Kalls Enterprises Pty Ltd (“KE”) sold to Decision Technology Pty Ltd (“DT”) a laundry business known as Total Quality Laundry Service (“TQLS”). Although the sale was by KE, an issue in the proceedings was whether all or most of the assets of the laundry business were owned by AA Australian Commercial Laundries Pty Ltd (“AA”).2 The sale was settled on 19 December 1995. A cheque for $660,611.17 drawn in favour of Dowe Xenos (“Dowe”), the solicitors acting for the vendor, was endorsed by them to the trust account of Konstan & Associates (“Konstan”), the solicitors acting for Mr Theo Baloglow. After what amounted to a refund of some of the money, Mr Baloglow received $555,000 in satisfaction of a liability of Mr Con Kalls and Mr Peter Kaliaropoulos to pay him that amount. Mr Kalls was a director of each of KE and AA. 3 In April 1996 both KE and AA went into liquidation. In 1999 they and their liquidator brought proceedings in which, by the amended statement of claim filed on 11 November 2001, relief was claimed against Mr Baloglow which included –
(a) claimed by the liquidator, an order for payment of $555,000 and interest to KE, alternatively to AA; and
(b) claimed by KE and AA, an order for payment of equitable compensation and compound interest to KE, alternatively to AA.
The claim to an order for payment of $555,000 was made under Pt 5.7B of the Corporations Law (“the Law”), on the ground that the $555,000 was paid under, or represented the benefit received because of, a transaction of KE or AA which was a voidable transaction as described in s 588FE of the Law. The claims to equitable compensation were on the ground that the $555,000 had been received by Mr Baloglow with knowledge that it was paid in breach of fiduciary duty under the first limb of Barnes v Addy (1874) LR Ch App 244. There were other claims in the amended statement of claim, but they are no longer relevant and need not be described.
Mr Balogow cross-claimed in the proceedings against Mr Kaliaropoulos for a declaration that, if he was ordered to pay $555,000 under Pt 5.7B, he could enforce a judgment for $620,000 and interest obtained against Mr Kaliaropoulos on 25 September 1995. There were other cross-claims, but they also need not be described.
The hearing took place before Hamilton J over eighteen days in the latter part of 2005 and the early part of 2006.
In reasons published on 21 June 2006 (Kalls Enterprises Pty Ltd (in liq) v Baloglow  NSWSC 617) the judge held that the payment of the $555,000 was not part of the transaction of KE or AA on which the plaintiffs relied for the voidable transaction. It followed that there could not be a voidable transaction. It was not necessary for the judge to consider whether the transaction was a voidable transaction within s 588FE, whether defences available to Mr Baloglow under s 588FG had been made out, or what order should be made under s 588FF, and he did not do so. The judge held that the money was paid in breach of the fiduciary duty owed to KE by Mr Kalls, but declined to hold that it was paid in breach of Mr Kall’s fiduciary duty owed to AA. He held that in relation to the breach of fiduciary duty owed to KE Mr Baloglow did not have the knowledge of misapplication of trust property necessary for Barnes v Addy liability.
The claims against Mr Baloglow were accordingly dismissed, and the cross-claim against Mr Kaliaropoulos was consequentially dismissed.
In reasons published on 23 June 2006 (Kalls Enterprises Pty Ltd (in liq) v Baloglow  NSWSC 1021) the judge held that there should be a Bullock order that the costs payable by the plaintiffs to Mr Baloglow included the costs payable by Mr Baloglow to Mr Kaliaropoulos. That order was made, together with an order that $5,000 paid into court by the plaintiffs be paid to Mr Kaliaropoulos on account of the costs payable by Mr Baloglow to Mr Kaliaropoulos.
KE, AA and the liquidator appealed against the dismissal of their claims, contending that the judge had erred in his holding as to the transaction and in failing to find a voidable transaction and make an order against Mr Baloglow; and further, that the judge had erred in failing to find breach of fiduciary duty owed to AA and in his finding as to Mr Baloglow’s knowledge necessary for Barnes v Addy liability. By a notice of contention Mr Baloglow contended that if there was relevantly a transaction of KE or AA, it was not a voidable transaction, that there was a defence under s 588FG, and that an order for payment should otherwise not be made; and further, that payment to him in breach of fiduciary duty owed to KE had not been proved, nor had it been proved that any money received by Mr Baloglow was “impressed with a trust in favour of KE or AA”. In substance, all issues agitated at the trial were re-agitated on appeal, including some with which the judge had not dealt.
The appellants also appealed against the Bullock order and sought recovery of the $5,000. Mr Baloglow cross-appealed in relation to his cross-claim against Mr Kaliaropoulos, but protectively in the event that the appeal as to the claim under Pt 5.7B was upheld. The notice of cross-appeal was inappropriately worded, but in submissions it was said that no more was sought than had been sought in the cross-claim.
For the reasons which follow, in my opinion the appeal against the dismissal of the plaintiffs’ claims should be upheld as to the Barnes v Addy claim but not as to the claim under Pt 5.7B. The Bullock order should consequentially be set aside; recovery of the $5,000 is not finally decided. It is not necessary to consider the cross-appeal, which should be dismissed…
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