Christianos v Aloridge Pty Ltd
[1995] FCA 639
•21 AUGUST 1995
CATCHWORDS
PRACTICE AND PROCEDURE - application for leave to appeal from interlocutory orders - need for "particular caution" when deciding whether to grant leave in respect of decisions pertaining to practice and procedure - orders had potential to affect substantive rights
CORPORATIONS LAW - shareholder seeking to join additional claims to winding up application - alleged breach of duty owed to company - rule in Foss v Harbottle - company is proper plaintiff to sue for a wrong done to it - settled rule is for liquidator to pursue claims in the name of the company - whether circumstances warrant vesting such rights in receiver - departure from rule only where "exception of necessity" - remedies available where liquidator unwilling to bring claims
Corporations Law s.260(2)(c), s.460(1), s.461(k), ss.477(1) and (2)
Cases considered:
Foss v Harbottle (1843) 2 Hare 461; 67 ER 189
Hurley v BGH Nominees Pty. Ltd. (1982) 6 ACLR 791
Adam P. Brown Male Fashions Pty. Ltd. v Philip Morris Inc. (1981) 148 CLR 170
Re Will of Gilbert (1946) 46 SR (NSW) 318
Scarel Pty. Ltd. v City Loan & Credit Corporation Pty Ltd (1988) 17 FCR 344
Ferguson v Wallbridge [1935] 3 DLR 66
Fargro Ltd. v Godfroy [1986] 1 WLR 1134
Zempilas v J N Taylor Ltd (in liq) (No 6) (1991) 5 ACSR 28
Garden Mews-St Leonards Pty Ltd v Butler Pollnow Pty Ltd (1984) 9 ACLR 91
Pollnow v Garden Mews-St Leonards Pty Ltd (1984) 9 ACLR 82
GEORGE CHRISTIANOS & ORS. v. ALORIDGE PTY. LIMITED & ANOR.
No. G 3210 of 1993
BEAUMONT WHITLAM AND TAMBERLIN JJ.
SYDNEY
21 AUGUST 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. G 3210 of 1993
)
GENERAL DIVISION )
APPLICATION FOR LEAVE TO APPEAL
FROM A SINGLE JUDGE OF THE COURT
BETWEEN:GEORGE CHRISTIANOS
First applicant
MARIA CHRISTIANOS
Second applicant
NIKOLA VUCKOVIC
Third applicant
FREDERICK SALKANOVIC
Fourth applicant
GEMBANK LIMITED
Fifth applicant
AND:ALORIDGE PTY LIMITED (Provisional Liquidator appointed)
First respondent
WEST AUSTRALIAN GEM EXPLORERS PTY LIMITED
(Provisional liquidator appointed)
Second respondent
CORAM: BEAUMONT, WHITLAM AND TAMBERLIN JJ.
PLACE: SYDNEY
DATE: 21 AUGUST 1995
MINUTES OF ORDER
THE COURT ORDERS:
Leave to appeal granted.
-2-
Appeal allowed.
Order 1 made at first instance on 6 April 1995 set aside.
The matter be remitted to Burchett J., or, if unavailable, to another Judge of the Court, for the purpose of conducting a directions hearing in the proceeding at a date to be fixed for the purpose of giving any directions that may then be necessary, including direction for the hearing as soon as practicable, of the application to wind up West Australian Gem Explorers Pty. Limited.
The first respondent pay the appellants' costs of the appeal, including the application for leave to appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. G 3210 of 1993
)
GENERAL DIVISION )
APPLICATION FOR LEAVE TO APPEAL
FROM A SINGLE JUDGE OF THE COURT
BETWEEN:GEORGE CHRISTIANOS
First applicant
MARIA CHRISTIANOS
Second applicant
NIKOLA VUCKOVIC
Third applicant
FREDERICK SALKANOVIC
Fourth applicant
GEMBANK LIMITED
Fifth applicant
AND:ALORIDGE PTY LIMITED (Provisional Liquidator appointed)
First respondent
WEST AUSTRALIAN GEM EXPLORERS PTY LIMITED
(Provisional liquidator appointed)
Second respondent
CORAM: BEAUMONT, WHITLAM AND TAMBERLIN JJ.
DATE: 21 AUGUST 1995
REASONS FOR JUDGMENT
THE COURT
INTRODUCTION
In order to understand the grounds on which this application for leave to appeal from interlocutory orders made
by Burchett J. is brought, it will be necessary to refer to the history of these proceedings as follows:
By its application filed on 5 August 1993, the first respondent, Aloridge Pty Limited ("Aloridge"), applied to the Court for an order that the second respondent, West Australian Gem Explorers Pty Limited ("WAGE"), be wound up under the provisions of the Corporations Law ("the Law").
The application filed by Aloridge was expressed to be made under several provisions of the Law: (i) under s.260(2)(c), (whereby, in providing a remedy in cases of oppression or injustice in the conduct of the affairs of a company, the Court is empowered to order that the company be wound up); (ii) under s.460(1) (whereby the Court may order the winding up of a company that is unable to pay its debts); and (iii) under s.461(k) (whereby the Court may order the winding up of a company if the Court is of the opinion that it is just and equitable to do so).
(WAGE, which had been incorporated in Western Australia in March 1991, carried on the business of the mining of chrysoprase in the mineral field of North Coolgardie as the holder of Mineral Lease 31/104. In July 1991, Aloridge became the registered holder of 70 shares of $1 each in the capital of WAGE. At that time, WAGE's issued capital consisted of 100 shares of $1 each.)
In its application for relief, Aloridge also sought, by way of interlocutory relief, orders that a provisional liquidator be appointed "to" WAGE; that the provisional liquidator take possession of the mining lease at North Coolgardie and all plant and equipment owned by WAGE and used on the lease; and that the provisional liquidator take possession of any of WAGE'S stocks of chrysoprase. On 5 August 1993, Burchett J. made, ex parte, these interlocutory orders up to and including 6 August 1993. His Honour further ordered that the provisional liquidator, Victor Charles Court, have the power to carry on the company's business conferred by s.477(1)(a) of the Law, and also have the powers specified in ss.477(2)(a) to (k). (By s.477(2)(a), a liquidator is empowered to bring or defend any proceeding in the name and on behalf of the company.) These orders were extended from time to time. On 10 September 1993, Burchett J. confirmed the orders originally made on 5 August 1993 until any further order of the court might be made. None of these orders, it appears, is presently in contention between the parties.
On 24 August 1993, Burchett J. directed that Aloridge file a statement of claim and gave other directions in the matter, including an order that the proceedings be heard together with a related case (No. G 3114 of 1993). His Honour also noted that Aloridge acknowledged that the directors of WAGE retained the "residual power to defend the application".
By its statement of claim filed on 1 September 1993, Aloridge alleged, inter alia, that on or about 30 March 1993, WAGE purported to issue 9,600 shares of $1 each to George Christianos, one of the present applicants, and that this issue was made for an improper purpose. Other allegations of misconduct in the affairs of WAGE were made, but no further relief was claimed; that is, the only final relief sought was the winding up of WAGE.
On 6 October 1993, Burchett J. granted Aloridge leave to amend its statement of claim. Further allegations of misconduct in the affairs of WAGE were made, but, again, no further or different claim for final relief was indicated.
On 6 May 1994, Aloridge filed a notice of motion seeking leave to amend its application and its statement of claim. The orders made on this notice of motion are the subject of the present application for leave to appeal. The amendments sought to be made to the original application for relief were the joinder of five additional respondents (being the present four individual applicants and Goddard & Hill Limited (now the applicant Gembank Limited)); and the making of an application for declarations and orders as follows: a declaration that a management agreement dated 15 June 1992 between WAGE and Gembank was void; a declaration that Gembank has held its interest in Mineral Lease 31/112 from the time it acquired such lease upon trust for WAGE; an order that Gembank account to WAGE for all moneys paid by WAGE to Gembank pursuant to the terms of the management agreement; a declaration that the actions of the present four individual applicants, as directors of WAGE, constituted a breach of their fiduciary duty to WAGE; and an order that Gembank account to WAGE for the proceeds of all sales of minerals from Mineral Lease 31/112 from 7 April 1993. Substantial amendments were, accordingly, sought to be made to the statement of claim to allege the following:
"24.AOn or about 15 June 1992 [WAGE] entered into a written agreement with [Gembank] (hereinafter called `The Consultancy Agreement').
24.BIn consideration for the services that [Gembank] was said to provide to [WAGE] that company agreed to pay to [Gembank] an amount equal to 50% of the gross value of the minerals mined and sold by [WAGE] from Lease 31/104.
24.CThe directors of [WAGE] as at 15 June, 1992 were George Christianos and Frederick Salkanovic and as at 3rd July, 1992 were [the present applicants] George Christianos and [the present applicants] Maria Christianos and Nikola Vuckovic.
24.DThe directors of [Gembank] as at 15 June, 1992 were Leila Mossenson, Ian Mossenson and Nissan Mossenson. Ian Mossenson was at all times the Solicitor for the Christianos' interests.
24.EOn 16 June, 1992 the said persons resigned as directors of [Gembank] and in their stead George Christianos, [the present applicants] Maria Christianos, Tonia Zoi Christianos, the mother and sister respectively of George Christianos were appointed as directors.
24.FIn purported performance of the agreement
[WAGE] paid to [Gembank] various sums of money from time to time.
24.GThe said Agreement was entered into by the directors of [WAGE] in breach of their fiduciary duties to that Company.
Particulars
(i)The agreement was of no commercial advantage to WAGE and had no commercial purpose for that company.
(ii) The purpose and the effect of the agreement was to transfer 50% of the proceeds of sale from WAGE to [Gembank] a company solely controlled by the Christianos' interests. Such action was to the exclusion of the shareholders of WAGE.
(iii) The directors failed to act properly in the business of the company and in the interests of the company as a whole.
(iv)The said actions and agreement of 7 April 1993 was to promote and protect the interests of the Christianos' to the detriment of the interests of the Loukas family."
The application for leave to amend was supported by an affidavit by the provisional liquidator of Aloridge, David Ernest Willis Blackwell, to the effect that he had been advised by his solicitors that this further relief, and these amendments, were necessary in order that all matters in dispute between Aloridge and WAGE might be determined, and in order to determine the assets of WAGE. The application was opposed by the present applicants on two grounds: First, that additional claims should not, except in very special circumstances, be joined with a winding up application; and, secondly, that the claims proposed to be made were barred by the rule in Foss v Harbottle (1843 2 Hare 461; 67 ER 189) that only the company could maintain an action for breach of a duty
said to be owed to the company; and that the amendments sought were not necessary, a provisional liquidator having been appointed to WAGE after these proceedings had been instituted who could elect to bring the actions in WAGE's name.
THE DECISION AT FIRST INSTANCE
In order to understand the complexity of the questions which arise in the present application, it will be necessary to refer to his Honour's reasoning in some detail.
Burchett J. rejected the first ground of opposition for these reasons (see (1995) 127 ALR 410 at 413):
"The former proposition [that additional claims should not be tacked on to a claim for a winding up order] is supported by reference to Rymark ... and Re National Computers Systems & Services Ltd ... . But the point in Rymark was simply that the procedure by petition (described by Lush J as a `peremptory' requirement of the provision there in question) permitted no exception in a case commenced by writ. Nor was [National Computers] ... any closer to the present. There, McLelland J ... expressly limited his remarks to `a creditor's application for the winding up of a company ... on the ground of insolvency'. It is true his Honour referred to the nature of the order as `in rem', and made a glancing reference to Rymark, but he then detailed the obvious considerations favouring early determination of the question whether a company should be wound up as insolvent. He said that `it is in the public interest that an application to wind up a company on the ground of insolvency, once filed, be determined without avoidable delay'."
Burchett J. went on to say (at 413):
"I do not think the reiterated reference [by McLelland J.] to `the ground of insolvency' can be brushed aside; when the same judge was confronted by a case closer to the present, one raising the `just and equitable' ground, he contemplated that the issues common to the winding up proceedings and the separate claim would be `heard together`: Garden Mews-St Leonards Pty Ltd v Butler Pollnow Pty Ltd ... . Indeed, his Honour there appointed an interested party receiver in order to facilitate the joint hearing. There were in that case, as there are in this, reasons of justice and convenience favouring the resolution of all issues at the one time."
Turning next to the second ground of opposition based on the rule in Foss v Harbottle, his Honour said (at 413):
"To this proposition [i.e. that the company's claim should be brought by the company itself and not by someone else] there is generally no answer. However, four exceptions are recognised beyond dispute, and a fifth has been suggested. ... The fourth exception relates to conduct amounting to a fraud on a minority of the members of a company who, being a minority, cannot get it to institute proceedings; they are allowed to bring a derivative action on its behalf. The suggested fifth exception would authorise the commencement of such an action whenever the interests of justice require it to be permitted.
What is urged against the amendment here is that the claims made depend upon a right of action against the directors, which, if it lies, belongs to the company. If that right of action had been asserted in the original application and statement of claim, it would have fallen within the fourth exception, at the time of the institution of the proceedings."
Burchett J. continued (at 413-4):
"However, a provisional liquidator was soon appointed. ... [Those opposing leave to amend argue] that this appointment prevents the fourth exception applying, since [they say] the provisional liquidator could cause the company to bring the claim. If the argument is valid, and assuming Ipp J
was right when he ruled (in Biala Pty Ltd v Mallina Holdings Ltd ...) that the facts establishing the fourth exception must exist at the hearing and not merely at the institution of the action, the applicant would not have been able to rely on its minority status to establish this exception even if the claim now sought to be added had been made initially. A fortiori, the claim cannot be brought by amendment after the appointment of the provisional liquidator. However, ... the applicant answers this argument by pointing out that, in Biala, Ipp J ... held the fifth exception did exist and did apply in the particular circumstances, including the availability of the fourth exception at the time of the institution of the proceedings and its having become unavailable only during their pendency. On the same kind of basis, the fifth exception was claimed to be available here."
Burchett J. noted that, on appeal from the decision of Ipp J., the Western Australian Full Court held that the question of standing (and thus whether there was, in truth, a fifth exception) should be resolved at the trial, and not as a preliminary issue. After referring to another decision of the Western Australian Full Court and to the South Australian Full Court decision in Hurley v BGH Nominees Pty. Ltd. (1982) 6 ACLR 791), his Honour said (at 414):
"These decisions suggest that the question raised as an objection to the amendment ought not to be determined now; that I should allow the amendment; and that the issue should be decided when all the evidence is in at the hearing."
But the learned primary Judge then added this:
"However, I do not think the problem should simply be deferred without some further discussion. The appointment of a liquidator (as distinct from a provisional liquidator) would certainly raise a formidable obstacle to a derivative action. Unless the fifth exception could be applied in some as yet unperceived situation, it would raise an insuperable
obstacle. This was held by the Privy Council in the Canadian appeal Ferguson v Wallbridge ..., which was followed in England by Walton J in Fargro Ltd v Godfroy ... . A similar view was taken by McLelland J, in Pollnow v Garden Mews-St Leonards Pty Ltd ..., of a claim sought to be made against a company in respect of which a provisional liquidator had earlier been appointed in other proceedings. His Honour said:
`The proceedings were commenced on 22 August 1983. The affairs of the company were at that time and still are under the control of a provisional liquidator appointed by the court on 30 June 1983 in proceedings No 4755 of 1983, being proceedings for the winding up of the company. It could not possibly be successfully [argued] that justice requires the rule in Foss v Harbottle to be disregarded where control of the affairs of the company (and the power to bring proceedings in its name) is vested in an officer of the court and is indirectly under the control of the court itself in the winding up proceedings. A remedy for any injustice alleged to arise from the appointment of the provisional liquidator is a matter to be pursued in the winding up proceedings (as has in fact occurred). Accordingly the proceedings so far as claims are made on behalf of the company, are not sustainable in the absence of the company as plaintiff.'
Burchett J. went on to observe (at 415):
"But, with respect, it was able to be argued, and successfully, that the provisional liquidator was not an appropriate person to have the conduct of the proceeding, as appears from his Honour's judgment (delivered the same day) in Garden Mews-St Leonards Pty Ltd v Butler Pollnow Pty Ltd, ... . The problem was solved by the appointment of Mr Pollnow as receiver of the rights of action of the company with power to enforce them in the name of the company ... but it is not clear to me why, assuming the fifth exception to the rule in Foss v Harbottle does exist, the same reasons which justified his appointment would not, in its absence, have justified his bringing a derivative action.
At any rate, the appointment of Mr Pollnow suggests a way out of the impasse here, if impasse there be. It must be remembered that a provisional liquidator is, in a fundamental respect, not in the same
position as a liquidator. He is appointed by an interlocutory order to fulfil a function analogous to that of a court-appointed receiver, whose task is `provisional only' and `does not at all affect the right': Per Lord Hardwicke LC in Skip v Harwood ..., cited in Shirlaw v Taylor ... where the ephemeral nature of the appointment was also emphasised at [31] FCR 224."
Having noted that the primary function of a provisional liquidator was to maintain the status quo, pending determination of the winding up proceedings, his Honour said (at 415):
"This being the position of a provisional liquidator, and having regard to the circumstances of this case and the close relationship between the claims put forward on behalf of the company and those which necessarily arise in the application to wind up the company, I would not think it appropriate that the court should authorise the provisional liquidator, as its servant, to pursue the matter, when the applicant is ready to do so."
The learned primary Judge continued:
"In my opinion, considerations of justice and convenience favour the applicant. It was not suggested there is in the Federal Court any difficulty of the kind raised by Young J under the Rules of the Supreme Court of New South Wales in FAI Insurances Ltd v Pioneer Concrete Services Ltd ...; cf Federal Court Rules O 6, r 1. The decision of the Full Court of the Supreme Court of Western Australia in Demster v Mallina Holdings Ltd ... would, as I have said, support allowing the amendments, and leaving the dispute as to the alleged application of Foss v Harbottle to the hearing. But that might keep the question of standing in undesirable doubt. The interests of justice would be better served if the parties knew that the substantial issues were definitely to be decided. Appropriate certainty is more likely to be assured if an order is made along the lines of that which McLelland J made when he appointed Mr Pollnow as receiver of the rights of action of the company in whose name he desired to sue, with power to do
so."
THE ORDERS MADE AT FIRST INSTANCE
After adjourning the matter for the purpose of hearing further submissions, Burchett J. then noted that Mr. Blackwell gave these undertakings to the Court: That he would not in his capacity as receiver engage legal representation on behalf of WAGE in any proceedings except on terms that he would be personally liable for the costs of such proceedings to the exclusion of WAGE, except to the extent that costs are recovered in those proceedings by WAGE; and that he would not commence or prosecute any proceedings in the name of WAGE as applicant without himself being a co-applicant in the proceedings (subject, however, to any order made in such proceedings) and that in the event that it be held in any such proceedings that an order for costs should be made against WAGE, he would consent to the same order for costs being made against himself. His Honour next proceeded to make these orders:
"A.That [Mr.] Blackwell be appointed without security and until further order as receiver of:-
(i)Any rights of action of [WAGE] against George Christianos, Maria Christianos, Nikola Voukovic, Frederick Salkanovic and Gembank ... [the present applicants] and each of them:-
(a)Arising out of the facts pleaded in the copy Statement of Claim attached hereto. [This was in the amended form sought, although it appears that no formal leave to amend was granted, at least not explicitly so.]
(b)Arising from the grant of Mineral Lease 31/112 in the Shire of Menzies in the name of Gembank ... .
(c)Arising out of the negotiations by the Directors and agreement dated 15 June 1992 between [WAGE] and Gembank ... relating to the provision of services as referred to in the agreement.
(d)Which the Court may allow to be brought by amendment to the said Statement of Claim.
B.That the said Receiver have power to commence and continue and to prosecute in the name of [WAGE] proceedings for the enforcement of any such rights of action and to engage and instruct legal representatives for that purpose on the terms of the above undertaking subject to the limitations contained in Order D below.
C.That [Mr.] Blackwell be joined as a co-applicant in those proceedings.
D.That the said Receiver shall not compromise any proceedings or claim on behalf of [WAGE], nor receive any moneys recoverable by [WAGE], without first obtaining the specific authority of the Court."
(As has been said, his Honour made no express order granting leave to amend the statement of claim although this had been foreshadowed in the reasons for judgment (at 414)).
THE APPLICATION FOR LEAVE TO APPEAL
Since his Honour's orders were plainly interlocutory, leave to appeal is required. However, the case was argued before us on the footing that, if leave were to be granted, the appeal itself could be dealt with immediately. Accordingly, we have had the benefit of full argument from counsel on the matter.
In deciding whether leave to appeal from an interlocutory order should be granted, it is well settled that "particular caution" should be exercised "in reviewing decisions pertaining to practice and procedure" (see Adam P. Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 per Gibbs C.J., Aickin, Wilson and Brennan JJ. at 177). In Adam Brown, their Honours approved the well-known statement by Jordan C.J. in Gilbert's Case (1946) 46 SR (NSW) 318 (at 323) which distinguished between an exercise of discretion on a point of practice or procedure, on the one hand, and an exercise of discretion which determines substantive rights, on the other.
However, in the present circumstances, the application of these principles is not self-evident, since it appears that the matter dealt with by Burchett J. had a dual aspect. From one point of view, the question was merely one of practice and procedure, that is, whether amendment of the pleading should be permitted. Yet, from another aspect, the orders made had an important substantive operation, for, instead of merely permitting an amendment, his Honour also vested the causes of action which were in contention in a receiver; and these orders had the potential to affect substantive rights, at least in terms of the application, or otherwise, of the rule in Foss v Harbottle. As the discussion of the authorities in this area by Burchett J. itself demonstrates, the point does appear to raise an important, if difficult, question of principle, so that it is appropriate that leave to appeal should be granted on this substantial ground alone. As well, there are some adjectival aspects of the orders made which appear to have considerable practical significance. As has been mentioned, no formal leave to amend the pleading was granted. Further, the order appointing the receiver was made "until further order", and it is not clear whether this was intended to, or could, survive the making of a winding up order. It should be noted, in this connection, that there is, and it appears, there has been, no opposition to the winding up of WAGE. For all those reasons, we would grant leave to appeal.
CONCLUSIONS ON THE APPEAL
It is well established that in an action to redress a wrong done to a company, or to recover money or damages alleged to be due to it, the company is the only proper plaintiff; and that the company's name should only be used as a plaintiff by direction of the company or its directors or, where the company has been placed in liquidation, by the liquidator (see Scarel Pty. Ltd. v City Loan & Credit Corporation Pty. Ltd. (1988) 17 FCR 344 per Gummow J. at 350). There, Gummow J. went on (at 351) to cite the following observations of Lord Blanesburgh, speaking for the Privy Council in Ferguson v Wallbridge [1935] 3 DLR 66 (a case of voluntary liquidation also mentioned by Burchett J.) (at 83):
"... even in the case of a going company a minority shareholder is not entitled to proceed in a representative action if he is unable to show when challenged that he has exhausted every effort to secure the joinder of the company as plaintiff and has failed. But cessante ratione legis, cessat lex ipsa. So soon as the company goes into liquidation, the necessity for any such expedient in procedure disappears. Passing over the superficial difficulty that a company in compulsory liquidation cannot be proceeded against without the leave of the court, the real complainants, the minority shareholders, are now no longer at the mercy of the majority, wrongly retaining the property of the company by the strength of their votes. If the liquidator, acting at the behest of the majority, refuses when requested to take action in the name of the company against them, it is open to any contributory to apply to the court ... and it is open to the court, on cause shown, either to direct the liquidator to proceed in the company's name or on proper terms as to indemnity, and otherwise to give to the applicant leave to use the company's name as plaintiff in any action necessary to be brought for the vindication of the company's rights ... . And it is the policy of the Act that all claims competent to the company should be brought within the scope and control of the winding up, and that not only in a compulsory liquidation. Therefore, such procedure is not to be discouraged." (Emphasis added)
More recently, in another case mentioned by Burchett J. (at 414), Fargro Ltd. v Godfroy [1986] 1 WLR 1134, Walton J. said (at 1138):
"... the procedure which is adopted in the liquidation is either that the liquidator sues in the name of the company, of course against suitable indemnities, or against suitable indemnities the would-be plaintiff is allowed himself/herself/itself to sue in the name of the company, but that in all cases in a liquidation the action is brought, as it properly should be brought, in the name of the company."
(See also Zempilas v J N Taylor Holdings Ltd (in liq) (No6)
(1991) 5 ACSR 28 per Debelle J. at 30).
Although a member who is dissatisfied with a liquidator's reluctance to sue cannot rely on the exceptions to the rule in Foss v Harbottle, it is clear that other remedies may be available, for instance, the member may use the statutory procedure to ask the court to order the liquidator to bring the proceedings (see Ford and Austin's Principles of Corporations Law, 7th ed. at 452, referring to ss.477(6) and 511 of the Law; see also s.1321, providing for appeals from acts, decisions or omissions of liquidators and provisional liquidators). There are other possible remedies, for example, removal of the liquidator or, as was done in Garden Mews-St Leonards Pty. Ltd. v Butler Pollnow Pty. Ltd. (1984) 9 ACLR 91, the appointment of a receiver of the company's right of action (see generally, Scarel, above, at 351-2).
As has been seen, Burchett J. referred at some length to the decisions of McLelland J. in the Pollnow and Garden Mews litigation. Since each is important for present purposes, it will be necessary to consider their detail.
In the first case, Pollnow v Garden Mews-St. Leonards Pty. Ltd. (1984) 9 ACLR 82, some of the defendants had appointed another defendant to be the receiver of the assets of the company. Subsequently, in an application to wind up the company, a provisional liquidator was appointed. The plaintiff, a director of the company, instituted
proceedings, purportedly on behalf of himself and the company, challenging the appointment of the receivers and alleging breach of duty owed to the company. Upon the defendants moving to strike out the statement of claim, the plaintiff sought leave to amend and sought leave of the Court to join the company as a co-plaintiff. In striking out the original statement of claim, McLelland J. held first, that the claims purportedly brought on behalf of the company were barred by the rule in Foss v Harbottle; and, secondly, that it could not be argued that justice required that this rule be disregarded where control of the affairs of the company was vested in the provisional liquidator, an officer of the court, and where those affairs were indirectly under the control of the court itself in the winding up proceedings. The original pleading was struck out, but McLelland J., having said (at 85) that the absence of the company as a plaintiff was a difficulty which "may well be resolved", went on (at 89-90) to order that the plaintiff's application to join the company as a co-plaintiff and remove it as a defendant should stand over, pending the making of orders in the other proceedings, "and the plaintiff (or plaintiffs if that is the then position) should be given leave to file a fresh statement of claim within some further specified period". His Honour, therefore, deferred the ultimate consideration of the question, and thus, contrary to an impression that Burchett J. appears to have held, McLelland J. did not then finally decide that point.
In the other proceeding, Butler Pollnow, the plaintiff sought an order that the defendant company be wound up on both insolvency and "just and equitable" grounds. A provisional liquidator was appointed. Leave was sought to amend the statement of claim, and an application was made for an order that a receiver be appointed of any causes of action which the defendant company may have against other defendants in the other proceedings.
McLelland J. noted (at 95) that the provisional liquidator was unwilling to undertake the prosecution of the claims on behalf of the company, and having regard to the lack of available assets in his hands and the uncertainties and difficulties inherent in prosecuting the claims, his attitude in this regard was understandable. There was another reason why it would have been undesirable for the provisional liquidator to have the carriage of the claims: It was quite clear that, in the winding up proceedings, Mr. Pollnow at least would have set up by way of defence the substance of the matters the subject of the other proceedings, on the basis that the alleged wrongful actions of the present plaintiff, and those acting under its authority, which were complained of in those proceedings, had substantially contributed to the circumstances relied on by the present plaintiff as justifying a winding up order.
His Honour said (at 95):
"If those matters are to be litigated in proceedings to be brought in the name of the company, it seems to me as at present advised that it is likely that those proceedings and the winding up proceedings (or at least the common issues in them) would be heard together. The provisional liquidator cannot have the carriage for the company of any defence to the winding up proceedings ... and it would therefore be inappropriate for him to have the carriage for the company of proceedings raising similar issues which are heard together with the winding up proceedings." (Emphasis added)
McLelland J. went on to say (at 95) that if the claims were not to be brought on behalf of the company by the provisional liquidator, then Mr Pollnow submitted that either the provisional liquidator should be discharged, so that authority to pursue the claims on behalf of the company would revert to the directors, or that he (or some other appropriate person) should be appointed as receiver of the company's relevant rights of action for the purpose of prosecution of those claims.
His Honour then said (at 95):
"I am not satisfied that the circumstances which led to the appointment of a provisional liquidator on 30 June 1983 have altered sufficiently to warrant the termination of that appointment. However as I said in my [earlier] judgment ... the court should not allow its processes to be used in a way which would erect procedural barriers or obstacles to the prosecution of these claims on behalf of the company, and the appointment of a receiver of the relevant causes of action (perhaps more accurately rights of action) with power to enforce the same in the name of the company is an appropriate means of avoiding procedural injustice. The proposal that Mr Pollnow himself be appointed as receiver is supported by the other director of the company, Mr Butler. Mr Pollnow offers to assume liability for all legal costs incurred by the company in relation
to the prosecution of the claims in question. In these circumstances I propose to accede to the application to appoint Mr Pollnow as receiver of the relevant rights of action with power to prosecute proceedings in the name of the company to enforce the same, provided that he gives appropriate undertakings to the court relating to his personal liability for any costs thereby incurred."
It seems, therefore, that the decision to vest the rights in a receiver was a case of departure from the general rule by way of an exception of necessity. But did the circumstances of the present case also warrant such a departure?
In our opinion, as a matter of principle, as well as for practical reasons, the circumstances of the present case did not justify departure from the settled rule.
In the first place, it was, and remains, a significant consideration that the application to wind up the company (WAGE) on several grounds, including alleged insolvency, is not opposed. Prima facie (that is, unless the general body of creditors or contributors can advance a sufficient special reason to the contrary) this order should be made at the earliest practicable date. Once made, it will be open to Aloridge to request that the liquidator of WAGE pursue the claims the subject of the present application. As has been said, if the liquidator declines to act, there are other possible courses open to Aloridge. That being so, the exception of necessity which had to be applied in Butler Pollnow has no counterpart here. In other words, unless there is opposition to the winding up from another quarter, and none has been suggested, it is reasonable to expect that a winding up order will soon be made; so that, at an early date, there will be an opportunity for the liquidator to consider whether WAGE should pursue the subject claims, and if not, for Aloridge then to take the matter further. That is to say, there was no need in this case to take the special step of appointing a receiver in this connection, when a liquidator could perform the same function.
For the sake of completeness, we should add that, at the adjectival level, a difficulty would have arisen with the working of the regime put in place by his Honour by reason of the uncertainty, previously mentioned, as to the operation of an order appointing a receiver "until further order" and, in particular, as to the capacity of such an order to survive a winding up. At the very least, this order would have needed to have been clarified by providing that it would have terminated upon the winding up order being made or, if this is possible, that it would survive such an order.
Accordingly, we would allow the appeal by setting aside the order appointing the receiver; and by remitting the matter to the primary Judge for a further directions hearing, in particular, for the purpose of the listing for hearing, as soon as practicable, of the application to wind up WAGE.
ORDERS PROPOSED
We would propose the following orders:
Leave to appeal granted.
Appeal allowed.
Order 1 made at first instance on 6 April 1995 set aside.
The matter be remitted to Burchett J., or, if unavailable, to another Judge of the Court, for the purpose of conducting a directions hearing in the proceeding at a date to be fixed for the purpose of giving any directions that may then be necessary, including directions for the hearing as soon as practicable, of the application to wind up West Australian Gem Explorers Pty. Limited.
The first respondent pay the appellants' costs of the appeal, including the application for leave to appeal.
I certify that this and the preceding twenty-two (22) pages are a true copy of the Reasons for Judgment herein of the Court.
Associate
Dated: 21 August 1995
Counsel and Solicitors Mr. A.R. Emmett Q.C. with
for Applicants: Mr. D. Davies instructed by
Phillips Fox
Counsel and Solicitors Mr. B.W. Rayment Q.C. with
for Respondents: Mr. D.L. Warren instructed by
N.G. Cassim & Co.
Date of hearing: 31 May 1995
Date Judgment delivered: 21 August 1995
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