Viscariello v Bernsteen Pty Ltd (in Liquidation) No. Scciv-03-1210

[2004] SASC 97

VISCARIELLO v BERNSTEEN PTY LTD (IN LIQUIDATION)
[2004] SASC 97

Appeal from a Master

1. VANSTONE J:     Mr Viscariello appeals against a decision of a Master refusing him leave to issue proceedings against Bernsteen Pty Ltd (In Liquidation), such leave being required under s 500(2) Corporations Act 2001.

2. The first question is whether I have the jurisdiction to hear the appeal.  The Supreme Court Act 1935, s 50(2) provides:

   50. (2)  Subject to the rules of court, an appeal shall lie to a judge against a judgment, order, direction or decision of a master.

3. Supreme Court Rule 106.05 relevantly provides:

   106.05  (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 or 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 1885 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.

4. The question of whether an order is to be categorised as final or interlocutory is not always an easy one.  Statements of general principle are of some assistance.

5. The test of finality is whether the judgment or order as made finally disposes of the rights of the parties to the proceedings in relation to the issues presented for decision:  Licul v Corney (1976) 180 CLR 213, 225-7; Carr v Finance Corporation of Australia (1980-81) 147 CLR 246. In T.R.A.M.S. Pty Ltd v The Grand Hotel (1993) 170 LSJS 312, which was an action for the enforcement of a lien, the Full Court held that in refusing the plaintiff’s application to file an amended Statement of Claim and in striking out the action the Master had made an interlocutory order. Bollen J noted (at 317) that there had been no determination of the rights of the parties; rather there was a “procedural or adjectival failure” leading to the order.

6. Counsel for the appellant, Mr R Sallis, informed me that his extensive researches could not find a decision on the proper characterisation of a refusal to grant leave under s 500(2) of the Corporations Act. He said that because of the uncertainty of the position, his client had brought an appeal to the Full Court as well as to a single judge. He further said that if I determined to deal with the matter and my decision went against his client, his instructions would be to appeal to the Full Court. He put that in these circumstances I should refer the matter to the Full Court pursuant to s 49 of the Supreme Court Act. 

7. For his part Mr M Livesey, who appeared for the respondent, submitted that the Master’s decision was interlocutory and that his client wished the matter to be determined in the current forum. 

8. Before dealing with the issue of jurisdiction, it is helpful to look more closely at the question which was posed before the Master. 

9. The legislative policy underlying s 500(2) of the Corporations Act recognises the desirability of discouraging actions against a company in liquidation.  That is because it is primarily for the liquidator to satisfy the rights of creditors and other claimants.  It acknowledges the undesirability of subjecting a company in liquidation to a multiplicity of actions which can be time consuming and expensive:  OD Transport (Australia) Pty Ltd (In Liq) v OD Transport Pty Ltd (1997) 80 FCR 290, 293-4; Re AJ Benjamin Ltd (1969) 90 WN (Pt 1) (NSW) 107;  Robins Haigh McNeill Pty Ltd v Nichols-Cumming Advertising Australia Pty Ltd (In Liq) [2001] VSC 427.

10. In determining whether leave should be granted, the court considers where the balance of convenience lies.  The onus is upon the applicant to demonstrate why he should be entitled to proceed by way of action, rather than to pursue his claim with the liquidator:  Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd (Unreported, Federal Court of Australia, 6 November 1997 per Lee J, BC9707183).  In addition, the Court must be satisfied that there is a serious or substantial question to be tried:  Vagrand Pty Ltd (In Liq) v Fielding & Ors (1993) 41 FCR 550; Oceanic Life Ltd v Insurance and Retirement Planning Services Pty Ltd (In Liq) (1993) 11 ACSR 516.

11. The background to the application is as follows.  The respondent company was in business as a retailer of manchester and related products.  In 2001 the respondent experienced financial difficulties and sought to restructure its operations with the assistance of a major creditor.  The support from the creditor was conditional upon the sole director of the company (who is the son of the appellant), or his family, advancing monies to the company. 

12. Minutes of a meeting of the company held on 13 August 2001 and attended by the director, the appellant and an adviser noted that the appellant “advised that whilst he was prepared to advance monies to the company, he would only do so on the basis that these funds were properly secured”.  He advised that when he advanced monies on an earlier occasion security was provided by way of a mortgage debenture.  The minutes then record that the adviser indicated that the best form of security would be a mortgage debenture.  For reasons which need not be set out this was impractical.  The minutes record that the adviser then noted that “the only other alternative way of providing security was to make the advances … be for staff wages or if timing did not permit, for prepayment of staff wages”.  The adviser further said that in the event of difficulty, these would rank ahead of both secured and unsecured creditors and the appellant would have protection for his advances.  In fact two advances totalling $150,000 were made in December 2001.

13. The applicant submits that properly characterised, the two advances were subject to a trust either expressed, implied or Quistclose and that a fiduciary relationship was created between the appellant and the company, whereby the company was obliged to apply the monies in conformity with its terms.  It is further alleged – and there does not seem to be any dispute – that the monies were in fact put into the company’s general account and used to pay creditors and wages and to purchase goods and services for the company.  In those circumstances the applicant claims that the money never became the property of the company, that the trust failed and that the applicant should therefore be able to recover it.  The applicant further asserts that it is possible to trace the money, including to identify specific goods purchased with it and to establish that at least some of it went towards paying the liquidator’s fees. 

14. The relief sought in the proposed Statement of Claim includes various declarations as to the asserted fiduciary relationship and trust, declarations granting the applicant’s claim to priority as against the claim of the liquidator for costs, declarations as to the tracing of the funds and other orders.  In the alternative the plaintiff seeks to prove his claim with the liquidator.

15. As Mr Livesey pointed out, the prosecution of this claim is attended by a number of practical difficulties.  The appellant has not always been consistent about his stance.  An assertion that the appellant had a mortgage debenture is no longer being pursued.  When the appellant’s former solicitors wrote to the liquidator in January 2002 to notify him of the claim, there was no suggestion of a stipulation that the monies be earmarked for a separate fund, nor of a trust.  What was asserted was that the sums “were advanced for the specific purpose of payment of wages” and that the appellant “therefore stands in the position of an employee in respect of the amounts advanced”.  More substantial difficulties might attend the proof that the appellant’s sole intention in advancing the monies was to pay staff wages and further, the tracing of the funds, some of which were, it seems, used to pay the company’s wage bill, but, arguably, none of which can be identified in assets still available.

16. I do not suggest that this is the occasion to evaluate the strength of the appellant’s proposed case, but these matters are relevant to whether there is a serious question to be tried.  It seems from the terms of the Master’s ex tempore judgment that in refusing leave he was persuaded by the argument that whatever the position with respect to a trust, there was in any event no property remaining which could be identified with the advances.

17. The question then arises why the liquidator should not examine the appellant’s claim. Under s 553 in Chapter 5, Division 6, Subdivision A of the Corporations Act 2001, entitled “Admission to proof of debts and claims”, claims against the company “(present or future, certain or contingent, ascertained or sounding only in damages)” are admissible to proof against the company, just as are debts.  The liquidator is obliged to enquire into all claims, including those of a trustee or beneficiary of a trust:  Re Graf Holdings Pty Ltd (Unreported, Supreme Court of New South Wales, 15 March 1999 per Austin J, BC9901501);  Robson’s Annotated Corporations Act 2002 p 810 (commentary to s 553 of the Corporations Act 2001).

18. If the appellant’s claim can be dealt with either by the liquidator or by the court then the question of leave “is reduced largely to one of choosing between alternative forms of procedure”:  Ogilvie-Grant v East (1983) 1 ACLC 742, 745, per McPherson J.

19. In my view Mr Sallis put forward no persuasive reason why the Court should determine his client’s claim.  Indeed his argument seemed to assume that failure to obtain leave would extinguish the applicant’s claim that the advances were impressed with a trust.  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.

20. Further, if the right in issue in these proceedings is only a matter of the choice between two forums, then that clearly illustrates that the Master’s decision was an interlocutory or adjectival one only.  The Full Court of the Federal Court categorised a similar decision as such in Vagrand Pty Ltd (In Liq) v Fielding (supra at 552), a case cited by Mr Sallis.

21. One further matter arises.  The parties agree that the written record of the Master’s ex tempore judgment omits a paragraph and the appellant has requested that it now be included in the record of those reasons.  My decision rather overtakes that of the Master, but in any event, I consider that such an application should – if it is still thought to be important – be addressed to the Master.

22. Accordingly I order that the appeal be dismissed.