Australian Securities and Investments Commission v Wily & Hurst

Facts

1. The substantive proceedings concerned two companies, Liquid Vision Pty Limited and Liquid Vision New Media Pty Limited. Liquid Vision was incorporated in 1996. Mr McNamara and Stephen Liddell were directors; the shareholders were Mr McNamara, Mr Liddell and Charles Rumble. The company operated a business of designing and supplying multimedia products such as websites, interactive CDs and corporate videos. In 1998, Liquid Vision New Media was incorporated. Mr McNamara was a director of Liquid Vision New Media and one of several shareholders.
2. In December 1999, Liquid Vision went into liquidation. The second plaintiff, Andrew Wily, was appointed liquidator. In June 2000, the liquidator and Liquid Vision commenced proceedings against Mr McNamara and Liquid Vision New Media seeking declaratory relief and damages on the basis, essentially, that Mr McNamara was said to have breached his duties as a director of Liquid Vision by transferring the business of the company to Liquid Vision New Media.
3. On 7 August 2000, Santow J made consent orders that security for costs be provided by the liquidator and Liquid Vision in the sum of $5,000. The security was provided, presumably by the liquidator (Mr McNamara's recent emails to Mr Liddell and Mr Rumble say as much).
4. The matter was listed for hearing on 22 and 23 November 2000 and the matter settled on the second day. By consent, Brownie AJ ordered inter alia: 1. The defendants to pay to the plaintiffs $100,000. 2. The defendants deliver up to the plaintiffs … digital files … 3. The Originating Process is otherwise dismissed with no order as to costs.
5. The Court also noted the agreement of the parties that the defendants may pay the judgment sum in instalments with $27,500 by 1 December 2000, $7,500 by 8 December 2000 and the balance by monthly payments of $5,000. Provided the defendants paid $85,000 of the judgment sum strictly in accordance with these timeframes, the plaintiffs released the defendants from all obligation to pay the remaining $15,000. The agreement noted by the Court also included: 13. [Mr McNamara] agrees that he releases the plaintiffs from all claims and is not entitled to prove in the liquidation of [Liquid Vision]. … 15. Except for claims arising out of the orders and agreement set out in this document, the plaintiffs and the defendants release each other from all claims.
6. Mr McNamara deposed that, as part of the settlement, he bought all the assets and rights of Liquid Vision, paid all the monthly instalments on time and received the assets. Without wishing to criticise Mr McNamara, who no longer retained any papers in relation to the proceedings, his recollection does not accord with the orders made on settlement of the proceedings.
7. In 2005, Liquid Vision was deregistered, presumably on completion of the liquidation, and thus Liquid Vision ceased to exist and its assets vested in the Australian Securities and Investments Commission (ASIC): section 601AD(2) of the Corporations Act 2001 (Cth). Later in 2005, Liquid Vision New Media was renamed as Liquid Vision. Liquid Vision New Media was also deregistered in 2013 and thus has also ceased to exist.
8. Between 2012 and 2016, ASIC investigated the liquidations of various companies by Mr Wily and, in 2016, commenced proceedings against Mr Wily seeking to cancel his registration as a liquidator and for a prohibition on Mr Wily holding office as a liquidator or applying to be registered as a liquidator again. In April 2017, Mr Wily retired as liquidator and administrator from all appointments he then held. He has not resumed his registration and has indicated that he does not intend to resume practice: Australian Securities and Investments Commission v Wily & Hurst (2019) 137 ACSR 1; [2019] NSWSC 521 at [3]-[4] (Brereton J).
9. On 16 May 2019, the Principal Registrar of this Court wrote to the solicitors for the parties advising that, in accordance with rule 41.10 of the UCPR, the Court was preparing to pay the money to Treasury NSW as unclaimed funds and invited the parties to make a claim for the funds. Under rule 41.10, unclaimed funds may be paid to the Treasurer for payment into the Consolidated Fund. The only party who filed an application was Mr McNamara.
10. In support of his claim to be entitled to the monies, Mr McNamara deposed that he no longer held any documents in relation to the proceedings, nor had he been able to obtain a file from his former solicitors. In defending the proceedings brought by the plaintiffs, I incurred significant legal costs which I paid on behalf of the defendants. The proceedings were ultimately settled by consent and without admission and without the need for a hearing. As part of the settlement, I purchased all the assets of [Liquid Vision] for an agreed sum. I was also a creditor of [Liquid Vision] in the winding up by virtue of being an employee, director and ultimately a shareholder. If the funds were not paid to me to compensate me for the legal costs I incurred in defending the proceedings, they ought to have been returned to [Liquid Vision] and ultimately distributed to me either as creditor in the winding up or pursuant to the transfer of assets to me made as part of the settlement. Again, making no criticism of Mr McNamara's recollection of the settlement after all these years, it does not appear that Mr McNamara bought the assets of Liquid Vision but, rather, returned some of its assets to the company. Whilst he may have been a creditor of Liquid Vision, a term of settlement was that he released the company from any right to prove in the winding up. Nor can the monies be returned to Liquid Vision as it no longer exists.
11. Mr McNamara's Interlocutory Process and affidavit were served on the liquidator's solicitor, who subsequently advised that, despite a number of attempts, they had not been able to make contact with their former client. Mr Wily was understood to no longer operate from his last known address and the telephone number which they had for him had been disconnected. In a sense, Mr Wily has also ceased to exist, at least in his capacity as a registered liquidator.
12. On 8 July 2019, the matter was listed for directions before Black J, who directed Mr McNamara to serve all persons with a financial interest in the company. The Interlocutory Process and affidavit were posted to Mr Rumble and Mr Liddell and, from 14 to 17 July 2019, efforts were made to personally serve these gentlemen, but to no avail. Mr McNamara made further attempts to contact them by LinkedIn, by sending an email to a website which appeared to be associated with Mr Liddell, and by calling the telephone number listed on that website and leaving a detailed message. Mr McNamara has not been able to make contact with Mr Liddell or Mr Rumble despite these efforts. Mr McNamara deposed that he knew of no other persons who had a possible interest in the money paid into Court or a financial interest in Liquid Vision.

Payment of funds out of court

1. Rule 41.11 of the UCPR provides that "funds in court may not be paid out of court except to the party entitled". According to the authors of Ritchie's Uniform Civil Procedure New South Wales (LexisNexis, looseleaf) at [41.3.15]: In the absence of any specifically agreed limitation on the purpose of the payment, the court has a general discretion to determine the release of the funds: Thomson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929 at [151]. In the exercise of that discretion the court may regard the funds as intended to secure any liability determined in the proceedings, including the payer's liability for the costs of the proceedings: JKB Holdings Ltd v de la Vega [2013] NSWSC 501 at [95] & [99] (citing Harmer v FCT (1991) 173 CLR 264 at 272-4); and [111]-[112].
2. Published decisions relating to the application of this rule are few and far between. In Bendigo and Adelaide Bank v Gorcyznski [2015] NSWSC 652, the bank obtained an order for possession of the defendant's property and sold it. There was a surplus of some $22,000 and a dispute at the time as to whom the surplus should be paid. Ultimately, a claim to the monies by a third party was withdrawn, and the third party advised the court that it had no objection to the surplus being paid to Mr Gorcyznski. His Honour Justice Hamill was satisfied and assured that there was no other person with an interest in that surplus and certainly not the bank or the third party. As a result of that finding, his Honour considered it was appropriate to order that the funds be paid to Mr Gorcyznksi: at [7].
3. In National Australia Bank Limited v Cunningham [2014] NSWSC 1095, the bank commenced possession proceedings claiming some $8 million and seeking an order for possession of a property in Potts Point. Two of the defendants were guarantors of three companies' obligations to the bank and had given a mortgage over the property as security for their obligations as guarantors. The guarantors defended the proceedings, including claiming that receivers appointed by the bank had breached their obligations to take reasonable care to obtain the best price for the mortgaged properties and alleged that the bank was liable for the receivers' breaches.
4. The guarantors decided to sell the Potts Point property. The guarantors intended to use part of the proceeds of sale to repay what was owed to the bank under their guarantees and it was expected that there would be a significant surplus from the sale. The guarantors then intended to bring proceedings against the bank and receiver. The bank provided a discharge of its mortgage of the Potts Point property on $343,000 being paid into court on account of the bank's reasonable estimated future legal costs of the proposed proceedings. The guarantors acknowledged to the court that the monies paid into court and any accrued interest on the monies were available to the bank for the purpose of meeting any liability that the bank had to the receivers, including any liability in relation to the receivers' costs of the proceedings. As matters unfolded, the guarantors commenced proceedings against the receivers but not the bank. Ultimately, the proceedings against the receivers were dismissed with costs. At the time, counsel for the guarantors conceded that the monies in court were available to the bank to meet that costs order in favour of the receivers and against the guarantors. His Honour Garling J considered that the terms of the acknowledgement were clear and sufficient to entitle the court to make the order sought by the bank. At [49]-[50]: 49 It is unsurprising that in those circumstances, in the course of the receivership proceedings, that an acknowledgment was made in those proceedings, that the monies were being held for a purpose which was broader than that which had covered the monies when first paid into Court. After all, the respondents had not commenced proceedings against the Bank, which was what was initially envisaged, rather the proceedings were against the Receivers appointed by the Bank. But the Bank, in reality, remained liable for the Receivers' costs. 50 The acknowledgment made on 26 July 2012, is clear in its terms. The respondents were acknowledging that the funds paid into Court and any accrued interest, was available to the Bank for the purpose of meeting its liability to the Receivers, including any liability in relation to the receivers' legal costs of the receivership proceedings.
5. In this case, the purpose of the payment into court was to secure the defendants' costs. Although there is no doubt that Mr McNamara incurred substantial costs on behalf of the defendants, as events unfolded no order was made that he was entitled to look to the plaintiffs to pay those costs. It cannot be suggested, I think, that the purpose for which the monies were paid into court by Mr Wily extended to paying the monies to Mr McNamara in the absence of a costs order in his favour.
6. The person with greatest entitlement to the monies is the liquidator. Mr Wily has not been found, although it does not seem to me that the efforts to locate him have been particularly extensive. He is also no longer a liquidator. Against that, the amount of money is relatively small. Mr McNamara has clearly gone to some trouble already to establish his entitlement to the monies including retaining solicitors and incurring court filing fees, using the services of a process server and having various affidavits prepared.
7. It seems to me that there are three options: further searches can be undertaken to locate Mr Wily; the monies can be paid to Mr McNamara as the last person left standing; or the monies can simply be paid to the Treasury. In the perhaps unique circumstances of this case, having regard to the small amounts in issue, the time and costs already expended in attempting to make contact with anyone else who may be entitled to the monies, and the general proposition that the monies may be better used or appreciated by the parties to the proceedings than the Treasury, I am prepared to make the orders sought by Mr McNamara.

Orders

1. For these reasons I make the following orders: 1. Order pursuant to rule 41.3 of the Uniform Civil Procedure Rules 2005 (NSW) that the funds paid into court by the plaintiffs in the amount of $5,000 together with all accrued interest thereon be paid out to the first defendant.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 October 2019