Australian Spirit Management Pty Ltd & Ors v Commissioner of Taxation & Ors

Judgment 1The background to these complex proceedings is set out in the decision of Rein J in Australian Spirit Management Pty Ltd v Commissioner of Taxation [2011] NSW SC 1626. His Honour there made orders, inter alia, for preservation of certain whiskey and its proceeds of sale ("preservation orders") and required the plaintiffs to give certain undertakings. 2By Notice of Motion filed on 13 February 2011, the First and Second Plaintiffs (to whom I will refer collectively as "ASM") seek orders that certain moneys which are to be paid into a controlled moneys account and which are the subject of the preservation orders made by Rein J should be applied to the costs of ASM conducting certain proceedings in Australia and Scotland and also to its former directors' costs of defending certain proceedings in which they are personally involved ("the wider application"). 3When the matter was listed before me, having been referred by the Duty Judge, the three parties who took an active role ultimately accepted that it was preferable that ASM's wider application should be determined after comprehensive written submissions had been filed and there was also difficulty in proceeding with that wider motion before me where the affected Defendants, Chambers Finance Ltd ("Chambers Finance"), Grant McKenzie Hong Kong Ltd and Brackwell Trading Ltd, had served a Notice to Produce to which ASM had not yet responded. Several matters were agreed between the parties as to the future conduct of the wider application and the proceedings generally and I will make orders reflecting that agreement shortly. 4Two matters were not agreed and it was common ground between the parties they should be determined by the Court. I heard extensive submissions as to those matters. 5The first matter was that ASM sought an order that Chambers Finance undertake to join in an application to the Scottish Court of Session for a seist (stay) of certain Scottish proceedings if a mediation in these proceedings cannot be completed within a 21 day period and until such a mediation is concluded. By way of background to that matter, the parties had agreed before me as to the desirability of a mediation, although any formal orders for such a mediation will be made by directions in the Commercial List rather than by me. Although that order may ultimately be appropriate, I do not consider that I should presently make it, because it would be premature where orders for the mediation have not yet been made and any question of the mediation not being completed does not yet arise. It appears to me that the preferable course would be to address the question of any delay in the mediation at a point when the nature and reasons for that delay is known and it may be that such an issue could then be dealt with by agreement between the parties. 6The second and more substantive question was whether orders should be made, as a term of deferring the hearing of ASM's wider application, releasing specified funds to the trust account of ASM's solicitors for specified purposes, in the amount of $48,680 (after allowing for $30,000 already held in trust by those solicitors) plus a further $20,000 in relation to the proposed mediation. I will refer to this matter as the "narrower application". 7ASM relies on affidavits of its solicitor, Mr Kelvin Solari, sworn 13 and 16 February 2012 in support of the narrower application. Mr Solari gives evidence of the present position in the Scottish proceedings between ASM, Chambers Finance and others; proceedings in the Federal Court of Australia involving ASM's former directors; and other proceedings in the Supreme Court of New South Wales also involving ASM's former directors. ASM also relied on materials which were in evidence at the earlier hearing before Rein J. Chambers Finance relies on the affidavits of Mr Christopher Stern sworn 25 November 2011 and 15 February 2012, an affidavit of one of its Scottish legal representatives, Ms E-Ming Fong sworn 14 February 2012, and an affidavit of Ms Zoe Hillman sworn 15 February 2012. 8ASM also drew attention to several observations of Rein J in his judgment making the preservation orders, including that ASM contended that Chambers Finance was not entitled to hold proceeds of whisky sales obtained under a funding agreement reached in 2009 at all, or at least without payment of "Reimbursed Costs" as defined; that Chambers Finance did not contest that there is a seriously arguable case that the security interest it holds is defective; and that the claim that Chambers Finance should pay to ASM the net proceeds of sale under the 2009 funding agreement is not a weak claim. At the same time, his Honour does not appear to have acceded to an earlier application by ASM for payment of the preserved funds to it, while leaving open the possibility of further applications for payment for specific purposes. 9My attention was drawn to several relevant authorities in the course of argument, including Westpac Banking Corporation v McArthur [2007] NSWSC 1347 at [52] and Badman v Drake [2008] NSWSC 968. The former case dealt with an allowance for reasonable legal expenses when a freezing order had been made over a party's assets. The latter recognised the potential injustice in granting an injunction to restrain a defendant's use of a fund, which amounted to most of the defendant's realisable assets, where to do so would practically prevent the defendant from defending proceedings in which it had been found to have a seriously arguable case. ASM also relied on the decision in McCleary v Bullabidgee Pty Ltd [2008] NSWSC 534, where a party which contended that it had terminated contracts for the sale of properties sought to restrain a third party from distributing the payment of proceeds of rice derived from those properties. In that case, Brereton J had to address the position where two parties each had arguable claims to moneys held by a third and granted an order restraining the dissipation of the proceeds on the usual undertaking as to damages. That order was, as I understand it, directed to preserving the status quo and in that respect is very similar to the order previously made by Rein J in these proceedings. 10I proceed on the basis that the question who originally possessed or had control of the relevant moneys or the whiskey is not material where the substantive contest between the parties is as to the entitlement to the property and the funds. The question before me is instead whether a term should be imposed, as a condition of the adjournment, permitting ASM to expend some of the monies which are the subject of preservation orders on legal costs where: