Rowe v Silverstein (No. 2)
[2010] VSC 86
•12 March 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 7151 of 2006
| ELIZABETH ROWE | Plaintiff |
| v | |
| SILVERSTEIN & ORS | Defendant |
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JUDGE: | J. FORREST J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 26 February, 9 March 2010 | |
DATE OF RULING: | 12 March 2010 | |
CASE MAY BE CITED AS: | Rowe v Silverstein (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 86 | |
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INJUNCTIONS – Dissolution of injunction – Right of non-party to oppose dissolution of injunction – Impact on non-parties – Effect on creditors of continuation of injunction –Obligation of liquidator under the Corporations Act.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Simpson | Hunt & Hunt |
| For the First Defendant | Mr R. Silverstein | Ronald D. Silverstein |
| For the Second Defendant | Mr D. Peries | Robert James Solicitors |
| For the Fourth to Eleventh Defendants | Mr L. Watts | Michael V Stapleton |
HIS HONOUR:
This is an application by the plaintiff, Mrs Elizabeth Rowe, and the second defendant, the liquidator of an incorporated association known as “Association of Visual Impairment, the Homeless and the Destitute Inc” (“the Association”), to vary the terms of orders made by judges of this Court in June and July 2006.
To recite in detail the facts surrounding this proceeding, the related proceedings and the various interlocutory skirmishes would require the combined talents of Marcel Proust and Leo Tolstoy. I am grateful for the helpful summary contained in the judgment of Daley AsJ of 30 October 2009 and adopt it as the background to this application. For the purposes of this application it suffices to provide the following, imperfect and incomplete, summary:
(a) Mr Silverstein operated a contributory mortgage practice and acquired mortgages in his own name in respect of a large parcel of land at Bacchus Marsh in 1989 (“the Tusko land”).
(b) Mrs Rowe and the fourth to tenth defendants each assert that they provided funds for the acquisition of the mortgages and have a beneficial interest in the Tusko land as contributory mortgagees.
(c) In 1994, Mr Silverstein and/or persons or companies associated with him took control of the land as mortgagees in possession after default by the mortgagees.
(d) In 1998, the second defendant, the Association, was incorporated with each of the fourth to eleventh defendants as members of the Association. Mrs Rowe says that its purpose was to develop the land.
(e) The Tusko land was transferred to the Association in July 2000.
(f) On 29 June 1999, the Association executed an unregistered mortgage in favour of Mr Silverstein over the Tusko land. On 12 June 2006, the mortgage was transferred by Mr Silverstein to the fourth to tenth defendants. Subsequently, in 2007, the fourth to tenth defendants lodged a caveat to protect their unregistered mortgage.
(g) On 15 June 2006 Williams J granted the Australian Taxation Office an injunction restraining Mr Silverstein and the Association from further dealings with the land. That injunction was dissolved in 2008.
(h) On 14 December 2007, the Association was wound up by order of Master Efthim. The liquidator of the Association (“the liquidator”) now defends Mrs Rowe’s claim.
This proceeding was issued in June 2006 when Mrs Rowe obtained interlocutory injunctions restraining further dealings with the land. The orders were made by three judges of this Court and the relevant parts are set out below:
(a) By Dodds-Streeton J on 22 June 2006:
3. Until 4.15pm on 28 June 2006 or until further Order the first and second defendants and each of them be restrained and an interim injunction be granted restraining each of them whether by themselves, their servants or agents or howsoever from further selling, transferring, mortgaging, encumbering, charging, diminishing, assigning, disposing or otherwise dealing with any estate or interest in the subdivisional land known as the “Australian Impressionists Estate” or “Long Forrest Estate” located at Bences Road, Bacchus Marsh in the State of Victoria inclusive of the Lots described in the attached Schedule to this Order.
4. Order and direct pursuant to s 103 of the Transfer of Land Act 1958 (Vic) that until 4.15pm on 28 June 2006 or until further Order the third defendant shall not register any instrument or record any dealings in the Register of land maintained at the Office of Titles with respect to any Lot described in the attached Schedule to this Order.
5. Notwithstanding paragraph 3 of this Order and subject to the prior written consent of the plaintiff’s solicitors, the first and second defendants be permitted to sell, transfer, mortgage or otherwise encumber for current market value any Lot described in the attached Schedule to this Order provided that accumulated proceeds of sale or funds derived therefrom up to the sum of $11,614,773.00 be paid forthwith into Court to the Senior Master to be held in the Common Fund No. 1 pending further order of this Court.
(b) By Dodds-Streeton J on 28 June 2006:
3. Paragraph 4 of the above Order made on 22 June 2006 in the plaintiff’s proposed proceeding be extended from 4.15pm on 28 June 2006 until further Order.
4. Subject to paragraph 7 of this Order and until further order of the Court, the first defendant be restrained and an interim injunction be granted restraining him, whether by himself, his servants or agents or howsoever otherwise from disposing of, encumbering, diminishing, charging, assigning or otherwise dealing in any way with the sum of $22,316,694.30 or any lesser sum paid to him or at his direction pursuant to:
(a) the Contract of Sale dated 29 June 1999 (“the sale contract”) made between himself and the second defendant (being exhibit “KR-3” to the affidavit of Kathy Roberts sworn 7 June 2006 and filed in proceeding No. 6804 of 2006);
(b) the Consultancy Agreement (“the consultancy agreement”) dated 29 June 1999 between himself and the second defendant (being exhibit “KR-4” to the aforesaid Roberts affidavit filed in that proceeding).
5. Subject to paragraph 7 of this Order and until further order of this Court, the first defendant whether by himself, his servants or agents or howsoever otherwise be restrained and an interim injunction be granted restraining him from disposing of, encumbering, diminishing, charging, assigning or otherwise dealing in any way with his interest or entitlement pursuant to the contract or the consultancy agreement up to the amount of $22,316,694.30.
6. Subject to paragraph 7 of this Order and until further order of the Court or otherwise with the written consent of the plaintiff, the second defendant be restrained and an interim injunction be granted restraining it, whether by itself, its servants or agents or howsoever otherwise from further selling, transferring, mortgaging, encumbering, charging, diminishing, assigning, disposing of or otherwise dealing in any way with any estate or interest in the land described in the sale contract inclusive but without limitation the Lots described in the attached schedule to this Order (“the Land”) including borrowing any further funds secured by any existing mortgage, charge or encumbrance on the Land.
7. Until further order or otherwise with the prior written consent of the plaintiff, the second defendant be permitted to receive any payments made from the sale, transfer, mortgage or otherwise encumbering of any estate or interest in the Land provided that all amounts received from any such payments up to the sum of $22,316,694.30 shall be forthwith paid into an interest bearing account held by Michael Vincent Stapleton in the name of “Association for Visual Impairment The Homeless and The Destitute Inc.” to be held in such account until further Order or with the prior written consent of the plaintiff.
(c) By Gillard J on 19 July 2006:
1. Order and direct pursuant to s 103 of the Transfer of Land Act 1958 (Vic) that until further Order of the Court or otherwise with the written consent of the plaintiff the third defendant shall not register any instrument or record any dealings in the Register of Land maintained at the Office of Titles with respect to any lot described and not deleted in the Amended Schedule attached to this Order.
On each occasion, counsel for Mrs Rowe gave an undertaking as to damages.
At the time that the injunctions were obtained, there were three defendants to the proceeding, Mr Silverstein, the Association and the Registrar of Titles. In 2008, the fourth to eleventh defendants were, by my order, added as parties to the proceeding. The Registrar is prepared to abide by any order of the Court and has not taken part in this application. The injunctions restraining dealings with the land have now been in force for close to four years.
Mrs Rowe and the liquidator now seek to vacate the following orders:
(a) Paragraph 4 of the orders made by Dodds-Streeton J on 22 June 2006.
(b) Paragraphs 3, 6 and 7 of the orders made by Dodds-Streeton J on 28 June 2006.
(c) Paragraph 1 of the order made by Gillard J on 19 July 2006.
They also seek to have several consequential orders made. I set out those orders sought:
2. Order and direct pursuant to s 103 of the Transfer of Land Act 1958 (Vic) that until further order of the Court, the third defendant shall not register any instrument or record any dealings in the Register of Land maintained at the Office of Titles with respect to any Lots described in the Amended Schedule attached to this Order (“Lots”) other than an instrument that is made after this Order in relation to any sale after this Order by the second defendant of one or more of the Lots or for the completion of such sale.
3. Upon the registration of any Transfer of Land made after this Order from the second defendant to any purchaser of one or more of the Lots, Order 2 of these Orders shall be vacated in relation to any of the Lots the subject of such a Transfer of Land.
4. Order and direct that the Liquidators of the second defendant, after deduction of the Liquidators’ remuneration, costs and expenses, deposit any proceeds of sale from one or more of the Lots into the Senior Master’s Fund in the name of the Liquidators of the second defendant, until further Order.
5. The Liquidators of the second defendant may, on a monthly basis, deduct from the funds held in the Senior Master’s Fund any amount on account of the Liquidators’ remuneration, costs and expenses to a total amount of $220,000 (including GST), by tendering to the Senior Master’s Fund a tax invoice setting out the Liquidators’ remuneration, costs and expenses, and the Senior Master must pay any amount to the Liquidators forthwith.
6. Order and direct that the balance of such proceeds of sale after deduction of the amount required under paragraph 5 above, be held in the aforesaid trust account until further Order of the Court.
I required that Mrs Rowe and the liquidator give notice to the other defendants to the proceeding of this application in the event that any of the other parties wished to take steps to protect their position once the liquidator was in the position, if he wished, to sell parts or, for that matter, all of the Tusko land.
The practical effect of the proposed orders is that the liquidator will now be able to go about his task in conformity with the provisions of the Corporations Act. The creditors, primarily trade creditors, have claims of approximately $630,000 against the Association and the liquidator also proposes to continue to defend the claim brought by Mrs Rowe in this proceeding. I was told that approximately $180,000 has already been expended in terms of administration of the estate, including payment of costs associated with the defence of Mrs Rowe’s claim.
The position taken by Mr Silverstein and the fourth to eleventh defendants was quite curious. Each opposed the making of consent orders which would discharge the order obtained by Mrs Rowe restraining the liquidator from dealing with the land, an order to which they are not parties. In effect, they required her to continue to give an undertaking as to damages in respect of an injunction which she and the liquidator have agreed can be discharged.
I heard oral argument on behalf of the contradictors on both 26 February and 9 March. Written submissions were provided by counsel for the fourth to eleventh defendants. I will set out in brief my reasons for rejecting the arguments that the orders should not be made.
First, Mr Silverstein and the fourth to eleventh defendants have no direct interest in the orders that are sought to be discharged. The orders operate as between Mrs Rowe, the liquidator and the Registrar. Mrs Rowe and the liquidator have agreed as to the terms of the orders and the third defendant, the Registrar, will abide by the order of the Court. It would be rare to deny parties orders to give effect to their agreement for the discharge of orders made by the Court, particularly where those orders tie the hands of one of those parties in dealing with its assets.
Second, Mrs Rowe has given undertakings as to damages in relation to the injunction obtained against the Association. The removal of the restraint of the second defendant from dealing with the land will limit her liability for any damages sought by the Association in the event that she is unsuccessful at trial. It would take an extraordinarily powerful reason to compel a plaintiff who has obtained an injunction to maintain that injunction with the consequential undertaking as to damages at the behest of a party who has no direct interest in that part of the order.
Third, there is a question of public interest. The injunction has restrained the liquidator from dealing with the land over the past two years. The liquidator should be able to perform his duties pursuant to the Corporations Act, given the agreement that has been reached. It would be inimical to the to the interests of the creditors and the orderly administration of the Association’s affairs to preclude the liquidator from being able to go about its business in accordance with the Corporations Act.
Fourth, I reject the suggestion that in some way the fourth to tenth defendants will be prejudiced by the discharge of the orders. Caveats have been lodged to protect their asserted interests under the unregistered mortgage.[1] If and when the liquidator comes to dispose of any portion of the land, the question of their rights and entitlements if any under that mortgage can be ventilated. It is also of significance that there is a trial date in this proceeding on 17 May, which should resolve at least some of the arguments surrounding the respective asserted interests in the Tusko land.
[1]I note that the eleventh defendant also asserts an entitlement pursuant to a separate unregistered mortgage.
There are, however, two matters which arise out of the draft orders which were the subject of argument by counsel for the fourth to eleventh defendants and which, as I indicated in discussion, warrant attention.
The first matter relates to paragraph 2, which prevents the registration of any instrument or record of any dealing by the Registrar by any person other than the second defendant (absent an order of the Court). The order prevents the fourth to tenth defendants from registering their mortgage. Whether any loss flows from that preclusion, given the other asserted interests, is by no means clear. However I will hear further argument as to an appropriate form of undertaking in relation to this issue.
Second, the terms of order five as drafted are, at the moment, mandatory and require the Senior Master to pay a tax invoice with the liquidator’s remuneration costs and expenses out of the funds held in Court, which would be made up of the sale of any property. Counsel for the fourth to tenth defendants, Mr Watts, argued that there was a potential for such an order to involve a breach of the rule in Re Universal Distributing Co Ltd (in liq)[2] as recently set out IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq).[3] As I discussed with counsel, provided the order is amended so as to provide that the Senior Master make any such payment as is appropriate and lawful, then the prospect of such a breach should be avoided. The liquidator is required to comply with the provisions of the Corporations Act, and can be taken to be aware of the rights of the parties in relation to the perseveration and realisation of a fund. It is not for this Court, as part of determining the discharge of parts of an injunction as it affects two of the parties to the proceeding, to engage in an inquiry concerning the liquidator’s obligations to various classes of creditors.
[2](1933) 48 CLR 171.
[3](2009) 69 ACSR 507 [60].
In my view, the consent orders ought to be made subject to these matters I have detailed.
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