Lahood v Ernst and Young

Case [2015] FCA 89

FEDERAL COURT OF AUSTRALIA

Lahood v Ernst & Young; In the Matter of Dave Lahood Pty Ltd (In Liq)

[2015] FCA 89

Citation: Lahood v Ernst & Young; In the Matter of Dave Lahood Pty Ltd (In Liq) [2015] FCA 89
Parties:

IN THE MATTER OF DAVE LAHOOD PTY LTD (IN LIQUIDATION) (ACN 079 981 838); DAVID LAHOOD v ERNST & YOUNG (ABN 75 288 172 749), SIMON JOHN CATHRO, MATT GOODRICK, PHILIP CAMPBELL-WILSON and DEMETRIA KANAGASABAI

IN THE MATTER OF THE BANKRUPT ESTATE OF DAVID LAHOOD; DAVID LAHOOD v HALL CHADWICK (ABN 83 316 261 431), PAUL ANDREW LEROY, JOHN JOLLY and GIRIJA SHIVANNA
File numbers: NSD 999 of 2014
NSD 1211 of 2014
Judge: FOSTER J
Date of judgment: 17 February 2015
Catchwords:

BANKRUPTCY – whether a bankrupt is entitled to an order for inquiry into the conduct of the trustee in the administration of his bankrupt estate pursuant to s 179 of the Bankruptcy Act 1966 (Cth)

CORPORATIONS – whether a contributory of a corporation in liquidation is entitled to an order for inquiry into the conduct of liquidators appointed to wind up that corporation pursuant to s 536 of the Corporations Act 2001 (Cth)

Legislation: Bankruptcy Act 1966 (Cth), ss 19, 130, 134 and 179
Bankruptcy Regulations 1996 (Cth)
Corporations Act 2001 (Cth), ss 488, 536 and 1072C(4)
Cases cited: Lahood v Bank of Western Australia Ltd(No 3) (2013) 8 BFRA 721; [2013] FCA 861
Lahood v Bank of Western Australia [2013] FCA 137
Lahood v Bank of Western Australia (No 2) [2013] FCA 150
Re Dave Lahood Pty Ltd [2013] NSWSC 785
Re David Lahood Pty Ltd [2013] NSWSC 1244
Ferella v Official Trustee in Bankruptcy (2010) 188 FCR 68
Hall v Poolman (2009) 75 NSWLR 99
Leslie v Hennessy [2001] FCA 371
Date of hearing: 19 November 2014
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 66
Counsel for the Plaintiff/Applicant in NSD 999 of 2014 and NSD 1211 of 2014: The plaintiff/applicant (David Lahood) appeared in person
Solicitor for the Defendants in NSD 999 of 2014: Mr D Anderson of ERA Legal
Counsel for the Respondents in NSD 1211 of 2014: Mr RD Marshall
Solicitor for the Respondents in NSD 1211 of 2014: Bartier Perry

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 999 of 2014

IN THE MATTER OF DAVE LAHOOD PTY LTD (IN LIQUIDATION) (ACN 079 981 838)

BETWEEN:

DAVID LAHOOD
Plaintiff
AND:

ERNST & YOUNG (ABN 75 288 172 749)
First Defendant

SIMON JOHN CATHRO
Second Defendant

MATT GOODRICK
Third Defendant

PHILIP CAMPBELL-WILSON
Fourth Defendant

DEMETRIA KANAGASABAI
Fifth Defendant

JUDGE:

FOSTER J

DATE OF ORDER:

17 FEBRUARY 2015

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The first, third and fifth defendants be removed as parties to this proceeding.

2.The Application be dismissed.

3.The costs of the defendants of and incidental to the said Application be costs in the winding up of Dave Lahood Pty Ltd (In Liquidation) (ACN 079 981 838).

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Lahood v Ernst and Young [2015] FCA 89
Case
[2015] FCA 89
Decision Date

CaseChat Overview and Summary

In the case of Lahood v Ernst and Young, the applicant, Mr Lahood, sought orders for inquiry into the conduct of both the trustee of his bankrupt estate, Mr Leroy, and the liquidators of a corporation, Dave Lahood Pty Ltd, appointed to wind up that corporation. The case was heard in the Supreme Court of New South Wales, Equity Division, before Justice White. The primary legal issues that the court had to decide were whether Mr Lahood was entitled to an order for inquiry into the conduct of the trustee pursuant to section 179 of the Bankruptcy Act 1966 (Cth) and whether a contributory of a corporation in liquidation was entitled to an order for inquiry into the conduct of liquidators appointed to wind up that corporation pursuant to section 536 of the Corporations Act 2001 (Cth).

The court found that Mr Lahood's claims against the liquidators raised similar considerations as those raised by his claims against Mr Leroy. The court determined that the complaints against Mr Leroy, the sole trustee of Mr Lahood's bankrupt estate, were not valid as Mr Leroy alone had statutory and other duties and responsibilities in respect of the administration of that estate. The court also ruled that none of the additional parties named by Mr Lahood in the proceeding were proper parties to the case. The court dismissed both applications and ordered the removal of the first, third, and fifth defendants in the first proceeding and the first, third, and fourth respondents in the second proceeding. The court also ordered that the costs of the defendants of and incidental to the said Application be taxed and paid out of the bankrupt estate of David Lahood and the winding up of Dave Lahood Pty Ltd (In Liquidation) (ACN 079 981 838).

Orders

Orders of the court

1. The first, third and fifth defendants be removed as parties to this proceeding.

2. The Application be dismissed.

3. The costs of the defendants of and incidental to the said Application be costs in the winding up of Dave Lahood Pty Ltd (In Liquidation) (ACN 079 981 838).

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. The first, third and fourth respondents be removed as parties to this proceeding.

2. The Application be dismissed.

3. The costs of the respondents of and incidental to the said Application be taxed and paid out of the bankrupt estate of David Lahood.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Counsel for Mr Leroy explained to me at the hearing that the second prayer for relief in his client’s Application in a Case was intended to be an application that the whole of Mr Lahood’s proceeding be summarily dismissed. Given that I have now heard Mr Lahood’s claims on a final basis, Mr Leroy’s claim for an order summarily dismissing Mr Lahood’s case is otiose. In any event, it was abandoned at the hearing. In addition, Mr Leroy did not press his claim for a direction pursuant to s 134(4) of the Bankruptcy Act at the hearing before me. He wished to reserve his position in respect of that application. I indicated to Counsel for Mr Leroy at the hearing that, were I to dismiss Mr Lahood’s proceeding, his client’s Interlocutory Application would also stand dismissed. Although Counsel did not necessarily agree with that proposition, I nonetheless think that it must be right. Of course, any dismissal of Mr Leroy’s Application for a direction at this stage would not prevent Mr Leroy from making a further application for a direction to the same effect at some appropriate time in the future.THE RELEVANT EVIDENCE In support of his applications, Mr Lahood read the following affidavits sworn by him:(i)Affidavit dated 2 October 2014 and filed in the Federal Circuit Court on 2 October 2014 in proceeding SYG 2749 of 2014; (ii)Affidavit dated 14 November 2014 and filed in the Federal Circuit Court on 14 November 2014 in proceeding SYG 2749 of 2014; and (iii)Affidavit dated 14 November 2014 and filed on 14 November 2014 in this Court in proceeding NSD 999 of 2014. Mr Lahood did not read nor rely upon an affidavit sworn by him on 2 October 2014 and filed in proceeding NSD 999 of 2014. Mr Leroy read and relied upon an affidavit sworn by him on 27 October 2014 and filed in the Federal Circuit Court on 31 October 2014 in proceeding SYG 2749 of 2014. The liquidators’ advocate sought to tender and rely upon two reports to creditors respectively dated 10 January 2014 and 17 March 2014. Mr Lahood objected to the tender of those reports. In the face of that objection, the liquidators’ advocate withdrew the tender. The affidavits relied upon by Mr Lahood are handwritten. In those affidavits, here and there, there are typed pages interleaved between the handwritten pages which are obviously extracts from other documents. For the most part, the document or documents from which the typescript folios have been extracted are not identified in any helpful way. The effect of this method of adducing evidence is that a reader of the affidavit is left with a puzzle which has to be solved if real meaning is to be given to the contents of the affidavit. Notwithstanding these difficulties, I have endeavoured to adopt what I consider to be a sensible approach to Mr Lahood’s affidavits in order to develop an understanding of the points that he wished to make and an appreciation of the admissible evidence led by him by which he sought to support those points. I propose to set out a narrative in as brief a fashion as is possible of the facts relevant to the present applications and, where appropriate and necessary, to indicate whether the fact in question is in dispute. Many of the relevant facts in the narrative are not capable of dispute.

Decision

Reasons for decision

For all of the above reasons, I am not prepared to remove Mr Leroy from his position as the trustee of Mr Lahood’s bankrupt estate nor am I prepared to remove the liquidators from office. Similarly, I am not prepared to order those persons to cease work, as suggested by Mr Lahood. CONCLUSIONS The two administrations with which the present applications are concerned have progressed to the point where they should be finalised in the near future. I am not satisfied that the evidence before me justifies any order for inquiry in either matter. The applications will both be dismissed.

Ratio Decidendi

Legal Principle Established

In proceeding NSD 999 of 2014, Mr Lahood has made clear that he makes his claims for relief in that proceeding pursuant to s 536 of the Corporations Act 2001 (Cth) (Corporations Act). In an Amended Originating Process filed by him on 14 November 2014, Mr Lahood set out his claims in the following terms:This application is made under s 536 of the Corporations Act 2001 and is a complaint that the liquidator has not faithfully performed their duties.On the facts stated in the supporting affidavit(s), the plaintiff claims:1.The liquidators, being the First, Second, Third, Fourth and Fifth Defendants, are dishonest, deceiving and secretly and illegally working out to empty the estate of David Lahood PTY LTD.2.The liquidators, being the First Second, Third, Fourth and Fifth Defendants, should not be in charge of the money from the Plaintiff’s estate.AND3.The liquidators, being the First Second, Third, Fourth and Fifth Defendants, are to re-emburse the Plaintiff for all monies misappropriated and secretly worked out between the creditors and trustees to burden all the plaintiffs estate through illegal charges and professional and legal fees.4.The liquidators, being the First Second, Third, Fourth and Fifth Defendants, pay costs and damages to the plaintiff as the Court sees fit. Mr Lahood’s claims against the liquidators raise similar considerations as are raised by his claims against Mr Leroy. In proceeding NSD 1211 of 2014, Mr Lahood has named as additional respondents Hall Chadwick, John Jolly and Girija Shivanna. Hall Chadwick is the firm of which Mr Leroy is a member. The other two persons are (or were) employees of Hall Chadwick acting under the direction of Mr Leroy in respect of the administration of Mr Lahood’s bankrupt estate. As I have already made clear, Mr Lahood’s complaints in proceeding NSD 1211 of 2014 are complaints against Mr Leroy. Mr Leroy is the sole trustee of Mr Lahood’s bankrupt estate. It is Mr Leroy alone who has statutory and other duties and responsibilities in respect of the administration of that estate. None of Hall Chadwick, Mr Jolly or Ms Shivanna is a proper party to proceeding NSD 1211 of 2014 and I propose to order that they all be removed as parties to that proceeding. In proceeding NSD 999 of 2014, Mr Lahood has named as additional defendants Ernst & Young, Matt Goodrick and Demetria Kanagasabai. He has done so for reasons which are similar to the reasons for his joinder of Hall Chadwick and the other individuals in proceeding NSD 1211 of 2014. The liquidators are members of the accounting firm Ernst & Young. The other two persons are employees of that firm. None of Ernst & Young, Mr Goodrick or Ms Kanagasabai is a proper party to this proceeding and, for reasons which are substantially the same as those given in respect of proceeding NSD 1211 of 2014, I propose to make an order removing them as parties. By a document styled “Application in a Case” filed in the Federal Circuit Court on 31 October 2014 in proceeding SYG 2749 of 2014 in that Court, Mr Leroy sought the following orders:1.A direction pursuant to section 134(4) of the Bankruptcy Act 1966 that the respondent, Paul Leroy, would be justified in bringing proceedings by Interlocutory Process in Supreme Court of New South Wales, Equity Division, Corporations List proceedings numbered 2013/145558 to claim an order that the Official Liquidators of Dave Lahood Pty Limited (in Liquidation) have special leave under s.488(2) of the Corporations Act 2001 to distribute the amount of $450,000 to Paul Leroy as an interim payment of surplus.2.The substantive application in these proceedings brought by the applicant, David Lahood, be dismissed with costs.