Supreme Court New South Wales Medium Neutral Citation: Fleming & Anor v Bobb & Ors [2012] NSWSC 826 Hearing dates: 20 June 2012 Decision date: 20 June 2012 Before: White J Decision: Refer to para [18] of judgment. Catchwords: PRACTICE AND PROCEDURE - application for payment of moneys presently held in court - whether plaintiffs are beneficial owners of moneys paid into court - fund represents funds held on trust arranged to be invested offshore by plaintiffs through defendants - at all material times instructions in relation to investments given to the defendants by the plaintiffs - moneys restored by being paid into court - held plaintiffs as beneficial owners of moneys PRACTICE AND PROCEDURE - application for payment of moneys presently held in court - whether orders for payment of funds should be conditional on any objection by the Commissioner of Taxation - voluntarily disclosure statement submitted by plaintiffs to Australian taxation Office Category: Principal judgment Parties: John Desmond Fleming (1st Plaintiff) Brian William Bartlett (2nd Plaintiff) Richard Bobb (1st Defendant) Keo Chui (2nd Defendant) Yu Shing Group Ltd (3rd Defendant) Representation: Counsel: D L Williams SC with A Korakis (Plaintiffs) N Cotman SC with D K L Raphael (1st Defendant) A M Gruzman (2nd Defendant) Solicitors: Gells Lawyers (1st Defendant) Savio Solicitors (2nd Defendant) File Number(s): 2009/289966 Judgment 1HIS HONOUR: In these proceedings the plaintiffs sued the first and second defendants for alleged breach of trust. The first and second defendants carried on practice as accountants. The plaintiffs allege that in 1999 they were the beneficial owners of funds totalling US$471,206.38 which they arranged to be invested in Hong Kong through the first and second defendants. Prior to the funds being transferred to an account with the first defendant, it appears that the moneys were held by two overseas companies, but the plaintiff's evidence is that the moneys were held by those companies on trust for them. 2On the transfer of the funds to the control of the first and second defendants, the funds, at least initially, became held by the first defendant or the first and second defendant on trust for the plaintiffs. In other words, there was a resettlement. Initially the funds were held in an account in the name of the first defendant in Hong Kong, being an account numbered 39. At that time they were held clearly on trust for the plaintiffs in agreed proportions. 3The plaintiff's evidence is that in July 1999 the first defendant proposed that the funds be beneficially held by a company to be established. A company was established in the British Virgin Islands, being the third defendant, Yu Shing Group Limited. Yu Shing Group Limited has been served, but has not appeared. 4The plaintiffs and the first and second defendants have reached an agreement to settle the plaintiffs' claims. I am asked to make a declaration and certain orders by consent of those parties. Two issues arise in relation to the making of those consent orders and proposed declaration. 5The first is that the parties seek a declaration that the first and second plaintiffs are the beneficial owners of moneys that have been paid into court in the proportions of 40 per cent and 60 per cent respectively. Two sums totalling $1,100,154.36 were paid into court on 26 November 2010 and 13 January 2011. The only other party that might claim a beneficial interest in those moneys is the third defendant. Because I am asked to make a declaration (which I assume would be binding on the third defendant as it has been duly served), I need to be satisfied that there is a proper basis for the declaration sought. 6The second question is whether I should make an unconditional order for the payment of the moneys that have been paid into court, out to the plaintiffs, or as they might direct, or whether I should direct such a payment out only if the Commissioner of Taxation indicates that he has no objection to that course. 7 Turning to the declaration sought, the third defendant was incorporated in the British Virgin Islands on 5 July 1999. Its shareholder is a Hong Kong company called L & C Nominees Limited. L & C Nominees Limited has signed declarations of trust of the shares in Yu Shing Group Limited in favour of the plaintiffs. It has also signed documents entitled "Nominee Shareholder Agreement" and "Nominee Director Agreement", the effect of which (if those documents have come into force) would include the giving of indemnities by the plaintiffs to L & C Nominees Limited in respect of the shareholding and its conduct as director. I should add that L & C Nominees Limited is the corporate director of Yu Shing Group Limited. 8The second plaintiff, Mr Bartlett, deposes that on 17 July 1999 the first defendant, Mr Bobb, proposed, and he agreed, that funds which were then held in an account called Client Account Number 39 for the plaintiffs be transferred to a new client account called Richard A Bobb Client Account Number 43 to be held on trust for Yu Shing Limited. An account number 43 in the name of the first defendant was opened with his bank and the funds in account number 39 were transferred to it. The correspondence from Mr Bobb referring to that account addressed to Mr Bartlett is headed as follows: "Yu Shing Group Limited Richard A Bobb Client Account Number 43". 9However, the plaintiffs did not sign the nominee shareholder agreement or the nominee director agreement. It appears from a file note of Mr Bobb's to which Mr Bartlett refers that on 23 August 1999 Mr Bobb advised the plaintiffs that Yu Shing Group Limited would constitute a controlled foreign company for the purposes of the Australian income tax laws and they should take that into account when considering their taxation positions. It appears that in substance they were invited to obtain their own tax advice. Thereafter the moneys remained in account number 43, but it seems that nothing further was done to complete the proposed arrangements for the use of Yu Shing Group Limited as the entity that would beneficially own the moneys, albeit that it would be controlled by the plaintiffs. 10On 1 November 2000 Yu Shing Group Limited was deregistered. It was only re-registered on 4 February 2010 to be added as a party to these proceedings. 11The plaintiffs commenced proceedings in Hong Kong against L & C Nominees Pty Limited to seek to obtain control over the third defendant. The position taken by L & C Nominees Pty Limited in those proceedings was that the declaration of trust of the shares was signed by it in escrow and was to take effect only if the other agreements were duly signed by the plaintiffs and returned to it. I understand that the Hong Kong proceedings have not been resolved. 12As I have said, Yu Shing Group Limited has been joined as a defendant to these proceedings, but has not elected to appear. 13Whilst it is clear that the parties intended to establish a new trust in 1999 by which the funds would be held for Yu Shing Group Limited rather than the plaintiffs, I accept the submission for the plaintiffs that the conditions for the implementation of that intention were not met. At all material times instructions in relation to the investments were given to the defendants by the plaintiffs and not by L & C Nominees Pty Ltd as the corporate director of Yu Shing Group Limited. Nor could such instructions have been given between 2000 and 2010 because the company did not then exist. 14For these reasons, I am satisfied that it is appropriate to make the declaration sought as to the beneficial ownership of the moneys paid into court. In that respect there is no dispute that the moneys that have been paid into court are the moneys that remained in account number 43 or moneys that ought to have been restored to that account and which were restored by being paid into court. 15On the question of whether or not the orders for payment out of the funds in court should be conditional on the Commissioner of Taxation indicating he has no objection to that course, I was concerned on the reading of the affidavits as to whether or not the Commissioner might be entitled to a claim in respect of the offshore investments conducted with an obvious desire for secrecy. However, on 26 November 2009 the solicitors for the plaintiffs submitted a voluntary disclosure statement to the Australian Taxation Office in respect of those investments. The disclosure statement appears to cover all of the matters that would be raised by the evidence in this case. 16On 18 and 19 May 2010 the Australian Taxation Office raised amended assessments for the plaintiffs to include offshore income. No penalty tax was assessed, doubtless because of the voluntary disclosure that was made. The assessments were in moderate amounts and I am told that they have all been paid. In these circumstances I do not think that I need be concerned about the position of the Commissioner. 17Subject to one matter which I will need to raise with counsel, I am satisfied, therefore, that I ought to make the consent orders and declaration proposed in the short minute of order signed by the legal representatives of the parties and the first defendant [Parties addressed.] 18With the amendment to para 3, I give judgment and make orders and the declaration in accordance with the two documents entitled "Short Minute of Order" signed by the legal representatives of the parties and by the first defendant which I have initialled and dated today and will place with the papers. Amendments 09 August 2012 - Misspelling of counsel's name. Kurakis substituted with Korakis Amended paragraphs: 0 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. Decision last updated: 09 August 2012