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Cadwallader v Bajco (No.2)

Cadwallader v Bajco (No.2)

Case [2002] NSWSC 127 5 March 2002

Costs

Unconscionable Conduct

Compensatory Damages

Insolvency Law

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Reported Decision:
41 ACSR 58

New South Wales

Supreme Court

CITATION: Cadwallader v Bajco (No.2) [2002] NSWSC 127

CURRENT JURISDICTION: 1347/98

FILE NUMBER(S): SC Equity

HEARING DATE(S): 18 & 27 February 2002

JUDGMENT DATE: 5 March 2002

PARTIES :

Alan Norman Cadwallader (P)
Bajco Pty Ltd (D)
Keith William Skinner and David John Frank Lombe (D2)
David Ewart Cadwallader and Marilyn Alice Wintzloff (D3)

JUDGMENT OF: Austin J

COUNSEL : J B Whittle SC (P)
D J Hammerschlag SC (D1, D2)
J W Stevenson (D3)

SOLICITORS: A R Connolly & Co (P)
Tress Cocks & Maddox (D1, D2)
Watson & Watson (D3)

CATCHWORDS: COSTS - directors resolved to appoint voluntary administrators in bad faith and for improper purposes - administrators were on notice of improper purpose but not bad faith - plaintiff succeeds in terminating deed of company arrangement - whether administrators and directors should be ordered to pay plaintiff's costs - whether administrators should be prevented from recouping costs from company

LEGISLATION CITED: Corporations Act ss 445D, 445G, 447A

CASES CITED: City & Suburban Pty Ltd v Smith (unreported, Federal Court of Australia, Merkel J, 31 July 1998
Cresvale Far East Limited (in liquidation) v Cresvale Securities Ltd (No 2) (2001) 39 ACSR 622
Gould v Vaggelas (1984) 157 CLR 215

DECISION: See under heading "Conclusions"

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

TUESDAY 5 MARCH 2002

1347/98 ALAN NORMAN CADWALLADER V BAJCO PTY LTD & ORS

JUDGMENT

1 HIS HONOUR: On 24 December 2001 I handed down reasons for judgment in which I concluded that orders should be made terminating a deed of company arrangement entered into by the company on 12 January 1998. The effect of my decision was to cause the company to pass into liquidation. The second defendants, who were the administrators of the company, thereby became its liquidators.

2 I reached these conclusions on the grounds that

· the third defendants as directors of the company resolved in favour of the appointment of the second defendants as voluntary administrators for the improper purpose of preserving themselves in office and preventing the discontinuance of litigation brought by the company against the plaintiff and others, and therefore their decision was voidable (paragraphs 225, 226);

· the second defendants failed to comply with the requirement of s 439A (4) (c) of the Corporations Law, since their statement to creditors did not set out details of the proposed deed of company arrangement (paragraphs 257, 258);

· the second defendants' report to creditors was false or misleading in a manner material to the creditors' decision, and there were omissions from the report of matters that were material to the creditors' decision (paragraph 263).

3 I decided that the appropriate course, using powers available to the Court under ss 445D, 445G and 447A, was to make an order treating the deed of company arrangement as having come to end at the time of the making of the order, rather than declaring that the deed of…

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.

Continue reading Cadwallader v Bajco (No.2)

Details

AGLC: Cadwallader v Bajco (No.2) [2002] NSWSC 127
Case: [2002] NSWSC 127
Decision Date: 5 March 2002

CaseChat Overview and Summary

The appeal, Cadwallader v Bajco (No.2), involved a dispute between the plaintiff, Cadwallader, and the defendants, Bajco, a director of the company, and the company's voluntary administrators. Cadwallader sought an order that the administrators and the director be held responsible for his costs in terminating a deed of company arrangement. The plaintiff alleged that the administrators were appointed in bad faith and for improper purposes. The administrators, while aware of the improper purpose, were not aware of the bad faith. The appeal was heard in the Supreme Court of New South Wales.

The court was required to decide whether the administrators and the director should be held liable for the plaintiff's costs. It also needed to determine whether the administrators should be prevented from recouping their costs from the company. The primary consideration was whether the administrators were aware of the bad faith in appointing the administrators and whether this affected their ability to recover costs from the company.

The court found that the administrators and the director were indeed on notice of the improper purpose, but not the bad faith. Despite this, they were held liable for the plaintiff's costs due to the improper purpose. The court held that the administrators were not entitled to recoup their costs from the company because they had been appointed for an improper purpose. The court ruled that the administrators could not recover their costs from the company because they had acted in bad faith and for an improper purpose.

The court ordered that the administrators and the director pay the plaintiff's costs and that the administrators be prevented from recouping their costs from the company. The decision was based on the principle that administrators appointed for an improper purpose could not recover their costs from the company, even if they were not aware of the bad faith.

Orders