One.Tel Limited (In liq) v David Watson & Ors

CATCHWORDS: COSTS AND SUBSEQUENT ORDERS - parties submitted proposed orders - whether proposed orders appropriate - directions hearing required to determine appropriateness of orders

LEGISLATION CITED: Uniform Civil Procedure Rules 2005, r 28.2; r 36.1

CASES CITED: One.Tel (In liq) v Watson and Anor [2009] NSWCA 282

One.Tel Limited (In Liq) (Appellant) David Patrick Watson (First Respondent) PARTIES: CGU Insurance Limited (Second Respondent) Australian Securities & Investments Commission (Third Respondent) John Greaves (Fourth Respondent)

B Coles QC; P Kulevski (Appellant) COUNSEL: P Harrison (First Respondent) T F Bathurst QC; A W Street SC (Second Respondent)

Clayton Utz (Appellant) SOLICITORS: Kemp Strang (First Respondent) Colin Biggers & Paisley (Second Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT DATE OF DECISION: 19 November 2008

LOWER COURT MEDIUM NEUTRAL CITATION: David Watson v CGU Insurance Limited [2008] NSWSC 1409

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40074/09

HODGSON JA CAMPBELL JA SACKVILLE AJA

7 December 2009 ONE.TEL LIMITED (In liq) v DAVID WATSON & ORS (NO 2) Judgment 1 THE COURT: Judgment was delivered in this appeal on 2 October 2009: One.Tel (In liq) v Watson [2009] NSWCA 282. The Court allowed the appeal and directed the parties to file short minutes of order giving effect to the reasons. Each party has submitted short minutes and supported its version with brief written submissions. 2 The orders proposed by One.Tel are set out below. Orders 1, 2, 3 and 8 are agreed between the parties and they are highlighted. We shall address each of the disputed orders in turn. " 1. Appeal allowed. 2. The declarations and orders made by the Court in paragraphs 1, 2, 3 and 4 of the orders made on 15 December 2008 be set aside. 3. The answers to the questions reserved for separate determination be recorded as: Question 1: Can the [Trustee] named in the amended summons maintain these proceedings to seek recovery from the [CGU] of the alleged property identified in paragraph v of Schedule A to the deed (' the Property ")? Answer: Yes. Question 2: Upon the termination of the Deed, did any alleged interests or rights of [the Debtor] in respect of the alleged Property cease to be held by the plaintiff as trustee or otherwise identifying the same? Answer: No. Question 3A: In what capacity does the plaintiff hold any alleged interests or rights of [the Trustee] in respect of the alleged Property? Answer: For the benefit of creditors and for the purpose of realising that Property and distributing the proceeds of it to the Second and Third Defendants to the extent of their respective interest therein. Question 3B: In what capacity would the plaintiff hold any proceeds of the realisation of any interests or rights of [the Trustee] in respect of the alleged Property?

Answer: For the benefit of creditors and for the purpose of distributing the proceeds of the realised Property to the Second and Third Defendants to the extent of their respective interest therein. Question 4: Which of the parties (including [the Debtor]), if any, hold any alleged interests or rights of [The Debtor] in respect of the alleged Property, and in what capacity?

Answer: The plaintiff, for the benefit of creditors and for the purpose of realising that Property and distributing the proceeds of it to the Second and Third Defendants to the extent of their respective interest therein.

Question 5A: Upon termination of the Deed, was [the Debtor] released and discharged from all liability at law and/or in equity in respect of the orders made on 6 September 2004?

Question 5B: Upon termination of the Deed, did [the Debtor] obtain the accrued benefit of a covenant not to enforce in respect of the compensation and costs order made on 6 September 2004 in the ASIC proceedings?

Question 6: Does CGU have accrued or binding rights under the Deed such that the [Trustee] and/or [the Debtor] have no further rights to seek recovery of the alleged Property? Answer: No.

Question 7: Are any or all of the [Trustee] and the second to fourth defendants [ASIC, One.Tel and the Debtor] precluded from bringing any claim, including the present proceedings, against CGU in respect of the alleged Property in relation to the orders made on 6 September 2004 by reason of any or all of the following matters:

(a) There being no relevant "Loss" (at the time of entry into the Deed or upon termination of the Deed) within the meaning of the Policy;

(b) [The Debtor] having no existing Loss within the meaning of the Policy for which he may be legally indemnified arising out of any Claim by reason of any Wrongful Act for the purpose of Insuring Agreement A of the policy in relation to the compensation and costs order made on 6 September 2005 in the ASIC proceedings?

(c) There being no subject matter for indemnity as provided in the opening words of the Policy? Answer: No.

Question 8: Is the covenant in the deed to assign to the plaintiff effective in the events that have occurred?

Question 9: Is any transfer and assignment to [the Trustee] of the Property void and of no effect within cl 1(e) of the Deed after termination of the Deed by reason of cl 1(e) of the Deed and/or s 213 of the Bankruptcy Act ? Answer: No. 4. A declaration that the assignment of the chose in action pursuant to the Deed was effective notwithstanding the termination of the Deed. 5. Steven John Sherman of Ferrier Hodgson, Level 13, 225 George Street, Sydney NSW 2000 be appointed as a new trustee under Part 3 of the Trustee Act 1925 in place of David Patrick Watson in respect of Deed of Arrangement between David Patrick Watson and John Kuyshe Greaves dated 30 November 2004 and as varied on 13 April 2005 pursuant to the provisions of Part X of the Bankruptcy Act 1966 ( Deed ). 6. An order that all trust property arising from or the subject of the Deed vests in Steven Sherman, have the same powers authorities and discretions, and in all respects act as if Steven Sherman had been originally appointed by the Deed. 7. Steven Sherman be substituted as the plaintiff in the proceedings in the Court below.

8. Remit the proceedings to the equity division of the Commercial List for further hearing and directions.

9. The Second respondent ( CGU ) to pay the costs of the appeal."

ORDER 4 3 CGU disputes that the declaration sought by One.Tel should be made. It points out that a declaration in this form was not sought in the proceedings at first instance nor in the notice of appeal. 4 It is true, as One.Tel points out, that the Uniform Civil Procedure Rules ("UCPR") r 36.1, permit the Court to make such order as the nature of the case requires, whether or not a claim for relief extending to that order is included in any originating process or notice of motion. However, the appeal was brought in proceedings in which the parties prepared an agreed statement of facts and in which an order was made under UCPR r 28.2 for the determination of separate questions. The parties may have adopted a different procedure, or at least formulated different questions, had One.Tel sought relief in the form now propounded. 5 Moreover, it appears that issues have arisen as to the appropriateness of a declaration in the form now sought by One.Tel. No submissions were made to the Court on these issues and it is not appropriate for this Court to make a declaration without a full appreciation of its ramifications. 6 Order 4 sought by One.Tel should therefore not be made.

ORDERS 5, 6 AND 7 7 CGU objects to Orders 5, 6 and 7 on a variety of grounds: (i) the orders can only be made by the Federal Court;

(ii) there can be no appointment of a trustee to a terminated deed of arrangement; and

(iii) in any event, the proposed Trustee is in a position of conflict and want of independence. 8 It is unfortunate that the parties have not directed themselves to resolving the procedural difficulty created by the death of the Trustee. As recorded in the judgment, (at [38]), the Court proceeded with the hearing on the basis that the parties would address the procedural difficulties for the proceedings that had been created by the death of the Trustee prior to the hearing. The parties have not proposed a means of ensuring that the appeal is properly constituted. 9 It is not for this Court to resolve the dispute that has arisen between the parties as to the appointment of a Trustee. However, the procedural issue must be resolved before final orders are made. It may, for example, be that the deceased Trustee's legal personal representative can be appointed as Trustee of the Deed of Arrangement for the purpose of the proceedings. 10 The Court proposes to hold a directions hearing to consider this procedural question. The parties should be represented by counsel who have given consideration to the procedural issue and, preferably, have formulated an agreed solution.

ORDER 9 11 CGU resists the costs order proposed by One.Tel and submits that the only order should be that CGU pay One.Tel's costs. It says that since the other respondents adopted the position of One.Tel, an order in the wider form should not be made. 12 The position is complicated by the death of the Trustee prior to the hearing. The solicitor announcing an appearance for the Trustee at the hearing did not seek a costs order, but presumably no-one was in a position to give instructions to that effect. Accordingly, the position of the Trustee of the Deed of Arrangement in relation to costs should be preserved. 13 The appropriate costs orders that should be made are as follows:

1. CGU pay One.Tel's costs of the appeal. 2. Reserve liberty to the Trustee for the time being of the Deed of Arrangement to apply in relation to the costs of the appeal.

14 The only order that the Court makes at this stage is that a directions hearing be held on 15 December 2009 at 9.30 am.

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