New South Wales Supreme Court CITATION : Kieran B. O'Connor Pty Ltd (In liq) & Anor v Kieran O'Connor & Ors [2005] NSWSC 406 HEARING DATE(S) : 14 April 2005 JUDGMENT DATE : 14 April 2005 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Injunction extended until further order. CATCHWORDS : INTERLOCUTORY INJUNCTION - SERIOUS QUESTION - BALANCE OF CONVENIENCE - Complex legal and factual issues to be determined - balance of convenience in favour of injunction. LEGISLATION CITED : Corporations Act 2001 (Cth) - s.181 Kieran B. O'Connor Pty Limited (In liq) - First Plaintiff Scott Darren Pascoe (as liq of Kieran B. O'Connor P/L (In liq) - Second Plaintiff PARTIES : Kieran O'Connor - First Defendant/First Respondent O'Connor Developments No 5 Pty Ltd (In liq) - Second Defendant/Second Respondent Matthews Folbigg Pty Ltd - Third Respondent FILE NUMBER(S) : SC 2228/05 D. Allan - Plaintiffs S.A. Benson - First Defendant/First Respondent COUNSEL : No appearance - Second Defendant/Second Respondent C. Harris - Third Respondent Bowles Lawyers - Plaintiffs SOLICITORS : Lenehan & Co - First Defendant/First Respondent Matthews Folbigg Pty Ltd - Third Respondent LOWER COURT JURISDICTION : Ex tempore 1 The Plaintiffs are a company in liquidation ("O'Connor P/L") and its liquidator, Mr Pascoe. The Defendants are Mr Kieran O'Connor and a company of which he was a director, O'Connor Developments No 5 Pty Limited, also in liquidation ("Developments"). The Plaintiffs, by Notice of Motion, seek to restrain a firm of solicitors, Matthews Folbigg, from disbursing to their clients a sum of $35,000 paid to the solicitors by the liquidator of Developments. For the purposes of this application, I shall endeavour to summarise the relevant facts as briefly as I can. 2 Mr O'Connor was a director of both O'Connor P/L and Developments at a time when, according to the liquidator of O'Connor P/L, that company was insolvent or was deemed to be insolvent. Mr O'Connor withdrew from the bank account of O'Connor P/L the sum of $62,000 and paid it to the account of Developments. The money was apparently used by Developments for the development of a property at Clovelly. There were three other persons who contributed money to that development. 3 It is alleged by the liquidator of O'Connor P/L that the withdrawal of the sum of $62,000 from that company by Mr O'Connor was a breach of his fiduciary duty to the company as a director as well as a breach of his statutory duty under s.181 of the Corporations Act 2001 (Cth). It is alleged that Developments, of which Mr O'Connor was sole director, was aware at the time that it received that money of the facts constituting Mr O'Connor's actions a breach of fiduciary and statutory duty whereby Developments became a constructive trustee of the funds received from O'Connor P/L, and any profits derived therefrom. 4 Proceedings were commenced by the three other persons who had invested money in the Clovelly development. On 17 September 2002 the Court made a declaration that Developments held title to the property at Clovelly on trust for each of the three other investors and Developments in equal shares. That property has now been sold by the liquidator of Developments. The liquidator was in a position early this year to make a distribution from the proceeds of sale to those found to be entitled. 5 I gather that the liquidator of Developments has made some distribution from the proceeds of sale to the other three investors in the property. He then indicated that he would make a distribution to Mr O'Connor personally in accordance Mr O'Connor's entitlements as a shareholder of Developments. 6 One of the orders which the Court had made on 17 September 2002 was that Mr O'Connor personally pay equitable compensation to the other three investors in the Clovelly property in specified amounts. On 18 February 2005 Mr O'Connor directed the liquidator of Developments to pay any amounts due to himself from the liquidation of Developments to the other investors in proportion to the amounts invested by each of them, in part satisfaction of the orders made against him on 17 September 2002. 7 Pursuant to that direction, on 6 April 2005, the liquidator of Developments sent a cheque for $35,249.71, not to the other investors directly in accordance with the instruction in Mr O'Connor's letter of 18 February 2005, but rather to the solicitors who, it is said, acted for the three other investors, namely, Matthews Folbigg. That sum is now in the trust account of that firm. 8 As I have said, the liquidator of O'Connor P/L seeks to restrain until final hearing the distribution of that money to Matthews Folbigg's clients, saying that the money was held by Mr O'Connor and Developments as constructive trustees for O'Connor P/L, and that the three investors do not have, and neither does Matthews Folbigg as their agent or trustee, better entitlement to the money than does the liquidator of O'Connor P/L. 9 Mr Harris, who appears for Matthews Folbigg and, indirectly, for the three investors, says that there is no serious question to be tried such as to warrant the grant of the injunction sought. He says that even if the liquidator of O'Connor P/L is correct in his assertions as to the circumstances in which Mr O'Connor became entitled to receive the sum of $35,000, neither the investors nor their solicitors were aware of those circumstances at the time they received the money from the liquidator of Developments. He says that even if there is some prior equitable interest which the liquidator of O'Connor P/L has to this sum of money, the three investors have now acquired a clear entitlement to the money for valuable consideration and without notice. He says, therefore, that the claim by the liquidator to recover those moneys from the investors or Matthews Folbigg must fail. 10 The legal questions involved in that submission, quite apart from the factual issues which may arise, are very difficult. It is never an easy matter to determine whether a person who is the beneficiary of a constructive trust has an equity or an equitable interest, whether that interest (whatever it is) has priority over the interest (whatever it is) of someone in the position of Matthews Folbigg or in the position of the investors. The solicitors and the investors now have notice of the alleged constructive trust. Can it be said that the solicitors have acquired a legal or equitable interest for consideration and without notice? Have the investors acquired an equitable interest for consideration, or do they have a mere equity? Who has priority? 11 The parties have made brief submissions on these questions without reference to authority and without any attempt at refined analysis. The evidence is obviously incomplete on both sides. It seems to me in those circumstances that, at the very least, it can be said that there is a serious question to be tried. I do not think that one could dispose of this case without a great deal more consideration of the relevant facts, and certainly a greater consideration of the legal questions involved. A heavy Duty Judge List is not the occasion to give consideration to those issues to the extent which the case warrants. 12 When I turn to the balance of convenience, I find that there is nothing said by Mr Harris' clients to weigh the balance of convenience against the granting of an interlocutory injunction other than that they have been waiting for their money for some considerable time. Proceedings against Developments were commenced in 2002 by the investors to obtain their share of the Clovelly property. It has taken some time for the property to be realised and for part of the proceeds to be distributed by the liquidator of Developments. The remaining $35,000 now in issue is no doubt long overdue as far as the three investors are concerned, but there is nothing put forward by them in evidence, nor is there anything said by Matthews Folbigg, to show that they are in any hardship or other need, or that they would be unduly prejudiced if the subject matter of the dispute is now retained in a trust account, or in some interest-bearing account, pending the determination of these questions. One knows nothing at all about the position of the investors and whether the money, if paid to them, is at risk of irrecoverable dissipation. 13 In those circumstances, as there is a serious question to be tried as to whether these funds are held upon a constructive trust, and as there is nothing to show that the balance of convenience weighs against the granting of an interlocutory injunction restraining distribution of the money to the investors, it seems to me that the Court should, it its discretion, grant the injunction as sought. 14 I propose to extend the order in paragraph 1 of the orders already made until further order, on the undertaking given by Mr Allan. I will give directions that the matter be brought on for an expedited hearing. ~ oOo ~ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.