Wiggett v Stone

[2022] NSWSC 771

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Wiggett v Stone [2022] NSWSC 771

Hearing dates:

09 June 2022

Date of orders:

10 June 2022

Decision date:

10 June 2022

Jurisdiction:

Common Law

Before:

Schmidt AJ

Decision:

1. The proceedings must be dismissed.

2. Under r 42.1 of the Uniform Procedure Rules 2005 (NSW) costs follow the event, Mr Wiggett must thus pay the liquidator’s costs, as agreed or assessed. Unless the parties approach to be heard within 7 days, that will be the Court’s order.

3. If there is any dispute they should file proposed orders and short submissions to be considered on the papers.

Catchwords:

COURTS AND JUDGES — Courts — cross-vesting — where first defendant as liquidator has brought proceedings against plaintiffs in District Court for insolvent trading and seeks recovery — where second plaintiff has commenced proceedings in Federal Circuit and Family Court of Australia for division of matrimonial property — where first plaintiff seeks orders to remove District Court proceedings to Supreme Court and then transfer to Federal Circuit and Family Court of Australia — where orders are opposed by liquidator — whether Supreme Court should exercise its power — Civil Procedure Act2005 (NSW), s 140 — Corporations Act 2001 (Cth), s 1337H — interests of justice — balance of relevant factors — whether proceedings are intertwined or discrete — orders refused

Legislation Cited:

Civil Procedure Act2005 (NSW), s 140

Corporations Act2001 (Cth), ss 588G, 588H, 588M, 1337C, 1337H

Family Law Act 1975 (Cth), s 79

Uniform Civil Procedure Rules, r 42.1

Cases Cited:

Bankinvest AG v Seabrook (1988) 14 NSWLR 711

Bellamy v Gladwell (No 2) [2017] FamCAFC 238

BHP Billiton Ltd v Schultz (2004) 221 CLR 400; [2004] HCA 61

BOC v MDL [2019] NSWSC 278

Browne v Green [1999] FamCA 1483; (1999) 25 Fam LR 482

In the Marriage of Hickey [2003] FamCA 395; (2003) 30 Fam LR 355

In the matter of Peter G Ward Industries Pty Ltd [2020] NSWSC 339

In the matter of PJL Group Pty Ltd [2018] NSWSC 756

Norbis v Norbis (1986) 161 CLR 513; [1986] HCA 17

Parry v WGE Engineering Pty Ltd [2003] NSWSC 337

Roff v Aqua Distributors Pty Ltd [1996] FCA 966; (1996) 22 ACSR 248

Valceski v Valceski (2007) 70 NSWLR 36; [2007] NSWSC 440

Vaughan v Frost [2010] NSWSC 492

Yara Pilbara Fertilisers Pty Ltd v Oswal (No 8) [2015] FCA 49

Zhu v Tech Universal (HK-Macau) Development Pty Ltd, in the matter of Tech Universal (HK-Macau) Development Pty Ltd [2005] FCA 256; (2005) 53 ACSR 704

Category:

Principal judgment

Parties:

Dominic Wiggett (First Plaintiff)
Elke Wiggett (Second Plaintiff)
Richard Stone (First Defendant)
Zorro Pressure Cleaning Pty Ltd (Second Defendant)

Representation:

Counsel:
M McGirr (Plaintiffs)
J Raftery (Defendants)
Solicitors:
McPhee Kelshaw (First Plaintiff)
Ziman & Ziman (Second Plaintiff)
Roser Lawyers (First and Second Defendants)

File Number(s):

2022/22003

Judgment

1. In May 2021 the liquidator of Zorro Pressure Cleaning Pty Ltd, Mr Stone, brought proceedings in the District Court against Mr Wiggett, its sole director and Mrs Wiggett, in her claimed capacity of shadow or de facto director. They are both shareholders. Mr Stone sought to recover a total of $202,546.27 from them under s 588M(2) of the Corporations Act2001 (Cth) in respect of an insolvent trading claim totalling $151,558.86. He claims that they failed to prevent Zorro incurring debts while it was insolvent or would become insolvent, contrary to s 588G of that Act from at least November 2011.

2. Mr and Mrs Wiggett, who divorced in October 2020, jointly defended those proceedings, by their August 2021 defence denying insolvent trading and that Mrs Wiggett was a shadow or de facto director. They are now separately represented, but have not amended their defence, which provides no particulars of the basis on which they each rely on subss 588H(2) and (4) to defend the liquidator’s claims.

3. Mr Wiggett now seek orders removing the proceedings to this Court and then transferring them to the Federal Circuit and Family Court of Australia, where in November 2021 Mrs Wiggett commenced proceedings seeking orders as to the division of the matrimonial property under s 79 of the Family Law Act1975 (Cth).

4. Mrs Wiggett does not oppose those orders, but they are opposed by Mr Stone as being contrary to what justice requires in the circumstances.

Issues

5. There is no issue about the Court’s power to make the orders sought: s 140 of the Civil Procedure Act2005 (NSW) and s 1337H of the Corporations Act. Nor that the Federal Circuit and Family Court, as a “corporations court”, has the necessary jurisdiction to deal with the District Court proceedings: s 1337C of the Corporations Act and In the Matter of PJL Group Pty Ltd [2018] NSWSC 756.

6. The transfer power is discretionary. In issue is whether it should be exercised.

7. That depends on what the interests of justice require in the circumstances: Parry v WGE Engineering Pty Ltd [2003] NSWSC 337 and Valceski v Valceski (2007) 70 NSWLR 36; [2007] NSWSC 440. The onus lies on Mr Wiggett as applicant to prove that justice does require the making of the orders which he seeks: BOC v MDL [2019] NSWSC 278 at [18].

What do the interests of justice require?

8. Mr Wiggett’s case is advanced by affidavits sworn by his solicitor Mr Dewell and Mr Stone relies on affidavits which he has sworn.

9. There is no issue that Mr Wiggett is in a very difficult position. In October 2013 he was involved in a serious accident at home which left him permanently unable to work. Thereafter Mrs Wiggett operated Zorro’s business, which had industrial cleaning contracts and staff until it ceased trading in January 2014.

The parties’ cases

10. Mr Wiggett claims that it is in the interests of justice for the transfer to be ordered, for reasons including that the outcome of the District Court proceedings will have an impact on the Family Court proceedings; evidence as to his illness will have to be considered in both proceedings; that results in a risk of conflicting factual findings, which would be avoided if the one court dealt with both matters; it would thus be cost effective to order the transfer before evidence was put on in the District Court; and that would reduce costs, it being likely that if there was no transfer, he would file a cross-claim against Mrs Wiggett in the District Court, that resulting in significant duplication.

11. The liquidator puts this in issue.

12. Mr Stone’s case is that what is in issue in the two proceedings is not intertwined, but discrete; the resolution of the District Court proceedings will narrow what is in issue in the other proceedings; there is little evidentiary overlap or risk of conflicting factual findings; preparation of the District Court proceedings is advanced, while the Family Court proceedings are in their infancy, with a financial questionnaire having been filed by Mrs Wiggett, but no orders made as to service of evidence; and that his costs will be unnecessarily increased by the transfer and the resolution of what lies in issue in the District Court unnecessarily delayed, with adverse impacts on creditors not involved in Mr and Mrs Wiggett’s private dispute.

The evidence

13. In his first affidavit Mr Dewell dealt with the procedural history of the District Court and Family Court proceedings and communications between the parties about these proceedings. In his second affidavit he explains that after Mr Wiggett was injured he gave Mrs Wiggett a power of attorney to conduct Zorro’s affairs and that Mr Wiggett’s claim in the Family Court is:

“(1) Mrs Wiggett was responsible for diminishing their matrimonial estate;

(2) including by way of managing Zorro after the Injury;

(3) such that Zorro failed to meet its financial obligations, which led to the appointment of a liquidator.”

14. It was in May 2015 that a liquidator was appointed under orders made by this Court, in circumstances where Zorro had ceased trading owing unsecured creditors over $196,696. Mr Stone was appointed liquidator by order of the Federal Court in June 2019 and he commenced the District Court proceedings in May 2021.

15. In his first affidavit Mr Stone explained his investigations; why they led him to conclude that Zorro had been trading insolvently since at least 2011 and that proceedings had to be pursued against Mr and Mrs Wiggett, given its unpaid creditors; and the problems Mr and Mrs Wiggett faced in establishing any defences. In his second affidavit Mr Stone also explained the course the District Court proceedings have taken and the parties’ communication about this application.

16. If Mr Stone’s evidence were accepted, it appears that his investigations would establish the claimed insolvent trading.

17. What Mr Stone had to consider includes documents which Mrs Wiggett had signed, evidencing her involvement in the operation and management of Zorro even before Mr Wiggett was injured in 2013, as well as an August 2019 statutory declaration which she provided in the liquidation. There Mrs Wiggett explained how Mr Wiggett ceased working in the business after he was very seriously injured in the October 2013 accident and how she then attempted to operate the business until it ceased trading in 2014 and she pursued other employment.

18. The evidence does not attempt to establish that Mr and Mrs Wiggett have prospects of defending Mr Stone’s claims.

The District Court proceedings

19. Mr and Mrs Wiggett filed a joint defence in August 2021. They denied the claimed insolvent trading, but there seems to be no issue that there are unpaid creditors.

20. They both rely on subss 588H(2) and (4) of the Corporations Act to claim that they had reasonable grounds to expect and did expect that Zorro was solvent and that because of illness or other good reason, they did not take part in management of Zorro. But the defence gives no particulars of the basis on which these defences will be advanced. Nor do Mr Dewell’s affidavits deal with this. But there is no suggestion that Mrs Wiggett has ever suffered any relevant illness. Mr Stone’s affidavit explains the difficulties which the defences face.

21. Mr and Mrs Wiggett were ordered to file their evidence by 24 November 2021. By agreement that was extended to 13 December, but they still did not comply with those orders and so the basis on which they would advance their defences is simply unknown.

22. It was on 5 November that Mrs Wiggett commenced the family law proceedings, to which the liquidator is not a party and on 15 November Mr Wiggett commenced these proceedings. On 16 December the transfer of the matter was raised and in February 2022 it was put into the District Court’s inactive list, pending the determination of this application.

23. The possibility that Mr Wiggett will bring a cross-claim against Mrs Wiggett has also been raised, but its basis is not disclosed nor its purpose apparent. If a cross-claim is necessary to advance Mr Wiggett’s case, it will have to be filed no matter which court hears the District Court proceedings.

The Family Court proceedings

24. The Federal Circuit and Family Court has power to alter Mr and Mrs Wiggett’s property interests: s 79(1) of the Family Law Act. It is common ground that the business was a “matrimonial asset” of the kind dealt with in Bellamy v Gladwell (No 2) [2017] FamCAFC 238.

25. The exercise of the s79 power was explained In the Marriage of Hickey [2003] FamCA 395; (2003) 30 Fam LR 355 at [39] to involve a four stage process:

“First, the court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Second, the court should identify and assess the contributions of the parties within the meaning of s 79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Third, the court should identify and assess the relevant matters referred to in s 79(4)(d), (e), (f) and (g), (the other factors) including, because of s 79(4)(e), the matters referred to in s 75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourth, the court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case”.

26. What arises to be determined in the District Court proceedings appears to be relevant to the first stage of this process.

27. That the shares which Mr and Mrs Wiggett hold in Zorro have, or had any value is not apparent, given Mr Stone’s evidence. If Mr and/or Mrs Wiggett owe the claimed debts as the result of the Zorro’s insolvent trading, the assets the subject of the Family Court proceedings will thus inevitably be diminished by the orders which will be made against them in respect of the liquidator’s claim.

28. In Bellamy the applicable principle applied by the Family Court to economic losses was explained to be that economic losses incurred in a marriage should be shared equally “absent any negligence, recklessness or deliberate dissipation of assets by one party”: at [38] by reference to Browne v Green [1999] FamCA 1483; (1999) 25 Fam LR 482 at [53] and Norbis v Norbis (1986) 161 CLR 513; [1986] HCA 17. There in issue was also contributions to a failed business, in that case one which had taken on significant borrowings.

29. Mr Wiggett may thus advance a claim against Mrs Wiggett under that principle, given Mr Dewell’s evidence, for the period following the accident, but that is a short period by comparison to the alleged insolvent trading which Mr Stone is pursuing. The basis of that claim is also not known, but what Mr Wiggett there wishes to pursue is not an issue in the District Court proceedings.

The order must be refused

30. In the result I am satisfied that the order sought must be refused.

31. In Yara Pilbara Fertilisers Pty Ltd v Oswal (No 8) [2015] FCA 49 McKerracher J considered the provisions of s 1337H of the Corporations Act, which specifies other matters to be taken into account on an application such as this, which have no bearing in this case and do not require separate consideration. His Honour noted that what is involved in such an application is similar to that considered in BHP Billiton Ltd v Schultz (2004) 221 CLR 400; [2004] HCA 6 in the context of the cross-vesting scheme, as involving a balancing exercise between relevant factors: at [24]. In BHP Billiton it was observed, quoting Street CJ in Bankinvest AG v Seabrook (1988) 14 NSWLR 711 at 714, that the question is essentially practical, “a ‘nuts and bolts’ management decision as to which court, in the pursuit of the interests of justice, is the more appropriate to hear and determine the substantive dispute”: at [13].

32. But unlike that case, what here arises to be resolved in the two sets of proceedings is not the same.

33. McKerracher J also observed at [26] that there are many factors which may be relevant to the decision to transfer, which will vary in weight from case to case, including:

“(1) the stage of the proceedings in the respective courts;

(2) the commonality or diversity of the parties;

(3) the nature of the proceedings;

(4) the commonality or diversity of issues;

(5) the risk of conflicting findings of fact or conflicting orders;

(6) a costs benefit analysis;

(7) the potential unnecessary drain on judicial and other public and private resources; and

(8) whether there is any particular judicial expertise residing in one court of the other.”

34. In this case it is relevant that while Mr and Mrs Wiggett initially had common representation in the District Court proceedings, they are now separately represented. That may help explain their failure to comply with the District Court’s orders as to the service of evidence, but it does not assist Mr Wiggett establishing that justice requires the transfer which he pursues.

35. The risk of conflicting findings of fact are present, it must be accepted, but they do not appear to be as significant as was contended for Mr Wiggett. There is no risk of conflicting orders, given the differing matters which arise to be resolved in the two proceedings.

36. What is in issue in the District Court is whether Zorro was trading insolvently from November 2011; whether Mrs Wiggett was a shadow or de facto direct throughout that time; and whether either Mr or Mrs Wiggett have any defence to the claim.

37. Whichever court determines the liquidator’s claims, if he is successful that will diminish the assets which are available to be dealt with in the Family Court proceedings. There in issue is how such assets should be divided and seemingly, whether after the 2013 accident, Mrs Wiggett was negligent, reckless or deliberately dissipated Zorro’s assets, with the result that she should have a lesser share of the asset pool.

38. Undoubtedly the combined proceedings could be managed by the one court, but that the proposed transfer is “likely to minimise the overall burden of costs for all parties” as was submitted for Mr Wiggett, quoting White J in Vaughan v Frost [2010] NSWSC 492 at [13], may not be accepted.

39. The Family Court proceedings are not yet far advanced and involve matters with which the liquidator is plainly not concerned. The transfer of the proceedings will not only further delay resolution of the liquidator’s claims, but will inevitably further increase Mr Stone’s costs, to the disadvantage of creditors, no matter how well managed the combined proceedings are.

40. Justice requires not only a consideration of Mr and Mrs Wiggett’s position, but also that of the liquidator, charged as he is with responsibilities under the Corporations Act. They are ultimately concerned with the interests of Zorro’s unpaid creditors, who have long been out of pocket.

41. What here arises for consideration is not a dormant company where winding up procedures can justly be transferred to the Family Court, but the active pursuit of claims of insolvent trading, which Gyles J contemplated in Zhu v Tech Universal (HK-Macau) Development Pty Ltd, in the matter of Tech Universal (HK-Macau) Development Pty Ltd [2005] FCA 256; (2005) 53 ACSR 704 could preclude a transfer. His Honour observed at [9] that “Where a company is trading actively on a substantial scale or where a real question of insolvency arises serious consideration would be required before a winding-up proceeding would be transferred to the Family Court”.

42. Unlike that case, here the liquidator’s claims are not entwined with the claims made in the Family Court proceedings. Instead, he advances allegations of insolvent trading pursued for years by both Mr and Mrs Wiggett, with the result of unpaid creditors who will all be affected by the resolution of the District Court proceedings. That justice permits the further delay of those proceedings and the additional costs which must flow from the transfer, in order to reduce overall costs for Mr and Mrs Wiggett, is difficult to see.

43. Mr and Mrs Wiggett’s respective contributions to the assets the subject of the Family Court proceedings, or Mrs Wiggett’s negligence, recklessness or deliberate dissipation of assets after Mr Wiggett’s accident, are not matters with which the liquidator is concerned.

44. Unlike the situation considered In the Matter of Peter G Ward Industries Pty Ltd [2020] NSWSC 339, where Rees J ordered a transfer, finding that the overlap of issues and risk of conflicting findings arose in a case where the third parties had been joined to the proceedings and were largely related companies, here the liquidator is not a party to the Family Court proceedings and is not concerned with the resolution of the private matters lying between Mr and Mrs Wiggett.

45. There her Honour noted that the Court may have regard to whether third parties are involved, such as creditors or shareholders, whose interests may be adversely affected by being compelled to become actively involved in a private dispute between spouses in the Family Court: Roff v Aqua Distributors Pty Ltd [1996] FCA 966; (1996) 22 ACSR 248 at 250 per Merkel J: at [27]. This is such a case, although it is the liquidator, not the creditors, who is the party who would have to be involved, albeit ultimately to the detriment of the unpaid creditors.

Conclusion

46. In the result I am not persuaded that the interests of justice permit the additional cost and further delay which would result, with consequential adverse impact on the liquidation and the unpaid creditors, from an order for the transfer of the District Court proceedings to the Federal Circuit and Family Court.

47. Accordingly, the orders sought must be refused.

Orders

48. The proceedings must accordingly be dismissed.

49. The usual costs order under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) is that they follow the event, in this case that Mr Wiggett must pay the liquidator’s costs, as agreed or assessed. Unless the parties’ approach to be heard within 7 days, that will be the Court’s order.

50. If there is any dispute they should file proposed orders and short submissions to be considered on the papers.

**********

Amendments

23 June 2022 - Para 35 "or" changed to "of"

Decision last updated: 23 June 2022