New South Wales Supreme Court CITATION : Rimac & 1 Ors v Costa [2001] NSWSC 938 revised - 23/10/2001 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1972/98 HEARING DATE(S) : 09/10/01, 10/10/01, 11/10/01, 16/10/01 JUDGMENT DATE : 16 October 2001 Nenad Rimac (First Plaintiff) PARTIES : Mirko Rimac (Second Plaintiff) Placido Costa (Defendant) JUDGMENT OF : Santow J COUNSEL : M B Evans (First Plaintiff) B W Rayment, QC (Defendant) SOLICITORS : John McEncroe & Co (First Plaintiff) Koffels (Defendant) CATCHWORDS : CORPORATIONS - Pleaded case leaves no room for argument that one-third interest not intended. DECISION : See paragraph 18 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION SANTOW J No. 1972/98 Nenad Rimac First Plaintiff Mirko Rimac Second Plaintiff Placido Costa Defendant JUDGMENT ex tempore 16 October 2001 (Revised 23 October 2001) INTRODUCTION 1 The present proceedings have proceeded by pleadings. The central issue that emerged in argument from the joinder of issue was whether instructions from the First Plaintiff, Nenad Rimac, as client, to the Defendant, Placido Costa, acting as a solicitor or in a legal capacity, were not properly carried out or carried out in breach of fiduciary duty. In particular whether the shares in a company to be formed to subdivide and sell 38 acres of land in Bargo as a profit-making venture should not have been issued so as to confer a one-third shareholding upon the Defendant. 2 However, that question has no ultimate significance in relation to the pleaded case unless it follow that the First Plaintiff were entitled to compensation as a result of any such breach. The position which presently obtains is that the interposed company Satate Pty Limited was, following contested proceedings in 1993 (matter No. 2347/93 in the Equity Division), wound-up. There are presently proceeds from that winding-up. Both Plaintiffs, father Nenad Rimac and Mirko Rimac his son, pleaded a claim to these. However, as emerged on the day of the hearing, the Second Plaintiff, Mirko Rimac, now forgoes any claim in favour of the First Plaintiff. 3 The practical result is that, depending on whether the Plaintiffs or Defendant succeeds, the monies presently held back from the liquidation will be allocated according to the determination of the present proceedings. 4 Somewhat unusually, it has emerged for reasons that I will elaborate, that on the Plaintiffs' own pleaded case, no compensation could be payable, even were it the case that the company should have been incorporated with the Plaintiffs as the sole shareholders. I am in any event satisfied that a one-third shareholding was correctly allocated to the Defendant, for reasons I will elaborate. NARRATIVE OF FACTS 5 What follows is an essentially agreed narrative of facts though the Defendant would contend that not all the facts are relevant to the Plaintiffs' pleaded case. 26 November 1929 First Plaintiff, Nenad Rimac ("Rimac") born in Sinj, Croatia 1932 Rimac's parents move to Split 1947 Rimac commences training as a marine engineer in Yugoslavia 1960 Rimac emigrates to Australia with his wife and two sons. A third child, a daughter, is later born in Australia 1962 Rimac and his wife purchase their first home, 3 Weston Street, Fairfield for £3,850 (inc £2,350 borrowed on mtge and repaid over two years) 1964 Rimac purchases old house at 219 Ware Street, Fairfield for £3,000 - property rented out. 1965 (late) Rimac purchases a house in Liverpool for $11,000. 1966 House in Liverpool sold. Rimac purchases 10 acres at Lot 4, Ninth Avenue, Llandillo for $10,000 1968 c Rimac purchases 5 acres at Badgery's Creek for $9,000 1978 Rimac meets Defendant ('Costa") for the first time at the office of Lacey & Company, Solicitors of Civic Plaza, 43 Ware Street, Fairfield to discuss problem Rimac has with Badgery's Creek land. 1982 Rimac contacts Costa again. Instructs him to purchase block of 17.5 acres (part of DP 580370 in the Shire of Wollondilly) in the name of Tvrto Dzaja ("Dzaja purchase"). 18 June 1982 Dzaja purchase settled. Rimac pays Costa $400 for doing conveyancing 17 August 1983 Rimac pays Costa $24,152.11 by cheque and $ 2,348 in cash late 1983 Rimac expresses interest in purchasing 12 acres of land in Picton for his son, the second plaintiff and contacts Costa about this. Picton land purchase does not proceed. Late 1983/ early 1984 Rimac, Costa and Capolupo look at land at Bargo, 28 acres in DP 569659 adjoining the Dzaja purchase. 13 March 1984 Purchase of 28 acres at Bargo completed. Land purchased in the name of Radenko Ruskovic. Purchase moneys provided by Rimac (the "Ruskovic purchase") Later 1984 Rimac decides to purchase an adjoining property of 38 acres, Lot 61 Old Hume Highway, Bargo being land in Deposited Plan 576258 in the Shire of Wollondilly. Costa advises Rimac to purchase property in name of company. Shelf Company acquired, Satate Pty Limited ("Satate"). Mid to late 1984 Accounts opened in the name of Satate and security taken to secure advances for Satate purchase 5 October 1984 Exchange of contracts on purchase of 38 acres being Lot 61 Old Hume Highway, Bargo (the "Satate purchase") November 1984 Rimac and Costa (jointly and severally) guarantee advance of $120,000 from National Australia Bank Late 1984 to early 1985 Rimac attends at offices where Costa works requesting details of paperwork concerning Satate. Costa deflects enquiries. 1988 Rimac sees documents at offices of J Molluso & Co showing that Costa has shareholding in Satate. 1988 Rimac instructs Caldwell Martin Cox solicitors in relation to Satate. 1990 Rimac complains to Law Society. 6 May 1991 Meeting of Directors of Satate - first ever attended by Rimac 12 June 1991 Further meeting of Directors of Satate - also attended by Rimac 13 June 1991 Rimac signs 1990 Annual Return for Satate Pty Ltd 26 April 1993 Costa commences proceedings in Equity Division of Supreme Court for winding up of Satate. 24 June 1996 Order made for the winding up of Satate Pty Limited 8 April 1998 Summons filed commencing proceedings 1972 of 1998 1 October 1998 Orders made by Windeyer J for distribution of surplus of funds of Satate Pty Limited 2000 Law Society dismisses complaint RESOLUTION OF ISSUES 6 Paragraph 11(d) of the Plaintiffs' Third Further Amended Statement of Claim is in these terms: "(d) the defendant would act for the first and second plaintiffs and for the company to be incorporated or acquired in relation to an intended subdivision and sale of the Bargo land for remuneration equal to one third of the net profit of the sale of the subdivided lots in the subdivision;" 7 I should also note that paragraph 11(c) and (e) are in these terms: "(c) The defendant would following incorporation or acquisition of a company act for the first and second plaintiffs to procure the acquisition by the company of the Bargo land for a fee of $350 to be paid by the first plaintiff; (d) … (e) in the event that the subdivision and sale of the Bargo land did not produce any net profit, third defendant would not receive any payment by way of fees or remuneration for acting in the said matter." 8 The Defendant pleaded to paragraph 11(d) in these terms: "(d) Does not admit the terms of sub-paragraph (d) and says that the land was to be subdivided and sold and that after payments of legal costs and disbursements to his employer, adjustment of rates and payment of real estate agent's commission, the company would receive the balance beneficially and that this was as dividends to be distributed in accordance with and pari passu to the original shareholding;" 9 However, I am satisfied on the material before me that there was an express instruction given in terms of paragraph 11(d) earlier quoted. Moreover, in the events that have happened, namely a profitable subdivision and sale of the Bargo land, legal costs were payable. Thus the parties clearly contemplated that remuneration would be paid both by way of legal costs to the Defendant and by the Defendant receiving one-third of the net profit of the sale of the subdivided lots in the subdivision. 10 As the earlier narrative makes clear, the company, Satate, was the vehicle for that profitable subdivision. It was conceded that the company had no other assets or liabilities of any material amount than the subdivision, so no other conclusion is open than that the company was essentially a proxy for the Defendant's interest in one-third of the net profit of the sale of the subdivided lots and was the means of effectuating that result. That in turn means that the proceeds of liquidating the company, insofar as derived from that profitable subdivision, stands in that sense as proxy for the respective interests of the parties, of which the Defendant was entitled to one-third. Indeed the pleaded case of the Plaintiffs leaves no room for any other conclusion, even taking into account the subsequent evidence and written argument. 11 Indeed the Defendant gave a guarantee for all the company borrowings to the Bank, NAB, alongside the guarantee given by the First Plaintiff in equal amount. So in that sense the Defendant stood liable for more than a mere one-third interest. 12 I have earlier quoted from the First Plaintiff's complaint to the Law Society. Though that complaint shows some confusion, at page 9.9 the First Plaintiff states that he instructed the Defendant to issue shares to himself, his son, Mirko, and Mr Costa. At page 10.6 the following is added. "As a condition of being given an equal shareholding, Costa agreed to look after all the legal work for the company." 13 While it may be said that Mr Rimac may not have fully understood the detailed intricacies of corporate matters, my observation of him is that he was an intelligent person who, despite limited English, would have had a reasonable understanding of the essential parameters of the commercial arrangement. Moreover, he concedes in the very complaint he makes that he had instructed that equal one-third share portions were to be issued; that is, one-third to the Defendant. That is in my view fatal to the Plaintiffs contention that the instruction was only to issue shares to the First Plaintiff and his son. It appears a reasonable inference from all the evidence that his son did not wish to have the risks associated with standing guarantor or otherwise pursuing the venture, though I need make no final determination of that matter. It suffices that I conclude that the Rimac interests, whether father and son together, or father alone, and if together whether in the ratio of one to one or two to one, never exceeded two-thirds of the company. The remainder was always to be held by the Defendant. 14 That conclusion means that the Plaintiffs must fail in their various contentions in the pleaded case. However, even were I wrong in that factual conclusion, it still must follow on the Plaintiffs' own case that no compensation could be payable for any alleged breach of fiduciary duty. That is because it is no part of the Plaintiffs' case that the pleaded instruction in paragraph 11(d) did not reflect the arrangements between the parties. Nor is it the Plaintiffs' case that those arrangements reflected in paragraph 11(d) were in any way vitiated by any breach of fiduciary duty or otherwise. 15 In those circumstances, the Plaintiffs must fail on that ground alone in recovering any compensation. I could not be said that the amount held back from the liquidation is other than equivalent to the amount which would have been paid pursuant to those arrangements. ORDERS 16 Because the Second Plaintiff at the commencement of the hearing sought to withdraw from the case, and in light of the orders I then made giving that leave but reserving the question of costs, I need to consider what appropriate orders should be made so far as the Second Plaintiff is concerned. Prima facie, the Second Plaintiff should, as the Defendant contends, be ordered to pay, with the First Plaintiff, the Defendant's costs up to and including the date of withdrawal, namely 9 October 2001. However, because the Second Plaintiff is not present to put any matters to the contrary, I will make orders having that result, but deferred from operation for seven days to give him that opportunity to be heard. 17 I make the following orders: 1. The Plaintiffs' proceedings should be dismissed with costs on the basis that the First and Second Plaintiffs shall be liable for the said costs, in the case of the Second Plaintiff up to and including 9 October 2001 but not thereafter. 2. So far only as the Second Plaintiff is concerned, the order in paragraph 1 shall not take effect until the expiry of 23 October 2001, with liberty to apply in the meantime on reasonable notice. 3. Notwithstanding any orders (including in matter No. 2347/93) in relation to the monies presently held in a bank account in the names of Ross Koffell, former solicitor for the Defendant and John McEncroe, solicitor for the First Plaintiff, those monies (inclusive of any interest earned thereon) are to be paid to the Defendant forthwith. ********** Last Modified: 10/25/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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