accounting conventions were to be applied as between the unit trust holders, and

50 As will be seen shortly, one complaint made by the appellants in respect of the first issue to be discussed is that the trial judge made findings with respect to the bonuses paid to Mr Mark Lewis in circumstances where he had previously ordered that questions arising from the claims against Mr Mark Lewis be determined separately from and after other questions in the proceedings. That fact alone, which was not in dispute, was sufficient to render the orders made by Hamilton J interlocutory, at least in relation to the ‘fraud proceedings’. Accordingly, leave was required both with respect to the appeal and the cross-appeal. Although no application for leave was made, the first order in the amended notice of appeal sought leave, “to the extent necessary”. The appeal being interlocutory, leave is necessary: Supreme Court Act1970 (NSW), s 101(2)(e). In the course of the hearing, the parties were asked to consider whether, if leave were granted, it should be subject to any conditions. For reasons which will appear below, it is appropriate that leave be granted in relation to the issues raised on the appeal, but subject to conditions.

51 The cross-appeal was, in a sense, more comprehensive in the scope of its complaints than was the appeal. However, it too may be characterised as involving three primary issues, being challenges to the failure of the trial judge to accept Lamru’s submissions in relation to:

(1) various complaints with respect to the Nortex accounts;

(2) the claim for relief against Mr Peter Lewis and Kation directly (rather than through Nortex), and

52 A key element to the cross-appeal was that the whole of the funds of Nortex had been expended by the liquidator, not in the payment of outside creditors, but in payment of the liquidator’s costs and disbursements. Thus, even if Lamru were successful in recovering funds for Nortex, a large part of those funds would disappear, primarily into the hands of the liquidator on account of his own costs and legal fees, leaving little if anything for Lamru.

53 Issue (1) concerned various complaints in relation to the accounts: these were in turn sub-divided into three categories, namely:

(a) failure to divide the profits as accounted for in accordance with the trust deed;

(b) false claims for expenses, post-June 1996 (when Mr Lamb ceased to work for the business), and

54 Each matter complained of on the appeal constituted an item which fell within the broad category of accounting complaints raised on the cross-appeal. Accordingly, it is convenient to deal with issue (1) of the cross-appeal before the other appeal and cross-appeal issues.

55 The third issue raised on the appeal involved an assertion that Lamru could not obtain recovery with respect to the falsified records of stock, so as to bring into account sales which were not found in the accounts for the year ending June 1997, because Mr Lamb had himself been party to such arrangements in previous years. Kation and Mr Lewis complain that he should not have been allowed to seek relief on behalf of Nortex in that respect; Lamru has a broader claim, namely that it should have been accorded relief against Kation and Mr Lewis directly. Accordingly, it is convenient to deal with the third issue on the appeal in the context of the second issue on the cross-appeal.

56 Further, because all of the complaints relating to the division of profits may ultimately be traced back to the requirements of the trust deed, it is necessary to commence by examining the operation of the trust deed and to note the effect of the document of appointment which was the subject of the proceeding before Young CJ in Eq in 2001.

57 Chronologically, the first issue raised on the cross-appeal concerned a distribution of profits for the year ended 30 June 1991. Clause 4(2) of the Nortex trust deed stated:

“The Trustees shall hold as a separate trust fund the Free Net Income of each Accounting Period at the expiry of that Accounting Period in trust absolutely for the Unit Holders of the Ordinary Units as at the expiry of that Accounting Period in the Specified Proportion.”

58 Various terms used in this sub-clause were defined in clause 1. The “Accounting Period” was a financial year; the “Specified Proportion” was the proportion of units held by a particular unitholder in relation to the total number of units; the “Trustees” was a reference to Nortex. In addition, the term “Free Net Income” was defined as follows:

“(32) ‘Free Net Income’ in relation to a particular Accounting Period means so much of the net income of the Trust Fund for such Accounting Period as shall not at the expiry of such Accounting Period be the subject of a valid and effective determination by the Trustees during that Accounting Period under sub-clause (1) of Clause 4 of this Deed.”

59 The potential operation of clause 4(1) was a significant issue at various stages during the proceedings. Pursuant to that provision of the deed, the trustee could at any time during an accounting period set aside any part or parts of the net income for the accounting period for any one or more of the unitholders. By a document bearing the date 12 April 1991 and signed by Mr Peter Lewis and Mr Dufty, a resolution was passed by them as directors of Nortex which stated that “preliminary accounts indicated that the Net Income of the Trust Fund for the period ending 12th April 1991 would be approximately $200,000” (“the resolution of 12 April 1991”). The document continued:

IT WAS RESOLVED

(1) The sum of $150,000 of the Net Income of the Trust Fund to Hirmanu No. 1 Trust.

(2) The balance of the Net Income of the Trust Fund to Lewis No. 1 Trust.”

198 The question of the liquidator’s entitlement to costs was addressed by his Honour in the fourth judgment: [2006] NSWSC 480 at [33] ff. His Honour treated separately the issues of the liquidator’s costs vis-à-vis Lamru and whether he should obtain his costs from the assets of the company. His Honour noted that the liquidator “played only a limited role in the trial, appearing on only about 30 days, sometimes by counsel and sometimes by his solicitor”: at [36]. The issues to which the liquidator actively responded were twofold, namely the suggestion that he had improperly aligned himself with Mr Lewis and Kation and, secondly, the application of the accounting conventions. On the first issue he was successful; on the second he was unsuccessful. As a result, his Honour thought it appropriate that no costs be awarded as between Lamru and the liquidator: at [44].

199 In dealing with the right of the liquidator to recover his costs from the company’s assets, his Honour concluded that having acted both reasonably and successfully in resisting the allegation of impropriety, he was entitled to recover those costs from the company assets: at [49]. Despite the breadth of the cross-appeal, no real challenge was mounted in argument to that conclusion.

200 The second question concerned the right of the liquidator to recover the costs of defending his position in relation to the non-application of the accounting conventions. Lamru argued that this was a dispute fully contested by Kation on the one hand and Lamru on the other: without taking sides, the liquidator could not maintain a neutral stance (as was appropriate) and, to the extent that he took the Kation side, his active participation was both otiose and inappropriate. The rejection of these submissions was challenged by Lamru on the appeal.

201 There are a number of curious aspects of the liquidator’s role in the proceedings. First, there was his own evidence as to his motives for active intervention, referred to by the trial judge at [35]:

“It should be said at once that the Liquidator personally did not have a correct perception of the principle that it was open to him not to take any active part in the proceedings. He said several times in evidence that he was bound to defend his adjudication and, indeed, said on at least one occasion that, if he did not do so, he feared that the appeal would automatically succeed. This is certainly not so where there is, in the proceedings, an obvious and aggressive contradictor other than the Liquidator, as was the case here.”

202 His Honour added that the liquidator’s apparent misapprehension in this respect was not shared by his legal advisers. Nevertheless, in his Honour’s view the misperception had no great relevance to the question of costs “in the circumstances of these proceedings”. When his Honour came to consider its relevance in relation to the question of indemnity from company assets, he noted again that the liquidator’s view was “wrong” but that “he also gave other reasons for some active participation in these proceedings”: at [51]. These further reasons were, on Lamru’s submissions, also misconceived, but were accepted by the trial judge.

203 The first reason noted by his Honour was “vigilance on behalf of unrepresented interests, such as the unsecured creditors, particularly in relation to the actual and potential debt to the Commissioner of Taxation”: at [51].

204 The operation of this factor in the circumstances of the case is obscure. The major unsecured creditors were the two disputing unitholders. To the extent that the Commissioner might have an interest in the proceedings, it was an interest which was likely to flow from success on the part of Lamru, which Kation was resisting.

205 Secondly and apparently consequentially, his Honour noted that the liquidator mentioned “his duty as the representative of the company to ensure that correct information was furnished to the Commissioner of Taxation”. Why that purpose was best fulfilled by active participation in legal proceedings was not explained.

206 Thirdly, the liquidator referred to the need to be “careful of the self-interest of conflicting parties”. Presumably that was a note of caution against unnecessary intervention in litigation. The trial judge continued:

“But here he was dealing with men who were both found in the course of the proceedings, by Young CJ in Eq, by me or by both to have been guilty of significant dishonesty.”

207 As Lamru submitted, Mr Peter Lewis had been found guilty of significant dishonesty by Young CJ in Eq, but not Mr Lamb. How a finding by the trial judge in his judgment was supposed to justify the earlier involvement of the liquidator (prior to the judgment) is somewhat obscure. Nor is it entirely clear why a distrust of the participants in the litigation justified active intervention on the issue under consideration, namely the application of the accounting conventions.

208 Finally, his Honour referred to a fourth factor:

“That the need for caution was not illusory was demonstrated, admittedly late in the day, by both sides settling the New Zealand proceedings without referring to him, although both had promised to do so, when he refrained from active participation in those proceedings.”

209 As Lamru pointed out, there was a temporal problem with this consideration: the New Zealand proceedings were settled in August 2003, after the bulk of the proceedings before Hamilton J and presumably well after the liquidator had determined his role in those proceedings. Secondly, counsel for Lamru asserted (a matter not denied by the liquidator) that Mr Lamb had given no such promise. Thirdly, the significance to the liquidator of the settlement of the New Zealand proceedings was not explained. Fourthly, it is unclear how that consideration would explain the liquidator’s active involvement in one aspect of the proceedings in the Equity Division, namely the accounting conventions.

210 With respect, none of these considerations provides support for the view that the liquidator was entitled to obtain his own legal costs from the company assets in respect of his active defence of his own accounting practice, in circumstances where his approach tended to diminish the resources available for unsecured creditors and which was, in any event, actively and aggressively supported by Kation as contradictor.

211 The correct approach to the right of the liquidator to recover from the company assets was treated by the trial judge (without demur from the parties to the appeal) as governed by principles relevantly identical to those with respect to trustees. Whether or not that equation is correct in any particular case may well depend upon the terms of the trust deed. In the present case the question was blurred by the conventional approach of the parties in treating the trust as still on foot and the liquidator, on behalf of Nortex, as the trustee. As already noted, pursuant to clause 30 of the trust deed, Nortex had ceased to be trustee as a result of entering liquidation. Further, the question whether the trustee would have been entitled to recover legal expenses in respect of the litigation between the unitholders was not addressed by reference to the trust deed.

212 Applying principles derived from trust law, Lamru referred to the judgment of Lightman J in Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220. His Lordship noted certain principles of law at 1223-1224 in the following terms:

“Trustees may be involved in three kinds of dispute.

(1) The first (which I shall call ‘a trust dispute’) is a dispute as to the trusts on which they hold the subject matter of the settlement. This may be ‘friendly’ litigation involving, for example, the true construction of the trust instrument or some other question arising in the course of the administration of the trust; or ‘hostile’ litigation, for example, a challenge in whole or in part to the validity of the settlement ….

(2) The second (which I shall call ‘a beneficiaries dispute’) is a dispute with one or more of the beneficiaries as to the propriety of any action which the trustees have taken or omitted to take or may or may not take in the future. This may take the form of proceedings by a beneficiary alleging breach of trust by the trustees and seeking removal of the trustees and/or damages for breach of trust.

(3) The third (which I shall call ‘a third party dispute’) is a dispute with persons, otherwise than in the capacity of beneficiaries, in respect of rights and liabilities, for example in contract or tort, assumed by the trustees as such in the course of administration of the trust.

Trustees (express and constructive) are entitled to an indemnity against all costs, expenses and liabilities properly incurred in administering the trust and have a lien on the trust assets to secure such indemnity. Trustees have a duty to protect and preserve the trust estate for the benefit of the beneficiaries and accordingly to represent the trust in a third party dispute. Accordingly their right to an indemnity and lien extends in the case of a third party dispute to the costs of proceedings properly brought or defended for the benefit of the trust estate. Views may vary whether proceedings are properly brought or defended, and to avoid the risk of a challenge to their entitlement to the indemnity (a beneficiaries dispute), trustees are well advised to seek court authorisation before they sue or defend. The right to an indemnity and lien will ordinarily extend to the costs of such an application. …

McDonald v Horn

213 Where a trustee successfully defends a beneficiaries dispute against a particular class of beneficiaries, an appropriate costs order, in circumstances where the plaintiff beneficiaries were unable to pay the costs may be one in which the trustees obtain indemnification from the estate, with the shares of the unsuccessful beneficiaries to be used first in satisfying the right to indemnity: see National Trustees and Executors and Agency Co of Australasia Ltd v Barnes [1941] HCA 3; 64 CLR 268. As explained by Williams J (Rich ACJ agreeing) at 279:

“If a trustee is sued by beneficiaries who complain of some act or omission by the trustee, he is entitled to defend his conduct as an incident of such administration …. Even if he fails in the suit, he may be allowed his costs out of the estate, but, if he succeeds, as in this case, he is clearly entitled thereto. At the same time the indemnity must be given effect to in such a way as to make the burden fall upon the beneficiaries equitably having regard to the circumstances under which the costs, charges and expenses were incurred. Here they were incurred as a result of the action of nine out of the thirty-seven beneficiaries, so that the shares of these beneficiaries should be exhausted before any part of the burden is placed on the shares of the twenty-eight.”

214 There was no suggestion in the present case that different principles applied in relation to a liquidator. In circumstances where the liquidator’s refusal to apply the accounting conventions was known to be supported by the Kation interests, the liquidator of the trustee had no sensible interest in being involved in the proceedings, otherwise than to submit to the order of the Court. Having exercised his independent discretion as liquidator, he was in a similar position to other quasi-judicial officers whose decisions are sought to be reviewed in the original jurisdiction of a court, whether pursuant to a general law or statutory power. As representative of the trustee, his conduct did not constitute protection of the trust assets, nor protection of the interests of unsecured creditors. All that his intervention achieved was a likely increase in the costs of the litigation and particularly the expenses which might be levied on the fund.

215 Because the liquidator acted in Kation’s interests, Kation could not complain if the liquidator’s costs were to be paid first out of Kation’s interests in any reconstituted fund. If that order were made, the next question is whether, if those interests are insufficient to meet the costs of the liquidator with respect to the issue in question, he should be entitled to recover the balance from the interest payable to Lamru. Because his conduct, vis-à-vis Lamru, was indeed an abandonment of a position of neutrality, such recovery would not be equitable.

216 To a significant extent, Lamru’s complaint about the costs incurred by the liquidator and recouped from the trust funds, are met by its success in obtaining orders for payment of various amounts directly to it from Mr Peter Lewis and Kation. As noted above, there was no application on foot with respect to the quantum of the liquidator’s remuneration. Accordingly, the only relief which would have been available to Lamru would be to limit the rights of recovery by the liquidator to such share of the reconstituted trust as was part of Kation’s entitlement. Lamru also sought an order that Kation and Mr Peter Lewis indemnify Lamru in respect of any part of the liquidator’s costs which were to be payable out of Lamru’s share.

217 Despite the challenge by Lamru to the order of the primary judge that the liquidator be entitled to recover his costs from the company assets, no alternative order was sought by the liquidator. Nor has the liquidator sought to justify the very significant expenditure incurred by him in the course of the litigation at a time when he was largely, if not entirely, supporting the claims of Mr Peter Lewis and Kation.

218 As noted above, the liquidator claims that he exhausted the funds of the company in payment of his own costs and his legal costs by June 2003. He further claims that very significant costs have been incurred since that time, but does not provide any breakdown of those costs, or in whose interests they were incurred. Nor have Mr Peter Lewis or Kation made submissions in opposition to the view that the liquidator has, at least until recently, acted in or consistently with their interests.

219 In the circumstances, it is appropriate that Lamru have an order that, to the extent that costs incurred by the liquidator have been paid out of its share of the trust fund, it should be indemnified by Mr Peter Lewis and Kation in respect of that amount.

9. Grant of Leave to Appeal

220 Two matters of concern to the Court were raised during the course of oral submissions. The first was that the purported appeal by Kation and Mr Peter Lewis was incompetent because there were outstanding issues in the proceedings which had not been dealt with by Hamilton J in the judgments and orders from which the purported appeal was brought. Although no objection to competency was raised on behalf of Lamru or the liquidator, counsel for the appellants eventually conceded that leave was required. The same conclusion followed with respect to Lamru’s cross-appeal.

221 The second matter of concern was the time and resources which had been devoted to the litigation so far, to reach a stage at which no final orders were yet in sight. In large part, the resources expended were those of the previous directors and unitholders in Nortex, namely the Lamb and Lewis interests. The fact that individuals (and their corporate entities) may appear to indulge in a frenzy of litigation with mutual financial ruin likely on each side, is not immediately a matter of concern to the Court. Indirectly, however, it is: such litigation inevitably absorbs public resources within the administration of justice which could otherwise be deployed to the more efficient and expeditious resolution of other disputes. Further, in this case, the Court has a concern with the expeditious liquidation of a company having creditors with no interest in the present proceedings, except to maintain a hope that their acknowledged debts will be paid. Disturbingly, when first questioned by the Court as to the existence of third party creditors, counsel for the liquidator (who had been involved in the proceedings for many years) indicated that there were none. Their existence was identified only when the Court insisted on the liquidator filing an affidavit setting out the amount owed to such uninvolved creditors. The public interest in meeting those relatively small amounts apparently led the liquidator at an early stage of the liquidation to propose that the present litigants subordinate their claims to those of the trade creditors, so that the liquidator could pay them out. There appears to have been some dispute as to the amount properly owing to trade creditors and the attempt to reach agreement was abandoned. Whether there has been any attempt to revive such a possibility since its abandonment almost a decade ago is not known.

222 It is apparent that there are significant public interests which militate in favour of any steps which can appropriately and reasonably be taken to bring the litigation to finality. A possibility raised in the course of argument was that, as a condition of the grant of leave to appeal, necessary on both sides of the record, the parties might consent to withdrawal of outstanding proceedings which were not covered by the matters being agitated in this Court.

223 There have been, in form, six separate sets of proceedings between some or all of the current parties before this Court. Only one has been completed. That was a proceeding brought in New Zealand by Mr Peter Lewis against Mr Lamb and another person involved in the Nortex business in New Zealand, in 1997. The proceedings were settled on 15 August 2003, with Mr Lamb and his associate in effect conceding that there should be a judgment in favour of Mr Lewis in an amount of $NZ400,000: Common Law Division, matter No. 1091 of 2004. That judgment remains a relevant issue because its execution was stayed by Hamilton J, pending the outcome of the proceedings now before this Court. (The precise terms of the orders do not appear from the materials before this Court.)

224 The remaining proceedings were in the Equity Division. Chronologically, the first proceedings were commenced by Nortex on 21 October 1996 (No 3731 of 1996), their purpose being to set aside a statutory notice of demand issued by Lamru on 30 September 1996 claiming an amount said to be owing to it on its loan account with Nortex. The formal fate of these proceedings is unclear, but in substance they were overtaken by the winding up proceedings.

225 It was the withdrawal by Mr Lamb of his guarantee of a banking facility held by Nortex which led, on 3 July 1997, to the filing by Mr Lewis of a summons (No 3081 of 1997) seeking to wind Nortex up and appoint a provisional liquidator. They involved several elements:

(1) statutory appeal of Mark Lewis/Chikwawa Pty Ltd;

(2) statutory appeal of Peter and Nicolette Lewis;

(3) statutory appeal of Kation;

226 Various steps were taken in those proceedings including the filing by Lamru of a notice of motion seeking to challenge a decision of the liquidator with respect to its proof debt. Those proceedings remain on foot, subject to later orders made by Hamilton J with respect to the part of the proceedings not before this Court.

227 A pleading in those proceedings by Lamru, making allegations of fraud against Kation and Mr Lewis, led to directions that Lamru commence separate proceedings in which to agitate those matters. Those proceedings (No 1750 of 2002) were commenced by Lamru on 4 March 2002. They, with the winding up proceedings (No 3081 of 1997) were referred to as the principal proceedings. They also involve several elements:

(1) deferred cross-claim by Peter Lewis/Kation against Lamb/Lamru;

(2) claim by Lamru against Mark Lewis/Chikwawa Pty Ltd.

228 By orders made on 1 March 2002, when directing Lamru to commence separate proceedings in relation to the matters which had been the subject of the proposed cross-claim, Hamilton J directed “these proceedings be heard together with the proceedings to be commenced by summons at the fixture commencing on 10 April 2002 before me”: see Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 143 at [10](5).

229 Although the proceedings were said from time to time to have been “consolidated”, that was not entirely accurate. On 8 March 2002 his Honour directed that “consolidated points of claim” be filed “in each of the two sets of proceedings”: see Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 189 at [3](1). He then ordered that “when the two sets of proceedings are heard together the evidence in the one shall be evidence in the other so far as relevant”: at [3](4). That appears to have been the basis on which the proceedings went to trial, subject to a qualification which must now be noted.

230 The qualification is concerned with orders made by the trial judge after the commencement of the trial, separating out various issues. These may be summarised as follows:

(1) on 11 April 2002, pursuant to an order already discussed, his Honour directed that claims against Mr Mark Lewis be heard separately and after the trial of the balance of the proceedings;

Lewis v Nortex Pty Ltd (in liq)

231 The fifth proceedings (No 3354 of 2002) appear to have incorporated the additional matters raised by way of cross-claim by Mr Lewis and Kation. They involved a claim by Lewis against Lamb for moneys lent. Those matters were not dealt with by Hamilton J.

232 The sixth proceedings (No 2850 of 2003) commenced on 19 May 2003, were brought by Mr Peter Lewis against Mr Lamb personally, based on a “private account” between them as to which evidence had been given in the course of the trial. The status of those proceedings is unclear.

233 Finally, it is necessary to refer to the cross-claim brought by the liquidator against Mr Lewis and Kation, seeking for the company reimbursement of the misappropriated stock. As noted above, that proceeding was only commenced with leave of Palmer J, after the principal judgment the subject of the present proceedings and it may have limited significance in the light of the proposed orders for disposal of the appeal.

234 Consent by each party to the termination of outstanding proceedings would involve at least:

(a) discontinuance by Lamru of proceedings 3731 of 1996 (if still on foot);

(b) discontinuance by Lamb of his cross-claim in proceedings 3354 of 2002;

(c) discontinuance by Mr Peter Lewis and Kation of proceedings 3354 of 2002 and 2850 of 2003;

(d) discontinuance by Lamru of so much of the primary proceedings as sought relief against Mr Mark Lewis;

(e) discontinuance by Mr Peter Lewis and Kation of so much of their cross-claim in the primary proceedings as was stayed and stood over for separate determination;

(f) discontinuance by the liquidator of his cross-claim.

235 In the course of the hearing, each party sought instructions to give consent to the effect set out above, but their positions, as conveyed to the Court orally, were qualified and in various respects imprecise. Earlier this year, the Court wrote to the parties seeking clarification of the position of each with respect to the abandonment of outstanding proceedings. The responses received remained qualified, and in certain respects, ambiguous.

236 In these circumstances, and the Court having formed a view as to the matters raised on the appeal and cross-appeal, the proper course is to grant unconditional leave to the appellant and cross-appellant in relation to the matters raised in the notices of appeal and cross-appeal respectively.

237 The Court also gave consideration to the possibility that to the extent that the Nortex trust fund is reconstituted, it might direct that moneys necessary to meet outstanding debts of third party creditors be set aside for that purpose. However, it is not clear that such orders can be made, nor did any party seek an order to that effect. None of the third party creditors has played any part in any of the proceedings now before this Court.

10. Costs in this Court

238 With respect to the purported appeal, being the proceedings brought by Mr Peter Lewis and Kation, those parties have been substantially unsuccessful. They should bear the costs of Lamru in respect of those proceedings.

239 In relation to the purported cross-appeal, brought by Lamru, it has enjoyed a significant level of success, specifically in relation to the defence of “clean hands” being the primary issue agitated as against Kation and Mr Peter Lewis. It should have its costs of that part of the proceedings against them.

240 The other major issues sought to be agitated on the cross-appeal were the right of Lamru to relief in respect of the bonuses credited to Mr Mark Lewis and the attempt to limit the right of recovery of the liquidator in respect of his costs of the proceedings below, which he was permitted to recover from the assets of the company. Lamru has had a measure of success in those regards. The appropriate course is to award it 50% of its costs with respect to those issues as against the liquidator.

241 A separate question arises as to whether the liquidator should have his costs of the appeal out of the assets of the company. In resisting Lamru’s claim, he was not so much acting in the interests of the trust or in preserving the assets of the company, but in his own interests. He made no application with respect to his costs of the proceedings in this Court and any issue in that respect should be reserved.

11. Conclusions

242 It follows from these reasons that variations are required to the orders made by the primary judge.

243 First, the adjustment and reconstruction of the Nortex accounts to allow for the bonuses improperly paid to or on behalf of Mr Mark Lewis, require variation to order 3. In order 1, it was declared that there be no reopening or amendment of the accounts of Nortex for the years up to and including 30 June 1995, “subject to order 3(iii)(d)”. The exception is affected by the change to order 3. Further, the reference to (iii), which identified the payment with respect to the 1997 financial year was inapt: the following numbered paragraphs were not related to that sub-paragraph alone. Accordingly that reference should be deleted.

244 Order 4 concerned the stock fraud. The conclusion that Lamru was entitled to relief in respect of stock fraudulently taken and sold by Mr Peter Lewis, without accounting to Nortex, requires variation of pars (b) and (c) of order 4.

245 There remains a question as to the constitution of the loan accounts of Lamru and Kation with Nortex, at the date of the commencement of the winding up (2 September 1997). The primary judge found that they should stand at:

246 Those figures will need to be varied to the extent that orders made by his Honour reconstituting and adjusting the accounts have been set aside. It is not possible for the Court to undertake a recalculation of declaration 7 on the material before it. If it is necessary for there to be a declaration in that form, the parties will have to present the figures to be included in such an order or, if they are unable to agree on the figures, submissions in favour of their proposed figures.

247 As there are further steps to be taken in the proceedings, in order for the making of final orders, it is appropriate for directions to be made with respect to those steps and delaying entry of orders.

248 I would propose the following orders:

(1) Grant leave to the appellants and cross-appellants to appeal with respect to the matters raised in their notices of appeal and cross-appeal filed in this Court so that all steps purportedly taken shall be treated as properly taken in the appeal and cross-appeal respectively.

(2) The appeal be dismissed.

(i) in order 1, the reference to order “3(iii)(d)” be amended to order “3(d)”;

(ii) in order 3 delete paragraphs (d)-(f) and in lieu thereof insert the following:

“(d) order that Lewis and Kation pay to Lamru:

(i) in respect of the 1995 financial year, $23,228, together with interest calculated from 30 June 1995;

(ii) in respect of the 1996 financial year, $40,650, together with interest calculated from 30 June 1996;

(iii) in respect of the 1997 financial year, $55,493, together with interest calculated from 30 June 1997;

(e) order that Lewis and Kation reconstitute the Nortex unit trust by paying into the trust fund:

(i) in respect of the 1996 financial year, an amount of $60,976, together with interest calculated from 30 June 1996;

(ii) in respect of the 1997 financial year, an amount of $83,240, together with interest calculated from 30 June 1997;

(f) in respect of the calculations of interest, the amount is calculated on the sum to which it relates at the rate specified in Schedule 5 to the Uniform Civil Procedure Rules 2005 and compounded on annual rests until payment.”

“(b) declare that the understatement of the value of stock at the end of the 1996 and 1997 financial years was:

(c) order that Lewis pay to Lamru 40% of the amounts referred to in (b), namely $84,000 in respect of the 1996 financial year and $60,000 in respect of the 1997 financial year together with interest at the rates payable under Schedule 5 to the Uniform Civil Procedure Rules 2005, calculated from 30 June in respect of each financial year, compounded at annual rests, until payment;

(d) order that Lewis pay to the liquidator as the trustee of the Nortex trust fund, 60% of the amounts referred to in (b), namely $126,000 in respect of the 1996 financial year and $90,000 in respect of the 1997 financial year, together with interest at the rates payable under Schedule 5 to the Uniform Civil Procedures Rules 2005, calculated from 30 June in respect of each financial year, compounded at annual rests, until payment,”

(5) Set aside order 7.

“14. To the extent that the Liquidator’s costs diminish Lamru’s interest in the assets of the company, order that Kation and Mr Peter Lewis indemnify Lamru.”

(a) of the appeal;

(b) of the stock fraud, “unclean hands” issue of the cross-appeal, and

(c) the application for leave to appeal against the interlocutory judgment of Palmer J.

(9) Order that Mr Peter Lewis and Kation pay the liquidator’s costs of the application for leave to appeal against the judgment of Palmer J.

(10) Dismiss the application for leave to appeal against the judgment of Palmer J.

(11) Order that the Liquidator pay 50% of Lamru’s costs of its cross-appeal with respect to the issues identified in (6) above.

(a) apply by notice of motion for variation of these orders on the basis of -

(b) provide to the Court agreed figures, or submissions in support of their separate calculations, with respect to the terms of a declaration as to the respective loan account balances of Kation and Lamru as at 2 September 1997, and

(c) provide submissions (if any) as to the orders proposed in [185] above with respect to Nortex’ costs.

249 Other than order 4, these orders have the support of a majority of the Court. Order 4 will be as proposed by Hodgson JA, with the support of Allsop P. It is appropriate to emphasise that, as explained by Hodgson JA the purpose of direction (12)(a) is to allow for correction of error of the kinds noted therein: no wider canvassing of the orders or judgments will be acceptable. If any party avails itself of the opportunity conferred by (12)(a), the Court will, on considering the notice of motion, give further directions in relation to submissions as it deems appropriate.

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Citations

Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145

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CITATION:	KATION PTY LTD v LAMRU PTY LTD; LEWIS v NORTEX PTY LTD (In liq) [2009] NSWCA 145
HEARING DATE(S):	27-30 October 2008
JUDGMENT DATE:	12 June 2009
JUDGMENT OF:	Allsop P at 1; Hodgson JA at 12; Basten JA at 36
DECISION:	(1) Grant leave to the appellants and cross-appellants to appeal with respect to the matters raised in their notices of appeal and cross-appeal filed in this Court so that all steps purportedly taken shall be treated as properly taken in the appeal and cross-appeal respectively. (2) The appeal be dismissed. (3) The cross-appeal be allowed in part and the orders made by the trial judge in matter nos 3081 of 1997 and 1750 of 2002 be varied so that: (i) in order 1, the reference to order “3(iii)(d)” be amended to order “3(d)”; (ii) in order 3 delete paragraphs (d)-(f) and in lieu thereof insert the following:“ (d) order that Lewis and Kation pay to Lamru: (i) in respect of the 1995 financial year, $23,228, together with interest calculated from 30 June 1995; (ii) in respect of the 1996 financial year, $40,650, together with interest calculated from 30 June 1996; (iii) in respect of the 1997 financial year, $55,493, together with interest calculated from 30 June 1997; (e) order that Lewis and Kation reconstitute the Nortex unit trust by paying into the trust fund: (i) in respect of the 1996 financial year, an amount of $60,976, together with interest calculated from 30 June 1996; (ii) in respect of the 1997 financial year, an amount of $83,240, together with interest calculated from 30 June 1997; (f) in respect of the calculations of interest, the amount is calculated on the sum to which it relates at the rate specified in Schedule 5 to the Uniform Civil Procedure Rules 2005 and compounded on annual rests until payment.” (4) In relation to order 4, set aside paragraph (b) and (c), and in lieu thereof insert: “(b) declare that the amounts of the trust were erroneous by reason of the taking and selling of stock: (i) by understating the value of stock at the end of the 1996 financial year by $210,000; (ii) by understating the profits for the 1997 financial year by a further $150,000; (c) order Lewis reconstitute the Nortex Trust Fund by paying into the Trust Fund sixty per cent of the amounts referred to in par (b), together with interest at the rates payable under Schedule of the Uniform Civil Procedure Rules 2005, calculated on 30 June in respect of each financial year, compounded at annual rests; (d) order that Lewis pay to the liquidator to be placed in an interest-bearing account (if the liquidator and Lamru give written consent to the Court and to Lewis within seven days) or into Court (if they do not) forty per cent of the amount referred to in par (b), together with interest at the rates payable under Schedule 5 of the Uniform Civil Procedure Rules 2005, calculated from 30 June in respect of each financial year, compounded at annual rests; (e) liberty to Lamru to apply to the Court for payment of the amounts referred to in par (d) to it on the basis of evidence that it has made full disclosure to the Australian Tax Office of tax evasion by Mr Lamb and Lamru in connection with Nortex stock and has made appropriate arrangements to pay any additional tax and penalties; (f) liberty to the liquidator to apply to the Court after twelve months for release to him of the amounts in par (d), in the event that no application has been made by Mr Lamb and Lamru in the meantime or in the event that such an application has been refused.” (5) Set aside order 7. (6) Set aside order 12 and in lieu thereof order that the Liquidator pay 30% of Lamru’s costs of the claims: (i) with respect to the Mark Lewis bonuses, and (ii) its entitlement to costs at trial. (7) Add a new order: “14. To the extent that the Liquidator’s costs diminish Lamru’s interest in the assets of the company, order that Kation and Mr Peter Lewis indemnify Lamru.” (8) Order that Mr Peter Lewis and Kation pay Lamru’s costs: (a) of the appeal; (b) of the stock fraud, “unclean hands” issue of the cross-appeal, and (c) the application for leave to appeal against the interlocutory judgment of Palmer J. (9) Order that Mr Peter Lewis and Kation pay the liquidator’s costs of the application for leave to appeal against the judgment of Palmer J. (10) Dismiss the application for leave to appeal against the judgment of Palmer J. (11) Order that the Liquidator pay 50% of Lamru’s costs of its cross-appeal with respect to the issues identified in (6) above. (12) Direct that these orders not be entered for 28 days and thereafter only with leave of a judge of the Court and that, within 28 days, the parties shall: (a) apply by notice of motion for variation of these orders on the basis of - (i) any suggested failure to deal with an issue addressed on the appeal or cross-appeal, or (ii) any suggested failure of the orders to accord with the reasons for judgment; (b) provide to the Court agreed figures, or submissions in support of their separate calculations, with respect to the terms of a declaration as to the respective loan account balances of Kation and Lamru as at 2 September 1997, and (c) provide submissions (if any) as to the orders proposed in [185] with respect to Nortex’ costs.

CATCHWORDS:	APPEAL – leave to appeal – Anshun estoppel – abuse of process – unfairness – challenge to granting liquidator extension of time to file cross-claim – whether party would have taken different course to giving evidence - CORPORATIONS – winding up – trustee – appointment of liquidator – challenge to accounts in statutory appeal from liquidator’s rejection of proof of debt – whether challenge barred by unclean hands - COSTS – liquidator’s costs – neutrality – active resistance – whether liquidator entitled to costs where active contradictor defending liquidator’s action –liquidator’s active defence in relation to accounting conventions – substantial costs accrued by liquidator - COSTS – trustee's costs – ratified by resolution – whether properly referable to concerns of company – apportionment between trustee and beneficiary – whether to be referred to referee - EQUITY – equitable defences – “unclean hands” – abandonment – acquiescence – long delay in seeking remedy – whether trust accounts should be reopened – where party had engaged in malpractice in preceding years – connection with Limitation Act 1969 (NSW), s 9 - EVIDENCE – evidence of unlawful conduct – protection of certificate under Evidence Act 1995 (NSW), s 128 – relationship to equitable defence of “unclean hands” - TRUSTS – accounting conventions – addbacks convention – differential interest convention – whether liquidator should have applied accounting conventions between unitholders following breakdown of relationship – consistency with trust deed - TRUSTS – breach of trust – dishonesty of trustee – distinction between principal and accessorial liability – whether payments by way of “bonuses” were in breach of trust – whether payments made pursuant to binding contract – liquidator’s approval fraudulently induced - TRUSTS – breach of trust – remedies – stock fraud – unclean hands – scope of defence – whether party could claim relief directly through party rather than through trustee – reliance on evidence that taxable income understated in previous years – whether cause of action depended on improper conduct - TRUSTS – breach of trust – remedies – whether reconstitution of trust appropriate remedy – court’s discretion to award interest compounded annually - TRUSTS – distribution of profits – whether accounts should be reopened – availability of equitable defences –effectiveness of resolution distributing profits – compliance of resolution with trust deed requirements - WORDS AND PHRASES – “net income” – “unclean hands”
LEGISLATION CITED:	Corporations Act 2001 (Cth), s 473 Corporations Law, s 471A Evidence Act 1995 (NSW), s 128 Evidence Act 1995 (Cth), s 128 Income Tax Assessment Act 1936 (Cth), Part III, Div 6 Industrial Relations Act 1996 (NSW), s 106 New South Wales Consolidated Equity Rules 1902, r 82 Supreme Court Act 1970 (NSW), s 101 Uniform Civil Procedure Rules 2005 (NSW), r 9.1
CATEGORY:	Principal judgment
CASES CITED:	Aliprandi v Griffith Vintners Pty Ltd (In liq) (1991) 6 ACSR 250 Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 Barnes v Addy (1874) LR 9 Ch App 244 Black Uhlans Inc v NSW Crime Commission [2002] NSWSC 1060; 12 BPR 22,421 Carantinos v Magafas [2008] NSWSC 304 Commissioner of Taxation v Bruton Holdings Pty Limited (in liq) [2008] FCAFC 184; 70 ATR 903 Corin v Patton [1990] HCA 12; 169 CLR 540 Craven-Ellis v Canons Ltd [1936] 2 KB 403 Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184 Deweese v Reinhard 165 US 386 (1897) Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 Gascoigne v Gascoigne [1918] 1 KB 223 Griffiths v Griffiths [1973] 1 WLR 1454 Harrison v Schipp [2001] NSWCA 13 In re Diplock; Diplock v Wintle [1948] Ch 465 In re Emery’s Investments Trusts; Emery v Emery [1959] Ch 410 In re Robinson; McLaren v Public Trustee [1911] 1 Ch 502 Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 143 Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 189 Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 1063 Lewis v Nortex Pty Ltd (In liq) [2006] NSWSC 768 Meyers v Casey [1913] HCA 50; 17 CLR 90 Ministry of Health v Simpson [1951] AC 251 Moody v Cox [1917] 2 Ch 71 National Trustees and Executors and Agency Co of Australasia Ltd v Barnes [1941] HCA 3; 64 CLR 268 Nelson v Nelson [1995] HCA 25; 184 CLR 538 Ogilvie-Grant v East (1983) 7 ACLR 669 Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589 Rippon v Chilcotin Pty Ltd [2001] NSWCA 142; 53 NSWLR 198 Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 17 FCR 344 Tanning Research Laboratories Inc v O’Brien [1990] HCA 8; 169 CLR 332 Target Holdings Ltd v Redferns [1996] AC 421 Williams v Wilcox (1838) 8 Ad & E 314; 112 ER 857 Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484
TEXTS CITED:	Ford and Lee, Principles of the Law of Trusts at [17,140] Meagher and Gummow’s Jacobs’ Law of Trusts in Australia (6th ed, 1997) at [1334] Jacobs’ Law of Trusts in Australia (7th ed, 2006) at [1334], [2209] R Meagher, J D Heydon and M Leeming Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4th Ed (2002) Butterworths at 98-102 [3-110] – [3-135], [36-090] W A Parker The Practice in Equity (1930) (Law Book Co at 178-179 Pomeroy’s Equity Jurisprudence, 5th Ed (1941) Vol 2 at 90 – 143 [397]-[404] Spence’s Equitable Jurisdiction (1846), London, Vol 1 at 339 J Story Commentaries on Equity Pleadings (1865, Little Brown) at 15-16
PARTIES:	Matter No. 40366/06: Kation Pty Ltd (Appellant and First Cross-respondent) Peter Lawrence Lewis (Second Appellant and Second Cross-respondent) Lamru Pty Ltd (First Respondent and First Cross-appellant) Russell William Lamb (Second Respondent and Second Cross-appellant) Nortex Pty Ltd (In liq) (Third Respondent and Third Cross-Respondent) Brian Raymond Silvia (Fourth Cross-respondent) Matter No. 40523/06: Peter Lawrence Lewis (Applicant) Nortex Pty Ltd (In liq) (Respondent)
FILE NUMBER(S):	CA 40366/06; CA 40523/06
COUNSEL:	IM Jackman SC/J Baird (Kation, Peter Lawrence Lewis) SJ Motbey (Lamru, Russell William Lamb) VR Gray (Nortex, Brian Raymond Silvia)
SOLICITORS:	Kemp Strang Lawyers (Kation, Peter Lawrence Lewis) Lyons & Lyons Solicitors (Lamru, Russell William Lamb) Somerset Ryckmans (Nortex, Brian Raymond Silvia)

LOWER COURT JURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S):	SC 3081/1977; SC 1750/2002; SC 3354/2002
LOWER COURT JUDICIAL OFFICER:	Young CJ in Eq; Hamilton J; Palmer J
LOWER COURT DATE OF DECISION:	22 June 2001; 19 July 2001; 19 April 2002; 9 December 2002; 20 December 2002; 29 April 2003; 20 June 2003 (Tcpt 2689); 20 June 2003 (Tcpt 2692); 26 June 2003; 2 March 2004; 29 November 2004; 19 May 2005; 13 October 2005; 23 May 2006; 27 July 2006
LOWER COURT MEDIUM NEUTRAL CITATION:	[2001] NSWSC 511; [2001] NSWSC 610; [2002] NSWSC 337; [2002] NSWSC 1192; [2002] NSWSC 1245; [2003] NSWSC 354; [2003] NSWSC 581; [2004] NSWSC 121; [2004] NSWSC 1143; [2005] NSWSC 482; [2005] NSWSC 1062; [2006] NSWSC 480; [2006] NSWSC 768