Staatz v Berry, in the matter of Wollumbin Horizons Pty Ltd

Introduction 1 The liquidator of Wollumbin Horizons Pty Ltd (the Company), Mr Steven Staatz, seeks the Court's guidance and certain orders in relation to the winding up of the Company and land which it holds in northern New South Wales, just south of the Queensland border. 2 The matter before the Court has numerous difficulties. First, the Company had very poor and limited record keeping and acted by or through solicitors with, apparently, equally poor attention to detail. The Company's operations as a purported trustee were often legally misconceived and it engaged in activities in disregard or ignorance of the legal rights and obligations between it and others, including persons who depended on it. These create significant impediments to reconstructing the events relevant to these proceedings and giving sensible legal characterisation to the consequences of persistent random and casual conduct. Secondly, a number of the defendants were without legal representation. Whilst some of those respondents admirably tried their best to focus on the matters relevant to the issues to be decided, a number were distracted by extraneous concerns and were inclined to air their actual or perceived grievances against the promoters of the Company, the liquidator, and other defendants. Thirdly, and consequentially upon the lack of representation, much of the evidence sought to be advanced was inadmissible or irrelevant to the matters arising for determination. That said, the material presented by the liquidator was admitted without relevant objection and the evidential facts on which the matter rests were not greatly disputed. 3 In brief terms this case concerns the activities of Mr Mark Darwin and his associates who promoted a scheme for the establishment of a form of commune called the "Bhula Bhula Community" or the "Bhula Bhula Community Village" on land in northern New South Wales. All members were to contribute to the cost of its establishment, acquisition and operation. Apparently, this form of co-habitation on a single parcel of land is not uncommon in the north-eastern parts of that State. The persons intending to participate in the Community were told that, by reason of their financial contributions to the scheme, they would acquire an interest in the land on which it was to be situated, and that it was a place where they were each entitled to establish a residence. The initial subscribers were also told that the funds which they paid would be held on trust pending the purchase of the land and other related matters. A substantial amount of money was amassed by Mr Darwin, the Company was incorporated, and it purchased the land in its name. Some of the funds received from early subscribers were used to purchase the land. Borrowed funds were also used and a mortgage over the land was granted to the lender to secure repayment. Subsequently, additional persons were induced to become members of the Community by subscribing money on the faith of securing a right to reside in the commune and acquiring an interest in the land. Some of the funds advanced by those persons were used to discharge the mortgage. Following that, further persons were likewise induced to pay money for the right to be part of the Community and to acquire an interest in the land. By that time, however, the purchase price of the land and the mortgage debt had been fully discharged. 4 It is important to keep in mind that each person who became a Community member did so on the understanding that others who paid their subscriptions and who became members would also have an interest in the Community land. That was so regardless of whether they were initial subscribers whose money was used to pay the purchase price, or whose subscribed money was used to pay the mortgage, or whose money was received after the acquisition of the land and was intended to be used to maintain and improve the land. There was, in effect, a quasi-domestic, joint endeavour or enterprise pursuant to which the Community would be established, maintained and operated with each member having ownership of the land on which it was situated. Perhaps one characteristic which sets this case apart from others is that the membership of the joint endeavour expanded over time and all whom now claim an interest in the land on which the Community was established were not original members of the Community whose money was paid towards the acquisition of the land. 5 Mr Darwin, and others involved in the promotion of the Community, informed potential Community members they would have an interest in the land by way of a unit in a unit trust of which a company would be trustee. Although some steps were taken to establish the unit trust, which was to underpin the operations of the Community, no valid unit trust to which the land was subject was effected. The proposed commune failed, not in the least because the local town planning approvals required for multiple dwellings to be erected on the land had not been obtained. The Company incurred substantial debts and became insolvent. In the present proceedings, the liquidator seeks the Court's guidance as to the manner in which the Company holds the title to the land and how, in respect of the land, the Company's liquidation is to proceed. 6 The defendants to the proceedings are a number of the erstwhile Community members who claim to have a beneficial interest in the land on which the Community was sited. The basis of some of the claims is that the company holds the land on a resulting trust for those members who subscribed money for its purchase, as it was not intended that the Company itself have any beneficial interest in the land. Whilst it is possible to identify with some precision that money paid by some of the subscribers was used to meet the purchase price of the land, there was insufficient detail in the evidence available to permit identification of the precise entitlements of all parties. In other words, tracing the funds of all subscribers into the purchase price is a difficult, if not impossible, task. Additionally, whilst the land might also be said to be held on a constructive trust, the evidence does not permit the Court to ascertain the identity of all persons who might be beneficiaries under that trust. 7 It is therefore necessary to deliver these reasons which determine the legal and equitable rights of the various groups, and the liquidator should then be able to ascertain the individual entitlements. If there is uncertainty, the liquidator can approach the Court for additional directions. 8 The third, fourth, fifth and sixth defendants were represented by Mr Manner of Counsel. The other five defendants had no representation. Some of those raised a wide range of grievances, many of which were not relevant to the issues under consideration. In particular, the second defendant has persisted in raising irrelevant and scandalous matters. Prior to the hearing of final submissions in open court on 25 February 2019, she emailed a copy of her 'Closing Statement', however she did not file that document or attend the hearing. The document traverses many matters, none of which are of assistance to the Court in resolving the proceeding. In any event, she refers in that document to her "intention not to participate further" in the proceeding. The document reflects one of the many ways her actions have increased the costs of the liquidation and this litigation, and thereby reduced any potential return to her and the other subscribers and creditors. If such conduct continues, it will no doubt further erode funds to be realised by the sale of the land. That said, amongst the arguments advanced by the other litigants in person, some perspicacious observations were made.