McLellan v Sharantelli Pty Ltd
[2000] VSC 174
•9 May 2000
| SUPREME COURT OF VICTORIA | Do not Send for Reporting |
| CORPORATIONS LIST | Not Restricted |
No. 4725 of 2000
IN THE MATTER OF s.511 of the Corporations Law of Victoria
| ANDREW McLELLAN in his capacity as liquidator of Goulburn Valley (Shepparton) Hotel Pty Ltd (in liquidation) (ACN 004 791 584) | Plaintiff |
| v | |
| SHARANTELLI PTY LTD (ACN 086 788 865) | Defendant |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 April and 5 May 2000 | |
DATE OF JUDGMENT: | 9 May 2000 | |
CASE MAY BE CITED AS: | McLellan v Sharantelli Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 174 | |
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Corporations Law, s.511 – application by liquidator for directions to treat monies purportedly held as employee long service leave sums as an asset of the company in liquidation – whether monies held on trust for employees – onus upon employees to establish monies held on trust – deficiencies in employees' affidavit.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Dr M. Collins | Herbert Geer & Rundle |
| For the creditors | Mr J. Strong, Solicitor | Voitin Walker Davis |
HER HONOUR:
Goulburn Valley (Shepparton) Hotel Pty Ltd (in liquidation) ("the company") was placed in voluntary administration on 31 August 1999 and liquidation on 18 October 1999. The applicant, Andrew McLellan was appointed the administrator at first instance and subsequently the liquidator.
The company owned and operated the leasehold business of the Goulburn Valley Hotel at 223 High Street Shepparton ("the hotel"). By an agreement dated 3 April 1999 the company sold the whole of its interest in the hotel to the respondent in this proceeding, Sharantelli Pty Ltd ("Sharantelli"). In the agreement the company was referred to as "the vendor" and Sharantelli was referred to as "the purchaser". Clause 4 of the agreement provided:
"4. Employees
The Vendor shall prior to the settlement date terminate the employment of all employees at the business and pay to them their full entitlement to holiday pay, long service leave and superannuation. In the event that the Purchaser re‑employs any of the employees the Purchaser acknowledges and agrees that it has no right of claim or indemnity from the Vendor in respect of the said re‑employment. The employees who have been employed longer than five (5) years are set out in Schedule A.
Notwithstanding anything to the contrary herein contained in the case of any employee of the Vendor who has been employed by the Vendor or its immediate predecessors for a period of five years or more, the Vendor shall allow to the Purchaser an amount equal to the wages of such employee calculated at the current rate for a period of one‑sixtieth of the period of the employee's said employment for which no long service leave allowance has been made. The total entitlement for long service leave as calculated shall be paid into a trust account to be maintained by Joint instructions of the Vendor and the Purchaser. In the event of any person terminating employment prior to becoming entitled to payment in respect of such long service leave then the Vendor's contribution in respect of such person shall be refunded forthwith to the Vendor and in the event of any employee becoming entitled to payment in respect of long service leave. The amount of the Vendor's contribution shall be forthwith paid to the Purchaser and any interest accruing on the money paid into the trust account shall be the property of the Vendor unless such an amount is utilised to pay the entitlement of the employee, in which case the interest shall be added to the amount contributed by the Vendor."
The settlement date for the agreement was 21 July 1999.
Upon inspecting the books and records of the company the liquidator discovered that the sum of $25,875.09 was held in a trust account maintained by Sharantelli apparently under special condition 4 of the agreement. The moneys were said to have been held on account of alleged long service leave claims by one Valentine and one Christensen. The liquidator made inquiries of the directors of the company and was informed that Valentine and Christensen had been employed by the company for less than four years and that their names first appeared on the payroll records of the company less than four years ago. On 20 October 1999 the liquidator wrote to Ms Valentine and Ms Christensen informing them that in order to consider any claim to long service leave entitlements he required each of them to lodge a formal proof of debt form by 20 November 1999. On 10 November 1999 the liquidator received letters and proof of debt forms from both Ms Valentine and Ms Christensen. On 11 November 1999 the liquidator wrote again to Ms Valentine and Ms Christensen informing them that he required further evidence as to their respective long term employment with the company including personal income tax file numbers and copies of group certificates or tax returns. He further requested a detailed calculation as to the figures claimed being the sum of $13,185.90 by Ms Christensen and the sum of $12,689.19 by Ms Valentine. The liquidator informed them that the information was required by 20 November 1999 in order for him to adjudicate their claims. The liquidator did not receive a response from either Ms Christensen or Ms Valentine to his correspondence dated 11 November 1999. On 20 November 1999 the liquidator wrote again advising that he was rejecting their claims for unpaid long service leave and served each of Ms Valentine and Ms Christensen with a formal notice of rejection of proof of debt.
As a result of these matters the liquidator formed the view that the money held on trust by Sharantelli on account of the rejected claims by Ms Valentine and Ms Christensen was properly an asset of the company and that he was entitled to have that amount paid to him for the purposes of the liquidation. The court was informed that Sharantelli did not intend to take part in the proceedings.
The liquidator makes application under s.511 of the Corporations Law for directions in relation to the disbursement of the amount held on trust on account of the rejected claims with respect to Ms Christensen and Ms Valentine. The section provides:
"SECTION 511 APPLICATION TO COURT TO HAVE QUESTIONS
DETERMINED OR POWERS EXERCISED
511(1) [Persons entitled to apply] The liquidator, or any contributory or Creditor may apply to the Court:
(a)to determine any question arising in the winding up of a company: or
(b)to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court.
511(2) [Court's powers] The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just."
The creditors, Ms Valentine and Ms Christensen sought leave to intervene in the application. Their request to be heard was opposed by the liquidator.
The liquidator submitted that the proceeding was concerned with the interpretation of the sale agreement of the hotel from the company to Sharantelli. It was submitted that as Ms Valentine and Ms Christensen were not parties to the agreement they were not competent to seek to intervene or participate in the proceeding. It was submitted, further, that on a proper construction the agreement between the company and Sharantelli did not give rise to any trust obligations in favour of Ms Valentine and Ms Christensen in their capacities as employees and potential creditors of the company.
There was no issue between the parties that Ms Valentine and Ms Christensen were not parties to the agreement. However, with respect to the trust submission it is apparent from the authorities that the principal can be extracted that a contractual promise only gives rise to trust obligations in favour of a third party where "it clearly appears that it was the intention of the promisee that the third party would himself be entitled to insist upon performance of the promise and receipt of the benefit and if trust is, in the circumstances, the appropriate legal mechanism for giving effect to that intention: Trident General Insurance Co Limited v McNiece Brothers Pty Ltd (1988) 165 CLR 107, 147, 156; Winterton Constructions Pty Ltd v Hambros Australia Limited (1991) 101 ALR 363, 370. The question as to whether a contract creates a trust is primarily a question of the construction of the terms of the contract: Trident General Insurance Co Limited v McNiece Brothers Pty Ltd, supra, 148. Further, the burden is on the party seeking to allege the existence of the trust obligation to establish the trust: Trident General Insurance Co Limited v McNiece Brothers Pty Ltd, supra, 156; Winterton Constructions Pty Ltd v Hambros Australia Limited, supra, 370-371.
This matter first came before the court initially before a Master and subsequently before me on 14 April 2000 and was adjourned before me to 28 April 2000. On that occasion Mr J. Strong who appeared as solicitor for Ms Valentine and Ms Christensen sought to have the proceeding further adjourned to enable his clients to consider the matter and provide instructions and, if appropriate, file and serve affidavits. I adjourned the matter until 5 May 2000 to give the potential creditors/employees a reasonable opportunity to file any affidavit material upon which they wished to rely. Hence, the employees had in total approximately 21 days to put material before the court if they chose to do so.
Eventually a short affidavit was filed by each of Ms Valentine and Ms Christensen. In her affidavit Ms Valentine deposed that she was a gaming supervisor employed by Sharantelli and that she commenced working at the hotel on about 17 November 1984 as a waitress. She was unaware of the entity that owned the business of the hotel at the time. She deposed that she was employed on a continuous basis at the hotel from 17 November 1984 until 15 August 1999 when her employment with the company was terminated. During that 15 year period Ms Valentine deposed that she was aware that the hotel was owned by various entities including the company and now by Sharantelli. On 16 August 1999 Ms Valentine was re‑employed by Sharantelli at the hotel. Ms Valentine deposed that she was informed by a director of Sharantelli that a sum of money equivalent to her accrued long service leave entitlement had been placed into a separate trust account on her behalf and that she was entitled to the sum of $12,689.19 of a total sum of $25,785 held on trust by the solicitors for Sharantelli. An affidavit was filed in very similar terms by Ms Christensen in which she deposed her belief to the entitlement of the sum of $13,185.90 out of the sum of $25,785 held by the solicitors for Sharantelli.
It is significant that neither Ms Valentine nor Ms Christensen instituted proceedings to appeal against the refusal of proof of debt by the liquidator. Section 553D(1) of the Corporations Law provides that a debt or claim must be proved formally if the liquidator requires it to be so proved. A person who is aggrieved by the decision of the liquidator may appeal to the court against the liquidator's decision pursuant to s.554A(3) of the Law. No application has been made by Ms Valentine and Ms Christensen under that section in this court. Debts due to employees are allocated special priority under the Law (see ss.556, 558, 560, 561). There was no evidence before me by the liquidator purporting to rebut the matters deposed to by Ms Valentine and Ms Christensen in their respective affidavits. Furthermore, there was no affidavit filed by Sharantelli or a director of Sharantelli to support or rebut the matters deposed to.
In this matter it is not necessary for me to finally determine whether or not the relevant moneys were held on trust on behalf of Ms Valentine and Ms Christensen. It is unnecessary for me to determine the proper construction of special condition 4 of the agreement. The basis for my view is that on the material relied upon by both Ms Christensen and Ms Valentine there is a serious deficiency of critical facts of which I would need to be satisfied before I could hear and determine their applications in their favour. Firstly, there is no satisfactory evidence that they were employed for a period of five years as contemplated under special condition 4 of the agreement by the company. Indeed, I observe that both Ms Valentine and Ms Christensen in their affidavits acknowledge that the hotel business was operated by a number of entitles including the company. As matters stand before me I cannot be satisfied one way or the other as to whether they were employed for the total period required or contemplated under special condition 4 of a period of five years before they qualified for long service leave. Secondly, there is insufficient evidence before me as to the basis upon which the moneys came to be held by Sharantelli. Whilst it might be said that there is an obligation on the liquidator to investigate the basis upon which the moneys were so held in my view the liquidator has satisfied such requirement by virtue of the November correspondence between he and Ms Christensen and Ms Valentine with respect to their proofs of debt, if any. I observe that notwithstanding the opportunity extended by the liquidator in his letters of 11 and 20 November 1999 neither Ms Christensen nor Ms Valentine seized the opportunity to put sufficient or further material before the liquidator to support their claim to entitlement to the relevant sums. Thirdly, I observe that notwithstanding the rejection of the proof of debt by the letter and formal notice from the liquidator dated 20 November 1999 Ms Christensen and Ms Valentine have not taken any steps to appeal against that decision. Insofar as the time for the bringing of such an appeal may have expired I note, further, that they have not applied to the court for an extension of such time.
Ultimately, in all the circumstances of this matter I consider that neither Ms Christensen nor Ms Valentine have put sufficient evidence before me to substantiate their standing to be heard on the application by the liquidator. Furthermore, there is insufficient evidence before me, in any event, to support the claim for long service leave. Finally, I note that both Ms Christensen and Ms Valentine have been on notice since 20 November 1999, a period of some six months during which they were in a position to investigate their claim and provide more detailed instructions if they were able to do so. The fact that they have allowed the period of six months to elapse and, furthermore, the fact that they did not take the opportunity of filing adequate affidavit material whilst the proceeding was on foot before the court (between 14 April and 5 May 2000) leads me to the conclusion that their case cannot be put any higher than as expressed in the existing affidavits. For the reasons already stated I consider that both affidavits are seriously deficient for the purposes of recognising any claim to the relevant sums on their behalf. In any event, on the basis of the evidence before me I could not be satisfied that a trust has been made out on the basis described by the authorities earlier referred to for the purposes of special condition 4 of the agreement.
It follows, therefore, that the request by Ms Valentine and Ms Christensen to intervene is refused. It follows, further, that they lack standing and also in any event have not put sufficient evidence before the court to support their claim. Finally, on the basis of the steps taken by the liquidator during the month of November 1999 with respect to the relevant sum I am satisfied that a declaration should be granted substantially in accordance with the terms of the originating process to the effect that the sum of $25,875.09 is an asset of the company.
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