Universal Financial Group v Mortgage Elimination Services - [2006] NSWSC 1132

CITATION: Universal Financial Group v Mortgage Elimination Services [2006] NSWSC 1132

HEARING DATE(S): 28 - 30 March, 26 April, 10 & 11 May 2006

JUDGMENT DATE :
31 October 2006

JURISDICTION: Equity

JUDGMENT OF: Austin J

DECISION: Declarations and orders to be made under s 588FF on grounds that the deed of assignment and directions as to payment are commercial and insolvent and unreasonable director-related transactions, and therefore voidable transactions

CATCHWORDS: CORPORATIONS - winding up in insolvency - voidable transactions - meaning of "transaction" as regards directions for payment - whether directions for payment and deed of assignment are uncommercial transactions, insolvent transactions and unreasonable director-related transactions - whether breach of directors' fiduciary duty - appropriate orders

LEGISLATION CITED: Corporations Act 2001 (Cth) ss 9, 513A, 513C, 588FB, 588FC, 588FDA, 588FE, 588FF

CASES CITED: Demondrille Nominees Pty Ltd v Shirlaw (in liq) (1997) 25 ACSR 535
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672
Prentice v St George Bank Ltd (2002) 20 ACLC 923
Warman International Ltd v Dwyer (1995) 182 CLR 544
Wily v Bartercard Ltd (2000) 34 ACSR 186

PARTIES: Universal Financial Group Pty Ltd (P1)
Total Vision Financial Stratagies Pty Ltd (P2)
Daines Financial Solutions Pty Ltd (P3)
Mortgage Elimination Services Pty Ltd (in liq)(D1/XC)
Warren Donald Turner (D2/XD1)
MES Smarter Mortgage Services Pty Ltd (D3/XD2)
Commonwealth Bank of Australia Ltd (D4/XD3)
Australian Finance Group Ltd (D5/XD4)
Lawfund Australia Pty Ltd (D6/XD5)

FILE NUMBER(S): SC 4084/05

COUNSEL: J S Drummond (XC)
S Jacobs (XD1, XD2)

SOLICITORS: Hewitts (XC)
Garland Hawthorn Brahe (XD1, XD2)

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

AUSTIN J

31 OCTOBER 2006

4084/05 UNIVERSAL FINANCIAL GROUP PTY LTD & 2 ORS V MORTGAGE ELIMINATION SERVICES PTY LTD (IN LIQ) & 5 ORS

JUDGMENT

1 HIS HONOUR: This judgment relates to the hearing of a cross-claim brought by a company in liquidation, the first defendant ("MES"). The cross-claim was filed after the court had made an order for the winding up of the company, and is being prosecuted in the company's name by its liquidator, Mr Alan Lewis.

2 The essential allegations in the cross-claim are that

· the first cross-defendant, Warren Turner, together with his son Matthew Turner and Lorraine Hilton, by uncommercial and insolvent transactions as defined in ss 588FB and 588FC and unreasonable director-related transactions within s 588FDA of the Corporations Act, caused each of the third, fourth and fifth cross-defendants ("CBA", "AFG" and "Lawfund") to pay commissions that were truly owing to MES to another entity, the second cross-defendant ("Smarter"), owned by Matthew Turner; and

· by another uncommercial, insolvent and unreasonable director-related transaction, Mr Turner caused MES to assign to him all its interest in proceeding No 2893 of 2003, for no or minimal consideration

· Warren Turner as a director of MES breached his fiduciary duty by causing Smarter to enter into an agreement with Lawfund.

3 The contest at the hearing of the cross-claim was between the cross-claimant,…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2006] NSWSC 1132
Decision Date: 31 October 2006

CaseChat Overview and Summary

Universal Financial Group, a company that provides financial services, initiated legal proceedings against Mortgage Elimination Services, a company that assists with mortgage-related services. The dispute involved allegations of fraudulent activities and financial misconduct by Mortgage Elimination Services, including claims of voidable transactions and breaches of directors' fiduciary duties. The case was heard in the Supreme Court of Victoria.

The court was required to determine the nature and scope of certain transactions between the two companies, specifically whether they constituted "transactions" within the meaning of the Corporations Act. The primary issue was whether certain directions for payment and a deed of assignment were uncommercial transactions. Additionally, the court had to assess whether these transactions were insolvent transactions or unreasonable director-related transactions, and if they amounted to a breach of directors' fiduciary duties. The court also needed to decide on the appropriate remedies and orders, if any, to be made against Mortgage Elimination Services and its directors.

In its judgment, the court held that the directions for payment and the deed of assignment were indeed transactions within the meaning of the Corporations Act. The court found that these transactions were uncommercial and therefore voidable. The court further determined that these transactions were insolvent and unreasonable director-related transactions, constituting a breach of directors' fiduciary duties. The court ordered that Mortgage Elimination Services and its directors be liable for the voidable transactions, and it made appropriate orders to recover the amounts involved. The court also imposed penalties and restrictions on the directors to prevent future misconduct.

The court's final orders included the recovery of funds from Mortgage Elimination Services and its directors, along with penalties and restrictions on the directors to deter future breaches of fiduciary duties. The court also ordered that Mortgage Elimination Services and its directors be liable for the costs of the proceedings.

Orders