Shot One Pty Ltd v Richard Day

[2015] VSC 139

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S CI 2014 00390

SHOT ONE PTY LTD (In Liquidation)
(ACN 096 104 808)

and

ANDREW REGINALD YEO (in his capacity as liquidator of Shot One Pty Ltd) (in liquidation) (ACN 096 104 808)

First Plaintiff

Second Plaintiff

v

RICHARD LEONARD DAY

and

RISING ROCKET PTY LTD (ACN 102 373 633)

First Defendant

Second Defendant

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JUDGE:	Efthim AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	17 December 2014
DATE OF JUDGMENT:	17 April 2015
CASE MAY BE CITED AS:	Shot One Pty Ltd and Anor v Richard Day and Anor
MEDIUM NEUTRAL CITATION:	[2015] VSC 139

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M. Osborn QC Mr J. Kohn	Frenkel Partners
For the Defendants	Mr D. Williams QC	Piper Alderman

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

The Plaintiffs’ Amended Statement of Claim............................................................................... 1

Variation of the solicitors’ undertaking......................................................................................... 8

HIS HONOUR:

Introduction

1. There are two applications before the Court.  The first is for the plaintiff to file and serve an amended statement of claim.  The second application is to approve further release of fees to the defendants’ solicitors Piper Alderman to enable them to act on behalf of the defendants.

The Plaintiffs’ Amended Statement of Claim

1. The plaintiffs’ amended statement of claim alleges that Richard Leonard Day (‘Richard Day’) and his brother Nicholas Robert John Day (‘Nicholas Day’) were co-directors and shareholders of the first plaintiff Shot One Pty Ltd (‘Shot One’).  Between 5 September 2001 and 21 January 2006 Nicholas Day was declared bankrupt.  Richard Day then became the sole director and sole shareholder of Shot One. 

1. Between 7 October 1983 and 1 July 2009, Nicholas Day was a director of Conniemoon Pty Ltd (‘Conniemoon’).  Between October 2003 and August 2010, Richard Day and Nicholas Day gave effect to a scheme referred to as the Conniemoon Scheme.  Pursuant to the Scheme, Conniemoon would create a false tax invoice which would be paid by Shot One and Conniemoon would use the funds so paid to pay Nicholas Day’s personal expenses and to avoid issues arising as to his bankruptcy. 

1. Between April 2004 and June 2007, Shot One transferred a total sum of $1,066,946.94 to Richard Day when he was the sole director of Shot One.  Shot One also made payments between 22 July 2004 and 30 September 2012 of $1,172,778.84 to Rising Rocket Pty Ltd, the second defendant, (of which Richard Day was the sole director and shareholder since 1 October 2002), regarding a property known as the Rocklea Road Property. 

1. Between March 2006 and October 2012, Shot One also transferred the total sum of $2,145,794.08 to Nicholas Day.  Nicholas Day was a director from 11 February 2009 onwards and payments to Nicholas Day of $1,127,087.30 were made for the purchase of a property known as the Dunravel Road Property.

1. Shot One commenced proceedings against Rising Rocket and Richard Day seeking relief with respect to the Rocklea Road property in which Nicholas Day was living.  It sought a declaration that the Rocklea Road property be held on trust for Shot One and that it be transferred to Shot One and the Registry of Titles be amended accordingly.  Other relief was sought including damages and declarations that Richard Day had breached the Corporations Act 2001 (Cth) and breached fiduciary duties.

1. On or about 23 May 2012, Nicholas Day, Rising Rocket, Richard Day and Conniemoon executed a Deed of Settlement.  The parties agreed to mutually release each other from all future and existing actions and the releases include discontinuing the proceeding brought by Rising Rocket at the Victorian Civil and Administrative Tribunal seeking vacation of the property by Nicholas Day.

1. On 9 November 2012, Shot One was wound up by the Federal Court of Australia and Andrew Reginald Yeo was appointed liquidator.  He has brought the action in this Court and seeks to set aside the Deed of Settlement on the basis that it is a voidable transaction, as it is an uncommercial transaction (Corporations Act 2001 (Cth) s 588FB) an insolvent transaction (Corporations Act 2001 (Cth) s 588FC) or an unreasonable director related transaction (Corporations Act 2001 (Cth) s 588FDA).

1. The plaintiffs have withdrawn an application to join Nicholas Day as a party.  The amended statement of claim still refers to the conduct of Nicholas Day.  New paragraphs 11A–11G of the statement of claim also refer to the conduct of Nicholas Day and payments made to him.  As the plaintiffs have not sought to join Nicholas Day as a party, the defendants argue that the matters raised in paragraphs 11A–11G are irrelevant to the matters in dispute between the proceedings.

1. The plaintiffs, as part of their relief, seek that the Deed of Settlement be declared as an uncommercial transaction.  The defendants submit that in order to set aside that Deed of Settlement, all of the parties to that Deed of Settlement who would have an interest in that proposition should be before the Court.  The defendants submit that Nicholas Day should be before the Court if the Deed of Settlement is to be set aside.

1. The defendants submit that if the plaintiffs wish to join Nicholas Day as a party they are free to do so. The defendants rely on Rule 9.05 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) which provides:

9.05     Effect of misjoinder or non-joinder of party

A proceeding shall not be defeated by reason of the misjoinder or non-joinder of any party or person, and the Court may determine all questions in the proceeding so far as they affect the rights and interests of the parties.

1. If Nicholas Day is not joined as a party by the defendants, then any order made setting aside the Deed of Settlement would not bind Nicholas Day.  If Shot One decided to enforce claims against Nicholas Day, they could not do so.  Clearly the risk of not joining Nicholas Day to the proceeding is a risk that the plaintiffs have chosen to take and are able to do so under the Rules.

1. This does not stop the defendants from joining Nicholas Day as a Third Party if they decide to do so.  That would then bind Nicholas Day to the orders made in this proceeding.

1. The second major attack on the amended pleadings relates to the new proposed paragraphs 41A–41Q.  These new paragraphs are an expansion of some of the matters that previously appeared as particulars to paragraph 41.

1. Paragraph 41A pleads that Shot One did not benefit from the Deed of Settlement.  The defendants submit that this pleading is wrong because Shot One got releases.  This is only a minor point.  Here, the plaintiffs would be given leave to replead that releases were obtained but were of no benefit.

1. The main complaints relate to paragraphs 41I–41Q.  The plaintiffs plead that Michael Lheude acted as a solicitor for the trustee of bankruptcy in Nicholas Day’s estate and in that capacity Mr Lheude served a Notice of Discharge from Bankruptcy on Nicholas Day, served a Notice of Compulsory Contribution Assessment for the period 5 September 2001 to 4 September 2006 and conducted public examinations of Nicholas Day and Richard Day.  From the time of serving the Notice of Objection and Notice of Compulsory Assessment, Nicholas Day was employed by Shot One and Richard Day was its sole shareholder.  On or about 16 April 2012, Mr Lheude filed a Notice of Appointment of Solicitor on behalf of Rising Rocket and Richard Day in the Supreme Court proceedings.  When the Deed of Settlement was entered into, Mr Lheude acted as solicitor for Rising Rocket, Richard Day and Conniemoon.  Whilst negotiating the settlement of those proceedings, Mr Lheude said to Nicholas Day words to the effect, ‘if you win, the Trustee will just end up with the money anyway.’  Those words were said by Mr Lheude at a mediation. 

1. The defendants’ major complaint is that what was said at a mediation should not be pleaded and is privileged. 

1. Paragraphs 41N-Q are based on paragraph 41M, which pleads the statement made at the mediation.  Those paragraphs state:

41N.    In the ordinary course of events, it is natural and probable to infer that a solicitor carrying out his duties would have It is to be assumed Mr Lhuede, as a solicitor, advised his clients that if Shot One and Nicholas Day were successful in obtaining any judgment in their favour the Trustee of Nicholas Day’s estate would re-assess his position in relation to the discharge of Nicholas Day from bankruptcy, Nicholas Day’s income contributions and any other relevant involvement by a party in Nicholas Day’s bankruptcy by his clients.

41O.    It is to be inferred Mr Lhuede advised his clients accordingly.

41P.It is to be assumed, in the ordinary course, Mr Lhuede received instructions to settle the matter because of the potential consequences that would have flowed in the event the matter proceeded to trial namely, his clients’ involvement in the conduct referred to in paragraphs 15 to 35 above would have been disclosed.

41Q.It is to be assumed Nicholas Day was made aware of the risks that would have flowed in the event the matter proceeded to trial.

1. The defendants submit that paragraph 41M cannot be pleaded because what was said was privileged, therefore paragraphs 41N–Q should be struck out. The defendants also submit that this is an attempt to move Mr Lheude as a solicitor for the defendants.  Senior Counsel for the plaintiffs denied that the pleading was in its present form to raise a conflict against Mr Lheude.

1. The major issue is that the plaintiffs rely on a comment made by Mr Lheude at a mediation. Section 24A of the Supreme Court Act 1986 (Vic) provides:

Where the Court refers a proceeding or any part of a proceeding to mediation, other than judicial resolution conference, unless all the parties who attend the mediation otherwise agree in writing, no evidence shall be admitted at the hearing of the proceeding of anything said or done by any person at the mediation.

1. In Simply Irresistible Pty Ltd v Samuel B Couper & Ors,[1] Kyrou J held that s 24A of the Supreme Court Act 1986 (Vic) was confined to the admission of evidence at the hearing of the proceeding in which the mediation took place and need not apply to the hearing of another proceeding.

   [1][2010] VSC 505.

1. Section 131(1) of the Evidence Act 2008 (Vic), provides:

(1)       Evidence is not to be adduced of—

(a)a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or

(b)a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.

1. There is no doubt that s 24A of the Supreme Court Act 1986 (Vic) does not prevent s 131 of the Evidence Act 2008 (Vic) from applying to those communications.[2] Section 131(2) provides exceptions to s 131(1). The plaintiffs rely on ss 131(2)(f) and 131(2)(i) which provide:

   [2]Ibid [15].

Subsection (1) does not apply if –

…

(f)the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue; or

…

(i)making the communication, or preparing the document, affects a right of a person; or

…

1. In Pihiga Pty Ltd v Roche (‘Pihiga’),[3] Lander J held that a claim to set aside a settlement agreement based upon what was said at mediation being something misleading and deceptive conduct fell within one of the exceptions of s 131(2).

   [3](2011) 278 ALR 209.

1. The plaintiffs submit that the statement made at mediation falls within s 131(2) because it is directly material to the entry into a Deed of Settlement for the purpose of benefitting Nicholas Day and not Shot One, because not only did Nicholas Day get the release but, more particularly, the investigation of a series of transactions that impacted his bankruptcy would be shut down.

1. Section 131(2)(f) in my view does not apply. I accept the defendants’ submission that there is no issue about the making of the agreement. The defendants do not disagree that the agreement was made. The only issue before the Court is whether the agreement is capable of being set aside by reason of being uncommercial. I accept that the reason the exception is there is to prevent persons from denying that they reached an agreement in a without prejudice meeting so that the agreement can be enforced. That is not the case here.

1. The plaintiffs also rely on s 131(2)(i). For the exception to be relevant, the plaintiff must show that the preparation of the document effects a right of a person. It is pleaded that Mr Lheude stated to Mr Nicholas Day words to the effect, ‘If you win, the Trustee will just end up with the money anyway.’ I accept the defendants’ submission that that comment does not affect anybody’s rights, as a communication which may or may not have formed part of a person’s reasoning process in entering into agreement does not affect his rights.

1. In Pihiga, Lander J considered the operation of s 131(2)(i) and stated:[4]

[126]The applicants also asserted that they were entitled to rely upon the exception in s 131(2)(i) because the communication which was made in an attempt to negotiate a settlement and the document which had been prepared affects the applicants’ rights. The applicants contended that they had a right, while engaged in negotiations with the respondents, not to have representations made to them which were false which would amount to misleading and deceptive conduct and, as a result, cause them damage by entering into the settlement deed. The respondents on the other hand contended that para (i) only applied to an existing right at the time of the communication or preparation of the document: Glass v Demarco [1999] FCA 482.

[127]In my opinion, the applicants’ contention is to be preferred. Paragraph (i) of subs (2) does not in its terms refer to an existing right but is engaged if the communication at the time of the negotiations or the document which is prepared in an attempt to negotiate a settlement affects a right of a person. In my opinion, that would include the type of right to which the applicant refers. I think that paragraph applies and that is a further reason why s 131(1) does not apply.

[4]Ibid [126]–[127].

1. Senior counsel for the plaintiffs submitted that if you can adduce evidence as to what is said at a mediation for the purpose of setting aside an agreement on the basis that it was misleading, by necessary analogy you must be able to adduce evidence as to what was said at a mediation for the purpose of making out one of the elements of it being an uncommercial transaction.  To me that does not follow.  I am not convinced that the comments made by Mr Lheude have any relevance as to whether the transaction was uncommercial or not. 

1. It is important that communications made in mediations are protected. They should only be not privileged if it is clear one of the exceptions in s 131(2) of the Evidence Act 2008 (Vic) apply. That is not the case here. Those exceptions are not made out by the pleading.

1. Paragraphs 41I–Q will be struck out.  The plaintiffs will therefore need to replead the pleading and seek leave to file and serve a further pleading.

Variation of the solicitors’ undertaking

1. On 28 May 2014, orders were made by me to facilitate the variation of an undertaking given by the defendants and Piper Alderman to hold the proceeds of sale of the property at Rocklea Road to facilitate payment of the defendants’ legal costs incurred in defending this proceeding.  Legal costs were fixed in the amount of $50,000.00. 

1. On 24 June 2014, Piper Alderman rendered an invoice to the second defendant for legal fees in the sum of $50,000.00 being for work undertaken in the defence of the proceedings issued by the plaintiffs. 

1. On 2 September 2014, I heard an application to vary the undertaking and allowed the payment of the defendants’ costs to be fixed in the sum of $90,000.00.

1. The defendants to date have incurred $90,000 in legal fees which is broken up as follows:

-          Counsel fees $25,181.36;

-          Disbursements $2,686.65;

-          Piper Alderman fees $54,047.00

(Plus GST).

1. Mr Lheude has sworn that Piper Alderman currently has an amount of $37,759.70 in work in progress.  This work in progress includes work done since these proceedings were issued but not yet billed. 

1. By letter dated 5 December 2014, Piper Alderman wrote to Frenkel Partners advising that a further variation of the undertaking would be necessary and seeking their consent to a further variation.  It was sought because of the need of a further pleadings argument, a possible argument relating to a proposed further variation and subject to any pleading argument the parties may need to set a timetable to mediation. 

1. I have considered the amounts claimed by Mr Lheude having regard to the statements in his affidavit. I am prepared to increase the undertaking for the legal fees to be fixed at $185,000.00 as they appear to me to be reasonable.