The Federal Court’s decision in Tuscan Capital Partners Pty Ltd v Trading Australia Pty Ltd (en liq)[1] concerns an application for interim relief presented by a creditor for review of the liquidator’s decision to admit proof of debt.
Background
Proof of debt has been filed by Fishbank Development Corporation Pty Ltd (FDC) in the amount of $ 56,289.43, plus interest of $ 9,742.31. The proof of FDC’s debt was based on a contribution claim against Trading Australia Pty Ltd (in liq) (AT).
The claim arose out of the allegation that FDC and TA jointly retained the services of the law firm Madison Marcus (MM), who subsequently completed the work in accordance with the mandate and ultimately issued an invoice for his work in the amount of $ 112,578.85, which was paid by FDC. FDC claimed that TA was responsible for half of MM’s bill.
MM’s tenure took place in circumstances where Mr. Galati, a director of TA and Mr. Deans, the director of FDC, attempted to reorganize the Sydney Fish Markets. At one point, the relationship between Mr. Galati and Mr. Deans broke down and the project ultimately fell through. The fallout involved legal proceedings involving both Mr Galati and Mr Deans, as well as FDC and TA, in the New South Wales Supreme Court.
In the creditor’s request for review, both parties presented extensive affidavit evidence regarding the Supreme Court proceedings. After reviewing the evidence, the Court ruled that the complexity of the Supreme Court’s proceedings made it difficult to judge the assertions of both parties in the request for review as to how MM’s provision relates to the bigger picture. . Accordingly, the Court found that none of the material relating to the larger dispute helped Mr. Galati or the liquidator. The remaining material mainly consisted of:
- documents generated at the time the alleged warrant was formed; and
- documents created by and submitted to lawyers as a result of the alleged warrant.
In the end, the Court considered that this material established that TA had not retained Messrs.
Deemed withholding
On December 15, 2014, Mr. Tomlinson, a partner of MM, sent the following email to Mr. Deans, in copy to Mr. Galati et al:
Dear Robert,
Please find the cost disclosure and cost agreement to be signed and returned tonight.
I officially disclose that this company has acted for the Dahua group in other transactions. There may therefore be a perceived conflict of interest in this regard. I understand that FDC and Trading Australia Pty Ltd wish to give instructions to Madison Marcus despite this disclosure. I also confirm, I am informed that Dahua has no objection to Madison Marcus acting for FDC and Trading Australia Pty Ltd in this transaction.
I look forward to your further instructions.
Notably, the email refers to TA as one of the parties wishing to mandate MM. The email was attached to two documents, one titled “Cost Contract – General Conditions of Engagement†and the other titled “Cost Disclosure – Commercial & Banking and Finance†(the First offer). At the top of the cost agreement, the client was named FDC and TA.
Neither TA nor FDC signed the fee agreement. Instead, on December 18, 2014, Mr. Deans called MM to negotiate changes to the terms of the fee agreement. These changes were:
- the work would be performed at a fixed charge of $ 150,000 plus GST (less than the charge originally proposed in the first cost agreement); and
- the fees would not become payable for six months if the transaction did not take place. In addition, the payment of costs had to be personally guaranteed by Mr. Deans.
MM amended the expense agreement accordingly and emailed the documents to Mr. Deans shortly thereafter (the Second offer). Mr. Galati has received a copy of this e-mail. MM made no suggestion at this point that Mr. Galati should be a personal guarantor.
The Court ruled that the sending of this email revoked the First Offer made by MM on December 15, 2014.
Subsequently, on December 19, 2014, Mr. Deans returned the signed documents to MM by email. Mr Deans had made other handwritten changes to the cost statement, including changes to the terms of payment, which were accepted by MM (the Third offer). Mr. Deans did not copy TA into his email to MM with the changes.
It was not disputed that MM proceeded on the basis that the amended cost disclosure governed their mandate. The liquidator admitted that the evidence could not support the conclusion that TA had received the version of the fee agreement that FDC and Mr. Deans had signed (i.e. the third offer). Nevertheless, the liquidator argued that TA should be considered to have accepted the Second Offer made by MM on December 18, 2014.
The court ruled that the first offer was revoked by the second offer and therefore was not open for acceptance on December 18, 2014. The second offer was, in turn, revoked by Mr. Deans’ handwritten changes to the cost statement, which he signed and returned. to MM on December 19, 2014 (i.e. the Third Offer).
Despite evidence suggesting that Mr. Galati was present at various conferences with MM, the Court considered that this was insufficient to infer that Mr. Galati had given instructions to Messrs.
The Court found that the evidence could not support a conclusion that Mr. Galati or TA even saw the documents incorporating Mr. Deans’ handwritten changes. As such, the Court concluded that it was impossible to admit that a contract had ever been formed between TA and MM.
When MM finally returned an invoice, it was sent to Mr. Deans, as well as others who were helping Mr. Deans. TA was not copied to the email. Regarding the payment of this invoice, FDC initially resisted and finally made the payment only after receiving a legal demand. At no time was it suggested to ask TA to pay the costs incurred by Messrs. Even after FDC paid the bill in October 2015, it did not seek or demand any payment from TA until 2020, about five years later.
Decision
The court concluded that TA had never been liable for MM’s fees and the proof of debt was rejected.
While the Court rejected the liquidator’s position, the Court accepted that his position was reasonable and that his defense of the motion was appropriate.
Key to take away
- Liquidators should be cautious when presenting evidence of debt, especially in circumstances where there is uncertainty as to whether the company in liquidation was a party to the contract under which it is said to owe money.
- When considering proof of debt, liquidators should properly examine the contractual documentation and surrounding circumstances to ensure that the company in liquidation legitimately owes the alleged debt.
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