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InDispute
Commercial Litigation Bulletin
November 2014 Issue No 5
> Contents
Hello and welcome to our Spring edition of InDispute.
Can You Take
Enforcement Action
Against Trust Property?....Page 3
In the last few months, our team has been involved in a
range of disputes from dealing with rogue tenants in retail
leasing matters to advising clients in relation to misleading
and deceptive conduct claims under the Australian
Consumer Law.
Court of Appeal
Confirms Costs Order
Against Non-Parties
for Pursuit of Claim
Based on Fraud................Page 4
In this issue, our team shares their views on a recent
Victorian Court of Appeal decision on the cost
consequences of pursuing court proceedings, what to
do if you get asked to produce confidential documents
in a proceeding you are not a party to, the enforcement
of judgments in the context of assets held by a trust, and
obtaining compensation orders against a defendant found
guilty of stealing.
Sentencing Act and
Enforcing Judgments.......Page 6
We hope you enjoy this edition of our bulletin and please
contact us if you have any queries.
Subpoenas and
Confidential
Documents.....................Page 7
InDispute
Commercial Litigation Bulletin
> Can You Take Enforcement Action Against Trust Property? >
Clients commence litigation proceedings for a
variety of reasons however a very important issue
that we always ask our clients to consider is: if you
manage to obtain judgment against the defendant,
what assets are there to enforce the judgment
against?
Recently, we considered whether a judgment debt
obtained against an individual (in his capacity as
a trustee for a superannuation fund) could only
be enforced against the assets of the trust or if it
could also be enforced as against properties owned
in his individual capacity.
As a starting point, the trustee is the
legal owner of the trust property (as a
trust is not a separate legal entity). As
stated in the case of General Credits
Ltd v Tawilla Pty Ltd ([1984] 1 Qd
R 388), a trustee is personally liable
for any debts that he or she incurs in
the course of carrying out the trust
unless he or she incurs the debt on
the basis that only trust assets will be
available for the payment of the debt.
As a starting point, the trustee is the legal owner of
the trust property (as a trust is not a separate legal
entity). As stated in the case of General Credits Ltd
v Tawilla Pty Ltd [1984] 1 Qd R 388, a trustee is
personally liable for any debts that he or she incurs
in the course of carrying out the trust unless he
or she incurs the debt on the basis that only trust
assets will be available for the payment of the debt.
In order to carve out personal liability, there needs
to be an express agreement with the third party in
which the trustee specifies that his or her liability
to the creditor is not personally undertaken
but only extends to trust assets. In the absence
of an express agreement serving to limit this
form of personal liability, the issue of liability is
determined by considering the construction of the
documents in question. Reference needs to be had
to all the circumstances of the case including the
nature of the contract and the subject matter in
which it is to operate.
A debt incurred “as trustee” may be interpreted
to mean that only the assets of the trust (and not
those personally owned as trustee) are available
to the creditor to meet the debtor’s obligation.
However, in other circumstances, it could be
construed as reflecting the basic proposition
that the trustee is personally liable for the debt
incurred as trustee.
Rigby Cooke Lawyers - InDispute
3
> Court of Appeal Confirms Costs Order Against Non-Parties for Pursuit of Claim Based on Fraud >
Often in litigation, the daunting spectre of costs
orders hangs over each party in the event that they
should fail in proving or defending their case.
However, on rare occasions the Court will also
decide that a third person (or persons), not a party
to the proceeding, should be liable to pay some or
all of the costs of the successful party.
This occurred in the recent case of Ballantyne
Suites & Ors v Ballantyne Chambers & Ors [2014]
VSCA 223 where the Court of Appeal confirmed
that it will readily order costs against non-parties
to litigation where, among other things:
1.that party has a significant interest in the
litigation;
2.that party has played an active role in the
litigation; and
3.where the interests of justice require that
such an order is made.
Facts
Mr Henry Mischel (Mr Mischel) was a unit
holder in two trusts (Ballantyne Property Suite
1 & Ballantyne Property Suite 2) (Unit Trusts)
which were established in February of 2005 to
purchase properties in Ballantyne Street, South
Melbourne. Ballantyne Chambers Pty Ltd
(Chambers) was appointed as Trustee.
On 25 October 2011, Mr Mischel was declared
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Rigby Cooke Lawyers - InDispute
a bankrupt and five days later (by deed dated 2
August 2011) Ballantyne Suites Pty Ltd (Suites)
purported to replace Chambers as Trustee.
Often in litigation, the daunting
spectre of costs orders hangs over each
party in the event that they should
fail in proving or defending their
case. However, on rare occasions the
Court will also decide that a third
person (or persons), not a party to
the proceeding, should be liable to
pay some or all of the costs of the
successful party.
On 2 February 2012, Chambers was placed into
liquidation and Suites then requested that the
liquidator execute a transfer of the properties
held by it on behalf of the Unit Trusts to Suites
as the new Trustee. The liquidator refused on
the basis that it was not satisfied that transfers
by Mr Mischel of his units in the Unit Trusts to
the trustees of two discretionary trusts were valid
transfers.
The discretionary trusts (the Kelly Mischel
Discretionary Trust and the Bradley Mischel
Discretionary Trust) had purportedly been
established by Mr Mischel on 6 June 2006 for the
benefit of his children.
On 14 December 2012, Suites commenced
a proceeding in the Supreme Court against
Chambers and its liquidator contending that the
transfers were in fact valid and sought, among
other things, a declaration that Chambers held
its interests in the properties on trust for Suites as
Trustee.
Chambers and its liquidator argued at trial that
Mr Mischel fraudulently backdated a series
of documents for the purpose of avoiding the
operation of the five year relation-back period
under s 120 of the Bankruptcy Act 1966 (Cth) and
that the transfers of his units were as such invalid.
On 10 September 2013, the trial judge ruled for
Chambers and the liquidator and held that Mr
Mischel had concocted and backdated a number
of trust documents in or about July or August
2011. Subsequently, Chambers and the liquidator
gave notice that they would be seeking orders
(pursuant to section 24 of the Supreme Court Act
1986) that Bradley Mischel and Kelly Mischel
(Mischels) be ordered to pay some or all of their
costs.
InDispute
Commercial Litigation Bulletin
> Court of Appeal Confirms Costs Order Against Non-Parties for Pursuit of Claim Based on Fraud (continued) >
In resisting the order, the Mischels argued that:
“the sins of their father should not be visited
upon them; and that this was especially so in
circumstances where they were not cross-examined
at trial to the effect that they were knowingly
concerned in their father’s fraud”
The trial judge made the costs orders nonetheless
and in doing so noted that the Mischels:
“played an active part in the litigation by
determining to accept the word of their father and
prosecute a case which depended upon his word
being accepted by the Court. …in circumstances
where they knew of their father’s chequered
history, involving fraud on his clients, and had
no personal knowledge of the contemporaneous
facts surrounding preparation and execution of the
critical documents.”
Appeal
In appealing the decision of the trial judge, the
Mischels argued that the Court did not give
sufficient weight to the failure by Chambers and
the liquidator to:
warned that costs might be sought against them
personally, they could have been cross-examined
during trial as to the knowledge of their father’s
fraud and that the trial judge’s failure to give
adequate consideration to this fact constituted an
error. Further, they submitted that there needed to
be something ‘exceptional’ in their own conduct
(not just their father’s) which would warrant the
exercise of the Court’s discretion to award costs
against them personally.
The Court of Appeal, in confirming the trial
judge’s decision, found that the Court at first
instance had given sufficient consideration (to
the extent that it needed to) to the fact that no
security for costs application had been brought
prior to the hearing and that the Mischels had not
been warned of the danger to them personally of a
costs order.
The case is an important reminder that the Court
will not hesitate (where the interests of justice
requires) to look behind the veil created by a series
of trusts in order to award costs against those it
sees as having, perhaps unreasonably, pursued
litigation.
The case for such an order will be particularly
strong in circumstances where the claims pursued
are based upon a fraud and does not necessarily
require that those against whom the orders are
sought were complicit in or perpetrated the fraud.
Importantly, the Court also found that the
Mischels had construed the necessity for
‘exceptional circumstances’ too narrowly and that
whilst perhaps not complicit in the father’s fraud,
the Mischels must have known:
1.make a security for costs application when the proceeding was first brought;
a)of their father’s previous convictions for serious fraud;
2.warn the Mischels that they may face a third party costs application.
b)that the transfer had taken place on their father’s insolvency; and
The Mischels contended that, had they been
(or payment) for the transfer of the units to
them.
c)that they had not given any consideration
Rigby Cooke Lawyers - InDispute
5
> Sentencing Act and Enforcing Judgments >
The Sentencing Act Victoria 1991 (Vic) (Act)
provides an interesting opportunity for someone
that has been wronged by a criminal event to
obtain an order or judgment that operates in a
similar fashion to a civil judgment.
Introduced in the Kennett era to operate
somewhat as a “user pays system”, the party
wronged can now ask, at the conclusion of a
criminal trial, for an order.
There are a number of pre-conditions to this
application being made. A common pitfall is the
misconception that it can be made in the period
of 12 months post the conviction in the criminal
trial. Experience suggests that the office of Public
Prosecutions (OPP) is less than enthusiastic in
assisting with these applications, even more so
when it means (post the conviction) having to
bring the convicted person back to Court.
The Act and specifically section 86 allow the party
wronged, in addition to making any victim impact
statement, to apply for a pecuniary penalty order
against the alleged criminal defendant.
The operation of the Act however can only be
triggered in the event of the criminal defendant
pleading guilty or being found guilty by a Court.
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Rigby Cooke Lawyers - InDispute
Perhaps the least known but most public
application of these provisions was post the
Longford Gas enquiry when a number of the
families of the workers (who were either injured or
died in the Longford gas explosion in Gippsland)
sought orders in favour of themselves or the
deceased Estates after Esso had been found guilty
of breaches of the relevant Occupational Health
and Safety Act, Rules and Regulations.
Instead of each of the families having to run
separate actions against Esso for the breaches,
they, in effect, “tagged along” behind the criminal
conviction and sought orders from the Trial
Judge, Supreme Court Justice Cummins, for
compensation.
In effect, the WorkCover Authority ran the
liability aspect for the families and individuals.
Once found that Esso had been guilty of and
committed a breach of the Occupational Health &
Safety Act and the relevant regulations, this was a
“conviction” for the purposes of the Act allowing
the numerous injured workers to make a claim.
Most commonly our experiences have been in
situations where a staff member or consultant has
misappropriated funds from a client’s business
and this has resulted in a police prosecution for
either fraud or obtaining financial advantage by
deception. If a criminal conviction has occurred,
instead of running a civil action (in which one
would have to prove a liability aspect), the only
issue that the Court needs to be convinced of is
the quantum of the loss sustained by the client for
an order pursuant to the Act to be made.
The peculiar nature of the order is that, although
it looks like a civil judgment and can be enforced
in a similar fashion, because it stems from
a criminal act and is a pecuniary penalty, it
continues and is not absorbed, as a general rule,
into any bankruptcy in the event of the individual
entering bankruptcy. It entitles the applicant
to participate and be considered by a trustee in
bankruptcy. The order is not discharged at the end
of the bankruptcy period which is generally three
years from the date of the filing of the bankrupt’s
statement of affairs with the trustee.
The important factor is to ensure that, as far
as timing is concerned, the application for
compensation is not left too late so that the
application can be heard at the same time as the
criminal sentencing application. Further, we are
also required to liaise directly with the OPP and
the defendant’s solicitor, as the judge enquires as
to what rectification/repayment has made by he
defendant. Formal documentation is also required
to be filed with the criminal division of the
respective Court.
InDispute
Commercial Litigation Bulletin
> Subpoenas and Confidential Documents >
What would you do if you were required to
produce documents to the court which were
highly confidential or commercially sensitive?
This has recently been a question faced by several
of our clients in response to:
The first thing you need to be aware of is that your
ability to object to the production of documents
will depend on the process upon which you are
being asked to produce the documents. The table
below highlights the key differences between two
processes.
(a) an application for third party discovery (i.e. a request for a company which is not a party There are often cases where non-parties to a
proceeding are requested to produce document
to the proceeding to produce documents);
that it never intended to be viewed by other
(b)a subpoena.
parties. This is often the case with business records
THIRD PARTY DISCOVERY
SUBPOENA
Where do the documents
get produced?
Documents get produced
to the party who made the
request.
Documents get produced to
the Court. Any party to the
proceeding can then inspect
the documents.
How do you know what
documents to produce?
Documents must be relevant
to the issues in dispute. As
a non-party the request for
documents must be sufficiently
detailed to enable you to
determine whether the
documents are relevant in
the proceeding.
Documents must be
accurately described so that
you are able to identify what
documents need to be
produced.
that contain commercially sensitive information.
In such circumstances, the non-party can object
to the production and/or disclosure of the
confidential documents. When met with such
application, courts are required to assess the
confidential nature of the documents. This issue
can be overcome by the documents in question
only being provided to solicitors of the party
seeking disclosure of the documents on the
condition that the solicitor gives an undertaking
to the court not to show the documents to any
other entity (including its clients).
This is often seen to be a reasonable step in
determining whether such documents are relevant
to the issues in dispute in the court proceeding.
If you are served with a non-party discovery
application or a subpoena, it is important that
you act in time and seek legal advice as failing to
respond to these applications may result in adverse
orders being made against you and ultimately you
may end up being in contempt of court.
Rigby Cooke Lawyers - InDispute
7
Our Team
Elizabeth Guerra-Stolfa / Partner
Commercial Litigation
T +61 3 9321 7864
eguerra-stolfa@rigbycooke.com.au
Ben Wyatt / Partner
Commercial Litigation
T +61 3 9321 7823
bwyatt@rigbycooke.com.au
Radhika Kanhai / Partner
Commercial Litigation
T +61 3 9321 7880
rkanhai@rigbycooke.com.au
Rob Oxley / Senior Associate
Commercial Litigation
T +61 3 9321 7818
roxley@rigbycooke.com.au
Nicola Chow / Lawyer
Commercial Litigation
T +61 3 9321 7907
nchow@rigbycooke.com.au
Joseph Carneli / Lawyer
Commercial Litigation
T +61 3 9321 7806
jcarneli@rigbycooke.com.au
Level 11, 360 Elizabeth Street
Melbourne Victoria 3000
T 61 3 9321 7888
F 61 3 9321 7900
www.rigbycooke.com.au
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© Rigby Cooke Lawyers 2014