BDT Holdings Pty Ltd v Piscopo

Federal Court of Australia|2009-09-18|Before: Rares J

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 These proceedings commenced on 17 April 2008 as an application by BDT Holdings Pty Limited to set aside what was claimed to be a decision of Samuel Piscopo, acting as trustee in bankruptcy of the estate of Terry Donald Hill, to reject BDT's proof of debt. BDT asserted that it was a creditor in the bankrupt's estate for over $4.8 million. The application alleged that Mr Piscopo had rejected the proof of debt on 3 December 2007 and also that he had affirmed his decision on 10 April 2008. 2 This is an application to amend the defence and cross claim, to join a number of new cross defendants and for leave to serve three of them in New Zealand.

The history of the dispute 3 These proceedings are satellite proceedings of a much larger dispute between Mr Hill and those at whose suit he was made bankrupt that had begun to be litigated in the Commercial list of the Supreme Court of New South Wales and in the Court of Appeal of that Court. In addition BDT is seeking to remove Mr Piscopo as the trustee of Mr Hill's estate in separate proceedings before the Federal Magistrates Court. In March 2006, I began hearing an application to set aside a personal insolvency agreement in which Mr Hill had appointed another trustee, a Mr Rogers, to administer that agreement. By consent on 4 July 2006, the personal insolvency agreement was set aside and a sequestration order against Mr Hill's estate was then made. 4 Mr Hill has had a long experience in the wine trade. On the material before me, prior to February 2002, he had been involved in, among other things, a wholesale liquor and a fine wine distribution business, both within Australia and internationally, including in New Zealand. Mr Hill's wife is Eleanor Rose. She claims to be the sole beneficial owner and director of BDT and to have occupied that position for many years. 5 There is a substantial dispute between Mr Piscopo, and, I infer, supporting creditors, on the one hand and Mr Hill and Ms Rose, together with BDT, on the other hand as to the degree of involvement of Mr Hill in BDT's affairs. The proceedings concerning the alleged rejection of the proof of debt have themselves spawned a number of interlocutory disputes. Despite the parties having accepted my urging that they mediate those disputes, they were unable to achieve a resolution when they did. 6 In its statement of claim BDT alleged that from March 2002 till December 2005, it lent Mr Hill a principal debt of over $3.5 million and that that attracted interest at 10% per annum, so that by the time of the commencement of the bankruptcy, interest of about $1.6 million had accrued. BDT alleged that it had a provable debt, not necessarily mathematically congruent with those two amounts, of over $4.8 million. BDT alleged that it had lodged its proof of debt in May 2007 and that in November 2007 Mr Piscopo had been requested by it to convene a meeting of creditors to, among other things, propose a resolution for Mr Piscopo's removal as trustee. Mr Piscopo refused that request. BDT alleged that he did so on the basis that it was not a creditor and had no standing to make it. 7 In his defence, Mr Piscopo asserted that he did not determine that BDT's proof of debt should be rejected because it was not a creditor, but that he wished to investigate that question. Mr Piscopo's original defence and cross-claim, filed on 3 October 2008, asserted that the moneys claimed by BDT to be owed by it were either a gift or a distribution from an entity called the Terosa Trust. Mr Piscopo admitted that he denied that BDT was a creditor for the purposes of calling a meeting, but said that he had not ruled on the proof of debt. 8 Mr Piscopo's cross-claim originally claimed for advances allegedly made by Mr Hill to BDT of over $2,340,000. He claimed that from 11 February 2002, Mr Hill was insolvent because of debts he owed to a number of liquor suppliers which he was not able to pay at that time. He alleged that the advances made to BDT, allegedly by Mr Hill, or through the devices of the trust, had been given to BDT with the common intention that Mr Hill would keep the use and control of the money and to prevent it being available to his then present and future creditors upon his bankruptcy. Mr Piscopo sought declarations and consequential relief that the advances were void against him under ss 120 or 122 of the Bankruptcy Act 1966 (Cth) or s 37A of the Conveyancing Act 1919 (NSW). These claims continue to be made in the amended cross-claim. It suffices to say that the parties are decidedly at issue on the substance of their claims against each other.

Mr Piscopo's motion 9 After the mediation failed on 24 July 2009, Mr Piscopo filed the present motion seeking leave to amend his cross-claim by substantially expanding the matters in dispute, adding a number of parties in respect of which he alleged Mr Hill had dealings which should enure for the benefit of his bankrupt estate, and also seeking leave to serve the cross-claim on three of the proposed new parties resident in New Zealand. 10 BDT argued that I should stay proceedings on the motion pending the decision of the Federal Magistrates Court, in which judgment was reserved in March this year, in relation to its application to remove Mr Piscopo. In addition, Mr Hill's bankruptcy has been extended beyond the three-year period. He has applied to the Insolvency Trustee Service of Australia to terminate his bankruptcy and that application is also presently unresolved. 11 The amended cross-claim seeks to join nine cross-respondents: first, Ms Rose; secondly, Vintage Wine and Spirits Limited, Nominee Shareholdings Limited (both, New Zealand corporations) and Helen Walker, a professional accountant in New Zealand. Next, the amended cross-claim seeks to join Vintage Wines and Spirits (Australia) Pty Ltd, Rosehill Wine Corporation Pty Ltd, The Organic Wine Company of Australia Pty Ltd, Theodore, Rose, Riggs and Associates Pty Ltd and Mr Hill as cross respondents. 12 The amended cross-claim alleges that Mr Hill was the controlling mind of BDT and, in effect, controlled the other corporations sought to be joined. The claim against the New Zealand parties is based in part on allegations that until 1 June 2002 Mr Hill held legally 99 and beneficially the remaining one share in the issued capital of Hill International Wines (NZ) Limited. 13 When Mr Rogers was the controlling trustee under the personal insolvency agreement, he corresponded with Ms Walker and received a letter from her on 26 April 2006 in which she said, in response to his queries relating to shares held in Vintage Wine and Spirits Limited: "Hill International Wines Limited owned 30,000 shares in Vintage Wine and Spirits Limited prior to the liquidation of Hill International Wines Limited. Hill International Wines Limited was liquidated for New Zealand taxation purposes and, as such, had no claims against it by any creditors. The shares in Vintage Wine and Spirits were transferred to Nominee Shareholdings Limited as part of the liquidation of the company and are currently held by Nominee Shareholdings Limited in trust for Terry Hill." (emphasis added) 14 Ms Walker's letter went on to point out that the 30,000 shares were half of the issued capital of Vintage Wine and Spirits, all of which was held on trust by Nominee Shareholdings. The amended cross-claim challenges the validity of a document purporting to be an assignment dated 1 June 2002 by Mr Hill to Ms Rose of 100 shares in Hill International Wines. This document asserts that for "other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged," Mr Hill and Ms Rose agreed that he would transfer to her all his interest in shares in his name in Hill International Wines. Other than the recital to which I have referred, no other apparent consideration appears on the face of this document. Mr Piscopo attacks it on the basis that the assignment was made for no consideration and, in effect, was a sham made within five years before the commencement of the bankruptcy. Had the shares remained in Mr Hill's name they would have been available to creditors. Mr Piscopo also seeks to assert that Ms Rose holds the shares and any assets distributed to her in consequence of her ownership of the shares on an express, resulting or constructive trust for Mr Piscopo as Mr Hill's trustee in bankruptcy. Among others of the alleged assets of Hills International Wines were the shares it formerly held in Vintage Wine and Spirits and the debt owed by that company to Hill International Wines. 15 In June 2004 Ms Walker was appointed liquidator of Hill International Wines on the basis that it was solvent, had no creditors and owned the shares in Vintage Wine and Spirits. The amended cross-claim alleges that Mr Hill in fact held the beneficial interest in the Vintage Wine and Spirits shares. 16 On 23 June 2004, the day after Ms Walker was appointed liquidator, a second transaction in the same form as the previous assignment was purportedly executed between Mr Hill and Ms Rose. This assignment dated 23 June 2004 recited the same consideration as in the 1 June 2002 document and asserted that upon the liquidation of Hill International Wines the shares that company owned in Vintage Wine and Spirits would be transferred to a company controlled by Ms Walker to be held in trust for Ms Rose. Once again the cross-claim attacks that transaction as being made for no consideration and in effect a sham made for the purposes of defeating the operation of the bankruptcy. 17 Next, the cross-claim alleges that in August 2002 Vintage Wine and Spirits declared dividends and paid them to BDT and Ms Rose at the direction either of Mr Hill or of Nominee Shareholdings acting as Mr Hill's trustee. Mr Piscopo asserts these dealings were in effect transfers by Mr Hill. Again, the amended cross-claim alleged that no consideration was given and the transactions were conducted in the way they were in order to defeat the bankrupt's creditors. 18 The amended cross-claim then alleges that from the time of Mr Hill's bankruptcy, Nominee Shareholdings held the shares in Vintage Wine and Spirits on trust for Mr Piscopo. It asserts that each of Ms Walker and Nominee Shareholdings breached their duties to account to the bankrupt's estate in respect of moneys paid by her or it to BDT and Ms Rose. The amended cross-claim alleges that by receiving the moneys, BDT and Ms Rose participated in the breaches of fiduciary duties of the payers and that all of them became liable to account or pay equitable compensation to Mr Piscopo as trustee, in respect of those claims. 19 The amended cross-claim alleges that in February and March 2002, Rosehill and Vintage Australia were incorporated and that the shares in each of them issued to BDT. The Organic Wine Company was incorporated in March 2008 and shares in it were issued to BDT and to Theodore, Rose and Riggs, a company controlled by Ms Rose. The amended cross-claim asserts that the shares so issued in each of those corporations were "property" within the meaning of the Bankruptcy Act and were issued within four years before the commencement of Mr Hill's bankruptcy. It also alleged that the companies, other than BDT, had been incorporated to engage in the business of selling wine. The amended cross-claim asserts that Ms Rose had no relevant experience in conducting a business selling wine, in contrast to the extensive experience of Mr Hill. It alleges that Mr Hill was the controlling mind of each of those corporations and that it was his and his wife's intention that he would have the beneficial interest in each of those shareholdings, while Ms Rose would hold her shares in BDT for Mr Hill's benefit. The amended cross-claim alleges that Mr Hill derived benefits from shares held in those corporations, and that the profits and revenues that they had generated had been used to provide Mr Hill with home, car, food, living expenses and a lifestyle, including overseas travel. It alleges that Rosehill Vintage Australia and The Organic Wine Corporation conducted activities that were solely related to the selling of wine and that Mr Hill had been, in effect, the controlling mind and active executive officer of each of those companies in contrast to a lack of participation in the management by Ms Rose. 20 Mr Piscopo asserts that he is entitled, as Mr Hill's trustee, to have that property vest in him by reason of Mr Hill's alleged derivation of benefits from each of those businesses. Accordingly, he claims relief seeking to be given control over shares in the various corporations to which I have referred and Mr Hill's asserted interest in them. He also seeks orders that Ms Rose, Ms Walker and Nominee Shareholdings cause shares held by Nominee Shareholdings in Vintage Wine and Spirits and the debt owed by that company to Hill International Wines to be transferred to Mr Piscopo. He seeks orders that BDT, Ms Walker and Ms Rose account or pay compensation to Mr Piscopo for all moneys received by them in respect of dividends from the various companies in New Zealand, and for the recognition in the share register of Vintage Wine and Spirits of Mr Piscopo's interest in the 30,000 shares he claims were held beneficially for the bankrupt. Mr Piscopo also claims orders that Ms Rose transfer the shares she holds in BDT to him, that BDT transfer its shareholdings in Rosehill and Vintage Wine and Spirits (Australia) to him, as well as that Theodore, Rose and Riggs transfer the shares it holds in The Organic Wine Company to him.

Is there a prima facie case for the amended cross-claim? 21 There is a deal of evidence before me on which Mr Piscopo relies to establish that there is a sufficient prima facie case to warrant service out of the jurisdiction. Following Ms Walker's letter of 26 April 2006 to Mr Rogers, NOT Lawyers, the solicitors acting for Ms Rose, wrote to Ms Walker on 25 September 2006 asserting that she already knew of the assignments made of 1 June 2002 and 23 June 2004, to which I have referred, enclosed copies of those documents, and referred to Mr Piscopo's claims to have an interest in the shares purportedly assigned. 22 This elicited a response from Ms Walker on 4 December 2006 that until recently she was not privy to the first assignment. I infer that she became aware of its alleged nature when she received the letter from NOT Lawyers. She wrote that her firm had only been acting as chartered accountants for Hill International Wines from 20 December 2002, and that as the first assignment had taken place prior to that time, it was understandable that she may not have been aware of it. She said there were no creditors in Hill International Wines' liquidation, and that it was therefore a simple matter to distribute its assets in specie. Ms Walker observed that her firm was not the accountant of Mr Hill or Ms Rose personally, and that they had no dealings with those individuals' personal affairs. Ms Walker said that in July 2005 following discussions with Mr Hill it was decided to liquidate Hill International Wines for the purpose of minimising taxation issues arising from the shareholding at that time. She wrote that shares in Vintage Wine and Spirits were transferred to Nominee Shareholdings in trust for the beneficial shareholders of the now liquidated Hill International Wines. Nominee Shareholdings held those shares in trust for the beneficial owners including 30,000 previously in the name of Hill International Wines, as I have said. She acknowledged that dividends in respect of those 30,000 shares had been paid for the years ended 31 March 2005 and 2006 totalling in the order of about NZD300,000. 23 Then on 18 December 2006 Ms Walker wrote a letter to Ms Piscopo which she said was further to her letter of 26 April 2006 to Mr Rogers. She said that in the previous correspondence she had incorrectly stated that the beneficial owner of the shares in Hill International Wines was Mr Hill, and that she wished to confirm that that shareholding was in fact beneficially held for Ms Rose. 24 I infer that Ms Walker wrote this letter after seeing the material from NOT Lawyers, but without any personal knowledge of the underlying transactions upon which her assertions as to the effect of assignments were based. That inference of course may well be affected by actual evidence from Ms Walker at a trial. But, for the purposes of satisfying myself as to the existence of a prima facie case on this motion, I am satisfied that the information provided by Ms Walker to Mr Rogers was based on instructions she had taken from Mr Hill. The inference is readily open on the material now before me that Mr Hill gave the instructions to her to liquidate Hill International Wines. This stands in contrast to the position where, if the purported assignment of 1 June 2002 were true, Mr Hill had no beneficial interest in those shares when he gave Ms Walker her instructions three years later. 25 In his statement of affairs dated 3 July 2006, made immediately prior to the sequestration order, Mr Hill claimed that BDT was a creditor for about $4.4 million. One document in evidence is a deed dated 20 May 2002 between BDT and Mr Hill in which Mr Hill acknowledges a debt of $1.5 million to BDT, and an arrangement providing for further advances to him up to a total of $4 million. This document also acknowledges that BDT held no security for that debt. However, in an affidavit he swore on 14 January 2003 as a judgment debtor in the County Court of Victoria on a claim made by Diners Club Limited against him, Mr Hill did not disclose that any money was due by him as a liability to BDT. He revealed total debts at that time of about $870,000. 26 In early May 2007 NOT Lawyers wrote to Mr Piscopo discussing various aspects of issues between their client, Ms Rose, and Mr Piscopo. The letter referred to a claim that Hill International Wines held shares in Vintage Wine and Spirits and had made an advance to that company of about NZD250,000. It claimed that Ms Rose had instructed NOT Lawyers that all payments made from her current account with Vintage Wine and Spirits had been paid to BDT by her direction. The letter asserted that that direction was consistent with BDT having provided a consideration of AUD1.2 million for the assignment dated 1 June 2002 of the Hill International Wines' shares. Candidly, NOT Lawyers wrote (paragraph 6.14): "We cannot provide an explanation as to why [BDT] who was the lender of the $1.2 million, is not named in the 1 June 2002 deed of assignment." 27 They then referred to an affidavit made by Ms Rose in September 2006. The letter concluded that allegedly BDT had paid AUD1.2 million for those shares. This account of the transaction does not just read in a confusing way in these reasons - they reflect the original. 28 I have also considered the material before me for the purposes of determining whether leave to amend should be granted. BDT has opposed the application principally on the basis that, first, it ought not be decided at the moment because of the allegations currently the subject of the reserved judgment in the Federal Magistrates Court, and secondly, because Ms Walker's letter of 18 December 2006 negates the new case put by Mr Piscopo's proposed amendment.

Consideration 29 I am satisfied that on the material before me, there is a sufficient prima facie case of: · active involvement by Mr Hill in the affairs of the various corporations in respect of which Mr Piscopo claims his estate has an interest; · Mr Hill's beneficial ownership of the shares in Hill International Wines and Vintage Wine and Spirits. 30 I find that these are claims that properly need to be determined in connection with an overall assessment of whether BDT can establish its status as a creditor as claimed and the amount of any such claim. 31 I am satisfied that on the material before me there are inferences open that, if translated into findings of fact, would support the relief claimed. This is the test for service out of the jurisdiction identified by the Full Court consisting of Finn and Weinberg JJ and myself in Ho v Akai Pty Limited (In Liq) (2006) 24 ACLC 1526 [2006] FCAFC 1598 at [10]. In my opinion the test for service out of the jurisdiction on Ms Walker and the two New Zealand companies is satisfied and I have applied it in making my findings in these reasons - see also Beluga Shipping GmbH & Co KS "Beluga Fantastic" v Headway Shipping Limited (No 2) (2008) 251 ALR 620 at 627-628 [32]-[33] per myself. 32 I am satisfied that there is a sufficient basis in the present evidence to find that Mr Hill was the beneficial owner of the shares in the New Zealand companies and, therefore, jurisdiction is attracted to the other claims made in respect of both Ms Walker and the companies for that purpose: see Beluga 251 ALR at 628 [33]. In addition, the joinder of each of those persons is appropriate because they are proper and necessary parties within item 18 of the table to order 8 rule 2 of the Federal Court Rules. Their joinder is appropriate because the claims against them arise out of a common substratum of facts. The issues raised by the amendment require resolution in the controversy concerning the assets properly available to the bankrupt's estate and the nature of the relationship BDT has in the overall relationship between the bankrupt, his assets and his creditors: see also Costa Vraca Pty Ltd v Bell Regal Pty Ltd [2003] FCAFC 305 at [19]-[25] per Ryan, Kiefel and Gyles JJ. BDT does not oppose leave being given to amend and to serve in New Zealand other than on the basis of the existence of the unresolved proceedings for Mr Piscopo's removal. That is not a sound reason to deny the relief sought. There is a sufficient controversy to warrant the grant of the leave to amend.

Service in New Zealand 33 The Attorney General's website in relation to service of documents abroad shows that service by a private agent in New Zealand is permitted, in that jurisdiction. Under s 387 of the Companies Act 1993 (NZ) service of, among other things, a writ, summons or order in any legal proceedings may be made on a company by: · delivery to a person named as a director of the company on the New Zealand register; · serving in accordance with directions as to service given by a court having jurisdiction in the proceedings, and · delivery to an employee of the company at the company's head office or principal place of business. 34 Mr Piscopo submitted that he proposed to serve the New Zealand companies by post. However, I am of opinion that I should direct that service be effected in accordance with the requirements of one or more of the provisions of s 387(1) of the Companies Act 1993 (NZ). 35 Of course, these reasons reflect only the conclusions that might be available from a reading of documents tendered effectively by only one side, although BDT has opposed the grant of leave and has, itself, tendered some evidence. At a final hearing, a large number of possible, factual outcomes will be available. Nothing that I have said in these reasons should be taken as an indication of any state of mind I have other than a view that a sufficient prima facie case has been established solely on the basis of the test stated from Ho 24 ACLC 1526 and Beluga 251 ALR 620. 36 For these reasons, I am of opinion that I should grant the relief sought in the motion. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Associate: Dated: 2 October 2009 Solicitor for the Applicant: M Stevens of NOT Lawyers

Solicitor for the Respondent: Proctor and Associates

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