Nutectime International Pty Ltd v Timentel Pty Ltd

Solicitors: Mason Lawyers (Appellants) McDonald Johnson (First and second respondents; third respondent until 21 June 2013) John Hollier (Third respondent from 21 June 2013) Patey & Murphy (Fourth respondent) File Number(s): CA 2005/261666

Judgment 1THE COURT: Mr Francis Frasca, who was the fourth respondent to an appeal to the Court of Appeal from orders made by a judge of the Equity Division, has applied by notice of motion filed on 23 November 2012 for an order that orders made by the Court of Appeal on 5 September 2011 and on 16 September 2011 be varied. He seeks the orders under the slip rule. He also asks for an order for restitution to him, by the appellants in the appeal, of the sum of $19,968.24 together with interest calculated from 25 September 2012. Before dealing with the motion, it is necessary to say something about the dispute that gave rise to the litigation in the Equity Division and the appeal. 2Timentel Pty Limited (the Company), the first respondent in the appeal, was formed to develop and exploit a patentable invention of Mrs Patricia Ehsman, the second respondent in the appeal. The shareholders of the Company agreed that they would contribute to the cost of the project in certain proportions. Mrs Ehsman and her husband, Mr Michael Ehsman, the third respondent in the appeal, agreed to contribute 35 per cent of the development costs. However, they refused to make further contributions after 24 August 2004. In order to ensure patent protection of the invention in Europe, the Company borrowed funds from a third party. Seven of the directors of the Company made secured loans to the Company to ensure patent protection and to repay the third party. 3The other directors of the Company, having obtained an independent valuation of the project from a valuer in Switzerland, resolved to sell the assets of the Company at that valuation to the first appellant, Nutectime International Pty Ltd (Nutectime), a new company they had formed for that purpose. Michael and Patricia Ehsman were invited to make a higher offer but did not do so. The other directors proceeded with the sale to Nutectime. 4In 2005, Patricia Ehsman brought proceedings under ss 232 and 233 of the Corporations Act 2001 (Cth). Mr Frasca was the third defendant in those proceedings. Ultimately, Mr Frasca did not defend the claims made in the proceedings. 5On 30 October 2009, for reasons published on 16 October 2009, a judge of the Equity Division directed Nutectime to re-transfer the assets that it acquired from the Company. His Honour also ordered the Company to restore its shareholders' loan accounts to the state they were in prior to 6 May 2005. His Honour ordered that the Company be wound up. His Honour found that the loan facility and charge and the transfer agreements were oppressive to, unfairly prejudicial to and unfairly discriminatory against Patricia Ehsman. 6Nutectime and Messrs David Brady and David Paix, shareholders and directors of the Company, appealed. Mr Frasca filed an appearance submitting to such order as the Court of Appeal was disposed to make save as to costs. 7On 5 September 2011, the Court of Appeal ordered that the appeal "be allowed with costs". The orders made in the Equity Division were set aside. On 16 September 2011, the orders of the Court of Appeal were varied by consent. However, the principal order that the appeal "be allowed with costs" remained unchanged. 8The effect of the orders made by the Court of Appeal was that, despite his submitting appearance, Mr Frasca was jointly and severally liable to the appellants, together with the other respondents to the appeal, for the costs of the appeal. That is the position notwithstanding that, in two places in its reasons, the Court of Appeal recorded the fact that Mr Frasca had submitted to the orders of the Court, save as to costs. In those circumstances, it is apparent that the order that the appeal "be allowed with costs" was an error arising from an accidental slip or omission within rule 36.17. If the Court of Appeal had intended to order costs against Mr Frasca, it would have given Mr Frasca the opportunity to be heard. There is nothing in the reasons of the Court of Appeal to suggest that it intended to make him liable for costs despite his submitting appearance. 9Mr Frasca asserts that, despite the fact that the representatives of the appellants knew that an order for costs should not have been made against him, they have nevertheless proceeded to assist the appellants to enforce the order against him. Those efforts resulted in a judgment against Mr Frasca in the Local Court in the sum of $92,763.26 and the garnishment of $19,981.24 from an account of Mr Frasca with the Commonwealth Bank. 10Accordingly, Mr Frasca, by his notice of motion, seeks an order that the order made by the Court of Appeal be varied to include the words "against the first to third respondents" after the words "with costs". He also seeks an order that he be given restitution in respect of the sum obtained by garnishment of his bank account. 11Mr Frasca has asked that the motion be dealt with on the papers. The appellants and Patricia Ehsman and Michael Ehsman have consented to that course and do not wish to be heard in opposition to the substantive orders sought by Mr Frasca. However, they oppose any order as to costs of Mr Frasca's motion. It appears that Nutectime may have been deregistered. However, no steps have been taken to remove it as a party. 12Mr Frasca originally asked for costs to be paid on the indemnity basis. However, he did not press for that relief. Nevertheless, none of the parties has consented to the orders sought. It was necessary for Mr Frasca to file a motion and to make submissions in support of it in order to obtain the relief to which he was clearly entitled. In the circumstances, all of the other parties to the motion, being the appellants and the first, second and third respondents in the motion, should be jointly and severally liable for Mr Frasca's costs of the motion. The appropriate course is to make orders for the variation of the orders of the Court of Appeal and for the appellants to repay to Mr Frasca the sum of money that they have obtained by means of garnishee proceedings. 13The variation of the order of the Court of Appeal should operate nunc pro tunc. An order should be made under rule 51.45 and s 75A(10) of the Supreme Court Act 1970 for the return of Mr Frasca's money together with interest. 14The assertions made by Mr Frasca are somewhat disturbing. That is to say, if it in fact be true that lawyers acting for the appellants knowingly prosecuted a claim for costs against Mr Frasca in the circumstances briefly outlined above, one would have some considerable doubts about the integrity of those involved. In that regard, it would be appropriate for the Registrar of the Court of Appeal to be directed to refer the matter to the Law Society of New South Wales for enquiry into the conduct of the legal representatives who, on the version deposed to by Mr Frasca, appear to have deliberately sought to take advantage of what was clearly an inadvertent error on the part of the Court of Appeal. Mr Frasca's affidavit of 22 November 2012 should be provided to the Law Society for that purpose. 15Accordingly, the orders of the Court are that: