Asden Developments Pty Ltd (in liq) v Dinoris (No 3)
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FEDERAL COURT OF AUSTRALIA
Asden Developments Pty Ltd (in liq) v Dinoris (No 3) [2016] FCA 788
File number:
QUD 578 of 2014
Judge:
REEVES J
Date of judgment:
5 July 2016
Catchwords:
CORPORATIONS – liquidators’ statutory duties – whether liquidator breached s 180 of the Corporations Act 2001 (Cth) – whether liquidator’s conduct demonstrated the required degree of care and diligence that was reasonable in all the circumstances – whether breach of s 180 of the Corporations Act 2001 (Cth) caused the applicant company damage or loss under s 1317H of the Corporations Act 2001 (Cth) – consideration of principles on causation – consideration of principles on subjective evidence regarding what an individual would or would not have done in particular circumstances
Final Report of the Review of the Law of Negligence, (Commonwealth of Australia, Canberra, September 2002)
Freckelton and Selby, Expert Evidence (5th ed, Law Book Co, 2013)
Date of hearing:
14–16 July, 7–8 September and 16 November 2015
Registry:
Queensland
Division:
General Division
National Practice Area:
Commercial and Corporations
Sub-area:
Corporations and Corporate Insolvency
Category:
Catchwords
Number of paragraphs:
184
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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The case of Asden Developments Pty Ltd (in liq) v Dinoris (No 3) involved Asden, a company that had been incorporated by Melinda Nichols, suing Dinoris, the appointed liquidator, for allegedly breaching his statutory duties under section 180 of the Corporations Act 2001 (Cth). Asden claimed that Dinoris failed to adequately recover funds transferred out of the company’s bank accounts and did not properly supervise the sale of a boat. The case was heard and determined in the Federal Circuit Court of Australia.
The central legal issue the court had to decide was whether Dinoris breached his duty of care and diligence as required by section 180 of the Corporations Act. The court needed to determine if Dinoris’s actions demonstrated the required degree of care and diligence that was reasonable in the circumstances. Additionally, the court had to consider whether any breach by Dinoris caused Asden damage or loss under section 1317H of the Corporations Act.
The court found that Dinoris did indeed contravene section 180(1) of the Corporations Act by failing to discharge his duties with the requisite degree of care and diligence. The court considered various factors, including the difficulties associated with contacting Ms Nichols due to her stress and the surrounding circumstances. The court concluded that it was unlikely Ms Nichols would have disclosed the whereabouts of the funds had Dinoris enquired. However, the court did not find that Asden had suffered any damage or loss as a result of Dinoris’s actions.
In summary, the court held that Dinoris breached his duty of care and diligence as the liquidator of Asden, but Asden did not suffer any damage or loss from that breach. The court will further hear from the parties to determine what orders, if any, should be made, including those relating to costs.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
In summary, Asden claims that Mr Dinoris failed to take any, or any adequate, steps to recover the funds transferred out of its bank accounts and he failed to properly supervise the sale of the boat, in breach of his statutory duty as Asden’s liquidator.FACTUAL BACKGROUND The following paragraphs contain my findings of fact concerning the factual background to this matter. The parties have agreed upon almost all the facts in relation to the central events of late 2010 and early 2011. Insofar as they record the history of Asden and the dealings between Ms Nichols and various members of the Nichols family, my findings are largely based upon two affidavits Ms Nichols filed in the family law proceeding issued against her by her former husband. Ms Nichols was cross-examined on those affidavits at the trial of this proceeding and they were later tendered in evidence. I received two copies of each affidavit in the tender. One was a copy of the original affidavit and in the other some paragraphs in the original were redacted to reduce the quantity of the tender to those parts of the affidavits upon which Ms Nichols was cross-examined. I mention this because, in order to give a complete account of all the relevant background events, I have, to a limited extent, relied upon some paragraphs in the redacted versions of those two affidavits. That applies to parts of [13], [17], [18] and [22] below.The incorporation of Asden Asden was incorporated in August 2005. It was used by the Nichols family to undertake a subdivisional and residential development at Wakerley, a suburb of Brisbane. The Nichols family relevantly comprised, first, Mr Phillip Nichols, Ms Melinda Nichols’ former husband. They were married in 2007 and separated in about October 2010, shortly before the events to which this proceeding relates. Secondly, it comprised Phillip Nichols’ parents, George and Jennifer Nichols, and his uncle and aunt, Peter and Debra Nichols. The latter four members of the family were the primary investors in the Wakerley development mentioned above. From its incorporation in 2005, Ms Melinda Nichols was the sole director and shareholder of the company. At the time of its incorporation, Mr Phillip Nichols was either bankrupt, or about to be declared so. As a consequence, he did not have any direct role in Asden, nor in the Wakerley development.The Wakerley development and land purchase The Wakerley development involved the purchase and subdivision of an area of land into 10 separate lots and the construction of houses on each of those lots. Mr George Nichols and the other three members of the Nichols family mentioned above provided all the funds necessary to undertake the development. Neither Ms Melinda Nichols nor Mr Phillip Nichols provided any funds to Asden. Ms Nichols’ primary role with Asden was to maintain the company’s MYOB accounting system. The land associated with the Wakerley development was purchased in about July 2006 for approximately $1.6 million. Mr George Nichols made all the arrangements associated with that purchase. That included borrowing the necessary funds for the purchase from the National Australia Bank Ltd. The purchasers were Mr George Nichols and Mrs Jennifer Nichols; Mr Peter Nichols and Mrs Debra Nichols; and Ms Melinda Nichols as tenants in common as to a one-third interest each. Despite the fact she was not involved in the financial aspects of the development, Ms Nichols said that Mr George Nichols informed her that her name had to be included in the loan documentation because she was to be the registered owner of a one-third interest in the land. He told her that, in order to avoid including her as a borrower, he had instead nominated her as a guarantor for the loan agreement. In one of her family law proceeding affidavits she said:… He explained to me that the NAB required my name on the documents. George requested I sign the paperwork, stating that I would agree to be the guarantor of the loan. He advised me upon signing the loan, that it would be ok, he has a large list of assets as security for this loan, therefore I would never have to worry about being ordered by the NAB to make the repayments as the guarantor.The boat purchase
Evidence
Evidence Before The Court
Secondly, Mr Dinoris raised the fact that a breach of s 180 of the Corporations Act is a civil penalty provision: see s 1317DA. Accordingly, if a court is satisfied that a person has contravened such a provision, it must make a declaration of contravention (s 1317E) and it may order that person to pay the Commonwealth a pecuniary penalty (s 1317G). It should be emphasised that, while a declaration of contravention has been sought by Asden, it has not sought a pecuniary penalty order. Nonetheless, while s 1332 of the Corporations Act applies the civil standard of proof, Mr Dinoris referred to the factors outlined in s 140(2) of the Evidence Act 1995 (Cth) and relied upon the following observations of Gilmour J in Australian Securities and Investments Commission v Fortescue Group Ltd (No 5) (2009) 264 ALR 201; [2009] FCA 1586 at [82], which, I accept, accurately describe the approach I should take in determining whether or not Mr Dinoris contravened s 180 in this matter:In conclusion, the standard of proof that I must apply is the balance of probabilities as prescribed by s 1332, and I accept that in deciding whether ASIC’s allegations are made out on the balance of probabilities I am required to take into account the causes of action and the gravity of the matters alleged and their consequences: s 140(2) Evidence Act; Briginshaw. If inferences are to be drawn, ASIC has to establish that the circumstances appearing from the evidence give rise to a reasonable and definite inference and not merely to conflicting inferences of equal degrees of probability: Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199; [2009] NSWSC 287 at [186] …; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia at [38].Mr Dinoris’ evidence about the relevant circumstances affecting his decision It is apparent from the relevant legal principles summarised above (at [89]) that Mr Dinoris’ conduct as the liquidator of Asden has to be assessed in all the relevant circumstances. Mr Dinoris filed an affidavit in this proceeding in which he described in considerable detail the background to the events of late December 2010, what it was that he did once he was appointed as liquidator of Asden, why it was that he decided not to make direct personal contact with Ms Nichols and what circumstances he took into account in making that decision. Since each of these aspects of Mr Dinoris’ evidence is important in assessing whether or not he breached his duty of care under s 180(1), it is appropriate to set out his evidence in some detail. As to the relevant background to his decision, Mr Dinoris provided the following evidence in his affidavit:14.My first point of contact with Mr Levis in respect of the Company was on 15 December 2010, when Mr Levis contacted me by telephone and (in substance or effect):(a) he advised:(i)that he, or his Company, was an insolvency consultant;(ii)that he had a potential voluntary Liquidation that may or may not arise involving a small number of creditors, some debtors, land and some equipment;(iii)that the name of the Company that he was assisting was Asden Developments Pty Ltd ACN 115 851 833; and(iv)that he would be the point of contact between me and the director, Melinda Nichols, as she was under a lot of pressure and stress by reason of a family dispute;(b) he requested:(i)whether I would be prepared to accept an appointment as Liquidator; and(ii)that I provide, or caused to be provided, precedent appointment documents for his client’s consideration.15.I was not provided with the telephone number or email address of the director by Mr Levis as he wanted the communications directly through him. Without a telephone number I was not able to contact the director by telephone.16. After that telephone call, I arranged, on 15 December 2010, for:(a)an historical extract search for the Company to be obtained from the records of the Australian Securities and Investment Commission (“ASIC”) which revealed the Company was subject to a fixed charge in favour of De Lage Landen Ply Ltd and a fixed and floating charge in favour of the National Australia Bank Limited (“NAB”) …; and(b)an email (15.12.10 (2:30pm)), which included a link to the Form 509 Presentation of summary of affairs of a Company, to be sent to Mr Levis in accordance with his request which attached:(i)precedent Notice of Member Meeting;(ii)precedent Consent to Short Notice;(iii)Letter addressed to Melinda Nichols (with attachments dated 15 December 2010 providing information regarding the information and documentation required by me to initiate creditors’ voluntary liquidation, the process for initiating such a winding up and the effect of the appointment of Liquidators (“Director Letter 15.12.10”). This letter also disclosed that the Form 509 requires the director to disclose a summary of the estimated assets and liabilities of the Company. It also disclosed that the Corporations Act 2001 requires her to provide to the meeting of creditors a full and complete Report as to Affairs (Form 507) accompanied by a report on the circumstances leading up to the proposed winding up. It was noted that the Form 507 addresses a more detailed listing of assets and liabilities of the Company;(iv) precedent Minutes of Director Meeting; and(v)precedent Minutes of Member Meeting ...…17. During the telephone conversation with Mr Levis held on 15 December 2010, I noted that I would be prepared to accept an appointment as Liquidator for an upfront contribution of $10,000.00 towards the professional fees and outlays to be incurred in the Liquidation. I do not recall whether it was Mr Levis or me that suggested the amount of $10,000.00.18.It is my usual practice to seek a voluntary contribution towards professional fees and outlays from a director for a creditors’ voluntary Liquidation. This amount does not represent a fixed fee to undertake the appointment but a contribution towards the professional fees and outlays of the Liquidators.19. The Director Letter 15.12.10 stated-“Before I can accept appointment as liquidator of the company, I require minimum funds of $x,xxx.00 (inclusive of GST) to be deposited into the bank account detail below ...”.I do not recall the reasons the Director Letter 15.12.10 referred to “$x,xxx.00” in respect to the upfront contribution. It may have been an oversight by my staff and subsequently myself.20.The amount of $10,000.00 was not, and was never intended to be, a fixed price quote for the Liquidation. Generally prior to an appointment as Liquidator, there are too many unknowns, each Company Liquidation is different and more often than not the costs involved are unpredictable. I did not at any stage agree that the appointment as Liquidators of the Company would be limited to a fixed amount of $10,000.00.(Emphasis in original)
Decision
Reasons for decision
Taking into account the difficulties associated with the form and wording of the question, the stress Ms Nichols was experiencing at the time and the evidence relating to the surrounding facts and circumstances outlined above, I do not accept Ms Nichols’ evidence that, had Mr Dinoris made an enquiry of her in late 2010 or early 2011 about the whereabouts of the funds, she would have disclosed where they were and paid them to him.CONCLUSION To sum up, I have found that Mr Dinoris contravened s 180(1) of the Corporations Act by failing to discharge his duties as the liquidator of Asden with the degree of care and diligence of a reasonably competent liquidator. However, I do not consider Asden has established that any damage resulted to it from that contravention as required by s 1317H(1) of the Corporations Act. I will hear the parties as to what orders, if any, should be made, including as to costs.
Ratio Decidendi
Legal Principle Established
The following paragraphs contain my findings of fact concerning the factual background to this matter. The parties have agreed upon almost all the facts in relation to the central events of late 2010 and early 2011. Insofar as they record the history of Asden and the dealings between Ms Nichols and various members of the Nichols family, my findings are largely based upon two affidavits Ms Nichols filed in the family law proceeding issued against her by her former husband. Ms Nichols was cross-examined on those affidavits at the trial of this proceeding and they were later tendered in evidence. I received two copies of each affidavit in the tender. One was a copy of the original affidavit and in the other some paragraphs in the original were redacted to reduce the quantity of the tender to those parts of the affidavits upon which Ms Nichols was cross-examined. I mention this because, in order to give a complete account of all the relevant background events, I have, to a limited extent, relied upon some paragraphs in the redacted versions of those two affidavits. That applies to parts of [13], [17], [18] and [22] below.The incorporation of Asden Asden was incorporated in August 2005. It was used by the Nichols family to undertake a subdivisional and residential development at Wakerley, a suburb of Brisbane. The Nichols family relevantly comprised, first, Mr Phillip Nichols, Ms Melinda Nichols’ former husband. They were married in 2007 and separated in about October 2010, shortly before the events to which this proceeding relates. Secondly, it comprised Phillip Nichols’ parents, George and Jennifer Nichols, and his uncle and aunt, Peter and Debra Nichols. The latter four members of the family were the primary investors in the Wakerley development mentioned above. From its incorporation in 2005, Ms Melinda Nichols was the sole director and shareholder of the company. At the time of its incorporation, Mr Phillip Nichols was either bankrupt, or about to be declared so. As a consequence, he did not have any direct role in Asden, nor in the Wakerley development.The Wakerley development and land purchase The Wakerley development involved the purchase and subdivision of an area of land into 10 separate lots and the construction of houses on each of those lots. Mr George Nichols and the other three members of the Nichols family mentioned above provided all the funds necessary to undertake the development. Neither Ms Melinda Nichols nor Mr Phillip Nichols provided any funds to Asden. Ms Nichols’ primary role with Asden was to maintain the company’s MYOB accounting system. The land associated with the Wakerley development was purchased in about July 2006 for approximately $1.6 million. Mr George Nichols made all the arrangements associated with that purchase. That included borrowing the necessary funds for the purchase from the National Australia Bank Ltd. The purchasers were Mr George Nichols and Mrs Jennifer Nichols; Mr Peter Nichols and Mrs Debra Nichols; and Ms Melinda Nichols as tenants in common as to a one-third interest each. Despite the fact she was not involved in the financial aspects of the development, Ms Nichols said that Mr George Nichols informed her that her name had to be included in the loan documentation because she was to be the registered owner of a one-third interest in the land. He told her that, in order to avoid including her as a borrower, he had instead nominated her as a guarantor for the loan agreement. In one of her family law proceeding affidavits she said:… He explained to me that the NAB required my name on the documents. George requested I sign the paperwork, stating that I would agree to be the guarantor of the loan. He advised me upon signing the loan, that it would be ok, he has a large list of assets as security for this loan, therefore I would never have to worry about being ordered by the NAB to make the repayments as the guarantor.The boat purchase
