Singh v Shah
[2006] VSC 395
•23 October 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 7188 of 2005
BALBIR SINGH Plaintiff
v
TUGRAL SHAH First Defendant
and
GOLDEN LIQUOR PTY LTD Second Defendant
and
GOLDEN LIQUOR DANDENONG PTY LTD Third Defendant
and
YASMIN TUGRAL SHAH Fourth Defendant
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JUDGE: | CUMMINS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17, 18 October 2006 | |
DATE OF JUDGMENT: | 23 October 2006 | |
CASE MAY BE CITED AS: | Singh v Shah and Ors | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 395 | |
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Companies – receivers – power to appoint – contractual and fiduciary breaches alleged – National Australia Bank Ltd & Ors v Bond Brewing Holdings Ltd & Ors (1991) VR 530 distinguished – adoption of report of Special Referee - s.420 Corporations Act 2001.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Slonim | GPZ Legal |
| For the Defendants | Mr S Hibble | Slater and Gordon |
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HIS HONOUR:
This proceeding has a substantial history before this Court and it would appear still has some distance to go. It was commenced by generally endorsed writ filed on 14 July 2005 against the first three defendants stating that the nature of the plaintiff's claim was to restrain misappropriation of the assets of the first and second defendants, the relief sought being the appointment of a receiver and manager of the second and third defendants and consequential orders. By summons filed the same date a receiver and manager was sought to be appointed over the second and third defendants. On 18 August 2005 against four defendants, the fourth being Mrs Yasmin Shah, extensive relief was sought, particularly a declaration that the third defendant holds the assets of the Dandenong and Carrum Downs shops on constructive trust for the plaintiff, an account of profits, and other relief.
Defences were filed by the first, third and fourth defendants on 1 September 2005 denying the allegations contained in the statement of claim. It appears that no defence has been filed by the second defendant.
On 14 July 2005 the summons which had been issued with the generally endorsed writ came before Justice Hargrave and Orders were made by him on 1 August 2005 to which I shall return. Then a second summons seeking like relief - the appointment of a receiver and manager of the second and third defendants - was filed on 29 November 2005 and Orders in relation thereto, to which I shall also return, were made by President Maxwell sitting in the Practice Court on 5 December 2005.
A related proceeding, no. 7744 of 2005, by Golden Liquor Dandenong Pty Ltd and Mr and Mrs Shah against Mr Singh was filed on 17 August 2005 and a defence filed on 22 November 2005 to which I shall momentarily return.
In relation to the main proceeding, no. 7188 of 2005, the principal affidavits in support thereof are those of Mr N Galatas sworn 29 November 2005 and 4 August 2006. In opposition, two affidavits of Mr Shah on 16 October and 17 October 2006 have been filed.
In the principal proceeding, No. 7188 of 2006, in essence the plaintiff Mr Singh has pleaded that in January 2003 he entered into a joint venture with the first defendant to open and operate a licensed liquor shop in Dandenong; that he paid Mr Shah $30,000 for a half share of the venture; that the third defendant was to be the vehicle for the joint venture; that Mr Singh and Mr Shah in June 2003 opened a second licensed liquor shop at Carrum Downs which would be owned and operated by the third defendant; that Mr Singh contributed $150,000 to the establishment of that second shop and became a director and 50 per cent shareholder in the second defendant in the belief and reliance upon representations from Mr Shah that he was in fact acquiring an interest in the third defendant which owned and operated both liquor shops; that the first defendant has wrongly evicted the plaintiff from the Dandenong shop and failed to account for moneys invested by the plaintiff and mingled the ownership and cash flow of the two businesses. Further and in the alternative, the plaintiff claims that the first, second and third defendants are in a fiduciary relationship with the plaintiff and owed the plaintiff fiduciary duties which they breached.
The first defendant contends that the third defendant owns and operates the liquor shop located at Dandenong, and operates the second shop, at Carrum Downs, as an agent for and on behalf of the second defendant; that the plaintiff has paid only $7,500 towards the venture and has no interest in the third defendant; and that the plaintiff's interest in the second shop is secure.
As I have said there is a second proceeding, no. 7744 of 2006, in which in essence the plaintiffs allege that Mr Singh converted or stole stock from the Dandenong shop to the value of $171,250, which Mr Singh by his defence, denies. In relation to that matter there is an affidavit by Mr BT Hardwick, solicitor on behalf of the defendants in proceeding no. 7188, in which it is deposed that police have investigated the claim of the theft or conversion, that Mr Singh declined to answer questions from the police in relation to it, and that the investigating police officer stated that although no criminal charges had yet been laid, he expected that charges would be pressed “on the basis that the police generally lay charges in circumstances where a suspect gives a 'no comment' interview." The timeframe for such charges being laid is presently not known. Of course no adverse inference can be drawn against Mr Singh in relation to that material. It is presumably relied upon by the defendants in terms of consistency of conduct by them.
As I have said, there have been two applications in the Practice Court for the appointment of a receiver. The first came before Justice Hargrave who made Orders on 1 August 2005. His Honour did not appoint a receiver, but rather granted a series of mandatory injunctions as to the further operation by the first and third defendants of the retail business at Carrum Downs, together with consequential Orders regarding the further conduct of this proceeding. The second application, which came before President Maxwell sitting in the Practice Court on 15 December 2005, was made because the plaintiff Mr Singh contended that the orders of Justice Hargrave had not been fulfilled. The President on 15 December 2005 ordered that a Mr G. Rathner, a chartered accountant, be appointed pursuant to Order 50.01 as a Special Referee to give his opinion on questions ordered by the Court. Thus it was that the Special Referee filed a Report on 30 January 2006.
Mr Rathner reviewed the nature of the businesses. He noted that there were significant differences between the Dandenong business and the Carrum Downs business. The Dandenong business is operated by Golden Liquor Dandenong Pty Ltd and the Carrum Downs by Golden Liquor Pty Ltd. Golden Liquor Dandenong operates from small premises with its stock and sales comprised primarily by beer and pre-mixed spirit based drinks with limited sales of wines and spirits. By way of contrast, the Carrum Downs operation conducted by Golden Liquor Pty Ltd trades under the “Cellarbration” brand name and is a substantial bottle shop similar to such shops by Vintage Cellars, and has a different demographic from the Dandenong operation.
Critically in relation to Question 1 formulated by President Maxwell as to whether the purchases of sales of stock and the takings from retail liquor business at the Dandenong premises were properly recorded and accounted for, Mr Rathner found upon investigation that there was a likely under-banking of sales of $178,453. To a like question, Question 2, in relation to Carrum Downs, he found a likely under-banking of $139,169. In relation to Question 3, a banking question, he found that the explanation by the fourth defendant was consistent with banking documentation but could not presently be verified, and in relation to Question 6 that the explanation by the first defendant was not consistent with banking documentation but again could not presently be verified.
The first defendant in two affidavits, sworn on 16 October 2006 and 17 October 2006, has deposed that if there was any under-banking in respect of each business it was due, in relation to Carrum Downs, to use of cash received from sales for the purchase of additional stock and in relation to Dandenong, use of cash received from sales for the purchase of additional stock and/or Mr Singh's failure to bank takings. In his affidavit of 16 October 2006 Mr Shah set forth the nature of the operation of the businesses and their limited financial position and their operational methodology.
The questions referred to the Special Referee by President Maxwell involved essentially four matters. First, the managing by all of the parties of the two businesses at various times, including the accounting for stock purchased and delivered to each shop; second, the compliance or otherwise of the first and third defendants with the Orders made by Justice Hargrave on 1 August 2005; third, the conflicting evidence regarding the use of the plaintiff's moneys in the initial financing of the Carrum Downs shop; and fourth, the re-opening, because it closed for a period briefly, and refinancing of the Dandenong shop.
Having examined the Referee's Report and the affidavit material from both sides bearing upon it, and bearing in mind Re Markbys Renaissance Pty Ltd[1] and Plumley v Adguage Pty Ltd & Anor[2] and the criteria set forth in those authorities, I am satisfied that the Court ought adopt the Report of the Special Referee. It appears to me that the Special Referee followed loyally the terms and criteria enunciated by President Maxwell. He followed proper process in addressing issues and giving the parties locus upon the issues, and the Report is a coherent and comprehensive one with a substantial amount of supporting evidence which has been placed before the Court, on matters which were essentially factual.
[1](1999) 3 VR 851
[2][1998] VSCA 70; also 29 ACSR 315
The second question - and I think the real question here for determination - is whether or not an interim receiver should be appointed.
Mr Slonim for the plaintiff has submitted that there is a long history here of attempts by the plaintiff to secure his fiduciary interests; that the Court has now been approached on two previous occasions, with a lack of compliance by the defendants; that the Special Referee's Report reveals failure to account and under-banking, and that it is appropriate that a receiver be appointed.
Mr Slonim also relied upon the affidavit of Mr Galatas of 29 November 2005 which Mr Slonim submitted demonstrated that there had been false evidence given by the first defendant to the Court regarding the purchase of capital assets for the Carrum Downs shop when opposing the plaintiff's initial application for the appointment of a receiver. That is to say that the fit-out was financed not by the defendant but under a hire purchase agreement with Esanda and instalments were made from the second defendant's bank accounts and that the invoices which was provided to the Court with purported evidence of capital expenditure did not match the Esanda schedule of items or the handwritten list prepared by Mrs Shah, and included invoices from apparently non-existent businesses. It is also put by Mr Slonim on the basis of Mr Galatas' affidavit that there was misuse of the plaintiff's money by Mr Shah and that the reopening of the Dandenong store and the failure of the first defendant to disclose the source of the finance for re-stocking of the business again are matters demonstrating the lack of compliance with the Orders of the Court in relation to that business.
Mr Hibble on behalf of the defendants on the factual matters, put first that some of the information provided by the defendants is not reflected in the Special Referee's Report; and that adverse inferences should not be drawn - certainly at this imperfect stage of proof - against any of the defendants from the material marshalled by the Special Referee. In that respect Mr Hibble correctly noticed that under Order 3 of President Maxwell the Referee was not bound by rules of evidence. Next, Mr Hibble submitted that proper inferences were uncertain; that these were small struggling businesses with all the exigencies of such businesses; that if there was a breach of Justice Hargrave's order, such breach was inadvertent and technical and certainly was not egregious; and finally that the remedy here sought, given that these are small struggling businesses, was excessive and that damages were an appropriate remedy, not the appointment of a receiver.
I agree with Mr Hibble that one must be very circumspect in drawing inferences in relation to matters which have not been subject to the rules of evidence or to testing in court, and I bear that centrally in mind.
Mr Hibble's primary submission was a legal submission and a very well presented submission, I must say, by him. He relied in particular upon National Australia Bank Limited & Ors v Bond Brewing Holdings Limited & Ors,[3] a decision of the Full Court, and the authorities marshalled in that powerful judgment. In particular that the power to appoint a receiver is a drastic power which must be exercised with care and caution and with circumspection, after full consideration of the facts and sensitivity to the interests of all parties concerned, and only if demonstrably established. Further, that the jurisdiction will not be exercised if there is an adequate remedy at law. In particular Mr Hibble relied upon the oft-cited passage at 553-554 as follows:
[3](1991) 1VR 530
"The reason why both before and after the Judicature Act it was and is not a correct exercise of the power to appoint a receiver to commit the management of a company's undertaking to a receiver and manager on the grounds simply that the company is the applicant's debtor, is that the making of such an administration order is not necessary for the protection or enforcement of the applicant's rights as an unsecured creditor. Whatever view is taken of the effect of the Judicature Act (a question on which the Full Court has spoken in the Attorney General v. Shire of Huntley (1887) 13 VR 66), the court still acts on the principle that equitable relief should not be granted unless there is no adequate legal, or for that matter no adequate and less drastic equitable, remedy.'"
Then having referred to a fairy tale, the Court proceeded:
"The court might we suppose have taken a wide view and said that administration by a court appointed officer, at all events if some criticism is made of the business abilities of those in control of the company, is likely to have the result that by the time the plaintiff obtains judgment for the debt the company still has assets with which to satisfy that judgment, and have said on this basis that there was no adequate legal remedy to protect the plaintiff as a creditor. But this wide view has not been taken. The court will not by injunction require a defendant to give security for the plaintiff's claim (Lister & Company v. Stubbs (1890) 45 Ch. D. 1), nor will it by the appointment of a receiver achieve the same result. Some kind of interim administration of the affairs of a debtor in order to enhance the plaintiff's prospects of ultimately being paid if he obtains a judgment is objectionable in the same way as an injunction which requires the defendant to give security for the plaintiff's claim."
A little later after that passage the Court continued at 554:
"But despite the recognition and extension of the Mareva jurisdiction the court continues to insist on a danger that assets will be dissipated and the old principle of Lister & Co v Stubbs remains intact, the principle, that is, that the giving by a defendant a pre-trial security to meet the plaintiff's claim is not regarded as means of protecting or enforcing a plaintiff's rights for the purpose of the principles on which injunctions are granted."
Mr Hibble articulated and developed his submission both in relation to the NAB authority and in relation to Lister v Stubbs and other authority marshalled in the judgment of the Full Court.
However, in my view the judgment of the Full Court does not determine the matter presently before me. Mr Hibble of course rightly acknowledged that the NAB case was an ex parte case which this is not. Further, no undertaking as to damages was received in NAB whereas such undertaking has here been received. Mr Hibble’s primary submission, which he pressed correctly, was that general principles clearly stated in NAB went beyond the mere question of ex parte and of absence of undertaking. I agree with him in those respects. However, there are clear differences between the present case and the principles stated holistically in NAB v Bond Brewing Holdings. First, and importantly, the proceeding here is not the first step and indeed is the third step in seeking to obtain an appropriate interim remedy in this matter. The plaintiff first went before Justice Hargrave. His orders were not entirely fulfilled. Then the plaintiff went before President Maxwell who ordered a Special Referee's Report which the Court has received and adopted. The precipitant character which I think was the essence of Bond on that fateful Friday afternoon does not here apply. Next, the plaintiff in this case is not a mere creditor. The claim here is for propriety and fiduciary interests and breaches thereof and is not that of a mere creditor. This is not a case where it is simply asserted by a creditor that the ultimate remedy may not be fulfilled. That concern is a common experience in the courts and as the Full Court clearly stated in NAB v Bond Brewing, that is not enough to appoint a receiver. Here, the plaintiff claims a proprietary and fiduciary interests and breaches thereof.
In my view the plaintiff has made out his legitimate interest and right to have a receiver of an interim character appointed. I think the state of the businesses warrants it including possible under-banking. The balance of convenience favours the appointment of an interim receiver, in view of the flaws now revealed by the Special Report and the earlier Galatas affidavit of 25 November 2005. There is no good reason in my view not to appoint Mr Rathner. Although Mr Hibble said that the defendants had lost some confidence in him, I think there is good reason to appoint him as the receiver, both for purposes of efficiency and for purposes of cost, and on its face his Report it appears to me to be a fair and balanced Report.
Accordingly, I propose to accede to the application by the plaintiff to appoint an interim receiver to report to the Court within 21 days, which will be 13 November 2006, to have the powers set forth in s.420 Corporations Act 2001 other than the power
to sell or dispose of the two businesses, and to have the power to examine the directors and to investigate the businesses and to report back to the Court thereon.
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