Anthony Magafas & Anor v Peter Carantinos & Anor

Magafas v Carantinos [2006] NSWSC 1459 CASES CITED : Isak Constructions v Faress [2005] NSWSC 679 Magafas v Carantinos [2007] NSWSC 416 Magafas v Carantinos [2007] NSWSC 917

TEXTS CITED : Concise Oxford Dictionary, 10th Ed (1999) Oxford University Press

Anthony Magafas (First Plaintiff) Pac Com Pty Limited (Second Plaintiff) Peter Carantinos (First Defendant) PARTIES : Fotini Carantinos (Second Defendant) Artesian Pty Limited (Third Defendant) Ms Athena Touriki (Fourth Defendant) Mr Gregory Gav (Fifth Defendant)

Mr Alexis SC, Mr Golledge (Plaintiffs) COUNSEL : Mr K Munro (First and Second Defendants) Mr Blyth (Fourth Defendant) Mr Studdy (Fifth Defendant)

Rockliffs (Plaintiffs) SOLICITORS : Munro Lawyers (First and Second Defendants) Middletons (Fourth Defendant) Nicholas G Pappas & Company (Fifth Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2670/06 Anthony Magafas & Anor v Peter Carantinos & Anor JUDGMENT The Application 1 The plaintiffs by notice of motion filed on 13 June 2008 seek the following orders:

Pursuant to Section 241(1)(c) of the Corporations Act, the first defendant be directed to execute the proxy in the form annexed hereto and marked with the letter "A" and provide the same to the first plaintiff within twenty four (24) hours of the making of the order, to enable the first plaintiff to attend the meeting of members of the third defendant on 16 June, 2008 at 10am at Gertos Savell & Co, 164 Parramatta Rd, Camperdown, New South Wales (the 'members meeting') or at any adjourned meeting and vote in favour of the following resolution: To confirm the authority of the Company's solicitor, Athena Touriki, and to ratify her actions in relation to the distribution of the net proceeds of the sale of the Company's St Peters property in the manner referred to in the letter to Rockliffs, Solicitors and to Munro, Lawyers dated 23 August 2007, namely: i. one half to Gregory Gav or to whom he may direct in discharge of loans made by him or on his behalf to the Company and the balance as a dividend to Mr Gav; and ii. the remaining one half to Mr Rockliff as trustee for Pac-Com Pty Ltd, Peter Carantinos and Anthony Magafas, in discharge of loans made by or on behalf of Pac-Com Pty Ltd, Peter Carantinos and/or Anthony Magafas to the Company and the balance as a dividend to Pac-Com Pty Ltd." (the resolution)

In default of the first defendant executing the proxy in accordance with order 1 hereof, the proxy be executed by the Registrar of the Court.

Pursuant to Section 241(1)(c) of the Corporations Act, the first defendant be restrained from voting against the resolution at the members meeting or at any adjourned meeting.

Alternatively and pursuant to Section 241(1)(c) of the Corporations Act, the first defendant be directed to attend the members meeting or at any adjourned meeting, as a proxy of the second plaintiff and vote in favour of the resolution.

Alternatively and pursuant to Section 241(1)(c) of the Corporations Act, the first plaintiff be directed to represent the second plaintiff at the members meeting or at any adjourned meeting and vote in favour of the resolution.

Order 6 made on 27 November 2006 be varied, so as to allow the sum of $46,271.77 standing to the credit of the second plaintiff in the trust account of Colin Biggers & Paisley, Solicitors, to be paid forthwith to the second plaintiff and held in accordance with the undertaking referred to in the schedule below.

The undertaking of the second plaintiff given to the Court on 5 September 2007 be varied to the terms of the undertaking referred to in the schedule hereto.

Order 3 made against the fifth defendant on 5 September 2007 be varied by adding the words "and so as to remit the payment of one half of whatever sum is required for the discharging of the third defendant's liability to the Australian Taxation Office for Capital Gains Tax, including interest and penalties to the intention that the fifth defendant shall honour the undertaking given to the Court on 5 September 2007" at the end of the Order. 2 The proposed schedule states:

The second plaintiff by its servants and agents including Stephen John Rockliff, Solicitor, undertake to the Court not to deal with the sum of $2,349,293.42 received from the third defendant on 24 August, 2007 and placed on term deposit with Westpac Private Bank in the name of the second plaintiff and any further monies received from Colin Biggers & Paisley referred to in Order 6 hereof, together with all interest accruing thereon, until further order of the Court, except to permit those monies being held in the names of each of the plaintiffs and the first defendant and to permit the payment out of one half of whatever sum is required for the discharging of the third defendant's liability to the Australian Taxation Office for Capital Gains Tax arising from the sale of the St Peters property, including interest and penalties. 3 The orders which the plaintiffs sought were opposed by Mr Carantinos, the first defendant. The fifth defendant, Mr Gav, supported the proposed orders. The fourth defendant, Ms Touriki was not named as a party to the motion, but appeared and made submissions on the motion. Ms Touriki supported the plaintiffs' proposed orders 1-6, and put forward alternatives to orders 7-8. The background

4 On 27 November, 2006 Brereton J made orders, inter alia, granting leave to Mr Magafas pursuant to Section 236 of the Corporations Act to bring proceedings on behalf of Pac-Com Pty Limited: [2006] NSWSC 1459 at 42. For the reasons set out at [34] and following of the judgment, Brereton J also made interlocutory orders against Mr Carantinos to restrain any disposal of any monies received from Artesian Pty Limited ('Artesian'), until further order.

5 On 7 December 2006 further orders were made by the Court permitting Artesian to exchange a Put and Call Option Agreement for the sale of the St Peters property and to quarantine the deposit, until further order. An undertaking was given on behalf of Artesian (having been joined to the proceedings as the third defendant) to hold the proceeds of sale of the St Peters property, until further order.

6 On 7 February 2007, further orders were made by the Court to permit the payment of certain expenses from the deposit, but otherwise the regime was maintained.

7 The trial commenced on 2 April 2007. On 15 May 2007 the Court delivered the principal judgment: [2007] NSWSC 416. Relevantly, at [111] the Court found that the two shares acquired by Mr Carantinos in Artesian were acquired on trust for Pac-Com. On 30 August 2007 the Court made a declaration to that effect (declaration 5).

8 On 21 August 2007, prior to the making of the final declarations and orders, the Court delivered a judgment which requested the parties to bring in short minutes of order in the terms set out: [2007] NSWSC 917 at [28]. Those proposed orders included proposed order 17 which, if made, would have authorised the payment out of the net proceeds of sale of the St Peters property to the beneficial shareholders of Artesian, namely, Pac-Com and to Mr Gav.

9 On 23 August 2007 Athena Touriki, Artesian's then Solicitor, paid the net proceeds of sale of the St Peters property to Mr Rockliff (as Pac-Com's Solicitor) and to Mr Gav: see her letter to Rockliffs, Solicitors and to Munro, Lawyers at page 33 of the affidavit of Mr Magafas sworn 4 June 2008. 10 It is plain that Ms Touriki assumed that orders in accordance with the proposed orders referred to the judgment of 21 August 2007 had been made. That assumption was erroneous. There is no suggestion of any deliberate breach of the Court's orders and what occurred appears to have been an innocent mistake. 11 Counsel for the first defendant made various allegations of wrong doing against Ms Touriki, Mr Rockliff and Mr Gav. These allegations were not supported by the evidence and must be rejected.

12 On 5 September 2007 the Court made orders against Mr Gav and noted an undertaking on behalf of Pac-Com that secured the monies received from Ms Touriki.

13 On 30 August 2007 Counsel for the first and second defendants informed the Court that, subject to final instructions, it was anticipated that an application would be made to restore the funds which have been taken and probably also for the appointment of provisional liquidators to Artesian and Pac-Com (T4.50); no such application has since been made. Rather, Ms Touriki has commenced proceedings against Mr Rockliff and Mr Gav: see the Statement of Claim in proceedings no. 1243 of 2008.

14 On 28 February 2008 Bergin J made orders that varied the order and undertaking made and noted on 5 September 2007 so as to permit Artesian to pay its liability for GST: see page 54 and following of the Magafas affidavit.

15 Mr Carantinos submitted that the relief sought against him could not be granted pursuant to section 241(1) of the Corporations Act. He submitted that:

i. the word 'including' in section 241(1) has the effect that the only relief that can be granted is that specified in sub-paragraphs (a) to (d).

ii. because Mr Carantinos is a shareholder in the third defendant and section 241(1)(c) is limited to the company or an officer of the company, this section is inapplicable . iii. the words "in relation to proceedings brought", as used in s 241(1), refers only to the proceedings brought by Artesian (see Ex P1) and not these proceedings;

iv. section 241, seen in the context of Part 2F.1A, should be confined only to "interim orders" which would not disturb any final order being made. 16 Mr Carantinos' construction of section 241(1) is incorrect. First, no basis was propounded why or how the word "including" could restrict the clear words "may make any orders"... "that it considers appropriate" to the matters the subject of sub-paragraphs (a) to (d). 17 Second, the construction is contrary to the plain meaning of the word "including": containing as part of the whole being considered (Concise Oxford Dictionary, Tenth Edition). 18 The combination of any orders considered appropriate, including the matters listed in sub-paragraphs (a) to (d), make it clear that the Legislature did not intend the matters in sub-paragraphs (a) to (d) to be exhaustive, or that those matters could confine the scope of the power referred to. To achieve Mr Carantinos' construction, it would have been a simple thing for the legislature to use the following wording, by way of example:

"The court may only make and give the directions referred to in sub-paragraphs (a) to (d) and, when doing so, will consider if such orders or directions are appropriate in relation to proceedings brought or intervened in with leave, or an application for leave...". 19 The submission that the Court's power under s 241 is confined to interim orders only does not bear scrutiny. It is plain that the Court has a wide discretion to make appropriate orders or directions including those of the nature enumerated in the sub-paragraphs, interim orders being only one of many. 20 Third, Justice Campbell recognised in Isak Constructions v Faress [2005] NSWSC 679 at [11] not only the width of section 241(1) but that it was wide enough to grant relief beyond that specified in sub-paragraphs (a) to (d). 21 Fourth, there is no basis for the submission that "in relation to proceedings brought" means the proceedings brought by the fourth defendant. The proceedings in question are clearly these proceedings. The Notice of Motion was filed in these proceedings. It seeks relief arising as a consequence of actions taken by the fourth defendant which gave rise to the Court granting interlocutory relief on 5 September 2007. 22 Upon its proper construction, Section 241 of the Corporations Act enables the Court to make any orders and give any directions in relation to these proceedings, being proceedings brought or intervened in with leave, including an order directing an officer of Pac-Com to do, or not to do, any act. 23 Contrary to the submission made on behalf of Mr Carantinos, it is available as an aid to the proper application and enforcement of the declarations and orders of the Court, particularly when their effect may become frustrated or rendered nugatory by obfuscation. Do the orders represent a distribution of the assets of the company? 24 Mr Carantinos also objected to the plaintiffs' proposed orders on the basis that they represented a distribution of the assets of Pac-Com to one of the shareholders of this company, when the position of Pac-Com vis-à-vis its shareholders has not been litigated. Mr Carantinos submits that this distribution of the company's assets is inappropriate without an order for the winding up of this company or other lawful basis. 25 Alternatively, Mr Carantinos claims that the orders involve the discharge of loans made by or on behalf of Pac-Com, Carantinos and/or Magafas. This, he asserts, should not occur prior to the taking of accounts which has been ordered by the Court. 26 In response to this submission, it is only necessary to note the following:

i. Mr Magafas is not seeking a distribution of the assets of Pac-Com in specie, nor is there to be any preferential payment to him. The taking of accounts will determine [in addition to the liability of Mr Carantinos to Mr Magafas and to Pac-Com] the monies that Pac-Com is to pay to Mr Magafas and to Mr Carantinos, if any. Once the accounts have been taken, orders are proposed to be sought to facilitate appropriate payments by Pac-Com.

ii. It is true that whether monies are due and, if so, by whom, to whom and in what amount, falls to be determined upon the taking of accounts. That is precisely why the undertaking in the schedule to the motion proposes the monies being held in the names of each of the plaintiffs and the first defendant. The contention that the orders were not in the interests of Pac-Com 27 Finally, Mr Carantinos submits that the orders sought are made in pursuance of an interest other than that of Pac-Com. This submission is rejected. It is clearly in Pac-Com's interest to retain these monies, so that upon the taking of accounts, it can apply to the Court to receive the monies to which it is beneficially entitled. It is also in the interests of Pac-Com not to be engaged in further litigation at enormous cost between trustees (Ms Touriki and Mr Rockliff) concerning the restoration of a fund which is completely secured and in which it has the beneficial interest.

28 The very circumstance that caused the need for leave to bring the derivative action in the name of Pac-Com, namely the controllers of Pac-Com being Mr Magafas and Mr Carantinos, still remains. This is the cause of Ms Touriki being forced to involve Lawcover and commence and prosecute a claim against Mr Rockliff [who has no beneficial interest in the monies] and Mr Gav, who is an innocent shareholder of Artesian.

29 It is appropriate that the shareholders of Artesian would seek to resolve the issue concerning the distribution of the net proceeds of sale of the St Peters property to the shareholders of Artesian on 23 August 2007, by ratifying her actions. 30 The relief sought in the Notice of Motion complies with the requirements of clause 12 of the constitution of Artesian [page 14 of the Magafas affidavit] and is supported by Mr Gav. Indeed, Mr Gav gave the notice of meeting at page 29 of the Magafas affidavit. 31 The terms upon which the funds are to be held by Mr Rockliff cause no prejudice to Mr Carantinos and protect the fruits of any legitimate rights he may have to any of those monies upon the taking of accounts.

32 The funds held in trust by Colin Biggers & Paisley on behalf of Pac-Com arise from the termination of the administration of that company in early 2006. Why Mr Carantinos will not consent to the transfer of those funds, so that they can be held with the other funds of Pac-Com on deposit earning a respectable return, remains a mystery. It is noted that Mr Carantinos does not now oppose Artesian paying its liability for capital gains tax. Ms Touriki's submissions 33 The division between the plaintiffs and Ms Touriki is a narrow one. Both parties agree that the capital gains tax liabilities of Artesian owed to the Australian Tax Office should be met from the proceeds of sale of the relevant property. Both sets of proposed orders achieve the same outcome, in that Artesian's tax liability will be met from money which is currently held by Mr Rockliff and Mr Gav. 34 Ms Touriki submits that the proper approach requires that the sum necessary to discharge the tax debt be paid to Ms Touriki, as trustee for Artesian. Ms Touriki would then be ordered to pay that money to the Australian Tax Office. 35 The plaintiffs submit and I accept that this use of a solicitor will incur unnecessary cost. The proposed orders will absolve Ms Touriki of any liability as a defaulting trustee to the beneficiary of the trust [Artesian]. Decisions 36 The plaintiffs have made good their entitlement to orders 1, 2, 3, 6, 7 and 8 as sought in the notice of motion. Orders 37 The Court makes the following orders:

(1) The Court makes orders in terms of paragraphs 1, 2, 3, 6, 7 and 8 as sought in the notice of motion filed on 13 June 2008.

(2) The parties have leave to exchange and furnish to my Associate submissions as to costs - by a first tranche on or before 14 July 2008 and by a responsive tranche on or before 21 July 2008.

(3) The decision as to costs will be given in chambers. (4) These orders are to be entered forthwith. ************

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