Virgtel Ltd & Ors v Zabusky & Ors

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SUPREME COURT OF QUEENSLAND

CITATION:

Virgtel Ltd & Ors v Zabusky & Ors [2021] QSC 284

PARTIES:

VIRGTEL LIMITED

(first applicant)

AND

VIRGTEL GLOBAL NETWORKS NV
(second applicant)

AND

VISCAYA ARMADORA SA (INCORPORATED IN PANAMA)
(third applicant)

AND

VISCAYA ARMADORA SA (INCORPORATED IN ANGUILLA)
(fourth applicant)

v

HARVEY ZABUSKY

(first respondent)

AND

AMALIA ZABUSKY
(second respondent)

AND

EREZ ZABUSKY
(third respondent)

AND

COMMSLOGIC PTY LTD (DEREGISTERED) ACN 109 057 543
(fourth respondent)

AND

SOFTQUEST SOLUTIONS PTY LTD ACN 057 679 599
(fifth respondent)

AND

VIRGIN TECHNOLOGIES LIMITED

(sixth respondent)

FILE NO/S:

BS 6547 of 2005

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

8 November 2021

DELIVERED AT:

Brisbane

HEARING DATE:

24 June 2021

JUDGE:

Jackson J

ORDER:

The order of the Court is that:

1.   The applicants pay the respondents’ costs of the proceeding including the application to dismiss the proceeding for want of prosecution.

2.   The parties make written submissions as to the costs of this application limited to five pages on or before 15 November 2021.

CATCHWORDS:

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COSTS – PARTICULAR CASES – HOPELESS CASES – where it was not disputed that the applicants should pay the respondents’ costs of the proceeding including the application to dismiss for want of prosecution – where the respondents submit that an order that costs be assessed on the indemnity basis may be made where the claims of the second and third applicants were hopeless – whether the second and third applicants were members or shareholders of the sixth respondent – whether the second and third applicants did not have an arguable basis for their claims for relief – whether costs ordered to be paid should be assessed on the indemnity basis

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – SECURITY FOR COSTS – OTHER MATTERS – where the applicants paid $650,000 plus any accretions since 10 August 2005 into Count pursuant to an order of the Court – where this amount was previously held to secure the respondents’ obligations to pay under four earlier orders that the respondents pay the applicants’ costs of various matters – where the respondents submit that an order should be made that the moneys paid into Court are to be paid out to them because the balance after ascertainment and set-off of the amounts of the various costs orders will be payable to them – whether there is strict proof that the respondents are entitlement to the funds in Court before the costs assessments are made

Civil Proceedings Act 2011 (Qld), s 15, s 20
Uniform Civil Procedure Rules 1999 (Qld), r 561, r 681(1), r 685, r 693(1), r 702(1), r 703(1), r 741(1)

Uniform Civil Procedure Rules 2005 (NSW), r 55.11

Bray v Dye (No 2) (2010) 27 VR 324, cited
Chong v Super Equity Invests Pty Ltd & Anor [2012] NSWSC 27, applied
Commonwealth Bank of Australia v Estate…

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Details
Case
[2021] QSC 284
Decision Date

CaseChat Overview and Summary

In the case of Virgtel Ltd & Ors v Zabusky & Ors, the applicants sought to bring a derivative action on behalf of Virgin Technologies Limited (VTL) against various respondents for alleged misdealing and misappropriation of funds. The applicants argued that they were entitled to bring the action as shareholders or members of VTL, claiming damages, accounts, and declarations of constructive trust. The respondents contested the applicants' standing and the merits of the claims.

The primary legal issues before the court were whether the second and third applicants had standing to bring the derivative action and whether their claims had an arguable basis. The court also had to determine the appropriate basis for assessing costs, specifically whether the claims of the second and third applicants were hopeless, warranting indemnity costs. Furthermore, the court needed to decide whether the money paid into court by the applicants should be paid to the respondents after assessing the costs.

The court held that the second and third applicants did not have standing to bring the derivative action as they were not members or shareholders of VTL. Additionally, the court found that the claims of the second and third applicants were hopeless, and therefore, the costs should be assessed on an indemnity basis. The court also determined that the respondents were entitled to the funds in court after the costs assessments, as there was strict proof of their entitlement.

The final orders of the court were that the applicants must pay the respondents' costs of the proceeding, including the application to dismiss for want of prosecution. The parties were required to submit written submissions on the costs of the application, limited to five pages, by a specified date.

Orders

Orders of the court

The order of the Court is that:

1. The applicants pay the respondents’ costs of the proceeding including the application to dismiss the proceeding for want of prosecution.

2. The parties make written submissions as to the costs of this application limited to five pages on or before 15 November 2021.

Background

Background to the litigation

The applicants’ claims and the causes of action alleged to support them have been the subject of discussion in a number of interlocutory decisions of the Court. One was decided on 6 April 2006.[9] For present purposes, it is enough to set out paragraphs 1 to 11 of the reasons of de Jersey CJ as follows:[9]Virgtel Ltd v Zabusky [2006] 2 Qd R 81.“Background facts[1]This proceeding concerns alleged misdealing in the property of the sixth respondent (VTL). VTL is a Nigerian company which conducted a business of providing satellite based telephone services in that country. A secured creditor Afribank Nigeria plc placed VTL into receivership on 8 March 2004. By December of that year, Afribank’s debt had been fully discharged. The receivership has not yet however been formally terminated. (The receiver has yet to render his accounts of the receivership.)[2]The proceeding is promoted by Mr van Leeuwen, who became involved in VTL in October 2000, at the invitation of the party prominent on the other side of the present ledger, the first respondent Mr Zabusky. Mr Zabusky lived in Nigeria and was actively involved in the day-to-day management of VTL, although the applicants deny that Mr Zabusky was an employee of that company.[3]Before the involvement in VTL of Mr van Leeuwen, 85% of the shares in VTL were owned by the first applicant (Virgtel). Virgtel had three shareholders: Amalia Investments Ltd, a company associated with Mr Zabusky; White Owl Ltd, associated with a Mr Gazal; and BZ Investments Ltd, a company associated with a Mr Shaibu, and latterly, his widow. In October 2000, Mr van Leeuwen caused his company, Viscaya Armadora SA, to acquire the shares in VTL held by White Owl. That gave Viscaya a majority holding in, and control of, VTL.[4]The second applicant (Virgtel Global) was incorporated in August 2001 by Mr van Leeuwen. Virgtel Global remains under his control. The applicants contend that Virgtel Global was incorporated in order to act as a general agent for VTL in relation to VTL’s dealings with multinational customers and suppliers. On the other hand, the respondents say that Virgtel Global was incorporated with a view to becoming the sole shareholder in VTL. That is said to emerge from a “Protocol of Understanding and Undertaking” dated 20 October 2000 between Amalia and Viscaya. While accepting that the protocol was agreed upon, Mr van Leeuwen’s position is that it was terminated or disbanded because of Mr Zabusky’s alleged failure to secure a transfer of other shares as contemplated by it.[5]Whatever the ultimate significance of that, disputes about shareholdings in VTL came to a head at VTL’s Annual General Meeting in London in February 2004. That led to proceedings in the High Court of Nigeria, concerning the shareholdings in VTL, involving those recorded by the Nigerian Corporate Affairs Commission, through its registration of a “form CO2” on 15 November 2000. That form dated 14 November 2000 was lodged purportedly pursuant to a resolution, but one which the van Leeuwen interests deny was ever passed. Those proceedings are extant. (I return later to some detail of them.)[6]The vast bulk of the affidavit material filed by Mr van Leeuwen and other deponents for the applicants, if accepted, establishes a prima facie circumstantial, and in some respects direct, case in support of the following allegations:1.that Mr Zabusky used his position as a director of VTL, and through his day-to-day involvement in its management, improperly to divert substantial sums of money from VTL to himself, and to his wife and son (the second and third respondents), and to entities associated with him and them (the fourth and fifth respondents);2.that Mr Zabusky and his son Erez improperly sold VTL assets and retained the proceeds for themselves; and3.that Mr Zabusky and Erez improperly removed and retained computers, information storage devices, information and records belonging to VTL, and brought them to Queensland, where the Zabusky family now resides.[7]The applicants contend that the misappropriated monies referred to in paras one and two above, found their way into the substantial real estate holdings in the Gold Coast region now owned by Mr and Mrs Zabusky, Erez and their companies; and into the companies Commslogic (the fourth respondent) and Softquest (the fifth respondent). The applicants assert an entitlement to declarations of the consequent existence of constructive trusts affecting that property, and invoke a tracing remedy.[8]The respondents comprehensively deny those various factual allegations.The court proceeding[9]The applicants commenced the proceeding by means of an ex parte application for Mareva injunctions and an Anton Piller order. Those orders were granted on 10 August 2005. After execution of the Anton Piller order, the respondents successfully challenged that order on the ground it did not adequately protect their right to claim legal professional privilege.[10]The substantial quantity of seized documents remains quarantined under a regime of consent orders and undertakings. The Mareva injunctions, in modified form, remain on foot by consent.[11] The pleadings in the proceeding have been completed. A mountain of affidavit material has been generated in the course of various interlocutory applications. It has been necessary for me to read all of that material, notwithstanding the issues presently agitated are of rather narrower scope, and susceptible of determination on uncontroversial factual material.”

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Daubney J concluded as follows:“Conclusion on the joinder application[43]The respondents have not persuaded me that I should not exercise the discretion conferred by r 69(1) for the joinder of Viscaya Panama and Viscaya Anguilla. On the contrary, I am quite satisfied that it is appropriate for those parties to be joined. The joinder of each of those companies as applicants should, however, be subject to the following conditions, namely:(a)that each of Viscaya Panama and Viscaya Anguilla is bound by the previous orders made in this proceeding for the giving of security for costs;(b)that each of Viscaya Panama and Viscaya Anguilla is liable in respect of costs orders that have already been made against the existing applicants in this proceeding or which may be made in the future in relation to orders previously made reserving costs; and(c)the provision of an undertaking as to damages that relates back to the commencement of the proceedings.[44]Subject to the parties bringing in a form of order which incorporates these conditions, there will be an order for the joinder nunc pro tunc of each of Viscaya Panama and Viscaya Anguilla as applicants in the proceeding.” Paragraphs 50 to 53 of the third further amended statement of claim (“statement of claim”) allege:“50. By reason of the matters alleged in paragraphs 9, 9A and 27 to 36 above, Virgtel Limited is entitled to be registered as the owner of 85% of the issued shares in VTL.50A. By reason of the matters alleged in paragraphs 38 and 45C above, Viscaya Anguilla, or alternatively Viscaya Panama, is entitled to be registered as the owner of 5% of the issued shares in VTL.50B. In reasons for judgment delivered on 9 September 2011 in the Supreme Court of Queensland, Justice Daubney found at paragraph 24 that it is common ground between the applicants and the respondents that Viscaya Panama was, or was entitled to be, a shareholder in VTL, although the extent of that shareholding is a matter in dispute.51. In the premises, it is just that Virgtel Limited and Viscaya Panama and Viscaya Anguilla have leave, nunc pro tunc, to commence and conduct this proceeding as a derivative action on behalf of VTL in respect of the causes of action set out below.52. Alternatively to paragraphs 50 and 51 above, Virgtel Global is presently registered as the owner of 99% of the issued shares in VTL.53. If the Court does not deem it just that Virgtel Limited and Viscaya Panama and Viscaya Anguilla have leave, nunc pro tunc, to commence and conduct this proceeding as a derivative action on behalf of VTL in respect of the causes of action set out below, then in the alternative it is just that Virgtel Global have such leave.” It is necessary to say a little more law about each of the applicants and their roles in the proceeding. The first applicant, Virgtel Limited (“Virgtel”), has always been a party to the proceeding. It claims damages and accounts against the first and third respondents and declarations of constructive trust against the fourth respondent as well as declarations and charging orders against the first to fifth respondents. Each of those claims was made by Virgtel on behalf of the sixth respondent, Virgin Technologies Limited (“VTL”), on the basis that Virgtel was entitled to bring the proceeding on VTL’s behalf under an exception to the rule in Foss v Harbottle.[11] [11] (1843) 2 Hare 461; 67 ER 189.

Ratio Decidendi

Legal Principle Established

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