New South Wales Supreme Court CITATION : Anthony Milton Sims (as Liquidator of Liverpool Hotels Pty Limited) [2009] NSWSC 885 HEARING DATE(S) : 25 and 26 August 2009 JURISDICTION : Equity Division JUDGMENT OF : Bergin CJ in Eq EX TEMPORE JUDGMENT DATE : 26 August 2009 DECISION : Stay granted CATCHWORDS : CORPORATIONS - Where corporation reinstated without notice to directors - where Examination Summonses issued to director - application for access to liquidator's affidavit - application for stay of Examination Summonses LEGISLATION CITED : Corporations Act 2001 CASES CITED : Miltonbrook Pty Limited v Westbury Holdings Kiama Pty Ltd (2008) 65 ACSR 545 PARTIES : John Palasty (Applicant) Anthony Milton Sims (Plaintiff/Respondent) FILE NUMBER(S) : SC 3328/09 COUNSEL : NJ Allan (Applicant) N Cotman SC/RA Parsons (Plaintiff/Respondent) SOLICITORS : Ziman & Ziman Solicitors (Applicant) Dennis & Company (Plaintiff/Respondent) - 8 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BERGIN CJ in Eq 26 AUGUST 2009 3328 OF 2009 ANTHONY MILTON SIMS (AS LIQUIDATOR OF LIVERPOOL HOTELS PTY LIMITED) JUDGMENT 1 The applicant, John Palasty, moves for order 12 in the Interlocutory Process filed on 20 August 2009 that until the determination of the other relief sought in the Interlocutory Process, all examinations presently scheduled for this week be stayed. The respondent to the application is the plaintiff, Anthony Milton Sims (as Liquidator of Liverpool Hotels Pty Limited). This application is brought consequent upon a hearing yesterday in respect of the order sought in paragraph 2 of the Interlocutory Process that Mr Palasty be granted access to the affidavits in support of the plaintiff's application for the issue of the Examination Summonses addressed to the various persons identified in the Interlocutory Process. 2 In support of his application in respect of the order in paragraph 2 in the Interlocutory Process for access to the affidavit, Mr Palasty relied upon his affidavit of 20 August 2009 and material was tendered by the plaintiff which became exhibit 1. 3 Yesterday afternoon I indicated to the respective counsel, and in particular Mr Cotman SC, counsel for the plaintiff, that it appeared to me that there was a serious issue or an arguable case in respect of the liquidator's conduct such that I would, in a preliminary way, be minded to grant access to the affidavit as sought in paragraph 2 of the Interlocutory Process. For various reasons, Mr Cotman was to take further instructions overnight and this morning indicated that there is no resistance to the applicant, Mr Palasty, having access to the affidavit of the liquidator in support of the application for the issue of the Examination Summonses. I have made orders to that effect. 4 The application for a stay of the examinations is sought on the basis that it will enable a fair hearing of the further matters in the Interlocutory Process. Mr NJ Allan, of counsel, who appears for Mr Palasty, submits that there are serious issues to be tried in respect of a number of matters in the Interlocutory Process. 5 This is not a straight forward case. The Company, Liverpool Hotels Pty Ltd, was reinstated after having been deregistered when the present liquidator was the then liquidator of the Company. Reinstatement pursuant to section 601AH(2) of the Corporations Act 2001 was ordered on 7 April 2009. It is common ground that there was no notification given to the directors, one of whom is Mr Palasty, at the time of the application for reinstatement. There is within the Interlocutory Process an application to set aside the reinstatement order which is to be heard at a later time. The applicant relies upon the following paragraphs of Spigelman CJ's judgment in Miltonbrook Pty Limited v Westbury Holdings Kiama Pty Ltd (2008) 65 ACSR 545: 84 In my opinion, Miltonbrook was not given a reasonable opportunity to be heard. The information available to the solicitor was not, in my opinion, of a character which would enable him to question the basis upon which his Honour had formed the views expressed in his first judgment. Furthermore, that judgment, and the course of conduct on 5 March 2007 was such as to suggest that the matter had been determined on the previous occasion and all that remained was the making of orders. In my opinion, the presence of the solicitor on 5 March 2007 was not such as to give Miltonbrook a reasonable opportunity to be heard. 85 It is axiomatic that when a statutory power like s 601AH(2) is conferred on a court, the legislature intends that procedural fairness will be accorded to all who may be affected by the order, unless there is a clear statement to the contrary. The denial of procedural fairness by a court is a "fundamental irregularity" which would entitle a person aggrieved to set aside an order as a matter of unconditional right. (See Cameron v Cole supra at 591; Taylor v Taylor at 16.) The exercise of the discretion under r 36.15 must be similarly clear cut." 6 The applicant also submits that there is an arguable case or serious issue to be tried in relation to the perception of the liquidator's independence having regard to his present legal representation. 7 The application for reinstatement of the Company was supported by the liquidator's affidavit of 24 March 2009 which included evidence that one of the managers in his office informed him that he had been approached by "a creditor of the company" who informed him of various matters, including: that the creditor had been involved in legal proceedings in the District Court of New South Wales against Mr Palasty; that in those proceedings information had come to light concerning the records and documents of the Company; Mr Palasty had testified in those proceedings that he retained books and records of the Company in the garage of his home; and that as a result of the decision in the District Court that creditor had been held to be a creditor of the Company. 8 The liquidator's evidence in that application was that the creditor had provided him with a transcript of the District Court proceedings and copies of a number of documents which had been tendered in evidence in those proceedings. That evidence included the liquidator's opinion that: documents disclosing and relating to the affairs of the Company are available and most likely to be in Mr Palasty's control; that it is likely that funds of the Company had been used in the acquisition and/or the development of land at St Marys by another company under the effective control of Mr Palasty; and the use of funds in that way was likely to found claims against Mr Palasty for breaches of his duties as a director of the Company and against associated companies which took the benefit of the funds of the Company. The liquidator informed the Court in that application that in order to investigate and pursue those matters, he considered it necessary and appropriate to conduct public examinations of the various persons. The liquidator also advised the Court that the value of the debts claimed by unsecured creditors of the Company then known to him, totalled in excess of $500,000. 9 During the previous liquidation, the liquidator had been impeded by the lack of funds, but he filed a Presentation of Accounts in which he identified only one creditor for an amount of $3,184. 10 The District Court proceedings referred to by the liquidator were proceedings by John Graham Tomko, as plaintiff, against Mr Palasty by his tutor Judith Katherine Palasty appointed during the trial, apparently due to Mr Palasty's health at that time. The trial Judge, Gibb DCJ, delivered judgment on 15 December 2006. Mr Tomko was suing Mr Palasty for a personal debt. He also sued him for alleged breaches of the Trade Practices Act 1974, for misleading or deceptive conduct. Gibb DCJ's judgment included the following: The plaintiff, Mr John Tomko, is a litigation solicitor. He acted for the defendant, Mr John Palasty, in some rather complex litigation involving the proceedings brought by the ANZ bank involving a number of guarantees and/or cross-guarantees given by Mr Palasty amongst others. That litigation took some 18-odd months, and was resolved some time in or about December 2001. The solicitor and client struck up a close relationship and the solicitor became involved in, and advanced various sums of money to the benefit of, the defendant's next business venture. 11 Mr Palasty gave evidence in the District Court proceedings and was cross-examined in respect of a number of features of Mr Tomko's claims. It is apparent from the transcript of that cross-examination that Mr Palasty was able to identify certain aspects of the company's affairs, including having access to a Company cheque dated 28 January 2003 for $4,500 (tr 227). 12 Gibb DCJ held that Mr Tomko's loan claim against Mr Palasty failed because it was not a personal loan between Mr Palasty and Mr Tomko but a loan between Mr Tomko and the Company. One aspect of Mr Tomko's Trade Practices case was successful and there was an order for the payment of damages by Mr Palasty to Mr Tomko in the amount of $480,852. 13 It is apparent from the affidavit evidence filed yesterday that Mr Tomko appealed unsuccessfully to the Court of Appeal. It is also apparent that Mr Palasty also attempted to agitate a case or cases in the Court of Appeal which also appear to have been unsuccessful. Additionally, Mr Tomko appears to have pursued Mr Palasty for Freezing Orders in this jurisdiction and, although the detail of those Orders is not before me, it is apparent that such Freezing Orders were to ensure funds would be available to meet the judgment that Mr Tomko had secured in the District Court. There is also evidence that Mr Tomko was the Petitioning Creditor for the winding up of the Company, albeit that this was not the Petition that appears to have been moved on for the ultimate liquidation of the Company. 14 On 8 April 2007 Mr Tomko and Mr Palasty entered into a settlement. That Deed of Settlement is in evidence before me and it would appear that hundreds of thousands of dollars have been paid by Mr Palasty to Mr Tomko in settlement of the various aspects of the litigation referred to in that Deed of Settlement. 15 It is common ground that the creditor referred to by the liquidator in his application to reinstate the Company is his solicitor, Mr Tomko. It is not clear that there are any creditors of the Company other than Mr Tomko and perhaps that unsecured creditor in the amount of $3,184 referred to in the liquidator's Presentation of Accounts prior to the Company being deregistered. 16 The applicant claims that there is a serious issue to be tried in respect of the liquidator's conduct by reason of the position of his solicitor, Mr Tomko, being: a litigant against Mr Palasty; a former director of the Company; retained by Mr Palasty as his solicitor when he was apparently at another firm; not only a co-director but was apparently paid monies by the Company for the items referred to in the affidavit of Mr Palasty (albeit that such affidavit evidence is not as yet tested); paid the amounts in settlement of the litigation against Mr Palasty; the only person with a financial interest in the litigation that presently involves pursuing the person against whom he was litigating and for whom he previously acted for alleged breaches of the Corporations Act. 17 Mr Palasty has, it seems, a reasonable apprehension that the liquidator may not be exercising an independent mind where his former solicitor is guiding and giving advice to the liquidator in circumstances which may, at the very least, colour his approach to this litigation. 18 Those are the aspects upon which the applicant relies in respect of his submission that there is a serious issue to be tried in respect of the order sought in the Interlocutory Process that Mr Tomko and all other legal representatives of the firm (Dennis & Co) for which he has been acting be disqualified from representing the plaintiff in the present proceedings. 19 There are consequential orders sought in the Interlocutory Process in relation to the Examination Summonses and an application to commence an inquiry into the conduct of the liquidator in circumstances where the Company was reinstated without notice to the directors and where the legal representative has been involved in the manner that I have described. 20 Mr Cotman accepts that the Court has inherent jurisdiction to supervise the conduct of the liquidator, and, albeit that one of the examinees is not represented by Mr Allan, it appears to me that it would be consistent with the dictates of justice and appropriate in the circumstances of this case that the Examination Summonses be stayed until the Interlocutory Process is returned and dealt with on the next occasion. 21 There does not seem to me to be any prejudice to any party in staying these Examination Summonses for the time being. Indeed, Mr Allan submits that one of the aspects of the matter to which his client wishes to give consideration is the expiration of all limitation periods in respect of any debts. Be that as it may, the liquidator wishes to pursue Mr Palasty for alleged breaches of the Corporations Act because it appears to him, on the information provided to him by Mr Tomko, that Mr Palasty may have been using the Company's money for the debts of other companies and for Projects in which the Company had no involvement. Those aspects of the matter need to be considered on the next occasion when Mr Palasty will have to advise the Court on which particular aspects of the Interlocutory Process he is seeking to proceed. 22 I regard it as appropriate in all the circumstances to stay the Examination Summonses until the determination of the Interlocutory Process. ********** 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.