Shanahan (Trustee) in the matter of O'Neill (Bankrupt) v 250 East Property & Building Pty Ltd (No 4)
[2024] FedCFamC2G 366
•23 April 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Shanahan (Trustee) in the matter of O’Neill (Bankrupt) v 250 East Property & Building Pty Ltd (No 4) [2024] FedCFamC2G 366
File number: ADG 265 of 2022 Judgment of: JUDGE BROWN Date of judgment: 23 April 2024 Catchwords: BANKRUPTCY – Ex parte injunction made in October 2022 on application of the bankruptcy trustee of third party to restraining him exercising his power of appointment to appoint a trustee to second respondent – injunction made on December 2022 restraining second and fourth respondent from dealing with proceeds of sale of real property subject to joint development project initially between second and fourth respondent – third respondent appointed first respondent as trustee of relevant trust – relevant injunction not explicitly continued – applicant seeks its dismissal – third respondent now deceased – third parties’ spouse has indicated intention to exercise power of appointment said to have been transferred to her – first and fourth respondents oppose its discharge Legislation: Bankruptcy Act 1966 (Cth) s 139D
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 190
Federal Circuit & Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) Pt 11
Trustee Act 1936 (SA)
Cases cited: Shanahan (Trustee) in the matter of O’Neill (Bankrupt) v 250 East Property & Building Pty Ltd [2022] FedCFamC2G 884
Shanahan (Trustee) in the matter of O’Neill (Bankrupt) v 250 East Property & Building Pty Ltd (No 2) [2022] FedCFamC2G 1039
Division: Division 2 General Federal Law Number of paragraphs: 111 Date of hearing: 18 April 2024 Place: Adelaide Counsel for the Applicant: Mr Dal Cin Solicitor for the Applicant: Townsends Solicitor Counsel for the First and Fourth Respondents: Mr McCarthy Solicitor for the First and Fourth Respondents: Visintin Legal & Advisory Second and Third Respondents: No appearance ORDERS
ADG 265 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF RODNEY JOHN O'NEILL AND DENISE KAY O'NEILL, BANKRUPT
BETWEEN: JOHN GERVASE SHANAHAN AS TRUSTEE FOR THE BANKRUPT ESTATE OF RODNEY JOHN O'NEILL AND DENISE KAY O'NEILL
Applicant
AND: 250 EAST PROPERTY & BUILDING PTY LTD ACN 624 848 820
First Respondent
250 EAST PTY LTD ACN 168 080 091
Second Respondent
RODNEY JOHN O'NEILL (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
JUDGE BROWN
DATE OF ORDER:
23 APRIL 2024
THE COURT ORDERS THAT:
1.A copy of these reasons for judgment, Shanahan (Trustee) in the matter of O’Neill (Bankrupt) v 250 East Property & Building Pty Ltd (No 4) [2024] FedCFamC2G 366 be served on Mrs O’Neill by the applicant at her last known address.
2.The prospective trustee is to file and serve on each of the parties any application it seeks in this matter on or before 30 June 2024.
3.The application in a proceeding filed 28 March 2024 be dismissed.
4.Costs be reserved to the resumption of the Trial which is scheduled on 5 and 6 August 2024.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE BROWN:
These reasons for judgment relate to an orally made application to discharge an ex parte injunction created on 17 October 2022, the effect of which was to restrain the third respondent, Mr O’Neill from exercising his power to appoint or remove the trustee of the East Terrace Trust.
In a formal sense, the injunction has never been explicitly discharged. It was not expressly continued when the case returned to court in November/December of 2022 following argument from each party concerned, when other orders were made restraining dealings with a particular penthouse apartment, pending trial.
In these circumstances, it is the submission of the applicant that the need for the injunction has passed, and he no-longer presses for it and, in the absence of any explicit application from any other party, it should be discharged to dispel any ambiguity.
On the other hand, the second and fourth respondents, each of whom has vociferously asserted throughout the matter thus far that they have been drawn into the proceedings unwillingly and unfairly and have been kept in them for a protracted period, resist the discharge of the injunction, which notwithstanding the absence of specific discharge should be taken to remain in force.
Even if it is not so deemed, it is their shared position that all concerned, including the applicant, have acted on the basis that the injunction is in force and therefore to change the status quo, which the injunction created, has the potential to be grossly unfair to them as it may change the premise on which issues have hitherto been joined between the parties in the case.
More significantly the relevant respondents assert the discharge of the order invites the possibility of further parties becoming involved in the case, in lieu of one of the current respondents, which would be gravely prejudicial to the remaining respondents, occurring as it does essentially media res and thus would change the entire basis on which issues are joined and pleaded between the parties. Again, the respondents concerned assert that this has the potential to be grossly unfair to them.
Mr O’Neill, the third respondent and the person technically bound by the relevant injunction, died on 6 September 2023. As such, it is arguable that the efficacy of the relevant injunction passed with him and it is therefore otiose, in any event. I have been provided with what purports to be his last will. It names his wife, Denise Kay O’Neill, as his executrix and trustee and sole beneficiary.
As with everything to do with these proceedings, this application, ostensibly innocuous on its face, has created acerbic controversy between the parties. I fear that these controversies are stoked by the tactical considerations and machinations germane to each of the relevant participants in the case, which are hidden from me.
As a consequence, I fear that either formally discharging the order or leaving it in place may have unforeseen consequences for the proper management of the case of which I am currently unaware. I am anxious that these proceedings, which have already been on foot for a significant period of time may become more protracted and expensive and that there is a real risk, if they have not already done so, of them becoming a zero sum game.
In simple terms, a situation can be so characterised if only one of the parties concerned can be successful in the desired outcome and the other must lose totally. In mathematical terms player one's gain is equivalent to player two's loss, therefore the net improvement in benefit of the game is zero. Necessarily, this creates a high stakes situation for the individuals concerned in the game. It becomes, in effect, all or nothing.
I have already expressed my concerns that the costs which each party has thus far incurred in pursing the application and the burden which the proceedings have placed on the court’s resources are potentially disproportionate to the issues at stake in the matter and, more importantly for the parties concerned, whether there exists sufficient assets to satisfy any judgment made in favour of either of them or to pay any costs order arising from it.
In these circumstances, I am concerned that this is not a situation commensurate with the overarching purpose encapsulated in section 190(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth).
The case concerns the development of a seven-storey apartment building in central Adelaide. All but 12 of the 14 apartments built in the development have apparently been sold and the monies paid directed to the financier of the development to pay out its security. Accordingly, the major aspect of the development has been completed.
From each parties’ perspective, the central evidentiary question in the matter is whether, after all the expenditure relevant to the building’s construction are tabulated, there remains anything left over, which could be characterised as profit and to whom that profit should be attributed and in the context of the applicable provisions of the Bankruptcy Act 1966 how any such profit should be characterised.
Axiomatically, these proceedings arise in the context of bankruptcy proceedings. They are not a building case nor an action in contract or in respect of the operation of a trust or trusts. The relevant proceedings are far from completed and there exist other proceedings in another court which share a comity of facts with them but relate, I assume to a different legal controversy.
In general terms, the parties are, on the one hand John Shanahan, who is the bankruptcy trustee of the late Mr O’Neill and Mrs O’Neill. It is no secret that Mr Shanahan is funded by the O’Neill’s sole creditor, a company known as Lerret Holdings Pty Ltd, of which John Oszczypok is the sole director.
The late Mr O’Neill was an experience property developer with an eye to finding sites ripe for development in the Adelaide area. Mr Sommariva is an experienced commercial builder. The two entered a joint venture, in 2017, to build the relevant seven-storey residential apartment building at 250 East Terrace, Adelaide.
On the completion of the building, after payment of any necessary financier and the relevant building costs, the agreement provided that any profits remaining were to be divided 60/40% between them, in Mr O’Neill’s favour, it would seem in recognition of the fact that he found the relevant site and initially purchased it and perhaps because it was his idea, in the first place.
Both the late Mr O’Neill and Mr Sommariva operated their business affairs through family trusts, directed towards benefitting members of their family. In Mr Shanahan’s case, the East Terrace Trust, of which the second respondent, 250 East Pty Ltd, was the corporate trustee. In Mr Sommariva’s case, through Pajo Projects Trust, of which the fourth respondents Pajo Projects Pty Ltd was the corporate trustee.
As has previously been indicated, in earlier judgments, Mr and Mrs O’Neill borrowed a sum of money from Lerret Holdings Pty Ltd, at what many would consider a punitive rate of interest. They defaulted in the repayment provisions arising from the loan and a judgment debt was entered against them, leading to their bankruptcy on 19 October 2021. The applicant in these proceedings is the relevant bankruptcy trustee.
In general terms, Mr Shanahan seeks to recover monies potentially due to the late Mr O’Neill arising from the joint venture project, of which both he and Mr Sommariva were the guiding hands and for which Mr O’Neill was the inspiring genius, at its outset, given it was his idea and he had found the land required and bought it.
Essentially, given these factors, it is Mr Shanahan’s contention that it is, on balance, probable that the joint venture will ultimately prove to be profitable and therefore Mr O’Neill, if he had lived, would have received and remains entitled to some significant form of remuneration, for his input and labour, into what was axiomatically a complicated project, provided by him over many years.
Further, it is his case that this sum can be clawed back for the benefit of Mr O’Neill’s creditor, pursuant to the provision of section 139D of the Bankruptcy Act 1966, which targets remuneration for services which were not actually made in a period of five years prior to the bankruptcy but which he believes remain contingent on the completion of the project.
Underpinning this submission is the tacit assumption that notwithstanding Mr O’Neill’s bankruptcy, given the nature of the relationship between the two men, it is likely to be the case that Mr Sommariva would have looked after Mr O’Neill’s interests in some way. From Mr Shanahan’s perspective much turns on what was to become of the two penthouses, in the development, which remain unsold.
On the other hand, again in general terms, it is Mr Sommariva’s position that the project was bedevilled by difficulties from its instigation, as a consequence of a combination of site difficulties and disputes with sub-contractors involved in the project, which have rendered it a metaphorical albatross around his neck. As such, although I have not been provided with any definitive accounting in the matter, it would appear to be his position that there will be no profit. In addition, it would appear to be his case that there was no agreement that Mr O’Neill would be paid any monies, at any time by way of remuneration for personal services provided to the project over time.
More significantly, from his perspective, these difficulties arising in the development of the site were compounded by Mr O’Neill’s withdrawal from active involvement in the management of the project, due to a combination of ill-health and bereavement relating to the untimely death of his son. By necessary implication it is Mr Sommariva’s position that Mr O’Neill acknowledged that he had forfeited any entitlement to receive remuneration from the project and accepted that it was no-longer going to make a profit because essentially, he abandoned the building and left Mr Sommariva metaphorically holding the bag.
In these circumstances, it is Mr Sommariva’s position that he was compelled, with Mr O’Neill’s acquiescence, to assume control of the East Terrace Trust, in order to steer the project through to completion and thus avoid a greater financial catastrophe. He did so in order that simple administrative tasks could be accomplished, such as the signing of cheques, which otherwise could not have been executed, as they required two signatures, which could not be obtained because Mr O’Neill had, in effect, gone AWOL.
Mr Sommariva asserts that there was nothing suspicious or underhand about this occurrence – the change of trustee, which was driven by simple logistical and administrative concerns, which had nothing to do with Mr O’Neill’s bankruptcy and its consequences. Rather, it was motivated by the imperative to get the project finished.
It is also Mr Sommariva’s position that the overall financer of the project, RMBL, was compelled to take control of the project, after he has earlier assumed more direct command, which involved it (RMBL) in selling off the relevant residential apartments, at arm’s length from him, in order to reduce its financial exposure to the project. As such, he asserts that the overwhelming amount of monies secured from the project are not controlled by him and there is nothing untoward in his conduct, in any commercial sense.
Those representing Mr Shanahan have sought information from various entities involved in the project, including RMBL, as well as from Mr Sommariva himself and Pajo Projects. It is the position of Mr Dal Cin, counsel for Mr Shanahan that these requests have met with obfuscation and denial, which heighten Mr Shanahan’s concerns that there is some hidden hollow log somewhere to which the late Mr O’Neill would have been entitled, which presumably can fit the description of being remuneration for personal services.
On the other hand, Mr McCarthy, counsel for Mr Sommariva asserts that these bankruptcy proceedings should not be the venue for a de facto accounting of the profit/loss of the 250 East Terrace project, which the court itself is ill-equipped to conduct, given these are not a building case.
In any event, in evidentiary terms, the court is far from ascertaining what is the bottom line of the project. The case has taken far longer than anticipated and at present Mr Sommariva remains subject to cross-examination, which no doubt, as it unfolds, will be directed towards the nature of his relationship with the late Mr O’Neill and whether he personally expects to derive a profit from the project and how he anticipated such a profit would have been distributed, if Mr O’Neill had lived.
In this context, no evidence has been provided by Mr O’Neill. Prior to his death, he was under a legal obligation to assist his trustee. What he personally knew or otherwise of how the project was panning out, in the period before and after his death, are thus unknown to me and presumably Mr Shanahan. In this context, what were his personal expectations arising from the completion of the project remains opaque, but necessarily one of the issues which is central to the outcome of the proceedings.
In all these circumstances, Mr Shanahan, who is critical that Mr Sommariva has failed to be fully frank with him about the overall financial consequences of the project, is suspicious of three major matters, which can be summarised as follows:
·The joint venture agreement envisaged both Mr O’Neill and Mr Sommariva, as part of their potential remuneration for the project, each receiving a penthouse apartment in it (701 & 702 respectively). After his bankruptcy, Mr O’Neill continued to live in the apartment earmarked for him. This situation caused Mr Shanahan to believe that there was some form of clandestine agreement between the two joint venturers to escape the consequences of Mr O’Neill’s bankruptcy and provide some form of reward to him.
·On 19 January 2022, Mr O'Neill, as appointer of the East Terrace Trust, appointed 250 East Property & Building Pty Ltd as its corporate trustee in lieu of 250 East Pty Ltd. In practical terms, it resulted in one of the two joint venturers effectively assuming control of the project. The former company was controlled by Mr Sommariva. It is Mr Dal Cin’s assertion that there was an evident conflict of interest arising because of Mr Sommariva effectively being trustee of both joint venturers’ trusts, particularly given Mr O’Neill’s insolvency.
·In October of 2021, Mr Sommariva, as the builder of the project, effectively sued himself in the District Court of South Australia, to recoup the monies due to him under the building contract between him and the joint venturers. This led to the joint venturers, including Mr O’Neill, consenting to judgment being entered into Mr Sommariva’s favour, in an amount of $3,500,000.00. This in turn led to a charging order on the apartment then occupied by Mr O’Neill and Mrs O’Neill.
Mr Shanahan is highly suspicious of the propriety of the litigation in the District Court and has asserted that it may represent an attempt to extricate funds from the project, to benefit Mr Sommariva, wearing his hat as builder, which might have otherwise gone to the joint venturers, at the end of the project, as profit and thus represent some species of breach of trust.
In this context, Mr Shanahan has apparently commenced collateral proceedings, in the Supreme Court of South Australia, pursuant to the provisions of the Trustee Act 1936 (SA) to have an inspector appointed to investigate the matter. These proceedings are pending, and as I understand it, are due for argument in early-May 2024.
Mr Shanahan commenced these proceedings on 6 October 2022 seeking injunctive relief on an ex parte basis, largely as a result of his concerns regarding the replacement of 250 East Terrace Pt Ltd by 250 East Property and Building Pty Ltd.
On an urgent ex parte basis, he sought an injunction against Mr O’Neill, who remained the appointor of the East Terrace Trust, restraining him from appointing another trustee in lieu of 250 East Property & Building Pty Ltd.
As requested, the application was given an urgent hearing on 17 October 2022. On this occasion, much was made of the apparent irregularity, in the context of the bankruptcy proceedings finalised in October of 2021 with the making of a sequestration order, of Mr O’Neill apparently relinquishing control of his family trust to Mr Sommariva, in January of 2022.
This was said to be particularly suspicious given that Mr O’Neill had indicated to his bankruptcy trustee that he was then living rent free in the apartment (701) previously earmarked for him in the development, which was described as being provided by a business partner and Mr Sommariva, whom Mr O’Neill described as his friend being his contact person in this regard.
Essentially, Mr Dal Cin, who has appeared throughout the proceedings to date asserted that if Mr O’Neill was forewarned of his client’s application, he would act, in his role as appointer of the Trust, to appoint another trustee, who may divest the Trust of the relevant apartment.
In this context, Mr Dal Cin sought that the two companies, which represented the trusts of each of the joint venturers (effectively then both controlled by Mr Sommariva) and Pajo Projects Pty Ltd, Mr Sommariva’s company, be restrained from selling the penthouse then occupied by Mr and Mrs O’Neill, which if sold would prevent it being subject to his application under section 139D of the Act as being some form of remuneration for services provided by Mr O’Neill.
Further, and of significance in the current proceedings, he sought that Mr O’Neill himself, be restrained from exercising his power of appointment to remove or change the current trustee of the East Terrace Trust. The submission being that an alternative trustee might sell the apartment and so again defeat Mr Shanahan’s claim.
In support of this submission, Mr Shanahan had deposed as follows:
I apply for interlocutory injunctions to restrain dealings with Apartment 701, and to restrain the exercise of the power of appointment by the bankrupt in respect of the East Terrace Trust because I am concerned that if the bankrupt, the First Respondent, or the Fourth Respondent are not restrained, then they may enter into a transaction which will divest the First Respondent, and the East Terrace Trust, of Apartment 701 and make it more difficult for these proceedings to successfully recover the land.
I am also concerned that the bankrupt may exercise the power of appointment so as to change the trustee of the East Terrace Trust again and thereby frustrate these proceedings.
In my capacity as trustee in bankruptcy of the bankrupt, I give an undertaking as to damages.
There are presently no assets in the administration of the bankrupt estate.
I have the benefit of an indemnity from a creditor of the bankrupt in respect of any liability which may arise by reason of the undertaking as to damages.[1]
[1] Affidavit of John Gervase Shanahan filed 6 October 2022 at [46]-[50].
In support of the application, I was provided with a copy of the Trust Deed of the East Terrace Trust. It authorised the appointer to remove a trustee, at any time. In addition, the appointer could appoint a replacement by will. The relevant provision of the Trust Deed reads as follows:
If a sole Individual appointer
•dies and has not appointed a replacement by deed or by will and has not revoked the power to appoint an appointor, then the named beneficiaries or the surviving named beneficiary becomes appointor on the appointor’s death; or
•or becomes mentally or physically incapable of fulfilling the role of appointor, the appointor’s legal personal representative becomes appointer for so long as that incapacity continues.
If a sole company appointer enters into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction), or has an administrator, receiver, controller or receiver and manager appointed to any part of its assets, then the named beneficiaries or the surviving named beneficiary becomes appointor.
In either case, if there Is no surviving named beneficiary, then:
•If the appointer Is the sole individual appointor, that person's legal personal representative becomes appointor; or
•If the appointer is the sole company appointor, there will be no replacement appointor.[2]
[2] See Annexure JGS-1 to affidavit of John Gervase Shanahan filed 6 October 2022 at page 57.
At this early stage, I was persuaded to make two relevant ex parte injunctions, which read as follows:
The First, Second and Fourth Respondent be restrained from any dealings with the land described in Certificate of Title Register Book Volume 6247 Folio 36, being Apartment 701, 250 East Terrace, Adelaide in the State of South Australia until further or other order.
The Third Respondent, Mr Rodney John O’Neill, be restrained, until further order, from exercising its power of appointment to remove the trustee or appoint a new trustee to the East Terrace Trust.[3]
[3] See Orders dated 17 October 2022.
It is this latter injunction which is the subject of the current controversy. I said as follows in support of the orders:
I am satisfied, on a prima facie basis, Mr Shanahan has established an arguable case that the property known as Apartment 701 should be subject to Mr O’Neill’s bankruptcy. If the apartment is divested in the short to medium term, I consider that such an outcome would potentially disadvantage any creditors of Mr O’Neill, whose interests Mr Shanahan is obliged to protect.
Given Mr O’Neill continues to occupy the apartment, I am satisfied, at present, that the balance of convenience favours the making of the injunction, particularly given the case will return to court in a comparatively short time frame. For all these reasons, I confirm the orders made on 17 October 2022, which are as set out at the commencement of these reasons for judgment.[4]
[4] Shanahan (Trustee) in the matter of O’Neill (Bankrupt) v 250 East Property & Building Pty Ltd (No 1) [2022] FedCFamC2G 884 at [41] – [42].
The case was adjourned for service on the various respondents concerned and given the ex parte basis of the orders made, this was relatively expeditious, the date selected being 28 October 2022. On this date, Mr McCarthy appeared for 250 East Property & Building Pty Ltd and Pajo Projects Pty Ltd. He has appeared throughout the matter. Mr O’Neill did not appear.
The case was then adjourned, with the acquiescence of both parties for a more exhaustive hearing scheduled for 24 November 2022. Each of the orders made above was extended. During the hearing of 24 November 2022, Mr Sommariva deposed as follows:
As the director of the first respondent, I only intend to pay what is due to me as builder, the RMBL debt and other secured debt. I will pay any surplus into the Court’s suitor’s fund to abide the event of this action. I give an undertaking to this Court to that effect.
I will not exercise the discretion to distribute any eventual profits accruing to the East Terrace Trust on completion of the Joint Venture, except on direction of the Court. I give an undertaking to this Court to that effect.[5]
[5] See affidavit of Joseph Sommariva filed 27 October 2022 at [75.6] & [75.14].
He further undertook not to distribute any profits arising from the joint venture, either to Pajo Projects Pty Ltd or to the East Terrace Trust, which he currently controls, unless directed to do so by the court. Again, he will provide an undertaking to this effect. Mr McCarthy continues to rely on those undertakings.
After the appearance of counsel for Mr Sommariva and the various entities associated with him, on 13 December 2022, after hearing submissions from all concerned and for reasons provided,[6] I restrained the first, second and fourth respondents from dealing with the apartment in which Mr and Mrs O’Neill then lived.
[6] See Shanahan (Trustee) in the matter of O’Neill (Bankrupt) v 250 East Property & Building Pty Ltd (No 2) [2022] FedCFamC2G 1039.
The following order was made:
Until further or other order:
The first, second and fourth respondents are each restrained and an injunction issue restraining each of them from disbursing any of the proceeds of the sale of the land described in the Certificate of Title Register Book Volume 6247 Folio 36, being Apartment 701, 250 East Terrace, Adelaide in the State of South Australia to any other entity other than the registered mortgagee RMBL Pty Ltd.
The matter was listed for final hearing in mid-2023 and the parties referred to mediation. As I say, I did not explicitly extend the earlier ex parte injunction made in respect of the power of appointment to the East Terrace Trust but nor did I discharge it. I can no-longer remember whether anything turned on this, other than issues to do with a potential change of trustee seemed to have been overtaken by events, particularly given the actual sale of the relevant apartment had been injuncted.
Orders were also made to ensure that the proceedings were brought to Mr and Mrs O’Neill’s attention. I was later advised that Mr O’Neill was terminally ill. For obvious reasons, I wished to behave in a decorous way, so far as he and his wife were concerned. Mr O’Neill has never attended court, although Mrs O’Neill did so on one occasion accompanied by her grandson. As I recall she came with Mr Sommariva.
Mr McCarthy continues to rely on the undertakings provided by his client in the context of the earlier proceedings to which reference has been made. It is essentially Mr McCarthy’s position that consideration of fairness should dictate that the current stasis, so far as the East Terrace Trust, should remain.
Namely Mr Sommariva should remain as its trustee and he will remain bound by the undertakings provided by him in open court and as noted in the relevant judgment, not to disburse profits from the sale of any apartment other than to the financier or to himself as builder.
After Mr O’Neill’s death, Mrs O’Neill continued to live in the relevant apartment, which seems to have provided an impediment to its sale. She has subsequently moved out of it, with Mr Sommariva’s assistance. Mr Sommariva remains in possession of his apartment (702). As far as I know, 701 remains vacant.
In late 2023, a purchaser was found for apartment 701, but the sale did not proceed. Prior to the withdrawal of the relevant offer, there was a flurry of activity as to how the court should be engaged to deal with any proceeds and the claims of other creditors of the joint venturers, who had materialised.
The impression I gained, quite possibly fallacious, was that Mrs O’Neill and Mr Sommariva were on good terms and the former accepted that she needed to move out of 701 so that it could be sold, which all concerned, in these proceedings acknowledged would be a positive development, if the allocation of the settlements monies could be agreed between them. I was told, I think, that Mr Sommariva had assisted Mrs O’Neill to find accommodation in Norwood.
Clearly, it seems to me, if he had remained alive and had been willing to do so, Mr O’Neill may have been in a position to throw light onto what was his understanding of the joint venture between him and Mr Sommariva and what was his expectation in respect of any profits generated by it. What was the extent of Mrs O’Neill’s knowledge of these affairs is unknown to me.
The nicety of the case is that Mr Sommariva is not the appointer of the East Terrace Trust. The person so named in relevant deed is the late Mr O’Neill. Accordingly, the provisions of the deed, referenced above, indicates that his beneficiary becomes the appointer in his place. This person would appear to be Mrs O’Neill, who is not a party to the proceedings.
As I recall, controversies surrounding the abortive sale of 701 and the collateral proceedings instigated by Mr Shanahan in the Supreme Court delayed the resumption of hearing before me and the continuing cross-examination of Mr Sommariva. The hearing was delayed until 29 February 2024.
The preceding day, solicitors acting for Mrs O’Neill filed a notice of appearance on the basis that she was an interested person in the proceedings. In an affidavit filed with this notice, Mrs O’Neill deposed as follows:
As named executor under the last Will and Testament of Rodney John O'Neill, I have been advised I have power to change the trustee under East Terrace Trust Deed (the "Trust") established by deed on 1 April 2014.
I am not pleased with the way the present trustee, Mr Joseph Sommariva, has been managing the affairs of the Trust, particularly in relation to these legal proceedings.
I want to appoint an independent accountant to take over as trustee of the Trust at the earliest opportunity.
I am aware of an order was made on 17 October 2022 ln this matter which prevents my late husband, the third respondent in these proceedings from removing the trustee of the trust and say:
•Even though Order 2 of the Order is specific to my late husband;
•I do not wish to breach the Order; and
•seek that this Order be dismissed.[7]
[7] Affidavit of Denise Kay O’Neill filed 28 February 2024 at [5]-[8].
On 29 February 2024, Mrs O’Neill was represented by her then solicitor Ms Kambitsis. It was agreed that the trial could not continue as scheduled. All concerned wished to consider what were the implications for their respective clients of Mrs O’Neill’s potential involvement in the case.
It was at this stage that the injunctive order mentioned by Mrs O’Neill was considered. As I recall, it was not greatly controversial and I confess that I did not have a full recollection of all the pertaining circumstances, which I have now more fully recapitulated in these reasons. Mr Dal Cin, supported by Ms Kambitsis moved for its discharge. Mr McCarthy, as I recall, did not actively demur.
In these circumstances, I discharged the order but on the basis that Mr McCarthy wished, in effect, to sleep on the matter, I agreed to a stay of the order. The case was then adjourned until 14 March so that any of the parties could make whatever application was deemed necessary. No such application was made.
On 14 March 2024, Mrs O’Neill appeared by counsel instructed by a different firm of solicitors to Ms Kambitsis’ firm. It seems to be the case that there was some issue about her having acted in the past for Mr Sommariva, but I may be mistaken about this. In addition, it was asserted by Ms Visintin that she (Ms Kambitsis) had certified the loan agreement to which Mr and Mrs O’Neill had entered into with Lerret Holdings Pty Ltd, which had led to their bankruptcy and this too might raise potential conflict issues.
The relevant counsel, Mr Thomas instructed by Mr Gustavsson’s office indicated that his instructor was still in the process of finalising his instructions from Mrs O’Neill and he was uncertain what would be her position in respect of the collateral Supreme Court proceedings instituted by Mr Shanahan, which were next scheduled to be before that court on 19 March 2024.
Again, as I recall, Mr Dal Cin moved for the discharge of the stay made on 29 February. Mr McCarthy sought its maintenance. In practical terms, whether or not the injunction remained current, what was moot, from each party’s perspective, was whether or not Mrs O’Neill was still wishing to remove Mr Sommariva’s as the Trustee of the East Terrace Trust and, if so, why and to what end.
Necessarily, I can only conjecture as to why Mrs O’Neill has expressed her apparent displeasure about Mr Sommariva’s conduct of the relevant trust, given she has elected not to provide particulars in this regard. Similarly, I do not know her attitude towards the potential appointment of an inspector to investigate the management of the Trust, as sought by Mr Shanahan. Although she expresses her dissatisfaction in regard to Mr Sommariva’s conduct of the current proceedings, she is not a party to them and so cannot be subject to any cost order.
That is not to say she may not have evidence which is relevant to the matter. However, I cannot say. It is a trite legal truism that there is no property in a witness. As such, it would seem to me that those representing both Mr Shanahan and Mr Sommariva respectively are free to speak with Mrs O’Neill and ask her what her intentions in the matter are. It is unclear to me whether Mr Shanahan has done so.
Mr Sommariva’s solicitor, Ms Visintn has deposed that Ms Kambitsis informed her that Mrs O’Neill did not want to be contacted by anyone associated with Mr Sommariva and she and her client have respected these views. Accordingly, from Ms Visintin’s perspective, she has no idea what is the actual nature of Mrs O’Neill’s grievance and what she wants to do about it and perhaps more significantly whether such a grievance is capable of being addressed in these proceedings or must be raised in another forum.
In my view, Mrs O’Neill’s affidavit is clearly somewhat sphinx-like in its tone. In this context, I confess myself somewhat perplexed as to the vehemence with which, on the one hand, Mr Shanahan has asserted that he wants the injunction formally discharged so there can be no doubt that if she so wishes Mrs O’Neill has a clear imprimatur that she can change the trustee, and, on the other, Mr Sommariva’s contention that it needs to be maintained.
I can only conjecture that the issue has been joined with such apparent intensity because of how each party has weighted up the potential pros and cons, from each of their perspectives, arising from having Mrs O’Neill potentially in or out of the case. By necessary implication, Mr Shanahan being in favour of her involvement and Mr Sommariva having a contrary view.
In forensic terms, it seems to me, that the issue is to be determined by which outcome will better achieve the proper administration of justice, in what are clearly highly controversial proceedings. In this context, what the court needs to know is what are the implications, from each party’s perspective of having Mrs O’Neill potentially involved in the proceedings as a party.
From the court’s point of view, given the paucity of evidence available from Mrs O’Neill personally, I am unable to resolve why the issue has provoked such intense controversy. However, at this stage, Mr Sommariva is apparently apprehensive that a change of trustee may effectively press-gang him into a wholly different set of proceedings; whereas Mr Shanahan, on the best interpretation is neutral about the issue and adopts a micawberish view that something may turn up from a change of trustee, on the worst, knows something that the court does not about Mrs O’Neill’s perspective on the matter.
It seems to me that potentially each party has some form of axe to grind. On balance, at this preliminary stage, this seems to me to the best explanation as to why the issues has been argued with such vehemence. On 14 March 2024, in an attempt to get to the bottom of this issue, I made what is invariably referred to as a self-executing order which directed the first and fourth respondent were to bring an application to restrain Mrs O’Neill from changing the trustee with 14 days of that date, otherwise the stay order would be discharged.
This did not lead to such a specific application. Rather, the effect of the application which was made on 28 March 2024 was that the stay order be dismissed and whatever imprecision had arisen in respect of the order of 17 October 2022 restraining the late Mr O’Neill from changing the trustee be, in effect, confirmed.
In her affidavit in support, Ms Visintin deposed that she had learnt from Mr Gustavsson that he was no-longer acting for her. As a consequence, no-one appeared on Mrs O’Neill’s behalf in the Supreme Court proceedings and nor did Mrs O’Neill herself. As previously indicated, both she (Ms Visintin) and Mr Sommariva were chary about approaching Mrs O’Neill directly because of her stated antipathy to any direct form of contact from them.
In these circumstances, it was Ms Visintin’s position that it was impossible for her to bring any application in respect of potentially restraining Mrs O’Neill from changing the trustee of the East Terrace Trust because they were in the dark about what Mrs O’Neill was proposing to do, if anything, in this regard. In these circumstances, it is the submission of Mr McCarthy that the current status quo, uncertain though it is, should remain.
CONCLUSIONS
It seems to me that the effect of the judgment of 13 December 2022 was to discharge the earlier injunction directed to the late Mr O’Neill restraining him, as appointer of the East Terrace Trust, from again changing the trustee for 250 East Property & Building Pty Ltd.
The injunction was not explicitly continued and it seems to me that it had become otiose with the involvement of Mr Sommariva in the matter and the subsequent injunction directed towards the registered proprietors of the relevant Apartment (701) and the then and current corporate trustee of the East Terrace Trust.
The controversial injunction, made on 17 October 2022, was granted on an ex parte basis, as a consequence of Mr Dal Cin’s submission that the evidence then available supported an inference that Mr O’Neill might be disposed to so act in an attempt to put the penthouse, which he then occupied, into the control of someone unknown to Mr Shanahan and thus defeat the efficacy of his application under section 139D of the Act.
I did not explicitly continue the order after the matter had been fully argued, with submissions from both the applicant and two of the four respondents, Mr O’Neill himself taking no part in the proceedings. In subsequent proceedings, none of the parties took issue with the lack of a specific extension of the injunction regarding a potential change of trustee.
Mr Sommariva provided undertaking to the court that he would not utilise any power which he then held to disburse the proceeds of Apartment 701 to anyone other than RMBL, to discharge its mortgage. An injunction was made to this effect, and it seemed to me that no action could be taken in respect of the disputed property unilaterally by either Mr Sommariva or Mr O’Neill.
As I understand it, 250 East Pty Ltd and Pajo Projects Pty Ltd are the joint registered proprietors of certainly Apartment 701 and probably 702.[8] The title search provided to me in respect of 701 indicates RMBL hold a first mortgage and there are a variety of other caveats and the lien in Mr Sommariva’s favour, to which reference has been made.
[8] See Annexure TLV 4 to Tracey Visintin’s affidavit filed 4 October 2023.
In the past there has been issues in respect of mortgage in favour of a Mr Hearse, which was secured by caveat and was the subject of earlier proceedings in respect of the abortive sale of Apartment 701.
Significantly, in the past, RMBL, as the primary mortgagee in control of the entire development pursuant to its mortgage, has exercised its power to sell various of the apartments in the development, including unsuccessfully 701. It was the named vendor in respect of the contract of sale dated 19 September 2023, which named a Mr Jurkovic as the purchaser, with a purchase price of $3.5m.
I am uncertain whether RMBL has been paid all the monies due to it in respect of the development. The current injunction prevents each of the registered proprietors and the corporate trustee of the East Terrace Trust, dealing with any proceed from the sale of Apartment 701, after payment of monies due to RMBL.
Thus, it seems to me that Mr Shanahan’s position remains secure pending the outcome of these proceedings. Certainly, he is not currently asserting otherwise. None of the parties took issue with these orders, which have only become controversial with the recent interest expressed by Mrs O’Neill in these proceedings.
The orders of 13 December 2022 were designed to prevent the disbursement of funds from the sale of Apartment 701 to anyone other than RMBL. This order remains. Mr Shanahan did not query this order or seek to appeal it. Nor did Mr Sommariva, given it was consistent with his earlier undertakings.
From Mr Shanahan’s perspective, any utility in respect of injuncting the late Mr O’Neill lapsed with the injunction made against 250 East Property & Developments; 250 East; and Pajo Projects., all of which were then effectively controlled by Mr Sommariva.
He was no longer apparently concerned about a potential change of trustee of the East Terrace Trust. By necessary implication, this remains his position, as he sought that any ambivalence about the order (which he initially sought on an ex parte basis in October 2022), be resolved by its categorical discharge in early 2024.
The order and the earlier injunction directed to the late Mr O’Neill were designed to prevent the diversion of any proceeds of the sale of Apartment 701 to anyone other than RMBL. These injunctions remain in place. As far as I have been informed Apartment 701 remains for sale. Mr Sommariva’s entities and 250 East Terrace Pty Ltd remain injuncted from dealing with the proceeds.
As far as I am aware, Mrs O’Neill remains bankrupt. Mr Shanahan is her trustee. The nicety of the matter is that issues may conceivably arise if a contract for sale is entered into and it requires execution by a party other than RMBL, if it no-longer has standing as the mortgagee in control of the title.
What are the implications of there being a change in trustee of the East Terrace Trust in this respect is not currently clear to me, particularly what would be the effect so far as the execution of any contract of sale and resulting transfer documents. What is clear is that the injunction remains in place.
In correspondence between Ms Visintin and Ms Kambitsis, which has been provided to me, issues have been raised by the former about whether it was open to the late Mr O’Neill to, in effect, bequeath his power of appointment to Mrs O’Neill, given the terns of the relevant trust. Sensitive issues have also been raised about testamentary capacity.
In all these circumstances, what the ultimate effect, if any, of Mrs O’Neill purporting to change the trustee of the East Terrace Trust and indeed whether she is able to do so, is far from clear to me at this juncture. Perhaps the issue will become clearer if a purchaser is found for Apartment 701 and the identity of the vendor and its capacity to do sell is revealed in the relevant contract. I do not know.
At this juncture, it is not asserted by either Mr Dal Cin or Mr McCarthy that Mrs O’Neill does not have an interest in these proceedings. Her late husband was a party to the proceedings and was axiomatically intimately involved in the development, the ultimate profitability of which is the significant evidentiary controversy in this case. Again, I reiterate, it is unclear to me what evidence, if any, Mrs O’Neill has to provide in the matter or indeed whether any of the other remaining parties wish to seek it out.
What her current attitude to the proceedings is in also far from clear. I agree that this is unsatisfactory. Much about the proceedings is uncertain and unclear. I have attempted to preserve the property which is necessary to satisfy any order ultimately made in Mr Shanahan’s favour. That was the object of the December 2022 order, which remains in effect. At this juncture any proceeds arising from the sale of Apartment 701 cannot be disbursed to anyone other than RMBL.
I can see no obvious utility in reiterating an order directed to a person who is now deceased when no exception was made to the absence of the order in the first place. I do not consider that it would be in the interests of the administration of justice to prevent Mrs O’Neill doing something which she may be entitled to do, which may be irrelevant to any issue I have to determine pursuant to the application before me made under the Bankruptcy Act.
Rather, it seems to me, unsatisfactory though it may be, that the court and the parties must wait and see what transpires, if anything, so far as Mrs O’Neill is concerned and what implications it has for these proceedings. As I say, it seems to me to be probable that these issues will become tangible, if and when, Apartment 701 is sold and the entities who are to be its vendors become choate along with, perhaps, the implications of its sale price so far as any ultimate profitability of the joint venture is concerned. I concede that how any such profit is to ultimately be characterised is also crucial to these proceedings, depending largely, at this stage, on Mr Sommariva’s evidence, given the passing of Mr O’Neill.
Clearly the identity of any new trustee is unknown at this point. Equally unknown is what such a trustee would seek from the court and his/her standing to bring any such application. A new trustee would not necessarily affect Mr Shanahan’s application under the Bankruptcy Act.
What are its implications for Pajo Projects Pty Ltd is also unclear. The joint venture provides for the division of the profits of the joint venture to be divided between 250 East Terrace Pty Ltd and Pajo Projects in the same proportion as their ownership of the land. What is the distinction, if any, between profits and deferred or reduced remuneration for personal services provided is not an issue which has been resolved as yet in these proceedings.
Pursuant to the provisions of Part 11 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 I have the power to formally notify a person whose interests may be affected by any proceeding before the court. Whether Mrs O’Neill is such a person, with a specific interest in the confined subject matter of these proceedings, at this juncture is unclear to me.
I will direct that a copy of these reasons for judgment be provided to Mrs O’Neill at her last known address. What she does in respect of them is a matter for her but there is no explicit injunction preventing her exercising any power of appointment which she believes she holds to change the trustee of the East Terrace Trust.
Certainly, I do not propose to so restrain her explicitly, given that the applicant in these proceedings does not seek it and what the implications of any such change are far from clear to me, given the tangled skein which these proceedings currently represent.
Essentially, I do not think it would be in the interest of the overall administration of justice for me to me such an order. However, there needs to be an end date in respect of what effect any such change may have on the conduct of these proceedings, which, as I have indicated are to resume on 5 and 6 August 2024.
I will direct that any application to be brought by the prospective trustee is to be filed and served on each of the parties in this matter on or before 30 June 2024.
In these circumstances, I propose to dismiss the application brought by Ms Visintin on 28 March 2024. I will reserve the costs of this application to the final hearing.
For all these reasons the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and eleven (111) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 23 April 2024
SCHEDULE OF PARTIES
ADG 265 of 2022 Respondents
Fourth Respondent:
PAJO PROJECTS PTY LTD ACN 158 823 119
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