Tzavaras v Tzavaras & Sons Pty Ltd (No 2)

[2023] NSWCA 222

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Tzavaras v Tzavaras & Sons Pty Ltd (No 2) [2023] NSWCA 222

Hearing dates:

On the papers

Date of orders:

14 September 2023

Decision date:

14 September 2023

Before:

Gleeson JA; Adamson JA; Griffiths AJA

Decision:

(1) The notice of motion filed on 8 August 2023 be dismissed, with costs.

(2) If the appellant opposes the Court’s tentative proposal to make orders that he bear the respondents’ costs of the appeal and of the trial, he should within 48 hours hereof file and serve a brief outline of submissions, not exceeding two pages.

(3) Final orders as to costs will be made on the papers.

Catchwords:

CIVIL PROCEDURE – Application to set aside orders – where appellant complains Court overlooked submissions – where appellant fails to account for how case conducted below – where Court did not fail to address complaint in any case

COSTS – Party/Party – Appeals – appeal allowed only in relation to minor issue which took up insignificant amount of time and resources – appellant given opportunity to make brief submissions on tentative costs orders

Legislation Cited:

Conveyancing Act 1919 (NSW), s 66G

Corporations Act 2001 (Cth)

Cases Cited:

Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168

Category:

Costs

Parties:

John Tzavaras (Appellant)
Tzavaras & Sons Pty Ltd (First Respondent)
William Tzavaras (Second Respondent)
Peter Tzavaras (Third Respondent)

Representation:

Counsel:
J Baird (Appellant)
JC Kelly SC/ L Katsinas (Respondents)

Solicitors:
Carneys Lawyers (Appellant)
Antonenas Legal Pty Ltd (Respondents)

File Number(s):

2022/119549

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of NSW

Jurisdiction:

Equity

Citation:

In the matter of Tzavaras & Sons Pty Ltd [2022] NSWSC 359

Date of Decision:

5 April 2022

Before:

Ward CJ in Eq

File Number(s):

2020/251170

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, John Tzavaras, filed a notice of motion seeking to set aside this Court’s orders made on 25 July 2023. He claimed the Court had overlooked his “extensive submissions” concerning him being denied any portion of the net profits of the Family Trust allegedly owed to him. This complaint disregarded the manner in which the appellant’s case was conducted below, and, in any case, the transcript of the appeal hearing and the Court’s reasons for judgment shows there was no such failure of the Court to address the appellant’s claims.

The Court held, dismissing the motion to set aside the orders made on 25 July 2023, with costs:

1. The Court did not fail to address the appellant’s claim as alleged: [19].

2. Notwithstanding, the appellant is granted a further opportunity to make written submissions on costs of the appeal and the Court below, to the extent he opposes the Court’s tentative orders: [25]-[26].

JUDGMENT

1. THE COURT: On 25 July 2023 the Court published its reasons for judgment and orders in this matter (Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168) (CAJ). Familiarity with those reasons is assumed and the same abbreviations will be used.

2. The orders made by the Court on 25 July 2023 were as follows:

1. Refuse leave to include proposed grounds 3A and 3B.

2. Appeal allowed in part, only in respect of part of ground 1.

3. That pursuant to s 233(1)(c) of the Corporations Act 2001 (Cth), the first defendant shall not allow or permit the beneficiaries of the Tzavaras Family Trust to use or occupy the trust property for commercial purposes without paying to the Company the commercial value of the use or occupation of such property.

4. The appeal is otherwise dismissed.

5. In the absence of agreement as to final orders as to costs of the appeal and in the Court below, direct each party, within five weeks hereof to file and serve submissions not exceeding three pages in length in support of the final orders proposed by that party, with the intention that final orders will be made on the papers and without a further oral hearing.

3. By notice of motion filed on 8 August 2023, the appellant sought to have these orders set aside. This was based on a claim that the Court had overlooked the appellant’s “extensive submissions” concerning his complaint that between 2015 and 2020 no part of the net profits of the Family Trust was distributed to him.

4. The parties availed themselves of the opportunity provided by the Registrar to file written submissions in respect of the motion.

5. The appellant’s submissions, also filed on 8 August 2023, were entirely directed to the issue whether the Court had overlooked the appellant’s submissions regarding distribution of Family Trust profits. The submissions were silent on the subject of costs, notwithstanding the terms of Order 5 (see [2(5)] above).

6. The respondents’ submissions addressed not only the issue raised by the motion, but also the issue of costs. In brief, the respondents explained why:

1. the appellant’s claim was baseless; and

2. they were entitled to have the whole of the costs of the appeal and the costs below.

7. It was not until the appellant’s reply submissions filed on 4 September 2023 (i.e., almost one week after the stipulated time) that he broached the issue of costs. This took the form of a belated request to defer the time for the appellant to file submissions on costs to a date seven days after the motion was determined.

8. The motion was determined on the papers.

9. For the following reasons, the motion should be dismissed, with costs. The Court’s tentative view is that the appellant should also be ordered to pay the respondents’ costs of the appeal and the Court below for the reasons advanced by the respondents. If the appellant opposes that proposed order, he should file and serve within 48 hours hereof a brief submission not exceeding two pages in length on the issue of costs, both of the appeal and the Court below.

Consideration and determination

10. The motion relates primarily to what was stated at CAJ[100]:

On appeal, it appeared that John no longer complained about the available tax losses arising from the financial years ending 30 June 2013 ($825,387) and 30 June 2014 ($325,308) being offset against the taxable income of the Family Trust in the financial years ending 30 June 2015 to 2020. Rather, his complaint focussed on the distribution of net profits from the Family Trust which accrued in the financial year ending 30 June 2020. As noted above, this involved the amount of $36,458.38, which was distributed to NACT…

11. In his submissions in chief on the motion, the appellant complained that this passage overlooked the “extensive submissions” made by him, both in writing (referring to ORANGE27[48]-[49]) and orally (without any transcript references) relating to his claim that no part of the net profits of the Family Trust between 2015 and 2020 was distributed to him (as noted at CAJ[99]).

12. This complaint fails to take into account the way in which the appellant’s case was conducted below and to relevant parts of the Court’s reasons for judgment.

13. In his oral address on the appeal, the appellant’s then senior counsel (Mr Newlinds SC) identified the following four ways in which it was alleged that the trust wealth was transferred and which gave rise to oppression:

1. repayment of the Shareholders Loan Account (SLA);

2. distributions through the trust in the amount of $36,000 which occurred when the carried forward tax losses ran out;

3. loans to NACT; and

4. allowing Bill’s company to occupy trust premises rent-free.

14. The Court then put to Mr Newlinds that there was a complete duplication in respect of the appellant’s complaint of profits not being distributed and repayments of the SLA. Mr Newlinds confirmed that this was correct. When it was further put to him that, because of that overlap, “the only thing we’re really talking about is what was the cash sitting in this trust after the company had offset tax losses against profits”, Mr Newlinds responded “Exactly”.

15. There was then the following exchange between Gleeson JA and Mr Newlinds (emphasis added):

Gleeson JA:   So you point to this $1.25 million figure, that’s what we’re talking about?

Newlinds:   And there is double counting. I’m sorry, I take responsibility for the written submissions.

Gleeson JA:   That’s all right.

Newlinds:   It took me a while to work out, and it is confusing. It’s different conduct, but I think it has the same result, but you can’t get them both. I don’t suggest you can. The better way to look at it is by reference to what actually happened, which is the repayment of the loan.

Gleeson JA:   So we can clear the decks of the complaint can we about offsetting tax losses against profits?

Newlinds:   Correct.

Gleeson JA:   The complaint is the preferential payment of the shareholders’ loan to two of the four joint creditors?

Newlinds:   Yes. I have actually tried to study how it was put below. I think her Honour just completely misunderstood. It was never put that there was a problem with doing this in a tax effective way.

Gleeson JA:   All right, that’s fine.

16. Those exchanges provide the background to what was said at CAJ[100].

17. As the respondents correctly point out in their written submissions, CAJ[100] “accords with the appellant focusing his appeal on the drawdowns on the SLA in circumstances in which it was common ground that no dividends were declared until the financial year ending 30 June 2020”.

18. In his written reply submissions, the gravamen of the appellant’s complaint was reformulated as relating to a “major ground of appeal”, namely that the primary judge had only considered the drawdowns on the SLA as legitimate, and had failed to address his complaint that even conduct which is lawful may nevertheless be oppressive and unconscionable. In support of that submission, reference was made to Mr Newlinds’ oral submissions at T4.10-T7.27, especially at T6.16, where Mr Newlinds described distributions by repayment of the SLA as “discriminatory”. Then, at T7.25, Mr Newlinds described the appellant’s complaint as that “we were treated unfairly”, again by reference to the distributions by way of repayment of the SLA. Reference should also be made to Mr Newlinds’ additional submissions regarding the operation of the SLA at T8.10ff:

… We hadn’t drawn on the loan account for a number of years and that’s because we absented ourselves, but there’s no find that that somehow amounted to a waiver or abandonment of our legal rights - “cannot complain as to disbursement of expenses because it is maintaining the family” - we did below but I’m not running that, it’s irrelevant. It’s a bit unfair for me to criticise her Honour too much about that because we did run it in this rather doubled-up way. “There has been no payment of dividends to any other shareholders” - so what - “and the use of profits to offset tax losses has a rational explanation” - of course it does and that’s not the complaint. So that’s the first point. Her Honour was wrong to find that that conduct was commercially justifiable to an independent bystander and, therefore, whilst discriminatory, not unfairly discriminatory.

The second point is the distribution through the trust of $36,000…

19. The Court did not fail to address the appellant’s complaint, as put by his senior counsel. The Court made express reference to John’s complaints of oppression in relation to the drawdowns on the SLA at CAJ[89]:

As noted at [30] above, John’s claims of oppression in relation to the SLA were rejected by the primary judge principally because each of the four accountholders was entitled jointly to the whole of the balance of the SLA and John was wrong to believe that he had an entitlement to a one-quarter share of the balance. It was open to John to draw down on the account. Although he had done so for several years (see PJ[19]), this had not been the case since 2012 when he left the Company business. The primary judge found at PJ[231] that John had made no request for any drawings on the SLA during this period. Her Honour also noted that, during the course of the trial, John abandoned his claim for a shareholders’ accounting. Finally, the primary judge concluded that, at least from a moral perspective, John could scarcely complain that drawings had been made on the SLA for the purpose of his ailing, aged mother’s maintenance and support.

20. At CAJ[90], the Court expressed its agreement with the primary judge’s finding as to why the drawings on the SLA were not unfairly discriminatory against the appellant’s interests in circumstances where all the account holders were entitled to draw down on the whole of the SLA according to their own particular wishes and needs. The Court also explained why John’s own conduct was relevant in rejecting all four ways in which he alleged that the trust wealth was distributed in a manner which was oppressive to him, including in respect of the SLA.

21. These conclusions were not simply directed to the legitimacy of the SLA drawdowns (which were viewed as a surrogate of the appellant’s complaint regarding trust profits not being distributed having regard to what Mr Newlinds said in oral address, as outlined above). They went further and included the rejection of the appellant’s complaints that the preferment of Bill and Peter was not “unfairly discriminatory” against him.

22. For these reasons, the motion will be dismissed, with costs.

Costs

23. In their written submissions relating to costs, the respondents say that they are entitled to the whole of their costs of the appeal and the Court below. They point out that the appellant’s “partial success” on appeal relates only to Order 3 dated 25 July 2023 (i.e., the requirement that a payment of commercial value be made for the use or occupation of trust property). The respondents correctly point out that this matter was a relatively minor issue which took up an insignificant amount of time and resources.

24. On the issue of the costs below, the primary judge dismissed the plaintiff’s claim for the winding up of the first defendant, with costs. Her Honour also ordered the plaintiff to pay the third defendant’s costs of the application pursuant to s 66G of the Conveyancing Act 1919 (NSW) with one exception. There is no reason why the first of those orders on costs should be disturbed, given the limited nature of the appellant’s “partial success” on the appeal.

25. Accordingly, our tentative view is that the appellant should pay the respondents’ costs of the appeal and that the orders as to costs made below should not be disturbed.

26. If the appellant opposes these proposals, he should file and serve within 48 hours hereof a brief outline of submissions on costs of the appeal and the Court below, not exceeding two pages. Final orders on costs will then be determined on the papers.

Orders

1. The notice of motion filed on 8 August 2023 be dismissed, with costs.

2. If the appellant opposes the Court’s tentative proposal to make orders that he bear the respondents’ costs of the appeal and of the trial, he should within 48 hours hereof file and serve a brief outline of submissions, not exceeding two pages.

3. Final orders as to costs will be made on the papers.

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Decision last updated: 14 September 2023