CLC Corporation v Read
[2000] WASC 109
•5 MAY 2000
CLC CORPORATION -v- READ & ORS [2000] WASC 109
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASC 109 | |
| Case No: | COR:295/1999 | 7 MARCH 2000 | |
| Coram: | STEYTLER J | 5/05/00 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| PDF Version |
| Parties: | CLC CORPORATION SIMON ANDREW READ JEFFREY LAWRENCE HERBERT BENNETT & CO |
Catchwords: | Corporations Winding up Whether solicitor's lien destroyed by relinquishing possession of certificates of title to liquidator in accordance with Corporations Law s 530B(1) Corporations Winding up Whether decision of liquidator was of a management-related character Court's discretion under Corporations Law s 1321 |
Legislation: | Companies Act (1955) (NZ), s 235(1), s 237(1) Corporations Law, s 9, s 438C(1), s 482(1), s 530B(1)(a), s 530B(2), s 530B(4), s 530B(5), s 530B(6), s 555, s 597(10), s 1321 |
Case References: | Barratt v Gough-Thomas [1951] 1 Ch 242 Buddle Findlay v Isaac (1996) 7 NZCLC 261,132 Re Chirnside [1929] VLR 217 In re Molton Finance Ltd [1968] 1 Ch 325 Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 73 ALJR 839 Westpac Banking Corporation v Totterdell (1998) 20 WAR 150 Askrigg Pty Ltd v Student Guild of Curtin University of Technology (1989) 18 NSWLR 738 Re Aveling Barford Ltd [1989] 1 WLR 360 Bolster v McCallum (1966) 85 WN (Pt 1) (NSW) 281 Brunton v Electrical Engineering Corporation [1892] 1 Ch 434 Dessau v Peters, Rushton & Co Ltd [1922] 1 Ch 1 Re Electronic Learning Systems International Pty Ltd (In Liq) [1998] 2 QdR 144 Re Equiticorp Finance Ltd; Ex parte Brock (1992) 6 ACSR 725 Re Gleebs Pty Ltd (In Liq) [1933] VLR 293 Harrison v Lederman [1978] VR 590 In Re Rapid Road Transit Company [1909] 1 Ch 96 Re Sabre International Products [1991] BCLC 470 Re SCA Properties Pty Ltd (In Liq) (1999) 17 ACLC 1,611 Zecevic v Radin, unreported; SCt of NSW (Needham J); 11 June 1987 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Applicant
AND
SIMON ANDREW READ
JEFFREY LAWRENCE HERBERT
First Respondents
BENNETT & CO
Second Respondent
Catchwords:
Corporations - Winding up - Whether solicitor's lien destroyed by relinquishing possession of certificates of title to liquidator in accordance with Corporations Law s 530B(1)
Corporations - Winding up - Whether decision of liquidator was of a management-related character - Court's discretion under Corporations Law s 1321
(Page 2)
Legislation:
Companies Act (1955) (NZ), s 235(1), s 237(1)
Corporations Law, s 9, s 438C(1), s 482(1), s 530B(1)(a), s 530B(2), s 530B(4), s 530B(5), s 530B(6), s 555, s 597(10), s 1321
Result:
Appeal allowed
Representation:
Counsel:
Applicant : Mr D M Stone
First Respondents : Mr G A Flynn
Second Respondent : Mr K J Martin QC & Mr D B Shaw
Solicitors:
Applicant : Williams & Hughes
First Respondents : Mallesons Stephen Jaques
Second Respondent : Rebecca A Bennett
Case(s) referred to in judgment(s):
Barratt v Gough-Thomas [1951] 1 Ch 242
Buddle Findlay v Isaac (1996) 7 NZCLC 261,132
Re Chirnside [1929] VLR 217
In re Molton Finance Ltd [1968] 1 Ch 325
Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 73 ALJR 839
Westpac Banking Corporation v Totterdell (1998) 20 WAR 150
Case(s) also cited:
Askrigg Pty Ltd v Student Guild of Curtin University of Technology (1989) 18 NSWLR 738
Re Aveling Barford Ltd [1989] 1 WLR 360
Bolster v McCallum (1966) 85 WN (Pt 1) (NSW) 281
Brunton v Electrical Engineering Corporation [1892] 1 Ch 434
Dessau v Peters, Rushton & Co Ltd [1922] 1 Ch 1
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Re Electronic Learning Systems International Pty Ltd (In Liq) [1998] 2 QdR 144
Re Equiticorp Finance Ltd; Ex parte Brock (1992) 6 ACSR 725
Re Gleebs Pty Ltd (In Liq) [1933] VLR 293
Harrison v Lederman [1978] VR 590
In Re Rapid Road Transit Company [1909] 1 Ch 96
Re Sabre International Products [1991] BCLC 470
Re SCA Properties Pty Ltd (In Liq) (1999) 17 ACLC 1,611
Zecevic v Radin, unreported; SCt of NSW (Needham J); 11 June 1987
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1 STEYTLER J: This is an appeal brought pursuant to s 1321 of the Corporations Law.
2 The applicant is and was at all material times a creditor of a company, now in liquidation, Penale Pty Ltd ("Penale"). The first respondents are the joint liquidators of Penale. The second respondent, Bennett & Co, is a law firm which performed work on behalf of Penale before it went into liquidation on 9 April 1998.
3 At the time at which it went into liquidation Penale owed Bennett & Co $146,918.51 by way of unpaid fees. Bennett & Co then had in its possession various documents belonging to Penale, including two certificates of title. The first of these related to land in Melville. The second related to land in East Fremantle.
4 In mid 1998 the liquidators entered into negotiations as regards the sale of the two properties. However Bennett & Co asserted a lien over the titles. It would not release them until it was paid what was owed to it. The applicant came to learn of the problem. It instructed its solicitors, Williams & Hughes, to write to the liquidators asking them what they proposed to do. Williams & Hughes did so. The solicitors advising the liquidators, Mallesons Stephen Jaques ("Mallesons"), responded by letter dated 2 June 1998. They said that their clients had accepted Bennett & Co's "proof of debt" in the amount initially claimed by it, being $146,918.51. This they said, represented a compromise because Bennett & Co had miscalculated what was owing to it and was in fact owed $147,548.51. They said that the liquidators had agreed to pay to Bennett & Co the lesser sum on receipt of the two certificates of title at settlement on the sale of the two properties.
5 Williams & Hughes thereupon urged the liquidators, in correspondence with their solicitors, not to pay any amount to Bennett & Co. They said that the liquidators could gain possession of the titles by reliance upon the provisions of s 530B(1) of the Corporations Law. That section reads as follows:
"530B (1) A person is not entitled, as against the liquidator of a company:
(a) to retain possession of books of the company; or
(b) to claim or enforce a lien on such books;
but such a lien is not otherwise prejudiced."
(Page 5)
6 Williams & Hughes referred Mallesons to an unreported authority on which they relied. However Mallesons was not persuaded. It referred to other authority which, it said, was more helpful. It also suggested that the words "but such a lien is not otherwise prejudiced" in s 530B(1) allowed a lien holder to maintain all rights save possession.
7 Further debate by way of correspondence ensued. References to additional authority were exchanged. However neither firm was able to persuade the other and, in the end, the liquidators paid $146,918.51 to Bennett & Co on about 6 July 1998 in return for the two certificates. This is the "act ... or decision" by which the applicant claims to be aggrieved and which, in reliance upon s 1321 of the Corporations Law, it wishes to have reversed. It says that Bennett & Co should be ordered to repay to the liquidators the sum of $146,918.51 and interest without prejudice to its rights to a distribution rateably with Penale's other unsecured creditors.
8 The appeal has produced a somewhat heated response. While the liquidators, in their submissions on the appeal, were content merely "to abide the decision of the court" (albeit, they said, they still thought that they were right in what they had done), the solicitors for Bennett & Co lodged a written outline of submissions, signed by their counsel, contending that the appeal was misconceived and that the applicant's conduct in requesting the liquidators to invoke s 530B for the purpose of gaining access to the duplicate certificates of title had been both reprehensible and unethical.
9 I should say at once that, not only do I consider that there was nothing reprehensible or unethical in what was done by Williams & Hughes, I consider that it was right in the position which, quite properly, it advanced on behalf of its client.
10 It said, in a nutshell, that the certificates of title were "books" of Penale for the purposes of s 530B, that Bennett & Co had consequently no entitlement to retain possession of them, or to claim or enforce a lien on them, as against the liquidators and that the liquidators erred in relying upon the asserted lien in agreeing to pay Bennett & Co's claim, virtually in full, in circumstances in which (it is not disputed) the property of Penale was insufficient to meet all proved debts and claims in full (as to which see s 555 of the Corporations Law).
11 Bennett & Co, by its counsel, opposed the appeal on what were essentially three grounds. The first was that the applicant's construction of s 530B is misconceived. The second was that, even if the applicant's
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- construction is tenable, the court should not, as a matter of discretion, interfere in what was said to be a decision of a "management-related character". The third was that it is too late to afford to the applicant the relief it seeks because it is now impossible to effect "a full and fair rescission" of the transaction and that to attempt to do so would result in an obvious injustice.
12 I will deal with the issues raised by each of these contentions in turn.
13 As to the question of construction it is not disputed that the certificates of title are "books" for the purposes of s 530B. Each is a "document" within the meaning of that word as defined in s 9 of the Corporations Law and hence within the definition of "books" as defined in s 9 (see subs (d) of the definition). Each may also be a "record of information" and hence within subs (b) of the definition. The dispute consequently relates to the meaning and effect of the balance of s 530B(1).
14 Bennett & Co's argument is that the phrase "but such a lien is not otherwise prejudiced" allows a lien holder to maintain all rights save possession. This was, as I have said, the advice given by Mallesons to the liquidators at the time. It said, in letters to Williams & Hughes dated 4 June 1998 and 23 June 1998, that this construction fitted in with the "overall statutory object of voluntary administration as set out in s 435A" (albeit its clients were liquidators and not administrators), namely that the administrator "is merely given the opportunity and ability to form a view as to whether an insolvent company can possibly continue in business by having access to the company's records and documents". It said that s 530B(1) was "not intended to remove anybody's rights" but was intended "only to 'suspend' them for a limited period". It concluded that the section contemplated "a compulsory relinquishment of possession of books otherwise subject to the lien" but not "the lien being thereby destroyed".
15 I do not, with respect, think that these arguments (which were repeated on behalf of Bennett & Co on the hearing of the appeal) are right.
16 While it is no doubt true that one purpose of s 530B(1) might be that of enabling a liquidator to investigate the affairs of a company by unhindered access to its books or, in the case of s 438C(1) (and that section is identical to s 530B(1), save that it refers to the administrator of a company under administration rather than to the liquidator of a company), that of enabling the administrator to decide whether or not the
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- company is able to continue its business, that does not answer the question whether, in each case, the lien has any further effect once possession of the books is given up.
17 The general lien which is asserted by solicitors over documents is, of course, possessory in nature. The documents must have been received by the solicitor in his or her capacity as such and possession of those documents must be referable to the relationship of solicitor and client (see Sykes and Walker, "The Law of Securities" 5th ed The Law Book Company, Sydney, 1993, at 746 - 747). Because the solicitor has only a right to retain the documents, the lien has been described as "merely passive and possessory": see Barratt v Gough-Thomas [1951] 1 Ch 242 at 250 per Evershed MR. It is ordinarily lost by re-delivery of the documents to their owner or its agent: see Sykes and Walker, ibid, at 743. The lien is quite unlike the case of a deposit of title deeds for the purpose of providing an equitable mortgage over the land where the deposit is "merely ancillary to the equitable charge which was to be created": In re Molton Finance Ltd [1968] 1 Ch 325 at 334, per Danckwerts LJ, and see also at 332 - 333, per Lord Denning MR.
18 Certainly the view has been taken, in New Zealand, that the giving up of possession to a liquidator of documents subject to a possessory lien results in the destruction of the lien. By virtue of s 235(1) of the Companies Act (1955) (NZ) a liquidator is empowered to require a person having possession of books, records or documents of a company to deliver those books, records or documents to him or her. By s 237(1) of that Act a person "is not entitled, as against the liquidator of a company, to claim or enforce a lien over books, records or documents of the company". In Buddle Findlay v Isaac (1996) 7 NZCLC 261,132 at 261,135 Temm J said, after considering these provisions, that "once the ... [person] gives up possession its lien no longer exists".
19 There is nothing in my reading of s 530B(1) to suggest that the lien is not lost, as against the liquidator, once possession of the books is given up to her or him. Rather, the legislature has seen fit expressly to provide not only that possession of the books may not be retained as against the liquidator but also that the lien cannot be claimed or enforced as against him or her. If the intention had been only that of suspending the right of the holder of the lien (which is, as I have said, only one to retain the documents) for a limited period there would have been no need for the prohibition against claiming or enforcing the lien against the liquidator. It would have been enough for the legislature to have provided that the lienee is obliged, upon request by the liquidator, to hand over possession
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- of the documents to the liquidator on the condition that the lienee's rights as such would, notwithstanding this, be otherwise preserved. However this is not what the legislature has done. It has, as I have said, provided that a person cannot claim or enforce a lien on the company's books against the liquidator. The situation is not altered, in this respect, by the fact that s 530B (unlike its New Zealand counterpart) provides that the "lien is not otherwise prejudiced". Those words, as I read them, merely preserve the rights of the lienee against any third party (as, for example, against a receiver appointed at the behest of a secured creditor, or against the company itself where the winding up has been terminated pursuant to s 482(1) of the Corporations Law).
20 Moreover s 530B(2) provides that s 530B(1)(a) "does not apply in relation to books of which a secured creditor of the company is entitled to possession otherwise than because of a lien, but the liquidator is entitled to inspect and make copies of, such books at any reasonable time". It is quite plain from this that the section draws a distinction between a secured creditor's entitlement to possession otherwise than because of a lien and entitlement because of a lien and that, if the sole rationale of the section was that of enabling the liquidator more effectively to investigate the affairs of a company, this could have been done, as it is in s 530B(2), merely by giving to the liquidator an entitlement to inspect, and make copies of, the company's books at any reasonable time.
21 It is, in this respect, interesting to compare s 530B with s 597(10) of the Corporations Law. The latter provision appears in Division 1 of Part 5.9, which deals with the examination of a person about a corporation. It provides that:
"Where the Court ... directs a person to produce any books [at an examination] and the person has a lien on the books, the production of the books does not prejudice the lien."
- Had the legislature intended s 530B(2) to do no more than has been suggested by counsel for Bennett & Co it might have been expected that the requirement imposed upon a lienee to produce books of a company at the request of the liquidator would have been coupled with a provision such as this, making it plain (in the simplest of language) that production of the books does not prejudice the lien, rather than with the considerably more far-reaching provisions of s 530B(2).
22 I should say also that, while I was referred to a number of cases dealing with the meaning of other statutory provisions, including s 597(10), these appeared to me to turn upon the different wording of
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- those provisions and therefore to be of little assistance in construing s 530B.
23 It consequently seems to me that, on a plain reading of s 530B(1), Bennett & Co had no entitlement to claim or enforce its lien against the liquidators, that the liquidators were entitled to require production of the certificates of title and that, having done so, they were free to sell the properties, upon receipt of the certificates of title, without further regard to the lien asserted by Bennett & Co. It also seems to me that the liquidators should have exercised their power under s 530B accordingly.
24 That brings me to the contention that I should not interfere in what was said to be the "management-related" decision of the liquidators. In arguing that the liquidators' decision was management related senior counsel for Bennett & Co relied upon what has been said by Ipp J in Westpac Banking Corporation v Totterdell (1998) 20 WAR 150 at 158 and also by what is said in Keay, A R, "McPherson: The Law of Company Liquidation" 4th ed LBC Information Services, Sydney, 1999 at 391.
25 Ipp J, in the extract from Westpac Banking Corporation v Totterdell which is relied upon by counsel for Bennett & Co, said (with the concurrence of Pidgeon and White JJ):
"Thus, the decision of a liquidator to admit or reject a proof of claim is not a discretionary management decision; it is a decision taken by the liquidator acting in a quasi-judicial capacity while discharging an adjudicatory function. The liquidator's duty is to admit and pay out of the assets of the company in liquidation those claims which are legally enforceable, and to hand over any surplus to the contributories. The liquidator has no discretion to admit claims which are not legally enforceable; and has no discretion to reject claims which are legally enforceable: see Government of India v Taylor [[1955] AC 491]. I should say that nothing in these remarks is intended to deal with a liquidator's power, when duly authorised to do so, to arrive at an accord and satisfaction and to compromise claims against the company in liquidation; that being an issue that is presently not relevant and which was not raised in argument.
Accordingly, the principles that govern discretionary decisions taken by a liquidator, relating to the ordinary management of the affairs of a company in liquidation, have no application to
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- decisions taken by a liquidator in the discharge of his or her quasi-judicial duties in admitting or rejecting proofs of debt."
26 I am, with respect, unable to accept that this extract lends any support to the contention in respect of which it is relied upon. The decision of the liquidators was not merely "management-related". Rather, they made a decision to pay out Bennett & Co, virtually in full, only because they considered that its lien remained legally enforceable and that they could not otherwise sell the properties the subject of the two certificates of title. In so doing, it seems to me, they permitted Bennett & Co to claim or enforce a lien on those documents contrary to the provisions of s 530B(1) of the Corporations Law with the result that Bennett & Co was paid more than it should have been paid pursuant to the provisions of s 555 of the Corporations Law. That seems to me, to use the language of Ipp J, to be much more akin to "a decision taken by the liquidator acting in a quasi-judicial capacity while discharging an adjudicatory function" than it is to a "management-related" decision. (See also the comments of White J, in Totterdell, at 162.)
27 The extract from McPherson, above, at 391, which is relied upon by counsel for Bennett & Co reads as follows:
"The power [to review] will not be exercised to affect rights acquired by outsiders in consequence of an act or decision of the liquidator (Re Chirnside [1929] VLR 217 at 224 (Bankruptcy)) and it ordinarily does not extend to interference with matters of day-to-day administration or with the exercise in good faith of the liquidator's discretionary powers, since this would make it virtually impossible to carry out the winding up. (Re a Debtor [1949] Ch 236 at 241; Leon v York-o-Matic Ltd [1966] 1 WLR 1450; Re Wyvern Developments Ltd [1974] 1 WLR 1097; Re Equity Funds of Australia [1976] 2 ACLR 238 at 239. See Re Burnells Pty Ltd (In Liq); Ex parte Brown and Burns [1979] 4 ACLR 213 and Burnells Pty Ltd v Walsh; Re Burnells Pty Ltd [1979] Qd R 440. A court should not interfere with a liquidator's decision unless there is fraud or it can be demonstrated that the liquidator's discretion has not been exercised bona fide or unless he or she has acted in a way in which no reasonable liquidator would have acted: Yeomans v Walker (1986) 5 NSWLR 378)."
28 Bennett & Co is not, in my opinion, an "outsider". The kind of "outsider" referred to in this extract is one who, for example, buys
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- property from the company in consequence of an act or decision of a liquidator. The case of Re Chirnside [1929] VLR 217, referred to in the extract, dealt with the sale, by a trustee in bankruptcy, of property of the bankrupt to a third party or "outsider". Bennett & Co is not such an "outsider". It is a creditor of Penale which has been paid more than its proportionate share of the amount available for distribution amongst the general body of unsecured creditors. Moreover, while the liquidators did, no doubt, make their decision in good faith, it cannot, in my opinion, be said to have been one in a matter of day-to-day administration. It was, as I have said, a decision made in a quasi-judicial capacity in respect of a matter which was of considerable significance to the general body of creditors (the amount paid to Bennett & Co amounted to approximately 25 per cent of Penale's gross assets).
29 Counsel for Bennett & Co pointed, in this respect, to the fact that the liquidators had agreed to a compromise as regards Bennett & Co's claim. While that is strictly correct, it will be apparent from what I have said above that the compromise only marginally reduced that claim and then only by the amount of an error which had been made by Bennett & Co. The fact is that Bennett & Co would never have been paid $146,918.51 were it not for the liquidators' acceptance of the lien as being valid and effective.
30 There remains only the contention, advanced on behalf of Bennett & Co, that it is now too late to afford the applicant any relief. Five propositions were made in support of this contention. The first was that, had the liquidators demanded return of the certificates of title without first agreeing to pay out Bennett & Co, the sales of the properties would very likely have been enjoined at the instance of that firm. The second was that the applicant has delayed unconscionably because it took no steps to obtain any relief until 12 November 1998. The third was that the liquidators have obtained what was described as "a significant enrichment in a restitutionary sense, from their compromise and the discharge of the solicitor's lien" and that a "full and fair rescission" is now not practicable. The fourth was that the applicant is seeking "a reversal of just one side of a bona fide compromise" and that this will lead to an obvious injustice in the form of an "unjust enrichment". The fifth was that, if compromises of this kind are set aside some time after the event, "no one in the commercial world in future will be prepared to deal with or compromise with a liquidator".
31 I am not persuaded that any of these propositions is such as should result in the applicant being denied the relief sought by it.
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32 As to the first of them it might be so that Bennett & Co would have attempted to enjoin the sales. However it is at least doubtful whether it would have succeeded. Even if it was able to persuade a Judge that its legal argument had merit it seems to me to be very probable that the sales would have proceeded and that sufficient of the proceeds thereof would have been held in trust pending a determination of the validity, or otherwise, of Bennett & Co's claim. There is no doubt that Bennett & Co would have been required to deliver up the certificates of title had the liquidators required it to do so. It is not disputed that that is the effect of s 530B(1), s 530B(4) and s 530B(6). Even if it had successfully enjoined completion of the sales it would still have faced the prospect that the liquidators would ultimately succeed in having the injunction set aside. There is, in my opinion, nothing in any of this which should now result in an unfavourable exercise of my discretion.
33 As to the issue of delay, the applicant has already been given leave, by the Federal Court of Australia, to bring its appeal out of time. That leave was granted after a contested hearing and it would be entirely inappropriate for me to revisit what was there decided. The delay since the grant of leave has been one of the consequences of the decision of the High Court in Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 73 ALJR 839.
34 As to the third and fourth propositions, I do not consider that the liquidators have in any relevant sense been "enriched" as a consequence of the compromise and discharge of the lien if, indeed, that is a relevant consideration. The compromise was, as I have said, insignificant. It was based upon an acknowledgment of the validity of the lien. I can see no reason why, if the validity of the lien was wrongly acknowledged, Bennett & Co should not now be required to return money to which it was not entitled. There is nothing unjust in what is proposed and nor, in my opinion, is there any basis for the suggestion that the applicant (or anyone else) will be unjustly enriched as a consequence. The consequence of requiring Bennett & Co to repay what does not belong to it is only that the unsecured creditors of Penale (including Bennett & Co) each get what is their entitlement according to s 555 of the Corporations Law. There is nothing unjust in that.
35 An argument was also put to the effect that it would be unjust now to require Bennett & Co to repay what was paid to it in circumstances in which it was never given the notice required by s 530B(4). That section, read with s 530B(5), provides that a liquidator may give to a person a written notice, specifying a period of not less than 3 days within which it
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- must be complied with, requiring that person to deliver to the liquidator specified books. However the notice was not given because the liquidators mistakenly believed that it would serve no purpose. But how is Bennett & Co prejudiced by the fact that the notice was not given? I have already said that it would have had no alternative but to comply with the notice. That being so I am unable to accept, in the circumstances to which I have referred, that the fact that the notice was not given and that there is now no occasion to give it (possession of the certificates having long ago been given up) should result in a refusal of the relief which has been sought.
36 As to the fifth and last proposition, I can see no reason why, in circumstances in which the delay has been explained and excused, in which the payment was made under a misapprehension of law and in which an order for repayment of the money will work no injustice, the commercial world should, because of the making of such an order, throw up its hands and refuse any more to deal with or compromise with a liquidator.
37 I am consequently satisfied that the appeal should be allowed and that it would be an appropriate exercise of my discretion to order Bennett & Co to repay to the liquidators the sum of $146,918.51 or so much of that amount as represents the excess money received by Bennett & Co over that to which it would have been entitled had its lien not been accepted as effective by the liquidators.
38 I will hear further from the parties as to the terms of the orders which should be made in order to give effect to these conclusions.
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