Zollo v Deller - [2023] SASC 144

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal to a Single Judge)
ZOLLO v DELLER
[2023] SASC 144
Judgment of the Honourable Justice Hughes
9 October 2023
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - PROCEEDINGS BY OR AGAINST THE COMPANY - STAY OF PROCEEDINGS
This is an appeal of an interlocutory decision of a Magistrate in debt recovery proceedings. Mr Zollo, the appellant, claims the sum of $83,642.84 from the respondent, Mr Deller. The respondent is a solicitor and the money claimed by Mr Zollo represents proceeds from litigation involving the company Built It Pty Ltd (in liquidation), and its former client, Mr Caruso.
Mr Deller denies that Mr Zollo is entitled to monies held in his trust account as they are the property of the company, and he now takes instructions from the liquidator. In the Magistrates Court, Mr Deller applied for a stay of the proceedings on the basis that Mr Zollo requires leave of the Supreme Court to commence or proceed with the debt recovery action pursuant to s 471B of the Corporations Act 2001 (Cth). The Magistrate stayed the proceedings on 2 March 2022. Mr Zollo has appealed that order on the basis that s 471B of the Corporations Act 2001 does not apply to the proceedings, and sought to re-instate the Magistrates Court proceedings.
Held, refusing leave to appeal:
• Leave to proceed under the Magistrates Court Act 1991 is required because the decision appealed is interlocutory in nature.
• The appellant has not demonstrated that he has a reasonably arguable case that the Magistrate was wrong to find that the paid and unrecovered amounts from the Caruso litigation were or are property in which the company has a proprietary interest.
• If leave had been granted, Mr Zollo would require leave pursuant to s 471B of the Corporations Act 2001 to proceed with the action against Mr Deller on the basis that the proceedings relate, arguably, to the property of the company in liquidation. Further, the appellant did not demonstrate that the interests of justice favoured the extension of time required to bring the appeal.
Corporations Act 2001 (Cth) s 471B; Magistrates Court Act 1991 (SA) s 40; Uniform Civil Rules 2020 (SA) r 211.1, 213.1, 214.2, referred to.
Ong v Lottwo (2013) 116 SASR 280; Ulowski v Miller (1968) SASR 277; Hall v City of Burnside [2006] SASC 86; Nominal Defendant v FAI General Insurance Co Ltd (in liq) [2004] QSC 309; Viscariello v Tamasauskas [2018] SASC 111, considered.

ZOLLO v DELLER
[2023] SASC 144
Single Judge Appeal: Civil

Hughes J: The appellant, Alessandro Zollo, is the former director of a building company, Built It Pty Ltd (In Liquidation) (“Built It (In liq)”). When it was trading, Built It (In liq) was in dispute with a client, Mr Caruso (“the Caruso litigation”). In that dispute, Built It (In liq) was legally…

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: [2023] SASC 144
Decision Date: 9 October 2023

CaseChat Overview and Summary

In the case of Zollo v Deller, the parties involved were Mr Zollo and Mr Deller, who were engaged in a dispute primarily concerning the handling of a chose in action by a liquidated company, Built It. The matter was initially heard in the Magistrates Court and subsequently appealed to the Supreme Court of South Australia. The crux of the dispute lay in the ownership and distribution of the proceeds from a litigation involving Mr Caruso, which resulted in a judgment against him in favour of Built It. Mr Zollo claimed that he had purchased the chose in action from Built It before it went into liquidation and thus was entitled to the proceeds from the litigation. The court had to determine whether the Magistrate was correct in denying Mr Zollo’s application for leave to proceed with his claim against Mr Deller without first resolving the enforceability of the alleged indenture between Mr Zollo and Built It.

The primary legal issue was whether the Magistrate should have first determined the enforceability of the indenture before deciding on Mr Deller's stay application. Mr Zollo argued that he was not given a fair opportunity to prove that his claim was not against company property but against money Mr Deller held in trust. Conversely, Mr Deller maintained that he was acting on behalf of the liquidator and had a lien over certain funds for legal services rendered. The court had to consider the policy behind section 471B of the relevant legislation, which aims to prevent companies in liquidation from being embroiled in protracted litigation that could disrupt the orderly process of liquidation and potentially lead to preferential treatment of creditors.

The Supreme Court, in its reasoning, highlighted the importance of adhering to the policy behind section 471B, which seeks to ensure the orderly progression of a company's liquidation. The court observed that allowing Mr Zollo to pursue his claim before resolving the enforceability of the indenture would defeat the purpose of this policy. The court further noted that the decision in Ong v Lottwo supported the notion that creditors should be restricted in taking actions outside the liquidation process that could lead to preferential treatment. Consequently, the court upheld the Magistrate’s decision not to decide on the enforceability of the indenture before considering Mr Deller's stay application.

As a result of the court's decision, the appeal was dismissed, and the orders of the Magistrate were upheld. Mr Zollo's application for leave to proceed with his claim against Mr Deller was denied without first resolving the enforceability of the indenture, and the stay application was maintained.

Orders

Orders of the court

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Background

Background to the litigation

However, because of the overlap in matters to be considered in the preliminary issues and the matters to be considered on the appeal, it is convenient to approach the issues holistically.The background in more detail The key facts of the substantive dispute between Mr Zollo and Mr Deller are as follows. In action AMCCI-14-3962, Built It (In liq) was awarded judgment against Mr Caruso on 14 September 2017 in the sum of $33,938.50, plus interest and costs to be taxed or agreed.[1] The post-judgment interest and the costs (apart from the costs of a warrant of sale) have not yet been recovered from Mr Caruso as the amounts have not yet been agreed or taxed.[1] Affidavit of M Deller sworn 8 December 2021 at [3]. Mr Zollo contends that on 20 December 2016, before the judgment and before Built It (In liq) went into liquidation, he purchased the chose in action from the company.[2] He says that Mr Strawbridge, barrister, who was his counsel in the Caruso litigation, prepared an indenture for the company and Mr Zollo which they executed, and Mr Zollo paid the company for the chose in action by way of wages he was or otherwise would be entitled to from the company, foregone.[3] [2] Mr Zollo made this contention orally and in his written submissions at [2]. It is also asserted in an affidavit he swore on 11 July 2022 and filed in the Supreme Court in action CIV-22-007556 which he did not seek to put before the Court in the present matter. The Court has not been required to make a finding as to the contention on this appeal and the parties did not dispute that this was Mr Zollo’s position, although it has not been established and is contested.[3] Ibid. On this basis, Mr Zollo maintains that the judgment sum received by Mr Deller (which constitutes about half of his claim) should have been paid to him. Mr Zollo also contends that he paid counsel fees directly to Mr Strawbridge in the amount of approximately $30,000. Mr Strawbridge has since died. Mr Zollo contends that he is entitled to receive any amount received from Mr Caruso for Mr Strawbridge’s counsel fees. Mr Zollo further contends that Mr Deller is aware of these matters and that Mr Deller holds the proceeds of the litigation, including the costs not yet recovered, on his behalf, not on behalf of Built It (In liq). In the Magistrates Court action CIV-21-007876,[4] Mr Zollo sought to recover from Mr Deller the sum of $83,642.84 made up as follows:Counsel Fees $30,800.00Court issue fee Magistrates Court 1/10/2014 $292.00Judgment Sum from Caruso litigation $33,938.50Interest $18,612.34[4] Affidavit of M Deller sworn 8 December 2021 at [10]. It was not disputed by Mr Deller that in October 2019, he received $41,812.69 from the Courts Administration Authority for payment of proceeds from a warrant of sale issued by Built It (In liq) in respect of the judgment sum, along with pre-judgment interest and costs associated with the warrant of sale.[5] [5] Ibid, MDD-2. An amount for post-judgment interest and costs has not been agreed or taxed or received from Mr Caruso and remains outstanding, and is, in Mr Deller’s view, property of the company in liquidation. Mr Deller contends that this amount is $45,692.90.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Mr Deller stated that he continues to act for Built It (In liq), but now on the instructions of the liquidator. He informed the Court that the liquidator authorised legal costs to be incurred by the company in liquidation to recover the outstanding amounts in the Caruso litigation. He submitted that he has an entitlement to recover solicitor fees for work done before and after the liquidation, under the separate retainers between he and the company, and he and the liquidator on behalf of Built It (In liq), respectively.[9][9] Affidavit of M Deller sworn 8 December 2021 at [7]-[8].Consideration1. Whether the Magistrate should have determined the enforceability of the indenture before considering whether leave was required. Mr Zollo contended that he was not given an opportunity to establish that his claim was not over company property but over money held by Mr Deller. Whilst the claim is for the sum of $83,642.84, Mr Zollo did not in his statement of claim identify how that sum was reached or why he considered Mr Deller had it in his possession and why Mr Deller owed the money to him. However, from Mr Zollo’s various affidavits in that proceeding and the current appeal, and from his written and oral submissions, it can be ascertained that Mr Zollo contends that the money that was awarded to Built It (In liq) in the Caruso litigation, being amounts of $33,938.50 as a judgment sum, and the costs and interest including counsel fees bring the total to $83,642.84, are monies that were owed to him pursuant to an indenture between Mr Zollo and Built It (In liq). Mr Deller’s contentions are that he received the sum of $41,812.69, being the judgment sum and amounts for pre-action interest and the costs of the warrant of sale, and placed it in trust against Built It (In liq)’s account. He subsequently disbursed monies from that sum pursuant to a retainer between him and the company and with the approval of the liquidator. He maintains that $16,500 remains in his trust account and that he has a solicitor’s lien over that amount. He further maintains that some of the monies to which the company is entitled from the Caruso litigation, namely post-judgment interest and costs of the litigation, have not yet been received from Mr Caruso. The Magistrate declined to decide whether the indenture was enforceable before determining Mr Deller’s stay application. Her Honour observed that it would defeat the purpose of the policy of s 471B, which is to avoid a company in liquidation being drawn into protracted litigation whilst the liquidation is in progress. That observation is consistent with the reasoning of Nicholson J in Ong v Lottwo[10] in which his Honour said:The well accepted purpose behind the general prohibition provided for by s 471B is that it is intended to ensure that a company liquidation proceeds in an orderly manner in accordance with the rules governing such liquidations and that creditors should be restricted in their capacity to take steps outside the liquidations process itself which might lead to preferential treatment.[10] (2013) 116 SASR 280 at [60].