Rubino & anor v Pineview Property Holdings Pty Ltd & ors; In the matter of Wyse Accounting Pty Ltd; In the matter of Wyse & Young International Pty Ltd; In the matter of Wyse & Young International Pty Ltd; In the matter of Wyse Accounting Pty Ltd
[2016] NSWSC 1780
Supreme Court of NSW|2016-12-05|Before: Brereton J, White J
On 30 June 2016, in proceedings 2013/301976 ("the Rubino proceedings"), White J delivered a judgment which, relevantly, in respect of the third cross-claim, included a judgment for the first cross-claimant Ms Huybers against the third, fourth and fifth cross-defendants Wyse & Young International Pty Ltd ("WYI"), Wyse Accounting Pty Ltd ("WAC") and Mr Dimitriou (together, "the Dimitriou parties") in the sum of the $535,151.62 plus interest, and judgment for the second cross-claimant Pineview against the Dimitriou parties in the sum of $1,276,389.29 plus interest. [1]
On or about 18 July 2016, each of Ms Huybers and Pineview served on each of WYI and WAC creditors' statutory demands founded on each of the judgments - four demands in all. By four originating processes filed on 8 August 2016, WYI and WAC each applied to set aside each of the creditors' statutory demands served on them respectively.
On 28 July 2016, the Dimitriou parties filed notice of intention to appeal from the substantive judgment.
On 14 September 2016, for reasons then given - but essentially because, although all other grounds urged in favour of setting aside the demands failed, the companies had at the last minute procured an automatic stay of execution by filing an application for leave to pay by instalments which had not yet been determined - I adjourned the hearing of the s 459G proceedings, pending the determination of that application. [2]
The application for leave to pay by instalments was ultimately refused on 28 November 2016. No objection to that refusal has been filed under UCPR r 37.3(3) (and I am satisfied that any such objection, were it to be filed, would be dismissed, for the reason given by the Prothonotary, namely that the proposed instalments of $10,000 per month would not pay off the judgment within 12 years, even before allowing for interest on the judgment); accordingly, there is no longer any automatic stay of execution. [3] Although the Dimitriou parties have filed a further application for leave to pay by instalments, proposing somewhat larger instalments than the previous application ($13,000 per month, which as it seems to me will still barely if at all reduce the judgment, once interest is taken into account), a second application does not operate as a stay. [4]
Accordingly, the only basis which existed on 14 September 2016 for not dismissing the s 459G proceedings, being the automatic stay under UCPR r 37.5(1)(a), no longer exists. However, by notice of motion filed on 27 November 2016 in the Rubino proceedings, the Dimitriou parties now apply for a stay of the judgments pending their appeal from the judgment of White J, having filed a notice of appeal (containing some 192 grounds of appeal) on 10 November 2016. That notice of appeal was filed out of time, but there is a realistic possibility that an extension of time would be granted. The appeal is listed for directions before a registrar in the Court of Appeal on 8 February 2017. Mr Dimitriou appears to be under a misunderstanding that on that occasion the registrar will make some decision which will either result in a stay being continued, or the appeal not proceeding, and sought a stay up to that day.
When the stay application came before the Chief Judge, sitting as Duty Judge, her Honour suggested that it could be dealt with together with the s 459G applications in the Corporations List, and it is thus that I find myself in the unusual if not invidious position of dealing with an application for a stay pending appeal of a judgment of another judge of the Division. However, while such application ought ordinarily be dealt with by the trial judge, the interrelationship of the issues that arise with those in the s 459G application, and the desirability of avoiding multiple hearings, favour this unusual course. Neither party objected to my doing so.
On an application for a stay pending appeal, the relevant considerations include:
1. A successful party is prima facie entitled to the fruits of its success;
2. Whether there is an arguable case of error that if sustained would affect the judgment;
3. Whether the right of appeal would be rendered nugatory if no stay were granted;
4. The balance of prejudice, and to what extent any prejudice from the grant of a stay can be mitigated by the imposition of terms.
The case before White J occupied 14 hearing days, between 11 April and 17 June 2016. As well as the plaintiffs' claim, there were three cross-claims, and five separately represented groups of parties. The judgment, of some 138 typewritten pages comprising 377 paragraphs, was delivered expeditiously on 30 June 2016. In those circumstances, the judgment of the trial judge is entitled to considerable deference. It is not possible or appropriate on an application such as this to too closely scrutinise the judgment, let alone the underlying evidence. But some appreciation of the case and the judgment is necessary.
Mr and Mrs Rubino Snr owned two properties at Galston, and one at Arcadia where their son Frank and his wife Lee lived. The properties were subject to mortgages to the ANZ Bank, and they were in danger of losing their properties. They had also owned a property at Cooranbong, and the Dimitriou parties had previously facilitated an arrangement by which the Cooranbong property was sold, at a price acceptable to the ANZ Bank, to a neighbour on an understanding that the Rubinos would be able to repurchase it. In respect of the Galston and Arcadia properties, there was a farm debt mediation with the ANZ Bank which resulted in an agreement which would enable the Rubinos to retain one of the Galston properties, and also the second if ANZ were paid $1,050,000. However, the Rubinos encountered difficulties in raising funds to pay out ANZ, and enlisted the assistance of Mr Dimitriou and his companies to do so. Two short-term loans were arranged for that purpose; one of them was from Ms Huybers of $570,000, for which she was to be repaid $580,000. Mr Dimitriou had a connection at ANZ, and the scheme was to refinance the short-term loans through ANZ; however, the financial position and record of the Rubinos rendered it very unlikely that they would be able to raise funds. Accordingly, Mr Dimitriou developed a scheme whereby the Galston properties would be acquired in name by Pineview, in which the sole director and shareholder would be Ms Huybers, but which would hold the properties on trust for the Rubinos.
Mr Russo, solicitor, was retained by the Rubinos to obtain release of title deeds from their former solicitors, which were thereafter used to effect the transfer of the properties to Pineview. The properties were transferred to Pineview, and funds were borrowed on their security from ANZ; but the Dimitriou parties procured loans considerably in excess of what was required to payout the short-term lenders. A total of just over $2 million was borrowed and received on behalf of Pineview (as trustee for the Rubinos), of which nearly $1.3 million was retained by the Dimitriou parties. Ms Huybers was not repaid her $580,000, but it - or most of it - was reinvested by the Dimitriou parties through another Dimitriou entity Defined Property Investments Pty Ltd in companies associated with one Mr Sanna.
Mr Rubino's executor and Mrs Rubino brought proceedings against ANZ (which were settled), against Mr Russo alleging that he was negligent in releasing the certificates of title, and against the Torrens Assurance Fund, complaining that they had been defrauded of their properties and tricked into signing the transfers; they did not sue the Dimitriou parties. White J held that Mr and Mrs Rubino, by their authorised agent Frank Rubino, were aware of and willing participants in the scheme whereby the property would be transferred to Pineview but held on trust for them. His Honour also dismissed the claim against Mr Russo.
Pineview sued the Dimitriou parties to recover the funds borrowed from ANZ in excess of what had been applied to discharge of the short-term loans or otherwise for the benefit of Pineview. Ms Huybers sued for the $580,000 which she had advanced as a short-term loan but had not been repaid from the ANZ refinance.
The judgment in favour of Ms Huybers for $535,151.62 comprises equitable compensation for the loss of $580,000 which it was found ought to have been repaid to her from the proceeds of the refinance with ANZ, but were intercepted and diverted by the Dimitriou parties, in breach of fiduciary obligation, and instead (at least in large part) invested, without her authority, in an advance to Sanna; less a set-off for a total of $44,848.38 which was accepted by the trial judge as having been paid by them to or for the benefit of Ms Huybers.
The judgment in favour of Pineview for $1,276,389.29 reflects the moneys found to have been received by the Dimitriou parties from ANZ ($1,990,551), for which it was found that they were liable to account to Pineview, less allowed set-offs in respect of moneys applied to meet proper liabilities of Pineview and the $44,848.38 paid to or for the benefit of Ms Huybers. It includes and to that extent duplicates the $535,151.62 awarded to Ms Huybers, the judge having observed that Pineview would have to give credit for any amount repaid to Ms Huybers. [5]
[3]
Arguable case of error?
In defence of Ms Huybers' claim, the Dimitriou parties had contended that the advance to Sanna was authorised by Ms Huybers, and that they were entitled to set-offs amounting to $276,228.11. His Honour accepted Ms Huybers' denial of a conversation to which Mr Dimitriou deposed, according to which she authorised the reinvestment of about $500,000 in the Sanna companies. [6] In addition, there was an unauthorised mixing of Ms Huybers' moneys with those of Defined Property Investments. [7] It is evident from his Honour's judgment as a whole that this preference for Ms Huybers' evidence to that of Mr Dimitriou was founded by his Honour's view that, for reasons which appear in various places in the judgment, he did not regard Mr Dimitriou as a reliable witness. [8] Although the notice of appeal challenges his Honour's acceptance of Ms Huybers, the difficulties that confront such a challenge are notorious. Notwithstanding that his Honour generally eschewed reliance on demeanour, [9] prospects of such a challenge succeeding, in the absence of supportive documentary material, when the conclusion is not manifestly improbable, are slim indeed. And although Mr Dimitriou says that documentation has now become available to him which was not available at the trial, the only evidence is that he claims to now be "back in possession of crucial material that if it had at the time of hearing may have enabled Mr Justice White to form a very different view …", without any specificity, let alone any suggestion that it bears on whether Ms Huybers authorised the Sanna investment. In submissions, reference was made to "deeds of loan", and "caveats executed by Ms Huybers on the property", but I did not understand this to refer to the Sanna loan; in any event, no evidence of any document that supported Mr Dimitriou's claim on this issue was adduced before me.
A second line of defence to Ms Huybers' claim was a claimed set-off for $276,228.11, of which the trial judge allowed $44,848.38 and rejected the balance. The claim for $276,228.11 was particularised in a schedule, which his Honour annexed to the judgment. The judgment addressed each item in the schedule, and gave apparently logical reasons for rejecting them. While the notice of appeal complains that his Honour erred in not allowing the set-off in full, it does not explain why there was any error in any individual respect. Nor does any evidence on the present application, nor any submission, do so. The notice of appeal propounds set-offs against Ms Huybers for $226,288.11 (which corresponds with the claim at first instance), but also for $58,607, $570,000, and $490,010. The $570,000 appears to correspond with her loan, which is now said to be reflected in the Sanna loan; how it could found a "set-off" is not apparent. I have been unable to reconcile the other two amounts to anything that was claimed before White J, or anything in the evidence before me.
In my view, an arguable case of error in respect of Ms Huybers' judgment has not been established. That is not necessarily to say that it does not exist, but it has not been demonstrated on the material before me.
In defence of Pineview's claim, the Dimitriou parties had contended that he had relied on Frank Rubino's authority - said to have been given in a text message - for the disbursement of the moneys received from ANZ, and also on set-offs, most significantly for their fees in respect of the Cooranbong and Galston transactions which they claimed to be owed by the Rubinos. His Honour, while observing that there was no corroboration for the alleged authority, neither accepted nor rejected it but held that it was moot, as while Mr and Mrs Rubino (whose general authority his Honour accepted Frank Rubino had [10] ) may have been the beneficial owners of the moneys borrowed by Pineview, it was the authority of the legal owner (personified by Ms Huybers) that was required.
However, his Honour elsewhere accepted that Frank Rubino was aware that WYI were holding settlement funds at least to cover Mr Russo's outstanding fees; [11] and perhaps more; [12] and that more money was borrowed than was required to discharge the advance of $1,050,000 and interest, though not necessarily the full extent of what had been borrowed. [13] In the Notice of Appeal, the Dimitriou parties point to some matters (including telephone records) which might corroborate the allegation of authority. Moreover, it is very likely that Mr Dimitriou, who whether or not he was legally entitled on the face of his retainers, had claims for remuneration in respect of the Cooranbong and Galston transactions that he had facilitated for the Rubinos, would have insisted on being paid out of the proceeds of the refinance. It is clear that he was requiring an acknowledgement of his entitlement to remuneration in respect of Cooranbong, [14] and it is inherently probable to a high degree that it would have been understood by the Rubinos that he would be remunerated for the Galston transaction out of the proceeds of the refinance. In those circumstances, I think the contention that it ought to have been found that the disbursement of the moneys received was authorised at least by Frank Rubino (as his parents' agent) is not devoid of arguability.
That will not avail the Dimitriou parties if the authority of Pineview could only be given by Ms Huybers, as White J held. [15] It is undoubtedly correct that, as a matter of general principle, it is the trustee and not the beneficiary who deals with third parties and who can give covenants, consents and directions pertaining to the trust property. But this was no ordinary transaction: it was instigated by the Rubinos, to save their properties, and Pineview was a mere vehicle to achieve that result. Pineview admitted that it held the properties on trust for the Rubinos. As his Honour found, if Pineview were to recover moneys pursuant to the judgments against the Dimitriou parties, the recoveries would be trust property for which Pineview would be required to account to the Rubinos - except insofar as it was entitled to have recourse to it for indemnity in respect of liabilities properly incurred in execution of the trust (including its liability to repay Huybers' loan, which is in any event included in Ms Huybers' judgment). In my view, the proposition that authority from the Rubinos, through their agent Frank, was sufficient, is not unarguable.
That means that, even without turning to the set-offs, an appeal against the Pineview judgment is not unarguable.
[4]
Nugatory appeal?
If a stay is not granted, it is likely that WYI and WAC will in due course be wound up, and Mr Dimitriou bankrupted. Accordingly, I accept that the consequences of not granting a stay are likely to include the destruction of the businesses of WYI and WAC. Although theoretically a liquidator could prosecute the appeals, in the absence of a funder (and there would be nothing in this case to incentivise a funder) that is improbable. In any event, the businesses of WYI and WAC would be destroyed.
Mr Dimitriou said that the appeal would proceed regardless, on his own part, even if the companies were wound up. However, if he were bankrupted in the meantime, it may be doubted - for the same reasons - that a trustee in bankruptcy would prosecute the appeal.
Accordingly, I accept that not granting a stay would in a practical sense render the right of appeal nugatory, or at the very least significantly detract from it.
[5]
Balance of prejudice
According to the application for leave to pay by instalments, the companies have income of $750,000; assets of $5,317,600 (of which $5,300,000 is "sundry debtors"), and liabilities (including the judgment debts) of $3,239,540.91. There is scant evidence as to Mr Dimitriou's personal financial circumstances, but it can be gleaned from the judgment of White J on the application for freezing orders that his assets of substance (if any) are his shareholdings in the Wyse & Young companies. [16]
Accordingly, the best case scenario for the judgment creditors, if a stay be refused, would be that they might garnishee the debts claimed by WYI and WAC from third parties, or have those companies wound up, and Mr Dimitriou bankrupted, and the liquidator proceed to recover the debts due to the companies and eventually distribute the proceeds.
Mr Dimitriou, but not his companies, is subject to a freezing order, so that his position will not deteriorate, except by living and legal expenses, pending the appeal. However, the winding up of WYI and WAC may involve impediments to the conduct of other litigation in which the Dimitriou parties are currently involved, which if successful may ultimately result in the recovery of funds for the benefit of their creditors. Admittedly, a liquidator or trustee in bankruptcy could pursue those other claims if they were judged worthwhile, and the Dimitriou parties would be obliged to provide reasonable assistance. However, it remains the case that a liquidator is unlikely to be as well-equipped as the companies and their director to conduct that litigation, and may well be reluctant to do so in the absence of funding.
Pineview is a trustee for the Rubinos and would be liable to account to them for whatever it recovers (other than the amount of Ms Huybers' loan). No evidence of hardship to Pineview or the Rubinos has been adduced. Nor was any evidence adduced or submissions made in respect of hardship to Ms Huybers, but it may be noted that she apparently has judgments against her in favour of ANZ, although they are likely to be satisfied by ANZ exercising its power of sale over the Galston properties.
In my view, any detriment to the judgment creditors can be mitigated by the provision of security over the assets and undertaking of WYI and WAC. A fixed and floating charge over their assets and undertaking - and in particular book debts - will place them in a position of at least equivalent strength as a garnishment order, but leave the conduct of recovery proceedings in the hands of those best equipped to prosecute them for the time being.
[6]
Conclusion
The Dimitriou parties have demonstrated a not unarguable appeal against the Pineview judgment, but not against the Huybers judgment. However, not granting a stay would practically render the right of appeal nugatory, or at least seriously detract from it. Any detriment to the judgment creditors can be mitigated by the provision of security over the assets and undertaking, including the book debts, of WYI and WAC. Upon a stay being granted, there is "some other reason" within s 459J(1)(b) for setting aside the creditors' statutory demands.
Costs of the stay application should be costs in the appeal. The defendants would have succeeded in the s 459G applications but for a belated and ultimately unsuccessful application for leave to pay by instalments, and an even more belated application for a stay, and their costs must be borne by the Dimitriou parties.
In proceedings 2013/301976 ("the Rubino proceedings"), the Court orders that:
1. Upon Wyse & Young International Pty Ltd, Wyse Accounting Pty Ltd and George Dimitriou ("the Dimitriou parties") undertaking to the Court that they will diligently and expeditiously prosecute their appeal, and upon their executing and delivering to the solicitors for Susan Huybers and Pineview Holding Pty Ltd ("the judgment creditors") a fixed and floating charge over the assets and undertaking of Wyse & Young International Pty Ltd and Wyse Accounting Pty Ltd as security for the judgments in favour of the judgment creditors, such charge to be in a form acceptable to the judgment creditors or settled by the registrar, execution of the judgments in paragraphs 3(b) and 3(d) of the judgment given and entered on 30 June 2016 be stayed until the hearing of the appeal in proceedings 2016/227999 in the Court of Appeal, or earlier further order of this Court or of the Court of Appeal.
2. Costs of the application for a stay be costs in the appeal.
3. All parties have liberty to apply on three days' notice by arrangement with my associate in the event of any difficulty arising in connection with the form of the security, or otherwise to vary or discharge the stay.
4. Liberty to apply to dissolve the stay may be exercised if the undertaking contemplated by order (1) is not filed in written form by 23 December 2016.
In each of proceedings 2016/237509, 2016/237519, 2016/237522 and 2016/237530 ("the s 459G proceedings"), the Court orders that:
1. Conditional upon the provision by the plaintiff of the fixed and floating charge referred to in order (1) made this day in proceedings 2013/301976 by 23 December 2016 (or such further time as the Court might on application made before that date permit), the creditor's statutory demand served by the defendant on the plaintiff be set aside.
2. The plaintiff pay the defendant's costs.
See In the matter of Wyse Accounting Pty Ltd [2016] NSWSC 1772.
A timely objection would have extended the automatic stay until its determination: UCPR r 37.5(1)(b).
UCPR r 37.5(2).
[286].
[277]-[278], [310].
[282].
See for example at [184]-[188], [277]-[286].
See for example [209]; but cf [356].
See for example [217].
[194].
[187].
[210].
[33], [37], [39].
[269].
Rubino v Pineview Property Holdings Pty Ltd & Ors (No. 3) (White J, 3 August 2016, not yet published), at [11]
[8]
Amendments
15 December 2016 - Correction to proceedings number in para 31(1)
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Decision last updated: 15 December 2016
Parties
Applicant/Plaintiff:
Rubino & anor
Respondent/Defendant:
Pineview Property Holdings Pty Ltd & ors; In the matter of Wyse Accounting Pty Ltd; In the matter of Wyse & Young International Pty Ltd; In the matter of Wyse & Young International Pty Ltd; In the matter of Wyse Accounting Pty Ltd