New South Wales Supreme Court CITATION : Mirembe Pty Ltd v Craig Dangar [2009] NSWSC 1268 HEARING DATE(S) : 15 October 2009 JURISDICTION : Equity Division Duty Judge List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 15 October 2009 DECISION : Judgment for restitution of amount received and not repaid – declare equitable charge over assets and undertaking of defendant securing same. CATCHWORDS : EQUITY – trusts and trustees – breach of trust – where defendant knowingly received monies in breach of trust – where moneys repaid in part only –equitable charge imposed over assets and undertaking of defendant LEGISLATION CITED : (CTH) Corporations Act 2001, s 44D, s 447A CATEGORY : Principal judgment Australian Competition and Consumer Commission v Dataline.Net.Au Pty Limited [2007] 161 FCR 513 Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 CASES CITED : MY Distributors Pty Limited v Omac Pty Limited (1992) 36 FCR 578 Re Oatway [1903] 2 Ch 356 Sergi v Jurcevic (1999) 46 NSWLR 672 Mirembe Pty Ltd as Trustee of Verna Stewart Superannuation Fund (plaintiff) Craig Gerard Dangar (first defendant) PARTIES : Deputy Dog Pty Ltd (second defendant) Meakin Pty Ltd (third defendant) NSW Finance & Leasing Pty Ltd (fourth defendant) Nicholas Crouch (fifth defendant) FILE NUMBER(S) : SC 4543/08 COUNSEL : Mr J J Hyde (plaintiff) SOLICITORS : Certus Law (plaintiff) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Thursday 15 October 2009 4543/08 Mirembe Pty Ltd v Craig Dangar JUDGMENT (ex tempore) 1 HIS HONOUR: This is the final hearing, on an undefended basis, of proceedings brought by the plaintiff Mirembe Pty Limited, the trustee of a superannuation fund, against the fourth and fifth defendants NSW Finance & Leasing Pty Limited (subject to a Deed of Company Arrangement), and Nicholas Crouch, the Deed Administrator of that company, in circumstances where the proceedings as against the first defendant have already proceeded to a consent judgment, as against the second defendant are stayed by its winding up, and as against the third defendant have been settled. 2 As against the fourth and fifth defendants, leave to proceed against which was granted on 30 June 2009, the claim is one of a Barnes v Addy character, whereby Mirembe complains that assets of the superannuation fund, of which the first defendant, Mr Dangar was a trustee, were paid by him in breach of trust to NSW Finance & Leasing Pty Limited, a company of which he was also, at the relevant time, the sole director and ultimate beneficial owner (as he was the sole shareholder in its holding company). 3 Although both the forth and fifth defendants have been served with the proceedings (as established by an affidavit of Steven Patrick Bourke sworn 4 September 2009) and further attempts have been made by telephone to notify them of the pendency of the proceedings before the court, and they have also been served with copies of the directions made when the matter was last before the court on 11 September 2009, adjourning the proceedings to today for hearing on an undefended basis, those defendants have been silent in response. There is no appearance by them or on their behalf today. 4 In addition to the deemed admissions which arise from their failure to plead to the further amended statement of claim – in which respect I prefer the view that a deemed admission does arise from the failure of a defendant to file a defence [see Sergi v Jurcevic (1999) 46 NSWLR 672, 676- 678; MY Distributors Pty Limited v Omac Pty Limited (1992) 36 FCR 578; see also Australian Competition and Consumer Commission v Dataline.Net.Au Pty Limited [2007] 161 FCR 513] – the plaintiff has also, on the hearing, read affidavit evidence and tendered documentary evidence to prove its claim. 5 In short, that evidence satisfies me that the first defendant, Mr Dangar, was a trustee of the superannuation fund at the relevant time; secondly, that in breach of trust, he recommended that an investment be made in NSW Finance & Leasing and withdrew or procured the withdrawal of $540,046.35 from the superannuation fund's assets and paid $540,000 to NSW Finance & Leasing; thirdly, that NSW Finance & Leasing, of which he was then the sole director and, as I have said, the ultimate beneficiary, received those funds knowing of Mr Dangar's breach of trust; and accordingly, that NSW Finance & Leasing is liable to restore to the trust the property so received by it with notice of the breach of trust [Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89, 141]. 6 Of the $540,000 paid to NSW Finance & Leasing on 11 April, 2007, $200,000 was repaid on 14 May 2008. The liability outstanding is therefore for $340,000, plus interest on $540,000 from 11 April 2007 until 14 May 2008 and on $340,000 thereafter. 7 The plaintiff's submissions included a claim for compound interest. I accept that, where there is a "knowing receipt" of this kind, compound interest, in an appropriate case, may be awarded. However, no evidence has been tendered of appropriate rates of compound interest and, in those circumstances, I am not prepared to do other than award simple interest at court rates. 8 The plaintiff has calculated the amount of interest in accordance with the rates provided by the rules of court for interest on unpaid judgment debts for the periods to which I have referred, and that amounts to $105,195.61. The plaintiff is entitled to judgment against the fourth and fifth defendants for that amount. 9 The funds in the hands of the fourth defendant have been at best mixed, if not, at worst, dissipated. The plaintiff draws attention to the observations of Joyce J in Re Oatway [1903] 2 Ch 356, where his Lordship said: It is, in my opinion, equally clear that when any of the money drawn out has been invested and the investment remains in the name or under the control of the Trustee, the rest of the balance having been afterwards dissipated by him, he cannot maintain that the investment represents his money alone and that what has been spent can no longer be traced and recovered as the money belonging to the Trust. 10 That principle is, in my opinion, capable of application to the present case. NSW Finance & Leasing, having received the plaintiff's moneys with notice that they were paid to it in breach of trust and having expended those moneys, cannot be heard to say that the assets that it retains are its own, free of any obligation arising from its improper receipt of funds in breach of trust. In those circumstances, it seems to me that the appropriate remedy is to impose an equitable charge over the assets and undertaking of NSW Finance & Leasing, securing its remaining obligation to the plaintiff. 11 A further difficulty arises in this case because NSW Finance & Leasing is subject to a Deed of Company Arrangement. (CTH) Corporations Act 2001, s 444D, provides: a Deed of Company Arrangement binds all creditors of the company but does not prevent a secured creditor from realising or otherwise dealing with the security, except so far as the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed. 12 The plaintiff originally sought an order under s 447A providing that, for the purposes of the Deed of Company Arrangement, the plaintiff would be treated as a secured trust creditor with priority over all other creditors. Section 447A permits the court to make such order as it thinks appropriate as to how Pt 5.3A is to operate in relation to a particular company. It is well established that that is a wide power. However, if the plaintiff is a secured creditor, then, unless it voted in favour of the resolution of creditors to execute the Deed of Company Arrangement, it would in any event effectively stand outside the deed, so far as realising the security is concerned, pursuant to s 444D(2). But, on the present state of the evidence, if (as appears may have been the case) the plaintiff voted in favour of the resolution of creditors, I would have difficulty in being persuaded that it would be appropriate now to permit it to resile from that position. The situation is further complicated by the circumstance that the evidence is unclear as to whether or not the plaintiff, in fact, voted in favour of the resolution of creditors. The preferable course, in my view, is to leave this issue to be resolved on another day if it has to be resolved. If the plaintiff claims not to have voted in favour of the resolution, and the company or its deed administrator wishes to contend that the plaintiff did vote in favour of the resolution, then that can be resolved on better evidence than is presently available, at the appropriate time. The issue, of course, may never arise. 13 My orders are: 1. Give judgment that the fourth defendant pay the plaintiff the sum of $445,195.61; 2. Declare that the assets and undertaking of the fourth defendant are charged in equity with payment to the plaintiff of the said sum; 3. Order that the fourth and fifth defendants pay the plaintiff's costs of the proceedings as against them; 4. Direct that the exhibits may be returned upon the undertaking of counsel for the plaintiff to return them to the court in the event that they are required for further proceedings. ********** 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.