FEDERAL COURT OF AUSTRALIA

Lewis v Nortex Pty Limited (in liq) [2012] FCA 621

THE COURT ORDERS THAT:

1.    The application be dismissed with costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF PETER LAWRENCE LEWIS, a debtor

REASONS FOR JUDGMENT

1    These proceedings concern an application to set aside a bankruptcy notice which was served on the applicant on 28 February 2012. The bankruptcy notice named as creditors “NORTEX PTY LIMITED (IN LIQUIDATION) ACN 002 903 362 and BRIAN RAYMOND SILVIA in his capacity as liquidator of Nortex Pty Limited (in liquidation)”.

2    The bankruptcy notice claimed a debt of $1,938,695.68. The sum claimed was based on a JUDGMENT/ORDER signed and sealed by a Registrar of the Supreme Court of New South Wales on 17 August 2010. The amounts claimed as interest under the orders were calculated as shown in a “Schedule of Interest Calculations”.

3    At all relevant times the applicant controlled a company called Kation Pty Limited (“Kation”). Mr Russell Lamb controlled a company called Lamru Pty Limited (“Lamru”). From about June 1991 Kation and Lamru held interests in a unit trust known as the Nortex Unit Trust in the proportions of 60% and 40% respectively. The Nortex Unit Trust was established in December 1985. The trustee of the Nortex Unit Trust was Nortex Pty Limited (“Nortex”).

4    Nortex was placed into liquidation on 3 September 1997 and, with that status, is the first respondent to the present proceedings. The second respondent to the proceedings is the liquidator of Nortex.

5    The powers of a liquidator are currently stated by s 477 of the Corporations Act 2001 (Cth) (“Corporations Act”). Section 477 includes the following provisions:

(1)    Subject to this section, a liquidator of a company may:

(a)    carry on the business of the company so far as is necessary for the beneficial disposal or winding up of that business; …

…

(2)    Subject to this section, a liquidator of a company may:

(a)    bring or defend any legal proceeding in the name and on behalf of the company; and

…

(d)    do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents and for that purpose use when necessary a seal of the company; and

…

(m)    do all such other things as are necessary for winding up the affairs of the company and distributing its property.

6    The trust deed which established the Nortex Unit Trust, and constituted the Nortex Trust Fund, provided by clause 30:

VACATION BY TRUSTEE OF OFFICE

31.    The office of a Trustee shall be ipso facto determined and vacated if such Trustee being an individual shall be found to be a lunatic or of unsound mind or if he shall become subject to any bankruptcy law or if such Trustee being a corporation shall enter into liquidation whether compulsory or voluntary (not being merely a voluntary liquidation for the purposes of amalgamation or reconstruction).

7    No other trustee was appointed upon Nortex going into liquidation or at any subsequent time. Counsel for the applicant very appropriately accepted that, in those circumstances, Nortex remained at least a bare trustee of the Trust, including the Trust Fund (referred to hereunder) and any other property. It follows that the liquidator’s powers and functions included such powers as were necessary to deal with any ongoing obligations of Nortex as trustee.

8    In 2002 Lamru commenced proceedings in the Supreme Court of New South Wales claiming relief against the applicant and Kation in relation to the operation of Nortex and the Nortex Unit Trust. The proceedings were heard over 103 days from 2002 to 2006. Lamru was substantially successful. The applicant and Kation appealed to the New South Wales Court of Appeal. The appeal was largely unsuccessful. The applicant and Kation then sought special leave to appeal to the High Court. Special leave was refused.

9    Throughout those proceedings Nortex (in liquidation) was a party and the liquidator, necessarily, had carriage of the interests of Nortex. The liquidator also participated in the proceedings in his own right to defend his accounting practices.

10    The final result of the proceedings was as set out in the consolidated JUDGMENT/ORDER signed and sealed by the Registrar of the Supreme Court of New South Wales on 17 August 2010. So far as relevant to the present application, those orders provided:

(3)    In relation to the issue concerning the payments made by Nortex of the disputed bonuses for Mark Lewis of:

(i)    $58,070 in respect of the 1995 financial year to Kation,

(ii)    $101,626 in respect of the 1996 financial year to Mark Lewis, and

(iii)    $138,733.30 in respect of the 1997 financial year to Mark Lewis.

(a)    DECLARE that each of such payments was made in breach of trust;

(b)    DECLARE that Peter Lawrence Lewis (“Lewis”) participated in each of the breaches of trust;

(c)    DECLARE that Kation participated in the breach of trust that occurred in respect of the 1995 financial year;

(d)    ORDER that Lewis and Kation pay to Lamru:

(i)    in respect of the 1995 financial year $23,228 together with interest calculated from 30 June 1995;

(ii)    in respect of the 1996 financial year $40,650 together with interest calculated from 30 June 1996;

(iii)    in respect of the 1997 financial year $55,493 together with interest calculated from 30 June 1997;

(e)    ORDER that Lewis and Kation reconstitute the Nortex Unit Trust by paying into the Trust Fund:

(i)    in respect of the 1996 financial year an amount of $60,976 together with interest calculated from 30 June 1996;

(ii)    in respect of the 1997 financial year an amount of $83,240 together with interest calculated from 30 June 1997;

(f)    IN RESPECT of the calculations of interest the amount is calculated on the sum to which it relates at the rate specified in schedule 5 to the Uniform Civil Procedure Rules 2005 and compounded on annual rests until payment.

(4)    In relation to the issues as to the taking and selling of stock by Lewis:

(a)    DECLARE that Lewis with the knowledge and acquiescence of Kation during the 1997 financial year fraudulently took and sold stock of Nortex and did not pay or account to Nortex for the proceeds thereof;

(b)    DECLARE that the accounts of the trust were erroneous by reason of the taking and selling of stock:

(i)    by understating the value of stock at the end of the 1996 financial year by $210,000;

(ii)    by understating the profits for the 1997 financial year by a further $150,000;

(c)    ORDER Lewis reconstitute the Nortex Trust Fund by paying into the trust Fund sixty per cent of the amounts referred to in par (b), together with interest at the rates payable under Schedule 5 of the Uniform Civil Procedure Rules 2005, calculated on 30 June in respect of each financial year, compounded at annual rests;

(d)    ORDER that Lewis pay to the Liquidator to be placed in an interest bearing account (if the Liquidator and Lamru give written consent to the Court and to Lewis within seven days) or into Court (if they do not) forty per cent of the amount referred to in par (b), together with interest at the rates payable under Schedule 5 of the Uniform Civil Procedure Rules 2005, calculated from 30 June in respect of each financial year, compounded at annual rests;

(e)    RESERVE LIBERTY to Lamru to apply to the Court for payment of the amounts referred to in par (d) to it on the basis of evidence that it has made full disclosure to the Australian Tax office of tax evasion by Russell William Lamb (“Lamb”) and Lamru in connection with Nortex stock and has made appropriate arrangements to pay any additional tax and penalties;

(f)    RESERVE LIBERTY to the Liquidator to apply to the Court after twelve months for release to him of the amounts in par (d), in the event that no application has been made by Lamb and Lamru in the meantime or in the event such an application has been refused.

(Emphasis added)

11    Based on those orders, the bankruptcy notice identified the following amounts due and unpaid:

(i)    $246,195.67 ($60,976 plus compound interest from 1 July 1996 to 30 June 2011) (Orders 3(e)(i) and 3(f));

(ii)    $301,428.28 ($83,240 plus compound interest from 1 July 1997 to 30 June 2011) (Orders 3(e)(ii) and 3(f));

(ii)    $508,735.47 ($126,000 (60% of $210,000) plus compound interest from 1 July 1996 to 30 June 2011) (Orders 4(b)(i) and 4(c));

(iii)    $325,907.57 ($90,000 (60% of $150,000) plus compound interest from 1 July 1997 to 30 June 2011) (Orders 4(b)(ii) and 4(c));

(iv)    $339,156.98 ($84,000 (40% of $210,000) plus compound interest from 1 July 1996 to 30 June 2011) (Orders 4(b)(i) and 4(d));

(v)    $217,271.71 ($60,000 (40% of $150,000) plus compound interest from 1 July 1997 to 30 June 2011) (Orders 4(b)(ii) and 4(d)).

12    The amounts referred to above total $1,938,695.68 which is the amount sought in the bankruptcy notice. No issue is taken with the calculations. Under Orders 3(e), 3(f) and 4(c), $1,382,266.99 was to be applied to reconstitute the Nortex Trust Fund. Under Order 4(d), $556,428.69 was to be placed in a separate interest bearing account. That money was to be dealt with thereafter in accordance with Orders 4(e) or 4(f).

13    The central argument for the applicant on the present application may be reduced to the proposition that Orders 3(e), 3(f) and 4(c) on the one hand, and Order 4(d) on the other, identify payments to be made on different accounts. That is because, so it is contended, any payment to the liquidator under Order 4(d) is to be made to him in some different capacity to any payment to be made to the Trust Fund pursuant to Orders 3(e), 3(f) and 4(c), whether through the liquidator or not.

14    In my view those arguments should not be accepted. The orders, in my view, all require payments to be made to or through the liquidator acting in his capacity as such. The fact that some payments are to be made directly into the Trust Fund and others are to be held in a separate account (at least for an interim period) makes no difference to the capacity in which the liquidator is to receive the payments and the capacity in which he is to act thereafter. The terms of the orders make that sufficiently clear. Attention to the source of the liquidator’s authority confirms it.

15    So far as the orders relating to payments of bonuses addressed by Order 3 are concerned, some payments are to be made to the Trust Fund by way of reconstitution of the Nortex Unit Trust, while some are to be made directly to Lamru. It might be noted that where a payment with respect to a particular financial year is to be made both to the Trust Fund and to Lamru (1996 and 1997) those payments bear the proportions of 60%/40%, reflecting the respective interests of Kation and Lamru in the Trust Fund. In other words, Lamru’s entitlement, which was vindicated by the Supreme Court proceedings, is to be paid directly to it; Kation’s entitlement is to be repaid to the Trust Fund. The liquidator has the power to receive payments to the Trust Fund to reconstitute the Nortex Unit Trust, and he has the power to enforce such payments if necessary.

16    So far as Order 4 is concerned the position is a little more complicated, but not much. Pursuant to that order, which concerned the fraudulent taking and selling of stock by the applicant, payments are again to be made in the proportion of 60% to the Trust Fund (evidently to reflect Kation’s interest) and 40% in another fashion (for the potential benefit of Lamru). The liquidator obviously has the capacity to enforce the obligation to make payments to the Trust Fund under Order 4. Again he would do so as the liquidator of Nortex.

17    The 40% payments required by Order 4 are to be made to the liquidator in the first instance (rather than to Lamru directly) to be placed into a separate interest bearing account, if certain consents are obtained. There is no suggestion that those consents have not been obtained or that the liquidator could not seek payment of those amounts. Lamru has a later right to seek payment to it from the interest bearing account to be established, subject to full disclosure of tax evasion by Mr Lamb and Lamru to the Australian Tax Office. Otherwise, after twelve months, the liquidator has a right to apply for release of the funds. There was no suggestion that the liquidator could do so in any capacity other than as the liquidator of Nortex, as the continuing trustee of the Nortex Unit Trust. The liquidator also has sufficient standing to enforce the obligation to make those payments. Any such action would be taken as the liquidator of Nortex.

18    A further argument should be mentioned at this point. In the Corporations Act a distinction is made between a liquidator having custody or control of the property of a company in liquidation (s 474(1)) and an order which goes further and vests such property in a liquidator (s 474(2)) (the earlier position to the same effect, applicable in 1997, was s 474 of the previous Corporations Law). No specific order has been made vesting the property of Nortex in the liquidator. Nevertheless, it was suggested at one point in argument that Order 4(d) was an order within the meaning of s 474(2) of the Corporations Act and it operated to vest the property of Nortex in the liquidator. The effect of the argument was that the liquidator would then hold the property in some different capacity than as custodian or controller in the ordinary way pursuant to s 474(1).

19    The argument should not be accepted. Order 4(d) is clearly not an order of the character suggested. Although Order 4(d) requires the establishment of a separate interest bearing account, it is clear from the orders themselves that Order 4(d) (like Order 3(d)) represents only a way of addressing Lamru’s entitlement as a beneficiary of the Nortex Unit Trust, with which the applicant interfered. Orders directing or resulting in payment to Lamru are no less orders in vindication of the interests held in the Nortex Unit Trust, and a discharge of the continuing obligations of its trustee (Nortex) and of the trustee’s liquidator, than are Orders 3(e), 3(f) and 4(c).

20    That appears also to be the view taken by the New South Wales Court of Appeal. On 14 December 2010 (Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In Liq) (No 5) [2010] NSWCA 294), in response to an application from the liquidator and Nortex which was made to address a perceived distinction between the legal operation of Orders 3(e) and 4(c) on the one hand, and 4(d) on the other, the Court of Appeal said (at [15]):

15    Whilst the language differs, the effect of each provision is the same.

and (at [18]):

18    As the trustee of the fund is Nortex and Nortex is under the control of the liquidator, the effect of the order proposed and the order as made is one and the same. The plain intent of the orders was that they be enforceable by Nortex and the liquidator.

21    In my view also, the claim represented by the bankruptcy notice is a claim by the same interest in all relevant respects. It is a claim for payment due to make good unlawful appropriations from the Nortex Unit Trust. The claim may be made by the liquidator, acting in that capacity and in the name of Nortex (in liquidation). It follows that the principal argument of the applicant should not be accepted.

22    I did not understand there to be, finally, any other substantive ground raised in support of the application to set aside the bankruptcy notice, although a number of other matters were raised in the written submissions. One matter which appears to me not to be covered in one way or another by the matters already discussed is a suggestion that the JUDGMENT/ORDER signed and sealed by a Registrar of the Supreme Court on 17 August 2010 was not a “final Judgment or final Order” as required by s 41 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”). The JUDGMENT/ORDER signed and sealed by the Registrar is a “certificate” for the purposes of s 178 of the Evidence Act 1995 (Cth). The certificate is evidence of the existence of an order by “an applicable court” and of the matters stated in the certificate. It was accepted that the specific orders set out in the certificate are an accurate consolidation of orders actually made, and in effect. If there was any infelicity or clerical error in the certificate, s 306 of the Bankruptcy Act would, in my view, operate to overcome any such defect. The certificate was adequate proof of a final judgment or order and the existence of the debt claimed.

23    Another matter was the suggestion that the bankruptcy notice failed to adequately disclose “post-judgment” interest, as was allegedly required by s 41 of the Bankruptcy Act and reg 4.02 of the Bankruptcy Regulations 1966. The applicant advanced similar arguments before Foster J in relation to an earlier bankruptcy notice issued to the applicant by Lamru (Lewis v Lamru Pty Ltd; In the matter of Lewis [2011] FCA 758). Foster J rejected those arguments. I would also have rejected this argument, if it was pressed, for the reasons given by Foster J at [37]-[41].

24    The focussed nature of the submissions finally pressed for the applicant, and the conclusions I have stated, also make it unnecessary to deal with a range of submissions made on behalf of the respondents. Some of those submissions addressed the status of Nortex under the Trust Deed. In light of the concession that Nortex remains a trustee, despite clause 30 of the Trust Deed, that issue need not now be addressed. Other submissions relied, if necessary, on concepts and principles of estoppel of various kinds. Although it is not necessary to decide the issues by reference to such matters there is, in my view, considerable force in the proposition that it would not now be open to the applicant to deny the role of Nortex as trustee, and the status and rights of the liquidator in that connection, in view of the history and conduct of the litigation and the positions taken by the parties to it. Any arguments suggesting a lack of requisite interest or status to enforce the obligations identified by the Supreme Court of New South Wales needed to be identified in those earlier proceedings if they were, in the present case at least, to be raised as a ground to set aside the bankruptcy notice. However, in the circumstances, it is not necessary now to say more about such matters.

25     The application to set aside the bankruptcy notice served on the applicant on 28 February 2012 will be dismissed. The applicant must pay the respondents’ costs. Under the terms of an order made on 7 June 2012, time to comply with the bankruptcy notice has been extended up to and including 6 July 2012.

Associate:

Dated:    15 June 2012