Clout (Trustee) v Anscor Pty Ltd

Federal Court of Australia|1993-05-13|Before: Drummond J

The ninth respondent is refused leave to be represented by Mr Corbett in defending the proceedings against her.

The thirteenth respondent is refused leave to be represented by Mr Corbett in defending the proceedings against it.

Subject to Order 3, the first, tenth, eleventh and twelfth respondents be refused leave for Mr Corbett to represent them in the further defence of the proceedings.

Mr Corbett have leave to represent the first, tenth, eleventh and twelfth respondents in the further defence of the proceedings on terms that such leave is limited to:

(a) Mr Corbett's entitlement to amend the amended defence of the first and tenth to twelfth respondents to raise the issue referred to in Order 2; and

(b) To represent those respondents in the further defence of the proceedings but only in respect of the issue referred to in sub-paragraph (a) above.

The respondents' request to adjourn the trial be refused.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BETWEEN: DAVID LEWIS CLOUT (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF GEOFFREY ROBERT DEXTER)

THORNVILLE PTY LTD IN ITS OWN CAPACITY AND IN ITS CAPACITY AS TRUSTEE OF THE ANSCOR EXECUTIVE INCENTIVE TRUST AND THE THORNVILLE EXECUTIVE INCENTIVE TRUST

1 On Monday, 21 May 2001, the day fixed back on 20 October 2000 as the date for the start of the trial, Mr Corbett, who replaced his wife as sole director of the first, tenth, eleventh and twelfth respondents ("the Anscor respondents") in January 2001, made oral application for leave to represent those respondents at the trial. He also then sought leave to represent the thirteenth respondent. 2 I then adjourned the trial until yesterday, Tuesday, 22 May, to give Mr Corbett the opportunity to put such evidence before me as he wished in support of his application to represent the first and the ninth to twelfth respondents. Mr Corbett has no involvement in the running or ownership of the thirteenth respondent, a New Zealand-based company, though various of the Anscor respondents, no doubt through the intermediation of both Mr and Mrs Corbett, have had commercial dealings with this respondent since mid 1997. At present, it controls over $1.1 million held for the Anscor Superannuation Fund. These moneys were paid to it by the first respondent. The thirteenth respondent also has a mortgage over property of the tenth respondent. 3 Yesterday, Mr Corbett renewed his application. He supported it with a written submission prepared by himself which was accompanied by extracts from the financial records of the first, tenth and twelfth respondents and some other associated entities. He also applied for leave to amend the defence of the Anscor respondents, an application supported by a separate written submission and a "Notice of Amendments". Finally, he sought an adjournment of the trial, an application supported by another written submission. The only other material he put before me was a short affidavit by Mrs Corbett. She, in effect, sought the leave of the Court to have her husband act as her advocate at the trial. 4 The applicant is the trustee in bankruptcy of one Dexter, who was the principal of the Wattle Investment Scheme. The first respondent acted as Dexter's agent to seek investors willing to invest in Dexter's scheme. It received commissions from Dexter averaging $0.50 in every $1.00 of investors' moneys which it procured for investment in the Wattle Scheme up to late March 1998, when Dexter's scheme collapsed as action was taken against him by the Australian Securities and Investments Commission. The first respondent received in the latter period of its association with Dexter, ie, March 1996 to March 1998, commissions totalling over $26 million. The applicant has commenced these proceedings against the Anscor respondents and the thirteenth respondent to recover for the estate so much of those commission moneys and property into which they are traceable that remains under the control of the Anscor respondents. His action is based on s 120 the Bankruptcy Act 1966 (Cth). It was commenced in August 1998. From then (or from when the particular respondent was later joined as a party in the action) until two weeks ago, all the Anscor respondents and the thirteenth respondent were represented by the one firm of solicitors and by counsel, including senior counsel. 5 In May 2000, on the application of the applicant, I issued a Mareva injunction in respect of certain assets of Mrs Corbett and of the tenth, eleventh and twelfth respondents into which I was then satisfied, to the requisite standard of proof, that the trustee might be able to trace Dexter commission moneys received by the first respondent and paid out by it to these other respondents. These assets are of moderate value in comparison with the amount of the funds to which Anscor has had access. The evidence before me then was that the first respondent had no assets, having disbursed the entirety of the $26 million referred to above (save for a small amount of cash in the bank account). That remains the position so far as the evidence before me now goes, in relation to the present interlocutory application. The trustee had sought a Mareva injunction qualified to permit the relevant respondents access to the frozen assets for the purpose of meeting their legal and other expenses. I imposed an unqualified Mareva injunction on all of the assets the subject of the trustee's application (save only for two properties owned by Mrs Corbett in respect of which the trustee had failed to make out a case for such interlocutory relief). My reasons for doing this included the facts that a very large amount of commission moneys - now identified as over $26 million - had passed through Anscor's hands in a quite short period of two years when Mrs Corbett was its sole director, that the applicant-trustee was then only able to identify what had become of part of that very large sum and the fact that the respondents had not provided any explanation for what had become of a very large balance of these commission moneys: I accordingly considered that it was likely that there were other assets available to the Anscor respondents to meet their legal and other expenses apart from the properties the subject of the injunction application. 6 In February 2001, I dealt with an application by the trustee to extend the Mareva injunction to Mrs Corbett's two properties referred to above and with an application by the first and ninth respondents to vary the Mareva injunction then in force to allow those respondents to use the frozen assets to raise funds to meet their various expenses, including legal fees in connection with the present proceedings. I extended the Mareva injunction and dismissed the respondents' motion. I incorporate in these reasons pars [10] to [12] and [21] to [26] of my reasons published on 26 February 2001. As appears from these passages, despite having flagged it as an issue in any judgment of May 2000 and despite giving the respondents' counsel an adjournment only sought on 22 February, during the hearing of the motions, to put evidence before me to demonstrate that the respondents did, in truth, need access to the frozen assets to meet their expenses, the respondents failed to satisfy me on that issue. I said in my reasons of February last of the evidence then before me as to the fate of the balance of the $26 million:

"[23] In the affidavit material filed on behalf of the first and ninth to twelfth respondents on 23 February last directed to this issue, nothing more is said about what has happened to this large sum than that all receipts by the first respondent of commission moneys from Dexter and all disbursements by the first respondent from those moneys are properly recorded in the first respondent's accounting records recently provided to the trustee.

[24] Mr Corbett, who at his wife's request, on 17 January 2001 replaced her as sole director of the first, tenth, eleventh and twelfth respondents, says that an examination of these records 'will show how the funds paid out of Anscor's bank accounts have been disposed of'. …

[25] The question of present importance, however, is not so much whether the disbursements from Anscor's account of the entirety of the commission moneys received by it from Dexter after February 1997 are all recorded in its records, but rather whether any of the first, tenth, eleventh and twelfth respondents and, in particular, the ninth respondent has access to any of this money or other assets, apart from the assets the subject of the orders of 31 May 2000."

7 As I noted in the February judgment, neither Mr Corbett nor Mrs Corbett put before the Court anything other than a bald assertion that they were themselves now without assets though they have, in the space of a couple of years, received millions of dollars by way of loans from Anscor from the Dexter commission moneys. The repayment by them of a small part of these loans would ensure that Anscor would be able to retain legal representation to run its defence to the trustee's claim, a defence which would also benefit the other respondents. 8 On 3 May 2001, the solicitors who had up until then represented the first and the ninth to thirteenth respondents throughout the proceedings filed a motion on behalf of the Anscor respondents once again seeking a relaxation of the Mareva injunction for the purpose of enabling those respondents to meet the legal expenses of defending the proceedings. The motion came before me on 4 May. Ultimately, I gave leave that day to those solicitors to withdraw from the proceedings on the ground that their retainer had been terminated by the respondents' failure to put them in funds. In the affidavit relied on by the respondents' solicitors for leave to withdraw, it was said that should Mr Corbett succeed in gaining access for the Anscor respondents to the frozen assets, those solicitors would be prepared to resume acting for those respondents. I then gave leave to Mr Corbett to appear on behalf of the Anscor respondents in support of their motion of 3 May; leave was expressly limited to that. I dismissed the motion and I incorporate the reasons I then gave in these reasons. Once again, I emphasised the importance for the Anscor respondents to demonstrate not just that Anscor's disbursements of the $26 million in commissions were all recorded in Anscor's books, but that those respondents had no assets other than the frozen ones to which they could look to meet their legal (and other) expenses. I then mentioned particularly the evidence showing that, in quite a short period, Mr Corbett had received by way of loans from Anscor sums totalling $4.4 million and that there was only very broad generalised evidence from him to the effect that he had nothing now to show by way of assets despite these receipts and that, accordingly, nothing was recoverable from him in respect of these loans by Anscor (even if as sole director of Anscor he were minded to call on himself to repay any of those loans). 9 On 16 May last, I gave leave to the solicitors who had been representing all the respondents from the start of the litigation to withdraw also as the solicitors on the record for the thirteenth respondent. The affidavit of those solicitors in support of that application stated that they had agreed to act for the thirteenth respondent on the basis that its legal costs of the proceedings would be paid by the Anscor respondents, something which those respondents had said they were no longer able to do. 10 Order 9 r 1(3) the Federal Court Rules provides that a corporation may not, without the leave of the Court or a judge, defend any proceeding except by a solicitor. The proper approach to an application for such leave is well-established. It is sufficient to refer to Termi-Mesh Australia Pty Ltd v Josu Manufacturing Pty Ltd [1999] FCA 1241, particularly at pars [11] to [14]. One of the issues of importance is whether the corporate Anscor respondents and those behind them are financially able to fund the defence. 11 The thirteenth respondent was joined in the proceedings on 26 June 2000. No Mareva injunction has been issued to it. As to Mr Corbett's application to represent the thirteenth respondent, he relies upon a letter of 13 May last from Mr Francken, on behalf of the thirteenth respondent, which notes the withdrawal of the solicitors from the proceedings against the Anscor respondents, states that the Anscor Superannuation Fund, of which the thirteenth respondent is the trustee, does not hold "any free funds at present to pay for their services either" and asks Mr Corbett to assist the thirteenth respondent and "represent us as necessary". On Monday, I directed the Registrar to contact Mr Francken, a principal of the thirteenth respondent in Dunedin, to advise him that if the thirteenth respondent wished to make application for someone other than a lawyer to represent it at the trial, it should do that by the next morning. In response, Mr Francken sent to Mr Corbett a facsimile enclosing what Mr Francken describes as an application to grant leave. This refers to the thirteenth respondent as being the trustee of the Anscor Superannuation Fund, all of whose funds are "tied up in illiquid investments and not available for its use"; leave of the Court is then sought for Mr Corbett to act on its behalf. 12 It is apparent that the thirteenth respondent's business is not confined to acting as trustee of the Anscor Superannuation Fund: what is revealed by the evidence about its general activities is referred to in my reasons of 31 May 2000. From January 1998 to December 1999, it advertised on its website that it was part of a network of professional firms offering services which include international funds movement and international asset protection from "the unwanted and untimely claims from government authorities, creditors and others who may have a claim on their assets". Mr McAuley, a financial adviser to the Anscor respondents who put them in touch with the thirteenth respondent, said that, though he learned only subsequent to the thirteenth respondent being retained by the Anscor respondents how it advertises its business, that respondent had demonstrated to his satisfaction that it was appropriately experienced to act as a non-resident trustee of the Anscor Superannuation Fund and it had not been removed from that position by the Anscor respondents for that reason. Mr Francken's facsimile, not supported by any sworn evidence by him or by any other person acting on behalf of the thirteenth respondent, cannot, in my opinion, be accepted as an application for leave that Mr Corbett represent it at the trial. Quite apart from that procedural deficiency, such material as the thirteenth respondent has seen fit to put before me in support of the application for leave falls far short of providing any justification for permitting Mr Corbett to appear for it at the trial. As will appear, I am not prepared to accept that the Anscor respondents, who have been meeting the thirteenth respondent's legal expenses, are financially unable now to fund the litigation. Further, Mr Francken does not deal with the possibility of borrowing against the Anscor Fund investments, "illiquid" though he says they are, in order to raise moneys to protect the trust fund, of which it is trustee, against the applicant's claims on it. 13 I will not allow Mr Corbett to act for the thirteenth respondent at the trial. 14 In an affidavit read by the applicant in the proceedings on 4 May 2001 when Mr Corbett unsuccessfully sought a variation of the Mareva injunction, the trustee in bankruptcy sets out what he says is revealed by those of the quite extensive records of the Anscor respondents which he has now examined in an endeavour to identify how the first respondent applied the commission moneys of approximately $26 million received from Dexter during the period March 1996 to March 1998. The trustee has identified sums totalling $3.472 million as having been expended on the acquisition of properties by various of the respondents related to the first respondent, details of which are set out in the amended statement of claim. A further $1.155 million, already referred to, was paid by the first respondent to the thirteenth respondent and sums totalling $5.667 million have been disbursed by the first respondent by way of what the applicant refers to as "PURPORTED LOANS TO THE 9TH-12TH RESPONDENTS AND TO ROB CORBETT"; these loans are additional to the $3.472 million provided by the first respondent and used by various of the other respondents to acquire the properties referred to above. A further $477,000 was paid, according to the applicant, by Anscor to Corbett family members and related parties identified in the affidavit and another $1.642 million was disbursed by the first respondent into what the applicant describes as "OTHER PURPORTED LOANS/INVESTMENTS/JOINT VENTURES", details of which are also set out in the affidavit. The balance of the $25.364 million commission moneys dealt with by the trustee in this affidavit has been identified by the applicant as made up of large payments by way of commissions to sub-agents of the first respondent's, to the first respondent's very heavy "PURPORTED OFFICE EXPENSES/WAGES" and to "other expenses and disbursements", details of which are also given in the affidavit. There was a small amount only of cash at the first respondent's bank as at March 1998. 15 Mr Corbett, in his written submissions, which are supported by extracts from the relevant financial records of various of the respondents, explained how $4.45 million recorded in Anscor's books as having been received by Mr Corbett by way of loan have been disbursed by him. 16 He says that of this total sum, $1.558 million represents loans initially made to his wife for which he has assumed responsibility to repay Anscor. It appears from Mr Corbett's written submission that none of these moneys, which Mrs Corbett obtained as loans from Anscor, were applied by her in the acquisition of those of her assets which are the subject of the Mareva injunction. Mr Corbett identifies in his submission sums of $770,000 and a further $100,000 as having been spent on assets now covered by the Mareva injunction additional to this $1.558 million. (In relation to the amount of $100,000, which he describes as a loan to Mrs Corbett, he says only that it "was probably spent on property improvements" in respect of the frozen assets.) Nothing is said about the recoverability by the first respondent of any of the loans to Mrs Corbett, though, in her brief affidavit, she includes a "Statement of Assets and Liabilities as at 30 June 1998", which show as her major asset the two properties now the subject of the Mareva injunction. 17 In his written submissions dealing with the loans of $4.45 million in his name, Mr Corbett also identifies various disbursements by way of gift to family members which total well over $700,000. He then says, of the difference of $1,928,628 between the total of his loan account with the first respondent and the disbursements and applications of those loan moneys totalling $2,524,804 identified by him, only this:

"The difference of $1,928,628 is made up of numerous amounts that have been spent on general expenditure between approx June 1996 and May 2000 a period of approx 4 years and have individual entries."

18 Even if one puts to one side the very large amount of loan moneys paid by Anscor to Mrs Corbett which Mr Corbett has taken over and also puts to one side the other amounts of loan moneys which Mr Corbett in his written submission specifically identifies as having been applied in meeting living and general and travel expenses and the wages paid to Mr Corbett included in the total of $2.411 million referred to in the applicant's affidavit referred to above, it appears from what Mr Corbett himself says that each and every week for four years from June 1996 to May 2000 he expended from moneys booked to him by Anscor as loans an average of $10,000 per week. Since these moneys were provided to him as loans, he would not have paid tax on any of them, something that Mr Corbett has confirmed from the bar table. The only information he provides as to this expenditure of nearly $2 million in four years is that those moneys were "spent on general expenditure". The only other information he provides for why Anscor cannot call for repayment from him of even the relatively small part of the loans totalling $4.45 million that it would need to fund legal representation in the present proceedings is the following general assertion:

"The company [the first respondent] has no other assets, cannot recover the loan to myself at this time and cannot meet its own legal expenses."

19 He acknowledges, however, that he is a director of a company which has a sandalwood farm operation in Western Australia and which, through the past three years, has been able to loan the first respondent $567,000 and the tenth respondent a further $289,000 "to support them through the past 3 years". But he submits, without providing any evidentiary support, that this company does not have the capacity to provide further assistance now which might enable the Anscor respondents' legal expenses to be met. 20 The material Mr Corbett has now put before me in an endeavour to demonstrate that neither Anscor nor the other respondents have anything other than the frozen assets to meet legal expenses of defending the proceedings further, despite the receipt by Anscor in the period from March 1996 to March 1998 of the enormous sum of over $26 million in commissions from Dexter, falls far short of establishing that. 21 Mr Corbett submits that to allow the trial to proceed without him being given leave to represent the respondents, who are said no longer to be able to fund legal representation, "would be grossly unjust" and would deny those respondents "their rights to natural justice". 22 In Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68, the Full Court dealt with an application for leave to appeal the refusal to allow an applicant company to be represented by its director. Similar principles apply when a corporation seeks leave to be represented in defending an action by a non-lawyer. The application for leave in Molnar was made on the third day of the hearing of the action after its legal representatives withdrew. The application was dismissed even though the Full Court considered that the trial judge, in refusing leave, had erred in placing too much weight on the importance of the Court having legal assistance in a complex case. Smithers J considered that, on the evidence, that the statement by the director who sought leave to represent the company part-way through the trial that the company's financial situation was such that unless he was granted leave to conduct the hearing, the company would have to withdraw from the proceedings, "unrealistically limits the alternatives open to the company" even though the evidence showed that it was carrying on business at a loss which continued legal expenses would exacerbate. Smithers J, with the concurrence of Keely J, said at 75:

"The accessibility of the courts to any citizen unconditionally, in this respect, is regarded as fundamental to the system of justice under the Crown. That ready accessibility to the courts should be available to a juristic person is no doubt similarly fundamental. However, it has been regarded as appropriate that when a trader decides to use the corporate form in which to carry on his business for the advantages flowing therefrom his accessibility to the courts as plaintiff and his appearance as a defendant should be made conditional as set forth in O. 5 r. 6 of the rules of the United Kingdom and the practice which it reflects."

23 As his Honour recognises, a corporation, whether as applicant or respondent, does not have the same unconditional right of access to the courts as does a natural person. See also Termi-Mesh Australia at par [14]. The proper application of legal principle to the evidence before the Court may therefore require a company to be put in the position where proceedings brought against it proceed to a trial at which the company may not be represented by an advocate. A complaint that a company will be denied natural justice if leave is not granted to it to be represented by a non-lawyer is a powerful consideration. But it cannot, by itself, control the outcome of an application for leave. All the relevant evidence and circumstances must be considered. 24 The same evidentiary issues as to the financial capacity of the first and the tenth to twelfth respondents to fund legal representation are central to both the applications that have been made for relaxation of the Mareva injunction and to the application now before me for leave for Mr Corbett to represent those respondents. The submissions that Mr Corbett has put before me today directed to supporting his application for leave to represent the corporate respondents and which are designed to show that those respondents have no available assets, including realisable loans to Mr and Mrs Corbett to enable them to afford legal representation, only serves to reinforce the view I repeatedly came to in granting and then refusing to relax the Mareva injunction. For the reasons given, I remain unpersuaded by the evidence now before me that the first and the tenth to twelfth respondents are, on the probabilities, bereft of assets other than the frozen assets and are thus unable to afford legal representation. Nor am I satisfied, on the balance of probabilities that Mr Corbett, as a person likely to benefit from the successful defence of the trustee's claims, himself lacks assets sufficient to provide for legal representation of himself and the respondents with whom he is associated. 25 The result of leaving the Mareva injunction in place and refusing Mr Corbett leave to represent the first and the tenth to twelfth respondents may be that the proceedings against those respondents will henceforth proceed ex parte. The corporate respondents do have assets sufficient to enable them to fund their representation, viz, the assets the subject of the injunction. Despite Mr Corbett's submissions to the contrary, that, does not assist or impede the application for leave to have Mr Corbett represent those respondents, given my opinion about their financial position. 26 So far as the application for leave to represent the corporate respondents is concerned, their financial position is not the only consideration, though it is an important one. Once I reach the view on the probabilities that I have as to the financial position of those Anscor respondents, it is, I think, proper to take into account, against the grant of leave the fact that the litigation is complex and that Mr Corbett, on his own statement, has limited legal knowledge and thus limited capacity to effectively represent the companies. He may be overstating the extent of his incapacity. His supplementary written submissions on the points that arose yesterday in relation to the amendment of the respondents' defence suggest he is able to deal with complex legal and factual questions. But he is nevertheless not a lawyer. (If I had taken a different view of the financial position of the companies, then that consideration would have been of no relevance: see Molnar at 76.) 27 There is another consideration which I think relevant to the question whether Mr Corbett should be given leave. It arises from the submissions he has made to amend the defence. The two points now sought to be raised by Mr Corbett, if well-founded but if not litigated, would mean that the applicant-trustee would recover money and obtain orders in respect of properties to which, in part at least, he has no lawful entitlement. That would inflict on the respondent companies an injustice of a different kind entirely from that which Mr Corbett says they will suffer if their assets remain frozen and he is denied leave to represent them. This injustice extends, if either point is well-founded, to exposing the respondents to being sued a second time in respect of the same moneys by those lawfully entitled to them. 28 I therefore think that the question whether the respondent should now have leave to amend their defence to raise these issues and the associated question of leave to withdraw their admissions is, in the circumstances of this case, a significant consideration that needs to be resolved before a ruling can be made on the application by Mr Corbett for leave to represent the companies: if the circumstances are such as to suggest that leave to amend should be granted, then that would, I think, be a powerful consideration favouring the grant of leave to Mr Corbett to appear for the Anscor respondents even though I am not satisfied that the financial position of the companies is such as to preclude their obtaining legal representation. 29 The first of the two points raised by Mr Corbett is that many payments received by Anscor in the period the subject of the applicant's claim came from the Foundation Group Pty Ltd, not Dexter, and such payments were therefore not transfers of the bankrupt's property. The applicant, so it is said, could have no rights in respect of those moneys or in respect of properties into which they can be traced. Counsel for the applicant submits that no such amendments should be allowed at this stage because of the longstanding admissions by the respondents as to the moneys the subject of the proceedings being Dexter's own moneys, as to there being no satisfactory evidentiary basis for permitting the respondents to withdraw those admissions and as to there being, in contrast, evidence in the form of DLC130 presently before me that is inconsistent with the point now sought to be raised. It is said that, if the amendment were allowed, the trustee would have to embark upon an extensive factual inquiry at a very late stage. 30 Senior counsel for the applicant accepted that the Foundation Group Pty Ltd should be treated as separate for all presently relevant purposes from Dexter. The action was commenced in August 1998. The trustee's case has always been based on the allegation that the moneys disbursed by Anscor, which were used by the various other respondents to acquire the properties the subject of the trustee's tracing claim, were all moneys received by Anscor as Dexter's own moneys. The final form of the trustee's claim appears in the amended statement of claim filed in September 2000. It asserts that the Dexter commissions are the source of the moneys used by the various respondents to acquire the assets the subject of the tracing claim. In their defence filed in January last and settled by counsel, explicit admissions to that effect are made. An amended defence was filed on 11 April 2001 by the solicitors then representing the respondents. No attempt was made to qualify or resile from these admissions. That Dexter was the source of the moneys in respect of which the trustee claims relief, including tracing orders, has never been disputed until now. The point now foreshadowed by Mr Corbett that a significant part of these moneys may have come from another source has never been raised until now, even though the respondents had until 4 May last been represented throughout by solicitors and counsel. 31 The applicant also points to a letter (DLC130) said to have been written by Dexter to Mr and Mrs Corbett as showing that, while the respondents may have received payments from the Foundation Group Pty Ltd, those payments were of Dexter's own moneys made by the Foundation Group Pty Ltd as agent for Dexter. Mr Corbett has pointed out that the letter is unsigned and should not be admitted. But given the interlocutory nature of the present application, the text of the letter and what is said in par 12 of the trustee's affidavit, limited though it is, I am prepared to accept the letter as evidencing that the moneys Dexter refers to were his moneys and that the Foundation Group Pty Ltd dealt with them only as his agent. It is evidence inconsistent with the case Mr Corbett says the Anscor respondents should be permitted to raise now. 32 Counsel for the applicant submits that no sufficient basis has been laid on behalf of the respondents for permitting them to withdraw their longstanding admissions as to the central part of the trustee's case that the moneys were Dexter's at this late stage, ie, after the date appointed for the commencement of the trial. Counsel also submits that, if such an amendment were to be allowed now, the trial would have to go off and it would have to embark on what appears pretty obviously to be a detailed factual investigation before the applicant could be in a position to deal with this new issue. That can be accepted. 33 I accept counsel's submissions. I will not allow an amendment to the defence at this late stage to raise this issue. 34 The second point raised by Mr Corbett is that all the investor moneys invested in the Wattle group, including those paid to Anscor by Dexter as commissions have always been impressed with a trust in favour of the particular investor. It is accordingly said by Mr Corbett that there is a fundamental flaw in the trustee's case because these moneys never were the property of Mr Dexter, he having bare legal title to them, so that none of those moneys that may have remained in specie in Anscor's hands at the commencement of the bankruptcy and none of the properties into which those moneys can now be traced can be the subject of valid claim by Dexter's trustee. Mr Corbett points to annexure "3" to his affidavit filed 17 May last, a standard form agreement between Dexter and a particular investor. Counsel for the applicant accepts that this is typical of many such agreements. This agreement contains the following:

2 You engage Wattle to invest the Initial Amount, and any further money you lend through Wattle. Wattle will make Loans on your behalf in its own name as lender.

6 Wattle will continue to invest the Initial Amount, and any further money you place with it, in Loans until you make a written request for their return. Subject to clauses 4 and 7, Wattle must return your money (including accrued interest) within 60 days (being the maximum Loan term) of your request, …

7 Wattle does not guarantee either that your capital will be refunded or that you will make any return on that capital.

8 Subject to clause 7, Wattle must account to you on settlement of the Loans in which your funds are placed, and through the Administrator a monthly summary will be provided by Wattle. …

9 You acknowledge that your funds may not earn interest for the whole of the time they are placed with Wattle, but only while they are deployed in Loans. An amount equivalent to 5% per calendar month of the capital you have with Wattle will be paid to you on settlement of the Loans in which your funds are invested, … If Wattle believes, at any time, there may be a significant delay (i.e. greater than 1 month) in using your funds for a Loan, it will return them to you until a suitable opportunity arises.

10 You acknowledge and accept that Wattle will charge a high rate on the Loans (up to 15% per calendar month) and subject to clause 11, Wattle is entitled to retain for its own use absolutely any interest paid to it on the Loans in excess of 5% per calendar month. …

11 You acknowledge and accept that Wattle will pay the Administrator and entitles associated with them, from income received by Wattle on the Loans, a monthly commission for providing management services in relation to your funds invested through Wattle. …"

35 The applicant has now provided written submissions in relation to the effect, as between Dexter and an investor, of the typical loan agreement of which annexure "3" to Mr Corbett's affidavit is an example and on the question whether a payment of moneys by a bankrupt can be avoided under s 120 the Bankruptcy Act where the moneys paid were held by the bankrupt "to some extent as a trustee". Mr Corbett has also provided further submissions. The applicant's claim under s 120 is in respect of commissions paid to Anscor by Dexter between March 1996 and March 1998. Counsel points out that Mr Corbett himself describes a significant change made by Dexter in the arrangement he entered into with investors in mid-February 1997 in which Anscor was also involved: Mr Corbett says that Dexter then decided to change these arrangements "to a direct loan agreement with new clients and which culminated in all clients being on the new type of agreement from around July/August/September 1997". Under the new arrangements, in contrast with those which obtained between Dexter and investors under the earlier agreements of which annexure "3" is typical, the new relationship between Dexter and investors, according to what Mr Corbett himself says, was the simple one of borrower and lender. There can be little doubt that, under the new arrangements as described by Mr Corbett, Dexter received moneys from investors not as trustee for them but to which he acquired title.

36 However, there is a real question as to whether the applicant has any claim, in so far as it is based on the receipt by Anscor of commission moneys from Dexter which were, in turn, received by him from investors under agreements in the form of annexure "3". I set out senior counsel for the applicant's submissions on the effect of this form of agreement:

"3. For present purposes it can be accepted that Dexter received monies deposited under an agreement such as REC3, as subject to a trust to apply them according to the terms of that agreement. It can also be accepted that income from the funds so invested, up to but not beyond an amount equivalent to 5% per calendar month of the capital invested for the period of its investment, would be held by Dexter upon trust: clause 9. But monies earned on the investment beyond this 5% belonged to Wattle (Dexter): clause 10. Dexter was to pay commissions from his own funds: clause 11.

Whilst, on one view, clause 10 would appear to anticipate the payment of an administrator for a certain investment from Dexter's own share of the return from that investment, there was nothing in the agreement which obliged Dexter to look only to his return from that investment for monies with which to pay a commission on that investment. As the commission was to be paid from his own funds, there was no contractual or trust obligation upon Dexter to pay an administrator's commission relating to a certain investment only from Dexter's share of the income from that investment. He was able to pay it from his own funds, but not, of course, from funds subject to another trust in favour of another investor.

To make out their proposed case, the Respondents would need to establish that the relevant payment or payments to Anscor involved the payment of monies belonging to an investor, rather than to Dexter. They would have to show that the monies paid could be identified as monies which should have been invested, or paid to an investor as interest, according to an agreement such as REC3.

There are no particulars provided of the alleged misappropriations by Dexter, relevant to the Anscor payments. For example, no particulars are given of interest which was not paid to investors but was paid to Anscor for fees. According to Mr Corbett's affidavit filed 17 May 2001, there appears to have been no interest default until at least the last week of Dexter's trading. …"

37 As I understand the position, it was a practical impossibility for Dexter to deliver to investors the extraordinarily high rate of returns he promised. This makes it a real possibility that Dexter did not pay any significant part of the $26 million of commissions Anscor received from him, both during the period when the agreement in the form of annexure "3" was in force and under the new arrangements referred to by Mr Corbett, from commission moneys earned on investments made by Dexter on behalf of investors to which commissions Dexter was legally entitled under clause 10 of annexure "3". Rather is it likely that, throughout the two year period the subject of the applicant's claim, the commission moneys received by Anscor came, at least in substantial part, from the investment capital placed with Dexter by investors, ie, from moneys which, if placed subject to the agreement in the form of annexure "3", belonged beneficially (on the view counsel for the applicant takes of that agreement) to the investors and not to Dexter. 38 It can be accepted, as senior counsel for the applicant submits, that the legislative intention in enacting s 120 the Bankruptcy Act in the form it presently takes was to widen the range of transactions that could be voided by a trustee, for the benefit of unsecured creditors of a bankrupt, beyond those which could be reached by the trustee under the old form of s 120. But I have difficulty in accepting counsel's submission that:

"There is a clear benefit in the operation of [the new] s 120 whether or not the payer is a trustee, and in the ability of the trustee in bankruptcy to recover moneys successively paid for the benefit of creditors of that person, albeit that they have become creditors through the bankrupt's transactions as a trustee. In other words, there is no reason to read down the words of s 120 in the way suggested."

39 Even if a person, later bankrupted, transfers property held by him in trust for a third party to another for less than the market value of the property or less than what its value would be if it were free of the trust, that seems to me to give the trustee in bankruptcy no claim to recover any part of the property transferred by the bankrupt to the extent that it was impressed with a trust in the bankrupt's hands in favour of the third party. The existence of that trust stands in the way of doing what the trustee in bankruptcy has authority to do, viz, rateably divide among the unsecured creditors property recovered by him which the Act treats as property of the bankrupt. So much appears from s 116(2)(a) the Bankruptcy Act. I should record, however, that my view is provisional only, in view of the urgency of reaching a conclusion sufficient for the present purposes on the point. 40 In my opinion, there is ground to think that, if the point as to the effect of the agreement in the form of annexure "3" which continued to regulate the relationship between Dexter and investors from March 1996 into 1997 is not litigated now, and the trustee succeeds in obtaining the relief sought, he may recover for division among Dexter's unsecured creditors property in which Dexter had no beneficial interest himself and to which the unsecured creditors therefore have no legitimate claim. That consideration, in my opinion, is sufficient to override the powerful discretionary arguments advanced on behalf of the applicant for permitting this issue to be raised so late in the day in circumstances moreover, in which the Anscor respondents have long maintained, on legal advice, an inconsistent position. The Anscor respondents must, in my opinion, be allowed to raise and litigate this issue. 41 For the reasons given, I am not prepared, however, to give Mr Corbett general leave to appear at the trial on behalf of those respondents. I can grant leave to Mr Corbett to defend the proceedings against the Anscor respondents on terms: see O 1 r 5 the Federal Court Rules. I will therefore grant him leave to defend the proceedings on behalf of the Anscor respondents, but that will be limited to leave to make the amendment set out in the document entitled "Form 19" in exhibit "3" which is prefaced by the words "insert: 12(aab)". (In view of Mr Corbett's evidence that Dexter did not use agreements in the form of annexure "3" throughout the whole of the two period the subject of the applicant's claim, it is necessary for directions to be given requiring Mr Corbett to reflect that in the amendment I have given leave to make to the Anscor respondents' defence.) I will further give Mr Corbett leave to appear in the further conduct of the proceedings on behalf of the Anscor respondents, but only in relation to that issue. I will hear the parties on these matters. 42 I also wish to hear the parties on whether an order should be made under O 29 the Federal Court Rules directing that this new issue be dealt with separately from all of the other issues in the action. That may well be appropriate, given the limited right I think Mr Corbett should have to take part in the proceedings. 43 Mr Corbett also applies for an adjournment of the trial. He says, firstly, that following withdrawal of the respondents' solicitors on 4 May 2001, he has had only two weeks to try to prepare for a difficult and legally technical case. He complains that his difficulties have been increased by delivery by the applicant on Friday evening last of a further affidavit by the applicant, accompanied by many exhibits, and exacerbated by the delivery on Monday morning of still another detailed affidavit by the trustee. 44 Since I think Mr Corbett should be given leave, albeit limited, to represent the companies, it is necessary to consider the application for adjournment of the trial. 45 Contrary to the implication in Mr Corbett's submission, the respondents and Mr Corbett, as the director of the various corporate respondents, must have long been aware of the risk that they may have to go into the trial without legal representation. Their position has been, since May 2000, that the only assets available to them to provide for legal representation are the assets that have since then been the subject of the Mareva injunction extended in February last. The trial date was set on 20 October 2000. Their legal representatives were unsuccessful in obtaining a relaxation of the injunction then and again in February last. I do not consider that the respondents were, in these circumstances, entitled to sit by without making preparation for the defence of the claims, should their lawyers withdraw. 46 Mr Corbett, in support of his application for an adjournment, also says that the respondents' former solicitors have taken a lien over all their documents leaving the respondents without many supporting documents necessary for their defence. That is not a matter which I think, in the circumstances of this case and in particular in view of the long period of time the respondents have had to make arrangements should their solicitors withdraw, justifies the adjournment. This is especially so since Mr Corbett has only limited leave to participate on behalf of the Anscor respondents in the proceedings: it can be expected that only a part, possibly a relatively small part, of the documents held by the former solicitors may be relevant to the one issue which Mr Corbett can now pursue. In any event, it may well be a problem that is capable of remedy, even at this late stage, given the late withdrawal of the solicitors and the long period of time that they appear to have been on notice that they would be put in the position they found themselves in on 4 May last. The Anscor respondents may be entitled to an order for delivery up to them of documents relevant to the one issue referred to, if any such documents are held by the former solicitors. See my decision in Cross v National Australia Bank Ltd (13 May 1993, unreported). 47 Mr Corbett also supports his application to adjourn the trial by reference to the difficulties he has in dealing with two very recent affidavits of the applicant, one served on him late last week, the other only at the start of the trial on Monday. Such difficulties are only relevant in so far as the affidavits contain material directed to the issue in respect of which Mr Corbett has leave to appear. But, on any view, Mr Corbett's submission is insufficient to justify an adjournment of the trial. The applicant's affidavit delivered to Mr Corbett on Friday evening last was in response to Mr Corbett's own belated affidavit which the trustee received on or about 16 May last. The applicant's affidavit delivered on Monday last was described, accurately I think, by senior counsel for the applicant as also being responsive to matters raised in Mr Corbett's own belated affidavit. Counsel described a part of the applicant's second affidavit differently. But it seems clear that this second part of the affidavit also deals with the issue on which Mr Corbett focused close attention at p 22 of his own affidavit. It is true that this was an issue with which the applicant had to deal from the outset in order to make out his case. But Mr Corbett raised particular aspects of this issue in his affidavit and I do not think there can be a legitimate ground for adjourning the trial because the trustee, provoked by what Mr Corbett has had to say, has made further investigations into the question of the Anscor respondents' knowledge of Dexter's problems in late March 1998 and seeks to put before the Court some further evidence refuting evidentiary assertions made by Mr Corbett. 48 Mr Corbett does not have good grounds for an adjournment of the trial. 49 Despite the interruptions to the trial that have already occurred, there may still be time to dispose of the entire action, including this new issue in the period that has been set aside. Again, I will hear the parties. 50 Mrs Corbett does not seek leave to have her husband act merely in the role of a "McKenzie friend" described in McKenzie v McKenzie [1970] 3 All ER 1034. Instead, she asks that her husband be permitted to conduct her defence in court, though she, no doubt, will retain an instructing role. 51 There is no provision in the Federal Court of Australia Act 1976 (Cth) or Rules which gives a litigant as of right or even at the discretion of the Court any entitlement to be represented by a lay advocate. There may be an inherent discretion in the Court to permit that to be done, though such a course by a court has been described as "a matter of indulgence" to be permitted only in an exceptional case, given the problems associated with following that course: see R v EJ Smith [1982] 2 NSWLR 608 at 613 - 614; on appeal Smith v The Queen (1985) 159 CLR 532. 52 The applicant's central claims against Mrs Corbett are tracing claims in respect of her four properties (though the same declaration sought against all the other respondents as to the payments of $26 million by Dexter to the first respondent are void under s 120 is also sought against her). If those claims are unfounded by reason of the issue which I think all the respondents should have leave to place on the record by amendment to their defence and which I have referred to above, then Mr Corbett can be expected to deal with that issue as it impacts upon all the Anscor respondents, including Mrs Corbett. Mrs Corbett, for a substantial period up to January 2001, was the sole director of the corporate Anscor respondents. It was not suggested that, despite this, she has no real knowledge of their activities, including Anscor's business relationship with Dexter. Having regard to this consideration, to the limited range of matters in issue between the applicant and Mrs Corbett, and to the general inappropriateness of permitting representation by a lay advocate, I am not prepared to agree to Mrs Corbett's request that her husband act generally as her advocate. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Counsel for the Applicant: Mr P McMurdo QC and Mr D Quayle

Solicitor for the Applicant: Mallesons Stephen Jaques

Counsel for the Ninth Respondent: The Ninth Respondent appeared in person.

Counsel for the First, Tenth, Eleventh and Twelfth Respondents: Mr R Corbett, a director of these companies, was given limited leave to appear on their behalf.

Date of Hearing: 22 May 2001

Date of Judgment: 23 May 2001

At a glance

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Before

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Judgment (44 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (3)