Leo Dimos trading as Leo Dimos & Associates v Dikeakos Nominees Pty Ltd
[1996] FCA 590
•17 JULY 1996
CATCHWORDS
Trusts and Trustees - Indemnity, lien and reimbursement - Right to indemnity survives trustee's loss of office.
Corporations - winding up - solicitor's bill not in taxable form - no response to client's enquiries - whether winding-up abuse of process.
Coates v. McInerney (1992) 6 A.C.S.R. 748
Jarena Pty. Ltd. v. Sholl Nicholson Pty. (1996) 136 ALR 427
Kemtron Industries Pty. Ltd. v. Commissioner of Stamp Duties [1984] 1 Qd.R. 576
Octavo Investments Pty. Ltd. v. Knight (1979) 144 CLR 360
LEO DIMOS trading as LEO DIMOS & ASSOCIATES v. DIKEAKOS NOMINEES PTY LTD
VG947 of 1995
Jenkinson, Olney and Heerey JJ.
Melbourne
17 July, 1996
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No. VG947 of 1995
GENERAL DIVISION )
On Appeal from a single Judge of the Federal Court of Australia
BETWEEN:LEO DIMOS trading as LEO DIMOS & ASSOCIATES
Appellant
AND:DIKEAKOS NOMINEES PTY LTD
Respondent
CORAM: Jenkinson, Olney and Heerey JJ.
PLACE: Melbourne
DATE: 17 July, 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
The appeal be dismissed.
The appellant pay the respondent's costs of the appeal.
(Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.)
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No. No. VG947 of 1995
GENERAL DIVISION )
On Appeal from a single Judge of the Federal Court of Australia
BETWEEN:LEO DIMOS trading as LEO DIMOS & ASSOCIATES
Appellant
AND:DIKEAKOS NOMINEES PTY LTD
Respondent
CORAM: Jenkinson, Olney and Heerey JJ.
PLACE: Melbourne
DATE: 17 July, 1996
REASONS FOR JUDGMENT
JENKINSON J.
Appeal against the dismissal of an application for an order that the respondent be wound up.
The circumstances in which the application was dismissed are stated in the judgment of Heerey J., which I have had the advantage of reading.
In my opinion, a trustee's right of indemnity out of trust property survives the trustee's loss of office : Coates v. McInerney (1992) 6 A.C. S.R. 748; Kemtron Industries Pty. Ltd. v. Commissioner of Stamp Duties [1984] 1 Qd.R. 576. According to the evidence before Northrop J. it so happened that the legal estate in a piece of land subject to the trust,
of which the respondent had been trustee when the debt alleged by the appellant was incurred, was still at the hearing of the petition in the respondent; and that at that latter time the substituted trustee, which was the holder and beneficial owner of one of the two issued shares in the respondent, had as its directors the same two members of the Dikeakos family as were then the directors of the respondent. The appellant did not dispute the testimony of one of those directors that the debt alleged by the appellant to be owing was a liability properly incurred in the discharge by the respondent of its duty as trustee. In those circumstances Northrop J. was justified in finding that the debts of the respondent, other than loans to it by the substituted trustee, another family company and beneficiaries of the trust, could be promptly paid by raising a loan of $71,000 on the security of the land of which it was then the registered proprietor of a fee simple estate. But, it was submitted, the right of indemnity out of the other trust assets, found by his Honour to have an aggregate value "of the order of $600,000," may not be enforceable in respect of the loan debts, which totalled $137,150, or may be enforceable only by protracted litigation. Reference was made to R.W.G. Management Ltd. v. Commissioner for Corporate Affairs [1985] V.R. 385. Therefore, the submission concluded, the evidence did not establish solvency.
Northrop J. had the uncontradicted evidence of one of the substituted trustee's directors that none of the loans was then payable, that they were obligations within a family and companies controlled by members of the family. The respondent had never conducted any business except as trustee of that family's trust. In those circumstances Northrop J. was in my opinion justified in finding that the respondent was solvent.
Northrop J. did not accept a submission for the appellant that, if the application were dismissed, the appellant's costs of two separate days before a judge shortly before the hearing of the application should be ordered to be paid by the respondent, whose legal representatives' misconceptions were said to have caused the waste of those costs. It was a ground of appeal that he was in error. Northrop J. noted that errors were not unknown "in proceedings of this kind". Counsel for the parties on the first day of the hearing before him had been unable to cite to his Honour authority on several of the legal questions which arose on the evidence, which was in affidavits filed in the month preceding the hearing in November 1995, and the hearing was for that reason adjourned to another day for further argument. I am not persuaded that Northrop J. erred in the exercise of his discretion as to costs.
I would dismiss the appeal with costs.
I certify that this and the preceding three pages are a true copy of the reasons for judgment of his Honour Justice Jenkinson.
Associate
Dated: 17 July, 1996
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION No VG 947 of 1995
On Appeal from a single Judge of the Federal Court of Australia
BETWEEN:
LEO DIMOS trading as LEO DIMOS & ASSOCIATES
Appellant
-and-
DIKEAKOS NOMINEES PTY LTD
Respondent
Coram: Jenkinson, Olney and Heerey JJ
Place: Melbourne
Date: 17 July 1996
REASONS FOR JUDGMENT
OLNEY J
I have had the advantage of reading in draft the judgments of Jenkinson J and Heerey J.
I agree that the appeal should be dismissed for the reasons expressed by their Honours.
I certify that this page is a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated: 17 July, 1996
IN THE FULL COURT OF THE FEDERAL )
)
COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 947 of 1995
)
GENERAL DIVISION )
On Appeal from a single Judge of the Federal Court of Australia
B E T W E E N:
LEO DIMOS trading as LEO DIMOS & ASSOCIATES
Appellant
- and -
DIKEAKOS NOMINEES PTY LTD
Respondent
CORAM: Jenkinson, Olney and Heerey JJ
DATE: 17 July 1996
PLACE: Melbourne
REASONS FOR JUDGMENT
HEEREY J: The appellant, who formerly acted as the solicitor for the respondent, appeals against the dismissal by Northrop J of a winding-up application. His Honour had made a finding that for the purposes of s 459C(3) of the Corporations Law the respondent was solvent within the meaning of s 95A.
The respondent was the trustee of a trust called The George Dikeakos Family Trust. By a deed made on 20 December 1994 the respondent resigned as trustee of the trust and the appointor, Mr George Dikeakos, appointed Lekakis Nominees Pty Ltd as trustee in its stead. The directorships of the respondent and Lekakis Nominees are identical. In the proceedings before his Honour it was not suggested that the resignation and new appointment were
made with intent to defeat or delay the claims of the appellant or any other creditor.
The respondent had retained the appellant to act for it in a dispute with the Commissioner of Taxation. The proceedings were resolved on terms that, amongst other things, the Commissioner pay the respondent's costs. Up to 5 November 1993 the respondent paid the appellant $12,000. At the time of paying an amount of $5,000 on that date Ms Penny Dikeakos, a director of the respondent, sent a covering letter which included the following statement:
This will cover costs for the company and for George Dikeakos. Once this matter has been finalised we expect your office to refund me the money in full as your costs will be met by the Commissioner of Taxation.
On 15 April 1994 the appellant sent an account for $16,727.79 to the respondent. This account was not included in the evidence. On 17 November 1994 Ms Dikeakos again wrote on behalf of the respondent to the appellant saying that the amount of $14,777.20 (sic) was "excessively too high and out of the question". The letter continued:
You state that Maria Andricopoulous has gone through all the books and swears that that's the amount due and payable. We have never dealt with her, never queried her so how does she know what went on. We regularly issued you with funds when they were requested. All up we issued you $12,000 (receipts on hand) for costs and disbursements. That amount excludes any barrister's fees as those were done separately. Where did all those funds go? Russell Borgland was at our service for two days at the agreed value of $800 per day. There was no court hearing as a settlement was made. The settlement did not involve any of your staff as myself took care of all the dealings. That was purely done to avoid further costs.
The amount you have quoted us is too high and we would like to come to some agreement about resolving this matter. Clearly we have given you $12,000, you are asking for another $14,000.
Total for your costs would be $26,000. You are not entitled to money of that value as your services were not up to that standard at all. Your main task was to remove the caveat from our property. That wasn't done. This matter should have finished years ago, not by when the time it did. More work was done by us and the caveat was moved by our settlement not by your services.
I hope to hear from you soon as we would like to resolve it as soon as possible.
There was no reply to that letter.
On 30 May 1995 the appellant served a statutory demand under s 459E of the Corporations Law claiming $16,727.79 described as "monies due for work and labour done, disbursements incurred and services rendered by the creditor for and on behalf of the company".
On 11 August Messrs N C Gay & Co wrote to the appellant on behalf of the respondent. Their letter asserted that the appellant had paid a total of $16,000 and referred to the Supreme Court order that the Commissioner pay the respondent's costs. It was said that "our client has no knowledge as to whether you have done this or not or whether you have received any monies from the Commissioner of Taxation". The letter went on to assert that the respondent had not received any detailed memorandum of costs. A request was made for
A copy of the memorandum of costs sent to the respondent,
Details of all payments made by the respondents to the appellant and copies of all accounts rendered,
Confirmation as to whether the appellant had received any monies from the Commissioner of Taxation resulting out of proceeding No. 4440 of 1985 in the Supreme Court of Victoria.
The letter stated that the respondent was "quite anxious to
resolve these matters" and asked for urgent attention and supply of the information requested. The appellant did not reply to this letter. Unfortunately Messrs N C Gay & Co did not take steps to apply for the setting aside of the demand within the time limited by s 459G.
The evidence before his Honour disclosed that the respondent was the registered proprietor of four rented properties valued as follows:
16 Beith Street, Brunswick $ 95,000
421 Sydney Road, Brunswick $300,000
16 Mitchell Street, Brunswick $150,000
155 Moreland Road, Coburg $150,000
$695,000
As to Beith Street the valuation was that of a qualified valuer who swore an affidavit on behalf of the respondent. The other figures were sworn to by Ms Dikeakos on the basis of enquiries made by her of local estate agents. The only encumbrance was a mortgage to the National Australia Bank over Beith Street securing as at 20 October 1995 the sum of $51,656.25. There was evidence from a finance broker that, having inspected the sworn valuation, he was able to provide by way of first and second mortgage loans the sum of $71,250 on security of the Beith Street property. None of this evidence was challenged.
The respondent had loans outstanding as at 30 June 1994 of $137,150. According to Ms Dikeakos "there is no requirement to
pay these loans at the moment as they are between the beneficiaries of the Trust and interrelated companies". It may be safely inferred that these loans constituted the working capital of the enterprise. The respondent had two bank accounts, one in credit and one in debit, which netted off to a credit of about $200 at the time of the hearing.
The respondent has not yet executed a transfer of Beith Street. It has executed transfers in favour of Lekakis Nominees in respect of the other three properties but those transfers are presently stopped in the Titles Office pursuant to a court order.
On appeal, the main argument of the appellant was that the respondent could no longer rely on its right of indemnity against the trust property or against the beneficiaries because it had retired as trustee on 20 December 1994.
It was common ground that, at least prior to retirement, the respondent had a right to indemnity against liabilities incurred in the discharge of the trust. For the purposes of enforcing that indemnity the respondent had a charge over the assets of the trust which took priority over the rights of beneficiaries: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367. The respondent acquired in the assets of the trust "a beneficial interest commensurate with his right of indemnity": Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 QdR 576 at 590 per McPherson J; see also Re Enhill Pty Ltd [1983] 1 VR 561. The right of indemnity exists both for the discharge
of liabilities incurred but not paid and for reimbursement where the trustee has paid: Kemtron at 585. This right of a trustee is "an incident of the office of trustee and is inseparable from it": Kemtron at 585. Statutory recognition of the right is contained in s 36(2) of the Trustee Act 1958 (Vic) which provides:
A trustee may reimburse himself or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trust or powers.
In my opinion that right of indemnity did not cease upon retirement. Direct authority is provided by Coates v McInerney (1992) 6 ACSR 748 where it was held that a company trustee's entitlement to indemnity did not cease upon termination of the trusteeship and was available to a liquidator of the company. As a matter of principle this must be so. Once the right of indemnity arises the position is as stated by the High Court in Octavo (at 369-370):
If the trustee has incurred liabilities in the performance of the trust then he is entitled to be indemnified against those liabilities out of the trust property and for that purpose he is entitled to retain possession of the property as against the beneficiaries. The trustee's interest in the trust property amounts to a proprietary interest, and is sufficient to render the bald description of the property as "trust property" inadequate. It is no longer property held solely in the interests of the beneficiaries of the trust and the trustee's interest in that property will pass to the trustee in bankruptcy for the benefit of the creditors of the trust trading operation should the trustee become bankrupt.
There is no reason why the fact of retirement from trusteeship should result in the abandonment of property, that is to say the interest commensurate with the right of indemnity to which the trustee is beneficially entitled. Although the right of
indemnity undoubtedly confers a right to retain possession of the trust property, it is also a proprietary right equivalent to (and ranking ahead of) the interest of the beneficiaries. As such it is probably not dependent on the retention of possession. In any event, in the present case the respondent retains the legal ownership of the properties and can thus exercise a lien in the strict sense.
There being no suggestion that the debt (if any) owed to the appellant was not incurred by the respondent in the course of carrying on the business of the trust, the learned primary judge was in my view correct in finding that the respondent, having regard to the evidence of its assets and liabilities, was solvent. The Beith Street property alone provided sufficient security for a loan to fund payment of the debt.
There was also a complaint that his Honour should have awarded the appellant the costs of an adjournment, but this was a discretionary matter and no error has been shown.
The appeal should be dismissed with costs.
I should add that there are some disquieting features about this case. The respondent formed part of a family controlled property investment enterprise which had been in existence for a substantial period of time. There is no suggestion of it being unable to pay any of its other creditors in the ordinary course of business. The respondent and its current solicitors made a
number of enquiries of the appellant as to the basis on which his charges were made. Those enquiries on their face appear to be pertinent and reasonable. The appellant however ignored them and instituted winding-up proceedings against his former client. Although, as already noted, the bill itself was not in evidence, one can infer from the correspondence that it was not a detailed bill in taxable form. Section 64(3) of the Supreme Court Act 1986 (Vic) provides that if a solicitor serves a bill of costs drawn in lump sum form the party to be charged may within one month after that service request the solicitor to serve the bill of costs drawn in taxable form.
Section 64(3) provides:
If no request is made under sub-section (3) within the time referred to in that sub-section, the solicitor may then commence any proceedings to recover the costs due to him or her but that proceeding may on the application of the party to be charged be stayed by the court in which it was commenced until one month after the solicitor has served on that person a bill of costs drawn in taxable form.
Solicitors should not be able to get around statutory provisions for the protection of their clients by the institution of winding-up proceedings in this Court. To do so, at least in circumstances like those of the present case, could quite possibly amount to an abuse of process: cf Jarena Pty Ltd v Sholl Nicholson Pty (1996) 136 ALR 427.
I certify that this and the preceding eight (8) pages are a true copy of the reasons for judgment of his Honour Justice Heerey.
Dated:
Associate
Appearances
Counsel for the applicant: Ms R Lewitan QC with Mr M Dreyfus
Solicitor for the applicant: Leo Dimos & Associates
Counsel for the respondent: Mr R Bird
Solicitor for the respondent: N C Gay & Co
Date of hearing: 3 June 1996
Heard: 3 June 1966
Place: Melbourne
Judgment: 17 July, 1996
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