Savage River v FordCorp Industries

[1998] VSC 33

SUPREME COURT OF VICTORIA

CAUSES JURISDICTION Not Restricted

No. 4736 of 1997

IN THE MATTER OF SAVAGE RIVER PTY LTD

(ACN 060 574 727)

AND

IN THE MATTER OF FORDCORP INDUSTRIES PTY. LTD.

(ACN 064 863 001)

AND

IN THE MATTER OF an application by PAUL VARTELAS
(the Receiver and Manager of Savage River Pty. Ltd. and

Fordcorp Industries Pty. Ltd.)

Applicant

v

JOHN THEODORAKAKOS & ORS	Respondents
JUDGE:	Byrne, J.
WHERE HELD	Melbourne
DATE OF HEARING:	25, 26, 29, 30 June, 1 July, 12 August 1998
DATE OF JUDGMENT:	14 August 1998
MEDIA NEUTRAL CITATION	[1998] VSC 33

COMPANIES - execution of agreement - resolution of directors to affix company seal - indoor management rule - no meeting of directors - effect of non est factum attested by one attesting director.

COMPANIES - receiver and manager - declarations as to distribution of company assets.

APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr I.R. Jones	Irlicht & Broberg
For the First and Secondnamed	Mr P. Norris	Russo, Pellicano & Carlei
Respondents
For the Third and Fourthnamed	Mr R.D. Seifman	Ella Gorenstein

Respondents
No appearance for the Fifth, Sixth and Seventhnamed Respondents
No appearance for the Unsecured Creditors of the Sixth and Seventhnamed
Respondents

HIS HONOUR:

1. By originating motion filed on 19 March 1997 Eleni (Helen) Tzimas and Sophie Tellios sought the appointment of a receiver and manager of Savage River Pty Ltd and Fordcorp Industries Pty Ltd. Mrs Tzimas, the thirdnamed respondent, was and is a director of Savage River. Mrs Tellios, the fourthnamed respondent was and is a director of Fordcorp. On 20 March 1997 an order was made by Coldrey, J. appointing the present applicant, Paul Vartelas, to be receiver and manager of the assets and undertakings of both companies.

2. Mr Vartelas, who is still the receiver and manager of the companies, now applies to the court seeking declarations and orders relating to matters arising in connection with the performance of his functions. Mr Vartelas has joined as respondents not only Mrs Tzimas and Mrs Tellios but also the firstnamed respondent John Theodorakakos who was a director of Savage River and claims to be a secured creditor of that company; the secondnamed respondent Paula Theodorakakos, his daughter, who is a director of Fordcorp; Frank Zahos the fifthnamed respondent and the companies themselves, Savage River the sixthnamed respondent and Fordcorp the seventhnamed respondent. There was at trial no appearance for the fifth, sixth and seventhnamed respondents. In addition, prior to the trial I had called any creditors of the two companies on the basis that they had been served with notice of the application. No creditor other than those mentioned above responded or appeared.

3. The relief sought by the receiver and manager is that set out in the further amended summons filed on 22 April 1998 as follows:

“1.1

Declarations as to whether:

(a)	the charge dated 7 June 1994 referred to at paragraph 19 of the Affidavit of the First named Respondent sworn 27 January 1998 is valid and binding upon Savage River Pty Ltd;
(b)	the second registered mortgage referred to at paragraph 18 of the Affidavit of the First named Respondent sworn 27 January 1998 is valid.

1.2

A declaration as to whether any debt that is payable by Savage River Pty Ltd to the first named Respondent is or was secured by one or both of the securities referred at 1.1.

1.3

A declaration as to whether the First named Respondent is entitled to be paid from the moneys held by the receiver and manager referred to at paragraph 2 of the Affidavit of the receiver and manager sworn 19 December 1997 in respect of any debt as referred to at 1.2.

1.4

An order determining the amount of any debt referred to at 1.2
and 1.3.

2.

The validity of a caveat by Xanthis Tsioukis as trustee for the Zahos Family Trust, the nature and amount of any interest secured thereby and whether the amount of any such interest is to be paid in priority to, parri passu or after payment of unsecured creditors.

3.

The manner in which the moneys held by Paul Vartelas as receiver and manager of both Savage River Pty Ltd and Fordcorp Industries Pty Ltd are to be distributed as between the creditors of Savage River Pty Ltd and the creditors of Fordcorp Industries Pty Ltd.

4.

The determination of the remuneration, costs and expenses of Paul Vartelas as receiver and manager of both Savage River Pty Ltd and Fordcorp Industries Pty Ltd.

5.

The amounts of money to be made available, if any, to the unsecured creditors of Savage River Pty Ltd and Fordcorp Industries Pty Ltd.

At the outset, I was told that the parties required that I deal only with paragraphs 1.1, 1.2, 2, 3 and 4 and that they were agreed that paragraph 1.3 and 1.4 be referred to a Master for accounts to be taken.

1. In essence, then, I am required to consider, first, whether a debenture charge and mortgage both granted by Savage River to Mr Theodorakakos and dated 7 June 1994 are valid and effective as securities and, second, how the proceeds of the sale of the assets of Savage River and Fordcorp are to be distributed as between the creditors of each of those companies. The third question relates to the priority of the interest of the Zahos Family Trust in the distribution of the assets of the Landmark Unit Trust.

   THE FACTS

2. Savage River was registered on 18 June 1993. On 22 September 1993 three directors were appointed, Mrs Tzimas, Ioannis (John) Theodorakakos and Fotios Francis (Frank) Zahos. On the same day Savage River became the trustee of the Landmark Unit Trust which itself was created on that day. The initial unit holders in the trust were Mr Theodorakakos, George Tzimas, the son of Mrs Tzimas, and Xanthi Tsioukis, the mother of Mr Zahos. Mr Zahos was made bankrupt on 10 November 1993. Accordingly, by virtue of the Corporations Law s.224(1)(c), his office as director was vacated. The ASC extract contains no record of this fact. It does appear, however, from that extract that on 30 August 1994 he ceased to hold office as director.

3. This commercial structure was put in place as a vehicle for the purchase by the three venturers or groups of venturers on about 10 October 1993 of a commercial property at 405 High Street, Northcote. These premises had been used for a reception centre but this business had not been operating for some time. The property also included some rented premises. The purchase price of $600,000, therefore, represented the freehold only. The purchase was funded by K & K Plastics Pty Ltd to which a first mortgage was granted upon settlement on 3 December 1993.

4. It seems that work was required to be done to the premises to bring it to a fit state to conduct a reception business and furniture and fittings had to be provided. This was done. In due course, the business opened as Elysee Receptions some time before Christmas 1993. As I have mentioned, the property comprised, in addition to the reception area and associated offices and service areas, five tenanted lock-up shops and a gymnasium. Furthermore, the tower on the building was leased to Vodafone. According to Mr Theodorakakos the reception business was conducted until mid-1994 by a company, Tooloom Pty Ltd. An ASC search of that company, however, shows that it was incorporated in September 1993 but little else. The role of this company seems to be very uncertain. None of the witnesses seemed to know very much about it and no documentation showing its involvement in the conduct of the reception centre business was produced.

5. By February 1994 differences had arisen between the Tzimas interests and the Theodorakakos interests, on the one hand, and the Zahos interests, on the other. These concerned a dispute about the shareholdings in Savage River and the appointment to the office of director of that company of one Maria Gadsis who was described as “the de facto partner” of Mr Zahos. Mr Theodorakakos and Mrs Tzimas commenced proceeding No. 4621 of 1994 in this Court against Mr Zahos, Ms Gadsis, Mrs Tsioukis and Savage River. On 24 March 1994 declaratory orders were made determining the dispute and declaring that Mr Theodorakakos and Mrs Tzimas remain the only directors and that Ms Gadsis and Mrs Tsioukis were not and had never been validly appointed as directors. On 16 June 1994, however, these orders were set aside and directions given for pleadings and discovery, presumably on the basis that the litigation was proceeding. The solicitor acting for the plaintiffs in this litigation was Jack di Natale who practised in Carlton.

6. Throughout this period the business was conducted by Mr Theodorakakos, Mr Tzimas and Ms Theodorakakos, who was then the girlfriend of Mr Tzimas. According to Mr Theodorakakos they were expected to marry.

7. By lease dated 1 June 1994 Savage River granted to Fordcorp a 12 month tenancy of the reception centre from that date. This is a remarkable transaction because it was not until 3 June that Fordcorp was incorporated. On 9 June the directors and secretaries of Fordcorp were Ms Theodorakakos and Mrs Tellios, who is the sister of Mr Tzimas.

8. As I have mentioned, the solicitor for Mrs Tzimas and Mr Theodorakakos in their litigation against the Zahos interests was Mr di Natale. Mr di Natale was a business associate of Mr Tzimas who also conducted the business of investment adviser from an office above the reception centre. Mr Theodorakakos said, and I accept, that he was introduced to Mr di Natale as a friend of Mr Tzimas. Mr Theodorakakos said that for some time before June 1994 he had been concerned that he had put $180,000 to $200,000 of his own money into the High Street project and he wanted to protect his interests. He said that Mr Tzimas suggested that Mr di Natale might attend to this and that both men spoke to the solicitor about this matter on at least one occasion. He was unable to recall whether Mrs Tzimas attended any of these meetings; she was represented in business matters, he said, by her son who always handled her affairs.

9. Mr di Natale prepared three documents: a loan agreement between Savage River and Mr Theodorakakos acknowledging the debt of $200,000 and agreeing to pay interest on it at the rate of 15%; a debenture charge from Savage River to Mr Theodorakakos to secure the loan; and a second mortgage of the High Street property from Savage River to Mr Theodorakakos as further security for the loan. These were sent to Mr Theodorakakos with a request that he have them executed. On a date which may have been 7 June 1994 Mr Theodorakakos went to Mr di Natale’s office with the documents and signed each of them there, both as a party and as a witness on behalf of Savage River. It should be noted that he signed the documents in the corporate attestation clause above the description “Secretary” as a person present upon the affixing of the company seal. The ASC records show however, that Mr Zahos was the only secretary of Savage River at this time and that Mr Theodorakakos did not become secretary until 30 August 1994. On each of the documents there appears the imprint of the seal of Savage River and the signature of Mrs Tzimas as a director present upon the affixing of the seal . Mrs Tzimas was not present at Mr di Natale’s office when Mr Theodorakakos signed the document. He said that it was Mr Tzimas who accompanied him to the office on this occasion and that he and Mr di Natale were present when he signed his name on the papers. The signature which Mr Theodorakakos presumed to be that of Mr di Natale also appears on each document as a witness to the signature of Mr Theodorakakos as chargee, mortgagee or lender, as the case may be.

10. Mr Theodorakakos first said that he thought the seal of Savage River was already affixed on the documents when he left the solicitor’s office but he was unable to say how it came to be affixed. This question was revisited on a number of occasions in the evidence. Although it is fair to say that Mr Theodorakakos’ recollection was uncertain, he said he certainly had the impression that the seal was affixed by one of the men present at the solicitor’s office on the occasion that he was there. He was, however, unable to recall whether the signature of Mrs Tzimas was on the documents when he signed them. Mr Tzimas denied all of this. He said he did not accompany Mr Theodorakakos to the solicitor’s office.

11. Mr di Natale himself was not called. The evidence is that for some offence which was not disclosed to me, Mr di Natale was tried and convicted in August 1994 and sentenced to six years’ imprisonment with a non-parole period of four years. He is still in gaol. I was not asked to draw an O’Donell v. Reichard inference from the failure of any party to call him and I have not done so.

12. After the hearing was complete, I recalled the parties before me on 12 August for further submissions on a factual matter which was troubling me. On this occasion, counsel for Mrs Tzimas applied for leave to reopen her case to call as a witness Mr di Natale. I was told that he was to be released from gaol on 18 August next and that it was expected that he would give evidence that he was not present when Mr Theodorakakos signed the security documents and that the signature which Mr Theodorakakos assumed to be Mr di Natale’s was not in fact his. I refused this application on the basis that this was not within the class of exceptional cases where a party is permitted to reopen its case. Mr Theodorakakos’ version of the circumstances of the signing by him of the security documents was set out in his affidavit of 10 March 1998. He gave evidence in chief on this matter on the second day of the trial. Mr George Tzimas was in contact with Mr di Natale earlier in the year and I am not aware of any constraint upon access to the prisoner by him or by any of the legal representatives of Mrs Tzimas. No application for adjournment to obtain instructions was made on her behalf during the course of the trial. It seems to me that this late application to reopen was the result of a subsequent reflection rather than of the discovery of material which was unknown and not reasonably capable of having been discovered at the time of the trial.

13. The evidence of Mrs Tzimas upon this matter is contained in her affidavit of 17 March 1997 in support of her application for the appointment of receiver and manager. She says simply that on or about 7 June she signed the mortgage and the debenture on behalf of Savage River in favour of Mr Theodorakakos. I received this affidavit in evidence notwithstanding that she did not present herself for cross-examination in response to a request that she do so pursuant to R.40.04. I should say that I am not altogether comfortable about her non-appearance. I was told by her counsel, and I accept that these are his instructions, that on 11 June 1998 when the case was first listed for hearing and he sought an adjournment, that she was then in the United States, having travelled there approximately four weeks previously, on a date after the trial date had been fixed and the parties notified. She had sworn an affidavit in Melbourne on 10 March 1998 in this application merely corroborating Mr Tzimas’ affidavit of that date. In these circumstances I refused the adjournment on that occasion but the trial did not proceed for other reasons. On 25 June when the case was again listed for hearing, counsel told me that she was still in the United States but now that she was unable to return because her husband was ill having suffered a heart attack in that country. She had to be with him. There was no evidence of any of these assertions but they were accepted as fact by all parties. Later, in the course of this trial I was told by counsel for Mrs Tzimas that she, too, was "not in a terribly fit state to make affidavits and that sort of thing" and was in a remote part of the State of New Jersey. This assertion as to her present health was not accepted by counsel for the other parties and I do not act upon it. Likewise, I would not accept without compelling evidence that a person in any part of the State of New Jersey was beyond the reach of modern communications. She was in Melbourne on 10 March 1998 when Mr Theodorakakos swore his affidavit setting out the circumstances of the execution of the security documents. She chose not to file answering material and to absent herself from the jurisdiction at the time of the trial. Her absence has deprived me of the opportunity of assessing her in the witness box and of seeing her evidence tested by cross-examination. I will have regard to these matters in weighing her affidavit evidence against that of the witnesses who were present and cross-examined.

14. Having seen the witnesses, Mr Theodorakakos and Mr Tzimas, as to the circumstances of the execution of the documents, I prefer the evidence of the former. I find that the two men went to the solicitor’s office on 7 June and Mr Theodorakakos there signed his name in the places indicated by the solicitor who was also present. With some hesitation, I find that the company seal was affixed on the documents in the solicitor's office on that occasion. Mr Theodorakakos thought that this is probably what happened and it is what I would expect, given that the parties took the trouble to attend the office of a solicitor for the purposes of executing these formal documents. I conclude that Mrs Tzimas signed the documents on behalf of the company at a time when the seal was already affixed on them.

15. The documents were certainly in the hands of Mr di Natale within a few days, for stamp duty on the mortgage was paid on 9 June and a notice of the charge lodged with the ASC at 1.25 pm on that day. For some reason the mortgage was not lodged at the Titles Office for registration. Mr Theodorakakos said that this was because the solicitor would not lodge it until an outstanding account of some $2700 had been paid. This account was paid later in the year but, even so, the mortgage was not lodged until June 1996 and then by another solicitor. It may be that Mr di Natale’s own predicament had some bearing on the non-lodgment of the mortgage.

16. In September 1994 the project was refinanced by the National Australia Bank and a mortgage in favour of the bank was registered on 13 October 1994 following the discharge of the K & K Plastics’ mortgage. Mr Theodorakakos’ mortgage was eventually registered by other solicitors on 12 June 1996.

17. After June 1994 the reception business continued to be conducted by Mr Tzimas, Ms Theodorakakos and her father. In 1995 Mr Tzimas and Ms Theodorakakos ceased to be boyfriend and girlfriend but he continued his involvement in the business until November 1996 when there arose a dispute about money which he had received. He then left the scene. I was told that the business was not then trading profitably and that Mr Theodorakakos decided to sell it as a going concern. This decision was resisted by Mrs Tzimas, or perhaps by her son, and this provoked a further dispute. In February 1997 Mr Theodorakakos took possession of the property as mortgagee. He determined the lease to Fordcorp, or perhaps its overholding tenancy, for non-payment of rent. He then conducted the business himself with a view to selling it. By this time he had well and truly fallen out with Mr Tzimas and so had his daughter.

18. The land and the business were in due course sold. Indeed, they were sold no less than three times. The first sale was to Mario Theodoulou for a total of $1.3M in February 1997. After the appointment of the receiver and manager on 20 March 1997 the purchaser sought to reduce the price and the receiver and manager entered into a second sale dated 3 June 1997. The purchaser on this occasion was Mr Theodoulou’s company, Safarax Pty Ltd and the agreed price was $1.25M allocated as to $1.13M for the freehold owned by Savage River and $120,000 for the business owned by Fordcorp. These contracts were rescinded for default on the part of the purchaser and the deposit of $50,000 forfeited. The properties were again on 25 September 1997 sold, this time to Arthur Loustas and George Georgantzakos for a total sum of $1.2M. This was allocated as to $1.1M for the sale of the freehold from Savage River and as to $100,000 for the sale of the goodwill of the business to Fordcorp. This sale has been completed and the receiver and manager holds approximately $150,000 as the net proceeds of both sales after payment of the bank’s secured debt and deduction of the expenses of sale and his own expenses.

    THE VALIDITY OF THE SECURITIES

1. The attack on the validity of the securities made by Mrs Tzimas was essentially put on four grounds:

1.	The securities were not executed on behalf of Savage River in the manner prescribed by the articles of association.
2.	Non est factum by Mrs Tzimas.
3.	The underlying debt of $200,000 was not owing.
4.	The underlying debt of $200,000 has subsequently been repaid in full.

A further argument based on the equitable jurisdiction of the court discussed in
Amadio v. Commercial Bank of Australia was mentioned but not pursued.

Irregular Execution

1. Counsel on behalf of Mrs Tzimas submitted first that the security documents were not binding upon Savage River because its execution of them was defective for non- compliance with Article 95. This article is in the following terms:

"95. The directors shall provide for the safe custody of the seal which shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors and in the presence of any one director of the Company or such other persons as the directors appoint for the purpose or in such other manner as the directors may from time to time determine. In the event of the seal being affixed without the authority of the directors the affixing of the seal shall nevertheless be valid and shall bind the Company if such affixation of the seal is subsequently ratified by the directors at any time thereafter. The Company may have a duplicate 'share seal' or 'certificate seal' to be used in accordance with Section 247 of the Australian Securities Commission Law 1989."

1. It was put that there was no resolution of the Board of Directors to affix the seal on the documents. It is true that no formal meeting of the Board was convened but this seems not to have been the way the affairs of this company were conducted. In support of the securities, counsel for Mr Theodorakakos submitted that the directors had agreed otherwise than in a formal directors' meeting that the company should enter into the agreements and that the seal of the company should be affixed to them. Mr Theodorakakos told me that the matter was discussed with Mr Tzimas as the representative of his mother. He said that Mr Tzimas handled everything and that Mrs Tzimas' name appeared only on the papers. She did, however, know what was going on because, as he said, "I notify her, everything. I call her, and she say to me, 'I know everything, don't worry about it'". Again, in relation to the interest charge in the mortgage, Mr Theodorakakos said that he talked to her about this many times at her home and he talked with her about the mortgage generally on a number of occasions at various places. He said that she told him that she knew everything but that it was not her business; her son George would take care of it. Mr Tzimas denied that he played this role but I do not accept his evidence. Mrs Tzimas did not give evidence challenging these assertions. Moreover, in the event of conflict between the evidence of Mr Theodorakakos and Mrs Tzimas I would prefer the former. I accept the evidence of Mr Theodorakakos that on a number of occasions he discussed the proposed securities with Mrs Tzimas and her son and that they understood and approved that the loan should be documented and the securities given by the company to him. I must say, however, that in a case where a director of a company asserts a transaction adverse to the interests of that company, I proceed with considerable caution and look for clear evidence of the existence of the transaction. The evidence of Mr Theodorakakos on one view falls short of the particularity which I would expect to support a finding that he discussed with his co-director or otherwise brought to her attention the nature of the transaction for which she on behalf of the company was assenting. It is, however, powerfully supported by the admitted fact that Mrs Tzimas signed the documents and by the absence of complaint.

2. Article 95 requires a resolution of the directors. Article 78 confers on them a wide power to meet together for the despatch of company business. Provision for the conduct of meetings is contained in Articles 79, 80, 82-84. Article 89 provides for the directors to act by a "flying minute". Notwithstanding these formal requirements, I accept that it is open for all directors to agree informally that the company might enter into a transaction which is capable of being entered into by it following a resolution of a formal board meeting: Roden v. International Gas Applications (1995) 18 ACSR 454 at 456; per McLelland CJ in Eq.

3. On behalf of Mrs Tzimas it was submitted, in reliance upon the ASC record, that there were at all times material to this transaction three directors of Savage River: Mr Theodorakakos, Mrs Tzimas and Mr Zahos. Mr Zahos's position was not in terms affected by the order of this Court of 24 March 1994. There was no evidence that he was consulted by his co-directors prior to 7 June 1994 with respect to the proposed transactions. If there was an informal meeting between Mr Theodorakakos and Mrs Tzimas at which they agreed that the company should enter into the agreements and grant the securities in question, this would be ineffective as a meeting of directors, since no notice of it was given to Mr Zahos: Brick & Pipe Industries Ltd. v. Occidental Life Nominees Pty. Ltd. [1992] 2 V.R. 279 at 299, per Ormiston, J. His Honour's view on this was not challenged on appeal: [1992] 2 V.R. 279 at 356. Accordingly, the requirements of Article 95 were not met, nor was there a unanimous concurrence of all directors in the transactions in question.

4. This submission is, of course, dependent upon a finding that Mr Zahos was, in June 1994, a director of Savage River. This is a finding I am not prepared to make; rather the contrary. Accepting that, by reason of s.1274B of the Corporations Law, the ASC extracts are prima facie evidence of their content, there is a good deal of evidence to suggest that at the relevant date Mr Zahos was not a director of Savage River. I mention in particular the fact of his bankruptcy and the legal consequence of this by virtue of s.224(1) of the Corporations Law. There is also the court order of 24 March 1994 which, although made in the absence of any representation on behalf of the Zahos parties or Savage River, was made at the behest of Mr Theodorakakos and Mrs Tzimas. To my mind, however, the undisputed fact of Mr Zahos’ bankruptcy puts the matter beyond argument. I conclude that, at all relevant times prior to and on the date of the execution of the security documents in June 1994 the only directors of Savage River were Mr Theodorakakos and Mrs Tzimas.

5. Accepting, as I do, the evidence on this matter given by Mr Theodorakakos, I make the following findings: On or shortly prior to the affixing of the seal on the loan agreement and the security documents, Mr Theodorakakos and Mrs Tzimas, she acting with the advice of her son, George, agreed that the loan made by Mr Theodorakakos to the company should be documented and the securities given to him by the company. They, or rather the two men, gave to the solicitor instructions for their preparation, and the documents he prepared were in accordance with those instructions. In short, I find that the transactions were entered into by the company with the concurrence of and upon the authority of the two directors and that they subscribed their signatures to the documents beside the company’s seal as a solemn and formal record of that fact.

6. Next it was said on behalf of Mrs Tzimas that the Articles of Association required that the attesting director actually affix the seal. This is not a requirement of the articles.

7. Next it was hinted that Mr Theodorakakos’ signature was ineffective since he signed in the place reserved in the attestation clause for the secretary, whereas he was not a secretary of Savage River at this time. There is no substance in this contention. The article requires that the affixing of the seal be done in the presence of a director. If it was affixed in the solicitor’s office, as I find it was, this requirement was satisfied.

   Non Est Factum

8. Counsel for Mrs Tzimas relied, in support of this contention, upon her affidavit of 17 March 1997 submitting that her evidence shows that she did not know what it was she was signing.

9. It is necessary to underline at the outset that Mrs Tzimas’ involvement in these transactions arises at two points: first, as participant in the directors’ decision that the company enter into them; and second, as a witness to the affixing of the seal of the company in the implementation of that decision. These two points are distinct. It would, for example, be possible that an attesting director took no part in the decision of the board made at a validly convened meeting of directors or dissented from that decision. The submission presently under consideration concerns the role of Mrs Tzimas as attesting witness. Let us, therefore, assume that the directors had validly resolved that the company enter into the agreements and that the seal of the company be affixed to them. The argument, then, is that when she signed as attesting witness Mrs Tzimas did not know what it was that the company was executing. Counsel were unable to point to a case where the doctrine of non est factum had been applied to a document where one of the attesting witnesses only was unaware of the nature of the document which was attested. Compare Citic Community Trading Pty Ltd v. JBL Enterprises (WA) Pty Ltd (unreported, Federal Court, Heerey J, 16 March 1998). In any event, the evidence does not show that Mrs Tzimas suffered from any infirmity which diminished her capacity to understand what it was she was signing. Mr Theodorakakos’ uncontradicted evidence was that she spoke Greek and was a “smart woman” but that she could not read or write English and had a very limited vocabulary in that language. I do not know anything about the circumstances in which she came to place her signature on the documents. Mr Tzimas said he was not present when she did so. I do not believe him but this does not supply the want of evidence on this matter. She says that she had discussions with Mr Theodorakakos about the documents. These conversations would have been in her mother tongue. Her lack of English therefore is not a relevant disability.

10. Furthermore, it does not appear that she was unaware that she was putting her name to a loan agreement, a mortgage of land and a debenture charge. In her affidavit she says she had a erroneous belief as to the purpose of the documents but she says nothing of her belief as to their nature: Petelin v. Cullen (1975) 132 C.L.R. 355 at 360.

11. The next difficulty with this submission is that the articles require that the seal be affixed in the presence of one director only. I have found that it was affixed in the presence of a director, Mr Theodorakakos, but not in the presence of Mrs Tzimas. Her attestation was, therefore, a surplusage.

12. A further troublesome aspect of this contention which was never satisfactorily explained is why it was that the mortgage was not challenged until 1997 or, more correctly, until this trial. The events occurred some four years ago. The existence of the mortgage was disclosed in 1996 when the parties were already in dispute. There is no evidence as to when Mrs Tzimas realised the matters which are now contended for with respect to the loan agreement or the debenture charge. This inactivity adds to the factors which cause me to be suspicious about the factual basis of her non est factum contention.

13. Finally, if a signatory to a formally executed document such as these wishes to disown the document as not being her deed, she must, in my view, establish the requirements of this non est factum by clear and positive evidence: Petelin v. Cullen (1975) 132 C.L.R. 355 at 361. This Mrs Tzimas has failed to do.

    The underlying debt

14. It was submitted that on 7 June 1994 Savage River owed nothing to Mr Theodorakakos and that, therefore, the securities given for its payment were invalid. Fraud was not alleged. The parties to the documents acknowledged in terms that $200,000 was owing. It is not open to one of them, or a director of one of them, to impugn the validity of the document on the basis that this sum was not owing or even, perhaps, that no sum was owing.

    Subsequent payments

15. Counsel sought to lead evidence to show that some or all of the debt referred to in the security documents had been subsequently repaid. I refused to receive this evidence on the basis that this does not affect the validity of the security previously given. It may, of course, bear upon the sum secured but this is a matter which will be determined by the Master.

16. I will therefore make declarations to the effect of those sought in paragraphs 1.1 and 1.2 of the further amended summons.

    THE ALLOCATION OF SALE PROCEEDS

17. The business was sold for $100,000 and the freehold for $1.15M. The proceeds of sale have been credited to the accounts maintained by the receiver and manager in the name of Fordcorp and Savage River respectively. These sums, or so much of them as remain after deduction of the receiver and manager's own costs and expenses, will be distributed first to secured creditors and then to unsecured creditors.

18. The problem which the receiver and manager places before the Court involves two matters. First, the net proceeds of the sale of the freehold represent the sale price less adjustments. These adjustments include certain rates and semi-government charges. These rates or charges were billed to the owner of land by the relevant authorities and, in the case of the rates, charged on the land. It was put on behalf of Mr Theodorakakos that, as between Savage River and Fordcorp, these charges should be borne by Fordcorp as tenant. I do not know the terms of the tenancy. If they are properly payable by the tenant, Savage River should prove for them as a creditor.

19. The second matter involves the expenses of the receiver and manager which were debited to Savage River. Counsel for Mr Theodorakakos contended that they were expenses of running the business and are properly chargeable as expenses of the receiver and manager on the Fordcorp accounts. On the other hand it was put that the business name was always owned by Savage River and the evidence suggested that Savage River in fact ran the business prior to June 1994 and there was no evidence of any restructure. I agree that the evidence of restructure is unsatisfactory, but it is to my mind inescapable that the parties in some way transferred the business from either Tooloom or Savage River to the newly incorporated Fordcorp about that time and that Fordcorp conducted the business thereafter. To my mind this second matter should be left to the judgment of the receiver and manager. His task is to allocate the expenses occurred to the proper company. It is not the function of the Court to direct him on this essentially commercial matter.

    THE ZAHOS CAVEAT

20. Fifty of the 150 units in the Landmark Unit Trust were issued to Mrs Tsioukis. It is said that she held these units as trustee for the Zahos Family Trust. Pursuant to the terms of the trust deed, a unit is an undivided part or share in the trust fund. Clause 7 provides:

    That each Unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and that no Unit Holder shall be entitled to receive the transfer of any property comprised in the Trust Fund.

    The property at 405 High Street was held by Savage River pursuant to this trust.

21. On 29 June 1995 Mrs Tsioukis lodged a caveat on the title of the property asserting the following interest:

    An estate in fee simple in respect of 125 equal undivided 150th parts or shares in the fund.

    I am unable to understand how it is that she claims to be entitled to 125 units rather than the 50 units as appears in the documents. In any event when the freehold was sold the caveator agreed to remove the caveat to permit the sale to be completed but reserved her rights against the proceeds of sale.

22. Mrs Tsioukis has not appeared at the hearing to present evidence or arguments in support of her claim to an equitable interest in the fund. It is established by authority that a unit holder in such a trust has a caveatable interest over the property of the trust: Costa & Duppe Properties Pty. Ltd. v. Duppe [1986] V.R. 90. This question, however, is peripheral to the present problem. The question which faces the receiver and manager is whether Mrs Tsioukis should receive money and if so in what priority. The receiver and manager in his report of 25 November 1997 has expressed the view that the interest of the Zahos Family Trust (if any) can be considered only after all costs and claims of creditors have been satisfied. I agree. Pursuant to the Landmark Unit Trust Deed the trustee must pay all expenses incurred in respect of the trust property before distributing income: cll.83, 98(28) and is indemnified out of the trust assets for these expenses incurred: clause 110. I will therefore make a declaration that as unitholder of the Landmark Unit Trust, Mrs Tsioukis should be paid her entitlement from the trust funds after payment of the costs and expenses of the receiver and manager, any debts secured on the trust property and all expenses incurred in relation to the trust property.

    REMUNERATION OF THE RECEIVER AND MANAGER

23. There was no objection to the order proposed by counsel for the receiver and manager that his remuneration and the costs and expenses of the administration should be assessed by a Master and paid out of the assets of the companies. The form of order proposed, however, included in this his costs of this litigation. I shall deal with this next.

    COSTS

24. There was some debate whether the receiver and manager should have his costs of this application on the usual indemnity basis. The resistance to this by counsel for Mr Theodorakakos was based upon a submission that the receiver and manager had involved himself in the issue which occupied the greater part of this trial, namely, the validity of the securities.

25. I am not persuaded that the receiver and manager overstepped the bounds of neutrality which is expected of a party in his position. It is, in my view, consistent with the adoption of this neutral position that counsel on his behalf drew to the court’s attention matters and authorities which bore upon the issue between the parties. In particular, I was very much assisted by the submissions of counsel for the receiver and manager in his final address.

26. I will therefore order that the costs and expenses of the receiver and manager of and incidental to the application brought by summons filed on 19 December 1997 be taxed on a solicitor and client basis and paid as an expense of the administration.

27. The costs of the contending parties stand in a different position. Mr Theodorakakos’ case on the issue of the validity of the securities has been successful. He will have his costs on the usual party and party basis to be paid by the unsuccessful contending party, Mrs Tzimas. In the circumstances this is not a case where either contending party should have their costs paid from the assets of the companies.

    ORDERS

28. I propose, therefore, the following orders:

1.	Declare that the securities created by debenture charge from Savage River Pty Ltd to John Theodorakakos dated 7 June 1994 and the second mortgage from Savage River Pty Ltd to John Theodorakakos dated 7 June 1994 are valid and binding upon Savage River Pty Ltd.
2.	Declare that any debt payable by Savage River Pty Ltd to John Theodorakakos is secured by the securities referred to in paragraph 1.
3.	Order that the question, what sum, if any, is owing by Savage River Pty Ltd or Fordcorp Industries Pty Ltd to John Theodorakakos be referred to a Master.
4.	Declare that the proceeds of the sale of the freehold be paid to the creditors of Savage River Pty Ltd and the proceeds of the sale of the business be paid to the creditors of Fordcorp Industries Pty Ltd.
5.	Declare that Xanthi Tsioukis as trustee of the Zahos Family Trust be paid such sum to which she may be entitled pursuant to the Landmark Unit Trust Deed and that such sums be paid after payment of the costs and expenses of the receiver and manager and any debts secured on the trust property and all expenses incurred by the trustee of the Landmark Unit Trust in relation to the trust property.

6.	Declare that the receiver and manager be at liberty to disburse money out of the funds presently held by him on account of Savage River Pty Ltd and Fordcorp Industries Pty Ltd according to the terms of the order of this Court dated 20 March 1997 and the terms of this order.
7.	Order that the remuneration of the receiver and manager and his costs and expenses of the administration be assessed by a Master and paid to him out of the assets of Savage River Pty Ltd and Fordcorp Industries Pty Ltd.
8.	Order that costs and expenses of the applicant of this application including any reserved costs and the costs of transcribed notes be taxed on a solicitor and client basis and that the amount of such costs be expenses of the administration.
9.	Order that the costs of the firstnamed respondent of this application including reserved costs and the costs of transcribed notes be taxed and paid by the thirdnamed respondent.

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