Mega v WW Property Development Pty Ltd (in liq)
[2022] VSC 607
•12 October 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST – GARDE J
S ECI 2020 00450
| VLADO MEGA (and others according to the Schedule attached) | Plaintiffs |
| v | |
| WW PROPERTY DEVELOPMENT PTY LTD (IN LIQUIDATION) (ACN 162 433 829) (and others according to the Schedule attached) | Defendants |
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JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 August 2022, 16 September 2022 |
DATE OF JUDGMENT: | 12 October 2022 |
CASE MAY BE CITED AS: | Mega v WW Property Development Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 607 |
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CORPORATIONS – Payment into court pursuant to court order – Previous consent order to hold money in payer’s solicitors’ trust account not complied with – Construction of court orders – Surrounding circumstances – Negotiations – Admissibility of parol evidence – Admissibility of evidence concerning negotiations – Dura (Australia) Constructions Pty Ltd (in liq) v Hue Boutique Living Pty Ltd (2014) 49 VR 86 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs/First and Second Defendants by Counterclaim | Mr A Herskope with Mr S Freire | Aspire Lawyers |
| For the Liquidators of the First Defendant/First Plaintiff by Counterclaim | Mr A Segal | Maddocks |
| For the Second Plaintiff by Counterclaim | Mr D Aghion KC with Ms J Lindgren (26 August 2022) Mr P Cawthorn KC with Ms J Lindgren (16 September 2022) | Hall & Wilcox |
| For the Second Third Party | Mr P Atkin, Solicitor | Colin Biggers & Paisley |
HIS HONOUR:
Introduction
By a summons filed 17 August 2022, Innis Cull and David Vasudevan, the liquidators (‘the liquidators’) of WW Property Development Pty Ltd (in liq) (ACN 162 433 829) (‘WWPD’) seek repayment of the sum of $500,000 and accrued interest paid into Court by WWPD pursuant to an order of the Court made on 2 July 2021 (‘2021 order’). The application is opposed by the plaintiffs, Vlado and Zuska Mega, and supported by the second plaintiff by counterclaim in the proceeding, Bo Jiang.
The 2021 order followed a consent order made on 5 February 2020 (‘2020 order’) requiring WWPD to pay $500,000 into its solicitors’ trust account to be held until further order or agreement between Mr and Mrs Mega and WWPD. WWPD did not comply with the 2020 order. Seventeen months later it was found that no monies had been paid into the solicitors’ trust account.
Background
On 31 January 2020, Mr and Mrs Mega filed a writ and statement of claim seeking to recover a sum of $498,437.05 for equitable contribution on the basis that the defendants had paid less than their share of the liability under guarantees given by eight guarantors in connection with a loan facility advanced by the Commonwealth Bank of Australia to Mega Homes Pty Ltd (ACN 063 797 473).
The statement of claim referred to a 24 lot subdivision of land at 85A–105 Ridge Road, Whittlesea (‘Whittlesea land’) undertaken by the defendants, and sought an order that the balance outstanding from the sale of the lots be paid into Court after payment of the moneys secured by the registered first mortgage. The defendants named in the writ were WWPD and Kwang Ping Wang.
In their prayer for relief, Mr and Mrs Mega sought interlocutory and permanent injunctions restraining the defendants from dealing with their assets in Australia until the balance was paid. They also sought that the proceeds of sale of the lots be paid into Court.
By summons also filed 31 January 2020, Mr and Mrs Mega applied for an injunction ordering the defendants to pay the proceeds of the sale of the lots into Court until the conclusion of the proceeding or further order. The summons was supported by an affidavit of Mr Mega filed 31 January 2020 in which he deposed that the Whittlesea land was the only asset of WWPD and was in the process of being subdivided and sold.
In an affidavit filed 4 February 2020, Sining Wang, then WWPD’s solicitor, deposed that WWPD was a property development company. Mr Wang further deposed that on 15 January 2020, WWPD had given an undertaking to Mr and Mrs Mega not to reduce its net assets to less than $500,000 except on seven days’ notice to them.
Mr Wang exhibited a letter dated 24 January 2020 from the plaintiffs’ solicitors requesting, among other things, that WWPD set aside an amount of money sufficient to meet Mr and Mrs Mega’s claim, and stating:
In the event that your client does not agree to set aside a sufficient amount to meet our clients’ claim we will proceed on with our clients’ application in any manner that we consider appropriate, including possibly, seeking a freezing order.
Paragraph 1 of the 2020 order stated:
The first defendant pay into the trust account of its solicitors Hall & Wilcox the sum of $500,000 out of the total net proceeds of sale of the 24 lots in the plan of subdivision of the properties at 85A-105 Ridge Road, Whittlesea, such sum to be held until further order or agreement between the plaintiff and the first defendant.
When they learnt that WWPD had not complied with the 2020 order, Mr and Mrs Mega sought, at a directions hearing conducted on 2 July 2021, to enforce the 2020 order, requesting an order that the sum of $500,000 be paid into court. By this time, only Lot 12 remained for settlement. Paragraphs 2 and 3 of the 2021 order were as follows:
Until the trial of the proceeding, or further order, or as otherwise agreed between the plaintiffs and the first defendant, the first defendant, by itself, its servants, agents or officers or howsoever otherwise, is restrained from disposing of, dealing with or diminishing the value of any of its assets and which are held by it below the value of AUD$500,000, except in accordance with paragraph 3 of this order.
The first defendant is permitted to sell Lot 12 in the plan of subdivision of the properties at 85A-105 Ridge Road, Whittlesea to a bona fide arms-length purchaser for market value (including pursuant to a contract entered into before this order was made), and to pay the costs of selling Lot 12, provided that the amount of AUD$500,000 is paid into Court as soon as practicable following the settlement of Lot 12.
In revised reasons published following the hearing on 2 July 2021, I said:
Breach of order of 5 February 2020
On 5 February 2020, I ordered that the first defendant (‘WWPD’) pay $500,000 out of the total net proceeds of sale of the 24 lots in the plan of subdivision of the properties at 85A-105 Ridge Road, Whittlesea (‘lots’) into the trust account of its solicitors, Hall & Wilcox, to be held until further order or agreement between the plaintiffs and WWPD (‘2020 order’). No payment was made then or subsequently. WWPD remains in breach of the 2020 order.
Through some strange process of reasoning, it was considered that compliance with the 2020 order could be postponed until the last of the lots was sold and settled. I am at a loss to understand how that view was formed, because in the absence of any time stipulation in the 2020 order, a reasonable time is implied. The failure to comply with the 2020 order was not disclosed until very recently.
WWPD’s sale of Lot 12 settled on 26 July 2021. An amount of $603,715.67 was paid into Hall & Wilcox’s trust account. On or about 28 July 2021, Hall & Wilcox paid the amount of $500,000 into Court (‘funds in court’).
On 14 July 2022, the liquidators were appointed as the joint and several liquidators of WWPD on a creditor’s voluntary winding up.
WWPD’s winding up is currently unfunded. The report on company activities and property received by the liquidators from WWPD’s director states that WWPD’s assets amount to $576,128. The funds in court are the only immediately realisable asset. WWPD’s creditors are predominantly related party creditors. There are no secured creditors and a small number of unsecured creditors.
Evidence
In this application, the liquidators rely on the affidavit and exhibits of David Vasudevan filed 17 August 2022. Mr Jiang relies on the affidavit and exhibits of Sining Wang filed 15 September 2022. Mr and Mrs Mega rely on the affidavits and exhibits of Salvatore Ferraro filed 14 September 2022, and of Shayne Bedford filed 23 August and 16 September 2022.
Liquidators’ submissions
In support of their application, the liquidators submitted that:
(a)they are in control of WWPD’s affairs;
(b)the funds in court are not the subject of any pre-existing security or property right in favour of Mr and Mrs Mega;
(c)Mr and Mrs Mega are unsecured creditors who have no interest in the funds in court;
(d)the funds in court were paid by WWPD as an alternative to a freezing order; and
(e)there is no risk of dissipation following the appointment of liquidators.
The liquidators alternatively submitted that if Mr and Mrs Mega had an interest in the funds in court, it was a security interest within the meaning of s 12 of the Personal Property Securities Act 2009 (Cth) (‘PPSA’). As an unperfected security interest, the interest transferred to WWPD as the grantor upon its winding up under s 267 of the PPSA with Mr and Mrs Mega having a right to prove in WWPD’s insolvency.
Mr Jiang’s submissions
Mr Jiang supported the liquidators’ application and also submitted that:
(a)the 2020 order was akin to a freezing order;
(b)the 2020 order was a consent order and was a written contract between Mr and Mrs Mega and WWPD;
(c)the consent order is clear and unambiguous; and
(d)prior negotiations may not be used to construe a written contract.
Mr and Mrs Mega’s submissions
Mr and Mrs Mega submitted that:
(a)the agreement between the parties was for the sum of $500,000 to be held in the trust account of Hall & Wilcox to abide the outcome of the proceeding;
(b)the agreed regime was intended to secure the payment of moneys found to be due by WWPD to Mr and Mrs Mega;
(c)the 2021 order gave effect to the agreement which underlay the 2020 order; and
(d)the fund was created in compliance with the 2021 order to which WWPD did not consent.
Analysis
The character of funds paid into court has been considered in many past cases. In the leading case in Victoria of Dura (Australia) Constructions Pty Ltd (in liq) v Hue Boutique Living Pty Ltd, Santamaria JA, with whom Maxwell P and Whelan JA concurred, observed that each case depends on a consideration of various matters which relevantly include the purpose for which the moneys were paid in, and any relevant event in the litigation in relation to which the moneys were paid, rather than by reference to any rule of general application.[1]
[1](2014) 49 VR 86, 118 (‘Dura’).
Santamaria JA considered many past decisions concerning payments into court and observed:
The nature of the interest retained by the party that has made a payment either into court or into a joint account, and of the interest acquired by the party for whose benefit the payment was made, have been the subject of many decisions over the last 150 years.
Generally speaking, the circumstances in which a party pays funds either into court or into a joint account fall into the following categories:
(a)a party may at any time pay money into court in satisfaction of a cause of action with or without an admission of liability;
(b)a party may be ordered to pay money into court or into a joint account as security for costs;
(c)a party may pay money into court where an application has been made for summary judgment and the payment is a condition of being allowed to defend;
(d)a party may pay money into court by way of interpleader (where the party itself claims no interest in the money but does not know which of several claimants is entitled to the money);
(e)a party may be ordered to pay money into court as an alternative to a freezing order being made in respect of that party’s assets;
(f)a party may be ordered to pay money into court or into a joint account as a condition of a stay of execution of a judgment pending the hearing and determination of an appeal.[2]
[2]Dura (n 1), 98-9 (citation omitted).
In the present case, the liquidators and Mr Jiang submitted that the payment into court fell within or was akin to category (e), contending that the payment was made as an alternative to a freezing order being made in respect of WWPD’s assets. Mr and Mrs Mega submitted that the payment into court was intended to secure the payment of moneys found to be due by WWPD to Mr and Mrs Mega, thereby making them a secured creditor and giving them an interest in the funds in court. This is the principal issue which stands for determination in this application.
Mr and Mrs Mega relied on Equuscorp Pty Ltd v Wilmoth, Field Warne (a firm), where Nettle JA said:
Another view, however, which I am inclined to prefer, is that the fund once constituted was “trust moneys” in the broad sense that neither Equus nor the firm was beneficially entitled to them.They were held in the Macquarie account subject to the rights of each of Equus and the firm to insist that the fund be kept separate and apart and applied in accordance with the agreement of 30 June 2003. Such if any interest in the fund as that may have conferred on the firm was at best contingent, in the sense that until and unless it was determined that the firm had a right to be paid at the higher rate under the Deed of Costs, it had no right to be paid out of the fund. Nevertheless, once the fund was constituted, it became a security in the broad sense that it was intended to and did improve the position of the firm in its action to recover what it contended was a debt.
A relatively long line of authority establishes that a payment into court under the rules of court must be treated as moneys paid into court to abide the event of the action and is security for the sum which the plaintiff may obtain at trial. Consequently, if a defendant becomes bankrupt or goes into liquidation before trial, the money must remain in court until the plaintiff’s claim is decided by the court or there is an adjudication upon proof in bankruptcy or in the winding up. As Lush, J put it in Commercial Banking Co of Sydney Ltd v Colonial Financiers of Australia Pty Ltd a payment in involves an appropriation by the defendant of part of its property and the setting aside of that part specifically to answer the plaintiff’s claim if that claim is made good. Such an arrangement has been described as the giving of a charge on property in favour of the plaintiff.[3]
[3][2006] VSCA 123, [21]-[22] (Nettle and Neave JJA) (‘Equuscorp’).
For their part, the liquidators and Mr Jiang pointed to the facts in Equuscorp as found and discussed at first instance in Equuscorp Pty Ltd v Wilmoth Field Warne.[4] They submitted that Equuscorp was a clear case where a party had a charge or interest over the fund. Equuscorp’s solicitors claimed a lien over litigation files. It was in exchange for access to the files that Equuscorp created the fund in dispute.
[4][2003] VSC 268 (Bongiorno J).
The parties referred to previous decisions to support their submissions. Mr and Mrs Mega relied on cases where the payment into court had been made as a condition of the grant of leave to defend in a proceeding or in connection with an application for summary judgment.
In Commercial Banking Company of Sydney Ltd v Colonial Financiers of Australia Pty Ltd,[5] the defendant company had been given leave to defend the proceeding on condition that it make a payment into court. The primary judge held that in making the payment into court, the debtor had created a charge in favour of the creditor on property within the meaning of s 122(1) of the Bankruptcy Act 1966 (Cth). This was void as against the liquidator under s 293(1) of the Companies Act 1961 (Cth) as the transaction occurred within six months of the bankruptcy petition. On appeal, Smith J, with whom Winneke CJ agreed, held that the payment into court was a payment made by the debtor in favour of the creditor, and was invalid as against the liquidator.[6] Lush J agreed with Smith J that the appeal should be dismissed. The payment into court provided a fund from which the creditor could obtain payment in whole or part if and when it obtained judgment in the action.
[5][1972] VR 702.
[6]Ibid, 704-5.
Lush J observed that it was not easy to analyse the respective property rights of the parties, the court or the crown in a fund in court created in relation to a case either before or after the decision in the case was made. Lush J concluded that the debtor had given the creditor a charge on property which was invalid against the liquidator.[7]
[7]Ibid, 706-7.
A payment into court following an application for summary judgment was made in WA Sherratt Ltd v John Bromley (Church Stretton) Ltd.[8] On appeal, the United Kingdom Court of Appeal considered that the plaintiff was entitled to the benefit of the money paid into court if successful in the proceeding, and therefore had a charge or interest in the fund.
[8][1985] 1 QB 1038.
In Re Gordon; ex parte Navalchand,[9] a defendant obtained leave to defend a proceeding upon condition that a payment into court was made. A further payment into court was made as security for the defendant’s costs of the action. The primary judge held that the money paid into court by the defendant, even with a denial of liability, had become subject to the plaintiff’s claim by the act of the defendant and the operation of the court rules. The payment into court was a conditional payment to the plaintiff, and was to be the plaintiff’s money if the plaintiff was successful in establishing title to it.[10]
[9][1897] 2 QB 516.
[10]Ibid, 520.
In JKB Holdings Pty Ltd v de la Vega, Lindsay J of the New South Wales Supreme Court held that there was a substantial foundation in the authorities (including judgments of Australian intermediate courts of appeal) for describing funds paid into court (and equally funds held by a stakeholder) as a form of ‘security’ for the payment of moneys found to be due by the defendants to the plaintiff.[11]
[11][2013] NSWSC 501, [95], referring to Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Limited [1972] VR 702, 705-6; Shirlaw (now Rodgers) v Malouf (1989) 15 ACLR 641, 647; Equuscorp (n 3) [22]-[23]; Grizonic v Suttor [2011] NSWSC 471, [48]; cf Re Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd (1989) 90 ALR 589, [16]-[19].
Shirlaw (now Rodgers) v Malouf involved a dispute between a property developer and a builder as to the amount to be paid by the builder. The parties entered into a deed under which the proceeds from the sale of houses were to be paid to the builder, with the parties to arbitrate in respect of the disputed amount if the dispute could not be agreed. A sum was deposited into a bank account in the names of the solicitors for the parties as stakeholders. An arbitrator made an award in favour of the builder for a sum in excess of the amount held by the solicitors. A liquidator was subsequently appointed to the developer.[12]
[12]Shirlaw (now Rodgers) v Malouf (1989) 15 ACLR 641.
Cohen J held that it was the intention of the parties that the money held by the solicitors would be paid over in accordance with the findings of an arbitrator. The fact that the fund was to be held by the solicitors as stakeholders pending a resolution either by arbitration or by agreement could only mean that they would hold the amount and pay it out in accordance with what the parties agreed, or in the absence of agreement, in accordance with the findings of the arbitrator.[13]
[13]Ibid, 388-9.
The liquidators and Mr Jiang distinguished the facts of the present case from those in these authorities. They submitted that the present case was not one involving an application for leave to defend or a summary judgment application. WWPD’s solicitors were not stakeholders under the 2020 order.
In Flightline Ltd v Edwards,[14] a freezing order ceased to have effect on the payment of a certain sum of money into a bank account in the joint names of the parties’ solicitors. The sum was paid and the company undertook not to withdraw or in any way dispose of, or deal with, or encumber its interest in the moneys in the joint account up to a lesser sum. The United Kingdom Court of Appeal held that the freezing order did not create a security right over the assets from time to time in the joint account. A freezing order, without more, did not impose an obligation to satisfy any judgment out of the assets that were frozen. It provided a most efficient hold to prevent the misapplication of those assets.[15] The Court contrasted freezing orders with procedural securities, the clear purpose of which was to afford the claimant an element of security in the satisfaction of the claim.[16] The Court concluded that the order did not confer any security right, and there was nothing in the background that offered any reliable indication as to whether the court order created a security right.
[14][2003] EWCA Civ 63.
[15]Ibid, [47], quoting Palmer v Carey [1926] AC 703, 707 (Lord Wrenbury).
[16]Ibid.
Construction of the 2020 order
Mr Jiang submitted that the 2020 order, as a consent order, constituted a written agreement between Mr and Mrs Mega and WWPD. It was clear and unambiguous.
In the often cited decision of Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd, the High Court said:
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties ... intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.[17]
[17](2015) 256 CLR 104, 116-7 (citations omitted).
In Codelfa Construction Pty Ltd v State Rail Authority of NSW, Mason J said:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.[18]
[18](1982) 149 CLR 337, 352.
In Nokia Corporation v Liu, the Full Federal Court held that it was established in the construction of court orders that evidence of surrounding circumstances is admissible.[19] The surrounding circumstances which can be used to construe a consent order were those which can be used to construe a contract.[20]
[19](2009) 179 FCR 422.
[20]Ibid, 430.
I accept Mr Jiang’s submissions that it is appropriate in the construction of the 2020 and 2021 orders to have regard to the terms of those orders and the surrounding circumstances. It is not permissible to go beyond the written agreement as embodied in the 2020 order or have regard to the negotiations between counsel that preceded it.[21]
[21]Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 606.
In my view, when the 2020 order is construed, it is plain that the case is one where the funds in court were paid as an alternative to a freezing order being made in respect of WWPD’s assets or is most closely analogous to such a case. This is the category referred to in paragraph 41(e) of the Dura decision. This conclusion is confirmed by the surrounding circumstances and the terms of the 2021 order.
The form of paragraph 1 of the 2020 order is significant for two reasons. Firstly, the funds were to be held by WWPD’s own solicitors and not by both solicitors or by stakeholders. The funds were not to be held in a joint account with Mr and Mrs Mega’s solicitors. This arrangement reflected the fact that the funds were, and remained, WWPD’s property and should be left under its control through its solicitors acting alone. There was no claim made by Mr and Mrs Mega that they had an interest in the funds remaining following the sale of the subdivided lots. Their solicitors were not to have joint or partial control over the fund that was to be created. The terms of the 2020 order made by consent did not even require that they be notified when the fund was created. For a lengthy period it was assumed that the fund had been created when in fact it had not.
Secondly, the order does not provide that the funds in court will be held until the conclusion or outcome of the proceeding. In fact, there is no reference in the operative part of the 2020 orders to the conclusion or outcome of the proceeding or to the making of final orders in the proceeding. The further order or agreement between the parties that will release the funds in court can take place at any time, even before the proceeding is tried, or any outcome is known.
Paragraphs 2 and 3 of the 2021 order substantially replicate orders that might be found in a freezing order. Paragraph 2 of the 2021 order prohibits WWPD from reducing its assets below the value of $500,000. Paragraph 3 authorises the sale and disposition of the last remaining lot but only on the basis that the sum of $500,000 is paid into court as soon as practicable following settlement of the sale. No constraint is imposed on WWPD on the disposition of settlement monies above $500,000.
Surrounding circumstances
The circumstances surrounding the making of the 2020 order include the following:
(a)Mr and Mrs Mega did not claim, and have never claimed, a charge, lien, or equitable interest in the proceeds of sale of the lots created by the subdivision of the Whittlesea land. If successful in the proceeding, they would expect to be unsecured creditors;
(b)Prior to the issue of the writ, on 15 January 2020, WWPD gave an undertaking to Mr and Mrs Mega not to reduce its net assets to less than $500,000 except on seven days’ notice to Mr and Mrs Mega. It is a pre-litigation undertaking that is replicated in the 2021 order;
(c)In a letter dated 28 January 2020, Mr and Mrs Mega’s solicitors stated that in the event that WWPD did not set aside a sufficient amount of money to meet the claim, their client would proceed in any way they considered to be appropriate, including possibly seeking a freezing order;
(d)By the time the proceeding commenced, the subdivision was well advanced. It was the only business or development that WWPD undertook. As time went by, there was a serious risk that no funds would remain in WWPD;
(e)The prayer for relief in the statement of claim dated 29 January 2020 seeks ‘injunctions, both interlocutory and permanent, restraining the Defendants from dealing with its assets in Australia until the balance is paid’, and that the proceeds of sale of the lots be paid into court;
(f)In a summons filed 31 January 2020, Mr and Mrs Mega sought orders in substance restraining WWPD from disposing of the proceeds of sale of the Whittlesea land and that the proceeds of sale be paid into court until the conclusion of the proceeding or further order; and
(g)Likewise, in paragraph 13 of Mr Mega’s affidavit filed 31 January 2020, he states:
Given that the only asset of [WWPD] is the land that is in the process of being subdivided and sold, I seek orders that the proceeds of sale of the land after payment of RMBL’s security be paid into Court until further order.
Each of these circumstances points towards, or is consistent with, the liquidators’ characterisation of the 2020 and 2021 orders as being an alternative to a freezing order or akin to a freezing order.
Negotiations
The summons filed 31 January 2020 was returnable on 5 February 2020 before me. The affidavits filed by the parties show that negotiations occurred on the day of the hearing by emails between Mr Gillies of counsel for Mr and Mrs Mega and Mr Aghion (now Mr Aghion KC) for WWPD. The relevant parts of the emails may be summarised in the following manner:
7:52am – Gillies to Aghion:
I think we are opposed this morning.
For the life of me, I do not know why my solicitors are calling it a freezing order.
It is an old fashioned injunction to prevent the dissipation of assets.
We only want the net proceeds of sale or a fixed amount if you would like to discuss it, which your solicitor can hold in their trust account.
Is there scope for discussion?
…
All without prejudice of course.
7:58am – Aghion to Gillies:
On the train. Will call when in chambers.
How much do you want in the solicitor’s trust account?
Your claim, properly shared between the co-guarantors, is $400k. I don’t see how you can ask for more than that.
8:11am – Aghion to Gillies:
Clarification: $400k against my client WWPD.
…
8:23am – Gillies to Aghion:
…
How do you calculate $400?
We say $498,000 and your people did agree to withhold $500,000.
…
9:13am – Gillies to Aghion:
Proposed order.
Both the undertaking, which I am instructed to give, and the first order need to be tweaked.
Let me know.
9:47am – Aghion to Gillies:
Settled draft order attached.
It is subject to final instruction, but I anticipate it will be approved at my end.
9:51am – Gillies to Aghion:
Of course, am getting instructions, but see no issue.
And we will have to go to Court for me to give the undertaking.
9:59am – Aghion to Gillies:
Two changes only.
1.I have allowed for the filing of a counterclaim and defence to counterclaim.
2. I have made the orders by consent.
I have instructions to consent.
10:02am – Gillies to Aghion:
So do I.
Can you bring the orders to Court, I will give the undertaking …
10:03am – Aghion to Gillies:
We have a deal.
…
The form of paragraph 1 of the order as proposed by Mr Gillies at 9:13am on 5 February 2020 was:
The first defendant shall forthwith pay into the Trust Account of its solicitors Hall & Wilcox the sum of $500,000.00 until conclusion of this proceeding, further order or agreement with the Plaintiff and the First Defendant.
The form of paragraph 1 of the order as settled by Mr Aghion at 9:47am on 5 February 2020 was:
The first defendant shall pay into the trust account of its solicitors Hall & Wilcox the sum of $500,000.00 out of the total net proceeds of sale of the 24 lots in plan of subdivision of the properties at 85A-105 Ridge Road, Whittlesea, such sum to be held until further order or agreement with the plaintiff and the first defendant.
The form of paragraph 1 of the 2020 order as made by the Court by consent was very similar to the form settled by Mr Aghion, and was:
The first defendant pay into the trust account of its solicitors Hall & Wilcox the sum of $500,000 out of the total net proceeds of sale of the 24 lots in the plan of subdivision of the properties at 85A-105 Ridge Road, Whittlesea, such sum to be held until further order or agreement between the plaintiff and the first defendant.
The 2020 order omitted the reference to the ‘conclusion of the proceeding’ found in Mr Gillies’ draft. It does not evidence an offer by WWPD to create a security interest in favour of Mr and Mrs Mega over the fund to be created. In all versions, the plaintiff provided the usual undertaking as to damages.
If it were permissible to refer to the negotiations between counsel, I would observe that the content and course of negotiations between counsel before court on 5 February 2020 point to the conclusion that the 2020 order was a freezing order or was akin or analogous to such an order. I note the following:
(a)At 7:52am, Mr Gillies disputes the reference by his solicitors to a freezing order, observing that what was sought was an old fashioned injunction to prevent the dissipation of assets. He offers that WWPD’s solicitors can keep the money in their trust account;
(b)I interpolate that whether the order to be made is characterised as a freezing order or as an old fashioned injunction to prevent the dissipation of assets makes no difference. What is significant is that WWPD’s solicitors were to keep the fund in their trust account to prevent the dissipation of assets by WWPD and that Mr and Mrs Mega did not claim an interest in the fund;
(c)At 8:23am, Mr Gillies states (correctly) that ‘your people did agree to withhold $500,000’. Again no security or interest is asserted over the sum of $500,000 on behalf of Mr and Mrs Mega;
(d)At 9:47am, Mr Aghion settles the draft order removing any reference in the proposed consent order to the ‘conclusion of the proceeding’. As a result, the fund is to be held in WWPD’s solicitors’ trust account only until further order or agreement between Mr and Mrs Mega and WWPD. There is no reference to the trial of the proceedings or the making of final orders; and
(e)At 10:03am, Mr Gillies and Mr Aghion agree on a form of consent order in the terms proposed by Mr Aghion. This is very similar to the form of consent order made by the court.
Objection by Mr Jiang
Mr Jiang objected to the admission of evidence of negotiations on the basis of the parol evidence rule and the authorities that I set out above. He submitted that the email chain between Mr Gillies and Mr Aghion and two file notes prepared by Mr Ferraro of conversations he had with Mr Gillies were inadmissible for the purpose of construing the consent order.
I uphold the objection and find that the agreement between Mr and Mrs Mega and WWPD made on 5 February 2020 was in writing and is embodied in the 2020 order. The paragraphs of the 2020 order are the terms of the agreement that was made between Mr Gillies and Mr Aghion on that day. The agreement is clear and unambiguous. It is not appropriate in construing the 2020 order to have regard to the emails that ultimately gave rise to the consent order or to the file notes of conversations between Mr Ferraro and Mr Gillies.
Without prejudice privilege
Mr and Mrs Mega also objected to the production of the ‘without prejudice’ emails that passed between counsel on the morning of 5 February 2020. The objection is taken by Shayne Bedford, their solicitor, in an affidavit filed on 16 September 2022 and relies on the without prejudice privilege and s 131 of the Evidence Act 2008 (Vic) (‘Evidence Act’).
It is not necessary for me to decide this objection as I have already excluded the same material on the basis of the objection taken by Mr Jiang.
Objection to paragraph 9 of Mr Ferraro’s affidavit
Despite the objection taken to evidence of the settlement negotiations between Mr Gillies and Mr Aghion, Mr and Mrs Mega did seek to rely on paragraph 9 of Mr Ferraro’s affidavit filed 14 September 2022 which refers to the same settlement negotiations between counsel on 2 July 2021, and is in these terms:
As he had indicated in our earlier telephone conversation, Mr Gillies phoned me back. During that conversation, I recall Mr Gillies saying to me words to the effect that he and Mr Aghion had been negotiating and that agreement had been reached, without the need for the summons to be determined by the court, and that the agreement reached by him with Mr Aghion was that the sum of $500,000.00 was to be held in Hall & Wilcox’s trust account to abide the outcome of the proceeding. I recall that Mr Gillies also told me words to the effect that if the Megas were successful, that meant that they got the money and if not, it was to be paid back to WWPD.
Objection was taken by the liquidators and Mr Jiang to the second and third sentences. The objections taken to the second sentence include that it was hearsay (or double hearsay) for the purposes of s 59(1) of the Evidence Act and conclusory in form. It did not set out the statements said to have been made by Mr Aghion or Mr Gillies which were said to constitute the agreement. The third sentence was no more than comment by Mr Gillies to Mr Ferraro not attributed to Mr Aghion.
In response, the plaintiffs submitted that the hearing was the hearing of an interlocutory proceeding. Section 75 of the Evidence Act applied to render the second sentence admissible.
I uphold the objection to the second and third sentences for the following reasons:
(a) They are nothing more than an attempt to introduce parol evidence of conversations through an affidavit with the object of seeking to change or affect the construction of the written agreement embodied in the 2020 order. The same objections apply to paragraph 9 as apply to the admission into evidence of the emails which they purport to describe;
(b) Quite apart from its hearsay character, the second sentence is conclusory and does not refer to any of the emails (or conversations if there were any) between counsel which gave rise to the agreement. Paragraph 9 does not purport to set out the words used in any email or statement by Mr Aghion which gave rise to the agreement or their substance. No reference is made to any specific email or conversation forming part of the agreement reached between Mr Aghion and Mr Gillies. The third sentence is plainly inadmissible as mere advice or comment made by Mr Gillies to Mr Ferraro. It is not attributed to Mr Aghion. It is in the same position as the two file notes prepared by Mr Ferraro which I have already excluded;
(c) It would be unfair and prejudicial to the liquidators and Mr Jiang if paragraph 9 were admitted into evidence without the chain of emails which it purports to describe; and
(d) If the emails and paragraph 9 were admitted into evidence, the weight that could be attributed to paragraph 9 would be very slight. The emails provide a step by step account of the negotiations between counsel before court commenced on 5 February 2020. It is plain that the draft order submitted by Mr Gillies to Mr Aghion at 9:13am did provide for the sum of $500,000 to be held ‘until the conclusion of the proceeding, further order or agreement with the Plaintiff and the First Defendant’. However, the reference to the ‘conclusion of this proceeding’ was deleted by Mr Aghion in his 9:47am version and did not subsequently reappear. The words are not in the 2020 order.
I reject the reliance by Mr and Mrs Mega on s 75 of the Evidence Act. Even if this application is treated as interlocutory, it can only overcome the objection as to hearsay and not the other objections which I have upheld.
Paragraph 9 of Mr Ferraro’s affidavit must be excluded.
Deferment of decision until trial
There is one further issue that was mentioned, but not strongly pressed. The issue was whether a decision concerning the funds in court should be postponed until the trial of the proceeding.
In my view, this is not appropriate for these reasons:
(a)The facts concerning the 2020 and 2021 orders, and the resulting payment into court, are known now and are before the Court. There is nothing more that will be known as to the facts concerning the orders and payment into court when the trial is conducted that is not known now;
(b)The Court has heard submissions from counsel and is in a position to decide the issue;
(c)The liquidators are without funds and need to know where they stand in order to be able to make decisions about the future conduct of the proceeding; and
(d)The trial will be conducted in accordance with the pleadings. They do not embrace the issues raised by the liquidators’ summons.
Conclusion
For the reasons I have given, I find that the funds in court were paid into court as an alternative to a freezing order being made in respect of WWPD’s assets or are analogous or akin to such a payment. I accept the characterisation of the payment into court as contended by the liquidators and Mr Jiang.
PPSA issue
I conclude that no charge or security interest was created which was required to be registered under the PPSA. Mr and Mrs Mega do not have a security interest in the fund in court, as defined by s 12 of the PPSA, which was required to be registered.
Orders
I will order that the sum of $500,000 paid into court by WWPD and accrued interest be paid to the liquidators of WWPD. Paragraph 2 of the 2021 order will be discharged.
SCHEDULE OF PARTIES
| VLADO MEGA | First Plaintiff |
| ZUSKA MEGA | Second Plaintiff |
| - and - | |
| WW PROPERTY DEVELOPMENT PTY LTD (IN LIQUIDATION) (ACN 162 433 829) | First Defendant |
| KUANG PING WANG | Second Defendant |
| AND | |
| WW PROPERTY DEVELOPMENT PTY LTD (IN LIQUIDATION) (ACN 162 433 829) | First Plaintiff by Counterclaim |
| BO JIANG | Second Plaintiff by Counterclaim |
| - and - | |
| VLADO MEGA | First Defendant by Counterclaim |
| ZUSKA MEGA | Second Defendant by Counterclaim |
| AND | |
| FERRARO & COMPANY PTY LTD (ACN 007 331 919) | First Third Party |
| MORAY & AGNEW (A FIRM) | Second Third Party |
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