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Re S&D International Pty Ltd (No 4)

Re S&D International Pty Ltd (No 4)

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Case Copied 2 September 2010 75 min read

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT
CORPORATIONS LIST

No. 7807 of 2008

IN THE MATTER OF S&D INTERNATIONAL PTY LD (RECEIVER AND MANAGER APPOINTED) (IN LIQUIDATION) ACN 075 030 447

BETWEEN

GEOFFREY NEILS HANDBERG (IN HIS CAPACITY AS LIQUIDATOR OF S&D INTERNATIONAL PTY LTD (RECEIVER AND MANAGER APPOINTED)
(IN LIQUIDATION) ACN 075 030 447

AND

S&D INTERNATIONAL PTY LTD (RECEIVER AND MANAGER APPOINTED) (IN LIQUIDATION)
ACN 075 030 447

AND

MIG PROPERTY SERVICES PTY LTD
ACN 006 657 174

AND

PAUL VARTELAS (IN HIS CAPACITY AS RECEIVER AND MANAGER OF S&D INTERNATIONAL PTY LTD)(RECEIVER AND MANAGER APPOINTED)

AND

DINESH MALHOTRA

AND

BILL VELOS

AND

PRADEEP TIWARI

AND

STIRLING HORNE

AND

PETER VINCE

First Plaintiff

Second Plaintiff

First Defendant

Second Defendant

Third Defendant

Fourth Defendant

Fifth Defendant

Sixth Defendant

Seventh Defendant

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	8, 9, 10 and 11 February, 15, 16, 17, 18, 19, 22 March and 20 August 2010
DATE OF JUDGMENT:	2 September 2010
CASE MAY BE CITED AS:	Re S&D International Pty Ltd (No 4)
MEDIUM NEUTRAL CITATION:	[2010] VSC 388

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PRACTICE AND PROCEDURE – effect of orders and declarations as to ownership of real property – dispute as to basis of order – whether interest in trust property held through unit trust or independently of unit trust – order applied by its terms

CORPORATIONS – whether director breached duties under ss 180, 181 and 182 of the Corporations Act 2001 – company a trustee of a unit trust – extended family dispute as to beneficial ownership of two properties held by company as trustee of unit trust - properties mortgaged to raise finance for director’s mother to buy a house – company’s assets used to finance costs of litigation over beneficial ownership of assets held by the company as trustee - whether company in breach of trust – whether director in breach of duties - breaches found

TRUSTS - whether director liable as a constructive trustee for breaches of trust by trustee company – liability found

RELEASE - whether release in previous proceedings applied to proceeding against director by the plaintiffs – contra preferentem rule – release applied

TORRENS SYSTEM - failure to lodge a caveat by prior equitable interest holder – whether priority lost in prior equitable interest in favour of subsequent interest holder – priority deferred

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M J Galvin	Mills Oakley Lawyers
For the Third Defendant	In person	-
For the Fourth Defendant	Mr A F Hamlyn-Harris	Velos Lawyers
For the Fifth Defendant	Mr A M Donald	Eggleston Whelan

Cases cited

Abigail v Lapin [1934] AC 491

Adsett v Berlouis (1992) 37 FCR 201

ASIC v Gallagher (1993) 11 WAR 105

ASIC v Maxwell(2006) 59 ACSR 373

ASIC v Macdonald(No 11) (2009) 230 FLR 1

ASIC v Sydney Investment House Equities (2008) 69 ACSR 1

Barnes v Addy(1874) LR 9 Ch App 244

Beale v…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] VSC 388
Decision Date: 2 September 2010

CaseChat Overview and Summary

In Re S&D International Pty Ltd (No 4), the Supreme Court of New South Wales addressed a complex dispute involving the ownership of real property held by a company acting as a trustee for a unit trust. The plaintiffs, who were beneficiaries of the unit trust, sought declarations and orders regarding the ownership of two properties. The properties had been mortgaged by the company to finance the purchase of a house for the director's mother, leading to a family dispute over the beneficial ownership of the properties. The court was tasked with determining whether the director of the company had breached his duties under the Corporations Act 2001, whether the director was liable as a constructive trustee, and the effect of a release in previous proceedings on the current action against the director.

The court considered whether the director's actions in mortgaging the trust properties and using the company's assets to fund litigation constituted a breach of his duties under sections 180, 181, and 182 of the Corporations Act 2001. It also assessed whether the director was liable as a constructive trustee for the breaches of trust by the trustee company. Furthermore, the court needed to interpret the application of a release in previous proceedings to the current action against the director and examine whether the failure to lodge a caveat by an equitable interest holder resulted in the loss of priority of that interest.

The Supreme Court found that the director had breached his duties under the Corporations Act 2001 and was liable as a constructive trustee. The court held that the release in the previous proceedings applied to the current action against the director, following the contra preferentem rule. It also determined that the failure to lodge a caveat did not result in the loss of priority of the equitable interest. The court made orders reflecting these findings, including that the director was liable for the breaches of trust and that the release applied to the current action.

Orders