[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
ex tempore Judgment
HIS HONOUR: By notice of motion dated 16 November 2021, Mr Anthony Zamattia seeks leave to continue proceedings he has brought in this Court against Jainti Pty Ltd (in liq) in its capacity as trustee of the Zambito Trust, appeals from orders against him made by this Court in the Equity Division on 25 June 2021 following a four day trial that $161,160 plus interest held in a controlled moneys account be paid to Jainti: Jainti Pty Ltd v Fraser Panorama Pty Ltd [2021] NSWSC 744. Subsequently, the primary judge ordered that Mr Zamattia pay Jainti's costs of the proceedings including in part on an indemnity basis: Jainti Pty Ltd v Fraser Panorama Pty Ltd (2) [2021] NSWSC 965.
Mr Geoffrey Philip Reidy was appointed administrator of Jainti in around 2011 and its liquidator in September 2011. Notwithstanding its external administration, the parties have proceeded on the basis that Jainti remains the trustee of the Zambito Trust, relying upon the effectiveness of the variation of trust deed executed by Mr Reidy in his capacity (as it then was) as administrator on 1 July 2011, which in the purported exercise of a wide power of amendment deletes the clause in the trust deed which automatically removes the trustee if it enters into liquidation. A voluntary winding up occurred some two months later. I shall proceed on the same basis.
The proceedings at first instance were commenced by the liquidator moving ex parte (so I understand) in early 2019 following his learning of a decision by Mr Anthony Zamattia to distribute funds from a separate unit trust to himself and members of his family. In large measure, those proceedings were resolved relatively shortly thereafter, in circumstances summarised by the primary judge at [3]. For some 16 months after the compromise of the claim against the first defendant, Mr Anthony Zamattia was the sole defendant in the claim against him, which was for the $161,160 mentioned above. The primary judge observed at [137] that it was "wholly disproportionate for there to be a four day hearing in this court over such a relevantly small amount". I respectfully agree.
It is clear, and indeed express on the submissions of Mr Luitingh who appears for Mr Zamattia in this Court as he did at trial, that the costs involved significantly outweigh the amount of principal. Those considerations bear squarely upon both the application for leave under s 500(2) of the Corporations Act 2001 (Cth), and the discretion to order that as the price of obtaining a hearing in this court, Mr Zamattia provide some funds by way of security for the liquidator's costs.
It was common ground when the matter came before me, that the liquidator has no funds in excess of the liabilities already incurred in this litigation. More precisely, the evidence is that as at the end of last year, Mr Reidy has recorded work in progress in the sum of $439,191 exclusive of GST plus other unreimbursed legal disbursements, primarily counsel fees in the (much more modest) amount of $82,100. He does not expect there to be any other material recoveries in the winding up of Jainti Pty Ltd and accordingly, the evidence before me is undisputed that there will not be any return to unsecured (non-priority) creditors. I was told that there were no secured creditors and no priority creditors.
In a nutshell, the conclusion is opened to be drawn that the entirety of the recovery against Mr Anthony Zamattia following the four day hearing in this court will be swallowed up by the costs incurred by the liquidator. Another way of putting that, is that no creditor of the company being wound up will be one cent better off following the liquidator's success in the litigation.
As it happens, because the successful plaintiff at first instance was a liquidator, Mr Zamattia needs to obtain leave under s 500(2) of the Corporations Act in order to prosecute his appeal; hence this application. Ordinarily, subject to two matters to which I shall shortly refer, following a four day final hearing, the disappointed litigant has a right of appeal.
It is common ground that the principal discretionary considerations for the grant of leave under s 500(2) are the effects that the proceedings may have on creditors of the company in liquidation, whether the lodgement of a proof of debt is an adequate alternative, the degree of factual complexity, whether there is a serious issue to be tried, and whether there are complex procedural matters such as discovery or interrogatories involved. Many of those considerations are more directed to cases of trial rather than on appeal, where essentially there is a choice between proceeding in court or by way of proof of debt, as McPherson J said in Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314 at 317. Given the existing judgment, leaving Mr Zamattia to lodge a proof of debt would be to invite its rejection by the liquidator and a further appeal. As Gleeson J noted in In the matter of Australian Managed Print Services (VIC) Pty Ltd (in liq) [2020] NSWSC 1694 at [11], leave is likely to be granted in such a case. Further, the effect on creditors is nil, because no unsecured creditor is expected to receive a cent in the winding up of this company irrespective of the outcome of the appeal. Moreover, there is unlikely to be any significant delay in the winding up of the company if leave is granted, bearing in mind that the winding up has entered its second decade.
For those reasons, two separate matters were at the forefront of the liquidator's opposition to a grant of leave to proceed. The first is that the proposed appeal is out of time. That comes about because a notice of intention to appeal was not filed within 28 days of the order made on 25 June 2021. The material date from which the 28 days begins to run, for the purposes of UCPR r 51.8, is the date on which the substantive order was made, not the costs order. The notice was filed a few weeks later, on 16 August 2021, and it is not said that there is any material prejudice from that delay. Unfortunately, Mr Zamattia has not so far lodged an application for the requisite extension of time, but an explanation has been given, at my invitation, from the bar table, and in due course one will be filed if the proceedings go ahead. To be clear, the actual notice of appeal was filed and served within three months of all orders from which an appeal is sought to be brought, and so this is a case where the need for an extension of time arises only because of the delayed filing of a notice of intention to appeal. In the absence of prejudice, the delay is a minor consideration bearing upon the grant of leave.
The more substantive objection was framed around the form of the notice of appeal. There are two aspects to this.
The first is that on the face of the notice of appeal, Mr Anthony Zamattia claims in his own right only $41,196 of the total of sum $160,000 which was the subject of the order made on 25 June 2021. His notice of appeal maintains that other family members were entitled to the balance of those funds. It is said therefore on behalf of the liquidator that the $100,000 threshold in s 101(2)(r) of the Supreme Court Act 1970 (NSW) is engaged and an appeal lies only with leave. Against this, Mr Luitingh says that there are well and truly more than $100,000 of costs at stake. I do not accept that the costs contribute to the $100,000 threshold in the Supreme Court Act. A series of cases hold to the contrary. In Maund v Crown in right of the State of New South Wales [2013] NSWCA 226 at [7] it was said, by reference to authority, that it was settled law that in calculating the $100,000 threshold, costs were left out of account; see further (for example) Burrows v Macpherson & Kelley Lawyers (Sydney) Pty Ltd [2021] NSWCA 148 at [72]. Mr Luitingh did not point to any authority to the contrary, and I am unaware of any.
Secondly, I raised with Mr Somerville, who appeared for the liquidator in this Court as he did at trial, the fact that the liquidator had chosen only to join Mr Anthony Zamattia and although it now appears that some of the amounts in the controlled moneys account were on the Zamattia's case owned by family members, and it seemed inconsistent for him at this point to be taking a point about the $100,000 threshold given the parties below. His answer, which as presently advised seems correct, was to observe that the notice of appeal raises a materially different point from anything agitated before the primary judge.
There is a dispute between the parties about whether the new formulation in the notice of appeal, which is based upon the effect of a resolution of the trustee many years before the actual distribution of the $161,160 which is the subject of this litigation, fell within or outside the pleadings. I do not intend to express any view on that point. It seemed to me during the course of the argument to be accepted by Mr Luitingh that at the very least, the argument advanced in the notice of appeal was not developed or resolved before the primary judge. The issues as formulated by the primary judge at [15]-[16] including the following:
"For his part, the liquidator accepts that, if there was a valid Family Trust and if it was validly terminated, then Jainti's claim fails. Conversely, the liquidator maintains that, if (as he contends is the case) there was no valid Family Trust (such that Jainti only ever held units in the Fraser Unit Trust as trustee for the Zambito Trust), or if there was a Family Trust but there was no valid termination of that trust, then Jainti's claim should succeed.
Anthony, for his part, says that if the 34 Units were held as contemplated by a unit holders' agreement entered into in 2006 (Unit Holders Agreement) (as to which, see below), then Jainti's claim must fail (and, conversely, that if he, Anthony, fails in establishing that the position is as was provided for in the Unit Holders Agreement, then he must fail) (see T 320.40-43)."
Mr Luitingh says that the issues as formulated do not reflect the entirety of the issues at play at first instance.
All this is relevant because if as the liquidator contends an appeal is only available by way of leave, then a factor telling against the grant of leave is that it is sought in the Court of Appeal to advance submissions which had not been made before the primary judge. Mr Somerville goes further and indicates that if leave were sought, he would have the powerful Coulton v Holcombe submission that further evidence would have been adduced as to the administration of the trust.
To my mind, the question whether Mr Zamattia's appeal is as of right or only by way of leave is a question which is not free from complexity. He was the sole defendant affected by an order that an amount in excess of $100,000 be transferred to the successful plaintiff/liquidator. It is not necessary for me and therefore I do not express a view as to the effect of the different formulation of the notice of appeal now propounded upon the s 101(2)(r) threshold for leave. It is sufficient that I proceed on the basis that Mr Zamattia will (as he acknowledged during the hearing after obtaining instructions) in the alternative, and as part of the price of obtaining leave under s 500, supply by way of fallback an application for leave to appeal.
I turn to security for costs. The liquidator, by way of fallback submission, points to the very substantial costs incurred at the trial, in respect of which he at present is the beneficiary of an unstayed order at first instance. He says that the outstanding costs on a solicitor-client basis exceed $290,000, and that he has had no reply to an offer that Mr Zamattia pay just less than $250,000 in complete satisfaction of that obligation. The costs order has not been assessed or otherwise sough to be executed, so far as the evidence discloses.
There is no dispute that the liquidator will incur further (albeit much more modest) costs if the appeal were to proceed. Those costs have been quantified uncontroversially in Mr McCarthy's affidavit at some $48,520 exclusive of GST. Of that amount, some is directed to this application, but the majority is to the substantive appeal. Those are solicitor-client costs, but Mr McCarthy applies as a rule of thumb a two-thirds estimate for recoverable costs and his evidence is that those recoverable costs, excluding the motion, would be sum $32,023.20.
Mr Zamattia opposed any condition that there be security for costs of his appeal or application for leave to appeal in this court. He points to the absence of the usual material that would accompany an application for security of costs, including evidence of impecuniosity or dissipation or removing assets from the jurisdiction. Mr Zamattia is correct in that those are ordinarily factors which stand in the way of making an order for the security for costs of an appeal brought by a resident natural person such as the present. On the other hand, this is in my view quite an exceptional case. For one thing, the application is (although only slightly), out of time. For a second, in substance a new ground is sought to be agitated in this court which at the very least was far from the forefront of the issues determined by the primary judge. Thirdly, this is a claim against a liquidator and the evidence is that the liquidator has no funds of his own to draw upon to defend the appeal. Fourthly, this is not an application for security for costs. It is a submission that, as a term of the leave which Mr Zamattia seeks, and accepts that he needs, he make provision for security. I also bear in mind that if security be ordered, the appropriate amount is small compared to the principal, and even smaller compared to the costs which have been incurred to date, and that all that is involved is Mr Zamattia being deprived of the use of that money for the short period of time until the determination by this Court. It is likely that costs in this Court will follow the event, and so if he succeeds, he will be entitled to the return of the security and if he fails, the security will be available to meet the costs liability to which he will be subject.
Ultimately, following exchanges between me and Mr Luitingh to the effect of the above, I did not understand there to be sustained opposition to my ordering security in a modest amount - I say modest because the amounts already at stake far dwarf the $30,000 or thereabouts that the liquidator seeks - on terms that Mr Zamattia be given 28 days to provide it.
For those reasons, I make the following orders.
1. Grant leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) to proceed in this Court, subject to orders 2 and 3 below.
2. Direct that Mr Zamattia file and serve an application seeking leave to appeal from the orders of the primary judge within 28 days of today.
3. Mr Zamattia to provide within 28 days of today security for the liquidator's costs of proceedings in this court by paying $30,000 into court.
4. Grant leave to the parties to apply by three days' notice to my Associate for any further application with a view to dismissing the proceedings in this court, in the event of non-compliance with orders 2 or 3 above.
I'm sorry, I'll just interrupt myself here. Mr Somerville, I'm minded to direct that the parties' costs of the motion be costs of the proceedings in the Court of Appeal principally because each of you in effect have had some success, but I should give you a chance to be heard against that if you--
SOMERVILLE: I don't wish to be heard.
HIS HONOUR: Do you wish to be heard, Mr Luitingh?
LUITINGH: No, your Honour, I don't wish to be heard.
HIS HONOUR:
5. Order that the parties' costs of the notice of motion dated 16 November 2021 be each party's costs of the proceedings in this Court.
DISCUSSION
6. Stand the matter into the Registrar's list on 14 March 2022 with a view that Mr Zamattia will by that time have complied with orders 2 and 3 above and have filed and served written submissions.
[3]
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Decision last updated: 02 February 2022