Silversides Super Fund Pty Limited v Silverstate Developments Pty Limited

CATCHWORDS : PRACTICE AND PROCEDURE - application for payment of moneys held in a controlled moneys account - impounding of trust property by a trustee - security for costs - discovery

LEGISLATION CITED : Uniform Civil Procedure Rules Trustee Act 1925

CASES CITED : Falk v Finlay [1999] NSWSC 1284 Silversides Super Fund Pty Limited v Silverstate Developments Pty Limited [2008] NSWSC 904

Silversides Super Fund Pty Limited (First Plaintiff) Hallinan Super Fund Pty Limited (Second Plaintiff) Gregory John Silversides (Third Plaintiff) Michael Terrence Hallinan (Fourth Plaintiff) PARTIES : Silverstate Developments Pty Limited (First Defendant/ First Cross-claimant) Cameron Patrick Anderson (Second Defendant/ Second Cross-claimant) Michael Anderson (Third Cross-claimant) Tyranis Pty Limited (Fourth Cross-claimant) C A Tyranis Pty Limited (Fifth Cross-claimant)

COUNSEL : Mr C. Harris SC and Ms C. Champion (Applicants/Plaintiffs/Cross-defendants) Mr A. McInerney and Mr D. Barnett (Respondents/ Defendants/Cross-claimants)

SOLICITORS : Matthews Folbigg Pty Limited (Plaintiffs) Ellison Tillyard Callanan (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5353 of 2007 SILVERSIDES SUPER FUND PTY LIMITED -v- SILVERSTATE DEVELOPMENTS PTY LIMITED JUDGMENT 1 HIS HONOUR: By notice of motion filed on 26 February 2009 the First, Second and Third Cross-Defendants, Gregory John Silversides, Terrence Michael Hallinan, and Silversides Super Fund Pty Limited, seek an order that the amended cross-claim be dismissed pursuant to Part 12, rule 12.7(1) of the Uniform Civil Procedure Rules 2005, as well as other relief. 2 The substantive proceedings were instituted by summons filed by the Plaintiffs, Silversides Super Fund Pty Limited ("Silversides"), Hallinan Super Fund Pty Limited ("Hallinan"), Gregory John Silversides and Terrence Michael Hallinan, on 5 November 2007. The Plaintiffs filed an amended summons on 8 February 2008, and a statement of claim was filed on the same date. 3 According to the statement of claim, the First Defendant, Silverstate Developments Pty Limited ("Silverstate") is the trustee of Silverstate Development Trust ("the Trust"), which was established by a deed of trust dated 17 December 2001. The Second Defendant, Cameron Patrick Anderson, is and has at material times been the sole director of the First Defendant, is and has been the majority shareholder in the First Defendant, and is and has been the person having the day to day management and control of the First Defendant. The First Plaintiff is and has at all relevant times been the trustee of the Silversides Super Fund. The First Plaintiff is the owner of 216,681 units in the Trust, the beneficial interest in which units is held by the First Plaintiff for the Silversides Super Fund. The Second Plaintiff is the trustee of the Hallinan Super Fund, and is the owner of 187,795 units in the Trust. The Second Plaintiff holds those units for the Hallinan Super Fund. 4 The causes of action asserted by the Plaintiffs in the statement of claim relate to various distributions which are alleged to have been made by the First Defendant or which it is alleged the First Defendant failed to make, being distributions to the First and Second Plaintiffs. 5 An application by the Defendants for summary dismissal of the proceedings, or, in the alternative, for the striking out of the statement of claim was heard by me on 21 August 2009 (Silversides Super Fund Pty Limited v Silverstate Developments Pty Limited [2008] NSWSC 904, 2 September 2008). At that hearing the Defendants did not pursue the application for summary dismissal of the proceedings, but sought only that the statement of claim be struck out. 6 In consequence of my decision in the foregoing application, an amended statement of claim was filed by the Plaintiffs on 22 September 2008. An amended defence thereto was filed on 10 October 2008. A further amended defence was filed on 22 December 2008. An amended cross-claim was filed on the same date. 7 The amended cross-claim (and also the cross-claim which had been filed on 17 September 2008) named five Cross-claimants, being Silverstate Developments Pty Limited, Cameron Anderson (those parties being respectively the First and Second Defendants), Michael Anderson, Tyranis Pty Limited and C A Tyranis Pty Limited. The Cross-defendants named in the amended cross-claim are Gregory Silversides, Terrence Hallinan, Silversides Super Fund Pty Limited and Hallinan Super Fund Pty Limited (those parties being respectively the Third, Fourth, First and Second Plaintiffs). 8 At the outset of the hearing of the present notice of motion the three applicant Cross-defendants abandoned their claim for relief sought in paragraphs 1 to 6 thereof, being orders for dismissal of the amended cross-claim and for the striking out of the amended defence, and for summary judgment in favour of the First or Second Plaintiffs and the Third or Fourth Plaintiffs in specified liquidated amounts. In consequence, the hearing proceeded upon the claim of the three applicant Cross-defendants (being three of the Plaintiffs) for the relief sought in paragraphs 7 to 18 in the notice of motion. That relief fell into the following categories. First, orders for the payment by the Defendants to the First or Second Plaintiffs of an amount currently held in a trust account of the solicitors of the Defendants, and payment to the Third or Fourth Plaintiffs of an amount currently held in a trust account of those solicitors (paragraphs 7 and 8 of the notice of motion). Second, orders that the First, Fourth or Fifth Cross-claimants (being Silverstate Developments Pty Limited, Tyranis Pty Limited, and C A Tyranis Pty Limited) provide security for the costs of the Cross-defendants (paragraphs 9 to 11 of the notice of motion). 9 Most of the remaining substantive items of relief sought in the notice of motion (being for injunctive relief in respect to a property situate at and known as unit 31, 52 High Street, North Sydney (paragraph 13), for an order for the provision of copies of documents (paragraph 14) and for an order for the extension of time for the service of affidavits (paragraph 15)) were not pursued at the hearing before me. However, the Cross-defendants did pursue the claim for an order that the Cross-claimants give certain discovery (paragraph 16). 10 The reason why the applicant Cross-defendants at the hearing did not press for the relief claimed in paragraphs 13, 14, and 15 in the notice of motion was, as stated by Senior Counsel for those parties, that that relief had largely been rendered superfluous by reason of subsequent compliance by the Cross-claimants with various requirements as to parties, evidence and discovery. 11 I have had the benefit of receiving written outlines of submissions from Counsel for the respective parties. Those documents will be retained in the Court file. 12 At the outset of the hearing Counsel for the Cross-claimants questioned the basis of the power of the Court to grant the relief sought by the applicant Cross-defendants in paragraphs 7 and 8 of the notice of motion, being, respectively, orders for the payment by the Defendants to the First Plaintiff or the Second Plaintiff, and to the Third Plaintiff or the Fourth Plaintiff of specified amounts currently held in the trust account of the solicitors for the Defendants in relation to certain distributions asserted to have been made in the Silverside Development Trust in respect to specified numbers of units in that trust held by the First or Second Plaintiffs. (Those moneys were also referred to as being held in a "controlled moneys account".) 13 The applicants relied upon Part 2, rule 1 of the Uniform Civil Procedure Rules 2005, which provides: The court may, at any time and from time to time, give such directions and make such orders for the conduct of any proceedings as appear convenient (whether or not inconsistent with these rules or any other rules of court) for the just, quick and cheap disposal of the proceedings. 14 It was submitted on behalf of the applicants that the foregoing rule as a source of the power of the Court to make orders that the Defendants pay to the Plaintiffs certain moneys held in the trust account of the solicitors for the Defendants is attracted by, as it was submitted, the unreasonable manner in which the Defendants had conducted the proceedings, and by which the Defendants have, as it was submitted, unreasonably delayed the proceedings. (In this regard, Counsel for the applicant provided a list of what were asserted to be the "Delinquencies" of the Defendants/Cross-claimants. That document well be retained in the Court file.) Thus, so it was submitted on behalf of the applicants, each of the orders for payment to the Plaintiffs of the moneys in the controlled moneys account would be a just order. 15 The response of the Cross-claimants to the foregoing submissions was that the just disposal of the moneys in the controlled moneys account can be determined only in the light of the substantive outcome of the proceedings. The Defendants claim an entitlement to those moneys just as much as the Plaintiffs claim an entitlement thereto. It was submitted on behalf of the Defendants that rule 2.1 cannot be used to achieve, as it were, by a sidewind what would be tantamount to a summary judgment in favour of the Plaintiffs. 16 Rule 2.1 appears to be directed to procedural aspects of the litigation rather than to matters of substance (such as the ordering of summary judgment for a party). In this regard the words of the rule ("…such orders for the conduct of any proceedings…") (emphasis added) should not be overlooked. 17 In any event, even if the provisions of the rule can be invoked for the purpose of granting substantive, rather than procedural, relief to a party, the power of the Court under the rule is discretionary ("the Court may"). Further, even if, as submitted on behalf of the Plaintiffs, the Defendants have conducted the proceedings in an unreasonable manner, or have manifested unreasonable delay in the proceedings, I do not consider that an order of the nature sought by the Plaintiffs (being for the payment of significant amounts of money (now totalling $283,311) which moneys are claimed by the Defendants), should be made in the exercise of the Court's discretion, in circumstances where the Plaintiffs have abandoned their application for summary judgment against the Defendants for those amounts of money, and where any such orders for payment of moneys (to which the Defendants, as well as, the Plaintiffs, claim to be entitled) are sought to be made, not consequent upon a hearing of the substantive competing claims of the parties, but in consequence of certain allegedly unreasonable procedural conduct on the part of the Defendants. 18 I am in agreement with the submission of the Cross-claimants that the competing claims to the moneys standing in a controlled moneys account with the solicitors for the Defendants should be determined after a substantive hearing, and not, in effect, as a sidewind in consequence of asserted defaults in the conduct of the proceedings on the part of the Defendants. 19 Thus, even if (contrary to the view which I have already expressed as to the procedural nature of rule 2.1) the Court has the power to grant the relief sought by the Plaintiffs in paragraphs 7 and 8 in the notice of motion, I am not persuaded that, in the exercise of the Court's discretion, that relief should be granted to the Plaintiffs. 20 The views which I have already expressed (concerning: the procedural nature of rule 2.1; the exercise of the Court's discretion regarding the application of that rule; my conclusion that the competing claims of the Plaintiffs, on the one hand, and of the Defendants, on the other hand, to the money held in the controlled moneys account should be determined after a substantive hearing upon the merits) make it unnecessary for the competing claims to that money to be resolved, at this stage of the proceedings, by way of reference to section 86 of the Trustee Act 1925. 21 I would observe, however, that that section of the Trustee Act empowers the Court, in the exercise of its discretion, to order the impounding of the interest of a beneficiary by way of indemnity to a trustee, in the circumstances outlined in subsection (1) of that section. The section in no way entitles a trustee to impound the interests of a beneficiary - it merely enables a trustee to apply to the Court for such an order. 22 I turn now to the application for security for costs. That application, that the three corporate Cross-claimants (being Silverstate Developments Pty Limited, Tyranis Pty Limited, and C A Tyranis Pty Limited) provide security for the costs of the Cross-defendants, is brought pursuant to Part 42, rule 21 (1)(d) of the Uniform Civil Procedure Rules, and pursuant to section 1335(1) of the Corporations Act 2001. 23 The foregoing subrule provides, relevantly, If, in any proceedings, it appears to the court on the application of a defendant:

(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given. 24 Subsection (1) of section 1335 of the Corporations Act provides: Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 25 It was not disputed by the Cross-claimants that the foregoing provisions of the Uniform Civil Procedure Rules and of the Corporations Act (which refer to a plaintiff being a corporation) have equal application to the situation in the instant case, where a cross-claimant is a corporation. 26 The fundamental purpose of the power to order security for costs is to secure justice between the parties - principally by ensuring that unsuccessful proceedings do not occasion injustice to defendants. Both the rule and the section confer a wide discretion, which is to be exercised having regard to all the facts and circumstances of a particular case (see Ritchie Uniform Civil Procedure, page 8828 [42.21.5], and the various authorities referred to therein). 27 The evidence here discloses that none of the three corporate Cross-claimants is a company of any substance of having any assets. 28 It should be recognised, however, that the First Cross-claimant, Silverstate Developments Pty Limited, is also a Defendant to the proceedings brought by the Plaintiffs. The same factual matters pleaded in the defence of that Defendant are also raised in the cross-claim and in the amended cross-claim. I am in agreement with the submission on behalf of the Cross-claimants that security should not be ordered against Silverstate, since to do so would have the effect of causing the defence of that party to be thereby stultified and frustrated. 29 The situation concerning the other two corporate Cross-claimants is different. Neither of those parties (Tyranis Pty Limited and C A Tyranis Limited) is a Defendant to the proceedings brought by the Plaintiffs. 30 In opposing any order for security the Cross-claimants submitted that the Cross-defendants had been guilty of unreasonable delay in bringing the present application. Delay in an application for security for costs is a relevant consideration in the exercise of the Court's discretion to order such security. It was asserted on behalf of the Cross-claimants that the letter of 18 December 2008 from the solicitors for the Cross-defendants to the solicitors for the Cross-claimants did not seek security for costs. That letter did not in terms request that the corporate Cross-claimants provides security for the costs of the Cross-defendants if those latter parties be successful. The letter did, however, expressly raise the matter of the costs of the Cross-defendants and the manner in which those costs can be recovered from the corporate Cross-claimants. 31 The letter sought an undertaking from Cameron Anderson (both a Defendant and a Cross-claimant), who, according to the Plaintiffs, "is not only the funder of this litigation but also the primary beneficiary of any damages that may be awarded to the cross-claimants should they be successful", which would have the effect of protecting the costs of the Cross-defendants. 32 I am not satisfied that, at least until the letter of 18 December 2008, there was any relevant delay on the part of the Cross-defendants in respect to the application for security for costs which would impact upon the exercise of the discretion of the Court in regard to the ordering of such security. 33 Searches in respect to the Cross-claimants reveal that C A Tyranis Pty Limited owns all of the issued shares in Tyranis Pty Limited, and that Cameron Anderson (who is the Second Cross-claimant and is also the Second Defendant) owns all the issued shares in C A Tyranis Pty Limited. 34 The fact that Tyranis Pty Limited and C A Tyranis Pty Limited do not themselves have any significant assets is not a ground for the Court to decline to order security against both companies. The shareholding structure of both of those companies discloses that any benefit which they may obtain from the cross-claim may ultimately be a benefit for Mr Anderson. 35 An order for security against those corporate Cross-claimants should not be made if it will have the effect of stultifying or otherwise frustrating their claim. However, the person who will ultimately receive the benefit of any success in the cross-claim brought by those corporate Cross-claimants should equally bear the responsibility for meeting any costs awarded against those corporate parties, in the event that they are not successful in their cross-claim. 36 I am satisfied that it is appropriate that each of Tyranis Pty Limite and C A Tyranis Pty Limited should provide security for any costs which might be ordered against those parties in the cross-claim. 37 The evidence of Jeffrey Brown, the solicitor for the Plaintiffs/Cross-defendants, sets forth details of the costs and disbursements which he expects will be incurred in respect to the claim of Tyranis Pty Limited, in a total amount of $36,250, and in respect to the claim of C A Tyranis Pty Limited, also in a total amount of $36,250. 38 I also observe that the solicitor for the Cross-claimants, Michael Callinan, in his affidavit of 31 March 2009, states that a reasonable estimate for the future costs of the Plaintiffs (Cross-defendants) in relation to the claim brought by Tyranis Pty Limited is $19,000, and to the claim brought by C A Tyranis Pty Limited is $18,000. However, on 31 March 2009 the Cross-claimants offered on behalf of Tyranis Pty Limited, security for the costs of the Cross-defendants in the sum of $20,000. 39 In all the circumstances of this case, I consider it appropriate that Tyranis Pty Limited should provide security for costs in the sum of $28,000 and C A Tyranis Pty Limited should provide security for costs in an identical sum (each of those sums being about mid-way between the estimate given on behalf of the Cross-defendants and the estimate given on behalf of the Cross-claimants in respect to each of the claims brought by those two corporate Cross-claimants). 40 I turn now to the claim of the Cross-defendants in respect to discovery (paragraph 16 in the notice of motion). 41 The terms of that order are as follows, Order the cross-claimants to file and serve a verified list of documents within 14 days, giving discovery of the documents identified in the plaintiffs'/cross-defendants' Categories of Documents notified to the defendants/cross-claimants in the Matthews Folbiggs letter to Ellison Tillyard Callinan of 18 December 2008. 42 That letter (which is annexure C to the affidavit of Jeffrey Brown, solicitor for the Plaintiff/Cross-defendants of 4 March 2009) annexes a document entitled Categories of Documents to be Discovered by the Defendants/Cross-claimants, which sets forth sixteen categories of documents. 43 However, Michael Callinan, solicitor for the Defendants/Cross-claimants, in his affidavit of 19 March 2009 stated his belief that the documents that respond to the foregoing categories comprise in excess of 7,173 documents or 15,801 pages, and are located in more than 149 folders; and that it will take employees of the Silverhall group in excess of 350 hours to identify and review those documents and to prepare a verified list of documents for discovery, and that such 350 man hours represents a significant drain on the resources of the Silverhall group. (I gather that "the Silverhall group" is a compendious reference to, at least, the Cross-claimants.) 44 However, in their letter of 17 March 2009 (Exhibit B) the solicitors for the Plaintiffs/Cross-defendants state that "we would accept as a verified list of your clients' documents a list which refers to the summary of documents compiled by Mr Mark Wellar and referred to in his affidavit sworn 5 March 2009 in annexures "B" and "C"." 45 In this regard I was taken to the decision of Austin J in Falk v Finlay [1999] NSWSC 1284, 24 December 1999, His Honour at paragraph [43] said (concerning the then applicable provision of the Supreme Court Rules, Part 23, rule 3, which has now been superseded by Part 21, rule 2 of the Uniform Civil Procedure Rules), Under Part 23 rule 3(3) the Court may make an order for discovery by describing a class of documents by means of their relevance to facts in issue, or by using some other description. Once the Court validly exercises its power to make an order under Part 23 rule 3, the question of relevance of documents to a fact in issue is superseded by the terms of the Court's order. The question for the parties thereafter is whether a document under consideration falls within the terms of the Court's order, regardless of whether the party who is subject to the order believes the document to be relevant to a fact in issue. 46 It seems to me, therefore, that the appropriate course concerning the further discovery to be given by the Cross-claimants is that I should make an order that the Cross-claimants file and serve a verified list of documents within a specified period, giving discovery of the documents referred to in the summary of documents compiled by Mr Mark Wellar and referred to in his affidavit of 5 March 2009, and in annexures B and C thereto. Liberty to apply in respect to such a list should also be reserved, in the event that the Plaintiffs/Cross-defendants may also request disclosure of any further documentation following service of such a list of documents. 47 There remains the matter of the costs of the notice of motion. The applicant Cross-defendants sought an order that the Cross-claimants pay their costs of the notice of motion, such costs to be on the indemnity basis, and such costs to be payable forthwith. (It will be appreciated that, in such latter regard, unless there be a specific order to that effect, the costs of an interlocutory application do not become payable until the conclusion of the proceedings: Rule 42.7 (2) of the Uniform Civil Procedure Rules 2005.) In support of that application the applicants submitted that they were justified in seeking the relief claimed in the notice of motion at the time when the notice of motion was filed, but that a substantial part of the relief sought therein had been rendered superfluous by the subsequent compliance by the Defendants with various requirements as to parties, evidence and discovery. 48 I consider that the costs of the notice of motion should be dealt with in the light of the outcome of the notice of motion. It will be appreciated that of the 17 items of relief sought in the notice of motion the Plaintiffs/Cross-defendants at the hearing pursued only eight of those items. They were successful only in respect to the claim for security for costs, and then only regarding such a claim against two of the three corporate Cross-claimants; and, to a limited extent, in respect to further discovery to be given by the Cross-claimants. 49 My preliminary view is that there should be no order regarding the costs of the notice of motion, to the intent that each party should bear his or its own costs thereof. However, if any party wishes to seek some other costs order, an opportunity will be granted for that purpose. 50 Accordingly, unless within seven days of the date hereof any party arranges with my Associate for the matter to be listed for argument as to costs, I make the following orders, 1. I order that Tyranis Pty Limited and C A Tyranis Pty Limited, each provide security for the costs of the Cross-defendants, each such security to be in the sum of $28,000 and to be provided in a form acceptable to the Registrar, and that if such security not be provided within 28 days of the date hereof the proceedings by each of those said Cross-claimants be stayed until such security be provided. 2. I order that the Cross-claimants on or before 15 February 2010 file and serve a verified list of documents in respect to the documents referred to in the summary of documents compiled by Mr Mark Wellar and referred to in his affidavit sworn on 5 March 2009, and in annexures B and C thereto. 3. I reserve to the Plaintiffs/Cross-defendants liberty to apply in respect to the filing and serving of any additional verified list of documents by the Cross-claimants. 4. I order that the notice of motion filed by the Plaintiffs/ Cross-defendants on 26 February 2009 be otherwise dismissed. 5. I make no order as to the costs of the aforesaid notice of motion, to the intent that each party thereto shall bear his or its own costs thereof. 6. The exhibits may be returned. **********

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