Re Shot One Pty Ltd (in liquidation)
[2014] VSC 355
•2 May 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
No. S CI 2014 00390
IN THE MATTER OF SHOT ONE PTY LTD ACN 096 104 808
(IN LIQUIDATION)
BETWEEN:
| SHOT ONE PTY LTD (IN LIQUIDATION) (ACN 096 104 808) and | First Plaintiff |
| ANDREW REGINALD YEO as liquidator of SHOT ONE PTY LTD (IN LIQUIDATION) (ACN 096 104 808) | Second Plaintiff |
| v | |
| RICHARD LEONARD DAY and RISING ROCKET PTY LTD (ACN 102 373 633) | First Defendant Second Defendant |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 May 2014 | |
DATE OF JUDGMENT: | 2 May 2014 | |
CASE MAY BE CITED AS: | Re Shot One Pty Ltd (in liquidation) | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 355 | |
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PRACTICE AND PROCEDURE – Application by the defendants to determine a preliminary question - Principles for exercise of discretion – Application refused - Supreme Court (General Civil Procedure) Rules 2005, r 47.04.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr L. Glick QC with Mr J. Kohn | Frenkel Partners |
| For the Defendants | Mr J. Evans | Piper Alderman |
EX TEMPORE (REVISED)
HIS HONOUR:
Introduction
I have before me an interlocutory application dated 7 March 2014 by the defendants, Richard Day and Rising Rocket Pty Ltd (Rising Rocket), under Rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (the Rules) for an order that a separate trial be held on a preliminary issue as to whether a deed of settlement dated and executed on 23 May 2012 between Shot One Pty Ltd (Shot One), Mr Nicholas Day, Rising Rocket, Mr Richard Day and Cooniemoon Pty Ltd (Cooniemoon) (deed of settlement), should be set aside under the voidable transactions provisions of the Corporations Act 2001 (Cth) (the Act), as alleged by the plaintiffs.
Mr Evans of counsel for the defendants submits that that issue is a discrete one which could be resolved without the Court needing to make findings on the other claims made by the plaintiffs that certain payments were improperly made by Shot One for the benefit of Mr Nicholas Day, which I will explain in a moment. Before I return to Mr Evans’s submissions, I should set out the background to the claims that the plaintiffs wish to make.
Background to plaintiffs’ claims
The general case that the plaintiffs wish to put is as follows. Mr Nicholas Day, a well-known architect, went bankrupt some time ago. A consequence of Mr Day’s bankruptcy was that Mr Day would only be entitled to keep a limited amount of his earnings as an architect and the balance would have to be paid to his trustee in bankruptcy for the benefit of his creditors. The plaintiffs say that Mr Nicholas Day and his brother Mr Richard Day entered into an arrangement to defeat Mr Day’s creditors in bankruptcy and to circumvent the consequences of the bankruptcy of Mr Day.
Prior to March 2001, Mr Day carried on business as an architect trading under the name “Nicholas Day Architects”. On a date unknown, Mr Nicholas Day was served with a bankruptcy notice.
On 5 March 2001, Shot One was incorporated and Mr Richard Day and Mr Nicholas Day were appointed directors.
On or about 3 August 2001, the Deputy Commissioner of Taxation of the Australian Taxation Office filed a creditor’s petition against Mr Nicholas Day in the Federal Magistrates’ Court of Australia.
On 5 September 2001, Mr Nicholas Day filed a debtor’s petition and as a result was declared bankrupt.
On 28 September 2001, Mr Nicholas Day ceased being a director of Shot One. Nicholas and Richard Day agreed that Shot One would purchase Mr Nicholas Day’s architectural practice, which it did shortly after he became bankrupt.
Shot One would employ Mr Nicholas Day with a salary up to the level permitted under the bankruptcy regulations, and Mr Nicholas Day's other personal expenses would be met by Shot One. These expenses included expenses such as school fees and living expenses to maintain the lifestyle that Mr Nicholas Day had enjoyed prior to his bankruptcy. Underpinning this arrangement was the fact that Mr Nicholas Day would be generating this income through his architectural skills.
The alleged arrangement between Mr Nicholas Day and Mr Richard Day also provided for Shot One to provide monies to enable Mr Nicholas Day to have a house in Rockley Road, South Yarra.
On 1 October 2002, the second defendant, Rising Rocket, was incorporated. Mr Richard Day was appointed the sole director of Rising Rocket.
N. Kenos & Sons Pty Ltd (Kenos) was the registered proprietor of the property located at 2 Rockley Road, South Yarra. Kenos sought to develop units on the property. Kenos engaged Mr Nicholas Day to provide architectural services to design the units.
On or about 27 July 2004, a contract of sale of land was executed by Kenos (as vendor) and Rising Rocket (as purchaser) pursuant to which Kenos agreed to sell and Rising Rocket agreed to purchase part of the Rockley Road Property (Rockley Road Property). There were terms of the contract of sale, amongst others, that:
(a) The purchase price is $1,350,000;
(b) The deposit sum is $81,000;
(c) At settlement $103,500 will be deducted from the vendor’s settlement monies being for payment of architectural fees to be incurred by the vendor or any nominated company for architectural and related services to be performed by (Shot One Pty Ltd) Nicholas Day Architects (Special Condition 2); and
(d) The offsetting of fees is for future work. Should this work not be seen through to its conclusion the full amount of $103,500 will not be payable earlier than 12 months from the settlement date (Special Condition 3).
The plaintiffs contend that Shot One’s monies were used to:
(a) Pay the deposit on the purchase of the Rockley Road Property; and
(b) Pay the mortgage payments on the property.
On or about 27 July 2004, Shot One paid the sum of $85,000 as the deposit for the Rockley Road Property.
On or about 1 August 2004, Mr Nicholas Day executed a written tenancy agreement with Rising Rocket for the lease of the Rockley Road Property commencing on 1 December 2004.
On or about 4 August 2004, an agreement was entered into by Rising Rocket (as borrower), the Commonwealth Bank of Australia (CBA) (as lender), Shot One (as guarantor) and Mr Richard Day (as guarantor). Pursuant to the agreement, the CBA agreed to lend, and Rising Rocket agreed to borrow, the sum of $1,080,000 on terms which included the provision of security by Rising Rocket by way of a mortgage over the Rockley Road Property and a guarantee by Shot One and Mr Richard Day (the Rockley Road Finance Agreement).
On or about 2 December 2004, Shot One paid the sum of $86,000 for the balance of the purchase price for the Rockley Road Property.
On or about 21 January 2005, Rising Rocket became the registered proprietor of the Rockley Road Property.
The Rockley Road Property was acquired and the CBA mortgage repayments were made from the traceable proceeds of Shot One.
On 21 December 2006, Mr Nicholas Day’s bankruptcy terminated.
On 11 February 2009, Mr Nicholas Day was reappointed as a director of Shot One.
Following this, Mr Richard Day made claims against Mr Nicholas Day, saying that Shot One had transferred $687,481.78 to Cooniemoon to maintain Mr Nicholas Day's lifestyle and Cooniemoon, in which Mr Richard Day was a director, had been assessed for income tax. The dispute related to a sum of $57,755.89 - which seems a small sum in view of the fact that Cooniemoon rendered close to $700,000 for fees; supposedly fees for services unspecified, provided to Shot One, according to the argument and the case sought to be put by the plaintiffs.
The plaintiffs’ case at this stage is that the brothers fell out. The plaintiffs do not know why but they did fall out and Shot One, under the control of Mr Nicholas Day, took proceedings against Rising Rocket and Mr Richard Day in this Court, seeking to recover the Rockley Road Property.
On 10 June 2010, Shot One lodged a caveat on the Rockley Road Property.
On or about 22 November 2010, Shot One filed a writ supported by a statement of claim in this Court against Rising Rocket and Mr Richard Day. In that proceeding Shot One asserted that its monies were used for the acquisition of the Rockley Road Property and claimed a trust interest in the property.
On or about 18 February 2011, Rising Rocket and Mr Richard Day filed an amended defence. In their defence the fact that Shot One used its funds to pay for the acquisition was not disputed. What was said was that those funds were in fact a loan.
On or about 23 May 2012, Shot One, Mr Nicholas Day, Rising Rocket, Mr Richard Day and Cooniemoon executed a deed of settlement. There were terms of the deed of settlement, amongst others, that:
The parties to this deed agree to mutually release each other (and their successors and assigns) from all future and existing actions, causes of action, potential causes of action, suits, rights, claims, expenses, losses, proceedings and demands of whatsoever nature (including, without limitation, any claim for costs, interest or indemnity) whatsoever and however arising, known or unknown, which relate to, directly or indirectly, or are in any way connected with the Proceeding or the matters raised in the Introduction above, and further includes without limitation any claims by Nicholas Day or Shot One as against Cooniemoon and any claims as against Richard in relation to Richard’s role and tenure as the direction of Shot One, but which mutual release does not affect the rights of the parties under the Residential Tenancy Agreement or otherwise under the Residential Tenancies Act 1997 (Vic) or any ongoing obligations that Rising Rocket as trustee of the Rising Rocket Trust owes Nicholas Day as a general beneficiary for the Rising Rocket Trust (clause 12 of the deed of settlement).
On 9 November 2012, the Federal Court of Australia ordered that Shot One be wound up in insolvency on a petition by the ATO under the provisions of the Act and that the second plaintiff be appointed the liquidator of Shot One for the purposes of the winding up.
On 31 January 2014, the plaintiffs filed, in this Court, an originating process and affidavit in support. No pleadings have been filed as a result of the defendants’ application for determination of preliminary questions.
In the plaintiffs’ originating process, the plaintiffs claim that the settlement was designed to avoid Mr Nicholas Day’s trustee in bankruptcy from obtaining the benefit of the claim that Shot One had over the Rockley Road property.
The plaintiffs’ case is that the terms of settlement were a contrivance. In particular the plaintiffs contend that Mr Nicholas Day was advised that if Shot One succeeded in recovering the Rockley Road property, which Shot One’s moneys had been used to buy, then the trustee in bankruptcy may have laid claim to the property presumably on the basis that the initial conspiracy would have been uncovered - and on that basis of this advice the settlement was contrived as it was.
Defendants’ submissions
Mr Evans for the defendants submits that it is not necessary for the Court to make findings about the validity of the payments made by Shot One for the purpose of buying the Rockley Road Property, or for the benefit of maintaining Nicholas Day’s lifestyle. Mr Evans also submits that it is not necessary for the Court to consider those claims to make a finding about whether the deed of settlement should be set aside under the voidable transactions provisions of the Act.
Mr Evans submits that it might be relevant to be apprised of those transactions, but it is not necessary to make the findings that they were made in breach of director’s duties and that they were transactions for which Mr Richard Day and Rising Rocket are liable to the plaintiffs for.
Conclusion
In my opinion, the concession by the defendants that it will be necessary to investigate the issues relating to their alleged conduct, but not make a final decision as to whether liability by Mr Richard Day and Rising Rocket is established in favour of the plaintiffs, is a difference without substance.
In my opinion, the Court will be required - in assessing the case that the settlement was a sham, was uncommercial, was a fraud on creditors or a fraud on the trustee in bankruptcy - to make findings which although they may fall short of finding that Richard Day and Rising Rocket are actually liable to the plaintiffs, will in fact go a long way to making those findings. It will only be a small step, if those allegations have been made out, for the Court then to rule on the claims made by the plaintiffs against the defendants, Richard Day and Rising Rocket.
In my view, it would not be an efficient use of the Court’s time, nor would it be in the interests of justice for the two issues to be decided separately. The issues overlap considerably and the claims against Mr Richard Day and Rising Rocket will be substantially traversed in the plaintiffs’ claim that the deed of settlement was a sham or was uncommercial or unreasonable.
Mr Evans contends that it may be premature to make a decision on the defendants’ application as it is conceded by Mr Glick for the plaintiffs that there may be some further amendments made to the statement of claim. Mr Evans submits that the application should be adjourned pending the plaintiffs properly articulating their claims, or alternatively, dismissing the application but giving the defendants the right to make another application once the plaintiffs have properly articulated the claim they wish to make.
I do not accept this submission. Whatever amendments are made, the basic case that the plaintiffs want to run is the one outlined before me today. I would envisage that the amendments that are sought to be made to the statement of claim would merely seek to clarify - from a legal point of view - what the legal consequences are in relation to the conduct which is alleged. From what has been said, I do not envisage that the basic facts alleged will be changed. If anything, there might be further claims made against other parties who were involved in these the alleged transactions.
I have had the benefit of reading and I adopt the reasons of Davies J in Levy Schneider v Caesarstone Australia Pty Ltd & Anor,[1] where, in paragraph 10 onwards, her Honour sets out the principles that should be applied when a Court considers making an order under r 47.04 of the Rules for the trial of a preliminary question.
[1]2011 VSC 106.
It is my view, for the reasons given, the application should be dismissed with costs.
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