Triulcio v Chase Property Investments Pty Ltd

[2003] NSWSC 861

CITATION:	Triulcio v Chase Property Investments Pty Ltd [2003] NSWSC 861
HEARING DATE(S):	01/09/03, 05/09/03, 12/09/03
JUDGMENT DATE:	17 September 2003
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Application for appointment of provisional liquidator stood over
CATCHWORDS:	CORPORATIONS - winding up - application for appointment of provisional liquidator - companies already subject to Mareva orders and undertakings to court to preserve assets - jeopardy pending trial not shown
LEGISLATION CITED:	Corporations Act 2001 (Cth), s.467(4), s.472(2)
CASES CITED:	Re Club Mediterranean Pty Ltd (1975) 11 SASR 481 Commonwealth v Hendon Industrial Park Pty Ltd (1995) 17 ACSR 358 Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 Natural Extracts Pty Ltd v Stotter (unreported, FCA, 18 December 1998) Zempilas v J N Taylor Holdings Ltd (No 2) (1990) 55 SASR 103
PARTIES :	Rocco Triulcio - Plaintiff Chase Property Investments Pty Limited - First Defendant Chase (No 1) Property Investments Pty Limited - Second Defendant Chase (No 2) Property Investments Pty Limited - Third Defendant Chase (No 3) Property Investments Pty Limited - Fourth Defendant MT Management Pty Limited - Fifth Defendant Rombade Pty Limited - Sixth Defendant Get'm Pty Limited - Seventh Defendant Sant Victoria Pty Limited - Eighth Defendant Mancinis Victoria Pty Limited - Ninth Defendant Bakaras Australia Pty Limited - Tenth Defendant Italian Forum Limited - By leave
FILE NUMBER(S):	SC 3778/03
COUNSEL:	Mr V R W Gray - Plaintiff Mr C.R.C. Newlinds/Mr D.A. Smallbone - Defendants Mr M.R. Aldridge SC/Mr J.C. Thompson - Italian Forum Limited
SOLICITORS:	Abbott Tout - Plaintiff John de Mestre & Co - Defendants Anderson Lawyers - Italian Forum Limited

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

WEDNESDAY 17 SEPTEMBER 2003

3778/03 - ROCCO TRIULCIO v CHASE PROPERTY INVESTMENTS PTY LTD & 9 ORS

JUDGMENT

1 On 1, 5 and 12 September I heard the plaintiff's application for the appointment of a provisional liquidator of the defendant companies. The proceedings were disjointed, in that there were several adjournments requested by the parties. The hearing eventually concluded on the afternoon of 12 September.

2 The plaintiff is a shareholder in each of the ten defendant companies. For present purposes, he may be regarded as holding 45 per cent of the issued shares in each, with the remaining 55 per cent held by members of the Elias family. The companies are property developers. Their main assets are related to the Italian Forum development at Leichhardt, although this has not been by any means their only activity. Projects were also undertaken in at least eight other locations in suburban Sydney.

3 Two basic propositions about the companies were generally accepted for the purposes of the hearing of the interlocutory process I am about to mention: first, that the companies are solvent; and second, that they are at a stage of life where realisation of property assets is their main function and active trading operations are not otherwise being undertaken.

4 On 14 July 2003, the plaintiff filed a summons seeking orders for the winding up of all ten defendant companies. On 18 August 2003, I ordered that the matter proceed on pleadings. On 29 August the plaintiff filed a statement of claim.

5 The matters pleaded in the statement of claim in support of the claim for orders for winding up may be briefly summarised. The first concerns an arrangement that Stephen Elias was to receive for nothing two units in the Italian Forum development. The plaintiff accepts the regularity of the arrangement. What he does not accept is that, as he sees matters, Stephen Elias gave unilateral instructions for the two units to be combined into one and that some $200,000 of company funds was spent on this for Stephen Elias's sole benefit. The second complaint involves alleged actions of Anthony Elias in causing funds of one company, Get'm Pty Ltd, to the extent of some $307,000, to be paid out of the company in a way involving failure to account. The third complaint is that Anthony Elias, who is said to have responsibility for the accounting function, failed after 1 July 1998 to cause the companies to keep proper accounts. The fourth complaint is that since late 1999 there have been no meetings of directors or shareholders to discuss the financial position or consider financial statements and the plaintiff has been excluded from communications between the companies and their bankers and has not been informed of the state of account between the companies and their bankers. There is also a complaint of exclusion from the selling process related to the Italian Forum units. The fifth complaint relates to failure of the Elias parties to do what was required of them to give effect to an understanding reached with the plaintiff in June 2002 for the resolution of their differences. The sixth complaint relates to termination by the companies, at the behest of the Elias interests, of loan account and corporate credit card, petrol card and mobile telephone privileges of the plaintiff, deactivation of his keys to company premises and withdrawal of what is described as "the privilege of being able to receive hospitality" at company restaurants at the Italian Forum.

6 The interlocutory process seeking the appointment of a provisional liquidator was filed at the same time as the summons. It is, of its nature, based on the proposition that there is a situation of jeopardy or danger so far as concerns the safety of the companies' assets and the positions of the companies generally pending trial of the winding up proceedings. Mr Gray of counsel, who appeared for the plaintiff, opened his client's case for the appointment of a provisional liquidator by reference to, first, the failure to provide financial statements to the plaintiff; second, the alleged failure to account between approximately August 2001 and June 2002 in respect of funds of Get'm Pty Ltd to the extent of $307,000; third, the alleged use of company assets by the Elias parties for their own benefit; and fourth, exclusion of the plaintiff from corporate decision making.

7 In relation to the third and fourth of these matters, particular reference was made to very recent events involving proceedings in the Commercial List of this Division between Italian Forum Ltd, an unrelated company, as plaintiff and several of the present defendants, plus members of the Elias family and the plaintiff. Those proceedings were settled as between those parties (except the present plaintiff) but, the plaintiff says, on a basis involving application of corporate funds for the benefit of the Elias defendants and in a way that excluded the plaintiff from involvement in the settlement discussions.

8 Italian Forum Ltd is a significant creditor of the defendant company. At an early stage in the hearing before me, I dealt with an application by Italian Forum Ltd for leave to be heard without becoming a party. I granted that leave. Mr Aldridge SC made submissions on its behalf against the appointment of a provisional liquidator.

9 Mr Newlinds of counsel, who appeared for the defendants, conceded at an early stage (but only for the purpose of the interlocutory application) that, while oppression might not be ultimately found, the case is one in which grounds for winding up on the just and equitable ground may be taken to exist since there has been an irretrievable breakdown in the relationship between the parties and they should be allowed ultimately to separate with their respective proportions of the net assets of the group.

Shortly afterwards Mr Newlinds, on instructions, put in open court an offer on behalf of the Elias parties to purchase the plaintiff's shares in all ten companies at the fair value thereof as determined by the court. That offer was not accepted, although its existence, if it is continued, will be highly relevant in the light of s.467(4) if and when the winding up application comes on for final hearing.

10 Mr Gray, on behalf of the plaintiff, proceeded to read a number of affidavits. There was cross-examination of the plaintiff and of Mr Rosenblatt, an employee of the plaintiff's solicitors, Abbott Tout. At the close of the plaintiff's case, the defendants elected to call no evidence. It was submitted on behalf of the plaintiff that an adverse inference should be drawn from that course of action on the defendants' part. On an interlocutory application such as this, I am not satisfied that that is so.

11 The evidence shows that there have been apparent anomalies and irregularities within the companies and that there are serious questions to be tried as to the non-availability of financial statements at certain times and the possibility of failure to account, or diversion of corporate funds to private purposes. In an immediate sense, those matters are over and done with. In saying that, I do not intend to detract from their potential seriousness. It is rather that, while they have a bearing on the question of final relief, I do not regard them as material to the question of a provisional liquidator except to the extent, if any, that they may have a bearing on any threat to the status quo.

12 The other and more recent matter concerning exclusion of the plaintiff from the Commercial List settlement negotiations is one that in the light of the cross-examination of both the plaintiff and Mr Rosenblatt I do not regard as having demonstrated immediate and contemporary prejudice to the plaintiff. That evidence shows that in those proceedings the plaintiff, who was a party, had his own legal representation and that his legal representatives played an active part in settlement negotiations, not only as they affected his position directly as a party but also as they impacted upon him indirectly as a shareholder of the companies. The cross-examination of the plaintiff himself showed that he was, at a subjective level, confused as to what was going on. The cross-examination of Mr Rosenblatt showed, however, that the plaintiff's interests were properly represented in the Commercial List proceedings, including in relation to settlement negotiations, and that there was no effective exclusion of the plaintiff.

13 I have not so far mentioned two matters relevant to the immediate issue. The first concerns certain orders of a Mareva kind that are already in place, coupled with certain undertakings to the Court. The second concerns aspects of the defendant companies' relationships with their bankers, ING Bank and Westpac Banking Corporation.

14 The Mareva orders were made on 28 August 2003 in the Commercial List proceedings. They are binding on four of the present defendants and relate to certain specified real property. The orders require that those parties give 14 days written notice to Italian Forum Ltd of any dealings with those properties and that any proceeds of sale be placed in an account jointly controlled by the solicitors for Italian Forum Ltd and the solicitors for two of the present defendants, with access to that account limited to certain purposes which are, what might be termed proper and legitimate purposes from the point of view of the present defendants. In an indirect but very real way, these orders serve the interests of the present plaintiff.

15 The undertakings to the Court to which I have referred were given by the defendants in these proceedings on 18 July 2003. They commence with the words:

“Pending further order and the hearing and resolution of the plaintiff's interlocutory process, or order of the Court, the first through tenth defendants and each of them undertake to the Court...”

16 The matter was argued before me on the clear assumption that these undertakings were intended to subsist until determination of the substantive application for winding up. The defendants put their case on that basis and I have approached matters on the footing that, to the extent there is ambiguity in the introductory words I have quoted, it will be resolved by a clarifying undertaking to cause the regime created by the undertakings to be ongoing until the winding up application is determined.

17 The undertakings to the Court are undertakings not to sell, charge, mortgage or otherwise deal with any assets of the companies except in the ordinary course of business, with two added provisos: first, that no cheque over $5,000 (and no cheque of any amount for legal expenses) will be drawn without two days written notice to the plaintiff; and second, that there will be no exchange of contracts for the sale of real property except with two days written notice to the plaintiff.

18 Between them the Mareva orders and the undertakings entail substantial constraints upon the freedom of action of the defendants with respect to the assets in which the plaintiff will share if he is successful at trial. They represent a substantial stabilising regime.

19 I mentioned the defendant companies' relationships with their bankers, ING Bank and Westpac Banking Corporation. Various financing and security agreements were put into evidence. In each case there are enumerated events of default upon which the financier may call up its debt and otherwise take enforcement action. In the case of Westpac, two such events are relevant: first, if an administrator, receiver and manager, liquidator or similar officer is appointed; and second, if the company is placed under administration, wound up or dissolved:

“or steps are taken towards this (for example, a resolution is passed or an application is made to a Court).”

In the case of ING there are also two relevant events: first, if an application for winding up or similar process of the mortgagor is presented, or an order is made or effective resolution is passed for the winding up of the mortgagor; and second, if

“proceedings are initiated with a view to obtaining an order for winding up or similar process of the mortgagor”.

20 I shall come back to these matters. First, I should say something about the guidance provided by decided cases where an order for the appointment of a provisional liquidator is applied for under s.472(2) of the Corporations Act.

21 All three judgments in Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 emphasise the care that must be taken upon an application for the appointment of a provisional liquidator. Meagher JA saw such an order as a judicial remedy "of a wholly extraordinary nature". Both Kirby P, in whose judgment Meagher JA concurred, and Powell JA, who dissented, quoted with approval the observation of King CJ in Zempilas v JN Taylor Holdings (No 2) (1990) 55 SASR 103:

“The appointment of a provisional liquidator pending adjudication upon the petition for winding up is a drastic intrusion into the affairs of the company and is not to be contemplated if other measures would be adequate to preserve the status quo.”

In Commonwealth v Hendon Industrial Park Pty Ltd (1995) 17 ACSR 358 O'Loughlin J referred to such an appointment as "a serious step".

22 Mr Gray referred to the statement of Bright J in Re Club Mediterranean Pty Ltd (1975) 11 SASR 481 that it is not possible to state an exhaustive catalogue of the circumstances in which a provisional liquidator should be appointed since "commercial affairs are infinitely various". Bright J also said:

“Where the petitioning creditor makes the application and the company opposes it the Court must come to a conclusion as to the degree of urgency and of the need established by the petitioning creditor and the balance of convenience".

23 In Natural Extracts Pty Ltd v Stotter (unreported, FCA 18 December 1998), Hely J said that the Constantinidis case:

“is a reminder that whilst there is a wide discretion as to the circumstances in which an appointment of a provisional liquidator will be made the appointment of a provisional liquidator involves the taking of a serious step which requires the exercise of very great care. It is usually at least necessary to establish that the assets of the company are in some degree of jeopardy and that there are good prospects that a winding up order will ultimately be made".

24 My task therefore is to decide whether this is a case in which the court should take the serious step of awarding a judicial remedy of a wholly extraordinary nature by way of drastic intrusion into the affairs of the defendants.

25 That task is to be approached by reference to two main questions: first, whether there are good prospects of the plaintiff obtaining a winding up order; and, second, whether, having regard to the whole of the circumstances and in particular the measures already in place, the assets of the defendants are in jeopardy such that they need to be put under the protection of a provisional liquidator pending trial.

26 As to the first question, it is, as I have said, conceded by the defendants that orders should eventually be made allowing the parties to go their separate ways, although the defendants have in contemplation orders under which the Elias interests would buy out the plaintiff. On that basis, I think I must answer the first question in the affirmative.

27 There remains the question of jeopardy. The defendants say that the Mareva orders and the undertakings to the Court, understood in the way I have outlined, entail restraints in relation to the defendants' assets sufficient to hold matters in a state of sufficient security pending trial. The plaintiff says, in effect, that that might be so if one could trust the individuals having control over the day-to-day activities of the defendant companies (by which the undertakings have been given and upon which the Mareva orders are binding) to cause those companies to act as required by the orders and undertakings. In the plaintiff’s submission, there is evidence to show that one cannot repose the requisite degree of trust in those individuals.

28 The evidence to which the plaintiff refers in this connection relates to two occasions, both on 4 August 2003, on which, in the plaintiff's submission, certain of the defendant companies took steps to sell real property in breach of the undertaking. On each occasion, the defendants' solicitors sent the plaintiff's solicitors a letter enclosing the front page of a form of contract for the sale of land identifying a property, a purchaser and a price, together with the special conditions of the contract. The letter stated that a contract for the sale of the particular property had been issued. The letter did not say in terms that it was intended to convey two days’ notice of intention to exchange contracts, or two day's notice of anything, for that matter. But to my mind it cannot but be regarded as having communicated an intention of the named prospective vendor to sell under a contract as delineated by the enclosure at the particular price and to the particular purchaser, particularly in light of the statement in each letter that a contract has been "issued". I do not really see how it could be regarded as having conveyed any other message.

29 Each such letter, as to its substance, thus accorded with the undertaking even though there was no explicit reference to two days. Added to this is the fact that the plaintiff at no time objected to the sales envisaged by the two letters and, as I understand it, still does not object or complain. If there was any breach of the undertaking, and I am not at all satisfied that there was, it was extremely technical and in no way prejudicial to the plaintiff.

30 Apart from these two instances and a grievance he has about having been shut out of the recent settlement negotiations (being a grievance I consider not to be established), complaints the plaintiff has about the trustworthiness of the Elias parties go back to the events in the past regarding alleged failure to account and misapplication of funds. They will no doubt be investigated in due course. They are not to my mind relevant in an immediate sense to the question of the effectiveness of the Mareva orders and the undertakings to the court as a means of forestalling jeopardy to assets pending trial. Indeed, apprehension that assets will be dishonestly concealed or dissipated is the very basis on which Mareva relief is founded. Orders of the court preserving the status quo are in the ordinary run of events seen as sufficient to counter such apprehensions. In short I see no reason why the regimes already in place, assuming the undertakings are of the continuing nature and are clarified in the way I have assumed, are not sufficient. The companies are solvent. The Elias interests have the same interests in preserving their assets as does the plaintiff. A provisional liquidator is not needed.

31 Argument before me proceeded on the basis that appointment of a provisional liquidator would constitute an event of default allowing the banks, in theory at least, to call up their facilities and take enforcement action. However, perusal of the clauses to which I have referred shows that that is not so and that it was the making of an application for winding up that in each case constituted an event of default. That application was, of course, the application of the plaintiff. It may therefore be said that he has single handedly exposed the defendants and their assets to that particular jeopardy already.

32 Subject to clarification by the defendants of the ongoing nature of their existing undertakings to the court – that is, that they subsist until determination of the claim in item 1 of the plaintiff's originating process filed on 14 July 2003 – I propose to dismiss with costs the plaintiff's interlocutory process filed on that day. For the moment, the interlocutory process is stood over to Friday, 19 September 2003 at 9.30am before me so that the matter of clarification of the undertakings may be dealt with.

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Last Modified: 09/19/2003