Australian Securities Commission v Berona Investments Pty Ltd

[1995] FCA 928

CATCHWORDS

PRACTICE AND PROCEDURE - Costs - abandonment of principal application without determination on the merits - discharge of interim orders - costs of the parties to the proceedings and costs and remuneration of receivers and managers - whether merits should be determined as if application hypothetically heard and determined on the day when first filed - difficulty of ascertainment of factual circumstances - conduct of seventh and eighth respondents and controllers necessitated appointment of receivers.

Corporations Law s.1323(1), (3), (4)

Australian Securities Commission v. Aust-Home Investments Limited (1993) 44 FCR 194 - Refd.
J T Stratford & Son Ltd v. Lindley [1969] 1 WLR 1547 - Appl.
Rosanove v. O'Rourke [1987] 1 Qd.R 275 - Appl.

Australian Securities Commission v. Berona Investments Pty Ltd and Berona Holdings Pty Ltd
No. QG3004 of 1992
Cooper J, Brisbane, 20 November 1995

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
  No. QG3004 of 1992

BETWEEN:

AUSTRALIAN SECURITIES COMMISSION

Applicant

AND:

BERONA INVESTMENTS PTY LTD

Seventh Respondent

AND:

BERONA HOLDINGS PTY LTD

Eighth Respondent

JUDGE MAKING ORDER:           Cooper J

WHERE MADE:  Brisbane

DATE OF ORDER:             20 November 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The seventh and eighth respondents' notice of motion filed 30 August 1993 be dismissed as against the ASC.

1. There be no order as to costs.

1. Liberty be granted the seventh and eighth respondents and the receivers to apply on three (3) clear days notice to the other party for further directions as to the taxation of the receivers and managers' costs and accounts in relation to the receivership of the property of the seventh and eighth respondents.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
  No. G3004 of 1992

BETWEEN:

AUSTRALIAN SECURITIES COMMISSION

Applicant

AND:

BERONA INVESTMENTS PTY LTD

Seventh Respondent

AND:

BERONA HOLDINGS PTY LTD

Eighth Respondent

CORAM:  Cooper J

PLACE:  Brisbane

DATE:  20 November 1995

REASONS FOR JUDGMENT

These proceedings were begun by the Australian Securities Commission ("ASC") against forty-two (42) respondents on 16 March 1992. The ASC sought orders under s.1323 of the Corporations Law ("the Law") including the appointment of receivers and managers of the property of certain of the respondents.  On 17 March 1992 Northrop J made interim orders as if on an ex parte basis because the respondents had not had the time or the material to properly respond to the application for interim relief. The interim receiverships continued thereafter until 23 April 1993 when I made orders discharging the receivership of the assets of each of the respondents without prejudice to the receivers' lien over the assets to meet the remuneration of the receivers and liabilities incurred by them. By that date the ASC had determined not to proceed further for final relief under s.1323 of the Law. The circumstances giving rise to the original application of the ASC
to the court and as to what occurred thereafter are set out in the reasons for judgment of Hill J in Australian Securities Commission v. Aust-Home Investments Limited (1993) 44 FCR 194 and I do not propose to repeat them in these reasons.

The effective abandonment of the application by the ASC and the discharge of the interim receivers gave rise to the issue of the costs of the parties to the proceedings and the costs and remuneration of the receivers. Those matters have now been resolved in respect of all respondents save for Berona Investments Pty Ltd and Berona Holdings Pty Ltd, respectively the seventh and eight respondents. In the proceedings against Mr and Mrs Bunt, the twenty-fifth respondents, Hill J ordered that the ASC pay or indemnify Mr and Mrs Bunt for the costs of the receivers but otherwise that there be no order as to costs in respect of the twenty-fifth respondents (44 FCR 194 at 205).

The seventh and eighth respondents sought similar orders against the ASC in respect of the proceedings against them and the receivership of their property.  They argued that, by parity of reasoning, the conclusion reached by Hill J ought to be applied on this application.  The ASC opposed the making of such an order arguing that the decision of his Honour was wrong in principle (although not appealed by the ASC) and that the position of the seventh and eighth respondents is demonstrably different to that of Mr and Mrs Bunt.  Further, the ASC argued that there was no hearing on the merits before Hill J as to whether the filing of the proceedings and the appointment of the interim receivers were justified by the conduct of the twenty-fifth respondent and whether, if the proceedings had progressed to a final hearing, the ASC would have obtained the relief sought.  Before me the ASC sought such a determination on the merits
and further sought orders for costs against the seventh and eighth respondents.

In his reasons for judgment Hill J set out a series of propositions which his Honour drew from a consideration of the authorities. His Honour said (44 FCR at 201-202) :-

"These cases seem to me to support the following propositions being made.

(1)Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order:  Stratford and the SEQEB case.

(2)It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial:  Stratford.  This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

(3)In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB).

(4)In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation:  cf Sunday Times Newspaper Co Ltd v. McIntosh (1933) 33 SR (NSW) 371.

(5)Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted:  cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration.

Where interlocutory relief has been granted, that fact carries no implication as to the ultimate merits of the case but does ordinarily suggest that the Court granting interlocutory relief has accepted or found that there is an arguable issue to be tried between the parties and that the balance of convenience favours the grant of that relief.  Nothing that is said in Corporate Affairs Commission (SA) v. Lone Star Exploration NL (No 2) (1988) 50 SASR 24 at 31-33 requires the conclusion that it is unnecessary
for there to be shown to be an arguable case before there is appointed an interim receiver.  The statutory test in s 1323(3) is that it be desirable that an interim receiver be appointed.  It is hard to imagine that it could ever be desirable for an interim receiver to be appointed, with the attendant potential damage to a person whose property is seized, unless there was an arguable case for the grant of a final order."

These propositions are of assistance in focusing attention upon some of the relevant circumstances which should be considered in the exercise of the discretion to award costs where proceedings do not proceed to a final hearing.  However they are not the only circumstances;  nor are they intended to limit the discretion.

In support of the submission that there should be a determination on the merits, the ASC submitted that the inquiry under s.1323(1) of the Law was a narrow one which did not require that the court determine whether a contravention of the Law had occurred.

Sub-sections 1323(1), (3) and (4) of the Law provide :-

"1323(1)Where:

(a)An investigation is being carried out under the ASC Law or this Law in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Law;

(b)a prosecution has been begun against a person for a contravention of this Law; or

(c)a civil proceeding has been begun against a person under this Law;

and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an `aggrieved person') to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the `relevant person'), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of
damages or compensation or otherwise, or to account for securities, futures contracts or other property, the Court may, on application by the Commission or by an aggrieved person, make one or more of the following orders:

(d)an order prohibiting a person who is indebted to the relevant person or to an associate of the relevant person from making a payment in total or partial discharge of the debt to, or to another person at the direction or request of, the person to whom the debt is owed;

(e)an order prohibiting a person holding money, securities, futures contracts or other property, on behalf of the relevant person, or on behalf of an associate of the relevant person, from paying all or any of the money, or transferring, or otherwise parting with possession of, the securities, futures contracts or other property, to, or to another person at the direction or request of, the person on whose behalf the money, securities, futures contracts or other property, is or are held;

(f)an order prohibiting the taking or sending out of this jurisdiction, or out of Australia, by a person of money of the relevant person or of an associate of the relevant person;

(g)an order prohibiting the taking, sending or transfer by a person of securities, futures contracts or other property of the relevant person, or of an associate of the relevant person:

(i)from a place in this jurisdiction to a place outside this jurisdiction (including the transfer of securities from a register in this jurisdiction to a register outside this jurisdiction);  or

(ii)from a place in Australia to a place outside Australia (including the transfer of securities from a register in Australia to a register outside Australia);

(h)an order appointing:

(i)if the relevant person is a natural person - a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person;  or

(ii)if the relevant person is a body corporate - a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person;

(j)if the relevant person is a natural person - an order requiring that
person to deliver up to the Court his or her passport and such other documents as the Court thinks fit;

(k)if the relevant person is a natural person - an order prohibiting that person from leaving Australia without the consent of the Court.

.....

1323(3)           Where an application is made to the Court for an order under subsection (1), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application.

1323(4)           On an application under subsection (1), the Court shall not require the applicant or any other person, as a condition of granting an interim order under subsection (3), to give an undertaking as to damages."

The difficulty with adopting the course urged by the ASC is not determining the factual issues under s.1323(1)(a), (b) or (c). It is the ascertainment of the factual circumstances on the question whether it is necessary or desirable to make an order which is the problem. The factual issues in the present case are complex and are not admitted or conceded to the degree that it would be appropriate or safe to attempt to determine an hypothetical outcome if the application had been carried forward to an ultimate conclusion. In any event, final relief became unnecessary in the view of the ASC and that is why the proceedings came to an end and the receivership was discharged. This is not one of those rare cases to which Hill J refers in proposition (2). It is impossible to determine how the chain of events and the passage of time would have operated on the need or desirability of the final relief sought or indeed the probability of such relief being granted. The matter should not be approached on the basis that the merits ought to be determined as if the application was hypothetically heard and determined on the day it was first filed. In my view the question of costs may be
determined in accordance with propositions (3), (4) and (5).

The ASC in an outline of argument filed in court relating to these questions contended that the principal distinguishing feature between the seventh and eighth respondents and Mr and Mrs Bunt was conduct alleged by the ASC to be demonstrable, gross mismanagement of the seventh and eighth respondent.  This mismanagement, it was submitted, precipitated the litigation and rendered it unreasonable for the respondents to resist the application.

The mismanagement alleged was summarised in paragraph 2.12 of the outline :-

"2.12The nature of this mismanagement may be summarised as follows:

(a)The Directors of the Respondents had abdicated responsibility for the management of the companies.

(b)Mrs Bell-Bradbury created (or acquiesced in the creation of) false or misleading security documents over the Respondents' assets.

(c)Mrs Bell-Bradbury attempted to defeat the Court's appointment of receivers by causing funds to be withdrawn from company accounts whilst the interim application was being heard.

(d)Mrs Bell-Bradbury failed to properly administer trust property held by Berona Investments, treating it as her own.

(e)The Respondent has failed to properly record and administer its shares.

(f)Mr Bell was permitted to intermeddle in the administration of the Respondents.

(g)The Respondents failed to keep even the most rudimentary books or records and failed to fulfil statutory duties to lodge documents."

The evidence which established conduct amounting to that alleged in sub-paragraphs (a)-(g) was set out respectively in paragraph 2.13(a)-(m) inclusive, paragraph 2.14(a)-(k) inclusive, paragraph 2.15(a)-(f) inclusive, paragraph 2.18(a)-(h) inclusive and paragraph 2.19(a)-(i) inclusive.  Save for the matters stated in paragraphs 2.13(e)(i)(C), (i), (j), (k), (l) and (m), 2.14(k), 2.15(e) and (f), 2.16(f), 2.17(f), 2.18(f), (g) and (h), 2.19(g), (h), the seventh and eighth respondents conceded the matters set forth in the paragraphs as correct.

It is unnecessary to set out the evidence conceded.  It is sufficient to say that the evidence establishes the conduct alleged in sub-paragraphs 2.12(a), (b), (c), (e), (f) and (g).  The question as to the ownership of the trust property is presently being contested in the District Court of Queensland and the evidence relied upon by the ASC when challenged does not entitle a conclusion of mismanagement of trust property to be drawn.  Nevertheless, the remaining conduct of the respondents, to the extent that it was revealed in the investigation of the ASC, was a principal factor in the proceedings being initiated against the seventh and eighth respondents.  Another reason was that the seventh respondent had received $5,408.00 and the eighth respondent $109,698.00 from the scheme which lay at the centre of the ASC's investigation.  The conduct and state of affairs of the seventh and eighth respondents justified the appointment of the interim receivers.  The creation of false and misleading security documents by Mrs Bell-Bradbury and her abandonment of her role as director properly discharging the duties of the office, made any opposition to the appointment of an interim receiver unreasonable.  In fact the seventh and eighth respondents did not oppose the continued interim receivership when the order was continued on 1 April 1992 and varied to allow the seventh and eighth
respondents to execute and register a mortgage over lands subject to the receivership to raise money for their legal costs.  Thereafter it remained open to the seventh and eight respondents acting through Mrs Bell-Bradbury to apply to the court to terminate the receivership which she ultimately did when, as I have found, the interim receivers sought to embark on a course of conduct beyond the purpose for which they were appointed.

In my view there is much force in the observation of Lord Denning MR in J T Stratford & Son Ltd v. Lindley [1969] 1 WLR 1547 (at 1553-1554) :-

"This action has never come for trial.  No costs have ever been awarded in the action.  Nobody has lost.  Nobody won. ... Neither side wanted to go on.  But neither side wanted to pay the costs of the other side.

.....

... Finding that neither side wishes to go on with this action, I think the master and the judge exercised their discretion wisely in giving leave to discontinue on the footing that each side is to bear its own costs including costs in the cause."

In the instant case, by 23 April 1993, neither side had won or lost. Neither side wished to continue. On the affidavit material of Mr Behan, an officer of the ASC, the ASC was satisfied that the receivership was no longer necessary. After that time it is unlikely that the court would, within the meaning of s.1323 so far as the seventh and eighth respondents are concerned, have considered it necessary or desirable for the purpose of protecting the interest of an aggrieved person as defined in the section, to make an order appointing a receiver or receiver and manager of the property of the seventh or eighth respondent. Quite simply, events had overtaken the proceedings.

That the conduct of the respondents was a significant element bringing
about the institution of the proceedings against it should not of itself result in the seventh and eighth respondents being ordered to pay the costs of the ASC.  Likewise, there is nothing in the conduct of the litigation by the seventh and eighth respondents after it was commenced which would justify that they be ordered to pay the ASC its costs of the proceedings.

In my view, the justice of the matter requires that the costs of the seventh and eighth respondents and the ASC ought to be borne as they have fallen.  There should be no order as to the costs of the proceedings.

The question of the receivers' remuneration and the payment of their costs and expenses stands in a different position.  The conduct established by the concessions and the conflict of duty and interest of Mrs Bell-Bradbury in her dealings with the property of the seventh and eighth respondents made the appointment and maintenance in office of the interim receivers not only reasonable but necessary in the interests of the seventh and eighth respondents and their creditors.  That does not mean that everything done by the interim receivers was within their powers or for the purposes for which they were appointed.  That issue and their entitlement to remuneration or indemnity for costs and expenses incurred by conduct beyond power are separate matters.  As the conduct of the seventh and eighth respondents and their controllers was the event which necessitated the appointment, there is no reason to depart from the ordinary rule which is stated by McPherson J in Rosanove v. O'Rourke [1987] 1 Qd.R 275 (at 278-279) :-

"The true principle therefore appears to be that the receiver is, in respect of his costs and charges, entitled to be indemnified by the beneficiaries personally, but only if, in incurring the particular expense, he acted with the authority of the court:  Ex parte Izard;  or, if he acted without it, his
action in incurring the [sic] that expense proves beneficial:  Bristowe v. Needham.  Otherwise he is confined to his indemnity out of the assets:  Ex parte Izard.  In his discussion of this topic in (1981) 13 Melbourne University Law Review 1 at 7, Professor H.A.J. Ford has pointed out that in the cases in which a multiplicity of beneficiaries have been held liable to indemnify personally, there has been the additional element of a request by the beneficiaries to the trustee to incur the expense in question.  In the case of receivers, the order or direction of the court serves as the equivalent, or serves the function, of such a request to a trustee to incur expense.  It is always open to those interested in the assets under the control of the Court to apply to the Court for an order or direction that the receiver not incur the particular expense in question, and in practice one would expect that a receiver who was about to engage in such action would notify the parties before doing so, so as to give them an opportunity to challenge his decision."

There is nothing in the reasons of Hill J dealing with the receivers' costs and expenses in relation to Mr and Mrs Bunt which would lead to a different conclusion  The conduct of the seventh and eighth respondents and its controllers would make it unjust to require the ASC to pay or indemnify the seventh and eighth respondents for the receivers' remuneration and for the receivers' costs and expenses properly incurred.

The only order that is necessary in the views I have expressed is that the seventh and eighth respondents' notice of motion filed 30 August 1993 as against the ASC be dismissed.  Both the seventh and eighth respondents have been partially successful and have otherwise failed in the positions taken on the issues raised.  In the circumstances there should be no order as to costs on the notice of motion.

THE COURT ORDERS THAT:

1. The seventh and eighth respondents' notice of motion filed 30 August 1993 be dismissed as against the ASC.

2. There be no order as to costs.

3. Liberty be granted the seventh and eighth respondents and the receivers to apply on three (3) clear days notice to the other party for further directions as to the taxation of the receivers and managers' costs and accounts in relation to the receivership of the property of the seventh and eighth respondents.

I certify that this and the preceding eleven (11) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.

Date:20 November 1995

Associate

Counsel for the Applicant:  Mr. R. Hanson QC with Mr J. McKenna

Solicitors for the Applicant:            Australian Securities Commission

Counsel for the Seventh and

Eighth Respondents:  Mr. P.J. McHugh

Solicitors for the Seventh and

Eighth Respondents:  Biggs & Fitzgerald

Counsel for the Receivers

and Managers:  Mr. D. Smith

Solicitors for the Receivers:  Halletts

Date of Hearing:  6, 7 March 1995

Place of Hearing:  Brisbane

Date of Judgment:  20 November 1995