Viscariello v Bernsteen Pty Ltd (in liq)
[2004] SASC 266
•6 September 2004
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
VISCARIELLO v BERNSTEEN PTY LTD (IN LIQUIDATION)
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Besanko and The Honourable Justice White)
6 September 2004
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF LIQUIDATION - PROCEEDINGS BY OR AGAINST COMPANY - LEAVE TO PROCEED
Application for leave to appeal from a decision of a Judge - where the applicant sought leave to commence proceedings against the respondent company in liquidation pursuant to s 500(2) of the Corporations Act 2001 - where the applicant alleges he is the beneficiary of a trust over monies he advanced to the respondent and that those monies can be traced into a bank account of the respondent - where a Master refused the applicant's application and a Judge dismissed an appeal from the decision of the Master - consideration of the principles governing the exercise of the discretion under s 500(2) - whether the Judge erred in failing to put sufficient weight on the fact that the applicant had a reasonably arguable claim for proprietary relief against the respondent - whether the applicant had a reasonably arguable claim for proprietary relief against the respondent - application dismissed
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - RIGHT OF APPEAL - WHEN APPEAL LIES
Applicant filed a notice of appeal from the decision of the Master to the Full Court - whether the applicant had a right of appeal from the decision of the Master to the Full Court - whether the decision of the Master was a final decision - notice of appeal struck out.
Corporations Act 2001 (Cth) ss 500(2), 436A, 446A, 553, 554E; Corporations Regulations 2001 (Cth) reg 5.6.06; Supreme Court Act 1935 s 50(2); Supreme Court Rules 1987 r106.05, referred to.
Ogilvie-Grant v East (1983) 7 ACLR 669, applied.
In re Diplock [1948] Ch 465; James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62, discussed.
Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318; Robins Haigh McNeill Pty Ltd v Nicholson-Cumming Advertising Australia Pty Ltd (in liq) [2001] VSC 427; In re Kentwood Constructions Ltd [1960] 1 WLR 646; Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332; Re Joscelyne [1963] Tas SR 4; Lofts v MacDonald (1974) 3 ALR 404; Bishopsgate Investment Management Ltd (in liq) v Homan [1995] Ch 211; Lane v Channel 7 Adelaide Pty Ltd [2004] SASC 47; Glenauchen Pty Ltd v Circuit Finance Pty Ltd [2001] SASC 61, considered.
VISCARIELLO v BERNSTEEN PTY LTD (IN LIQUIDATION)
[2004] SASC 266Full Court: Doyle CJ, Besanko and White JJ
DOYLE CJ: I agree with the reasons given by Besanko J for the decision of this Court, made on the hearing of the application for leave to appeal, to refuse leave to appeal, to order that a Notice of Appeal filed by the applicant be struck out, and to order that the applicant pay the respondent’s costs. There is nothing that I wish to add to those reasons.
BESANKO J: This is an application for leave to appeal from a decision of a Judge of this Court. The decision of the Judge was to dismiss an appeal from a decision of a Master of this Court. The Court also has before it a purported notice of appeal by the applicant from the decision of the Master to this Court.
On 29th August 2003, the applicant, Mr Luigi Viscariello, applied for leave to commence and proceed with an action against the respondent, Bernsteen Pty Ltd (In liquidation) (“Bernsteen”). The leave of the Court is required because of s 500(2) of the Corporations Act 2001 (Cth) (“CA”) which provides as follows:
“(2)After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.”
The application was supported by an affidavit of the applicant. Before the application came on for hearing, the applicant filed a further affidavit, and the respondent filed two affidavits in opposition to the application.
On 15th January 2004, a Master heard the application and he made an order that leave be refused and that the applicant pay the respondent’s costs.
On 22nd January 2004, the applicant filed a notice of appeal asserting that he had a right of appeal against the decision of the Master to the Full Court of this Court. On the same day, the applicant also filed a notice of appeal from the decision of the Master to a single Judge of this Court. The applicant then filed two further affidavits.
On 6th April 2004, the applicant’s appeal came on before a single Judge of this Court. The Judge examined the question of whether the appeal lay to a single Judge or to the Full Court. She took the view that the appeal lay to a single Judge. The Judge dismissed the appeal and gave reasons for doing so. The applicant filed a proposed notice of appeal on 20th April 2004 and he applied to the Judge for leave to appeal from her decision. The Judge made an order that the application for leave to appeal be referred to the Full Court of this Court for consideration in private. This Court considered the application in private and decided that it was appropriate to hear submissions from both parties on the application for leave to appeal.
The Court heard submissions on 13th August 2004 and at the conclusion of the submissions made the following orders:
“1.That leave to appeal against the decision of Vanstone J of 6th April 2004 be refused.
2. That the notice of appeal filed on 22nd January 2004 be struck out.
3.That the applicant pay the respondent’s costs of the application for leave to appeal and of the notice of appeal.”
The Court said that it would deliver reasons for these orders, and the following are my reasons.
The Applicant’s Claim
Bernsteen conducted a business involving the retail sale of manchester and associated products. The applicant’s son is the sole director of Bernsteen. It is alleged that the company suffered a decline in sales by reason of the introduction of the Goods and Services Tax on 1st July 2000.
In August 2001, the applicant decided to provide financial support to Bernsteen. It is alleged that the applicant agreed to provide the sum of $150,000.00 to Bernsteen on the express condition that the monies would be used and only used for the purpose of paying the wages of Bernsteen’s employees. The applicant advanced the sum of $88,000.00 to Bernsteen on 27th August 2001, and a further sum of $70,000.00 on 5th September 2001. Both amounts were paid into a bank account in Bernsteen’s name at the Commonwealth Bank. It seems that this bank account was the main trading or operating account of Bernsteen.
It is alleged that the monies advanced by the applicant were not used by Bernsteen to pay the wages of employees, but rather were used to pay trade and other creditors and for the purchase of goods and services.
The applicant alleges that there was a trust over the monies he advanced to Bernsteen, and that upon the failure of Bernsteen to use those monies to pay the wages due to employees, he held the beneficial interest in the monies or any property into which the monies could be traced.
The applicant also asserts that he has a claim against Bernsteen’s liquidator. Mr Peter Macks was appointed the voluntary administrator of Bernsteen on 5th December 2001 (s 436A CA) and liquidator of the company on 22nd December 2001 (s 446A CA). Although it is not entirely clear from the proposed Statement of Claim, it seems the applicant alleges that his monies can be traced into assets of the company as at the date it went into administration and then liquidation, and thereafter can be traced into monies paid to the liquidator in satisfaction of the liquidator’s claim for fees, charges, costs and expenses. It is alleged that the liquidator is bound by the trust in favour of the applicant in the same way as Bernsteen.
The applicant claims a number of declarations against Bernsteen and the liquidator. For present purposes, it is sufficient to set out the following claims for relief:
“39.15a declaration that the plaintiff has a legally enforceable charge and/or lien over all of the assets of the first defendant in the sum of $158,000.00 plus interest and costs;
39.16a declaration that the plaintiff has a legally enforceable equitable charge and/or lien over all of the fees, charges, costs and expenses of the second defendant paid from the assets of the first defendant to the second defendant in the sum of $158,000.00 plus interest and costs;
39.17an order that the first defendant and the second defendant jointly and severally immediately pay to the plaintiff the sum of $158,000.00 plus interest and costs;
39.18in the alternative, an order for an account of profits against the first defendant and the second defendant in the sum of $158,000.00 plus interest and costs;”
The Administration of Bernsteen
In this case the state of the administration of Bernsteen is a relevant consideration, and evidence was put before the courts below in relation to this issue.
In November 2003, the liquidator of Bernsteen said that he had not called for proofs of debt because there were no funds to distribute. He said that he was pursuing a number of recovery actions, and that they may or may not result in monies being recovered. He said that it was unlikely he would be calling for proofs of debt in the foreseeable future as the actions he was pursuing were not likely to be finalised for some time. The liquidator said that irrespective of the merits of the applicant’s claim, “there are presently no funds in the administration of [Bernsteen] with which to pay any dividend”.
The applicant sought to put further information before this Court as to the state of the administration of Bernsteen. He sought to tender an affidavit sworn by the liquidator in an unrelated action in the Magistrates Court. Counsel for Bernsteen did not object to the tender of the affidavit and the Court received the affidavit. It was an appropriate case for the Court to receive further evidence as an important issue on the present application is the state of the administration of Bernsteen, and the position in relation to that issue is changing as time passes.
In his affidavit the liquidator states that he has received proofs of debt from 156 creditors totalling $4,080,493.36. He has received the sum of $117,615.38 in part payment of his fees. He continues to carry out work and there is an outstanding amount due to him of $122,653.28. The liquidator states that there was a creditors meeting on 21st January 2003 at which time the balance at bank was $10,836.74. I infer that this money is in the bank account the liquidator was required to open by reason of reg 5.6.06 of the Corporations Regulations 2001 (“CR”). Since 21st January 2003 the liquidator has received further funds from a number of “preference recoveries” prosecuted by the liquidator. The balance in the bank account as at 21st April 2004 was $24,143.63. The liquidator states that the assets of Bernsteen have been realised and the expenses of realisation have been paid. The liquidator states that he expects to receive further funds from preference recovery actions which he is prosecuting and from a claim for insolvent trading which he is making against Bernsteen’s director.
Issues on the Application
I start with the application for leave to appeal from the decision of the Judge. It is unnecessary to discuss in any detail the test an applicant must satisfy on an application for leave to appeal. One requirement is that the applicant must show that it is reasonably arguable that the decision of the Judge was wrong. For the reasons which follow, the applicant has not established that it is reasonably arguable that the Judge was wrong.
Before considering the reasons of the Master and of the Judge, it is convenient to outline the principles which govern the exercise of the discretion under s 500(2) of the CA. In Ogilvie-Grant v East (1983) 7 ACLR 669, McPherson J (with whom Campbell CJ and Sheahan J agreed) discussed the principles relevant to the exercise of the discretion under an earlier analogue of s 500(2). I respectfully agree with his Honour’s analysis which in my opinion applies with equal force to s 500(2). The question is whether a claimant should be permitted to proceed by action or should be required to submit his proof of debt and, if dissatisfied, appeal to a judge. The question is one of choosing between alternative forms of procedure. The effect of s 500(2) is to require the claimant to adopt the course of lodging a proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute. It is impossible to state exhaustively all the circumstances in which it may be appropriate to grant leave to proceed. Relevant factors are the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and, if proceedings have already been commenced, the stage to which those proceedings may have progressed. The fact that the company is insolvent and will not be able to satisfy a judgment is a factor against the grant of leave (Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318) because the Court will not give its imprimatur to fruitless proceedings. Nor will leave be granted if the claimant does not have a genuine claim. On the other hand, the fact that the claimant has an arguable claim for proprietary relief against the assets of the company is a factor in favour of a grant of leave (Robins Haigh McNeill Pty Ltd v Nichols-Cumming Advertising Australia Pty Ltd (in liq) [2001] VSC 427).
An appeal lies to a Judge from the decision of a liquidator who admits or rejects a proof of debt or claim. The Judge determines the appeal de novo primarily on affidavit material (In re Kentwood Constructions Ltd [1960] 1 WLR 646; Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 per Brennan and Dawson JJ at 340 - 341). It is possible for the judge on appeal in appropriate cases to make orders for discovery and for the exchange of pleadings.
I turn now to consider the reasons for decision of the Master and of the Judge.
The Master said that he was not satisfied that there was a serious question to be tried. He said that there were no monies left which could be the subject of the alleged trust. The Master said that he would not give leave in circumstances where the company had no funds. The Master went on to consider the issue of the applicant’s claim against the liquidator. It was not necessary for him to do that as the applicant did not need leave to proceed against the liquidator. However, his observations are relevant to the approach he took to the facts. The Master said that the monies were paid out by Bernsteen before it went into liquidation. It seems to me that the Master decided the application against the applicant on the ground that the company had no assets at the date of liquidation into which his monies could be traced and (probably) on the ground that Bernsteen appeared to have no assets as at the date of the application.
The Judge referred to the relevant principles and the facts of the case, and said that the applicant had not put forward any persuasive reason why leave should be given. The Judge did not find it necessary to determine if the applicant’s claim for proprietary relief was reasonably arguable. The Judge said the assumption behind the applicant’s argument that if leave was not granted that would extinguish the applicant’s claim that the advances were impressed with a trust was wrong. The Judge said:
“Perhaps it could be argued that the legal issues are complex and better determined by a court than a liquidator, but I am not convinced of that and anyway, the liquidator can, if he sees fit, seek the Court’s assistance in determining any question that arises.”
The main thrust of the applicant’s submission on the application for leave to appeal was that the Judge had erred in failing to put sufficient weight on the fact that the applicant had a reasonably arguable claim for proprietary relief and that that was a significant factor in favour of granting leave to proceed. In my opinion that submission fails because it is not reasonably arguable that the applicant has a claim for proprietary relief against Bernsteen.
At times, the applicant’s submissions seem to proceed on two assumptions which are not correct. The first assumption was that the liquidator could not deal with the applicant’s claim for proprietary relief under the proof of debt or claim procedure. That assumption is not correct. It is sufficient for me to refer to s 553 and s 554E of the CA and regs 5.6.48 – 5.6.50 of the CR. The second assumption was that the applicant’s only claim against Bernsteen was a claim for proprietary relief. That assumption is not correct. If the applicant’s claim for proprietary relief failed he would have a claim in debt and perhaps for equitable compensation.
The applicant does not have a reasonably arguable claim for proprietary relief because it is not reasonably arguable that he is able to trace the monies into assets presently held by Bernsteen. The applicant submits that his monies were paid into the bank account held by Bernseeen with the Commonwealth Bank. The bank statements are in evidence and that proposition appears to be correct. The applicant submits that even though the monies were mixed with other monies in that account, the equitable rules of tracing permit tracing into a mixed fund. As a general proposition that is correct. It seems from the bank statements that, after the payment of the applicant’s monies into the bank account and before liquidation, the account went into a debit balance. Nevertheless, the applicant argues that it has a charge or lien over the bank account which extends to any monies paid into the bank account by the liquidator as a result of the recovery actions he is pursuing. There are two answers to that submission. The first is that any monies received by the liquidator after liquidation are paid into the liquidator’s general account opened under reg 5.6.06 of the CR and not Bernsteen’s account with the Commonwealth Bank. Even if the applicant can overcome this difficulty, there is a second reason why I reject the applicant’s submission. In In re Diplock [1948] Ch 465, the Court of Appeal said (at 521):
“The equitable remedies pre-suppose the continued existence of the money either as a separate fund or as part of a mixed fund or as latent in property acquired by means of such a fund. If, on the facts of any individual case, such continued existence is not established, equity is as helpless as the common law itself. If the fund, mixed or unmixed, is spent upon a dinner, equity, which dealt only in specific relief and not in damages, could do nothing. If the case was one which at common law involved breach of contract the common law could, of course, award damages but specific relief would be out of the question. It is, therefore, a necessary matter for consideration in each case where it is sought to trace money in equity, whether it has such a continued existence, actual or notional, as will enable equity to grant specific relief.”
The applicant does not assert that he is able to trace his monies into property acquired by the use of the monies in the company’s bank account. His argument is that he is able to trace his monies into monies in the bank account (or assuming for the purposes of this argument the liquidator’s bank account) including monies paid in after the lowest intervening balance in the account from the time the applicant paid the monies to the company to the present day. Subject to one qualification, that proposition is not correct.
In James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 Sargant J said (at 69):
“Certainly, after having heard In re Hallett’s Estate stated over and over again, I should have thought that the general view of that decision was that it only applied to such an amount of the balance ultimately standing to the credit of the trustee as did not exceed the lowest balance of the account during the intervening period. That view has practically been taken, as far as I can make out, in the cases which have dealt with In re Hallett’s Estate.”
See also Re Joscelyne [1963] Tas SR 4; Lofts v MacDonald (1974) 3 ALR 404; Bishopgate Investment Management Ltd (in liq) v Homan [1995] Ch 211; Meagher and Gummow, Jacobs’ Law of Trusts in Australia, 6th ed (1997) at [2710] and [2716]. The one qualification is that funds subsequently paid in may become subject to the trust if it was the intention of the trustee to replenish the trust fund. I am prepared to assume without deciding that the liquidator is to be regarded as a trustee for the purposes of the qualification. There is no evidence here that the liquidator in pursuing the recovery actions and collecting monies in relation thereto is seeking to replenish the trust fund as distinct from carrying out his obligation to recover assets of the company for the purposes of distribution to creditors.
There was some dispute before us as to the lowest balance of the account during the intervening period, but that dispute ranged between nil and a figure of about $10,000.00. The evidence suggests to me that the correct figure is nil, but even if the figure is about $10,000.00 that figure is not sufficiently significant to suggest that a reasonably arguable proprietary claim is a factor favouring the grant of leave.
Before leaving this issue, I note that there were no submissions made as to when it is said the trust in favour of the applicant arose. That might have been an issue because, as I understand it, it was not contrary to the alleged conditions under which the monies were paid for Bernsteen, to pay them into the company’s account with the Commonwealth Bank.
I do not think it is reasonably arguable that the Judge erred. It seems that the Judge did not need to decide whether the applicant’s claim for proprietary relief was reasonably arguable. My conclusion that it is not reasonably arguable only reinforces the conclusion that the Judge did not err and that leave to appeal should be refused.
It was for these reasons that I agreed with the order that leave to appeal to this Court be refused.
The notice of appeal
This leaves for consideration the applicant’s notice of appeal dated 22nd January 2004. The applicant’s counsel made submissions on the application for leave to appeal, but he said that if he had a right of appeal he would wish to make further submissions on the appeal. It is for this reason that it is necessary to consider the competency of the notice of appeal.
In my opinion, the applicant does not have a right of appeal from the decision of the Master to this Court. The issue turns on the proper construction of s 50(2) of the Supreme Court Act 1935 and r106.05(1) of the Supreme Court Rules 1987. Section 50(2) provides:
“(2)Subject to the rules of court, an appeal shall lie to a judge against a judgment, order, direction or decision of a master.”
Rule 106.05(1) provides:
“(1)Subject to subrule (2) below an appeal from any assessment or award of damages or any other final finding, decision, direction, award or judgment, arrived at, made, given, directed or entered on the trial or hearing of any proceedings of any question or issues by a Master lies to the Full Court and is to be governed by Rule 95.
(2) Any appeal from a Master:
(a)in relation to an order made under the Real Property Act 1886 or under Rule 60;
(b)from an order, decision or judgment to which subrule (1) does not apply;
(c)where the parties consent to the appeal being dealt with by a single Judge;
is to be to a single Judge and is to be governed by Rule 97.”
The issue is whether the decision of the Master was a final decision. The Judge said that it was not and in my opinion she was correct. The Master’s decision does not finally dispose of the applicant’s rights. The applicant can make another application for leave to proceed under s 500(2) of the CA, although in the absence of a change of circumstances, it is inevitable that the application would be refused with costs. It is also strongly arguable that the applicant’s rights have not been finally disposed of because he can proceed with his claim, including his claim as the beneficiary of a trust, under the proof of debt or claim procedure. The appeal from the Master in this case was to a single Judge of this Court.
A related issue which was the subject of some debate before this Court was whether the applicant had a right of appeal to this Court from the decision of the Judge. We did not have the benefit of detailed submissions. The practice of the Court is that leave to appeal is required in circumstances where a party seeks to appeal from the decision of a Judge of this Court who in turn is hearing an appeal from the decision of a Master (Lane v Channel 7 Adelaide Pty Ltd [2004] SASC 47; Glenauchen Pty Ltd v Circuit Finance Pty Ltd [2001] SASC 61). I am not persuaded by the submissions that were made that this is not the correct approach under the existing statutory provisions and rules of court.
It was for these reasons that I agreed with the order that the notice of appeal filed on 22nd January 2004 be struck out.
WHITE J: I agree with the reasons of Besanko J. There is nothing which I wish to add.
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