Australian Receivables Limited v Tekitu & Ors [2010] NSWSC 823

New South Wales Supreme Court

CITATION : Australian Receivables Limited v Tekitu & Ors [2010] NSWSC 823

HEARING DATE(S) : 26 July 2010

JUDGMENT DATE : 28 July 2010

JUDGMENT OF : Ball J

DECISION : The defendants' motion dated 7 July 2010 is dismissed with costs.

CATCHWORDS : PRACTICE AND PROCEDURE - Application for variation of orders - whether there is a material change in circumstances or discovery of new material

CATEGORY : Procedural and other rulings

CASES CITED : Australian Receivables Limited v Tekitu Pty Limited & Ors [2008] NSWSC 433 Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44

Australian Receivables Limited (Plaintiff) PARTIES : Tekitu Pty Ltd (First Defendant) Ross Edward Smith (Second Defendant) Lynette Mary Smith (Third Defendant)

FILE NUMBER(S) : SC 2007/257468

R Bender (Plaintiff) COUNSEL : N Cotman SC (Defendants) M Fisher (Defendants)

SOLICITORS : Forbes Dowling Lawyers (Plaintiff) Malcolm Johns & Company (Defendants)

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

BALL J

28 JULY 2010

2007/257468 AUSTRALIAN RECEIVABLES LIMITED v TEKITU PTY LIMITED & ORS JUDGMENT 1 This is an application for a variation of an order made by Brereton J on 4 April 2008 (see [2008] NSWSC 433). At that time his Honour made an order, among others, restraining the defendants from disbursing moneys held by their solicitor, Rodd Peters Solicitor, in a controlled moneys account. The total amount held in that account is $224,607.72. The defendants seek the release of $145,019.08 of that amount. 2 The substantive proceedings concern a contract dated 9 January 2007 by which the plaintiff purchased from the first defendant the assets of a mercantile collection business formerly carried on by the first defendant. The second and third defendants are directors and shareholders of the first defendant. 3 The purchase price under the contract essentially consisted of three amounts – an initial payment of $950,000 plus amounts described as the "First Earn-out" and the "Second Earn-out". The First Earn-out was calculated as fifty percent of the net revenues of the business between 1 July 2006 and 30 June 2007 in excess of $5.6 million. The Second Earn-out was calculated as fifty percent of the net revenues of the business for the period 1 July 2007 to 31 December 2007 in excess of $2.8 million. 4 Following completion, a number of clients of the business continued to pay the first defendant rather than the plaintiff. Clause 17.5 of the sale agreement provided that the first defendant would account to the plaintiff for those amounts "immediately" and "without deduction". In all, the plaintiff claims that the first defendant has failed to account to it for amounts totalling $552,235 under that clause. Of that amount, the defendants have subsequently paid the plaintiff an amount of $161,284. Further amounts totalling $224,607.72 were identified and ultimately paid into the controlled moneys account. The balance was disbursed by the first defendant. In addition to its claim against the first defendant, the plaintiff claims that the second and third defendants knowingly assisted the first defendant in a breach of trust in disbursing amounts paid to it by clients or were knowing recipients of moneys paid by the first defendant to them in breach of trust. The plaintiff also has a further claim for $17,041 against the first defendant. The details of that claim are not relevant to the current application. 5 In defence of that claim, the defendants rely on a set off and a cross claim. Brereton J described (at [4]) the set off and cross claim in these terms: "[The first defendant's] defence is a set off for sums said to be due to it by [the plaintiff] under the contract or collateral arrangements, and a cross claim for what is called the "earn-out payments" in the contract, to which [the first defendant] contends it is entitled – or at least would have been entitled had [the plaintiff] acted properly in accordance with its own obligations under the contract. The amount of the set off asserted in the defence is at least $558,580, and the cross claim for the earn-out payments has been estimated on behalf of the defendants to be in the order of $1,523,553." 6 His Honour accepted that the defendants' set off and cross-claim ought to be regarded as seriously arguable. Nonetheless, his Honour concluded that the balance of convenience was in favour of an order preventing the defendants from disbursing the moneys held in the controlled moneys account. His Honour did so for four reasons (see [22]-[25]):