Re S&D International Pty Ltd (in liq) (No 6)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERICAL COURT

CORPORATIONS LIST

No. 7149 of 2005

DINESH MALHOTRA

Plaintiff

SHEELA TIWARI and PRADEEP TIWARI

PETER ROBERT VINCE and STIRLING LINDLEY HORNE (in their capacity as Administrators and Liquidators of the company)

DAVID MOND

Firstnamed Defendants

Secondnamed
Defendants

Thirdnamed Defendant

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No. 7263 of 2005

IN THE MATTER OF S&D INTERNATIONAL
PTY LTD (ACN 075 030 447) (in liquidation)
(as trustee for the S&D INTERNATIONAL UNIT TRUST)

WHEREIN:

STIRLING LINDSEY HORNE AND PETER ROBERT VINCE (as joint and several liquidators of S&D INTERNATIONAL PTY LTD (ACN 075 030 447) (In Liquidation) (as Trustee for the S&D INTERNATIONAL UNIT TRUST)

Plaintiff

JUDGE:	Robson J
WHERE HELD:	Melbourne
DATE OF HEARING:	7 March 2011
DATE OF JUDGMENT:	4 April 2011
CASE MAY BE CITED AS:	Re S&D International Pty Ltd (in liq) No 6
MEDIUM NEUTRAL CITATION:	[2011] VSC 119

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PRACTICE AND PROCEDURE – appeal from Associate Justice - application for a stay of execution of costs orders – debtor bringing further proceedings raising issues connected with proceedings in which costs orders made – relevant considerations for a stay - exceptional circumstances established – stay of execution granted on terms – Rules 1.14(b) and 66.16 of the Supreme Court (General Civil Procedure) Rules 2005

PRACTICE AND PROCEDURE – application to extend time to appeal under Rule 77(6) – one appeal in excess of three years out of time – leave refused – other appeal less than two weeks out of time – leave granted – Rule 77(6)

PRACTICE AND PROCEDURE – application under Rule 66.16 where previous application for a stay of execution made and refused – jurisdiction of the Court to grant stay – whether jurisdiction exhausted by prior application – held jurisdiction not exhausted – stay granted – Rule 66.16

PRACTICE AND PROCEDURE – application to file and serve a charging summons – application granted on terms – Rules 1.14(b) and 73 of the Supreme Court (General Civil Procedure) Rules 2005

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APPEARANCES:	Counsel	Solicitors
For Dinesh Malhotra	Mr N P Jones	RRR Lawyers
No appearance for the firstnamed defendants in matter number 7149 of 2005
For secondnamed defendants in matter number 7149 2005/Plaintiffs in matter number 7263 of 2005	Mr J Tomlinson	Madgwicks Lawyers
No appearance for the thirdnamed defendants in matter number 7149 of 2005

HIS HONOUR:

INTRODUCTION AND SUMMARY

Before me are two appeals, both dated 10 November 2010, by Mr Malhotra against an order of Daly AsJ made on 19 October 2010 in proceeding 7149 of 2005[1] and an order of Master Wood made 13 June 2007 in proceeding 7263 of 2005.[2] In each matter, an application by Mr Malhotra for a stay of execution on a costs order in favour of Messrs Vince and Horne was refused. In both appeals Mr Malhotra also seeks leave to make the appeal out of time.
[1]Proceeding 7149 of 2005 (7149), court file [73].
[2]Proceeding 7263 of 2005 (7263), court file [37].

I also have before me, an application by Messrs Vince and Horne in both 7263[3] and 7149,[4] for leave pursuant to Rule 73.03(1) of the Supreme Court (General Civil Procedure) Rules 2005 to file and serve a charging summons in accordance with Rule 73.11 in respect of Mr Malhotra’s interest in any funds in court.
[3]Court file 7263 [43].
[4]Court file 7149 [79].

For the following reasons:

(a) in 7263, I refuse Mr Malhotra leave to appeal out of time and dismiss the notice of appeal of 10 November 2010;

(b) in 7263, under Rule 66.16 I order a stay of execution of the judgment for costs until the hearing and determination of proceeding 4624 of 2008 or further order on condition that Mr Malhotra give security over his beneficial interest in the funds in court to secure the costs order, interest and costs relating thereto;

(c) in 7263, I grant leave to Messrs Vince and Horne to file and serve a charging summons as sought on terms that any application that moneys be paid to Messrs Vince and Horne under the charge be stayed until the hearing and determination of proceeding 4624 of 2008 or further order;

(d) in 7149, I allow Mr Malhotra leave to appeal out of time;

(e) in 7149, I allow the appeal against the orders of Daly AsJ of 19 October 2010 and set the orders aside;

(f) in 7149, under Rule 66.16 I order a stay of execution of the judgment for costs until the hearing and determination of proceeding 4624 of 2008 or further order on condition that Mr Malhotra give security over his beneficial interest in the funds in court to secure the costs order, interest and costs relating thereto;

(g) in 7149, I grant leave to Messrs Vince and Horne to file and serve a charging summons as sought on condition that any application that moneys be paid to Messrs Vince and Horne under the charge be stayed until the hearing and determination of proceeding 4624 of 2008 or further order.

(h) I shall hear the parties on costs save that I reserve the costs of the application for a charging summons.

BACKGROUND

The appeals involve two proceedings No 7149 of 2005 and No 7263 of 2005 that relate to the administration and winding up by Messrs Vince and Horne of S&D International Pty Ltd (in liquidation) (S&D).

The proceedings derive from a dispute between Mr Malhotra and his former wife Sheela Tiwari over the ownership and conduct of an Indian grocery business conducted at 580 Barkly Street West Footscray under the name “Bharat Traders International.” Mr Malhotra claimed he owned half but Mrs Tiwari claimed she owned the lot. This dispute has led to a multiplicity of litigation. I have already dealt with the dispute and its ramifications in Re S&D International Pty Ltd[5]; Re S&D International Pty Ltd (No 2)[6]; Re S&D International Pty Ltd (No 4)[7]; and Re S&D International Pty Ltd (No 5)[8]. Reference can also be made to the judgment of Balmford J in Malhotra v Tiwari;[9] the judgment of Mandie J in Re S&D International Pty Ltd (in liquidation); Malhotra v Tiwari[10] and the Court of Appeal judgment in Malhotra v Tiwari.[11] The causes and ramifications of the falling out can be gleaned from these judgments.
[5][2009] VSC 235.
[6][2010] VSC 388.
[7][2010] VSC 388.
[8][2011] VSC 30.
[9][2005] VSC 25.
[10][2005] VSC 496.
[11][2007] VSCA 101.

HISTORY OF RELEVANT EVENTS

After Mr Malhotra and Sheela Tiwari fell out in April of 2002, on 19 August 2002 Mr Malhotra instituted proceedings in no 6869 of 2002 against Mrs Tiwari and S&D seeking declarations that he was, inter alia, the joint beneficial owner of the shop and dwelling at 580 Barkly St West Footscray, and a vacant bock of residential land at 45 Boronia Drive, Hillside (the Footscray and Hillside properties). The properties were held by S&D as trustee.

On 16 February 2005 after a lengthy and bitter trial, Balmford J made orders in Mr Malhotra’s favour in the proceedings no 6869 of 2002.[12] As witnesses, Balmford J believed Mr Malhotra and disbelieved Mrs Tiwari. She ordered and declared, inter alia, that Mr Malhotra was an equal and joint beneficial owner of the business and the properties listed above. On 18 March 2005, Mrs Tiwari appealed against the orders of Balmford J.
[12]Affidavit of Malhotra of 21 September 2010 in 7149 [9].

On 22 March 2005, in 6869 of 2002 Mr Malhotra took out a summons seeking injunctions restraining Mrs Tiwari and others “from interfering with the Plaintiff’s equal right to the use, occupation and enjoyment and quiet possession of” the Footscray property and seeking that Mrs Tiwari be dealt with for contempt of court.[13]
[13]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [36].

On 23 March 2005, Mrs Tiwari issued a summons seeking a stay of Balmford J’s orders and injunctions to restrain Mr Malhotra from attempting possession of the Footscray property.[14]
[14]Affidavit of Malhotra of 21 September 2010 in 7149 [14].

On 24 March 2005, Bongiorno J ordered that there be a stay of execution of the order of Balmford J pending the hearing and determination of Mrs Tiwari’s summons.[15]
[15]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [40].

On 11 April 2005, Hansen J extended the stay granted by Bongiorno J pending the hearing and determination of an application by the defendants to the Court of Appeal, which application was made returnable on 22 April 2005.[16]
[16]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [43].

On 22 April 2005, the Court of Appeal made certain orders as to a stay and an expedited appeal. Under ‘other matters’ their orders recorded:

“OTHER MATTERS:
(1)(a) Upon the applicants and the respondent agreeing to appoint Peter Vince and Sterling Horne as joint administrators (‘the joint administrators’) of the second applicant (‘the company’); and
(b) Upon the company by its counsel undertaking to deliver to the joint administrators and to the respondent a resolution of the company appointing the joint administrators as joint administrators of the company pursuant to s 436A(1) of the Corporations Act 2001 by 29 April 2005; and
(2) Upon the respondent by his counsel undertaking that the respondent whether by its servants, agents or otherwise howsoever will not, until the appointment of the joint administrators:
(a) take any step without the consent of the applicants to enter upon the land at 580 Barkly St West Footscray in Victoria; and
(b) interfere directly or indirectly with the operation and/ or management of the business known as Bharat Traders International; and

(3) Upon the applicants by their counsel undertaking to execute transfer of 50 per cent of the issued shares in the company and a transfer of 50 per cent of the issued units in the S & D International Unit Trust (‘the trust’) in favour of the respondent and deliver the transfer of shares and the transfer of units to the respondents solicitors by 29 April 2005, the respondent by his counsel undertakes not to charge or dispose of the shares in the company and the units in the trust until the determination of the appeal or further order; and
(4) Upon the applicants acknowledging that the respondent shall be deemed to be a registered unit holder of 50 per cent of the issued units in the Trust upon delivery to him, pursuant to carrying out paragraph 3 above, of the transfer of such units to the respondent notwithstanding any inability to enter the name of the respondent in the unit-holders register of the Trust.”[17]

[17]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [46].

On 29 April 2005, the directors of S&D (Sheela Tiwari and her son Pradeep Tiwari) resolved “[t]hat in the opinion of the Directors the Company is likely to become insolvent at some time in the future” and further resolved that the Company appoint joint administrators.

On the same date, S&D appointed Messrs Vince and Horne as joint administrators pursuant to s 436A of the Corporations Act 2001 and Messrs Vince and Horne accepted that appointment.[18]
[18]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [59].

On 24 May 2005, the Court of Appeal fixed the date for hearing of the appeal in the first Supreme Court proceeding 6869 of 2002 for 28 July 2005.[19]
[19]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [101].

On 26 May 2005, Messrs Vince and Horne as administrators made their first report to the creditors of S&D.[20]
[20]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [84].

On 7 June 2005, Messrs Vince and Horne as administrators made their second report to creditors of S&D.[21]
[21]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [112].

On 14 June 2005, in the first Supreme Court proceeding 6869 of 2002, Mr Malhotra sought injunctions, pending the appeal, against the defendants and also against the administrators. Mr Malhotra sought to restrain Sheela Tiwari from dealing with any of her property, including her units in the Trust, her units in the Tiwari Family Trust and the Point Cook property. Mr Malhotra also sought to restrain Sheela Tiwari from interfering with his attempt to refinance the Company’s facilities with the CBA.

As against the administrators, Mr Malhotra sought, inter alia, the following:

(a) an injunction restraining them from disposing of the Hillside property, the Footscray property and the business;
(b) an injunction restraining them from convening a meeting of creditors on 16 June 2005 other than for the purpose of an adjournment of the meeting until after the hearing and determination of the defendant’s appeal;
(c) an injunction restraining them from moving resolutions either for the execution of a DOCA or that the Company be wound up;
(d) an injunction restraining them from interfering with his “right as an equal Unit Holder of the [Trust] to the immediate possession and enjoyment of” the Footscray property.

By the summons dated 14 June 2005, Mr Malhotra also sought, pursuant to s 447A(2) of the Act, that the administration of S&D should end because S&D was solvent, the conduct of the administration was uneconomical and prejudicial to the interests of creditors and each unit holder by reason of the “exorbitant costs and expenses of the process of administration”, and because the provisions of Part 5.3A of the Act were being abused by Sheela Tiwari for the ulterior and improper purpose of attempting to deny him the fruits of his judgment.[22]
[22]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [124]-[125].

On 15 June 2005, Mr Malhotra’s application came before the Practice Court. The administrators were represented by Mr Randall of counsel. On that occasion, Smith J ordered, upon the usual undertaking as to damages and upon a further undertaking by Mr Malhotra to pay $20,000 into the administrators’ trust account, that, until further order:

(a) Sheela Tiwari be restrained from dealing with or charging any of her property including her units in the Trust, her units in the Tiwari Family Trust and the Point Cook property;
(b) Sheela Tiwari be restrained from interfering with the plaintiff’s attempt to refinance the facilities maintained by the Company with the CBA;
(c) Pradeep Tiwari be restrained from dealing with or charging any of his property including the Hoppers Crossing property;
(d) The administrators (subject to payment of the said sum of $20,000) be restrained from disposing of the Hillside property, the Footscray property and the business and from holding a meeting of creditors on 16 June 2005.

Smith J ordered (subject to payment of the said sum of $20,000) that the time for holding a second meeting of creditors be extended to 29 June 2005 and further ordered, inter alia, that the summons be adjourned to 30 June 2005. The plaintiff, Mr Malhotra, paid the required sum to the administrators.[23]
[23]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [128].

On 21 June 2005, Mrs Tiwari withdrew her appeal against the orders of Balmford J.

On 29 June 2005, S&D went into voluntary liquidation with Messrs Vince and Horne being appointed liquidators.[24]
[24]Reasons for Judgement Malhotra v Tiwari [2007] VSCA 101 at [2].

On 30 June 2005, the adjourned summons (dated 14 June 2005) in the first Supreme Court proceeding 6869 of 2002 came before the Practice Court. The liquidators were represented by Mr Randall of counsel. Upon the usual undertaking as to damages and upon a further undertaking by the plaintiff, Mr Malhotra, to file a proceeding in the Corporations List seeking a declaration that the creditors’ resolution for winding up be declared void and/or that the winding up of the Company be terminated, Cummins J continued until further order the injunctions granted by Smith J in sub-paragraphs (a), (b) and (c) thereof. The injunction restraining the liquidators from selling the business was not continued. Cummins J further ordered that the plaintiff’s summons be adjourned for hearing by the Judge in the Corporations List as soon as was reasonably practicable. The plaintiff’s summons thus came before the Court when hearing the second Supreme Court proceedings before Mandie J in 7149. Mandie J described it as ancillary to the issues raised in the second Supreme Court proceeding 7149.[25]
[25]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [151].

On 12 July 2005, Mr Malhotra, pursuant to the undertaking he had given on 30 June 2005, commenced proceedings in 7149 against, inter alia, Messrs Vince and Horne in their capacity as administrators and liquidators of S&D (in liquidation) seeking an end to the liquidation on the ground that S&D was solvent, and making various claims that Messrs Vince and Horne had been negligent in conducting the administration and liquidation of S&D,[26] including that they had failed to protect the assets of S&D from the Tiwari family and were biased in favour of the Tiwari family in the conduct of the administration and liquidation.
[26]Affidavit of Alexandra Osborn of 21 February 2011 in 7149 [6].

Mandie J described the proceeding in 7149 as follows:

The proceeding was commenced by originating process filed on 12 July 2005, pursuant to which the plaintiff seeks orders, inter alia, that the liquidation of the Company be terminated. Of central importance in the proceeding are two principal contentions of the plaintiff. The first is that the Company is solvent and should not be wound up. The second and related contention is that Messrs Vince and Horne, both as administrators and as liquidators, have misconducted themselves to such an extent that their remuneration should be disallowed and their right to an indemnity for the trading losses of the Company denied with the result that what would otherwise be a substantial liability of the Company would be eliminated.[27]

[27]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [5].

On 19 July 2005, Messrs Vince and Horne as joint and several liquidators of S&D (in liquidation) sought directions, inter alia, as to whether they were entitled to dispose of the business and assets of S&D (in liquidation) in proceeding 7263.[28]
[28]Court file 7163 [1]; Re S&D International Pty Ltd (in liq) [2005] VSC 496 [161]

On 29 July 2005, Mandie J made costs orders against Mr Malhotra on an interlocutory application brought by Mr Malhotra in 7149.[29]
[29]Affidavit of Alexandra Osborn of 21 February 2011 in 7149 [7]; exhibit ALO-1 to said affidavit

On 10 August 2005, in proceeding 7263, Mandie J ordered that Messrs Vince and Horne were not to sell the business pending the trial and determination of 7149 or until further order. He ordered the cost of that proceeding be reserved pending the trial and determination of 7149.[30]
[30]Court file 7263 [11].

On 18 August 2005, in 7263 the liquidators sought directions as to whether they were entitled to grant a licence to operate the business to either Mr Malhotra or to a member of the Tiwari family and sought the approval of such a licence agreement pursuant to s 477(2B) of the Corporations Act 2001 in 7263.

On 26 September 2005, Mandie J commenced to hear 7149.[31]
[31]Re S&D International Pty Ltd (in liquidation) [2005] VSC 496.

On 2 November 2005, Mandie J reserved his decision in 7149.[32]
[32]Ibid.

On 2 December 2005, in 7263 Whelan J heard argument on the liquidators’ applications for directions concerning the granting of the licence.

On 6 December 2005, in 7263 Whelan J delivered judgment and made orders that in substance the liquidators were justified in granting a licence to Mr Markandey Tiwari.[33] Mr Malhotra was not a party to the proceedings but appeared and opposed the directions sought.
[33]Re S&D International Pty Ltd (in liquidation) [2005] VSC 504; Exhibit ALO-9 to the affidavit of Alexandra Osborn of 21 February 2011 in 7149.

On 22 December 2005, Mr Malhotra lost his application to terminate the liquidation of S&D in 7149.[34]
[34]Re S&D International Pty Ltd (in liquidation) [2005] VSC 496.

On 17 February 2006, Mandie J heard argument as to costs in 7149 and 7263.[35]
[35]Affidavit of Alexandra Osborn of 21 February 2011 in 7149 [19].

On 24 February 2006, Mandie J made orders on costs in 7149 and ordered that Mr Malhotra should pay the costs (including the reserved costs) of the proceedings of each of the defendants to be calculated and taxed on the following bases, in the case of “the second defendants (the liquidators) costs (including reserved costs) such costs are to be taxed on a party – party and the total of the taxed cost to be increased by 10%.”[36]
[36]Exhibit ALO 2 to the affidavit of Alexandra Leah Osborn of 21 February 2011; see reasons for judgment on costs [2006] VSC 51.

Also on 24 February 2006, Mandie J made orders on costs in 7263 and ordered Mr Malhotra pay the costs (including reserved costs) of Messrs Vince and Horne as joint and several liquidators for S&D (in liquidation) to be taxed and ordered that the costs of the plaintiffs (including reserved costs) of and incidental to the proceeding otherwise be costs in the winding up.[37]
[37]Court file 7263, [32]; although the order states it was made by Hargrave J the reasons of Mandie J attached to the order of 24 February 2007 in 7149 make clear that he made the order: see exhibit ALO-2 to affidavit of Alexandra Osborn of 21 February 2011 in 7149; see reasons for judgment on costs [2006] VSC 51.

In June 2006, S&D (in liquidation) applied to this Court to remove caveats lodged by Mr Malhotra claiming his joint beneficial interest in the Footscray and Hillside properties.

On 3 August 2006, Gillard J gave leave to Mr Malhotra to amend the caveats and otherwise dismissed the proceedings and ordered S&D (in liquidation) to pay his costs including reserved costs.[38]
[38]Exhibit DM5 to the affidavit of Malhotra of 21 September 2010 in 7149.

On 18 August 2006, Messrs Vince and Horne as joint and several liquidators of S&D (in liquidation) issued a summons for taxation.[39]
[39]Court file 7263, [33]; see reference to how obtained.

On 9 April 2007, the Court of Appeal heard the appeal of Mr Malhotra against the orders of Mandie J in 7149.

On 23 May 2007, the Court of Appeal allowed the appeal in part.[40] As amplified below, the Court of Appeal considered that many of Mr Malhotra’s complaints concerning the conduct of the administrators and liquidators justified investigation and to enable that to be done varied the order of the trial judge by ordering that Messrs Vince and Horne be removed as liquidators of S&D and another liquidator be appointed. Otherwise the appeal was dismissed.
[40]Malhotra v Tiwari [2007] VSCA 101.

The Court withheld announcing orders so as to give the parties the opportunity to make submissions as to the proper form of the order that would give effect to the Court’s decision that the liquidators be replaced and costs. When the matter returned to Court on 23 May 2007, Mr Malhotra submitted that the hearing on the question of costs be adjourned.[41] The Court observed:

Understandably, he [Malhotra] was concerned that if costs were ordered against him the amount would be very significant and this would have a detrimental effect on him. Later, he said that he also wanted to argue that the costs ordered below should be set aside.

[41]Malhotra v Tiwari (No 2) [2007] VSCA 114.

Messrs Vince and Horne pressed for the payment of their costs on the basis that they had succeeded on almost all issues. This submission was not accepted. The Court said:

[5] It should be emphasised, however, that our principal reason for ordering the removal of the liquidators, as we have said in our reasons, was that we formed the view that there were matters pertaining to the role of the Administrators and the conduct by the first respondents in respect of the company that might be investigated by a liquidator and, plainly, this could not be properly done by the second respondents. Neither the trial judge nor this Court has concluded that the conduct of the second respondents as Administrators was necessarily unimpeachable. In that regard, we point particularly to paragraphs [63] to [68] and [71] of our reasons. In our view, it is not correct to characterise, as Mr Randall would have it, that the outcome of this case was one where the second respondents had an "overwhelming" victory. We consider that each party has succeeded in its claim and that the claims were necessarily interrelated such that, in broad terms, it would be just that each party bear its own costs of the appeal.
[6] We also cannot accept, however, Mr Malhotra’s claim that a like order should be made in relation to the costs of the trial. He asserted that his complaints about the behaviour of the second respondents have been accepted by the Court and, therefore, they should not have the costs below. But as has been noted, the lengthy and detailed attack by the appellant on his Honour’s findings as to the entitlement of the second respondents’ fees has failed in almost every respect below and we found no relevant error in his Honours comprehensive reasons. In the circumstances, we consider that it would be inappropriate to disturb the costs below.[42]

[42]Ibid [5]-[6].

On 23 May 2007, the Court ordered there be no orders as to costs of the appeal or the trial below.[43]
[43]Exhibit DM6 to the affidavit of Malhotra of 21 September 2010 in 7149.

On 5 June 2007, Mr Malhotra wrote to Messrs Vince and Horne recognising the costs orders against himself and asserting claims that he had for damages. He offered to sit down with them and explore an overall resolution “for all or us.”[44]
[44]Exhibit DM4 to the affidavit of Malhotra of 21 September 2010 in 7149.

On 8 June 2007, Master Wood in 7263 taxed the costs and ordered that the costs of the plaintiff (Messrs Horne and Vince (as joint and several liquidators of S&D (in liquidation) “are taxed an allowed in the sum of $35,717.35 to be paid by Dinesh Malhotra.”[45] Master Wood dismissed an application by Mr Malhotra for a stay of execution of the costs order.
[45]Court file 7263, [33].

On 19 June 2007, Mr Handberg consented to be appointed and to act as liquidator of S&D (in liquidation).[46]
[46]Court file 7149, [65].

In December 2007, Madgwicks were instructed by Messrs Vince and Horne to cause a bankruptcy notice to be served on Mr Malhotra in respect of the costs judgment debts in 7149 and 7263.[47]
[47]Affidavit of Alexandra Osborn of 21 February 2011 in 7149 [12].

On 3 January 2008, Messrs Vince and Horne served a bankruptcy notice on Mr Malhotra.[48]
[48]See letter of Madgwicks to Prakas Raniga RRR Lawyers of 4 June 2009 being exhibit ALO-4 to the affidavit of Alexandra Osborn of 21 February 2011 in 7149.

On 23 February 2008, Mr Malhotra commenced proceedings against Messrs Vince and Horne personally in no 4624 of 2008 alleging that Messrs Vince and Horne owed a duty of care and a fiduciary duty to Mr Malhotra in their administration and subsequent liquidation of S&D. He alleges they were negligent and seeks damages.[49]
[49]Court file 4624, [1].

On 18 April 2008, in 4624 Messrs Vince and Horne issued a summons to strike out Mr Malhotra’s claim.[50]
[50]Court file 4624, [6].

On 24 April 2008, Messrs Vince and Horne filed a creditor’s petition in the Federal Magistrate’s Court against Mr Malhotra in proceeding no MLG328 of 2008.[51]
[51]Exhibit ALO-4 to the affidavit of Alexandra Osborn of 21 February 2011 in 7149.

On 13 June 2008, in 7149, Master Wood conducted a taxation of costs pursuant to the orders of Mandie J on 29 July 2005 (in relation to an interlocutory matter) and 24 February 2006 and ordered that the costs of Messrs Vince and Horne be taxed and allowed in the sum of $180,250.94 and be paid by Mr Malhotra.[52]
[52]Affidavit of Alexandra Osborn of 21 February 2011 in 7149 [11].

On 22 July 2008, in 4624 the summons of Messrs Vince and Horne to strike out Mr Malhotra’s statement of claim was dismissed.[53] The proceeding was set down for trial in September 2011.
[53]Court file 4624, [19].

On 31 October 2008, in 4624 Messrs Vince and Horne applied by summons for an order that Mr Malhotra’s claim be stayed and for security for costs.[54]
[54]Court file 4624, [24].

On 20 February 2009, in 4264 the summons of Messrs Vince and Horne of 31 October 2009, was dismissed by Associate Justice Daly with costs.[55]
[55]Court file 4624, [32].

On 5 June 2009, the creditor’s petition of Messrs Vince and Horne in proceeding MLG328 of 2008 was dismissed with no order as to costs.[56] In MLG73/2008 the Court noted that Messrs Vince and Horne had withdrawn the bankruptcy notice VN1865/2007.[57]
[56]Exhibit ALO-4 to the affidavit of Alexandra Osborn of 21 February 2011 in 7149; affidavit of Malhotra of 21 September 2010 in 7149 [42]; exhibit DM-13 to the affidavit of Malhotra of 22 November 2010 in 7149.
[57]Exhibit DM-13 to the affidavit of Malhotra of 22 November 2010 in 7149.

On 27 August 2010, in 7149, a warrant of seizure and sale was issued at the request of Messrs Vince and Horne to the sheriff in respect of the order of 13 June 2007 to levy the property of Mr Malhotra in execution of the costs of $180,250.94, interest of $63,491.95 and costs of $950 and pay the amount so levied “other than your fees to Peter Robert Vince and Stirling Lindley Horne (in their capacity as administrators and liquidators of the company)”.[58]
[58]Court file 7149, [66].

On 30 August 2010, in 7263, a warrant of seizure and sale was issued at the request of Messrs Vince and Horne to the sheriff in respect of the order of 8 June 2007 to levy the property of Mr Malhotra in execution of the costs of $35,717.35 and interest and pay the amount so levied “other than your fees to Peter Robert Vince and Stirling Lindley Horne (in their capacity as administrators and liquidators of the company)”.[59]
[59]Exhibit ALO-12 to the affidavit of Alexandra Leah Osborn of 21 February 2011.

On 10 September 2010, I delivered judgment in 7807 of 2008 wherein Geoffrey Neils Handberg as liquidator of S&D (in liquidation) and S&D (in liquidation) were plaintiffs and Mr Malhotra was the third defendant and where I resolved in principle claims by Mr Malhotra and others to the proceeds of the sale of the Footscray and Hillside properties.[60]
[60]Re S&D International Pty Ltd (No 4) [2010] VSC 388.

On 22 September 2010 in 7149, Mr Malhotra issued a summons seeking a stay of the costs orders in 7149 until the hearing and determination of his proceeding against the defendants in 4624.[61] Mr Malhotra relied on his affidavit of 22 September 2010.[62]
[61]Court file 7149, [68].
[62]Court file 7149, [67].

On 13 October 2010, Messrs Vince and Horne filed and served the affidavit of Alexandra Osborn of 13 October 2010.[63] Daly AsJ heard Mr Malhotra’s summons of 22 September 2010. Mr Malhotra appeared in person.
[63]Court file 7149, [69].

On 19 October 2010, Daly AsJ in 7149 dismissed Mr Malhotra’s application for a stay. Mr Malhotra appeared in person.

Daly AsJ noted under other matters that the application for a stay of the costs orders by way of summons dated 22 September 2010 be treated as an application under Rule 66.16. She noted that any application for a stay of the costs orders should have be made to the Court of Appeal.

She further noted and ordered as follows:

2.      In any event, the matters which are raised in S CI 2008 4624 are matters which were before Justice Mandie and the Court of Appeal in this proceeding, and, notwithstanding the findings that further investigation of the liquidators’ conduct is warranted, were presumably taken into account when making an order for costs. The findings of Justice Robson in S CI 2008 07807 (see Re: S & D International No. 4 [2010] VSC 388) do not raise any new matters concerning the liquidators which would warrant orders being made under Rule 66.16.
3.      Given if successful, the claims made by the Plaintiff would not give rise to a set-off against the judgment in favour of the liquidators in this proceeding. Further, as SCI 2008 04624 has not yet been set down for trial, any stay of enforcement of judgment would unduly prejudice the liquidators, the costs orders having been made some three years ago (see Reading Entertainment Australia Pty Ltd v Burstone No. 2 [2005] VSC 137). Despite being the registered proprietor of real property, the Plaintiff has not offered to provide security for those costs in a manner which might alleviate this prejudice.
4.      Finally, the evidence does not satisfactorily explain how enforcement of the judgment would stultify the Plaintiff’s claim in S CI 2008 04624. There is no evidence regarding the Plaintiff’s equity in his home, or regarding his ability to raise loan funds to satisfy part or all of the judgment.
THE COURT ORDERS THAT:
1.      The Plaintiff’s summons filed 22 September 2010 is dismissed.
2.The Second Defendant’s costs of the Plaintiff’s summons be paid by the Plaintiff, to be taxed in default of agreement.

On 26 October 2010, Mr Malhotra, by email to Mr Tomlinson counsel for Messrs Vince and Horne, requested a copy of an outline of argument that Mr Tomlinson had handed up to Daly AsJ and Mr Tomlinson sent a copy by email to Mr Malhotra on 27 October 2010.[64]
[64]Affidavit of Alexandra Osborn of 21 February 2011 in 7149 [16].

On 3 November 2010, in 7149, the order of Daly AsJ was authenticated.[65]
[65]Affidavit of Alexandra Osborn of 21 February 2011 in 7149 [15].

On 10 November 2010, in 7263, Mr Malhotra filed a notice of appeal from the order of Master Wood made 13 June 2007 and sought leave to appeal out of time.[66] Also on that day, in 7149 Mr Malhotra filed a notice of appeal from the order of Daly AsJ made on 19 October 2010 and sought leave to appeal out of time.[67]
[66]Court file 7263, [37].
[67]Court file 7149, [73].

On 15 November 2010, in 7149 and 7263 Alexandra Osborn, the solicitor for Messrs Vince and Horne, received the Notices of Appeal filed on behalf of Mr Malhotra by his solicitors RRR Lawyers (Rossi, Ryan and Raniga).[68]
[68]Affidavit of Alexandra Osborn of 21 February 2011 in 7149 [17]; and exhibit ALO-13 thereto.

The appeal in 7149 came on before Osborn J on 23 November 2010. He referred the notice of appeal filed 10 November 2010 (as well as the incidental application to appeal out of time) for determination by me in conjunction with 7807 of 2008.[69] The appeal in 7263 also came on before Osborn J on 23 November 2010. The notice of appeal was subsequently amended by Osborn J on 29 November 2010. These two appeals are the subject of the current proceeding. He referred the notice of appeal filed 10 November 2010 (as well as the incidental application to appeal out of time) for determination by me in conjunction with 7807 of 2008.[70] Osborn J ordered that the first paragraph of the notice of appeal be amended to refer to the order of Master Wood of 8 June 2007 insofar as that order refused a stay and to substitute the words “Dinesh Malhotra appeals” for the words “the plaintiff appeals.”
[69]Court file 7149, [77].
[70]Court file 7263, [40].

On 14 February 2011, in 7807 of 2008 I made orders consequent upon the judgment I had delivered on 10 September 2010 with reasons.[71] Under those orders I held that subject to certain declarations of priority Mr Malhotra was beneficially entitled to one half of a fund in court of over $1,000,000. Mr Malhotra’s interest is subject to certain cost orders in favour of the liquidator and S&D (in liquidation) as the trustee of the moneys in court.
[71]Re S&D International Pty Ltd (No 5) [2011] VSC 30.

Also on 14 February 2011, I adjourned the hearing of the appeals in 7149 and 7263 to 7 March 2011.

On 18 February 2011, Messrs Vince and Horne informed the Sheriff that Mr Malhotra had applied to have the two costs orders relating to the warrants stayed. They asked that execution of the warrants be put on hold. Their solicitors said that they would advise the Sheriff of the position following the hearing of Mr Malhotra’s appeals and whether execution of the warrants can continue.[72]
[72]Exhibit ALO-14 to the affidavit of Alexandra Lea Osborn of 21 February 2011.

On 21 February 2011, in each of 7263 and 7149, Messrs Vince and Horne issued a summons to Mr Malhotra applying for leave pursuant to rule 73.03(1) of the Supreme Court (General Civil Procedure) Rules 2005 to file and serve a summons in accordance with Rule 73.11 in respect of Mr Malhotra’s beneficial interest in any funds in court.[73]
[73]Court file 7263, [43].

MR MALHOTRA’S SUBMISSIONS RE THE MATTERS OF APPEAL

Mr Malhotra contends that in the context of the history of this matter as set out above, it will be a substantial injustice if the execution of those judgments were allowed to proceed prior to the hearing and determination of his proceeding against the same parties in circumstances where there is a fund in court which in all likelihood will be sufficient to meet those orders if he is otherwise unsuccessful.

FURTHER AFFIDAVITS SOUGHT TO BE RELIED ON

In the appeals in 7149 and 7263 and the charging summons applications by Messrs Vince and Horne, Mr Malhotra seeks to rely on three affidavits: 22 September 2010,[74] 22 November 2010[75] and 1 March 2011.[76]
[74]Court file 7149, [67].
[75]Court file 7149, [74A].
[76]Court file, [81].

Under Rule 77.06(7)(b) the appeal to a judge is a hearing de novo and Mr Malhotra requires special leave to rely upon the affidavits not used before the Associate Judge, in this case the affidavits of 22 November 2010 and 1 March 2011.

Mr Jones of counsel who appeared for Mr Malhotra submits that special leave should be granted for the following reasons. He says that in substance the further affidavits do not introduce any new evidence. He said that Mr Malhotra prepared the first affidavit that he used before Daly AsJ and it referred to the basic outline of facts. He said the two further affidavits sought to fill in the gaps by providing proper evidence of the matters alluded to in the first affidavit.

He argues there is no prejudice to Messrs Vince and Horne because most of what is said in the affidavits is simply common between the parties. It is, he said, evidence of the ongoing litigation between them and correspondence, court orders and the like.

He referred to Brownport Management Ltd v Aqua-Tech 21 Pty Ltd[77] where Hansen J dealt with an application to rely on further affidavits under Rule 77.05(7)(b) and identified the mischief the rule was designed meet. He said:

[38] At [10] I referred to Brownport’s application for special leave to rely on further affidavits. If that leave is granted I would grant special leave to Aqua-Tech to rely on the further affidavit of Byron.
[39] It is important to bear in mind the reason why the requirement of special leave was introduced. It was introduced to stop the mischief of a party using the hearing before the Master as a dry run and, depending on the result, appealing and, on the appeal, filing additional affidavits to bolster its case in light of the arguments presented to the Master and the Master’s reasons for decision. This became all too common an occurrence. It could cause vexation to another party in terms of time and costs, and it could take up an unreasonable amount of a Judge’s time when there might not have been an appeal if the case had been properly presented to the Master. In short, in many cases it constituted an unreasonable taking advantage of the fact that under Rule 77.05(7) an appeal is by re-hearing de novo.

[77][2002] VSC 396.

Mr Jones argued that the rationale identified by Hansen J did not apply in this case where Mr Malhotra was unrepresented before Daly AsJ and the affidavits do not seek to put in new evidence. Mr Tomlinson of counsel who appeared for Messrs Vince and Horne did not suggest that his clients were prejudiced or that the mischief referred to by Hansen J was relevant if leave were granted. Accordingly, I grant leave to Mr Malhotra to rely on the affidavits of 22 November 2010 and 1 March 2011.

APPEALS OUT OF TIME

Rule 77.06(1) relevantly provides that any person affected by any order made by an Associate Judge under any Chapter of the Rules of the Supreme Court may appeal to a Judge of the Court. Rule 77(4) relevantly provides that if the application on which the Associate Judge made the order the appeal was by notice, the appeal shall be by notice and the notice shall be filed within five days of the order. Rule 77(6) relevantly provides that an order extending time fixed under Rule 77(4) may be made by a Judge of the Court.

The Rule granting the Judge of the Court a discretion to extend time does not specify any circumstances to enliven the Court’s discretion. In Hamilton v Russell Kennedy,[78] Habersberger J specified four factors relevant to whether or not the Court should exercise the discretion: (1) the delay in seeking to appeal; (2) the reason for the delay; (3) prejudice to the other party; and (4) the merits of the appeal from the Associate Justice, “or to put it another way, the chances of the plaintiff succeeding in the appeal should time be extended.”[79]
[78][2010] VSC 1.
[79]Ibid [24]-[27].

Mr Jones submits that in 7149 the delay was only approximately a fortnight and the delay should not be given great weight.

As to the reason for the delay, in 7149 Mr Malhotra was self-represented and says he was not aware of the time for appeal.

Mr Malhotra deposes:

(a)    7149   When I appeared before Associate Justice Daly, I was unrepresented and was not aware of the time limit to file the appeal. The Defendants had not provided me with a copy of the outline of argument they had filed in the court. On the day Associate Daly made her ruling, I informed her that I had not been given a copy of the defendant’s outline of arguments. Her honour directed the other side to provide me with a copy forthwith. It was more than a week after that and I had to write back to court and the defendants. A copy was sent to me only after that. Within two days, I sought legal advice and have done my best from that point on.
(b)    7263   When I appeared before Master Wood in 2007, I was unrepresented and naively asked his honour to stay the costs orders as the defendants were going to be investigated. From what I understood was that I had to provide a basis – a cause of action before the courts can consider such applications and would have to see if the defendant still pursued me after I have filed my claim against them.
(c)      No resting or wasting time: since about July 2007, I have been chasing funds from the sale proceeds of the Footscray and the Hillside properties, the battle has now culminated in Justice Robson proceeding, explained in paragraphs 22-25 below.[80]

[80]Malhotra affidavit of 22 November 2010 [18].

He also says that he waited for Messrs Vince and Horne to send him a copy of their outline of argument and after receiving it sought legal advice and lodged the appeal.[81]
[81]Transcript 11-12.

As to prejudice to the other party, Habersberger J said:

A third factor was prejudice to the other party. It will be obvious from the above review of the background to this application that Russell Kennedy has been put to further costs and expense in carrying out steps which may not have been necessary had the plaintiff appealed within the time set out in the Rules. First, Mr White has prepared a bill in taxable form, then there was the taxation on 11 September 2009, the callover on 20 October 2009 and the preparation of the submissions relating to the review.[82]

[82]{2010] VSC 1 at [27].

Mr Malhotra contends that Messrs Vince and Horne have not given evidence of any such prejudice in 7149.

As to the merits of the appeal, Mr Jones submits that involves basically determining the appeal itself. I will delay consideration of that issue.

As to 7263, Mr Jones concedes the delay had been almost three years. He compares the costs there of some $35,000 compared to some $180,000 in 7149. He submits that if a stay should be granted in 7149, then a stay should also be granted in 7263 as the basis for the stay is the security that is being offered over the funds in court.

MESSRS VINCE AND HORNE – SUBMISSIONS ON LEAVE TO APPEAL OUT OF TIME

Mr Tomlinson adopted the tests laid down in Hamilton v Russell Kennedy[83] by Habersberger J.
[83][2010] VSC 1.

Delay

On the issue of delay, he said the appeal in 7149 was filed 16 days out of time and in 7263 some three and a half years. He said that in 7149 a delay of sixteen days is significant in the context that the appeal should be filed within five days of the order.

Reason for the Delay

Messrs Vince and Horne also take issue with the excuse given by Mr Malhotra in 7149 that he did not receive the outline of argument until 27 October 2010. Messrs Vince and Horne argue that Associate Justice’s order was not authenticated until 3 November 2010. Mr Malhotra says he sought legal advice within two days of receiving the outline, which was before the order was authenticated.

Messrs Vince and Horne contend that there was therefore really no reason for the delay and that is a material factor for me in considering whether to exercise the discretion to extend time.[84] Messrs Vince and Horne rely on Habersberger J in Hamilton v Russell Kennedy where he said:

[25] The second factor was the reason for the delay. Given that the plaintiff had failed before Lansdowne AsJ because her Honour refused to extend the time within which he could appeal against the VCAT orders, one would have thought that he would have been very careful to comply with any time limits in his Supreme Court proceeding. However, this was not the case. As set out above, the plaintiff said that he initially delayed until he received the Associate Justice’s written reasons. But even then he did not appeal. In any event, there was really no need for him to wait for her Honour’s written reasons. He had been in Court when she had given her extempore judgment and should have understood why he had lost. Further, an appeal from an Associate Justice is, pursuant to rule 77.06(7) of the Rules, a re-hearing de novo so it was not necessary to state any grounds of appeal, for which the written reasons would have been of assistance. All the plaintiff had to do was to file and serve a notice of appeal seeking to have her Honour’s dismissal overturned. [85]

[84]Transcript 33.

[85][2010] VSC 1 at [25].

Messrs Vince and Horne say that for similar reasons it was a simple matter to file a notice of appeal in this case, and that was not done.

As for the delay in 7263, Messrs Vince and Horne contend that Mr Malhotra’s reason that he was naïve is really no reason at all.

Prejudice

Messrs Vince and Horne make two points. First that they have been entitled to their costs for over three years and they should not be required to wait any longer. They refer to Habersberger J’s observation in Hamilton v Russell Kennedy that litigation should not be permitted to drag on indefinitely. He said:

[28] Even if the plaintiff was ordered to pay all of the costs thrown away, there would still be the prejudice to Russell Kennedy of continuing to meet claims which should have been finally determined months ago. As was said by Gummow, Hayne, Crennan, Kiefel and Bell JJ in Aon Risk Services Australia Limited v Australian National University:
The modern view is that even an order for indemnity costs may not always undo the prejudice a party suffers by late amendment.

This view applies equally, in my opinion, to applications for extensions of time within which to appeal. It is very much in the interests of justice that there be some finalisation in litigation and that proceedings are not allowed to drag on indefinitely. (citations omitted)

Secondly, Messrs Vince and Horne assert they have suffered prejudice relying on the judgments in issuing a bankruptcy notice and warrants of seizure and sale. These costs may not have been incurred if Mr Malhotra had obtained a stay earlier. This is also a factor referred to by Habersberger J in Hamilton v Russell Kennedy.[86]
[86]At [2010] VSC 1 at [27].

SHOULD LEAVE TO APPEAL OUT OF TIME BE GRANTED IN 7263?

In my view, for the following reasons leave to appeal in 7263 should not granted. By his order of 8 June 2007, Master Wood taxed the costs of the plaintiff and ordered that the application for a stay was refused.

Mr Malhotra deposes:

When I appeared before Master Wood in 2007, I was unrepresented and naively asked his honour to stay the costs orders as the defendants were going to be investigated. From what I understood was that I had to provide a basis – a cause of action before the courts can consider such applications and would have to see if the defendant still pursued me after I have filed my claim against them.

Nevertheless, Mr Malhotra had solicitors acting for him in 2008. The writ issued on 12 February 2008 against Messrs Vince and Horne was issued on Mr Malhotra’s behalf by Rossi Ryan & Raniga.[87] They also acted for him in his contest of the bankruptcy proceedings brought by Messrs Vince and Horne in 2008.
[87]Court file 4264 [1].

No real reason has been given for the delay. In 2008, Messrs Vince and Horne sought to bring bankruptcy proceedings against Mr Malhotra based inter alia on the judgment debt in 7263.[88] No step was taken by Mr Malhotra’s solicitors to appeal the order of Master Wood to refuse the stay application.
[88]See Osborn affidavit [12].

There has been prejudice to Messrs Vince and Horne. Relying on the judgment debt in 7263, they have sought bring bankruptcy proceedings and have also had warrants issued in respect of the debt.

Merits of the stay application

On the issue of merits, Mr Malhotra relies on the facts that since the order of Master Wood, Mr Malhotra has issued proceedings against Messrs Vince and Horne and that I have made findings as to Mr Malhotra’s entitlement to the proceedings from the sale of the Footscray and Hillside properties.

The proceedings against Messrs Vince and Horne were issued over three years ago. As to the entitlement to the proceeds of the Footscray and Hillside properties, Mr Malhotra has always maintained his entitlement to those proceeds. The fact that the Court upheld his claims seems to bear very little on the merits of his stay application.

As I understand his position, he seeks the stay as he contends that if it is not granted he will not be able to proceed with his claim against Messrs Vince and Horne. Further, he says he is in the position to give security for their costs.

The circumstances relied on in this case do not go to the merits of the order sought to be stayed. Rather, they go to the impact the judgment may have on Mr Malhotra’s ability to pursue his action against Messrs Vince and Horne and his ability to provide some security for the cost judgment.

Mr Malhotra has not satisfied me that leave to appeal out of time should be granted.

SHOULD LEAVE TO APPEAL OUT OF TIME BE GRANTED IN 7149?

In my opinion, leave to appeal out of time should be granted. The delay was only a matter of days. Mr Malhotra was unrepresented although he had sought legal advice before the order was authenticated. There is no prejudice to Messrs Vince and Horne. I discuss the merits below and find that if leave were granted Mr Malhotra would succeed.

MR MALHOTRA’S SEPARATE APPLICATION UNDER RULE 66.16

If leave to extend time for the appeal from Master Wood’s order in 7263 is not granted, Mr Jones submits that under Rule 66.16 or under the inherent jurisdiction of the Court, the Court may grant a stay or execution on a judgment. He contends that the Court may exercise those powers other than on appeal and it should do so here as the circumstances have changed since the order of Master Wood was made in 2007.[89] In other words, even if an order extending time is not granted and the appeal does not proceed, the Court should exercise these powers to grant a stay.
[89]Transcript 13.

In particular, Mr Malhotra relies on the facts that since the order of Master Wood, Mr Malhotra has issued proceedings against Messrs Vince and Horne and that I have made findings as to Mr Malhotra’s entitlement to the proceedings from the sale of the Footscray and Hillside properties.

Messrs Vince and Horne submit that Mr Malhotra had already unsuccessfully sought a stay of the costs order in 7149 and that accordingly the discretion that Mr Malhotra wants the Court to exercise under Rule 66.16 has already been exercised. They argue that at the time of Mandie J making the 7149 costs orders, no stay was granted. Further, they say Mr Malhotra applied directly to the Court of Appeal for what was in effect a stay of the costs orders. They rely on Ken Morgan Motors Pty Ltd v Toyota Motor Corporation Ltd[90] where Hayne J held in respect of Rule 63.03 that once the Court’s discretion had been exercised under that rule a party can not ask the Court to exercise its discretion again even if new circumstances are shown to exist. They argue that the power to delay the time for payment of costs under Rule 63.03(2) no longer remains.
[90]Unreported, Supreme Court of Victoria, 23 November 1993, at 10 per Hayne J.

In my opinion, the principle applied in Ken Morgan v Toyota Finance[91]does not apply to an application under Rule 66.16. The grounds for seeking a stay of execution of a judgment may vary from time to time. For example, on an appeal the party with the benefit of a judgment may fall into insolvency and thus payment to it of a judgment debt may render nugatory the fruits of a successful appeal. In my view, it would undermine the purpose of being able to give a stay if the existence of a prior application on different grounds had been made and lost.
[91]Unreported, Supreme Court of Victoria, 23 November 1993, Hayne J.

No authority was cited by Messrs Vince and Horne in support of the proposition that the principle discussed in Ken Morgan v Toyota Finance[92] applies to Rule 66.16.
[92]Unreported, Supreme Court of Victoria, 23 November 1993, Hayne J.

I find that I do have jurisdiction to order a stay despite the fact that a prior application for a stay was denied by Master Wood. I shall defer consideration of the application in 7263 to when I consider the application in 7149.

PRINCIPLES RELEVANT TO A STAY APPLICATION

In Joskovitz v Bonnick[93] Herring CJ dealt with the precursor to Rule 66.16. Herring CJ said that the Court’s discretion is unfettered and depends on the circumstances of each case. Herring CJ said:

The power to stay execution is given by O.XLII, r17(b). It provides as follows: “The Court or Judge may at or after the time of giving judgment or making an order stay execution until such time as they or he shall think fit.”
There is no question, I think, under that rule that a court or a judge has a very wide discretion. One question that was not debated before me yesterday is the question whether a single judge or a master can under that rule properly stay an order made by the Full Court, and it may be that a court or a judge can under that rule do so. But the only cases that have been referred to me in which orders of the Full Court have been mentioned have been cases in which the application has been made to the Full Court. I proceed for the moment on the assumption that I have the power to deal with that order as well as with the orders of Gowans, J, and I have, as I have already indicated, a wide discretion which requires me to take into account all the circumstances of the case. I think I should say at once the decisions on other sets of facts do not bind me, nor is assistance to be derived from cases which are not really concerned with exactly the same problem as I am concerned with. For example, there were a number of cases cited in which the Court granted a stay of execution in order to give effect to a set-off which it had decided to allow. Cases of that kind cannot really assist me. Such a case was Re A Debtor (No 21 of 1950) (No 2), [1951] 1 Ch 612; [1951] 1 All ER 600. Such cases, of course, have no application here because this is not a case where a set-off can be allowed a person for the reason I have already stated that the applicant has not anything at present to set-off. I was also referred to a number of cases where a stay of execution was sought pending an appeal. These cases are governed by special rules and here again the discretion given is a very wide one as was made clear by the Court of Appeal in the case of Attorney-General v Emerson (1889) 24 QBD 56. In cases of this class also it is clear that each case has to be determined on its own facts. [94]

[93][1964] VR 654.

[94]Ibid 656-657.

In that case, Herring CJ decided to grant a stay but on conditions that protected the interests of be beneficiary of the costs order. He said:

But so far as the costs of the order nisi to review are concerned, I think that application may properly be regarded as one that it was proper for the applicant to make in the circumstances of the case, that as she had taken the initiative she was entitled to come to the Court and find out from this Court how the matter was to proceed. That being so, I think that until the final result of the litigation is known and the merits determined, the amount of the costs payable by the applicant to the respondent in respect thereof, that is 62 pounds 10s., should not be finally paid over, but should be held either in court or in the hands of the respondent’s solicitors to abide the final result of the proceedings and I propose to order accordingly.[95]

[95]Ibid 660.

In State Bank of Victoria v Parry,[96] Malcolm CJ said:
[96][1989] WAR 240.

Under O 47, r 13(1)(b) the discretion to grant a stay can only be exercised if the Court is satisfied that “by reason of special circumstances it is inexpedient to enforce the judgment”. Quite apart from this rule, the Court has an inherent jurisdiction to stay execution on a judgment or order: Halsbury’s Laws of England; and Williams, Supreme Court Practice. In the exercise of the inherent jurisdiction the discretion must be exercised on grounds relevant to a stay of the enforcement proceedings, rather than on grounds which may bear upon the validity or correctness of the judgment: T C Trustees Ltd v J S Daren (Successors) Ltd, per Lord Denning MR. It follows that the “special circumstances” referred to in the rule must likewise be relevant to a stay of the enforcement proceedings.
The discretion under O 47, r 13(1)(b) is not as wide as that under O 42 r 17(b) of the Victorian rules which was considered by Herring CJ in Joskovitz v Bonnick. That rule was as follows:
“The Court or Judge may at or after the time of giving judgment or making an order stay execution until such time as they or he shall think fit.”

Herring CJ rightly considered that such a rule conferred “a very wide discretion” which required him to take into account all the circumstances of the case. Under O 47, r 13(1)(b) there must be special circumstances which make it inexpedient to enforce the judgment.
The starting point must be that a plaintiff who has obtained a money judgment is, on the face of it, entitled to proceed to execution without delay.[97] (citations omitted)

[97]Ibid at 244.

In Reading Entertainment Australia v Burstone Victoria (No 2)[98] Whelan J discussed the principles relevant to a stay. In that case, three separate proceedings were being heard together. For reasons of convenience, the hearing of one of the proceedings was completed and judgment delivered. A stay was sought on the execution of that judgment pending the completion of the other two related proceedings. Whelan J granted a stay of execution. In doing so, however, he confirmed that the starting point must be “that a party entitled to a judgment ought ordinarily to be entitled immediately to enforce that judgment.”[99] He said this was so notwithstanding the wide power to grant a stay provided for Rule 66.16. He cited the following authorities:

State Bank of Victoria v Parry[100]; cf In the matter of UTSA; In the matter of an application by McCann (Unreported, Supreme Court of Victoria, Chernov J, 26 June 1998) at p4; see also Joskovitz v Bonnick[101]. The Rules of Court of some jurisdictions expressly require ‘special circumstances’ to be shown, by reason of which it is inexpedient to enforce the judgment or order, to justify a stay. Northern Territory authority has held ‘special circumstances’ to be necessary even when applying provisions identical to that found in Victoria (see Hansen v Northern Land Council (Unreported, Supreme Court of the Northern Territory, Angel J, 17 December 1998).

[98][2005] VSC 137.

[99]Ibid [43].

[100][1989] WAR 240 at 244.

[101][1964] VR 654 at 656.

Whelan J decided to grant a stay for the following reasons:

48    First, all three proceedings are, in the words of Cotton LJ in Automatic Weighing Machine Co v Combined Weighing and Advertising Machine Co,[102] cited with approval by the Full Court in Eastman v Wilson,[103] “intimately connected”, and are being tried partly together and partly, in effect, immediately after each other. Both Cotton LJ and the Full Court seem to me to envisage that in such circumstances a stay of an order in the first action would be “highly probable”. Here, the parties proceeded until a point late in the trial on the basis that all matters would be determined together. With the knowledge of the matters which I now have, it seems to me that the parties took a proper course in conducting the three proceedings together. The separation which has now occurred came late. Whilst judgment has been given in the main proceeding, I am in the middle of the trial in the related proceedings. The trial will resume in June. Execution at this point, with the related proceedings still unresolved, is not consistent with the manner in which the litigation has been conducted.
49    Secondly, given the security held by Reading Australia, and given USIPF’s position as controller of WPG, execution at this point seems to me to be likely to result in a new round of disputes and litigation. It is desirable to complete the determination of these parties’ existing disputes before they embark upon another series of potentially complex disagreements.
50      Finally, the stay will not be of long duration as the related proceedings are fixed for resumption of the hearing on 20 June 2005. The submission the Reading parties made about not producing a position practically indistinguishable from set-off is a valid one. Subject to hearing further submissions at the conclusion of all the proceedings, I do not think any stay should continue beyond the determination of the related proceedings.
51    In the circumstances I will stay my orders until the hearing and determination of the related proceedings or until further order and I will reserve liberty to apply.

[102][1839] 61 LT 536 at 537.

[103][1938] VLR 83 at 85-86.

In Mahor v Commonwealth Bank of Australia,[104] a decision of the Court of Appeal of the Supreme Court of Victoria Dodds-Streeton JA (with whom Redlich JA agreed) considered an application for a stay pending a judgment pending the hearing of an appeal, and summarised the relevant principles.
[104][2008] VSCA 122.

Under Rule 64.25 an appeal does not operate as a stay except so far as a court having jurisdiction in the matter otherwise directs. Rule 66.16 expressly grants power to order a stay under the Rules.

Her Honour confirmed the rule that prima facie a successful party is entitled to the benefit of the judgement and that an applicant must show special or exceptional circumstances before a stay will be granted.

Her Honour said:

19. The principles governing a stay of execution of judgment pending the hearing and determination of an appeal are well established.
20 Prima facie, a successful party is entitled to the benefit of the judgment obtained below and the presumption that the judgment is correct. The applicant for a stay therefore bears the onus of demonstrating that a stay is justified.
21 In Cellante and Ors v G Kallis Industries Pty Ltd (‘Cellante’), Young CJ (with whom Brooking J agreed), cited with approval the observation of Mahoney JA (with whom Moffit P and Glass JA agreed) in Re Middle Harbour Investments Ltd (in liq) that:
...where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party.

22 Young CJ concluded that an applicant for a stay under Rule 66.16 must show special or exceptional circumstances to take the case out of the general rule that an appeal does not operate as a stay.
23 The Court has a wide discretion, which is not circumscribed by rigid rules. It should take into account all the circumstances of the case.
24 In Scarborough’s v Lew’s Junction Stores Pty Ltd (approved in Cellante), Adam J recognized that special circumstances might exist where a successful appellant would be deprived of the fruits of the appeal if a stay of execution were not granted. In such a case, the appeal might be rendered nugatory.
25 In Cellante, Young CJ stated that special circumstances would ‘exist where for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed’.
26 An appeal could be rendered nugatory in that sense in a variety of ways. The test could be satisfied where a defendant appeals and there is a real risk that the plaintiff would remove the proceeds of the judgment from the jurisdiction. Similarly, special circumstances may be recognised where, for example, although the respondent is solvent, the subject matter of the appeal is, in substance, irreplaceable.
27 The prospect that the appeal may be rendered nugatory must be balanced against the principle that the successful party is entitled to the fruits of the judgment. A stay should not be granted unless there is at least an arguable ground of appeal, although otherwise speculation as to the ultimate prospects of success is usually inappropriate. (citations omitted)

In Cellante v Kallis Industries Pty Ltd,[105] Young CJ (with whom Brooking J agreed) cited with approval the judgment of Dawson J in Federal Commissioner of Taxation v Myer Emporium Ltd (No 1)[106] where he said:

Order 70 r.12 was amended on 5 December 1985 and in its new form is the counterpart of similar rules in other jurisdictions. It is well established by authority that the discretion which it confers to order a stay of proceedings is only to be exercised where special circumstances exist which justify departure from the ordinary rule that a successful litigant is entitled to the fruits of his litigation pending the determination of any appeal. See, e.g., The Annot Lyle; Scarborough v. Lew’s Junction Stores Pty Limited. Special circumstances justifying a stay will exist where it is necessary to prevent the appeal, if successful, from being nugatory. See Wilson v. Church (No.2); Klinker Knitting Mills Pty. Ltd. v. L’Union Fire Accident and General Insurance Co Ltd. Generally that will occur when, because of the respondent’s financial state, there is no reasonable prospect of recovering moneys paid pursuant to the judgment at first instance. However, special circumstances are not limited to that situation and will, I think, exist where for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed. See McBride v. Sandland (No.2). (citations omitted)

[105][1991] 2 VR 653.

[106](1986) 160 CLR 230.

In my view, the reference to special circumstances is an acknowledgment that prima facie a successful litigant is entitled to the fruits of its litigation. The applicant for a stay bears the onus of establishing that in those circumstances a stay should be granted. The grounds must be relevant to a stay of the enforcement proceedings, rather than grounds which may bear upon the validity or correctness of the judgment.

MR MALHOTRA’S APPLICATION OF THE STAY PRINCIPLES

Mr Jones says that the protection to the respondent in Joskovitz v Bonnick[107] is similar to what is proposed in this case where Mr Malhotra is prepared to abide by an order that the moneys that he is entitled to be held to abide any order of the Court pending determination of the proceeding that he has against Messrs Vince and Horne.
[107][1964] VR 654.

Mr Jones contends that although Mr Malhotra’s proceeding 4624 is not to be heard with the two in which the costs orders were made, there is a connection between 4624 and 7149 and 7263 in that the proceedings arise from the conduct of Messrs Vince and Horne as administrators and liquidators. He also submits that in this case there is security as was the case in Reading Entertainment Australia v Burstone Victoria (No 2).[108]
[108][2005] VSC 137.

Mr Jones concedes there has been delay between the orders for costs in 2007 and the stay application in 2010. He argues, however, that Mr Malhotra has resisted attempts of Messrs Vince and Horne to execute on their judgments. He refers to the resistance to the bankruptcy proceedings and the prompt application for a stay immediately after the warrants were issued. He submits that Mr Malhotra has not lulled Messrs Vince and Horne into a false view that he was going to pay the money quickly.

DETRIMENT TO MR MALHOTRA

Mr Jones contends that there will be substantial detriment to Mr Malhotra if a stay is not granted and that one potential issue is that Messrs Vince and Horne, having issued a warrant, could apply to bankrupt him.[109]
[109]Section 40(1)(d) of the Bankruptcy Act 1966.

Mr Jones distinguishes that procedure from the issuing of a bankruptcy notice. He says that a bankruptcy notice can be resisted by a counter claim, set off or cross claim. He asserts that is the reason the previous bankruptcy notice issued by Messrs Vince and Horne was dismissed as Mr Malhotra issued his proceeding in 2008. Messrs Vince and Horne deny this.

Mr Jones argues that if Mr Malhotra is bankrupted he will not be able to continue with his proceeding set down for hearing in September 2011.

The other prejudice that Mr Malhotra relies on is that Messrs Vince and Horne will sell his principal residence in which he lives and that is substantial prejudice as he as a wife and two young children.[110]
[110]Transcript 21.

THE OBSERVATIONS OF THE COURT OF APPEAL

Mr Jones relies on observation made by the Court of Appeal in their determination of Mr Malhotra’s appeal from the decision of Mandie J. As outlined in the history of relevant events above, Mr Malhotra brought 7149 seeking to terminate the liquidation of S&D and also sought the following orders:

L. An order that the second Defendants [“the administrators”] be disentitled to claim any remuneration for the conduct of the administration and/or liquidation by reason of their negligence and misconduct evident during the course of the administration of the company.
M. Alternatively, an order pursuant to s 449E(2) of the Act that this Court review and reduce the remuneration payable to [the administrators] to such sum as this Court deems fair and reasonable and having regard to the matters deposed to in the supporting Affidavits.
N. An order and declaration that [the administrators] are not entitled to be indemnified in respect of their legal costs, remuneration and disbursements from the assets beneficially owned by the [appellant] and the Trust.

Mr Malhotra’s primary application was for the termination of the winding up of S&D. Mr Malhotra’s counsel Mr Selimi had in substance conceded that the solvency of S&D was a prime consideration for the Court in deciding whether the winding up should be terminated. Mr Malhotra argued that the misconduct of the administrators disentitled them to the fees and expenses they had claimed. It was conceded by Mr Malhotra that if the administrators were entitled to the fees and expenses they had charged Mr Malhotra would face a substantial and significant difficulty in proving the solvency of S&D and, as a result, in justifying an order for the termination of the winding up of S&D. Thus there was much emphasis placed by Mr Malhotra upon the alleged misconduct of Messrs Vince and Horne.[111]
[111]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [177].

Mandie J rejected Mr Malhotra’s allegation that Messrs Vince and Horne had misconducted themselves in that they had manifestly failed to impartially discharge their duties as between the unit holders by giving preferential treatment to the Tiwari family.

On the issue of misconduct, Mandie J said:

I am satisfied that Messrs Vince and Horne made their decisions bona fide in the interests of the creditors and of the Company, as they saw them, and without any intent to favour the Tiwari family. Nor do I think that a reasonable bystander, knowing the facts and circumstances, would have an apprehension that Messrs Vince and Horne were acting other than impartially as between the unit holders. I saw no evidence that Messrs Vince and Horne harboured a grudge against the plaintiff. I do not accept that they permitted the Tiwaris to “run riot with the business” or to “continue their rampage against the Company”. Indeed, I am not satisfied on the evidence that the members of the Tiwari family who were employed in the business after the commencement of the administration did “run riot with the business” and, insofar as there was any rampage by the Tiwaris against the Company prior to the commencement of the administration, I am not satisfied that such rampage continued. There were many allegations made by the plaintiff concerning the conduct of the Tiwaris prior to the commencement of the administration, that I mention elsewhere, but as I understand it the main allegation of substance made in relation to the conduct of the business after commencement of the administration is an allegation that cash was being taken from the proceeds of sales without reporting the same to the administrators. For reasons that I have stated elsewhere in this judgment, I am not satisfied, directly or as a matter of inference, on the evidence adduced in this case that there was any cash taken dishonestly by any members of the Tiwari family who were employed or involved in the business after the commencement of the administration. [112]

[112]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [212].

He held that the alleged failure of the administrators to remove the Tiwaris as employees of the business did not constitute misconduct or real or apparent bias in all the circumstances. He said he was satisfied that the investigations of Mr Malhotra’s allegations against the Tiwaris were more than adequate.[113]
[113]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [210].

Mandie J summarised his findings as follows:

In summary, I do not think that the administrators’ conduct of the administration constituted misconduct at all, either as a whole or in part, in any of the ways alleged by the plaintiff. I am satisfied that the administrators were not guilty, in any event, of such misconduct as would justify depriving them of their fees. The degree of misconduct required for that purpose is in my view such misconduct as would have justified an order for their removal or replacement as administrators. [114]

[114]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [216].

As to Mr Malhotra’s criticism of Messrs Vince and Horne as liquidators of S&D (in liquidation), Mandie J summarised his findings as follows:

The general findings that I have made in relation to the conduct of Messrs Vince and Horne as administrators are also applicable to their conduct as liquidators. Looking at their conduct in both capacities, or in either capacity, I am satisfied that there was no misconduct, whether by way of negligence, misleading conduct, lack of impartiality or otherwise, such as ought deprive them of their fees and no misconduct such as would justify their removal or replacement as liquidators.[115]

[115]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [221].

Mandie J refused to make the orders sought in paragraphs L and N. Mandie J refused to terminate the winding up of S&D. He found that it was insolvent particularly now that he had found that the conduct of the administrators was not such as to deprive them of their fees and expenses.[116]
[116]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [223]-[225].

Mandie J also held that Mr Malhotra not have leave to commence a derivative action against Sheela and Pradeep Tiwari, as directors of S&D.[117]
[117]Re S&D International Pty Ltd (in liq) [2005] VSC 496 [268].

On the appeal, Mr Malhotra contended to the Court of Appeal (Chernov, Nettle and Redlich JJA) that the trial judge had erred in his findings that the various acts of misconduct by the administrators were not made out or, in any event, were not such as to warrant depriving them of their fees.[118]
[118]Malhotra v Tiwari [2007] VSCA 101.

The first ground of appeal dealt with the alleged failure of Messrs Vince and Horne to remove the Tiwaris as managers of the business conducted by S&D. The Court was not persuaded that the trial judge fell into error. They noted, however, that the administrators had formed the view that there were suspicions that the Tiwaris had diverted S&D’s business to Tiwari & Co and Tiwari & Co Pty Ltd and that the Tiwaris had misappropriated some of S&D’s cash and other assets.[119]
[119]Malhotra v Tiwari [2007] VSCA 101 [39].

As to reasons for concerns about the Tiwaris, the Court found that arguably the evidence created more reason for concern than the trial judge allowed. The Court said:

In our view, that evidence implies that the administrators were faced with a strong prima facie case that the Tiwaris were diverting the business of the company to their own interests and in the process were misappropriating cash and other assets of the company.[120]

[120]Malhotra v Tiwari [2007] VSCA 101 [42].

Mr Malhotra criticised the administrators for retaining the Tiwaris to run the business despite the concerns raised by Mr Malhotra about their honesty and the strong prima facie case that the Tiwaris were diverting the business of S&D to their own interests and in the process were misappropriating cash and other assets of S&D. The Court noted that the administrators had noted the complaints of Mr Malhotra and had reported to creditors that many of Mr Malhotra’s allegations had substance and were appropriate for a public examination.[121]
[121]Malhotra v Tiwari [2007] VSCA 101 [46].

Mr Malhotra had alleged that the administrators should not have retained the Tiwaris. The Court found no error with the trial judge’s decision that the decision to do so was one open to the administrators on commercial grounds.

Mr Malhotra had alleged that the administrators showed bias in the conduct of the administration. The Court did not accept that the trial judge erred in finding no bias of apprehended bias. They agreed with the trial judge that:

….if the administrators did make any decisions that had the effect of favouring one side over the other, it was only because they believed that the interests of that side most closely aligned with the interests of the company. The principal example is leaving the Tiwaris to manage the company.[122]

[122]Malhotra v Tiwari [2007] VSCA 101 [60].

Mr Malhotra had criticised the administrators for lack of effective controls over the Tiwaris running of the business. The Court held there was more force in this submission.[123] The trial judge had set out the report by the administrators of what they had done in the administration. The Court found that the report was an over statement of what they had in fact done.[124]
[123]Malhotra v Tiwari [2007] VSCA 101 [64].
[124]Malhotra v Tiwari [2007] VSCA 101 [66].

Nevertheless, the Court held that the trial judge did not fall into error in finding that the administrators did not act so improperly as to be wholly deprived of their fees. The Court said:

The question for the judge, therefore, was simply whether the administrators had been guilty of misconduct in that sense, and as to that the judge said no more than that he was satisfied that the administrators were not guilty of such misconduct, whether by way of negligence, misleading conduct, lack of impartiality or otherwise, as would wholly deprive them of their fees.[125]

[125]Malhotra v Tiwari [2007] VSCA 101 [69].

This finding of the Court of Appeal leads on to the observation by the Court that Mr Malhotra relies on in support of his application for a stay where the Court said:

70   With respect, we see no error in that conclusion. While it may be that there were more significant shortcomings in the administrators’ supervision of the company than the judge acknowledged, we accept that the evidence went no further than that the administrators were not guilty of such misconduct as would have warranted their removal as administrators and thus deprived them wholly of their fees as administrators.
71   We note that the judge also said that he was not satisfied on the evidence that the Tiwaris took any cash dishonestly, and that he did not accept the appellant’s submission that the conduct of the administrators had contributed to the worsening of the financial condition of the company. With respect, we agree with his Honour that the evidence on those two issues did not go far enough to support any positive findings. But, for the avoidance of doubt, we add that his Honour should not be taken thereby to have determined either issue in a fashion which binds the company. Consistently with his Honour’s earlier observations as to the need for further inquiry into the appellant’s allegations, it remains for investigation by the liquidator of the company whether the Tiwaris diverted any part of the company’s business, misappropriated any cash or other assets of the company and whether anything which the administrators did or failed to do in the course of administration of the company was productive of loss or damage to the company. It also remains to determine whether the administrators are entitled to all of the fees which they claim. Nothing said by the judge below or by this court on this appeal forecloses either inquiry. (my italics)
Replacement of the administrators as liquidators
72   As we have said, the appellant no longer seeks orders that the liquidation of the company be terminated and a declaration that the company is solvent. He now seeks orders that the second respondents be removed and replaced as liquidators. We agree that those orders should be made. Given the need for further investigation as recognised by the judge and, more specifically, because of uncertainty as to what was done and not done in the course of the administration, it is inappropriate that the administrators remain as liquidators.
73     That does not mean that we have reached a conclusion that is adverse to the administrators. As already stated, there is not sufficient evidence from which to decide whether the administrators caused or are responsible for any loss or damage which the company may have suffered. It would also be inappropriate to make that decision without first affording the company an opportunity to be heard through an independent representative. But it is axiomatic that the administrators cannot investigate themselves. The consequent possibility of a conflict of interest necessitates that an independent liquidator be appointed in their place. It follows in our view that the appeal should be allowed in part. And the orders of the judge below should be varied to that extent.
74   As was observed in Re National Safety Council,[126] it is of the greatest importance that there should be no possibility of criticism attaching to one of the court’s own officers on the ground of conflict of interest and duty. It would, therefore, be a substantial injustice to the appellant if the administrators’ conduct of the administration, and their relationship with the respondents throughout the administration, could not be fairly, promptly and independently investigated and be seen to be independently investigated.[127]

[126][1990] VR 29 at 34.

[127][2007] VSCA 101 at [72]-[74].

Reference should also be made to the Court of Appeal’s judgment on costs referred to above where they said the neither the trial judge or the Court of Appeal had concluded that the conduct of Messrs Vince and Horne was necessarily unimpeachable.[128]
[128]Malhotra v Tiwari (No 2) [2007] VSCA 114 at [5]-[6].

Accordingly, the Court of Appeal acknowledged that there may be more significant shortcomings in the administrators’ supervision of S&D (in liquidation) than the trial judge acknowledged. The Court also confirmed that the trial judge’s findings did not bind S&D (in liquidation) on whether or not the conduct of the administrators had contributed to the worsening of the financial condition of the company. They said it remains for investigation by the liquidator of the company whether the Tiwaris diverted any part of the company’s business, misappropriated any cash or other assets of the company and whether anything which the administrators did or failed to do in the course of administration of the company was productive of loss or damage to the company. They said it also remains to be determined whether the administrators are entitled to all of the fees which they claim. They concluded by saying that nothing said by the judge below or by the Court of Appeal on this appeal forecloses either inquiry.

Mr Jones relies on the observation by the Court of Appeal that there was a need for further investigation of the actions of the Tiwaris and Messrs Vince and Horne. Mr Jones says that Mr Malhotra in his proceedings is seeking to investigate the conduct of the administrators and that he has brought proceedings against them for negligence and breach of fiduciary duty.[129]
[129]Transcript 23 lines 23 -27.

Mr Jones says that it does not appear that anyone else will pursue that investigation even thought the Court of Appeal said that it would be a substantial injustice to Mr Malhotra if the administrator’s conduct of the administration, and their relationship with Mrs Tiwari and her son Pradeep Tiwari throughout the administration, could not be fairly, promptly and independently investigated and be seen to be independently investigated.

Mr Jones said:

So in my submission if the effect of not granting a stay would be that Mr Malhotra was unable to continue to prosecute his case against Messrs Vince and Horne which has been issued in this court and is set down to be heard in September, there would be a substantial injustice to Mr Malhotra especially in circumstances where he's prepared to put security into place so that those persons are not materially prejudiced.[130]

[130]Transcript 24.

In Mr Malhotra’s proceeding 4624 against Messrs Vince and Horne he alleges that they were negligent in their administration and subsequent liquidation of S&D by virtue of the following:

In breach of their duty of care to the Plaintiff, the Defendants were negligent in their administration and subsequent liquidation of the Company by virtue of their:
a)      Failing to take any, or any effective, steps to recover funds misappropriated by the Company’s director, Sheela Tiwari, from the Company and applied towards Sheela Tiwari’s purchase of residential property in her sole name at 5 Livorno Place, Point Cook in or about July 2002.
b)      Failing to take any, or any effective, steps to assert the Company’s equitable interest in the residential property purchased by the Company’s director, Sheela Tiwari, in her own name at 5 Livorno Place, Point Cook in or about July 2002 using funds misappropriated from the Company.
c)      Failing to take any, or any effective, steps to recover funds in the sum of $39,500.00 misappropriated by the Company’s director, Pradeep Tiwari, from the Company and applied towards Pradeep Tiwari’s purchase of a warehouse property in his own name at 25 Richards Road, Hoppers Crossing in or about July 2004.
d)      Failing to take any, or any effective, steps to assert the Company’s equitable interest in the warehouse property purchased by the Company’s director, Pradeep Tiwari, in his own name at 25 Richards Road, Hoppers Crossing in or about July 2004 using funds misappropriated from the Company.
e)       Failing to take any, or any effective, steps to recover funds misappropriated by the Company’s director, Sheela Tiwari, from the Company and applied towards Sheela Tiwari’s personal legal costs incurred in Supreme Court of Victoria proceeding number 6869 of 2002 in circumstances where Sheela Tiwari had no right of indemnity for her legal costs from the Company.
f)       Failing to adequately investigate or act upon the Plaintiff’s complaints about the Company’s directors’ wrongful acts which caused loss to the Company and as a consequence to the Plaintiff being half owner of the Trust and Trustee Company.
g)       Engaging Pradeep Tiwari to conduct the Business in circumstances where:
i)        The Defendants knew or ought to have known that Pradeep       Tiwari conducted a rival business known as “Tiwari & Co” (“Bharat    Imports”) which was involved in the wholesaling of food and other      goods imported from India in direct competition to the Company’s       Business;
ii)        The Plaintiff had notified the Defendants of Pradeep Tiwari’s      wrongful conduct to the detriment of the Company;
iii)       The Defendants knew or ought to have known that Pradeep       Tiwari had previously misappropriated funds from the Company to           partly fund the purchase of a warehouse property in Pradeep Tiwari’s       own name at 25 Richards Road, Hoppers Crossing in or about July 2004.

h)      Rejecting the Plaintiff’s application to conduct the Business in circumstances where the Plaintiff was willing to run the Business for lesser remuneration than Pradeep Tiwari.
i)       Failing to examine and verify the business’ operations to appropriately negotiate wages to be paid to Sheela Tiwari and her family causing immense losses to the Company;
j)       Failing to ask Pradeep Tiwari and Sheela Tiwari, the Directors Tiwaris to account for $70,386.50, the recorded “Cash Takings” of the business and not banked;
k)      Failing to impose any proper or effective control or review of Pradeep Tiwari’s management of the Business in circumstances where the Defendants knew or ought to have known that:
i)        Pradeep Tiwari was concurrently conducting a rival business      known as “Tiwari & Co” which was involved in the wholesaling of         food and other goods imported from India in direct competition to the Company’s Business;
ii)        The Business was largely transacted in cash;
iii)       The unexplained or incompletely explained cash withdrawals     from the Company’s accounts.

l)       Retaining Pradeep Tiwari as manager of the Business on or after 11 May 2005 in circumstances where the Defendants’ senior manager, Terence Peterson, had reported to the Defendants on 11 May 2005 that:
i)        There is perhaps little doubt that Tiwari & Co Pty Ltd operates a       wholesale importing business from the premises and that the business is          similar to the wholesale and importing activities which would otherwise have      been undertaken by S & D International.
ii)        Tiwari & Co is supplying goods to the same or similar customer as     those supplied to by S & D. Tiwari & Co has, however, added to its customer      base with a few more customers.
iii)       Supplies are generally imported from India. Tiwari & Co say they     have a new Indian supplier. S & D have done no importing in the last 12         months whereas Tiwari & Co have received at least four containers.

m)     Failing to remove Pradeep Tiwari as manager of the Business on or after 11 May 2005 in circumstances where the Defendants’ senior manager, Terence Peterson, had reported to the Defendants on 11 May 2005 that:
i)        There is perhaps little doubt that Tiwari & Co Pty Ltd operates a       wholesale importing business from the premises and that the business is          similar to the wholesale and importing activities which would otherwise have      been undertaken by S & D International.
ii)        Tiwari & Co is supplying goods to the same or similar customer as     those supplied to by S & D. Tiwari & Co has, however, added to its customer      base with a few more customers.
iii)       Supplies are generally imported from India. Tiwari & Co say they     have a new India supplier. S & D have no importing in the last 12 months        whereas Tiwari & Co have received at least four containers.

n)      Failing to properly or adequately investigate the legitimacy of the payments from the Company’s bank accounts identified by the Plaintiff which were listed by the Defendants on pages 2 – 5 of the Defendants’ second report to creditors dated 7 June 2005.
o)      Failing to take any, or any effective, steps to recover the funds wrongfully withdrawn by the Company’s former directors, Sheela Tiwari and Pradeep Tiwari, from the Company’s bank accounts as summarised on pages 2-5 of the Defendants’ second report to creditors dated 7 June 2005.
p)      Making a finding on the way the Defendants overlooked what the Directors of the company were doing despite the Plaintiff’s regular protests and reminders, their Honours, Mr Chernov J, Mr Nettle J and Mr Redlich J of the Court of Appeal, Supreme Court of Victoria found:
“In our view, (that) evidence implies that the administrators were faced with a strong prima facie case that the Tiwaris were diverting the business of the company to their own interests and in the process were misappropriating    cash and other assets of the company.”
Malhotra v Tiwari Court of Appeal, Supreme Court Proceeding No.      7149 of 2005, dated 23 May 2007 – Paragraph 42

q)      Failing to grant the Plaintiff a licence to run the Business pending the determination of Supreme Court proceeding number 7149 of 2005 so as to preserve the value of the Business.
r)       Failing to obtain a Report as to Affairs (“RATA”) from the Company’s former directors, Sheela Tiwari and Pradeep Tiwari, in a timely manner.
s)       Failing to issue a statutory notice for the Company’s books until 16 June 2005.
t)       Failing to properly negotiate the wages of Pradeep Tiwari and/or Sheela Tiwari with respect to managing the Business.
u)      Failing to exercise any, or any proper, supervision or control over the Business’s daily cash takings, purchase orders and approval of stock purchases.
v)      Failing to stop theft and diversion of stock of the company by the Tiwaris who were employed by the Defendants;
w)     Failing to investigate and stop siphoning of the Company funds by the Tiwaris to their own businesses and/or including that of Mumbai (Bombay) Traders at 565 Barkly Street, West Footscray;
x)      Opposing a friendly Secured creditor Naresh Malhotra in maintaining control of the company assets when he had given an undertaking not to charge the company any penalties for non payment of instalments and provided a moratorium on all such instalments until the issues were resolved as recorded by the Defendants in their correspondence to the creditors on 21 June 2005 and instead bringing in MIG Property Services without seeking any such commitments. The losses flowing for that act alone are likely to run into more than $1 million.
y)      For engaging the company in the action between the Tiwaris and the friendly Secured creditor Naresh Malhotra. Further the Defendants agreed and then allowed the Tiwaris’ costs to be included in the company’s liability to the new secured creditor MIG Property Services. This resulted in a $28,000/- (approx) loss to the company and the losses are continuing.
z)      Failing to take any action on the Plaintiff’s specific correspondence listing some of the payments made by the Directors from the company funds, to various suppliers, buying Tiwari & Co stocks;
aa)     Choosing the give the licence to run the business to Markandey Tiwari, former husband of Sheela Tiwari, while initially suggesting to the Plaintiff that Markandey Tiwari was acting for Sheela Tiwari. The bidding being only open to Sheela Tiwari and the Plaintiff Dinesh Malhotra. Ultimately it turned out Markandey Tiwari’s bid was accepted in his own personal capacity and not for Sheela Tiwari. That act alone caused the Plaintiff at least $390,000.00 in losses depriving the Plaintiff of potential recovery of his costs against Sheela Tiwari as ordered by Balmford J on 4 March 2005.
bb)     Choosing to accept votes of creditors who were creditors of the Tiwari family and not of the company and thereby facilitating driving the company into unnecessary litigation and consequent damages and losses;
cc) Giving preferential treatment to creditor(s) who voted to place the company in liquidation by authorising payment(s) to some creditor(s) before they lodged their formal claims and before those claims were formally verified and thus circumventing the proper procedure stipulated under the Corporations Act 2001;
dd)     Authorising payment of invoices which were ex facie suspicious and so in apparent need of further investigation.

Mr Malhotra further or alternatively claims that:

8.      … at all relevant times the Defendants owed the Plaintiff a fiduciary duty to:
a)        Conduct the Business of the Company so as to not prefer the      interests of one unit-holder over another;
b)        Act in the interests of the Company as a whole;
c)        Preserve the value of the Trust’s assets.

9.      Wrongfully, and in breach of the fiduciary duty owed to the Plaintiff, the Defendants failed to:
a)        Conduct the Business of the Company so as to not prefer the      interests of one unit-holder over another;
b)        Act in the interests of the Company as a whole;
c)        Preserve the value of the Trust’s assets.

The Plaintiff refers to the matters set out in the particulars to paragraph 5 above.

It can be seen that Mr Malhotra alleges many of the matters that he raised before Mandie J and that were referred to by the Court of Appeal. The Court of Appeal has held that Mandie J’s decision does not foreclose inquiry by the liquidator and presumably action by S&D (in liquidation) into these issues. It would not be appropriate for me to express any view on whether Mr Malhotra has any cause of actions arising out of these matters save to say that the Court of Appeal did leave open proceedings on them. It is relevant to observe, however, that the matters referred to by the Court of Appeal indicate that whilst Messrs Vince and Horne were administering S&D the assets of S&D may have been misappropriated by the Tiwaris.

A further relevant consideration on the issue of a stay is the Court of Appeal’s finding that it would be a substantial injustice to Mr Malhotra if the administrators’ conduct of the administration, and their relationship with the Tiwaris throughout the administration, could not be fairly, promptly and independently investigated and be seen to be independently investigated.[131]
[131][2007] VSCA 101 at [72]-[74].

SUBMISSIONS OF MESSRS VINCE AND HORNE

Messrs Vince and Horne rely on the affidavit of Alexandra Lea Osborn affirmed and filed 21 February 2011. In addition to matters referred to in the chronology, she deposes that Messrs Vince and Horne have incurred costs of enforcing the judgment debts of Mr Malhotra in 7149 and 7263. She says that interest has also continued to accrue since the original orders. On her calculations up to 7 March 2011, the total debts are $304,027.43 as follows:

(a) $180,205.94 being the judgment of Master Wood made 13 June 2007 in 7149;

(b) $73,481.23 interest on same;

(c) $35,717.35 being the judgment of Master Wood made 8 June 2007 in 7263;

(d) $14,622.91 interest on same.

Ms Osborn deposes that the funds in Court are $1,072,078.10 and interest accruing in 7807 of 2008.[132]
[132]Osborn Affidavit [28].

DISCRETION TO STAY

Messrs Vince and Horne concede the discretion under Rule 66.16 is a wide one.[133]
[133]Joskovitz v Bonnick [1964] VR 654 at 656.

They argue that “the starting point should be that a party who obtains a judgment is entitled to have it enforced without delay.”[134] They contend that it is generally insufficient grounds for a stay of a costs order that:
[134]Civil Procedure Victoria (Williams) at [66.16.15] referring to Malcolm CJ in State Bank of Victoria v Parry [1989] WAR 240, at 244.

(a) the party to pay costs claims that it may itself become entitled to costs orders at a later stage;[135] or

(b) that a party to pay costs has a cross-claim in another proceeding.[136]

[135]See Joskovitz at 658.

[136]Ferdinand Wager v Laubscher Bros [1970] 2 WLR 1019 per Denning LJ at 1022.

They refer to Ferdinand Wager v Laubscher Bros where Lord Denning said:

If the plaintiffs had obtained an English judgment we should not, for one moment, grant a stay simply because the defendant had brought a cross claim in another action against the plaintiffs. So here we should not stay execution on this German judgment simply because Laubascher’s have brought a cross-action in England against Wagner.[137]

[137]Ibid.

Messrs Vince and Horne contend that it is not the case that Mr Malhotra’s proceeding against Vince and Horne (4624 of 2008) is “intimately connected” with either the 7149 or 7263 proceedings, in the procedural sense referred to by Justice Whelan in Reading Entertainment v Burstone.[138]
[138][2005] VSC 137 at [48].

They say the delay in applying for a stay (it was some 3½ to 4 years before Mr Malhotra made an application for a stay in both proceedings) has been inordinate. They argue that an applicant’s delay is a factor militating against the grant of a stay.[139] They say that they have suffered a prejudice, by being kept out of their entitlement to costs for several years.
[139]Joskovitz at 658.

Messrs Vince and Horne allege that Mr Malhotra’s 4246 proceeding against them is weak and repetition of the allegations raised in the 7149 proceeding before Mandie J and the Court of Appeal. They say his claims are essentially for ‘reflective losses’, but the cause of action (if one exists) is more properly that of S&D. They point out that the Court of Appeal upheld Mandie J’s decision not to permit Mr Malhotra to bring a derivative proceeding.

I have already explained that the issue solely before Mandie J was whether the conduct of Messrs Vince and Horne was such that they were entitled to no fees or charges. As the Court of Appeal made clear, whether the conduct of Messrs Vince and Horne caused loss and damage to S&D (and to Mr Malhtora as a beneficial owner) were issues that were not determined but prima facie warranted investigation.

SHOULD THE APPEAL BE GRANTED IN 7149?

In my opinion, the appeal should be allowed.

As the above analysis demonstrates, Mr Malhotra’s allegations concerning the conduct of Messrs Vince and Horne were not determined in proceeding 7149. Insofar as Mr Malhotra made allegations concerning the conduct of Messrs Vince and Horne, the Court of Appeal made it clear that the finding of Mandie J was limited to a finding that the conduct of the administrators was not such that they should be removed as administrators and denied all their fees and expenses. They made it clear that the issues concerning whether the conduct of Messrs Vince and Horne may have caused loss and damage to S&D were left outstanding. The Court of Appeal went further and held that their conduct did raise issues that ought to be investigated by a new liquidator.

The Court of Appeal did not squarely address the fact that S&D held the assets as trustee on behalf of Mr Malhotra. To that extent Mr Malhotra had a direct interest in the preservation and protection of S&D’s assets.

I accept without question that prima facie Messrs Vince and Horne should be entitled to enforce their judgment for costs. I accept that Mr Malhotra must show special circumstances relating to the enforcement of the judgment sufficient to deny Messrs Vince and Horne their prima facie entitlement.

In my view, special circumstances do exist. The costs order in their favour was made in a dispute between Mr Malhotra and the administrators over their conduct of the administration of S&D. That dispute has not been finally resolved. Mr Malhotra alleges that the administrators were negligent in allowing the Tiwari’s to plunder the assets of S&D. Mr Malhotra’s proceeding is intimately connected with 7149. The Court of Appeal have recognised that the issues that he raises ought to be investigated. They identified a new liquidator as having responsibility to do so. There is no evidence he has done so. Mr Malhotra as a beneficiary of the trust assets may well have standing to pursue similar matters as S&D (in liquidation).

I believe this case is a most unusual case. If a stay is not granted I find it is likely Mr Malhotra will be prevented from pursuing his proceeding. In view of the observations of the Court of Appeal, that may cause him a grave injustice by being deprived of the opportunity to pursue his proceeding. In the exercise of my discretion, I find a stay is justified on terms.

In my view the price of the stay should be that Mr Malhotra should give a charge over his entitlement to the funds in court to secure the costs order in favour of Messrs Vince and Horne in 7149.

Accordingly, I allow Mr Malhotra’s appeal against the order of Master Daly of 19 October 2010.

I propose to order that there be a stay of execution in 7149 until the hearing and determination of 4264 or further order.

SHOULD A STAY OF EXECUTION BE GRANTED IN 7263?

In 7263, the administrators sought directions as to whether they could grant a licence to conduct the business to the Tiwaris. This conduct of Messrs Vince and Horne raised the very issue that Mr Malhotra complained about. He complained to Messrs Vince and Horne that the Tiwaris were dishonest and would misappropriate the assets of S&D and they should not be allowed to conduct the business. As the Court of Appeal said, there was a strong prima facie case that they were.

Mr Malhotra’s proceeding does not seek to challenge the direction given by Whelan J. Rather, he complains about Messrs Vince and Horne conduct in seeking such a direction in circumstances where they had been warned of the alleged dishonesty of the Tiwaris. Mr Malhotra’s proceeding 4264 is intimately connected to 7263.

In my view, the special circumstances relevant to the application for a stay in 7263 are in substance those relevant to the stay in 7149. In my discretion, I will grant a stay of execution of the costs order in 7263 until the hearing and determination of 4264 or further order.

In my view, the price of the stay should be that Mr Malhotra should give a charge over his entitlement to the funds in court to secure the costs order in favour of Messrs Vince and Horne in 7263.

THE FORM 46A SUMMONSES

By summonses filed 21 February 2011, Messrs Vince and Horne seek orders granting them leave to issue ‘charging summonses’ under Rule 73.03(1).

The summons also seeks an order that upon the return of the hearing of the charging summons the money in court (standing to the credit of Mr Malhotra) or so much of it as is sufficient to satisfy the costs orders against Mr Malhotra in 7149 being $180,205.94 and in 7263 being $35,717.35 together with interest accruing thereon from, in the case of 7149, 13 June 2007, and in the case of 7263, 8 June 2007, and the costs of the application to be paid to Messrs Vince and Horne as judgment creditors.

RELEVANT RULES

The relevant Rules are as follows:

CHARGING ORDERS AND STOP ORDERS AND NOTICES
73.01 Definitions
In this Order, unless the context or subject matter otherwise requires—
charging order means an order made under Rule 73.02;
corporation includes a body registered or deemed to be registered under the Co-operatives Act 1996 as a co-operative;
funds or funds in court means—
(a)     any money, any stock issued by or any funds of or annuity granted by any government; or
(b)     any stock of any corporation standing or to be placed to the credit of an account in the books of the Court;
judgment means a judgment or order for the payment of an ascertained sum of money otherwise than into court;
judgment creditor means a person entitled to enforce a judgment;
judgment debt means the sum due under a judgment and includes the amount of any interest;
judgment debtor means a person against whom a judgment may be enforced;
securities means—
(a)    (i)        any stock issued by or any funds of or annuity granted by the Commonwealth of Australia or by any State or Territory of the Commonwealth; and
(ii)     any stock of any corporation registered or formed under any general Act of the Commonwealth of Australia or under any general Act of any State or Territory of the Commonwealth; and
(b)     any dividend or interest payable on such stock;
stock includes shares, and any debenture, debenture stock, bond, note or other security.
73.02 Order charging securities
For the purpose of securing the payment of a judgment debt the Court may by order impose a charge on the beneficial interest of the judgment debtor in any securities.
73.03 Filing and service of charging summons
(1)     On the application of a judgment creditor, the Court may order that a charging summons be filed and served.
(2)     A judgment creditor may apply for an order under paragraph (1) without notice to any person.
73.04 Evidence on application for charging summons
(1) An application for an order under Rule 73.03(1) shall be supported by an affidavit—
(a)     stating that the judgment is unsatisfied, either wholly or to a stated extent;
(b)     identifying the securities in respect of which the order is sought and stating in whose name they stand; and
(c)     stating that the judgment debtor has a beneficial interest in the securities and describing that interest.
(2)     An affidavit under this Rule may contain statements of fact based on information and belief if the grounds are set out.
73.05 Charging summons
(1)     A charging summons shall identify the securities in respect of which it is filed and state that—
(a)     upon service of the summons on the government or corporation to which it is addressed, the government or corporation, as the case may be, shall not except by order of the Court—
(i)      cause or permit any transfer of any of the securities to be made; or
(ii)     pay to any person any dividend or interest thereon;
(b)     upon service of the summons on the judgment debtor, unless the Court otherwise orders, no disposition by the judgment debtor of the judgment debtor's interest in any of the securities made before the application for the charging order is heard by the Court shall be valid as against the judgment creditor.
(2)     A charging summons shall be in Form 73A.
73.06 Service of summons
The judgment creditor shall, not less than seven days before the day for hearing named in the charging summons, serve on the judgment debtor and personally on the government or corporation the summons and a copy of each affidavit used on the application for an order under Rule 73.03(1).
73.07 Effect of service of summons
(1)     Where without the authority of the Court a government or corporation upon which a charging summons has been served—
(a)     causes or permits any of the securities to which the summons relates to be transferred; or
(b)     pays to any person any dividend or interest thereon—
the government or corporation, as the case may be, shall be liable to pay to the judgment creditor an amount equal to the value to the judgment debtor of the securities transferred or of the dividend or interest paid, as the case may be, or so much thereof as is sufficient to satisfy the judgment.
(2)     No disposition by the judgment debtor of the judgment debtor's interest in any of the securities to which a charging summons relates made after the service of it on the judgment debtor and before the application for the charging order is heard shall be valid as against the judgment creditor, unless the Court otherwise orders.
73.08 Order on summons hearing
(1)     On the hearing of a charging summons, the Court may make a charging order with respect to securities to which the summons relates.
(2) If the judgment debtor does not attend on the hearing of the charging summons or, if attending, does not dispute the evidence in support of the application under Rule 73.03(1), the Court may make a charging order upon that evidence.
73.09 Effect and enforcement of charge
A charge imposed by a charging order shall have the same effect and give the judgment creditor the same remedies for enforcing it as if it were a valid charge effectively made by the judgment debtor.
….
73.11 Order charging funds in court
(1)     For the purpose of securing the payment of a judgment debt, the Court may by order impose a charge on the beneficial interest of the judgment debtor in any funds in court.
(2)     Rules 73.03 to 73.08 and Rule 73.10 shall apply, with any necessary modification, to an application for an order under paragraph (1).
Rule 73.11(3) amended by S.R. No. 100/2008 rule 9(2)(f).
(3)     The judgment creditor shall, forthwith upon the making of an order that a summons for an order under paragraph (1) be filed and served, lodge a copy of the summons and of each affidavit used on the application for the order with the Senior Master or Prothonotary by whom the funds in court are held.
(4)     Paragraph (1) is subject to Rule 15.09.
73.12 Stop order for funds in court
(1)     The Court may make an order that funds in court, or any part thereof, or the income thereon, shall not be transferred, sold, delivered out, paid or otherwise dealt with unless notice is first given to the person applying for the order.
(2)     An order may be made under paragraph (1) on the application of—
(a)     any person who has a mortgage or charge on the interest of any person in the funds in court;
(b)     any person to whom that interest has been assigned; or
(c)     any person who is a judgment creditor of the person entitled to that interest.
(3)     The application shall be made—
(a)     by summons in the proceeding in which the funds are in court; or
(b)     if there is no proceeding, by originating motion.
(4)     The summons or originating motion and a copy of any affidavit in support shall be served on every person who has an interest in the funds in court which may be affected by the order sought.
(5)     On an application under this Rule, the Court may make such order as it thinks fit for the costs and expenses of the applicant and of any party to the application or other person against whom an order is sought.
….

If leave is granted, Messrs Vince and Horne intend to serve the ‘charging summonses’ (prepared and exhibited to the Osborn affidavit as ALO-15 and ALO-16) and at the hearing of the ‘charging summonses’ they will seek orders that funds in court held to which Mr Malhotra may be entitled be paid to Messrs Vince and Horne under Rule 71.13.

Under Rule 73.02 for the purpose of securing payment of a judgment debt the Court may by order impose a charge on the beneficial interest of the judgment debtor in any securities. Securities are defined.

Messrs Vince and Horne rely on Rule 73.11(a) that enables the Court to impose a charge on the beneficial interest of the judgment debtor in any funds in court. Rule 73.11(2) provides that Rules 73.03 to 73.08 and Rule 73.10 (which refer to charging ‘securities’ “shall apply, with any necessary modification, to an application for an order under paragraph (1). Under Rule 73.01 ‘funds in court’ is defined to include “any moneys”…”standing or to be placed to the credit of any account in the books of the Court.”

Messrs Vince and Horne contend that the requirements of Rule 73.04(1) relevant to seeking leave to file and serve charging summonses have been met. In particular in they contend that they have satisfied the requirements of Rule 73.04(1) which states that any application under Rule 73.03(1) shall be supported by an affidavit:

(a) stating the judgment is unsatisfied (see par 33 of the Osborn affidavit);

(b) identifying the ‘securities’ (or funds in Court) in respect of which the charging order is sought (see pars 26-31 of the Osborn affidavit); and

(c) stating that the judgment debtor (Mr Malhotra) has a beneficial interest in the funds in Court (see par 31 of the Osborn affidavit).

Mr Jones contends that Mr Malhotra does not have a beneficial interest in the funds in court as it is not known what that entitlement is or what the quantum is.[140] I find that Mr Malhotra does have a “beneficial’ interest in those moneys for the purposes of Rule 73 despite his interest being subject to other priorities. I do not accept that submission. Mr Malhotra has a beneficial interest in half the moneys in Court. His interest is subject to other prior interests but is not extinguished by their existence.
[140]Transcript 29 line 10.

Mr Malhotra contends that if a stay is granted of the enforcement of the cost orders then the basis for the charging summons falls away. I do not agree. In my view, on the return of the summons the Court may grant an order charging the moneys in Court but stay the further enforcement of the judgment pending the hearing and determination of Mr Malhotra’s proceedings or further order.

I will give leave to Messrs Vince and Horne to file and serve the s 46A summonses. Rule 73 applies to moneys in Court.

I propose to apply a condition under Rule 1.14(1)(b) that any application that moneys be paid to Messrs Vince and Horne under the charge be stayed until the hearing and determination of proceeding 4624 of 2008 or further order.

---

[2011] VSC 119

4 April 2011