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Pinto v Smilerozi Pty Ltd[2013] QCA 127

Pinto v Smilerozi Pty Ltd[2013] QCA 127

COURT OF APPEAL

MUIR JA

Appeal No. 4389 of 2013

SC No 9556 of 2012

ROSALIND PINTOFirst Applicant

ROSULU LEASING PTY LTDSecond Applicant

ACN 136 642 272

TOKYO HUT PTY LTDThird Applicant

ACN 158 395 941

FROWNROZI PTY LTDFourth Applicant

ACN 161 108 372

v

SMILEROZI PTY LTDRespondent

ACN 114 323 205

BRISBANE

FRIDAY, 24 MAY 2013

JUDGMENT

MUIR JA:  The applicants apply for the stay of the orders made by the primary judge on 17 April 2013 until determination of the appeal.  A summary of the orders which are set out in 36 paragraphs is as follows:

  • Against the first applicant:
    • a declaration that the first applicant has contravened ss 181, 182 and 183 of the Corporations Act 2001 (Cth) (the Act);
    • an order that the first applicant pay compensation to the respondent in respect of the contraventions of the Act in an amount to be assessed;
    • an order that the first applicant pay equitable damages for breach of fiduciary duty, in an amount to be assessed; and
    • a declaration that the first applicant hold certain property on a constructive trust for the respondent.
  • Against the second applicant:
    • declarations of contravention of ss 181, 182 and 183 of the Act and a declaration that the second applicant hold specified property on a constructive trust for the respondent;
    • an order that the second applicant pay compensation to the respondent in respect of contraventions of the Act in an amount to be assessed; and
    • an order that the second applicant pay equitable damages for the second applicant’s involvement in the first applicant’s breach of fiduciary duty in an amount to be assessed.
  • Against the third applicant:
    • declaratory relief akin to that claimed against the first and second applicant; and
    • claims for compensation and equitable damages akin to the claims against the first and second applicants.
  • Against the fourth applicant:
    • damages for breach of contract in an amount to be assessed;
    • a declaration of the assets of the Pinto Family Trust (the Trust) are charged in favour of the respondent as security for the obligation that the fourth applicant pay damages for breach of contract and against the respondent’s right to be indemnified from the assets of the Trust;
    • an order that Mr Khatri and Mr Lane (the Receivers) be appointed receivers in the assets of the Trust;
    • an order that the fourth applicant deliver to the Receivers all stock, stock in trade and assets of the Trust, together with all books and papers relating thereto, within seven days of the order;
    • an order that the Receivers be at liberty to sell such assets as are appropriate to satisfy:
      • the applicant’s right of indemnity in respect of expenses and liabilities it has incurred in the course of acting as trustee of the Trust;
      • their remuneration as Receivers; and
    • an order that the Receivers be remunerated in accordance with the schedule of fees attached to the consent of the Receivers to be filed in the proceedings.
  • Against all applicants:
    • orders that the applicants do all things necessary to make a conveyance transfer to the respondent or its nominee, all of the right to, title and interest in, and the benefits of the Rosulu Leasing Share, the Coles shop business, the brasserie shop business, the Coles shop lease and the brasserie shop lease (the Constructive Trust Property);
  • The orders directly affecting the Receivers are conditional upon the Receivers providing security in the sum of $1,000 within seven days of the date of the order.

Further orders in paragraphs 21–36 include an order for an account of profits, the appointment of a special referee to take the account and an order that the applicants make and serve a list of documents on the respondent by 4.00 pm on 15 May 2013.

The amended statement of claim, in very broad terms, contained the following allegations.  At material times, the first applicant was the sole director and secretary of the respondent and owner of its issued shares.  She was also, at relevant times, either a director of each of the applicant companies or had effective control of the boards of directors of such companies.

In 2005, after its registration on 18 May 2005, the respondent was appointed trustee of the Trust.

In 2005, Rosulu transferred to the respondent, as trustee for the Trust, what was described as, “the Coles Shop Business”, certain plant and equipment relating to the Coles Shop Business and “the Old Coles Shop Lease”.  The “Old Coles Shop Lease” expired on 30 June 2008 without being renewed by Rosulu Pty Ltd.

The first applicant caused the second applicant to be registered for the sole or primary purpose of taking advantage of opportunities to lease the Coles shop for the purpose of conducting a sushi business therefrom, and to lease the brasserie shop for a similar purpose.

There then followed a series of allegations about the entering into of the Coles shop lease and the brasserie shop lease in June 2009 by the first applicant on behalf of the second applicant, allegations of the entering into of franchise agreements in respect of Go Sushi businesses conducted from the shops.

Further allegations are made that:

  • the respondent’s liabilities were properly incurred by the respondent while acting in its role as trustee of the Trust;
  • the respondent as trustee was disadvantaged as the result of the entering into of the leases, franchise agreements and the commencement of the said businesses, and the first and second applicants gained benefits therefrom;
  • the first applicant improperly used her position as a director of the respondent to gain an advantage for herself personally and for the second applicant and caused detriment to the respondent;
  • as well as breaching duties imposed by ss 181(1), 182(1) and 183(1) of the Act, the first applicant breached her fiduciary duties which corresponded with the duties under the Act; and
  • the other applicants incurred accessorial liability in respect of the first applicant’s breaches of fiduciary duty and/or aided, abetted, counselled or procured her breaches of the Act.

On 17 April 2013, the first applicant sought an adjournment of the summary judgment application brought by the respondent, so that she could retrieve her files from her former solicitors and retain new solicitors and counsel.  The application for the adjournment was opposed.  The then counsel for the respondent referred the primary judge to an email from the respondent’s solicitors to the first applicant dated 10 April 2013.

The email stated, in substance, that:

  • the first applicant could not expect the respondent to agree to an adjournment in circumstances in which her former solicitors had sought instructions and/or funds for months without her responding;
  • she failed to respond to their notice of intention to apply for leave to withdraw;
  • she failed to file her own notice of acting in person;
  • she had known about the application for a month and had not obtained her file or appointed alternative legal representation; and
  • she had switched legal representation once before.

The email stated that if the first applicant wanted the solicitors to press their client for an adjournment, she should provide no later than 12 April evidence that: she “ever actually sourced [her] files” from her former solicitors; solicitors were instructed to act on her behalf; and evidence from the former solicitors that she had given them authority to release the applicants’ files and that they were not exercising any lien.

The first applicant informed the primary judge that she owed her former solicitors money and had been unsuccessful in her attempts to retrieve the file.  She said that she had made an offer to her former solicitors to pay the $15,000 she owed them by instalments with a view to disputing the account later, but had received no response.  The primary judge stated that he had no confidence that, if an adjournment was granted, the first applicant would be ready to proceed when the matter came on again.  He said also that the material demonstrated that the first applicant had had more than sufficient time.  As for the corporate applicants, the first applicant said that her mother and sister, who were both directors of one or more of the corporate applicants, were overseas because her grandmother was sick.

In making the orders on the summary judgment application, the primary judge observed in his reasons that the primary basis for the application succeeding was that the allegations in the statement of claim were either expressly omitted or the subject of implied admissions under the Uniform Civil Procedure Rules.  The primary judge had been provided with a document which showed the admissions and deemed admissions.

After remarking on this, the reasons by the primary judge were, in substance, as follows.  At the time the defence was filed on 8 January 2013, the applicants notified the respondent that an amended defence settled by counsel would be filed.  That did not occur.  The implied admissions arise because the denials do not provide a direct explanation for the belief that an allegation is untrue, nor are there explanations for non-admissions.  The primary judge remarked:

“Where all relevant parts of the statement of claim are admitted, either expressly or impliedly, in other words, where the cause of action is accepted, then judgment should follow”.

Because of the admissions, there is no real prospect of a defence succeeding and there is no need for a trial.

As the conduct of the applicants was in breach of the Corporations Law and requires the attention of a person skilled in determining what has taken place, it is appropriate that a receiver be appointed in order that the assets of the trust be maintained.

There are a number of problems with the form of the order.  The declarations of breaches of the Act (paras 1, 5, 9) failed to identify the contraventions the subject of the declarations.  In consequence of that paragraphs 2, 3 6, 7, 10 and 11 are arguably deficient.

No justification was offered to, or given by, the primary judge for the extreme step of appointing receivers to “collect, get in and receive the debts due and accruing and other assets, property and effects belonging to the Trust.”  Nor was it shown that the respondent’s right of indemnity would be lost or diminished unless urgent steps were taken.  There were, in fact, existing orders in the proceedings made on 7 and 27 November 2012 with a view to maintaining the status quo pending the determination of the proceedings.

Another concern I have is that the orders are more extensive than the relief sought in the amended statement of claim and that the applicants appear to have been given no notice of the additional relief sought.  In particular, paragraphs 20 to 33 inclusive do not appear to have any counterpart in the amended statement of claim.  Paragraph 33 is also impermissibly general.

I am not prepared to find that the applicants do not have an arguable case.  Although the primary judge was entitled to be sceptical about the applicants’ ability to produce evidence which would show a full, or even partial, defence, the nature and breadth of the pleaded allegations and their potential adverse consequences for the applicants and beneficiaries of the Trust were such that it was at least arguable that the primary judge should not have proceeded in reliance on deemed admissions, without some evidentiary proof of the substantive allegations; and without giving the applicants a deadline within which to obtain legal assistance and present their arguments and lead supporting evidence.  It is relevant in this regard that three of the applicants were not represented.

There are other potential problems.  The primary judge was provided with an 11 page outline of submissions dated 17 April 2013.  If the first applicant was given it that day, as would seem probable, it would have been difficult if not impossible for her to respond to the respondent’s arguments contained in it.

Finally, in this regard, I note that it is doubtful that there was any proof of service on the corporate applicants.

The statement of claim is arguably deficient in that allegations of breaches of duty and loss in paragraphs 48, 49, 50 and 50(a) are not linked to allegations of material fact except in a very general way.  The same may be said of paragraphs 57, 58, 59 and 60.  This does not assist in the interpretation of the declarations.  I should observe, however, that my view is that the statement of claim, in general, is a carefully and skilfully drawn document.

The first applicant swears that:

  1. the goodwill of the two businesses is the only real asset of the business;
  2. she is apprehensive that the goodwill may be lost if the businesses are not properly managed;
  3. she is willing to renew the previous undertakings given by her;
  4. Rosulu Leasing relied on the income of the two businesses to provide the rent of the subject premises.  The receivers have not paid the rent or provided Rosulu Leasing with any funds to do so.
  5. The income from the businesses if properly managed would be sufficient to cover the rent and day to day expenses;
  6. the lease of one shop premises expires on 30 June 2013 and the lease of the other expires on 2 December.  Rosulu Leasing has accepted an offer to renew the former.  The options to renew are the principle assets of Rosulu Leasing.

The point is made that the respondent is a company in liquidation and if the applicants are successful on the determination of the appeal and ultimately in the proceeding, the applicants will be unable to recover from the respondents any damage that they might suffer.  That damage, it is submitted, may include the loss of one or other of the businesses.

On the other hand, the respondent argues that no irreparable harm will be suffered by the applicants if the order remain in force as:

  1. the businesses are continuing to trade under the control of court appointed receivers; and
  2. it is unlikely that a landlord would enter into a new lease with Rosulu Leasing when the existing one expires in circumstances in which its rights to carry on business on and from the lease premises is in question in these proceedings.

It is further submitted that the respondent would be prejudiced by a stay in that:

  • The appointment of receivers has been in place for nearly a month to the knowledge of the first applicant and prior to the making of this application.
  • 16 former employees of one or other of the applicants have been employed by the Receivers, $10,000 has been spent on their re-training and wages have been paid including ex gratia payments on account of past unpaid wages and superannuation.
  • Administrative costs have been incurred in setting up and maintaining accounts books and records.
  • Returning control of the business to the first applicant would be risky.  The applicants have ignored a letter of 10 May 2013 to the applicants’ solicitors alleging failure to comply with paragraph 16, 20, 21(b) and 33 of the orders.  The applicants continue to breach the orders.

The situation in which the parties find themselves is a difficult one.  Whichever way this application is determined, there will be unsatisfactory aspects of it.  It is particularly worrying that the respondent will not be in a position to meet a claim for damages if it proves to be ultimately unsuccessful.  However, it appears to me that the most appropriate course, and the one which satisfies the balance of convenience, is on appropriate undertakings to refuse the application for stay.

A concern I have is that if that it may be undesirable to cause the disruption of a change of management position and control between now and the hearing of the appeal, which I intend should be expedited.  In that regard, it is relevant that there is real concern about the financial status of the first applicant and, for that matter, the applicant companies.  One can only speculate as to whether the proposed change of management and control of the businesses would place the applicants in a better position than leaving matters where they are for the time being.  I have taken into account the allegations of unreliability but I don’t place much weight on that.  The first applicant has no doubt had more than her fair share of problems in endeavouring to obtain her files and to obtain new legal representation which can provide appropriate advice and assistance.

Upon Smilerozi Pty Ltd (In Liquidation) ACN 114 323 205 and Mr Rajendra Kumar Khatri and Mr Morgan Gerard Lane in their capacities as Receivers of the Pinto Family Trust, by their counsel, undertaking to the court that, until the earlier of the determination of this appeal, further order, agreement of the applicants or, in respect of each business the subject of the orders on appeal (the “business(es)”), until the lease(s) relating to the business(es) is terminated, whether by themselves, their servants or agents:

  • they will take reasonable steps to ensure that the business(es) are conducted in the ordinary course of business, including the due payment of rent whilst the Receivers are in occupation of the rented premises; and
  • they will take reasonable steps to ensure that proper accounts are maintained in respect of the business(es); and
  • they will not sell, transfer, assign, or otherwise alienate, or mortgage, charge or otherwise encumber, the business(es) or the assets of the business(es).

It is ordered that the application be dismissed, except to the extent that the orders in paragraphs 20 and 27 to 30 inclusive be stayed until the determination of the appeal in this matter or other or earlier order.  It is further ordered that paragraph 21(a) be stayed until the determination of the appeal in these proceedings or earlier or other order, and that paragraph 21(b) also be stayed, but only to the extent that it includes the words “for those purposes, within seven days of the date hereof” so that the obligation to furnish the documents referred to therein remains.  It is ordered that the time within which documents must be provided by the applicants to the respondents under the order be extended until 21 June 2013.  The parties have liberty to apply.

The applicants have leave to correct the name of the second applicant in the notice of appeal.

Close

Editorial Notes

  • Published Case Name:

    Pinto & Ors v Smilerozi Pty Ltd

  • Shortened Case Name:

    Pinto v Smilerozi Pty Ltd

  • MNC:

    [2013] QCA 127

  • Court:

    QCA

  • Judge(s):

    Muir JA

  • Date:

    24 May 2013

Litigation History

EventCitation or FileDateNotes
Primary JudgmentSC9556/12 (No citation)17 Apr 2013Various complex orders made against a number of defendants including breaches of ss 181, 182 and 183 of the Corporations Act 2001, declaration of property held on trust, the payment of damages, and the appointment of receivers.
QCA Interlocutory Judgment[2013] QCA 12724 May 2013Application for stay of the orders made below pending appeal allowed in part: Muir JA.

Appeal Status

No Status

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