Dalewon Pty Ltd (in liquidation), Re [2010] QSC 311

SUPREME COURT OF QUEENSLAND CITATION: Re Dalewon Pty Ltd (in liquidation) [2010] QSC 311 PARTIES: BRISCONNECTIONS MANAGEMENT COMPANY LIMITED (ACN 128 614 291) AS RESPONSIBLE ENTITY FOR BRISCONNECTIONS HOLDING TRUST (ARSN 131 125 025) AND BRISCONNECTIONS INVESTMENT TRUST (ARSN 131 124 813) (Applicant) and DALEWON PTY LTD (ACN 069 181 755) (IN LIQUIDATION) (First Respondent) and RICHARD JOHN HUGHES AND JOHN LETHBRIDGE GREIG AS LIQUIDATORS OF DALEWON PTY LTD (ACN 069 181 755) (IN LIQUIDATION) (Second Respondents) and LINDA SAUNDERS AND TREVOR PAGANONI (Cross Applicants) AND LINDA SAUNDERS AND TREVOR PAGANONI (Applicants) and BRISCONNECTIONS MANAGEMENT COMPANY LIMITED (ACN 128 614 291) AS RESPONSIBLE ENTITY FOR BRISCONNECTIONS HOLDING TRUST (ARSN 131 125 025) AND BRISCONNECTIONS INVESTMENT TRUST (ARSN 131 124 813) (First Respondent) and DALEWON PTY LTD (ACN 069 181 755) (IN LIQUIDATION) (Second Respondent) and RICHARD JOHN HUGHES AND JOHN LETHBRIDGE GREIG AS LIQUIDATORS OF DALEWON PTY LTD (ACN 069 181 755) (IN LIQUIDATION) (Third Respondents) FILE NOS: BS 7295 of 2009 BS 5180 of 2010 -- 1 of 16 -- 2 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 27 August 2010 DELIVERED AT: Brisbane HEARING DATE: 8 June 2010 JUDGE: McMurdo J ORDER: 1. The amended application of the liquidators, in so far as it seeks the declarations set out in paragraphs 6, 7, 8 and 8A of that application, be dismissed. 2. Paragraphs 4A, 7B, 26, 27 and 28 as well as paragraphs 4 and 5 of the prayer for relief, within the amended points of claim filed on 13 May 2010, be struck out. 3. Paragraphs 4A, 7B, 26, 27, 28, 29 and 30, together with paragraphs 4 and 5 of the prayer for relief, within the second amended points of claim filed on 2 June 2010, be struck out. 4. The application within proceedings number 5180 of 2010 be dismissed. CATCHWORDS: EQUITY – TRUSTS AND TRUSTEES – POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES – INDEMNITY, LIEN AND REIMBURSEMENT – where Dalewon Pty Ltd (the company) was the trustee of two trusts and was replaced as the trustee in each case shortly before the company was ordered to be wound up – where in each case the company is still the legal owner of the trust property – where the liquidators of the company have incurred fees and outlays in respect of each trust – whether the liquidators are entitled to a lien or charge over any and all assets of the company and are entitled to realise those assets, in order to meet their fees and outlays. CORPORATIONS – FINANCIAL SERVICES AND MARKETS – MARKET MISCONDUCT AND OTHER PROHIBITED CONDUCT – MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT – where Dalewon Pty Ltd (the company) subscribed for partly paid units in the Brisconnections Management Company Limited (Brisconnections) project – where it is alleged that there was no debt due and payable by the company until certain events occurred – where Brisconnections served the company with a statutory demand before those events occurred – whether Brisconnections: engaged in conduct which was misleading and deceptive or unconscionable; made false or misleading representations; or acted unconscionably and abused the Court’s process in serving the statutory demand or applying -- 2 of 16 -- 3 for a winding up. CORPORATIONS – GENERALLY – CORPORATIONS LEGISLATION – where it is alleged that a company was wound up on a debt falsely claimed to be owing – whether the former controllers of the company should be granted leave to bring proceedings on behalf of the company against the creditor. Australian Securities and Investments Commission Act 2001 (Cth) ss 12CB, 12DA, 12DB, 12GF Corporations Act 2001 (Cth) ss 237, 482 Transfer of Land Act 1958 (Vic) Trustee Act 1958 (Vic) s 45 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 Belar Pty Ltd (in liq) v Mahaffey [2000] 1 Qd R 477 Chahwan v Euphoric Pty Ltd t/as Clay & Michel & Anor (2008) 245 ALR 780 Dimos v Dikeakos Nominees Pty Ltd (1996) 68 FCR 39 Dowling v The Colonial Mutual Life Assurance Society Limited (1915) 20 CLR 509 Energetech Australia Pty Ltd v Sides Engineering Pty Ltd (2005) 226 ALR 362 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550 Little v Law Institute of Victoria (No 3) [1990] VR 257 National Exchange Pty Ltd & Anor v Australian Securities and Investments Commission (2004) 49 ACSR 369 Octavo Investments Proprietary Limited v Knight & Anor (1979) 144 CLR 360 Pertzel v Qld Paulownia Forests Ltd [2008] 2 Qd R 526 Ragless v IPA Holdings Pty Ltd (in liq) (2008) 65 ACSR 700 Re Berkeley Applegate (Investment Consultants) Ltd (in liquidation); Harris v Conway & Ors [1989] 1 Ch 32 Re Byrne Australia Pty Ltd and the Companies Act [1981] 1 NSWLR 394 Re Dalewon Pty Ltd (in liq) [2009] QSC 370 Re Enhill Pty Ltd [1983] 1 VR 561 Re GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 Re Greater West Insurance Brokers Pty Ltd (2001) 39 ACSR 301 Re Suco Gold Pty Ltd (in liquidation) (1982) 33 SASR 99 Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 Re Universal Distributing Company Limited (in liquidation) (1933) 48 CLR 171 Shannon & Anor v JMA Accounting Pty Ltd [2005] QSC 240 Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd (2005) 31 WAR 162 Williams & Ors v Spautz (1991) 174 CLR 509 Varawa v Howard Smith Company Ltd (1911) 13 CLR 35 -- 3 of 16 -- 4 Xebec Pty Ltd (in liq) & Ors v Enthe Pty Ltd & Anor (1987) 18 ATR 893 COUNSEL: G Handran for Brisconnections Management Company Limited C Wilson for Dalewon Pty Ltd (in liquidation) and Hughes and Greig as liquidators of Dalewon Pty Ltd (in liquidation) M Steele for Saunders and Paganoni SOLICITORS: Results Legal Solutions for Brisconnections Management Company Limited McInnes Wilson Lawyers for Dalewon Pty Ltd (in liquidation) and Hughes and Greig as liquidators of Dalewon Pty Ltd (in liquidation) Brightline Lawyers as town agents for Foster Nicholson Legal for Saunders and Paganoni [1] Dalewon Pty Ltd (“the company”) was wound up upon the insolvency ground by an order of 29 July 2009. It had failed to satisfy a statutory demand made by Brisconnections Management Company Limited (“Brisconnections”). Mr RJ Hughes and Mr JL Greig were appointed as the liquidators. [2] The company had been controlled by Ms L Saunders and Mr T Paganoni, respectively its director and secretary, whom I shall call the cross-applicants. On 25 September 2009 they filed an application to terminate the winding up. Their case is that, in truth, the company was not indebted to Brisconnections and that the company was and is solvent. Their application is yet to be heard and has been delayed mainly because of their own delays in providing a proper report as to affairs and in complying with various directions. The liquidators had to apply for orders that the cross-applicants produce the books and records of the company and a proper report as to its affairs. I made those orders within a judgment last November.1 [3] There are three applications to be determined by this judgment. The liquidators apply for final relief, by which they seek declarations that they are entitled to a lien or charge over any and all assets of the company and that they are entitled to realise those assets, in order to meet their fees and outlays, including legal fees. Secondly, there is an application by Brisconnections to strike out parts of the cross-applicants’ pleading of their case for terminating the winding-up. Thirdly, there is an application by the cross-applicants, in the proceedings 5180 of 2010, for orders pursuant to s 237 of the Corporations Act 2001 (Cth), to permit them to bring proceedings on behalf of the company against Brisconnections. The liquidators’ application [4] The company was the trustee of two trusts: the Topmoor Superannuation Trust and the Topmoor Investing Trust. It was replaced as the trustee in each case only shortly before the company was ordered to be wound up. However, in each case the company is still the legal owner of the trust property.2 It was as trustee of the 1 Re Dalewon Pty Ltd (in liq) [2009] QSC 370. 2 And by s 45 of the Trustee Act 1958 (Vic), which applies here at least to the real property which is in Victoria, the trust property does not immediately vest upon the appointment of a new trustee where it is property which is transferable only in a manner directed by or under an Act such as the Transfer of Land Act 1958 (Vic). -- 4 of 16 -- 5 Superannuation Trust that the company subscribed for partly paid units in the Brisconnections project, ultimately resulting in the statutory demand representing an unpaid instalment of $350,000. That trust has assets consisting of shares worth about $87,000. [5] It was as trustee of the Investment Trust that the company acquired shares worth about $69,000 and freehold land in Victoria, valued at about $395,000 but subject to a mortgage to a bank securing about $250,000. As trustee of that trust, the company is said to have had other liabilities of about $490,000. But they consisted of amounts owing to the cross-applicants who have said that they will not claim against the company. [6] The liquidators wish to use the assets of both trusts to meet their fees and expenses. Their own fees and disbursements (excluding legal expenses) totalled $100,147 as at 21 May 2010. Their legal expenses to 26 May 2010 totalled $100,832.02. [7] In Octavo Investments Proprietary Limited v Knight, 3 Stephen, Mason, Aickin and Wilson JJ discussed the rights of a trustee to have recourse to trust assets to meet liabilities incurred in the discharge of the trust, and specifically where that trustee becomes a company in liquidation. Their Honours said that the following principles were not in dispute. A trustee which in the discharge of its trust enters into business transactions is liable to third parties for any debts that are incurred in the course of those transactions. However, it is entitled to be indemnified against those liabilities from the trust assets held by it and for the purpose of enforcing the indemnity the trustee possesses an equitable charge or lien over those assets. The charge applies to the whole range of trust assets in the trustee’s possession, except those assets, if any, which under the terms of the trust deed the trustee is not authorised to use for the purposes of carrying on the business. Where the trustee is entitled to this indemnity, there are two classes of persons having a beneficial interest in the trust assets: first, the cestuis que trust, those for whose benefit the trust was being carried on; and secondly, the trustee in respect of its right to be indemnified out of the trust assets, and of the two, it is the trustee’s interest which will be preferred. The creditors of the trustee may not execute against the trust assets, but in the event of the trustee’s bankruptcy or winding up, the creditors would be subrogated to the beneficial interest enjoyed by the trustee. Their Honours held that these principles led to the conclusion that the beneficial interests which, by subrogation, the creditors had in any assets held by the insolvent trustee formed part of the property of the trustee divisible amongst its creditors. [8] Further, the trustee’s right of indemnity accrues when the relevant obligation is incurred and is not lost if the trustee is replaced by another: Xebec Pty Ltd (in liq) v Enthe Pty Ltd; 4 Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd; 5 Dimos v Dikeakos Nominees Pty Ltd; 6 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd.7 In that event and if the trust property is transferred to the new trustee, the charge or lien survives and the new trustee takes subject to that 3 (1979) 144 CLR 360, 367. 4 (1987) 18 ATR 893, 898. 5 (2005) 31 WAR 162, [30], [62]. 6 (1996) 68 FCR 39, 43. 7 (2008) 74 NSWLR 550, 554. -- 5 of 16 -- 6 interest: Belar Pty Ltd (in liq) v Mahaffey. 8 Upon the liquidation of a trustee, its right of indemnity vests in the liquidator: Belar Pty Ltd (in liq) v Mahaffey.9 [9] It is argued for the liquidators that the general rule is that a liquidator’s fees and expenses are similarly charged against the assets of the trust and that where the company has no assets of its own, the costs and expenses of the liquidation will be met from the trust fund. Accordingly, the liquidators argue, they should have their fees and outlays paid from the assets of these two trusts. They do not presently seek an order for the sale of any property or for any payment. Instead, they seek only declarations, to the effect that they hold a lien or charge over any and all assets of the company, and also over the assets and undertakings of the entity which replaced the company as trustee of each trust, and a declaration that they are entitled to realise any of those assets in order to meet their fees and expenses. The declarations are sought in terms which do not distinguish between the liquidators’ fees and expenses referrable to one trust from those referrable to the other. [10] In my view, this is a fundamental flaw in their case, because it is inconsistent with principle and authority that they should have resort to the assets of one trust to pay for what was done, in substance, towards the administration of the other trust. Perhaps this distinction has been overlooked because each trust appears to have been under the control of the cross-applicants and there is little apparent difference between the trusts as to the potential or ultimate beneficial ownership of the trust assets. At one point in the argument, counsel for the liquidators suggested that there was no difference in the beneficial ownership, which in each case was in the cross- applicants. But that is not proved in the evidence and the trusts must be considered here as distinct structures. [11] In Re Suco Gold Pty Ltd (in liquidation), 10 a liquidator of a trustee company applied for directions as to whether the trust assets might be used in paying and discharging his costs and expenses. As in this case, the company had been the trustee of two trusts and had not carried on business other than in those capacities. In this decision of the Full Supreme Court of South Australia, the principal judgment was given by King CJ who, after discussing a trustee’s right of indemnity by reference to Octavo Investments Proprietary Limited v Knight, turned to the question of a liquidator’s position. He referred to Re Byrne Australia Pty Ltd and the Companies Act, 11 where it was held that a liquidator could not claim his fees and expenses from assets held by the company as a trustee because a liquidator could not be regarded as a creditor of the trust. He referred also to Re Enhill Pty Ltd,12 in which the Full Supreme Court of Victoria had held that a liquidator of a company, which had acted only as the trustee of a certain trust, could be paid effectively from trust assets, because a consequence of the trustee’s right of indemnity was that upon the trustee’s liquidation, the trust property became divisible among the general body of creditors, and not merely among those whose debts were incurred in the performance of the trust. King CJ disagreed with that reasoning but nevertheless he accepted that a liquidator’s costs, expenses and remuneration might be paid out of property held by the company as a trustee. There were two bases for his conclusion. The first was that as the company’s obligation as trustee to pay the debts incurred in carrying out 8 [2000] 1 Qd R 477, 488. 9 Ibid. 10 (1982) 33 SASR 99. 11 [1981] 1 NSWLR 394. 12 [1983] 1 VR 561. -- 6 of 16 -- 7 the trust could not be performed unless the liquidation proceeded, it was reasonable to regard the liquidator’s costs, expenses and remuneration as debts of the company incurred in discharging the duties imposed by the trust and as covered by the trustee’s right of indemnity.13 Alternatively, King CJ said he would have reached that conclusion upon the basis of the principle stated by Dixon J in Re Universal Distributing Company Limited (in liquidation). 14 In that case a liquidator had realised assets which were subject to a floating charge and sought to deduct his costs out of the proceeds. Dixon J said: If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets … . The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it … . The debenture- holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit … . In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which had been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved of the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referrable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it. (emphasis added) [12] It can be seen that on either basis, the explanation for the liquidator’s entitlement to have his fees and expenses paid from trust moneys was that the fees and expenses represented amounts incurred for the purpose of performing the trust. It was that direct connection between the performance of the trust and the interests of the 13 (1983) 33 SASR 99, 110. 14 (1933) 48 CLR 171, 174-175. -- 7 of 16 -- 8 ultimate beneficiaries under the trust which justified that use of what was effectively their property. [13] There is a third basis which has been identified for permitting a liquidator to claim fees and expenses from trust funds, for which this passage from the judgment in Re Berkeley Applegate (Investment Consultants) Ltd (in liquidation); Harris v Conway15 is usually cited: “The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in In re Marine Mansions Co, LR 4 Eq 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v Nesbitt, 14 Ves Jun 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v Boardman [1964] 1 WLR 993).” Again, there is a required nexus between the work for which payment is sought and the administration of certain property, such that it would be inequitable for the ultimate beneficial owner of the property not to meet the cost of that work as a condition of its interest being upheld. [14] In Re Suco Gold Pty Ltd (in liquidation), King CJ then considered the circumstance that there were two trusts of which the company had been a trustee, about which he said:16 “On these principles which I have discussed, the liquidator is entitled to have recourse to the property of each trust for the purpose of meeting the costs and expenses of winding up, the petitioner’s costs and the liquidator’s remuneration, so far as they are incurred in relation to each trust. As there are no non-trust assets or liabilities, all the expenses are attributable to one or other of the trusts and must be apportioned between them. The liquidator will be able to make an estimate of the work and expense involved in the liquidation so far as it relates to each trust. Where no apportionment is possible, the maxim that equality is equity should provide the solution to the problem of apportionment.” The outcome was a direction that the liquidator might apply the moneys resulting from the sale by him of assets held by the company as trustee of the respective trusts “in such proportions as shall be just and reasonable” in paying and discharging his costs and expenses. 15 [1989] 1 Ch 32, 50-51. 16 (1983) 33 SASR 99, 110. -- 8 of 16 -- 9 [15] A related question in this context involves the distinction between a liquidator’s work which concerns the administration of a trust and work which is more generally relevant to the winding up of the company. In a number of cases it has been held that trust assets might be applied only towards the cost of works in the former category. In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq), 17 Finkelstein J said that “[t]he importance of the distinction is that work that is solely concerned with the winding up and not with the administration of trust assets can not ordinarily be charged against those assets”. He continued:18 “These cases establish, clearly enough in my opinion, that provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them. The position is a little more involved as regards work done and expenses incurred in what may be described as general liquidation matters. If that work is unrelated to the beneficiaries and their claims it is difficult to see how the cost could be charged against their assets. In the case of a company that has carried on the business of trustee it might be that much of the work involved in the liquidation is chargeable against trust assets if it can be shown that the liquidation is necessary for the proper administration of the trust. But it is unlikely that this will be so where the company did not act solely as trustee or at least did not act in that capacity to a significant extent. In that event, the liquidator will be required to estimate those of his costs that are attributable to the administration of trust property and only those costs will be charged against the trust assets.” In that case, Finkelstein J decided that there was insufficient evidence for him to determine whether the whole or only some part of the work performed by the liquidator was chargeable against the trust assets, because he was unable to say whether the work was “reasonably required to be undertaken in the administration of the trusts”. Accordingly he declined to make any order in so far as the costs and expenses of the liquidation concerned. Further, Finkelstein J referred to the feature of that case that potentially there were different persons who were beneficial owners of part of the company’s property, so that in effect there was the complication, as in this case, of there being more than one trust. Finkelstein J said: 19 “There are two further difficulties with regard to the liquidator’s claim. The first is that the beneficiaries who are entitled to the debt due from the ATO (assuming that it is recoverable) are not the same as the beneficiaries who are entitled to the deposit with the NAB. The liquidator is not entitled to charge the beneficiaries of one trust with the costs and expenses incurred in relation to the other trust. Accordingly, it will be necessary for the liquidator to estimate the costs and expenses incurred insofar as they relate to each trust and 17 (1999) 30 ACSR 377, 385. 18 Ibid. 19 Ibid, 386. -- 9 of 16 -- 10 only charge those costs to the trust on whose behalf the work was performed. If that estimate is not possible then a pari passu distribution of the costs and expenses will be in order as was envisaged by King CJ in Suco Gold, supra. The second difficulty is the possibility that the liquidator has performed work on behalf of investors for whom no property is held on trust. If that is the case the liquidator could not look to the existing trust assets for the costs and expenses of that work unless, in accordance with the foregoing principles, the liquidator is entitled to charge those assets with a proportionate share of the costs. That would be so if the costs and expenses are not divisible. The accounts that the liquidator prepares should deal with these issues.” [16] In some cases the practical difficulty of distinguishing between the costs of the winding up in administering trust assets and the costs of the winding up generally has been recognised: see for example Re GB Nathan and Co Pty Ltd (in liq); 20 Re Greater West Insurance Brokers Pty Ltd21 and Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq). 22 Nevertheless, it has been held to be necessary for a liquidator to establish the connection between the work the subject of his fees and expenses and the administration of the trust the assets of which the liquidator seeks to apply in payment for that work. Thus, in Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq), 23 Campbell J said that: “… in no circumstances will the liquidator be able to recover from the trust assets the expense of doing any work which could not be fairly categorised as administering the trusts.” Referring to the liquidator’s submission there that he should be able to charge all of the costs of the administration of the trust assets, Campbell J noted the absence of evidence which quantified “the costs which would be properly chargeable against the trust assets in accordance with the principles I have referred to”. 24 [17] And in Shannon v JMA Accounting Pty Ltd,25 Margaret Wilson J said that “[i]n so far as the fees and expenses [claimed by the liquidator claim] relate solely to work in the administration of the trusts, the Court may allow the liquidators recourse to the trust funds”. [18] I go then to the evidence as to the work for which these substantial fees and expenses have been incurred. I have a breakdown of the liquidators’ fees on a monthly basis in which, month by month, those fees are categorised as fees in the “liquidation” or fees in the “additional proceedings”, which are those brought by the cross-applicants seeking termination of the winding up. Just over one-half of the liquidators’ fees are put in the former category. I also have a breakdown of the liquidators’ legal expenses on a monthly basis, and the estimate of the liquidators’ solicitor that about 65% of those fees are referable to the termination application and the balance to what is described as the winding up of the company. Overall then, most of that which would be sought by the liquidators is attributed to the termination proceedings. 20 (1991) 24 NSWLR 674, 688. 21 (2001) 39 ACSR 301, 304. 22 (2003) 59 NSWLR 361, [201]-[212]. 23 Ibid, [213]. 24 Ibid, [217]. 25 [2005] QSC 240, [22]. -- 10 of 16 -- 11 [19] The substantial question in those proceedings is whether the company was and is indebted to Brisconnections. That appears to be a legal question involving the proper construction of the documents embodying the Brisconnections scheme. If it is not so indebted, the company is likely to be proved solvent. The Brisconnections transaction was undertaken by the company in its capacity as trustee of the Superannuation Trust. In turn, the extent to which the liquidators are participants in litigation to determine the existence or otherwise of that debt is work undertaken by them in the administration of that trust. It is not work which is related to the administration of the Investing Trust, the assets and liabilities of which are not in dispute and which now has a new trustee. There does not appear to have been any substantial task for the liquidators in securing the assets of that trust for the specific purpose of administering that trust. Rather the liquidators’ efforts to secure those assets, for example by lodging a caveat against the real property, seem to have been designed to secure those assets in some way for the payment of any creditor of the company, and in particular Brisconnections. That work did not involve the due administration of the Investing Trust because indeed it would be a breach of that trust to apply its funds in payment of what is claimed by Brisconnections. [20] The present position then is that the evidence has not addressed the connection between the liquidators’ fees and expenses and at least the proper administration of the Investing Trust. It may be that it is impossible to make any precise assessment of the liquidators’ fees and legal expenses in that respect. But there must be some evidence directed to that before recourse to the assets of that trust might be sanctioned. It is insufficient to distinguish between the fees and expenses of the termination proceedings and the balance. It is also necessary to assess what of the balance is attributable to the administration of the Investing Trust. [21] As to the Superannuation Trust, the value of the assets is exceeded by what, according to the evidence, is the total of the fees, disbursements and legal expenses attributable to the termination proceedings. But at present I would not be persuaded to declare that the liquidators could apply all of the assets of that trust to pay those amounts. There are at least two reasons for not doing so. The first is that the fees, disbursements and legal expenses are yet to be approved in these amounts. And for example, the amount spent thus far on responding to the termination application is not obviously within a reasonable range. Secondly, the potential impact of a costs order to be made on the outcome of the termination proceedings must be considered. Under s 482(4) of the Corporations Act there is a power to order that the costs of such proceedings form part of the costs, charges and expenses of the winding up. But there are other possibilities. Were the application for termination to succeed, arguably the costs would be ordered against Brisconnections, including the liquidators’ costs. In that event, it would be unfortunate if the assets of the Superannuation Trust had been sold already to meet the liquidators’ legal expenses in those proceedings. [22] On any view, it would not be appropriate to make the declarations which are sought, because they fail to recognise the distinct interests of the respective trusts and the required connection between the liquidators’ fees and expenses and the administration of one trust or the other. In these circumstances, the amended application of the liquidators, in so far as it seeks the declarations set out in paragraphs 6, 7, 8 and 8A of that application, must be dismissed. -- 11 of 16 -- 12 The strike-out application [23] By an amended pleading filed on 13 May 2010, the cross-applicants added to their case for terminating the winding up, claims for damages under s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”) and under the general law. They plead that in serving its statutory demands Brisconnections engaged in misleading and deceptive conduct contrary to s 12DA, made false or misleading representations contrary to s 12DB and engaged in unconscionable conduct contrary to s 12CB of the ASIC Act. They plead also that by applying for the winding up and by resisting the termination claim, Brisconnections has acted unconscionably and abused the Court’s process. They do not complain of any conduct in the supply or the offering to supply “financial services” (as that term is used in each of those provisions of the ASIC Act) when it provided or offered to provide units in the Brisconnections scheme. [24] After this strike-out application was filed, the cross-applicants filed a further pleading, on 2 June 2010. This added two paragraphs which are an apparent endeavour to meet the point that no loss had been pleaded as the consequence of the alleged misconduct. It is now pleaded that by reason of that conduct the company was ordered to be wound up, causing the company and the cross-applicants loss and damage which is particularised simply as follows: As to the [company] the cost of the liquidation. As to the cross-applicants, the loss in value of the cross-applicants’ interest in the [company] arising because of the liquidation. Because the company acted only as a trustee, the cross-applicants’ interest in the company was of no apparent value prior to the winding up. And no facts are pleaded to suggest that there was such a value. [25] Then in the prayer for relief, orders are claimed for the compensation of the company and the cross-applicants for: (a) all the liquidator’s costs claimed in the winding up of the [company]; and (b) all the [company’s] and the [cross-applicants’] costs, on an indemnity basis in connection with the statutory demand, the winding up application and this section 482 application. Yet within the pleading itself there is no allegation that the cross-applicants incurred costs “in connection with the statutory demand” or upon the winding up application. [26] I go then to the allegations of contravening conduct. It is alleged that when the statutory demand was served, no debt was then owing by the company to Brisconnections. This is particularised as follows: according to the terms of the investment, there was no debt due and payable by an investor in respect of unpaid instalments until certain events occurred. One such event was the sale, or offering for sale, of the investor’s units by public auction. Another was a dealing with the units, if they did not sell at public auction, in accordance with the underwriting agreement. The cross-applicants allege that none of those events occurred prior to the service of the statutory demand. They allege that within the fortnight following that service, the company’s units were offered for sale by public auction and when not sold by that means, were sold to the underwriters who paid for them on 17 June -- 12 of 16 -- 13 2009. They plead that according to the documents which defined the terms of their investment, upon Brisconnections receiving payment in full from the underwriters, any liability of the company was discharged. On this case then, although the company had a liability for the outstanding instalment of $350,000 when the statutory demand was served on 2 June 2009, this was not a debt then due and payable and within the 21 day period the debt was discharged. [27] It is alleged that the conduct in serving the statutory demand was misleading or deceptive, because it falsely represented that the debt demanded was due and payable. That misrepresentation is pleaded as constituting not only contraventions of s 12DA and s 12DB, but also as constituting unconscionable conduct contrary to s 12CB. In other words, it is simply the misrepresentation within the demand which is said to have been unconscionable. [28] Section 12DA(1) provides that a person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. Brisconnections accepts that it provided a financial service when it provided the “financial product”26 constituted by the units in its scheme. But it argues that the service of this statutory demand is too remote from that event to be regarded as conduct “in relation to a financial service”. It is unnecessary to determine that question. It is also unnecessary to determine whether the conduct of serving the statutory demand occurred “in trade or commerce”. The claim that this was misleading or deceptive conduct is bound to fail at least because there is no serious case that anyone was deceived, or was likely to be deceived, by this conduct. [29] The demand was addressed to the company. There is no suggestion, within this pleading or otherwise, that the company was unaware of the terms of the scheme, and in particular those upon which this pleading relies. There is no reason why the company or the cross-applicants were unable to reach a view upon the merits of the demand at the time it was served. They do not suggest they were in some way misled or deceived by the demand, so that this might explain the company’s failure to apply to set it aside. The statutory demand was of consequence, in that it facilitated the proof of insolvency on the subsequent application for winding up. But that was not the result of anyone being misled or deceived. Speaking of the analogous provision in s 1041H of the Corporations Act, Dowsett J in National Exchange Pty Ltd v ASIC27 said that “[c]onduct will only be misleading or deceptive … if there is a nexus between [the conduct complained of] and any actual or anticipated misconception or deception” and that “[c]onduct will only be misleading or deceptive or likely to mislead or deceive if the representee ‘labours under some erroneous assumption’ or may be expected to so labour”. [30] For the same reason the reliance upon s 12DB in relation to the service of the statutory demand must fail. The specific representation said to have been made in contravention of this provision is a representation of “a right to an indebtedness [Brisconnections] did not have”. The representee or representees, according to this case, would appear to have been the company and the cross-applicants. But they do not claim that they misunderstood the company’s position as they now plead it to have been. Moreover, a representation is within s 12DB only if it is made “in connection with the supply or possible supply of financial services”. There appears 26 As defined in s 12BAA. 27 (2004) 49 ACSR 369, [18]. -- 13 of 16 -- 14 to be no sufficient nexus between the events constituting the supply of financial services in relation to this scheme and the service of this statutory demand. [31] As I have said, there are no particulars of the alleged unconscionable conduct in contravention of s 12CB apart from the alleged misrepresentation by the statutory demand that the debt was then due and payable. But at least because the company and the cross-applicants are not claiming to have been misled or deceived, there is no basis for a claim of unconscionability. It is not pleaded, for example, that Brisconnections made this unmeritorious demand in circumstances where it perceived that for some reason the company would not be able to apply to set it aside. [32] Paragraph 28 of the pleading is as follows: 28. Further and in the alternative, by the applicant: (a) Proceeding to seek the winding up of the first respondent on 29 July 2009: (i) at a time when the first respondent was not indebted to it; (ii) after 6 May 2009 when the underwriters become liable to pay the applicant $110,000,000.00 pursuant to clause 62. and 17.1 of the Underwriters Agreement; and/or alternatively; (iii) after 17 June 2009, when the applicant received payment for the defaulted units, including those of the first respondents, from the underwriters; and/or alternatively; (iv) after 13 July 2009 with the option given by the applicant to underwriters to take a transfer of the units was deemed to have occurred on that day pursuant to clause 6.6(c) of the Underwriting Agreement; and (v) not disclosing any of those matters to the Court on 29 July 2009 or any time subsequently. (b) contesting the cross applicants’ application to have the winding up terminated and not revealing the matters set out in (a) above, the applicant acted unconscionably and engaged in an abuse of process of the Court, which has given rise to substantial injustice to the first respondent and the cross applicants. [33] The unconscionable conduct by Brisconnections which is alleged within paragraph 28 is not said to have been in contravention of s 12CB, probably because the pleader recognised that the commencement and conduct of litigation could not be said to be -- 14 of 16 -- 15 conduct in trade or commerce. 28 The case here is that the conduct of the litigation by Brisconnections was unconscionable conduct according to the general law. There are no particulars of that case, other than that Brisconnections claimed a debt to which it was not entitled and did not volunteer to the Court the matters which the cross-applicants say were fatal to that claim. There is no allegation that the company was under some special disadvantage in answering the application for winding up, which Brisconnections was able to exploit. And as I have said, there is no suggestion that the company or those controlling it were unaware of the facts upon which it is now said there was no debt due and payable. [34] The other assertion within paragraph 28 is that Brisconnections has engaged in something of an abuse of process. The tort of collateral abuse of process is committed where the predominant purpose of the tortfeasor is in the use of legal proceedings for a purpose or to achieve an end beyond that which the legal process offers: Varawa v Howard Smith Company Ltd; 29 Dowling v The Colonial Mutual Life Assurance Society Limited;30 Williams v Spautz. 31 This pleading alleges nothing as to any ulterior purpose. It goes no further than an abuse of process by reason of the alleged demerit in the Brisconnections claim to be a creditor and its non-disclosure of the matters which are said to have been fatal to its case. And there is no allegation that Brisconnections had the same view as to the demerits of its claim as that advanced by the cross-applicants. There is no serious case of the tort of abuse of process raised by this pleading. [35] At least for these reasons the strike-out application should succeed. It will be ordered that paragraphs 4A, 7B, 26, 27 and 28 as well as paragraphs 4 and 5 of the prayer for relief, within the amended points of claim filed on 13 May 2010, be struck out. It will be further ordered that paragraphs 4A, 7B, 26, 27, 28, 29 and 30, together with paragraphs 4 and 5 of the prayer for relief, within the second amended points of claim filed on 2 June 2010, be struck out. Application under s 237 [36] Within proceedings numbered 5180 of 2010, the cross-applicants apply for leave to bring proceedings on behalf of the company against Brisconnections. The proposed proceedings are described as effectively the matters pleaded by the amended points of claim filed on 13 May 2010 within the termination proceedings. But apart from the matters which will be struck out from that pleading, the relief claimed by the cross-applicants is an order for termination and for consequential orders under s 482 of the Corporations Act and a declaration that there is no debt owing by the company to Brisconnections. There is no need for leave to be granted under s 237 in relation to those matters and I do not understand that leave was sought only in those respects. Rather the purpose of the application for leave was to facilitate the claims for damages which I have determined should be struck out. At least because one of the pre-conditions for the granting of leave under s 237 is that there is a serious question to be tried,32 it follows that leave cannot be granted. 28 Little v Law Institute of Victoria (No 3) [1990] VR 257; Energetech Australia Pty Ltd v Sides Engineering Pty Ltd (2005) 226 ALR 362; Pertzel v Qld Paulownia Forests Ltd [2008] 2 Qd R 526. 29 (1911) 13 CLR 35, 56, 70, 91. 30 (1915) 20 CLR 509. 31 (1991) 174 CLR 509, 523 per Mason CJ, Dawson, Toohey and McHugh JJ. 32 s 237(2)(d). -- 15 of 16 -- 16 [37] Counsel for the cross-applicants acknowledged that there was a divergence of judicial opinion about whether leave could be granted under s 237 where the company was in liquidation and referred in particular to Ragless v IPA Holdings Pty Ltd (in liq), 33 where Debelle J referred to the cases on that point without finding it necessary to decide it, and Chahwan v Euphoric Pty Ltd,34 where the New South Wales Court of Appeal unanimously held that there was no power under s 237 where the company was in liquidation. But in each of those cases, an inherent jurisdiction, as distinct from that under s 237, was identified as the basis for permitting, in an appropriate case, proceedings to be brought on behalf of the company in liquidation. Because there is no tenable pleading in the proposed case, that jurisdiction should not be exercised. Accordingly, the application within proceedings number 5180 of 2010 will be dismissed. [38] I will hear the parties as to other orders including costs. 33 (2008) 65 ACSR 700, [43]. 34 (2008) 245 ALR 780, [124]. -- 16 of 16 --