Strazdins & Cooper (As Liquidators of the Smart Company P/L (in Liq)) v Tomazou & Enterprise Global Resources P/L - [2010] SASC 262

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
STRAZDINS & COOPER (AS LIQUIDATORS OF THE SMART COMPANY P/L (IN LIQ)) v TOMAZOU & ENTERPRISE GLOBAL RESOURCES P/L
[2010] SASC 262
Reasons of Judge Withers a Master of the Supreme Court
27 August 2010
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - SUMMARY JUDGMENT
Corporations Act - insolvency - voidable transaction.
Corporations Act 2001 ss 588FB, 588FDA, 9; Supreme Court Rules 2006 (SA) r 232, referred to.
Ceneavenue Pty Ltd & Ors v Martin & Ors (2008) 67 ACSR 130; [2008] SASC 158, applied.
Pearl Coast Divers Pty Ltd (In liq) & Anor v Cossack Pearls Pty Ltd (2008) 249 ALR 591; Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) & Anor v Doran & Ors 219 ALR 555; [2005] NSWCA 243; Law of Company Liquidation McPherson, 5th ed, considered.

STRAZDINS & COOPER (AS LIQUIDATORS OF THE SMART COMPANY P/L (IN LIQ)) v TOMAZOU & ENTERPRISE GLOBAL RESOURCES P/L
[2010] SASC 262

JUDGE WITHERS. By summons and statement of claim filed on 18 June 2010 The Smart Company Pty Ltd (In Liquidation) ACN 061 975 344, Andre Janis Strazdins and Nicholas David Cooper sought orders against Dorothea Tomazou by way of declaration that a Deed of Assignment of 6 April 2010 was invalid and void ab initio, alternatively, that it had not been executed properly under s 127 of the Corporations Act 2001 (Cth) (“CA”), and in the further alternative declarations that it was a void transaction pursuant to s 588FE(2), (3), (4) and (6A) of the CA. Costs were sought on an indemnity basis. Ms Tomazou is a director of The Smart Company. The other director is a Mr Clift.
An interlocutory process was issued on 5 July 2010 seeking leave to amend the summons in accordance with Form 2 of the Corporations Rules 2003 (SA) and leave to join Enterprise Global Resources Pty Ltd ACN 102 276 862 as a defendant. Summary judgment was sought on the originating process. The plaintiffs applied for an urgent hearing of the interlocutory process.
The interlocutory application was supported by an affidavit of Andre Janis Strazdins filed on 5 July 2010. He attested that on 28 May 2010 he and Nicholas David Cooper had been appointed joint and several liquidators of the plaintiff company. In paragraphs 4 to 6 he set out his past experience and qualifications as a liquidator.
Mr Strazdins attested that on the morning of 28 May 2010, shortly after he had been appointed as liquidator, he was informed by solicitors for the plaintiff in the liquidation proceedings that Federal Court proceedings involving the company were due to resume at 12.00 noon that day. The liquidators’ solicitors were instructed to attend at the Federal Court on that day on behalf of the liquidators.
Mr Strazdins annexed to his affidavit copies of the fourth further amended statement of claim in the Federal Court, an amended application of 7 March 2008, and a defence and amended cross-claim as Exhibits “AJS-1” to “AJS-3”. From those documents it is apparent that The Smart Company sought against the defendants (“Clipsal”) various declarations and orders for damages. The affidavit evidence in this matter establishes that the claim being pursued by the applicant was said to be in an amount of approximately $4 billion. There is no conflict between the parties in this matter about that.
By its defence and cross-action in the Federal Court proceedings Clipsal denied that The Smart Company was entitled to the relief sought. By their cross-claim Clipsal seeks to recover an amount said to be due and makes a claim for various damages. The proceedings are substantial. They appear to have been commenced in 2004.
On 29 January 2010, Lander J had ordered that the Federal Court proceedings be set for trial commencing on 19 July 2010 to continue until 1 October 2010 or earlier completion. During the course of those proceedings, and in April 2010, issues were raised by Clipsal regarding security for costs. On 19 April 2010 Clipsal filed a Notice of Motion seeking orders that the proceedings be dismissed. In the alternative, an order was sought that the applicant pay into Court or provide a bank guarantee in the sum of $900,000.00 to secure Clipsal’s costs of the trial of the action.
There were attendances before Lander J in April 2010 and the trial date of 19 July 2010 was vacated by him on 27 May 2010. He adjourned further consideration of the Notice of Motion to 28 May 2010 at 12.00 noon. It was on the morning of that day that an order was made in this Court placing the applicant company into liquidation.
A copy of the transcript of the hearing before Lander J on 28 May 2010 is exhibited to Mr Strazdins’ affidavit as Exhibit “AJS-8” or Document 3H. His Honour advised counsel that he had been forwarded an email at 11.38 am that day which had attached to it a Deed of Assignment of the chose-in-action of the proceedings before him. Counsel for the liquidators advised that she knew nothing about any assignment. It appears that counsel for Clipsal had first been given notice of the Deed of Assignment at about the same time as Lander J. The Court was informed that no counsel for The Smart Company had earlier known of the assignment. His Honour expressed considerable dismay that he was only advised of this assignment after an order had been made in the Supreme Court that the company be wound up. His Honour said (at P-5):
HIS HONOUR: It would be an odd exercise of the role of the company director acting in the best interests of the company to assign a $4 billion claim away to a director of – another director for $1.
The Federal Court was informed by solicitors representing The Smart Company that they had seen the document for the first time at about the time his Honour had seen it. His Honour described the situation as “extraordinarily serious” – see P-7 of the transcript. The Deed of Assignment had been executed before submissions by the company were made before Lander J on 29 April 2010 and again on 27 May 2010 and yet he had not been informed of it. Counsel for the company had not been aware of it. His Honour was very concerned at the misleading of his Court and the Supreme Court. It appears that on 29 April 2010 and 27 May 2010 his Honour had heard argument from the parties – see Exhibit “AJS-8” to the affidavit of Mr Strazdins (FDN 3) or Document 3H at P-10.
I also note from the copy transcript in Document 3H at P-14 that Lander J observed:
… the respondents [Clipsal] have spent $3.2 million in costs in this action - - -
On 4 June 2010, Lander J ordered the applicant company to pay the respondents’ costs of the trial thrown away fixed in the amount of $200,000.00 to be paid forthwith. His judgment in respect of the respondents’ application to dismiss was reserved.
On 21 June 2010, Lander J agreed to reopen the application to dismiss and granted leave to Enterprise Global Resources Pty Ltd ACN 102 276 862 (“EGR”) to file affidavit material in support of an application by it as the shareholder of The Smart Company to be joined as a co-applicant and to seek permission to pursue the proceedings pursuant to s 236 of the CA. Various affidavits were filed by EGR on 28 and 29 June 2010 together with a Notice of Motion seeking to be joined as a co-applicant. That matter is reserved before Lander J.
Ms Tomazou is the sole director of EGR, which is a company that as trustee of The SmartCard Trust is the sole shareholder of The Smart Company. She is one of two directors of The Smart Company.
A copy of the first Deed of Assignment is Exhibit “AJS-10” to the affidavit of Mr Strazdins, or Document 3J. The Deed records that Smart was the proprietor of a chose-in-action against Clipsal and others and that it had agreed to assign the chose to Tomazou. The “chose-in-action” is defined in clause 2.1 as meaning:
2.1“Chose-in-Action” means all of Smart’s rights and entitlements arising from or in connection with its right to claim monetary relief and/or other relief against the Respondents which is the subject of the Federal Court Action and any other rights it may have against the Respondents, their directors or related entities arising out of the conduct of the Respondents, their directors or related entities;
The “consideration” in clause 2.5 is said to be:
2.5“Consideration” means the sum of ONE (1) DOLLAR ($1.00) which Tomazou agrees to pay Smart upon the execution of this Deed;
There is “further consideration” defined in clause 2.6 as:
2.6“Further Consideration” means TEN (10) PERCENTUM (10%) of any monies received in respect of the Federal Court Action;
That action is then identified and the respondents are identified as being the respondents in that action.
In paragraphs 3 to 7 of the Deed, the following is contained:
3.     Assignment of Chose-in-Action
In consideration of the payment of the Consideration by Tomazou, Smart as the legal and beneficial proprietor of the Chose-in-Action, hereby ASSIGNS AND TRANSFERS to Tomazou all of its rights, title and interest in the Chose-in-Action absolutely.
4.Permission to use name in Federal Court Action
Smart agrees that Tomazou may, without any restriction whatsoever, use its name in the Federal Court Action and any other action associated with the Chose-in-Action.
5.Smart’s Covenants
Smart agrees that it must if so required by Tomazou do all acts and things including, without limitation, execution of all documents, as may be reasonably required by Tomazou to give effect to the assignment of the Chose-in-Action.
6.Smart’s Warranties
Smart hereby warrants that:
6.1    Smart has been properly authorised to execute this Deed;
6.2    Smart has full corporate power and lawful authority to assign the Chose-in-Action to Tomazou on the terms set out herein and to otherwise perform its obligations under this Deed; and
6.3    the assignment of the Chose-in-Action is taken by Tomazou free of any encumbrances or claims or interests of any other person.
7.Tomazou warranties
Tomazou hereby warrants that she shall:
7.1    diligently pursue the Federal Court Action;
7.2    bear all costs and disbursements incurred in the name of Smart from the date hereof in respect of the Federal Court Action;
7.3    keep Smart indemnified in relation to all costs and disbursements incurred from the date hereof in respect of the Federal Court Action.
7.4    pay to Smart the Further Consideration if such Further Consideration shall have been received.
In paragraph 27 of his affidavit, Mr Strazdins attests that he had not been able to file a notice of acting in the Federal Court proceedings because of the First Assignment and that he was “concerned that the Federal Court Proceedings are in danger of being dismissed unless the joint and several Liquidators take control of those proceedings on behalf of the creditors of the Company”. Accordingly, these proceedings were instituted on 18 June 2010 and were served on 28 June 2010 on the solicitor for the first defendant. At that time Ms Tomazou was the only defendant.
It appears that on 30 June 2010 Mr Strazdins then became aware of a document dated 26 June 2010 entitled “This Deed of Assignment of Chose-in-Action and Retirement of Trustee” which purported to assign the chose-in-action in the Federal Court proceedings from Ms Tomazou to EGR. A copy of that document is Exhibit “AJS-12” to the affidavit of Mr Strazdins, or Court Document 3L.
In that document in Recital B the parties to the Deed assert that:
B.Pursuant to a Deed of Appointment dated 9 June 2010 EGR and Tomazou jointly declared that Tomazou, in entering into [the first] Deed of Assignment … did so exclusively pursuant to an appointment by EGR of Tomazou on that dated [sic] as an additional trustee for and on behalf of the Trust …
Such an appointment was not made known to Lander J when the parties appeared before him on 21 June 2010 – see Exhibit “MAH-1” to the affidavit of Mr Hayes filed 10 August 2010 or Document 15A.
It is recorded in Recital C that EGR was the trustee of a Deed of Settlement of 8 April 2002 which created the trust known as The SmartCard Trust. Recital E records that Tomazou as an additional trustee of The SmartCard Trust “and to the extent necessary if an assignment has not already been completed, wishes to assign to EGR as trustee of the Trust all rights title and interest in the Chose-in-Action absolutely”.
Recital F records that Ms Tomazou then desired to retire as an additional trustee of the Trust. Both parties to this second Deed warrant the Recitals to be true in every respect.
It is to be remembered that EGR is the sole shareholder of The Smart Company and that it holds those shares as trustee of The SmartCard Trust for a number of unknown beneficiaries.
Clauses 3 and 4 of the second Deed are in the following terms:
3.ASSIGNMENT OF CHOSE-IN-ACTION
Tomazou as an additional trustee of the Trust for that part of the property of the Trust which is constituted by the Chose-in-Action (and to the extent necessary if such assignment has not already been completed), hereby assigns and transfers to EGR as trustee of the Trust all rights title and interest in the Chose-in-Action absolutely.
4.PERMISSION TO USE NAME IN FEDERAL COURT ACTION
Tomazou as an additional trustee of the Trust for that part of the property of the Trust which is constituted by the Chose-in-Action (and to the extent necessary if permission has not already been granted), hereby authorises EGR without restriction whatsoever to use the name of the Smart Company in the Federal Court Action and any other action associated with the Chose-in-Action.
I note that Clause 4 executed on 26 June 2010 purports to give permission to EGR to use the name of The Smart Company in the Federal Court action “without restriction” notwithstanding that the company had been placed into liquidation on 28 May 2010.
Clause 4 of the Deed, second time appearing, records Ms Tomazou’s resignation as a trustee of the Trust. No consideration passes for the assignment. Ms Tomazou appears to have signed the Deed both in her personal capacity as the alleged assignee of the chose-in-action and as director and secretary of EGR. An ASIC search revealed that Ms Tomazou is the sole director and shareholder of EGR.
Mr Strazdins attested in his affidavit (FDN 3) at paragraphs 38 and 39 that he had been unable to obtain from the directors of the company a report as to affairs nor had they delivered to him all books and records. He had been informed by a solicitor for the company, Mr McNamara, that he would not release the files held by him for the company in relation to the Federal Court proceedings until this Court had determined who may conduct the chose-in-action in those proceedings.
In his affidavit (FDN 3) Mr Strazdins then noted his discussion with some commercial litigation funders with a view to securing future funding for the Federal Court proceedings. He was waiting a response from those funders. He noted that in his experience litigation funders seek a return of between 20 and 50 per cent of a judgment or settlement sum in consideration of providing funding. He annexed to his affidavit two downloads from the internet of litigation funders’ information as to their percentage range of charges. Objection was taken to these paragraphs as being information and belief and inadmissible. In my view they can be accepted as setting out the experience of the deponent and the advertised rates on the internet of two litigation funders.
In paragraph 48 of his affidavit, Mr Strazdins attests that he had received proofs of debts in the sum of $10,476,575.30 from alleged creditors. It is apparent from the reasons delivered on 28 May 2010 at the time an order was made winding up the company that there was during the course of those proceedings no disclosure by the company of any significant creditors of the company. Mr Strazdins indicated that in light of the circumstances the plaintiffs sought to join EGR as a second defendant to these proceedings.
A notice of address for service had been filed in relation to Ms Tomazou on 12 July 2010.
On 14 July 2010 an affidavit of Mr Rudaks had been filed on behalf of the plaintiffs, which exhibited a copy of an affidavit of Ms C P Hynes filed in the Federal Court on 29 June 2010 in those proceedings on behalf of EGR. Ms Hynes is a solicitor. That affidavit exhibited a number of documents relevant to the Trust of which EGR was trustee, including the Trust Deed and registration of name changes. It exhibited a copy of the Deed of Assignment of the chose-in-action as between Ms Tomazou and EGR and set on the record various issues that EGR had in relation to the state of the Federal Court proceedings.
I note in paragraph 5.6 of her affidavit that Ms Hynes says:
5.6The documents discovered by the Respondents show:
5.6.1 On their face that Smart has a good cause of action;
The affidavit was filed in support of an application by EGR that it be joined as a co-applicant to the Federal Court proceedings.
Permission was granted on 23 July 2010 to join EGR as a defendant to these proceedings with the plaintiffs being directed to file amended pleadings that day. Directions were given about outlines of submissions and responding affidavits and the plaintiffs’ application for summary judgment was listed for hearing on 6 August 2010.
An amended originating process was filed by the plaintiffs on 23 July 2010. In that amended process the plaintiffs sought orders and declarations in relation to both the first purported assignment and the second purported assignment. The name of the plaintiffs was changed to the names of the liquidators “As Liquidators of The Smart Company Pty Ltd”. As the plaintiffs relied on Pt 5.7B of the CA on the application for summary judgment it was necessary for the liquidators to be plaintiffs rather than the company in liquidation. A declaration was sought that the first purported assignment was void pursuant to the various provisions of the CA and in particular ss 588FB, 588FC and 588FDA. It was pleaded that as a consequence of the invalidity of the first Deed of Assignment the second purported assignment is void. A declaration was sought that The Smart Company (In liquidation) remained the legal owner of the chose-in-action.
An amended statement of claim was filed on that day as FDN 7. This incorporated the second defendant into the proceedings. Orders were sought as set out in the summons.
On 23 July 2010 a further affidavit (FDN 8) was filed by Mr Strazdins in which he set out the continuing difficulties that the liquidators were experiencing in accessing the books and records of the company from its directors, namely Ms Tomazou and Mr Clift. He recorded that the liquidators had made complaints about this non-co-operation to the appropriate division of the Australian Securities and Investments Commission. Mr Strazdins asserted that from the documents that he had seen he had been unable to find anything that suggested that the financial position of the company changed during the period 31 March 2010 (when the application for a winding up order was argued) to 5 April 2010, the day before the First Deed of Assignment.
On 4 August 2010 an affidavit of Dorothea Tomazou was filed, being FDN 9. Ms Tomazou asserted that she was the sole director and shareholder of the second defendant, which was the sole shareholder of The Smart Company (In liquidation). She noted that the shares held by the second defendant were held by it in its capacity as trustee of a Trust. In paragraph 6 she said that she was not a beneficiary of the Trust but that the beneficiaries were a number of individuals both in Australia and overseas. No identification of the beneficiaries was provided. A copy of the Trust Deed is exhibited to the affidavit of Ms Hynes of 29 June 2010 filed on behalf of EGR in the Federal Court proceedings. This copy affidavit is Exhibit “MAR-2” to the affidavit of Mr Rudaks (FDN 5).

Ms Tomazou attested that she had been involved with the Federal Court proceedings for approximately seven and a half years not only as director of The Smart Company but also as in effect in-house counsel because of her legal experience and training. She attested that she had worked as a solicitor in England for a number of years. She asserted that her work on the Federal Court case had involved thousands of hours of work. In paragraph 9 she noted that the proceedings had cost The Smart Company in excess of $2 million over the last seven years. I note that no reference was made to this expenditure by way of indemnity or provision in the First or Second Deed of Assignment.
Ms Tomazou attested that during the period 14 January 2005 to 14 February 2006 The Smart Company had obtained litigation funding for the Federal Court proceedings but the funding was withdrawn at the conclusion of that period. There had been no external litigation funder since that time. From February 2006 the company had funded the action itself. Events had occurred in August 2009 by way of a finance company taking possession of assets of the company which had affected its ability to conduct its usual operations.
Accordingly, the company had actively sought to obtain litigation funding from about August 2009 through until the end of March 2010 both in Australia and in the United States of America. She attested in paragraph 14 that she had been advised by lawyers that an amount in the order of $1.85 million was necessary to complete the case. Evidence was given about discussions with a legal firm called Slater & Gordon. She attested that none of the litigation funders approached were interested in providing funding. No identification was given of the litigation funders approached save Slater & Gordon.
Ms Tomazou attested in paragraph 19 of her affidavit that from November 2009 until the end of March 2010 she and a Mr Portellos had also been negotiating with the beneficiaries of The SmartCard Trust for funding from them.
Ms Tomazou in paragraph 20 of her affidavit sets out her account of developments in the Federal Court proceedings from November 2009 to March 2010. She concludes in paragraph 22 by saying that it was apparent by the end of March or early April 2010 that the company did not have the resources available to continue the litigation. She attested that she and the other director Mr Clift had formed the view that there was no realistic prospect of raising litigation funding from an external funder. There was considerable pressure to move the case forward quickly yet there was no funding.
At paragraph 23, Ms Tomazou attests:
23.By January 2010 a number of the beneficiaries had expressed a willingness to consider the possibility of them funding the Federal Court Proceedings and it was made clear to me in discussions with the beneficiaries that the litigation funding would categorically not have involved the beneficiaries advancing funds direct to The Smart Company.
No explanation is provided as to why the beneficiaries were not prepared to advance funds to The Smart Company. In the winding up proceedings the company argued that it was solvent. Ms Tomazou attests in her affidavit at paragraph 26 that she did not believe the company was insolvent when she entered into the First Deed of Assignment.
In any event, she attests in paragraphs 24 and 25 of her affidavit that she and Mr Clift decided to obtain advice as to how they could ensure the Federal Court proceedings were continued with funding from beneficiaries. She says that as a result of the advice received from the company’s then lawyer on the winding up application that she and Mr Clift formed the view that the only realistic option was to assign the chose-in-action from The Smart Company to her through the use of a Deed of Assignment.
Notwithstanding that Ms Tomazou attested that at the time she entered into the Deed she did not believe the company was insolvent, at the hearing of the application before me the defendants did not seek to argue the question of solvency of the company. I find there is no reasonable basis for the defendants to argue that the company was not insolvent at the time that the First Deed was entered into and thereafter.
Exhibited to her affidavit as “DT1” is a copy of Minutes alleged to be Minutes of a meeting on 6 April 2010 between Ms Tomazou as chair, in person, and Mr Clift by skype link from the United States of America. The effect of the Minutes is to record that she had undertaken considerable work for the company on the Federal Court action for which she had not rendered invoices and that the amount due to her was over $250,000.00. No evidence of this debt was provided in the winding up proceedings as is apparent from the reasons for judgment. It was noted in the Minutes that she, together with Mr Portellos, had managed to secure financial support for the activities of the company, including but not limited to the litigation, from various third parties who were beneficiaries of The SmartCard Trust. However, because of the winding up application the beneficiaries were not prepared to provide funding unless the rights to the chose-in-action were protected. The Minutes then record that in lieu of payment of invoices and work in progress due to her it was agreed that the company assign the chose-in-action to her in consideration for which it would receive $1 plus 10 per cent of the proceeds received from the action. It was recorded that Ms Tomazou by taking this assignment would be acting in the interests of the beneficiaries of The SmartCard Trust who were funding the litigation – see Document 9A or Exhibit “DT1”.
Ms Tomazou attests in paragraph 31 that she did not believe there was a detriment to The Smart Company because there were significant ongoing cost requirements in relation to the Federal Court action and funding would not be available without the assignment. The transactions she said gave no benefit to her personally but benefited the second defendant in its capacity as trustee of The SmartCard Trust and through it the beneficiaries of the Trust. She asserts that since that time beneficiaries of the Trust have advanced approximately $500,000.00 to the trustee of the Trust. The First Deed of Assignment read alone provides the benefit of the assignment to her.
Ms Tomazou in her affidavit does not explain why no notice of this purported assignment was given to either this Court, which had heard an application to wind up the company some six days before, or to the Federal Court, which was seized of the Federal Court proceedings. She does not explain why, when there were hearings before Lander J on 29 April 2010 and 27 May 2010, that he was not informed of the Deed of Assignment. She does not explain why it was that this Court was not informed about the alleged debt that the company owed her. She does not inform the Court why it is that the Deed of Assignment did not provide for any arrangements in relation to the $2 million in costs already incurred by the company in pursuit of the chose-in-action or for the costs in excess of $3 million that it was potentially liable to pay to Clipsal. Nor does she explain how the 10 per cent was fixed as further consideration for the assignment. Nor does she inform the Court in relation to the Deeds of Assignment about how the proceeds received from the action were to be determined having regard to the obligations of the trustee of the Trust (EGR) to beneficiaries of that Trust who were to provide the future funding for the action. A $4 billion claim was assigned to her for the payment of $1 plus 10 per cent of proceeds she received from the action, if any. The scheme of the First Deed of Assignment was conceived and implemented in secrecy some six days after a contested hearing about the company’s solvency, and kept shrouded in secrecy until an order was made winding up the company, after which it was disclosed to all. It must be a matter of some conjecture as to whether it would have ever seen the light of day if the company had not been wound up.
A notice of address for service for the second defendant was filed on 4 August 2010. A copy of a transcript of the hearing before Lander J in the Federal Court on 21 June 2010 was exhibited to an affidavit of Mr Hayes – see Document 15A.
The plaintiffs filed an outline of submissions in support of their application on 4 August 2010. The first defendant filed an outline of submissions in opposition to the application on 5 August 2010. At the hearing I was advised by counsel for the first defendant that he acted for both the first and second defendants and that the second defendant supported the first defendant’s written submissions. His oral submissions were made on behalf of both defendants.
An initial hearing took place on 6 August 2010 when the matter was adjourned to 11 August 2010 for the hearing to be completed. It was clear from the submissions of the plaintiffs that they relied on the allegations that the transactions by Ms Tomazou were voidable transactions under the provisions of Pt 5.7B of the CA for their application for summary judgment. Whilst other arguments were raised in their outline of submissions as to the execution of the documents, the essential thrust of the plaintiffs’ submissions was that there was no reasonable basis for the defendants to defend the plaintiffs’ claim to have the transaction set aside pursuant to the provisions of the CA as both an uncommercial transaction pursuant to s 588FB and as an unreasonable director-related transaction pursuant to s 588FDA(1).
Mr Slattery QC, for the plaintiffs, conceded in his reply that the plaintiffs’ claim for summary judgment was limited to the assertion that the defendants had no reasonable basis for defending the plaintiffs’ claim that the First Deed of Assignment was an uncommercial transaction and an unreasonable director-related transaction within the meaning of s 588FB and s 588FDA(1) of the CA. The other arguments that had been raised in the written submissions and addressed in passing were not matters that the plaintiffs pressed on this particular application.
I note that counsel for the defendants conceded, or at least did not seek to challenge, that the company was insolvent at the time the First Deed of Assignment was entered into and thereafter.
Section 588FB of the CA provides as follows:
588FB(1) [What is uncommercial transaction] A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(a)the benefits (if any) to the company of entering into the transaction; and
(b)the detriment to the company of entering into the transaction; and
(c)the respective benefits to other parties to the transaction of entering into it; and
(d)any other relevant matter.
Section 588FDA of the CA is in the following terms:
588FDA(1) [“unreasonable director-related transaction”] A transaction of a company is an unreasonable director-related transaction of the company if, and only if:
(a)the transaction is:
(i)    a payment made by the company; or
(ii)    a conveyance, transfer or other disposition by the company of property of the company; or
(iii)    the issue of securities by the company; or
(iv)    the incurring by the company of an obligation to make such a payment, disposition or issue; and
(b)the payment, disposition or issue is, or is to be, made to:
(i)    a director of the company; or
(ii)    a close associate of a director of the company; or
(iii)    a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and
(c)it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(i)    the benefits (if any) to the company of entering into the transaction; and
(ii)    the detriment to the company of entering into the transaction; and
(iii)    the respective benefits to other parties to the transaction of entering into it; and
(iv)    any other relevant matter.
Section 588FE of the CA provides, amongst other things, that an insolvent transaction is voidable if it is an uncommercial transaction or an unreasonable director-related transaction of the company taking place within a defined period.
On the evidence before the Court there is no doubt, and I find that it is unarguable, that the transaction constituted by the First Deed of Assignment was entered into at a time when the company was insolvent and that it occurred during the time between the filing of the application to wind up the company and the making of the winding up order – see s 588FE(2)(b)(i) of the CA. It was therefore capable of being an uncommercial transaction or an unreasonable director-related transaction subject to the qualifying provisions of s 588FB and s 588FDA being met.
Section 588FF of the CA provides that Courts may make orders about voidable transactions that fall within the provisions of s 588FE, including an order directing a person to transfer to the company property that the company has transferred to that person under the transaction and including – see subparagraphs 588FF(1)(h) and (j):
(h)an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;
(i)…
(j)an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.
In McPherson’s Law of Company Liquidation, 5th ed, the learned author discusses uncommercial transactions at [11.900]. He says:
To impugn a transaction as an uncommercial transaction a liquidator must establish that:
·it was entered into, or an act was done for the purpose of giving effect to it, during the two years prior to the relation-back day (s 588FE(3)(b)) or during the time between the filing of an application to wind up and the making of a winding-up order (s 588FE(2)(b)(ii));
·at the time of the transaction or when something was done to give effect to it the company was insolvent (s 588FC(a)) or became so as a result of matters including entering into or giving effect to the transaction (s 588FC(b)); and
·it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction taking into account the benefits for the company, the detriment to the company, the respective benefits to other parties to the transaction and any other relevant matters (s 588FB(1)).
He further says in [11.900]:
… the uncommercial transaction seeks, principally, to redress debtor behaviour ie to stop a debtor company unjustly enriching a particular party (often an associated person or entity) at the expense of the general body of creditors. This type of provision was developed to discourage those in control of a company from transferring assets or opportunities to associates or associated entities so that they benefit and the creditors lose out. …
He notes, relying on the decision of Demondrille Nominees Pty Limited v Shirlaw (1997) 25 ACSR 535 at 548, that:
In construing s 588FB courts should incline to favour the construction that benefits the unrelated unsecured creditors of the insolvent company in whose interests the liquidator is acting in bringing the proceedings for recovery.
There can be no argument on the material before the Court, and on the defendants’ case, that the first two dot points required for an uncommercial transaction have not been met, ie the First Deed of Assignment was entered into during the period between the filing of the application to wind up and the making of the winding up order, and that the company was insolvent at the time.
As to the issue of uncommerciality, I note that McPherson in [11.930] relies on the decision of Gordon J (with whom Heerey J agreed) in Capital Finance Australia Ltd v Tolcher (2007) 25 ACLC 1804; [2007] FCAFC 185 at [129], when he said:
In Capital Finance Australia Ltd v Tolcher (2007) 25 ACLC 1804; [2007] FCAFC 185 at [129], Gordon J (with whom Heerey J agreed) summarised the principles applicable to establishing the “uncommerciality” requirement as follows:
(1)as the express words of s 588FB make clear, it is an objective standard to determine if a transaction is uncommercial;
(2)four criteria are to be considered – the benefits enjoyed by the company (s 588FB(1)(a)), the detriment to the company (s 588FB(1)(b)), the respective benefits others received (s 588FB(1)(c)) and any other relevant matters (s 588FB(1)(d));
(3)the objective criteria are not considered in some vacuum but by reference to “the company’s circumstances” which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors; and
(4)for a transaction to be “uncommercial”, it must result in “the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice” or where “the consideration lacks a ‘commercial quality’”.
As to unreasonable director-related transactions, I note that the underlying test remains much the same as that for an uncommercial transaction save that there is an additional feature of the transaction benefiting a director or close associate. Section 9 of the CA defines a “close associate of a director” as follows:
close associate of a director means:
(a)a relative of the director; or
(b)a relative of a spouse of the director.
It is not for the Court at this time on this application to determine whether or not the transaction recorded in the First Deed of Assignment was an uncommercial transaction or an unreasonable director-related transaction and thus voidable under the CA. Rather the Court’s task on an application for summary judgment is set out in r 232 of the Supreme Court Rules 2006 (SA), which provides as follows:
232 (1) The Court may, on application by a party, give summary judgment for that party.
(2) Summary judgment may only be given if the Court is satisfied that—
(a)if the applicant is a plaintiff — there is no reasonable basis for defending the applicant’s claim; or
(b)…
The meaning of this Rule was considered at length by Debelle J in the matter of Ceneavenue Pty Ltd & Ors v Martin & Ors (2008) 67 ACSR 130; [2008] SASC 158. Duggan and Anderson JJ, as the other members of the Full Court, agreed with Debelle J’s analysis and conclusions in relation to the construction and use of r 232. His Honour explained in [81]:
[81] … The test in r 232(2) requires the court first to identify the issues to be tried and then to assess whether the claim or defence has reasonable prospects of success. In the case of an application for summary judgment by a plaintiff against a defendant, it is doubtful, therefore, whether there is a material difference between that test and the former test as it had been expressed in Fancourt. That is because the question whether there is a real question to be tried denoted that the task for the court was to determine whether the issues at the trial are real or fanciful and have reasonable prospects of success.
In [82], his Honour said:
[82] The question whether there is no reasonable basis for the claim or defence must be determined in a summary way. It is entirely inappropriate for there to be a mini trial on that question. It must, therefore, be evident or obvious that the party defending the application for summary judgment has no reasonable basis for the claim or the defence. While adversarial argument will assist in the determination of that question, the question should be capable of ready resolution without prolonged argument. A prolonged argument might suggest that there is a reasonable basis for the claim or the defence. …

Debelle J noted that the High Court in Fancourt & Anor v Mercantile Credits Limited (1983) 154 CLR 87 in a unanimous judgment held (at 99):
… The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: …
Debelle J explained in [78]:
… the word “real” is intended to distinguish a bona fide defence from one that is fanciful or spurious or an abuse of process seeking to delay and defeat the plaintiff’s just claim. The onus of satisfying the court that the application should be granted lies on the applicant. When considering whether that onus has been discharged, the court will look to the cogency of the defence as raised by the defendant: [authority not cited]. All of that is conveyed by the expression “no real question to be tried”.
His Honour noted in [87] that the warning in Fancourt was compatible with the views expressed by the High Court in Agar v Hyde (2000) 201 CLR 552. His Honour said:
... While the objective of the 2006 rules of this court, like the UCPR in Queensland, is to avoid all unnecessary delay and promote efficiency in the resolution of civil disputes, the court must be careful that the interests of justice are not sacrificed on the altar of efficiency and expedition.
At [92], his Honour concludes his analysis of r 232(2)(a) in the following way:
[92] For these reasons, r 232(2)(a) does not represent a significant departure from the previous practice in relation to an application for summary judgment by a plaintiff on the ground that the defendant has no arguable defence. On an application for summary judgment by a plaintiff, the court will examine whether the asserted defence is real or fanciful. It will consider whether the defence is bona fide. It will assess whether the defendant has a real as opposed to a fanciful case. It will have regard to the injunction in Fancourt which is in similar terms to that in Agar. The applicant for summary judgment must show that it is clear that the other party has no arguable case. The test does not require the court to determine whether the defendant will succeed. Instead, the court must consider only whether the ground or grounds relied on by the defendant are reasonably arguable. The test in r 232(2)(a) is not, I think, materially different from the test whether there is a real question to be tried.
As counsel for the defendants submitted, the test that the plaintiffs must satisfy to obtain summary judgment is a substantial one. They must establish to the Court’s satisfaction that the circumstances of the defence raised in the affidavit of Ms Tomazou accepted in full, as I must for the purposes of this application, cannot in any event provide the defendants with an arguable defence to the plaintiffs’ claim that this assignment was a voidable transaction under the CA and should be set aside. To put it another way for the plaintiffs to succeed they must demonstrate that the proposed defence is not real but rather fanciful and that the defence has no real prospects of success – Ceneavenue (supra).
In considering the First Deed of Assignment (Document 3J), counsel for the plaintiffs made the following observations and comments:
1.That no where within the Deed is it suggested that Ms Tomazou was acting as assignee in anything other than in her personal capacity (contrary to the assertions in the Second Deed of Assignment).
2.That she acted as both director and company secretary in signing the document for the company and as assignee in signing the document to accept the assignment.
3.That the document was in any event so poorly worded that the suggested further consideration of 10 per cent of any monies received did not in any way define what “monies received” meant, by whom it was to be received, whether it was to be net or gross, or whether that was after others who might assert a prior right of claim had their claims met.
4.The warranties contained in it were from Ms Tomazou to The Smart Company that she would pursue the action, bear all costs and disbursements for the future, and keep Smart indemnified against future costs and pay the further consideration if it is received, yet there was nothing in the Deed as to the ability of Ms Tomazou to meet those warranties.
I note that the defendants do not assert in their responding material or explain why the First (and Second) Deed of Assignment does not address:
1.The $2 million or more said by Ms Tomazou to have been expended by the company in pursuit of the claim to that time.
2.What is to happen to the company’s potential liability to pay costs of some $3 million potentially due to the defendants.
3.The $850,000.00 held by the company on deposit with Westpac as security for the defendants’ costs – see my reasons for judgment in the winding up application at [60].
4.The unassignable statutory causes of action – see later.
5.An apparent conflict of interest for Ms Tomazou as director of the company and as assignee.
Counsel for the plaintiffs argued that the Second Deed of Assignment was entered into following an appearance before Lander J on 21 June 2010 when counsel for EGR advised his Honour of an intended application by EGR for leave to be joined as a co-applicant and that it would then seek permission as shareholder to pursue the action in the name of the company pursuant to s 236 and s 237 of the CA. The debate on that occasion (the transcript is Exhibit “MAH-1” to the affidavit of Mr Hayes – FDN 15) recorded the concern of his Honour that the company being in liquidation and having allegedly assigned away the right of action to Ms Tomazou could no longer possibly be a vehicle for EGR as shareholder to pursue a s 236 action.
Counsel for the plaintiffs noted that five days later on 26 June 2010 the Second Deed of Assignment was executed. This Second Deed refers to the First Deed of Assignment and in Recital B records the appointment of Ms Tomazou as an additional trustee of The SmartCard Trust and asserts that she entered into the First Deed of Assignment in that capacity. The Second Deed of Assignment then purports to assign in any event her chose-of-action to EGR without any undertakings by EGR in relation to payment of further consideration to The Smart Company, and, again, without addressing any of the various costs issues that The Smart Company was facing in respect of the action or the statutory causes of action.
Counsel for the plaintiffs argued that in all of these circumstances it was simply unarguable on the defendants’ part even accepting all of the matters asserted in the affidavit of Ms Tomazou that an objective reasonable person being aware of the company’s circumstances would have entered into the First Deed of Assignment. There was no real question to be tried. There was no reasonable basis for defending the claim.
In considering whether or not the defendants have an arguable case against the First Deed of Assignment being an uncommercial transaction, the Court is entitled to have regard to the circumstances confronting the company at that time. In my view, it is also entitled to have regard to the Second Deed of Assignment which purports to correct or “clarify” omissions from or errors in the First Deed of Assignment.
The plaintiffs noted that the company’s action in the Federal Court included claims against Clipsal for misleading and deceptive conduct in trade or commerce in breach of s 52 of the Trade Practices Act (“TPA”) and s 56 of the Fair Trading Act (“FTA”) – see paragraph 116 of Exhibit “AJS-1” to the affidavit of Mr Strazdins (FDN 3). Alternatively, it was therein pleaded that Clipsal were knowingly concerned in contraventions and that there was a breach of s 84(2) of the TPA. In the relief claimed in the amended Federal Court application, Exhibit “AJS-2” to the affidavit of Mr Strazdins (FDN 3), damages are claimed under s 82 of the TPA and s 84 of the FTA and compensation under s 87 of the TPA or s 85 of the FTA.
It was submitted by the plaintiffs, and accepted by the defendants, that The Smart Company was incapable at law of assigning those statutory causes of action. Reliance was placed on the decision of Pearl Coast Divers Pty Ltd (In liq) & Anor v Cossack Pearls Pty Ltd (2008) 249 ALR 591. I understand there to be no contest about that assertion. Accordingly, at best for the defendants the First Deed of Assignment could assign part only of the chose-in-action.
Plaintiffs’ counsel argued that under the Second Deed of Assignment the company had no entitlement to any return because Ms Tomazou would not have any entitlement. If Ms Tomazou was holding the proceeds as assignee in trust she therefore had no private interest, she did not receive any proceeds of the action and, accordingly, no benefit could flow to the company. The only beneficiaries from the arrangements entered into by Ms Tomazou, assuming the Second Deed to be valid, would be the beneficiaries of The SmartCard Trust of which EGR is the trustee.
Counsel for the defendants noted that the claims for relief under Pt 5.7B of the CA were pleaded in the alternative in the plaintiffs’ amended statement of claim. I have already recorded that plaintiffs’ counsel concedes that the plaintiffs’ application for summary judgment relies wholly upon the liquidators’ rights under Pt 5.7B of the CA They do not seek to rely in this application on the other causes of action pleaded in the amended summons and amended statement of claim.
Defendants’ counsel submitted that there were issues before the Court which could not be determined other than by a consideration of evidence at trial. He noted that the pleas in subparagraphs 11.1 to 11.3 of the amended statement of claim (FDN 7) all required evidence to establish same and that summary judgment could not be entered on those bases. However, it seems to me that these are not pleas on which the plaintiffs seek summary judgment. Rather the plaintiffs seek summary judgment on the assertions in paragraph 12 of the amended statement of claim that the first purported assignment was a transaction pursuant to s 9 of the CA, and that it was an uncommercial, insolvent, and unreasonable director-related transaction as earlier described.
Submissions were put as to whether the Deed of 6 April 2010 had been executed properly or otherwise. Again, that is not an issue that the plaintiffs seek to pursue at least at this time on this application. Defendants’ counsel observed that the amended statement of claim had only been filed on 23 July 2010 and that the defendants were still within time to file their defences. The first statement of claim had been filed on 18 June 2010 and served on 28 June 2010. In any event I take the affidavit of Ms Tomazou as setting out the matters that the defendants would seek to pursue in defence of the plaintiffs’ claims and I am satisfied that it is appropriate to proceed to determine the plaintiffs’ application having regard to that affidavit and accepting its contents.
Defendants’ counsel asserted that it was a triable issue as to whether or not the First Deed of Assignment was an uncommercial transaction and that all relevant circumstances needed to be considered. The defendants asserted that the process could not be short circuited in the manner sought by the liquidators by this application for summary judgment. It was argued that there was an improper conflation by the plaintiffs of what happened on 6 April 2010 with what happened with the Second Deed. I have earlier expressed the view that the Court is entitled to look at all of the circumstances in considering whether there is a reasonable basis for arguing that the Deed of Assignment of 6 April 2010 was not an uncommercial transaction or an unreasonable director-related transaction.
Defendants’ counsel asserted that the attacks on Ms Tomazou’s conduct are matters for trial and not for this application. It was argued that if the Deed was susceptible to a number of meanings then this would raise issues as to what was believed by the parties at the time which would require evidence.
In addressing the First Deed of Assignment directly defendants’ counsel submitted that it reflected a commercial arrangement. The construction of paragraph 7.4 of the Deed which related to the further consideration was a matter that might be subject to debate. He asserted that what happened with the Second Deed of Assignment in June could not affect the commerciality or otherwise of the First Deed of Assignment. I reject that argument because the second transaction or Deed purports to explain omissions said to have occurred in the First Deed of Assignment and to modify it.
Defendants’ counsel accepted that statutory rights of action were not capable of assignment and that the Deeds could therefore not assign the entirety of The Smart Company’s chose-in-action in the Federal Court.
As to the submissions by plaintiffs’ counsel that the First Deed was commercially indefensible he argued that this was a matter for trial and after proper particularity. This could not be an appropriate matter for a s 232 summary judgment because there was no absolute standard of commerciality that could either be established as having been met or not met but rather it was a matter of what was commercially realistic in the circumstances confronting the company at the time. That, he argued, was a matter for evidence. He argued that at the very least an investigation of factual circumstances was required and in those circumstances the plaintiffs had not met the requirements for a summary judgment under r 232.
Counsel for the defendants noted that on the pleadings there was no attempt to set aside the Second Deed directly under Pt 5.7 of the CA but rather the plea of the plaintiffs was that if the First Deed of Assignment failed then the Second had to follow. In any event, it was argued that these all disclosed triable issues.
It was argued that the attack on the Second Deed of Assignment inevitably involved an attack on the credit of Ms Tomazou, which was a matter for trial. I agree that at this stage the Court must determine this matter on the two Deeds of Assignment and the evidence of Ms Tomazou and any other unchallenged evidence of the plaintiffs that does not conflict with her evidence.
Counsel for the defendants submitted that the $10.5 million in creditors’ claims referred to by Mr Strazdins in his first affidavit was not relevant to this application whether it had been disclosed on the winding up application or not. He submitted that any non-disclosure before the winding up decision of 28 May 2010 was not directly relevant on this application. He noted that as currently framed the originating process in this matter was issued in the name of the liquidators and, accordingly, the relief sought had to be confined to relief available to liquidators under the CA which confined the present claim to relief sought under Pt 5.7B.
Defendants’ counsel commented that this was an evolving case where the original statement of claim had been revised within a very short period, where there were developments occurring constantly, and he submitted that it was an inappropriate case for summary judgment. However, the defendants did accept that it was an appropriate case to have an expedited trial. Counsel for the defendants indicated there would be no opposition to an urgent disposal of the action. He argued that it was not a case where there was only one answer to the issues raised on the material before the Court.
In reply counsel for the plaintiffs referred again to Recital B in the Second Deed of Assignment noting that it purported to confirm that Ms Tomazou as assignee on 6 April 2010 had taken the assignment as a trustee of The SmartCard Trust and that the consequence of this would be that the company would get nothing by way of benefit from the assignment of this chose-in-action for a $4 billion claim. At the very least it was strongly arguable that was the case and in considering whether or not the defendants have a reasonable basis for defending the claim it is the Deeds themselves that must be given primary consideration.
Counsel for the plaintiffs submitted that the end result of the two Deeds was that the company had given away its substantial asset of a $4 billion claim, which was asserted to be a reasonable claim, for $1. It had effectively done so by assigning it (having regard to the two Deeds) to the shareholder of the company thereby depriving the creditors of the benefit of that asset. If the Second Deed was not to be taken into account it was assigned to a director.
Counsel for the plaintiffs confirmed that all that the plaintiffs relied on in their submission that summary judgment should be entered was the terms of the Deeds themselves and the circumstances of the company. By themselves the Deeds precluded the defendants from having a reasonable basis for defending the claim. He argued that because the company was incapable of assigning its statutory causes of action it was inconceivable that any reasonable person in the company’s position would even contemplate entering into a Deed of Assignment of part only of the company’s chose-in-action for virtually no return. The company would still be left with obligations in respect of those statutory causes.
The defendants sought to rely on a decision of Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) & Anor v Doran & Ors, Court of Appeal, Supreme Court of New South Wales, 219 ALR 555; [2005] NSWCA 243, where at [159] Giles JA said:
[159] What the reasonable person would not have done must be judged according to the circumstances at the time, including proper perception of the future, but without the influence of hindsight. It is not necessary to repeat earlier portions of these reasons for the matters to which regard is to be had for the purposes of s 588FB(1).
At [157], his Honour said:
[157] It must positively appear that the reasonable person would not have entered into the transaction, see Tosich Construction Pty Ltd (in liq) v Tosich at 367:
What the Court must do is consider each of the matters to which reference is made in s 588FB(1) and, having regard to them, reach a conclusion as to whether a reasonable person in the company’s circumstances would not have entered into the transaction. The company’s circumstances must include the state of its knowledge, that is, of the knowledge of those who were relatively its directing mind. Only if the Court can conclude that a reasonable person in the company’s circumstances would not have entered into the transaction does the section make that transaction uncommercial.
In my view the plaintiffs have established on the affidavit of Ms Tomazou and on the otherwise uncontradicted evidence that the defendants do not have a reasonable basis for defending the plaintiffs’ claims that the First Assignment was an uncommercial transaction within the meaning of s 588FB of the CA. This is so whether it is considered in light of the Second Deed of Assignment or by itself. The defence proposed is fanciful rather than real, and it is a defence with no reasonable prospects of success. The First Deed of Assignment is so lacking in clarity, so obviously fails to address many issues relating to the costs of the action to that time, so inadequately provides benefit to the company in return for its $4 billion claim, so inappropriately fails to address the statutory causes of action, and was so obviously subject to a conflict of interest on the part of Ms Tomazou that it is unarguable that it would not fall into the category of an uncommercial transaction. In those circumstances the plaintiffs are entitled to summary judgment.
However, in my view, the plaintiffs have not established that the defendants do not have an arguable case that the 6 April 2010 Deed of Assignment as clarified by the Second Deed of Assignment was not an unreasonable director-related transaction. The evidence of Ms Tomazou was that she was not a beneficiary of The SmartCard Trust and, accordingly, on the defendants’ case, the transactions considered together would arguably not meet the requirements of s 588FDA(1)(b) as arguably no director or close associate of a director benefited. If the 6 April 2010 Deed of Assignment is to be considered alone then in my view it would not be arguable that it was not an unreasonable director-related transaction within the meaning of s 588FDA(1)(a) of the CA.

In my view and accepting all of the defendants’ evidence it is not reasonably arguable that the Deed of Assignment entered into on 6 April 2010 was capable of being regarded as anything other than uncommercial. The plaintiffs have satisfied me on all the evidence, including that of Ms Tomazou, that the defendants have no reasonable basis for defending their claims for relief under s 588FB and s 588FF of the CA.
This is so having regard to the circumstances known to the company at that time as disclosed by Ms Tomazou. The company knew, or must have known, that it was facing the potential of a substantial costs order against it in respect of the litigation in the Federal Court. Lander J in the transcript mentioned a figure of $3.2 million. The company was involved in fighting security for costs applications. No provision was made within the Deed in relation to any potential outstanding costs liability of the company.
It is apparent from the reasons for judgment in the winding up application that the company had as one of its assets the sum of $850,000.00 on deposit with Westpac Bank which was held pursuant to a security for costs order made in the Federal Court proceedings. No provision was made within the Deed in respect of these monies.
The company had expended in excess of $2 million in pursuing the action. No provision was made within the Deed in respect of these costs.
In the Minutes of Meeting of 6 April 2010 reference is made to the very considerable work undertaken by Ms Tomazou in the conduct of the Federal Court proceedings and that the chose-in-action would be assigned to her in lieu of payment of amounts due to her – yet she asserts in the Second Deed that she was at all times acting as trustee of a Trust from which she did not benefit. No provision was made in respect of any debt forgiveness by her.
Notwithstanding that the Deed was entered into to facilitate the provision of funding money from some unknown beneficiaries of the Trust of which the sole shareholder of The Smart Company was the trustee, no provision was made within the Deed for any payment of actual monies to the company beyond $1.
The provision in relation to further consideration of 10 per cent of the proceeds of the action when considered against the assertion by Ms Tomazou that she entered into the Deed in her capacity as a trustee of The SmartCard Trust appointed for that purpose and then retiring with the Deed of 26 June 2010 could provide to the company no more than a very uncertain basis for recovering the 10 per cent of any proceeds of the action.
The chose-in-action assigned away is said to be worth approximately $4 billion. The benefit to the company is certainly $1 and only possibly if at all, in light of the documents, 10 per cent of the proceeds of action.
The detriment to the company is that it has lost the opportunity to pursue a $4 billion claim which on Ms Tomazou’s evidence had been a major feature of its activities over a period of some seven years and in which it had invested significant monies and had incurred significant potential liabilities. It further lost its ability to try to protect itself from any costs order against it or to recover the monies it had already spent on costs.
Yet in all those circumstances it was still left with the statutory causes of action which it would have to pursue if it wanted to avoid their likely dismissal with consequential costs orders.
In Ceneavenue it was said that for summary judgment to be entered for a plaintiff the Court had to be satisfied that there was no reasonable basis for a defence and that it must be clear that the party did not have an arguable case. For there to be a reasonably arguable defence there must be a real question to be tried as to whether the transaction recorded in the First Deed of Assignment as explained and modified in the Second Deed of Assignment or considered alone was not an uncommercial transaction within the meaning of s 588FB of the CA. In my view the terms of the Deeds in the circumstances of this company as known to the directors from the affidavit of Ms Tomazou and the otherwise uncontradicted evidence make it clear that there is no real question to be tried as to the Deed of Assignment of 6 April 2010 being anything other than an uncommercial transaction within the meaning of s 588FB of the CA. I do not find it to be unarguable that it was not an unreasonable director-related transaction as the two Deeds together could arguably not benefit a director or close associate within the meaning of s 588FDA of the CA.
For the foregoing reasons, there will be summary judgment for the plaintiffs. There will be orders that the Deeds of Assignment of 6 April 2010 and 26 June 2010 are void. There will be an order declaring that The Smart Company (In liquidation) remains the owner of the chose-in-action in the Federal Court proceedings. The plaintiffs are to prepare Minutes of Order reflecting these reasons. The plaintiffs are to have the costs of the action and application to be taxed or agreed. I certify fit for senior counsel.