Beach Petroleum Nl (ACN 007 617 969) v Johnson
[1991] FCA 815
•5 Dec 1991
JUDGMENT No. ? '5. /%.l ..-..-
RESTRICTED CIRCULATION
IN THE FEDERAL COURT OF AUSTRALIA )
1
SOUTH AUSTRALIAN DISTRICT REGISTRY )
)
| GENERAL DIVISION | ) | No. G53 of 1991 |
IN THE MATTER of BEACH
PETROLEUM NL A.C.N. 007
617 969 and
IN THE MATTER of CLAREMONT
PETROLEUM NL A.C.N. 009
815 632 and
IN THE MATTER of JINGELLIC MINERALS NL A.C.N. 009 347
406 and
IN THE MATTER of S S -
p~ MINING NL A.C.N. 008 669 869 and IN THE MATTER of ENTERPRISE
GOLD MINES NL A.C.N. 009356 665 and IN THE MATTER of
INDEPENDENT RESOURCES LTD
A.C.N. 007 870 064 and
IN of INDEPENDENT RESOURCES
(ASIA) GROUP PTY LTD A.C.N.008 129 226 BETWEEN: BEACH PETROLEUM N4 and
~IAREHONT PETRoLEm NL
SPARGOS MINING NL, Applicants
- and -
WALCOLM KEITH JOHNSONL
MICHAEL JOHN FULLER,CHRISTOPHER PAUL M C D O u
.JOSEPH PATRICK CUMHINGSr
FIRSTWAY LIMITED , JINGELLIC MINERALS NL,
PTY LTD
Respondents
BX TEMPORE REASONS FOR JUDGMENT
W: von Doussa J.
5 December 1991
The applicants have brought on for further hearing a notice of motion that was issued on 22 July 1991 seeking orders against the eighth respondent, Enterprise Gold Mines NL ("Enterprise"), restraining it from dealing with cash assets presently held by it. The precise terms of the orders sought are more extensive and follow a customary form of Mareva injunction, but the primary purpose of the order is to control the expenditure of cash held by Enterprise pending the resolution of these proceedings.
The cash assets of Enterprise at the moment involve
approximately $1.7 million held in a deposit account and a
| O'Loughlin and Co. in a suspense account pending the | further $4.1 million which is invested through Messrs Baker | |
| resolution of a claim by Spargos Mining NL ("Spargos") to that sum of money. Spargos is the seventh respondent in these proceedings. | ||
| The notice of motion was first brought on ex parte on 22 July 1991 when orders in the nature of Mareva injunctions were made against both Enterprise and Spargos. The matter came on | ||
| for inter-parties hearing on 30 July 1991 when the applicants | ||
| sought a continuation of the injunctive orders against each of those respondents. On the third day of that hearing, the applicants reached agreement with each of the respondents. Spargos gave an undertaking not to deal with any interest that it might be found to have in the $4.1 million amount without giving 48 hours notice to the applicants. | ||
| The notice of motion against Enterprise was settled on terms then undisclosed but which have since come to the attention of the Court. I can say, without breaching any con£ idence that related to those terms, that they effectively prevented the disposal of certain moneys held by Enterprise without prior notice to the applicants. | ||
| The primary ground upon which the applicants initially sought the Mareva relief against Enterprise was that Messrs Fuller and Cummings, who are respondents in these proceedings, were directors of Enterprise. The fear was asserted that if | ||
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| proceedings were determined, in the event that the applicants succeeded, the money would not be available to them as part of the fruits of the action. | ||
| I should add that the original application was not only pursued within the inherent jurisdiction of the Court to grant a Mareva injunction but was also pursued under 8.1323 of the | ||
| Corporations Law on the footing that the Australian Securities Commission was conducting an investigation in relation to companies in the IRL group, including Enterprise. | ||
| The basis upon which the application was originally made has changed markedly. On 8 November 1991 the Full Court of the Supreme Court of Western Australia appointed a Receiver and Manager of Enterprise for a period of 18 months. | ||
| The appointment of the Receiver and Manager had the effect of removing the respondents, Fuller and Cummings, from their positions as directors and from positions of control or influence over Enterprise. The terms of the order of the Full Court, or at least a draft of the order as lodged at Court for settling, are annexed to the affidavit of MS Banks-Smith. The order gives the Receiver and Manager an unfettered power to conduct the business and management of Enterprise in such manner as he thinks most beneficial to the interests of the members of the company as a whole. By para.3 of the order he | ||
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| the order and the conduct of the company's affairs by its directors and former directors during that period with a view to determining whether causes of action for recovery of company assets or for damages against any person or persons arising out of a wrong or wrongs done to the company exist, and if found to exist to pursue recovery action. | ||
| The order also requires the Receiver and Manager to periodically lodge accounts at court and to prepare within two months of 31 December 1991, and at the expiration of each subsequent period of six months, a statement showing the assets and liabilities of the company and a report containing such information as he thinks necessary to enable the members of the company to assess its financial position. | ||
| After his appointment the Receiver and Manager extended for a short time the undertakings that had earlier been given by Enterprise to the applicants. However, more recently, he has given notice under the terms of the confidential undertaking indicating that, at the expiration of 7 days, he would no longer consider himself bound thereby. It is for that reason that the notice of motion has again been brought before the Court. | ||
| The Receiver and Manager has filed an affidavit sworn on 4 December, 1991 deposing to the assets and liabilities of the | ||
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| of interest and otherwise of the company over the next six months, and the likely expenditures that will be incurred. | ||
| Presently, Enterprise is not actively engaged in any mining businesses or other pursuits. It receives interest from moneys on deposit. Its primary activity, at the moment, seems to be defending court actions brought against it and prosecuting proceedings against parties who, it is alleged, owe money to it. The cash flow forecast includes amounts likely to be expended on legal fees. | ||
| The applicants say this is an unusual case because in the complex state of affairs canvassed in the pleadings they have claims against all the respondents for a very large sum of money. If successful, the applicants assert they would be entitled to an amount in the order of $70 million. It is common ground that Enterprise, along with Spargos and Jingellic Minerals NL ("Jingellic"), have counter-claims against the applicant Beach which are likely to be pursued in these proceedings, although for smaller sums of money. It is said that the action is unusual because, in particular, Jingellic as agent for Enterprise, and originally for Spargos also, holds security over the title to the Burbank Oil Fields. So if, at the end of the litigation, Enterprise and others are successful, at least Enterprise, Spargos and Jingellic will be secured, not only for their cross-claims but for their costs, | ||
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| finish up with a judgment that is valueless, or close to it, as the respondent companies will have no assets left. It is said for this reason that it is important that this Court now make an order that restrains the Receiver and Manager from expending the funds held by Enterprise, although it is allowed that routine expenditure on ordinary running expenses and on the prosecution and defence of litigation should not be impeded by any such order. Beyond that, however, it is said | ||
| that creditors of the company - three in particular that I later name - should not be paid. | ||
| The notice of motion is pressed both under the inherent jurisdiction of the Court and under 9.1323 of the Corporations Law, and it is urged that the power under s.1323 is the wider power, and one which should be more liberally exercised than the Mareva injunction power. | ||
| The inherent jurisdiction is a discretionary one. In patterson v. BTR Enaineerina IAust) Limited (1989) 18 NSWLR | ||
| 319 at 321 Gleeson C.J. said : |
"...it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his
judgment satisfied."
I adopt that statement of the law as summarising the principles upon which the inherent jurisdiction is to be exercised.
It may be accepted immediately that the powers given to the Court under s.1323 of the Corporations Law are wider in the sense that they may be exercised in circumstances where a Mareva injunction would not be available. For example, the
power is given under that section to make restraining orders of the kind specified on the application to the Australian Securities Commission. That is an important grant of power which allows the Court to make orders on the application of the Australian Securities Comission for the benefit of a class of people who may be aggrieved by the actions of the respondents, even though the aggrieved persons are not themselves parties to the proceedings.
The customary restraints imposed by a Mareva injunction prevent the respondent to the proceedings from dealing with or disposing of assets, and in particular dissipating them by taking them out of the jurisdiction or using them for purposes other than those authorised by the Court. The specific powers given by s.1323 go much wider than that, and include, for example, a specific power in the case of an individual to appoint a receiver or a trustee, and in the case of a corporation to appoint a receiver or a receiver and manager.
| However, in my view it does not follow that the exercise of those wider powers under s.1323 will be more liberally exercised in a case that is also clearly covered by the Mareva injunction jurisdiction. In particular, in a case such as the present one where the effect of the order sought is that the Receiver and Manager be restrained from dealing with assets of the company, I consider that the discretion under 8.1323 should be exercised on the same principles as the discretion to grant a Mareva injunction would be exercised. Therefore, in the circumstances of this case, I consider that the outcome of the proceedings will be the same under either head of power. |
It may be accepted, without going into detail, that the affidavits on the file which were canvassed at the original inter-parties hearing, establish a serious question to be tried or, in so far as there is any difference in the test, a prima facie case against the respondents. It must be emphasised, of course, that the respondents at this stage have not filed answering affidavits and that it is an assessment made on the state of the present evidence from the applicants.
It is then necessary to look at the degree of risk, unless the Receiver and Manager is restrained, that the assets of Enterprise will be dissipated so as to prevent the applicants recovering the fruits of a judgment if they succeed, and to the balance of convenience as between the applicants on the one hand and the Receiver and Manager of
| Enterprise on the other hand. |
The Receiver and Manager is appointed as an officer of the Supreme Court of Western Australia. Whilst his functions are to carry on the activities of the company in the interests of the members, he does so as an officer of the Court. I must
assume - indeed there is no question about it - that he will
do so in a bona f ide, honest fashion. Part of his responsibilities will require him to have regard to the position of the creditors of the company.
The Receiver and Manager has deposed to the fact that he does not intend to dissipate the assets of the company. He does not intend to expend money otherwise than in pursuit of the litigation which he has identified and in paying creditors. The expenditure items are forecast in the cash flow. The applicants do not take issue with any of those items save and except for three which are shown as potential payments in the month of January 1992. It should be noted, however, that the Receiver and Manager has deposed to the fact that he has not yet been able to verify the amounts claimed as owing by these three creditors, and that he is in the process of investigating their claims. The three claims are firstly by Jingellic for $257,126, secondly by Cambridge Mining Services Pty Limited for $232,311 and thirdly by Jurisprudence Pty Limited for $199,122. The claims by Cambridge Mining Services Pty Limited and Jurisprudence Pty Limited are for moneys due as at 11 November 1991 in relation to the provision
| of consultancy services. This information is taken from two | s.460(2)(a) notices which have been served by the claimants on | |
| Enterprise. Beyond that, however, the detail of the compilation of the amounts claimed by each of the three creditors is not disclosed by the evidence before the Court. The applicants express particular concern about these sums and say that the three claimants are parties to these proceedings who were directly involved in the fraudulent conduct alleged. | ||
| That submission assumes certain extrinsic knowledge, namely that Cambridge Mining Services Pty Limited is a service company controlled by the respondent, Fuller, and Jurisprudence Pty Limited is a service company controlled by the respondent, Cummings. Even accepting that information, which is implicit in the submissions that have been made, the companies themselves are separate from the individual respondents and the submission must be treated with reserve. Further, the Receiver and Manager, it may be assumed, is well aware of the interests of the claimants and the allegations in these proceedings. He has a function as an officer of the court to investigate whether those amounts are truly due and owing. | ||
| In my view this Court should proceed on the assumption that if no restraining order is made there is little risk that Enterprise moneys will be unreasonably paid out by the Receiver and Manager. That still leaves open the possibility that the amounts might be assessed by the Receiver and Manager | ||
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| that Enterprise truly owes the amounts claimed, or some lesser amounts, he ought to be free to pay those amounts. | ||
| I come then to a matter which is a significant one. The applicants pose a rhetorical question: how would the Receiver and Manager be inconvenienced by the making of an order that had the effect of restraining him from expending moneys, in particular the three amounts just mentioned, unless and until he has given prior notice of his intention to do so to the applicants? If it were just a matter of giving notice, it may well be that the Receiver and Manager would not be greatly inconvenienced. But it is clear from the debate that has occurred today that the applicants are not concerned merely to receive notice. They are concerned to become, as it were, inter-meddlers in the decision whether amounts to be paid are justly due, and whether they should be paid. And as Mr Morcombe Q.C. pointed out this morning, it would not merely be a matter of giving notice, because the notice would be followed up with a request for information. Some of the information sought might be confidential, some of it might not be. Enterprise is a party to these proceedings also and will be a plaintiff to a cross-claim. The Receiver and Manager's | ||
| job, no doubt, is difficult enough as it is when the available finances are limited. In my view it would greatly add to his burden, and to the cost of the administration, to make him answerable to the applicants as well as to the Supreme Court | ||
| of Western Australia. Furthermore, while he is answerable to | ||
| the Court, it is unnecessary that he also be answerable to the | ||
| applicants. | ||
| Those are general observations. So far as the moneys held by Enterprise are concerned, the amount of $1.7 million is not a vast sum having regard to the potential liabilities and ongoing expenses which are already envisaged by the projected cash flow, and which may hereafter arise. I consider that there should be no restriction placed on those moneys. I am particularly minded to hold that view because of the obligations of the Receiver and Manager as an officer of the Supreme Court. | ||
| The amount of $4.1 million, however, I think stands on a somewhat different footing. It is a substantial sum of money. There is no case made out by the Receiver and Manager for any need to have access to that sum in the foreseeable future. The sum of money is, as I have said, held in an account pending the outcome 'of a dispute between Enterprise and Spargos. Spargos has already given an undertaking to give 48 hours notice before dealing with that money, and I think the intent of that undertaking was not to restrain Spargos from negotiating with Enterprise and perhaps reaching some settlement, but to prevent Spargos thereafter from withdrawing the money or such of it as might be held to be the property of Spargos, without giving notice. | ||
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the Full Court of the Supreme Court of Western Australia should be sent as soon as reasonably practicable after preparation to the applicants, care of their solicitors. Although, as I have said, I think a prima facie case has been made out, the risk of dissipation of assets, and the balance of convenience, do not warrant any more restrictive order in the applicants' favour.
The applicants are at liberty at the expiration of 48 hours to bring in minutes of order reflecting these reasons and, in the meantime, the parties are urged to see if satisfactory undertakings can be put in place to make that unnecessary. There will be no order as to costs on the notice of motion as between the applicants and Enterprise in respect: of the period from 8 November 1991.
I certify that this and the
13 preceding pages are a
true copy of the Reasons
for Judgment of Mx Justice von Doussa
associate: &'& .
| Counsel for the applicants | : Mr J.R. Sulan Q.C. with |
Mr C.N.H. Bagot
| Solicitor for the applicants | : Piper Alderman |
| Counsel for 8th respondent | : Mr N.W. Morcombe Q.C. |
with M r R.C. Beasley
| Solicitor for 8th respondent | : Corrs Chambers Westgarth |
| Date of hearing | : 5 December 1991 |
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