JA Pty Limited & 1 Ors v Jonco Holdings Pty Limited & 2 Ors

REVISED - 1 February, 2000 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY

No. 2098/99 In the matter of Jonco Holdings Pty Limited (ACN 003 474 799) (subject to Deed of Company Arrangement) JA PTY LIMITED (ACN 009 990 738) First Plaintiff OTTERTON INVESTMENTS PTY LIMITED Second Plaintiff JONCO HOLDINGS PTY LIMITED (ACN 003 474 799) (subject to Deed of Company Arrangement) First Defendant RICHARD PORTER Second Defendant SALVATORE COCO Third Defendant

The Issue 1 In the context of an application principally to set aside a Deed of Company Arrangement brought by the Plaintiffs, the Plaintiffs seek to re-open their case for the purpose of reading two affidavits dated 26 November 1999. Those affidavits bear upon a certain trust deed and the status and rights of the First Defendant as trustee. It has been agreed that it is appropriate for that application to be dealt with on the written submissions; see letter from the Plaintiffs' Counsel, Mr Thomson, following discussion with Mr Dutney Counsel for the First and Third Defendants, sent to my Associate on 15 December 1999. 2 That application to set aside is centrally connected to the issue of whether the First Defendant a trustee company formerly in administration and now the subject of that Deed of Company Arrangement is entitled to be indemnified out of trust assets; that is, for liabilities incurred as trustee, including to the Plaintiffs. That application is opposed by the First and Third Defendants (the Second Defendant being the Administrator, taking no position on that matter) who contend no such indemnity is available. 3 The application appears first to have been foreshadowed in correspondence on 29 November 1999. This followed closure of the evidence on 3 November 1999 and the receipt of the First and Third Defendants' submissions on 10 November 1999 being the first of the written submissions to be received. It preceded the Plaintiffs' written submissions furnished on 8 December 1999 which submissions set out the basis for the case to re-open at para 31. The Defendants written submissions received on 21 December 1999 at paras 2 to 7 set out the grounds for opposing that application.

relevant principles 4 It is clear enough that the Court is empowered to extend any time fixed by the Rules or any judgment or order; see Supreme Court Rule 3(1). That said, there is no unqualified right to an extension of time. The Rule nonetheless confers a discretion capable of wide application and which permits an extension of time whenever it is appropriate to do so "to avoid injustice"; see Schafer v Blyth [1920] 3 KB 140 at 143. 5 In analogous cases of seeking an extension of time for the filing of an amended pleading, recent authority, including most recently the High Court in State of Queensland v J L Holdings (1997) 189 CLR 146 provides some guidance. 6 In JL Holdings, the High Court considered that the principles of case management were not an end in themselves. They were to be subordinated to permitting a party properly to present its case by granting it the necessary indulgence to do so, where costs adequately compensated the other party for any unfair prejudice. However, the High Court did not over-rule its earlier decision in Sali v FPC (1993) 116 ALR 625 at 629 rendering the interests of other litigants relevant. There the High Court said that the trial judge: "is entitled to consider claims by litigants in other cases awaiting hearing ….. as well as the interests of the parties ….. what might be perceived as an injustice to a party when considered only in the context of action between parties may not be so when considered in the context which includes the claims of other litigants and the public interest in achieving the most efficient use of court resources."

7 However, this is not to be understood as an automatic elevation of court efficiency over individual justice to the parties. Rather it is a factor to be taken into account with other relevant factors as they bear upon the paramount concern for the interests of justice overall. As Sir Anthony Mason said, in a recent paper on "The Future of Adversarial Justice" given on 7 August 1999 to the Australian Institute of Judicial Administration: "There is no inconsistency between the two decisions. The criticism of JL Holdings seeks to elevate case management values to an absolute. No system with pretensions to doing justice could allow that to occur. The departure contemplated in JL Holdings is predicated on the availability of costs and that it would recompense, though it is now accepted, and properly so, that courts have been too ready to conclude that procedural failures can be made good by an order for costs."

salient facts 8 Against that background I turn now to the basis for the Plaintiffs' application and of the opposition from the First and Third Defendants. The Plaintiffs seek leave to re-open the proceedings for the purpose of reading affidavits by Harold Charles Houen and John Andrew Ireland, both dated 26 November 1999 and filed 13 December 1999. Those affidavits, on their face, bear upon a matter of important significance in the issues before me in the substantive proceedings. Those affidavits are made respectively by the solicitor then acting on the preparation of a trust deed for the First and Third Defendants, Mr Houen, and by the settlor of that Deed also a solicitor. They assert that an alteration purportedly made to page 19 of the original Trust Deed, deleting an express right of indemnity for the trustee out of trust property, was not made by the settlor or the solicitor with the carriage of the preparation of the Deed. The Trust Deed is the Trust Deed dated 1 March 1990 whereby the Coco Family Trust was established. The settlor is John Andrew Ireland, a partner in the firm of solicitors Creaghe, Lisle, of Wagga Wagga and the trustee is the corporation then called Jancost Pty Limited which subsequently changed its name to Sam Coco Pty Limited on 25 July 1990 which in turn was subsequently re-named Jonco Holdings Pty Limited. A central issue in the Plaintiffs' case is whether the Trustee Jonco Holdings Pty Limited:

(a) has a right of indemnity against trust assets in respect of transactions entered into by the Trustee as trustee (with the transaction in question being in dispute as to whether it was entered into as trustee so as to bind the Trustee in that capacity), and

(b) whether Jonco Holdings Pty Limited was replaced as trustee by another corporation Sybury Pty Ltd; in that regard there is a question as to the status and efficacy of a deed dated 19 January 1999 purporting so to do in varying the Trust Deed and which is also the subject of the two affidavits in question. 9 The affidavit by Mr Houen states that he did not receive instructions to prepare the Deed of 19 January 1999 or have Mr Ireland execute it. Mr Ireland states in his affidavit that the signature appearing next to his name on the last page of the annexed Deed of 19 January 1999 was not his signature and that "I was not informed at any time in or before January 1999 that the Variation of Trust Deed was or had been executed. The signature was placed on the document without reference to me". Clearly this is evidence of considerable materiality as I explain. 10 The First and Third Defendants rely, inter alia, upon the Deed of 19 January 1999 and thus rely upon it being valid and effective. They also rely inter alia upon the deletion of the Trustee's express right of indemnity for contending that there is no such indemnity. Clearly enough the affidavits bear upon that matter. There can thus be no question as to their materiality to the Plaintiffs' case, as the Plaintiffs contend that first, the Trustee Jonco Holdings, retains a right of indemnity and recoupment, applicable to the lease entered into with the Plaintiffs as lessor, contending that the deletion did not occur prior to execution of the Deed. Even if, as a matter of law, no deletion could remove the law's conferral of a right of indemnity on a trustee, as the Plaintiffs say, the circumstances of its purported removal are clearly relevant to the case of each party and potentially to credit and whether there was a scheme to oppress creditors or deny them their rights as the Plaintiffs contend. Second, it is said that Deed of 19 January 1999 was not effective to appoint Sybury Pty Limited as substitute trustee for Jonco Holdings on various grounds; see para 12 and also paras 24 to 30 of the Plaintiffs' written submissions of 8 December 1999. It may be of course that the settlor was never a necessary party in the first place whereas the Appointor if not a necessary party must be formally notified in writing insofar as the Deed purports to vary the earlier Trust Deed; see clause 11 of the Trust Deed and para 23 below. Nonetheless the parties evidently acted as if the settlor were a necessary party, by purporting to join him. 11 There is a further matter of salient importance going to the court's discretion. The First and Third Defendants never produced the original trust deed until after evidence had closed though the Plaintiffs consistently sought its production. It was first produced with a letter dated 8 November 1999 sent to my Associate and received on 10 November 1999, such letter stating: "We refer to the above matter and enclose herewith the original Trust Deed which was discovered by an articled clerk caught up amongst other documentation whilst collating our file for storage."

12 It was produced by Ms Wendy Wright, a consultant to the solicitors for the First and Third Defendants, Colwell Wright. 13 Earlier, on 2 November 1999, the First and Third Defendants produced DX8 being a photocopy of the Trust Deed with a copy of the signature page and with an uninitialled crossing out at page 19 (the provision dealing with trustee indemnification). Then DX9 also produced at trial, appears to be a copy of DX8 but without a signature page (page 25) and with the crossing out of the indemnification clause at page 19 carried out in a different way from the crossing out in DX8. Potentially significant is the fact that the original Trust Deed produced belatedly on 8 November 1999 also contains the crossing out at page 19 but carried out again in a different manner from each of DX8 and DX9, as I explain. 14 Thus the potential significance of the original Trust Deed when finally produced is this. A visual inspection of the execution page of the original compared to DX8 shows, as does the first page where there is a reference to 50 cents versus $200 stamp duty, that DX8 and the produced original Trust Deed are not identical in the way the deletion was effected. Importantly the original produced only on 8 November 1999 after evidence closed, bears on whether the provision dealing with trustee indemnification was deleted with authority at the time that trust deed was originally executed on 1 March 1990 or was only done after execution suggesting this was without authority from the executing parties. Of material significance in that regard, even if not by itself conclusive, is that DX8, the copy of an original, and the later produced original show that the deletions did not occur once only on a first copy of the Trust Deed later duplicated and signed. That suggests the deletion occurred after execution - possibly well after - on whatever "originals" could be found. Bearing as this does upon the likelihood that the deletion may not have been made in any legally effective way, the Plaintiffs are clearly justified in seeking further information as to whether the alteration was known about by the solicitor responsible for the drafting of the original Trust Deed and by the settlor who was the settlor of the original Trust Deed. Likewise as to the settlor's knowledge of the Deed of 19 January 1999.

resolution of the issue 15 It thus follows that the First and Third Defendants, by reason of their failure to produce the original document and then its belated production, are substantially responsible for the Plaintiffs seeking the further evidence to which I have referred. 16 In these circumstances, firstly the Plaintiffs should be permitted to re-open their case by filing and reading the further affidavits. Second, the Plaintiffs should exceptionally not be required as a condition of that leave to proffer any additional costs involved. Those costs should rather be paid by the First and Third Defendants in these rather exceptional circumstances, where they so belatedly produced the original trust deed which now prompts the further evidence. In so concluding, I do so consistently with the principles I have earlier set out. In particular there is no unfair prejudice to the First and Third Defendants in acceding to the Plaintiffs' application; the prejudice is of their own making in only belatedly producing the original trust deed. Rather justice requires that the further evidence be admitted, with the First and Third Defendants having the opportunity to deal with it in the manner I set out below, in fairness to them. While this, with the possible further evidence referred to below, may extend the trial, it is in my view necessary in the interests of justice to permit this. I shall look to the parties to keep the extra time to a minimum. 17 There remains one further matter of fairness, namely whether the First and Third Defendants being as they claim prejudiced by the lack of opportunity to challenge the evidence, should now have that opportunity. It is clear from the correspondence between the parties that the Plaintiffs have invited the First and Third Defendants to indicate if leave were granted whether they object to any of the matters set out in the affidavits, and particularly as to whether they would wish to make submissions concerning the contents of the affidavits or carry out any cross-examination of Mr Ireland and Mr Houen. They have not replied on that aspect. I would be prepared, if the First and Third Defendants still press this and do so promptly, to give the First and Third Defendants the opportunity to cross-examine Mr Ireland and Mr Houen. This is subject to that being done in the most time effective manner possible. It may be of course that on consideration the First and Third Defendants do not wish to press this. 18 In paragraph 7 of the First and Third Defendants' submissions of 21 December 1999, the First and Third Defendants state: "In any event the evidence raises other questions that might need to be explored. It is not the case that if, which is not conceded, the striking out of the paragraph of the Trust Deed did not occur in the offices of Creaghe Lisle Solicitors by whom the document was originally prepared that it must have occurred in the offices of Colwell Wright Solicitors, the current solicitors for the Defendants. As is plain from the affidavits filed on behalf of the Defendants and in particular those of McGregor and McCue, the Defendants have been represented by numerous firms of solicitors since the time of creation of the Trust Deed, any one of whom could have been responsible for the alteration."

19 In fairness to the First and Third Defendants, if in light of the further evidence from the Plaintiffs they wish now to file an affidavit from the responsible lawyer at Colwell Wright that leave should be granted if sought promptly. However, such affidavit must be based on that lawyer's knowledge after due enquiry from any other firms of solicitors and of their client Mr Coco and his fellow officers and should deal with whether the alteration did occur in the offices of Colwell Wright. If that were availed of, the Plaintiffs should be given the opportunity to cross-examine the person giving such affidavit. In that regard, para 54 of the Plaintiffs' written submissions of 8 December 1999 is relevant, though in saying that I do not express any concluded view as to the submissions there made at this point.

1. The Plaintiffs have leave to re-open the proceedings and their case for the purpose of reading affidavits dated 26 November 1999 by Harold Charles Houen and John Andrew Ireland.

2. The costs of such re-opening including as may arise from any further hearing shall be paid by the First and Third Defendants.

3. Subject to the First and Third Defendants advising my Associate within seven days of their decision in that regard, the First and Third Defendants have leave, if they so elect, to cross-examine Messrs Houen and Ireland and if such cross-examination takes place then both parties have leave to make further submissions arising therefrom.

4. Leave is also given to the First and Third Defendants to file within fourteen days a further affidavit by the responsible lawyer at Colwell Wright based on the knowledge of Colwell Wright as a firm and after proper enquiry from their client Mr Coco, his fellow officers of the First Defendant and related companies and of any other firms of solicitors involved, as to the circumstances of the apparent deletion of paragraph (h) on page 19 of the Trust Deed of 1 March 1990 and in particular as to where and when the purported alteration took place, with corresponding leave to the Plaintiffs to cross-examine the deponent of that affidavit. 20 It is emphasised that the foregoing orders should be implemented expeditiously and without unnecessary prolongation of these proceedings and in particular not so as to put into contention matters that should now properly be admitted. I will not hesitate to make further cost orders, including indemnity cost orders, if that should prove warranted in that regard. 21 Finally, it may be of assistance on the substantive issues before me for there to be a brief hearing after all evidence is in, at which I may clarify any matters arising from the comprehensive written submissions that I have received. If the Plaintiffs wish to put by way of submission any calculation of the comparative return to creditors under the existing Deed of Company Arrangement as compared to liquidation having regard to paragraphs 44 and following of their submissions, and making any assumptions reasonable in the circumstances for that purpose, then such calculation should first be provided to the First, Second and Third Defendants who should be entitled to respond by way of written submission. I emphasise that any such calculation would be by way of submission since it should not be allowed to unduly prolong the hearing. Nonetheless, I would not object to it being instead provided by the Second Defendant by way of affidavit, if he felt able to do so having regard to any assumptions reasonably made and in light of the indication of my present view below as to the Trustee's indemnity. 22 It may be of assistance to the parties to know that, without recourse to the further affidavit evidence of 26 November 1999 though consistent with it, I have formed the view, based on the evidence and written submissions though subject to consideration of relevant new evidence (if any) as may be put by the earlier leave in any further hearing, that:

(a) Jonco Holdings is entitled to an indemnity out of trust assets in respect of all liabilities it has incurred as a Trustee, and

(b) The Plaintiffs' claims and the claims of other creditors in the administration, speaking generally, were claims for which Jonco Holdings was entitled to have reimbursed from the assets of the Trust, it being understood that the reference to the Plaintiffs' claims is in the amounts as finally determined and meantime as admitted. 23 Furthermore, although no party has expressly addressed this matter, it would appear that the "Appointor" is an essential party to appoint a new trustee to the original Trust Deed of 1 March 1990 (see clause 8(a) of the Trust Deed) and secondly any amendment to the Trust Deed under clause 9 requires at least fourteen days notice in writing to the Appointor (see clause 11). The Appointor is according to the schedule to the Trust Deed, Salvatore Coco. He, self-evidently, is not a party to the Deed of 19 January 1999 and there is no evidence of any written notice to him of the amendment when originally proposed. That bears directly on the efficacy of the purported retirement and of any purported amendment to the trust deed. Even if, as clause 11 contemplates, the Trustee may waive the requirements of notice to the Appointor, in amending the Trust Deed, firstly there is no evidence of such waiver unless it be said that it is constituted merely by entering into the Deed of 19 January 1999 itself, and secondly, it does not apply to the replacement of a trustee and the power in that regard has not been amended as contained in clause 8. Accordingly, I wish to hear from the First and Third Defendants as to whether they still contend that the retirement and substitution of Sybury has taken place and if so how, consistently with the trust deed. 24 This judgment has been sent in advance of the hearing at 10 am on 2 February 2000, so that the parties can give a proper response at that hearing as to any matters affecting the further conduct of these proceedings including those I have raised. Delay is clearly not in the interests of a proper administration or of creditors. Nor is it in the public interest, especially in view of the seriousness of the matters raised concerning the creditors and their treatment.

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