Doran Constructions v Beresfield Aluminium
[1999] NSWSC 1198
•13 December 1999
CITATION: Doran Constructions v Beresfield Aluminium [1999] NSWSC 1198 CURRENT JURISDICTION: Equity Division
Construction ListFILE NUMBER(S): 55003/1999 HEARING DATE(S): 29/11/99, 30/11/99, 01/12/99 JUDGMENT DATE:
13 December 1999PARTIES :
Doran Constructions Pty Limited (In Liquidation) (Receiver and Manager appointed) - Plaintiff
Beresfield Aluminium Pty Limited - DefendantJUDGMENT OF: Rolfe J
COUNSEL : Mr A.S. Martin SC - Plaintiff
Mr M.S. Jacobs QC/Mr P.J. Bambagiotti - DefendantSOLICITORS: Doyles Construction Lawyers - Plaintiff
Hills Solicitors - DefendantCATCHWORDS: Application by a debtor that proceedings may be brought in its name by a second creditor; Construction of Deed of Charge; Consideration of position of a receiver before and after liquidation; Necessity, if proceedings are brought, for liquidator to be protected against costs; Consideration of what is the "material date" in Part 72A rule 5; Consideration of whether a Summons seeking relief against an arbitral award should be struck out as failing to disclose an arguable cause of action. ACTS CITED: Corporations Law
Commercial Arbitration Act, 1984CASES CITED: Kelaw Pty Limited v Catco Developments Pty Limited (1989) 15 NSWLR 587
M. Wheeler & Company, Limited v Warren [1928] 1 Ch 840
Lloyd-Owen v Bull (1936) 4 DLR 273
Aliprandi v Griffith Vintners Pty Limited (In Liquidation) (1991) 6 ACSR 250
Russell v Westpac Banking Corporation (1994) 13 ACSR 5
Scarel Pty Limited v City Loan & Credit Corporation Pty Limited (1998) 12 ACLR 30
Magarditch v Australia & New Zealand Banking Group Limited (1999) 32 ACSR 367
Cadima Express Pty Limited v Deputy Commissioner of Taxation (1999) NSWSC 1143
South Australian Superannuation Fund Investment Trust v Leighton Contractors Pty Limited (1996) 66 SASR 509DECISION: Proceedings stood over until Liquidator properly indemnified
I N D E X
PageIntroduction 1
The Present Proceedings 15
Interlocutory Proceedings Before Brownie AJ 17
Is Doran Holdings A Creditor Of Doran Constructions? 22
An Amended Summons 24
Does Doran Constructions Owe Doran Holdings Money? 28
Res Judicata Etc 31
The Charge 32
The Time Limitation Point 40
The Section 500(2) Point 45
The Indemnity Costs Point 45
Manifest Errors Of Law On The Face Of The Award 46
Misconduct On The Part Of The Arbitrator 49
Conclusions 50
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CONSTRUCTION LISTROLFE J
MONDAY, 13 DECEMBER 1999
55003/1999 - DORAN CONSTRUCTIONS PTY LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) v BERESFIELD ALUMINIUM PTY LIMITED
JUDGMENT
HIS HONOUR:
Introduction
1 The plaintiff, Doran Constructions Pty Limited (In Liquidation) (Receiver and Manager Appointed), (“Doran Constructions”), for which Mr A.S. Martin of Senior Counsel appeared, moves, pursuant to an Amended Notice of Motion which was filed in Court on 29 November 1999, against Beresfield Aluminium Pty Limited, (“Beresfield”), for which Mr M.S. Jacobs of Queen’s Counsel and Mr P.J. Bambagiotti of Counsel appeared. The Amended Notice of Motion seeks leave to amend the Notice of Motion filed in Court on 20 August 1999, and substantive orders that Doran Holdings Pty Limited, (“Doran Holdings”), at its own expense and risk as to costs, be authorised to use the name of Doran Constructions as plaintiff “in these proceedings”; that alternatively Doran Holdings, at is own expense and risk as to costs, be authorised to use the name of Doran Constructions as plaintiff in proceedings to be instituted against Beresfield substantially in the form of the Amended Summons, which is Annexure “A” to the affidavit of Mr David Jury, sworn on 22 June 1999; and that either of those orders be conditional upon Doran Holdings delivering to the liquidator of Doran Constructions the Deed executed by it in the form annexed to the Amended Notice of Motion.
2 It is, in my opinion, important to note that:-
(a) Doran Holdings does not seek to be joined as a plaintiff in the proceedings;
(b) Doran Holdings does not make any application for any relief in the proceedings;
(c) there was no appearance by or on behalf of Doran Holdings; and
(d) the liquidator of Doran Constructions was not sought to be joined in these proceedings.
The strange situation has arisen where, notwithstanding the matters to which I have referred, the plaintiff, Doran Constructions, is seeking orders that Doran Holdings “be authorised” to use Doran Constructions’ name as plaintiff. The consequence of that would be that the plaintiff would not only be Doran Constructions in name, but also in fact and law, and that Doran Holdings, although apparently providing Doran Constructions with the financial where-with-all to bring the proceedings, would not be a party to them.
3 To try to understand this attitude, it is necessary to set out some of the history. Doran Holdings and Doran Constructions are both companies within the Doran Group of Companies, of whom four brothers, namely Mr Paul A. Doran, Mr P.J. Doran, Mr M.L. Doran and Mr J.C. Doran, are and were respectively the sole directors. It seems that Mr Paul A. Doran is the principal director.
4 Doran Constructions carried on building activities for a number of years, mainly in the Newcastle area, and, on 1 March 1995, it entered into an Arbitration Agreement with Beresfield that referred all disputes arising out of the construction of an aluminium curtain wall at Gosford Hospital to an arbitrator. In that construction work Doran Constructions was the head contractor and Beresfield was the sub-contractor. Mr Gerard Davies was appointed the Arbitrator.
5 On 18 July 1995 Doran Constructions, as chargor, entered into a Deed of Charge, (“the Charge”), with Doran Holdings, which was referred to as the “financier”.
6 At about the same time as the arbitration proceedings, or perhaps a little earlier, Doran Constructions was also involved in quite extensive litigation with the University of Newcastle arising out of rectification work it carried out for the University to remedy damage caused in the Newcastle earthquake.
7 The arbitration commenced on 10 February 1997, the hearing taking place over a four week period. Certain evidence was given and submissions were made thereafter, the submissions being completed in September 1997. There was no further hearing until the Arbitrator signed his Interim Award on 12 January 1998 in which he found Doran Constructions was liable to pay Beresfield $656,786.80 in respect of the claims made in the arbitration.
8 On 24 December 1997 Doran Constructions was placed into a creditors’ voluntary liquidation, and Mr Alan Lewis of Ferrier Hodgson, Chartered Accountants, was appointed its Liquidator.
9 On 12 March 1998, the Arbitrator signed his Final Award in which he held that Beresfield was entitled to $656,786.80 and to costs in the sum of $470,762. In the Final Award the Arbitrator noted that in handing down the Interim Award he had requested the parties to furnish submissions in relation to costs by the end of February 1998; that he received those of Beresfield dated 20 February 1998; but that he had received none from Doran Constructions. There was no evidence that Beresfield’s submissions on costs were furnished by it or the Arbitrator to Doran Constructions or Mr Lewis.
10 Section 500(2) of the Corporations Law states:-
“After the passing of the resolution for voluntary winding up, no action or other civil proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.”
It was not in issue that no such leave was granted before the signing of the Interim and/or Final Awards.
11 The sequence of events in relation to the making of the Awards requires some careful analysis. On 12 December 1997, the Arbitrator directed that Doran Constructions pay into the Newcastle Master Builders’ Association Trust Account $10,000 prior to 9 January 1998. On 16 December 1997, Mr Lewis, who had been requested by Mr Martin Linz, an accountant who acted on behalf of various companies in the Doran Group, to act as Administrator or Liquidator of Doran Constructions on 15 December 1997, attended a meeting at which Mr Linz, Mr Paul Doran and another accountant from Mr Lewis’ office were present. Mr Lewis kept handwritten notes of that meeting, which are Annexure “A” to his affidavit of 27 April 1999. In paragraph 2 of that affidavit he recorded that Mr Linz said that Doran Constructions was involved in two sets of litigation, being those concerning Beresfield and the University, and that Doran Holdings “is no longer wishing to fund both sets of the proceedings and we want the company to be wound up”. The inference was, and so much did not seem to be in issue, that Doran Holdings was financing the arbitration proceedings and those involving the University.
12 On 16 December 1997 Doran Holdings wrote to Doran Constructions stating:-13 Mr Lewis deposed, in paragraph 3 of his affidavit of 27 April 1999, that during the meeting of 16 December 1997 he formed the view that there may have been insufficient funds in Doran Constructions to meet his costs as liquidator, and that Mr Paul Doran said words to the effect:-
“In light of the continued protraction of legal claims being pursued by Doran Constructions Pty Limited and the escalating cost of legal fees to pursue these claims, the Directors of Doran Holdings Pty Limited have decided to cease the provision of funds by providing notice in writing of such cessation. This letter serves to provide the requisite notice.”
On the same day there was a meeting of the directors of Doran Constructions to discuss the receipt of that written advice, and it was resolved:-
“That the notice in writing of the cessation of additional funds from Doran Holdings Pty Limited be accepted and that the company seek advice from Alan Lewis of Ferrier Hodgson as to the appropriate course of action required to be taken by the company” i.e. Doran Constructions.
“We would be prepared to indemnify you in relation to your costs.”
14 On 16 December 1997 Mr Lewis received a report as to affairs from Doran Constructions which, significantly for present purposes, showed it had unsecured creditors of $1,403,883.
15 In his affidavit of 19 February 1999 Mr Lewis stated that he received an original of the Arbitrator’s Final Award on or about 12 March 1998, and a full copy of the Interim Award on or about 28 July 1998. He had received the last two pages of the Interim Award earlier in support of Beresfield’s Proof of Debt, and he maintained the stance that these documents were ones to which he, as liquidator, was entitled, but that Doran Constructions was not.
16 On 14 January 1999 proceedings were instituted by Doran Holdings, as plaintiff, against Mr Lewis, as defendant, for the following substantive relief:-
“1. An order that under s.1321 of the Corporations Law that the liquidator allow appeal proceedings to be instituted against the award of Mr Gerard Davies in an arbitration between Doran Constructions Pty Ltd and Beresfield Aluminium.
2. An order under s.531 of the Corporations Law that Doran Holding (sic) be given access to the books and records of the liquidator.”
17 On 15 January 1999 Windeyer J ordered that the issues in paragraph 1 be separated from and determined prior to those in paragraph 2, and dismissed paragraph 1 with costs. The issue in paragraph 2 would seem to relate, at least in part, to Mr Lewis’ refusal to make the Awards available to Doran Constructions.
18 Windeyer J identified the issue in paragraph 1 as being one whereby Doran Holdings sought an order that Mr Lewis appeal against the Arbitrator’s Awards. His Honour said that Doran Holdings was a secured creditor of Doran Constructions for an amount of $1,232,954 and that it claimed to be an unsecured creditor for $1. He considered that its interest was very slight and that there would be a question of whether or not it were a party interested within the meaning of s.1321. He continued:-19 A quantity of relevant correspondence is annexed to the affidavit of Mr James Alexander Shaw, who is an accountant working under the supervision of Mr Lewis and who has the day to day administration of matters referable to the liquidation of Doran Constructions, which was sworn on 19 February 1999. He deposed that on or about 23 February 1998 Beresfield lodged a Proof of Debt in respect of the amount referred to in the Interim Award and, on or about 12 March 1998, an original copy of the Final Award signed by the Arbitrator was delivered to the offices of Ferrier Hodgson. On 28 July 1998 Mr Gronow, a director of Beresfield, handed Mr Shaw a full copy of the Interim Award. On 8 April 1998 Mr Paul Doran wrote to Mr Shaw referring to the Proof of Debt lodged by Beresfield. The letter continued:-
“The effect of an appeal against the award of the arbitrator would be that one of the creditors of the company in liquidation, which would otherwise be admitted as a creditor, may have the amount of the debt for which it can claim reduced. It is claimed that the liquidator has failed to appeal from the award and therefore that the plaintiff is a person aggrieved by that omission.
Without going into any unnecessary detail it appears from the evidence that an interim award was made on 10 January 1998 and a final award on 12 March 1998. The evidence shows that the company Doran Constructions was in liquidation on both of those dates.
The time for an appeal against the arbitrator’s award or the time during which an appeal can be brought is determined by Part 72A rule 5 of the Supreme Court Rules, namely 28 days after the date on which notice of the reasons is given by the arbitrator to the person who wishes to apply on appeal to the Court. It is perfectly clear from that rule that notice of the reasons must be given by the arbitrator to the relevant parties. In that case there is no evidence that the arbitrator has given notice of his reasons to the company in liquidation or to the liquidator.
If that is the position and time for an appeal has not begun to run, some question might arise if the arbitrator informed one of the parties that his reasons were available upon payment of his fees, which is something which is not unusual in these matters, and those fees were not paid. It might be arguable, and I have no need to decide in these proceedings, that time would commence to run from the date notice of the reasons were available was given. If that were the position then that time has long since passed in which case the time for appeal has long since passed.
To obtain the order sought it would be necessary for the plaintiff to show that the time for appeal had commenced to run and had not expired, as otherwise the proceedings would be purposeless. That has not been done, and in my view on a matter commenced yesterday requiring a decision to-day it would not be right for the Court to make any order unless it had evidence of the actual position, even though the Court is aware that the liquidator has notice of the amount of the award as it has been claimed by Beresford (sic) in the liquidation.”
20 On 29 July 1998 Mr Doran wrote to Mr Shaw referring to his letter of 8 April 1998, and stating that he had not received a copy of the Interim Award. He continued:-
“I query whether one could make a judgment as to whether Beresfield Aluminium was a creditor based on the last two pages of the Arbitrator’s Interim Award. I believe that if there were certain circumstances in the Interim Award, such as grounds for an appeal then you as liquidator should be aware of this before making any decision in regards to admitting Beresfield Aluminium as a creditor.
It is quite possible that there may well be other offsets and contingencies contained in the other part of the Interim Award. If there were grounds for an appeal and if that appeal was funded by some interested party, (based on a cost benefit analysis), and if that appeal was successful, in my view it would benefit all creditors.
I trust and I hope that you share my thoughts in relation to this and that you insist that you be provided with a full copy of the Arbitrator’s Interim Award.”
“Have you yet had an opportunity to seek legal opinion to see if there are grounds for appeal as set out in my letter to you of the 8th April or otherwise, if you have had such an opinion would you provide us a copy. If however you have not had an opinion then Dorans would be interested in obtaining same from the solicitors involved in the case being Doyles, on the basis that you release Doyles from their obligation to Doran Construction Pty Limited so as they can accept a brief directly from us. It may well be that any opinion we receive from Doyles may not be available to other Creditors.
As stated in our letter of the 8th April we see this as a benefit to the majority of the creditors, should you elect not to seek an opinion then we must reserve our rights. We await a copy of the Award together with your written advice.”
21 On 10 August 1998 Mr Lewis responded to the letter of 29 July 1998. He said that the copy of the Interim Award was provided in support of the Proof of Debt lodged by Beresfield and that, accordingly, it did not form part of the books and records of Doran Constructions. He continued that Doran Constructions was not provided with a copy by the Arbitrator as it had not paid its share of the arbitration costs, a position, Mr Lewis noted, that had not changed.
22 He continued:-23 On 25 August 1998 Mr Doran responded and joined issue with the proposition that the Interim Award did not form part of the books and records of Doran Constructions. He said that “Dorans” were very interested in obtaining a legal opinion and providing an appropriate indemnity for Mr Lewis’s costs, subject to the clarification of certain matters. He raised a number of matters, including whether Doyle Construction Lawyers could be briefed, and, on 3 September 1998, Mr Lewis responded stating that pursuant to s.545 of the Corporations Law he was not liable to incur any expense in relation to the winding up of the company unless there was sufficient property to cover those costs. He noted that as Mr Doran was aware the administration “is currently unfunded and my remuneration is unpaid”. The letter said:-
“Any right of appeal against the award if successful, would obviously benefit the company and the other unsecured creditors in that it would reduce the quantum of unsecured claims admitted to rank for any available dividend. I note that at this point, however, there are no funds available for a distribution to unsecured creditors.
Any right of appeal would belong to the company and would need to be brought by the company with my consent pursuant to s.471B of the Corporations Law.
As mentioned, I presently have no funds in this administration and accordingly, I have not a legal opinion as to whether there are grounds for appeal. I am prepared to obtain such an opinion on receipt from yourself of an appropriate indemnity in respect of my remuneration and expenses including legal fees associated with the request. Please advise whether you are prepared to provide such an indemnity.”
“When you approached my firm in December 1997 to assist in the Creditors Voluntary Liquidation of the company, you undertook to indemnify me in respect of my professional fees to a maximum of $15,000. I have since requested the sum of $15,000 from you under this indemnity which you have to date, refused to pay. Accordingly, I am not in a position to incur any further remuneration or expenses in this administration until such time as you pay the $15,000 on account of my outstanding remuneration.
I note that I will be seeking an indemnity from the unsecured creditors of the company at the adjourned meeting to be held on 14 September 1998 in respect of my future remuneration and disbursements.”
24 On 10 September 1998 Mr Doran wrote to Mr Lewis stating that he wished to place on the agenda for the adjourned meeting of creditors an item relating to the appeal in the arbitration and, on 11 September 1998, Mr Lewis replied that if the creditors resolved at that meeting to indemnify him in respect of his future remuneration, and if the indemnifying creditors so directed, he would add the issue of a potential appeal against the Arbitrator’s decision to the agenda.
25 The minutes of the meeting show that Mr James Doyle asked Mr Lewis, as chairman, whether a copy of the Interim Award was available for his inspection. Mr Lewis advised that the issue was whether the document, which had been provided as support for a Proof of Debt, constituted books and records of the company. There was some debate about that, and Mr Paul Doran is recorded as stating that the Doran Group would indemnify the liquidator to allow him to provide an answer to the five questions raised in his letter of 28 August 1998 relating to a potential appeal.
26 On 22 January 1999 Doran Holdings gave notice to Mr Lewis in the following terms:-
“Doran Holdings Pty Limited (ACN000383782) of Level 3, 251 Wharf Road, Newcastle (‘Holdings’) hereby gives you notice pursuant to Clause 4.1(a) of the Deed of Charge between Doran Constructions Pty Limited and Holdings dated 18th July 1995 and registered 513319 (‘the Charge’) that the floating charge over the assets, undertaking property and rights of Doran Holdings Pty Limited (In Liquidation) created by the Charge is hereby crystallised and now operates as a fixed charge over all of the Charged Property as defined in the Charge.”
There is obviously an error in this document. The reference to “Doran Holdings Pty Limited (In Liquidation)” should have been a reference to Doran Constructions. This mistake, in itself, is probably immaterial.
27 However, it is not in issue that if the Charge is valid and enforceable that it crystallised on 22 January 1999 when Doran Holdings appointed Messrs Hall & Carter of Price Waterhouse Coopers as Receivers and Managers of Doran Constructions. A copy of the Deed of Appointment is Annexure “E” to Mr Lewis’ affidavit of 19 February 1999.
28 It is desirable to trace the argument. Mr Martin submitted that there was an automatic crystallisation pursuant to clause 4.1(b), which provides that in so far as the Charge is a floating charge, it automatically crystallises and operates as a fixed charge:-29 In his written submissions in reply, Mr Jacobs referred to Mr Martin’s submission and continued:-
“in respect of all of the Charged Property, instantly and immediately and without the need for any act or notice by the Financier, on the occurrence of any of the Events of Default specified in” paragraph (f) of clause 10.
That provides for an Event of Default “if a receiver or receiver and manager, administrator, official manager or similar officer is appointed of all or any part of the assets or undertaking of” Doran Constructions. The submission was that the appointment of the receiver and manager by Doran Constructions, without more, constituted the Event of Default. It seemed to me strange that the appointment by Doran Holdings, without more, would achieve this.
“The Defendant does not take issue with this submission. Therefore, without prejudice to the Defendant’s challenge to the charge and its enforceability, for the purposes of this issue, the Defendant says that if the charge is to be enforceable, it is agreed that it crystallised on 22 January 1999.”
The Present Proceedings
The matter can thus proceed on that basis.
30 On 28 January 1999 Doran Constructions, as plaintiff, commenced proceedings by Summons seeking orders, to the extent necessary, for an extension under Part 72A and Part 2 of the Supreme Court Rules of the time for appealing; pursuant to s.42 of the Commercial Arbitration Act 1984, (“the Act”), for the setting aside of the Interim and Final Awards; for the granting of leave to appeal pursuant to s.38(4) of the Act against the Interim and the Final Awards in respect of questions of law arising from them; alternatively, for an order, pursuant to s.42 of the Act, removing the Arbitrator under the Deed dated 1 March 1995; and for a declaration that the Interim and Final Awards “are void and of no effect”. These proceedings were not brought with the consent of the Liquidator, and it did not take long for a confused situation to arise as to the party who did cause them to be instituted.
31 On 4 March 1999 Beresfield filed its Defence raising the point, firstly, that Doran Constructions’ Summons for leave to appeal was out of time; that by the time of the appointment of the Receivers and Managers Doran Constructions’ claims in realtion to the Awards had lapsed and, accordingly, were not assets to which the Charge could attach; and that, accordingly, the Receivers and Managers had no standing in the matter.
32 The Defence raised the point that in the proceedings before Windeyer J the same issues had been litigated unsuccessfully, although it must be remembered that in those proceedings the plaintiff was Doran Holdings, and Beresfield was not a party to them.
33 In its Reply Doran Constructions denied the Summons was out of time and stated:-
“Additionally, if the Court finds that the Summons is out of time the defendant has failed to specify why the Court would not grant an extension of time.”
Interlocutory Proceedings Before Brownie AJ
34 The matter came before Brownie AJ on 21 May 1999. His Honour recorded that Mr Doyle announced his appearance “not for the plaintiff company, but for the receiver”. Beresfield took the preliminary objection that Mr Doyle should not be permitted to appear for Doran Constructions, because his instructions came not from the Liquidator, but from the Receiver. His Honour, apparently, was not referred to many, if any, authorities, and stated that he proposed to consider whether the Receivers had standing and, therefore, whether Mr Doyle should be heard on behalf of Doran Constructions. However, so as not to waste time, his Honour granted Mr Doyle a limited right to appear and considered it was appropriate to make an order under Part 31 rule 2 “on the determination of the question of whether the awards are a nullity” “by reason only of the fact that before the award the plaintiff company was in liquidation as nobody had obtained the leave of the Court to proceed further with the arbitration”. There is no doubt that his Honour was referring to both Awards, and he determined that point favourably to Beresfield, because he did not consider that the circumstances, “assuming they existed”, changed the way in which the Court should approach the question of the proper construction of s.500(2), viz that an act taken in contravention of s.500(2) “would, by virtue of those circumstances alone, be a nullity”. His Honour was apparently not invited to consider the Interim Award and the Final Award separately.
35 I would also note that it would have been, and still may be, open to Beresfield to seek the leave of the Court nunc pro tunc.
36 On 28 May 1999 his Honour gave judgment as to the standing of the Receivers to prosecute the proceedings. He traced the history of the granting of the Charge and Doran Constructions’ going into liquidation and said that he thought it was clear that if the Receivers had been appointed prior to that event they would have been the agents of Doran Constructions “if the company was suing to recover money said to be owed to it”. He noted that he had been told, without objection, that the Liquidator had refused to conduct the present litigation, and that it was in those circumstances that Beresfield challenged the right of the Receivers to act on behalf of the company. He referred to his decision in Kelaw Pty Limited v Catco Developments Pty Limited (1989) 15 NSWLR 587, and several later authorities, and adhered to the views he had there expressed, viz that if, upon the proper construction of a mortgage debenture, a receiver had power to conduct litigation in the name of and as agent for a company, then upon the making of a winding up order, the receiver might continue the conduct of the litigation in the name of the company, but no longer as agent for it but as agent for the chargee. He also held that despite that power, the receiver could not continue the litigation in such a way as to create liabilities provable in the winding up, and that, in a practical sense, it was the receiver, or the mortgagee standing behind him, who must fund the continuing prosecution of the litigation. His Honour was concerned with a case where the receiver brought proceedings before the liquidation, and as agent for the chargor, but where, during the course of the proceedings a winding up intervened. In those circumstances, he was of the view that the proceedings could be continued, but that the receiver was then acting as agent for the chargee. At p.593, after a consideration of re Henry Pound Son & Hutchins (1889) ChD 402 at p.421 and a number of texts, his Honour said:-37 In that case the proceedings were commenced before the winding up order was made. The chronology was different in this case, in that the winding up order was made before the proceedings were commenced. His Honour was aware of this and of the Liquidator’s refusal to conduct the litigation in Doran Constructions’ name. He was of the view that the Receivers had authority, as agents of Doran Holdings rather than Doran Constructions, to take proceedings in the name of Doran Constructions to “collect and get in” its assets, including any money payable to it. He continued:-
“I conclude that if upon a proper construction of the relevant debenture, a receiver has power to conduct litigation in the name of and as agent for the company, then upon the making of a winding up order, the receiver might continue the conduct of the litigation in the name of the company, but no longer as agent for the company. In the circumstances of the present case, it seems plain that the receiver does so as agent for the mortgagee.”
“However, the receiver’s authority to act in this way does not extend to the receiver doing anything which might create liabilities provable in this winding up, for example the costs which might be ordered to be paid by” (Doran Constructions) “to” (Beresfield).
38 In the result he concluded that while Mr Doyle might be permitted to appear in the name of and on behalf of Doran Constructions, that was only to be permitted on terms that he secured Doran Constructions and Beresfield against the chance that an order for costs might be made against Doran Constructions. He thought that Doran Holdings should be ordered to provide security for Beresfield’s costs.
39 Thus, subject to the provision of appropriate security for Doran Constructions and Beresfield, his Honour’s judgment may have ended the preliminary skirmishing, leaving the substantive issues to be argued out at a final hearing.
40 His Honour returned to the facts of the present case and, in paragraph 8, stated:-
“The hearing proceeded on the assumption that the financial state of the company is such that unsecured creditors are wholly unlikely to be paid anything at all; and indeed the only creditor likely to be paid anything is the plaintiff’s holding company, as secured creditor. Additionally, as the defendant pointed out, the Arbitrator found in favour of the defendant on the arbitration, making an award to the effect that the plaintiff owed the defendant money, and the defendant did not owe the plaintiff money; and he ordered the plaintiff to pay the defendant’s costs of the arbitration. It is true that the plaintiff now asserts that the award should be set aside, for a variety of reasons, but I have no way of knowing, at this stage, how weak or how strong these arguments may eventually be seen to be, and the fact remains that at this stage the defendant has succeeded on the arbitration, so that there is a finding that the defendant is not a debtor of the plaintiff, and, for what it is worth, that the plaintiff is a debtor of the defendant.”
41 One submission made to me was that the initial words of this paragraph indicated that there was either a res judicata, an issue estoppel or an Anshun type estoppel in relation to Doran Holdings being a secured creditor of Doran Constructions. I shall return to this.
42 His Honour concluded that in the circumstances Mr Doyle:-43 Pausing at this point, his Honour had made clear that if the matter was to proceed in the manner contemplated:-
“.. might be permitted to appear in the name of and on behalf of the company, this is only to be permitted on terms effectively securing the company, and the defendant, against the chance that an order for costs will be made against the company. Subject to what might be submitted, I am inclined to think that this means that the financier” (Doran Holdings) “should be ordered to provide security for the costs of the defendant of these proceedings.”
(a) the Receivers would be acting as agents for Doran Holdings; and
Is Doran Holdings A Creditor Of Doran Constructions?
(b) they would have to provide an adequate indemnity to Doran Constructions so that it would not be placed in a position of having to pay, or more accurately would be indemnified for any amount it had to pay, by reason of the taking of the proceedings; and
(c) Beresfield, which was being sued by an insolvent company, was entitled to make an application for security for costs.
Inherent in the second proposition is the requirement that the Liquidator be satisfied that the security, which is presently in the form of a Deed Poll given by Doran Holdings, is adequate. The Liquidator is not a party to these proceedings and there is no evidence that he has been made aware of the security being offered or, if he has, whether he considers it is adequate in all the circumstances.
44 The hearing before me then proceeded on another issue, namely whether Doran Holdings is a creditor of Doran Constructions. This was not an issue raised before Brownie AJ, who made the assumptions to which I have referred. In my opinion, these were assumptions his Honour was invited to make in coming to his conclusions. They were not findings his Honour made on the basis of issues propounded for his decision.
45 The basis on which it was suggested that Doran Holdings was not a creditor of Doran Constructions was that, prior to a reconstruction within the company, to which I shall refer, Doran Holdings held shares in Doran Constructions and Doran Property Services Pty Limited, (“DPS”). It sold its shareholdings in those companies to Doran Constructions Australia Pty Limited, (“DCA”). No money changed hands, the transaction being financed by Doran Constructions lending to DCA $4.1m. DCA, in turn, paid Doran Holdings that amount to discharge the purchase price of the shares, and Doran Holdings paid to Doran Constructions $4.1m in repayment of the balance owing by it to Doran Constructions on the loan account. This transaction was concluded in November 1994 and led to the situation whereby Doran Constructions became a creditor of DCA, rather than of Doran Holdings. Doran Constructions subsequently forgave the debt to DCA. There was evidence that moneys were lent by Doran Holdings to Doran Constructions at about the time of and after the entry into the Charge.
46 I was informed from the Bar Table, and there was evidence of this, that the Receivers have now ceased to act. Whatever may have been the position before Brownie AJ, it has now changed at least to that extent. Doran Holdings contends, on a proper construction of the Charge, that it is entitled to pursue the proceedings in its own name.
An Amended Summons
47 Unfortunately, however, nothing is straightforward in this case. On 23 June 1999, Doran Constructions filed a Notice of Motion whereby it sought leave to file an Amended Summons. On 30 July 1999, Beresfield filed a Notice of Motion seeking security for costs and, on 13 August 1999, a Notice of Motion seeking an order that the proceedings be struck out and for consequential relief. On 20 August 1999, Beresfield filed another Notice of Motion seeking substantially the same relief as in that of 13 August 1999 and, on 25 August 1999, Beresfield filed a Notice of Motion seeking security for costs in the sum of $30,000 in respect of the Notice of Motion filed on 20 August, to which I acceded.
48 On 20 August 1999, Doran Constructions filed the first Notice of Motion with which I am presently concerned. That Notice of Motion has been used as the vehicle to argue a number of matters arising from Beresfield’s assertion that the proceedings should be dismissed. The bases on which that has been put are:-49 Mr Martin made a number of responses:-
(a) Doran Constructions is not indebted to Doran Holdings, so that there is nothing to support the Charge. This is a principal basis for attacking the validity of the Charge.
(b) The circumstances in which it is said that Doran Constructions became indebted to Doran Holdings involved a number of manoeuvres, including a financial “round robin”, which bespoke commercially unacceptable behaviour, and led to circumstances in which the alleged indebtedness should be set aside or was void, and in which there were breaches of fiduciary duties to Doran Constructions such that the transactions were tainted in a way which would preclude the Court giving effect to them. It was submitted, at least in part, that the fiduciary duty arose because Doran Holdings was a de facto director of Doran Constructions.
(c) The enforcement of the Charge is the enforcement of equitable rights, and the conduct of Doran Holdings, to which I have referred, taints the transactions supporting the Charge, and hence the Charge, so that the equitable rights should not be enforced.
(d) The application for leave to appeal is out of time and there is no appropriate evidence on which the Court can exercise its discretion to extend the time, so that the proceedings are futile.
(e) The grounds relied on are manifestly hopeless, both in so far as manifest errors on the face of the Interim and Final Awards are concerned, and so far as breaches of ss.42 and 44 of the Act are alleged, such that the proceedings should be dismissed summarily.
50 In disposing of some points the view may be taken that I have been somewhat short, having regard to the detailed oral and written submissions, but I am, after all, dealing with interlocutory proceedings, and, unless Beresfield can satisfy me that it is entitled to succeed on many of them, the proceedings must go to trial.
(a) The winding up of Doran Constructions on 24 December 1997 brought about the statutory stay provided for by s.500(2) of the Corporations Law , (“the Law”), so that either Beresfield could not require the Arbitrator to take any further step in the arbitral proceedings thereafter without the leave of the Court or, alternatively, if the Arbitrator was permitted to give the Interim Award, he was not permitted to seek further submissions in relation to costs for the purpose of finalising his Award and to publish a Final Award.
(b) The terms of the Charge were sufficient to allow receivers appointed by Doran Holdings to enforce the legal choses in action in the name of Doran Constructions which, by the Charge, had been transferred to Doran Holdings.
(c) There was clear evidence of a debt owing by Doran Constructions to Doran Holdings. It was not really in issue that this arrangement had been entered into to change the situation which had previously existed whereby Doran Holdings owed Doran Constructions money so that, in the event of Doran Constructions encountering sufficiently severe financial problems to cause it to be wound up, recourse could not be had by its creditors to the loan funds owing from Doran Constructions.
(d) That no question of any breach of a fiduciary duty arose and there could be no issue of any de facto directorship as, at all material times, Doran Holdings did not hold shares in Doran Constructions, and there was no evidence that Doran Constructions was accustomed to act in accordance with Doran Holdings’ directions.
(e) That Beresfield was estopped either by res judicata , issue estoppel or an Anshun type estoppel from asserting that money was not owing from Doran Constructions to Doran Holdings.
(f) That the time under Part 72A rule 5 for appealing was not running because the Arbitrator had not furnished to Doran Constructions his Interim and Final Awards.
(g) That there was no substance in the point that the questions of law did not raise manifest errors of law on the face of the Award, and certainly it could not be said that the argument was “hopeless”, such as to merit summary dismissal.
(h) That a determination as to whether the Arbitrator had misconducted himself should await a full hearing of all the facts and not be decided at an interlocutory stage, conformably with the usual provisions governing the striking out of proceedings.
Does Doran Constructions Owe Doran Holdings Money?
51 Firstly, I am not satisfied that the various transactions leading to Doran Constructions owing Doran Holdings money should be set aside. Doran Holdings held shares in Doran Constructions and DPS, which it agreed, in 1992, to sell to DCA for a consideration of $3,176m and $1,665m: a total of $4,841m. The sale price was not payable until July 1995 and the amount outstanding was interest free. There was also some evidence to suggest that the sale was at an inflated value. However all that may be, the transaction was consummated and Doran Constructions ceased to be a subsidiary of Doran Holdings. The evidence does not allow me to hold that the transaction was uncommercial or should otherwise be the subject of any adverse comment. At most there may be reasons to ponder about some aspects of it, but there is no evidence which would permit my doing more than that. Any such conclusion would require a far more detailed examination of what transpired in proceedings properly constituted both as to parties and to raise the appropriate issues.
52 The next transaction, which was the subject of some scrutiny, occurred on 1 November 1994. At a meeting of the directors of Doran Constructions it was resolved that it would demand payment from Doran Holdings of $4.1m owing on a loan account, on the basis that Doran Constructions would advance that amount to DCA which, in turn, would pay $4.1m to Doran Holdings in a pro tanto discharge of the debt owing on the sale of shares. Thus DCA was substituted as Doran Constructions’ debtor and DCA’s indebtedness to Doran Holdings was reduced by $4.1m. The transactions were evidenced by journal entries, which were not written up until the end of the financial year. Mr Linz, the former auditor of various companies in the Group, explained this in terms I found satisfactory. The effects were to insulate Doran Holdings from Doran Constructions, in the sense that any financial failure of it would not enable its Liquidator to call up the debt from Doran Holdings; and, probably, give Doran Constructions a weaker debtor, i.e. DCA. Once again, one may wonder about this transaction, although the reason for it seems clear enough. But business people are entitled to regulate their affairs and, provided they do not infringe the law, their method of doing so will not be impugned. Furthermore, if it is to be impugned that should be in properly constituted proceedings where all the relevant matters may be investigated. These proceedings, at least as presently constituted, lack both the parties and the pleadings required to consider such issues. Further, there was evidence that DCA had repaid a not inconsiderable amount of the debt, which, at a prima facie level, would indicate commercial reality in the transaction.
53 Nextly, there was evidence in the Proof of Debt that Holdings had lent money to Constructions. On the same day as the Charge was entered into an amount of $100,000 was credited to Constructions. I appreciate there has been some ambivalence as to the amount of the debt, but I am satisfied there was one owing.
54 Whilst the conduct of certain of the directors and officers of Doran Constructions has been investigated at a public examination, and whilst that might, and I put the matter no higher because I am quite unaware of the view the Liquidator and those giving him legal advice take of that evidence, lead the Liquidator to consider further proceedings, I do not see that that impacts relevantly on the present proceedings at this stage.
55 In all these circumstances, I am not satisfied that the various attacks made on the Charge have been made out. By that I mean that I am not satisfied that there was not a debt to support the Charge, implicit in which is my lack of satisfaction that any of the transaction should be struck down. Nor am I satisfied that the transactions were tainted in the way for which Mr Jacobs contended or that there has been any breach of fiduciary duty.56 The next matters I propose to dispose of are Mr Martin’s contentions about res judicata, issue estoppel and the Anshun type estoppel. He relied on the decision of Windeyer J, which cannot assist him on any basis as Beresfield was not a party to those proceedings, and the decision of Brownie AJ on 28 May 1998. In that case, his Honour made no findings on the issues. He was, as I have said, prepared to assume certain positions existed. The parties were content for the matter to proceed on that basis. That does not give rise, in the particular circumstances of an urgent interlocutory application, to either a res judicata or an issue estoppel. Further, in the particular circumstances which existed, as more fully set forth in Mr Ward’s affidavit of 30 November 1999, it was not unreasonable for Beresfield not to raise the points on 28 May 1999 before Brownie AJ, such as to prevent an Anshun type estoppel arising.
Res Judicata Etc
57 The Charge was entered into on 18 July 1995. The recital stated:-
The Charge
“The Chargor has requested the Financier to advance to it or provide security for the Chargor to borrow from its Bankers and/or to forebear to sue the Chargor in and for the sum of One hundred thousand dollars ($100,000) upon the terms and conditions hereinafter appearing and the Chargor may from time to time request the Financier to provide further advances and accommodation.”
Therefore, not only is indebtedness provided for, but so also is forbearance to sue.
58 An “Event of Default” is defined as any of the events specified in clause 7, relevantly for present purposes, and “relevant company” is defined, once again relevantly for present purposes, as the Chargor.
59 “Secured Moneys” are given a wide meaning to include any moneys, which the Chargor might, in almost any circumstance, owe to the Financier.
60 The Charge is stated to be a fixed charge over the property specified in clause 2.1(a) and a floating charge over all other “Charged Property”.
61 “Charged Property” is defined as:-
“… the undertaking and all the property assets and rights whatever (whether situated within or outside Australia) both present and future including the goodwill of the business and the uncalled and called but unpaid capital (including premiums) for the time being on the shares of the Chargor.”
62 Clause 2.2 provides that the Charge ranks first in point of priority over the Charged Property, and clause 2.3 places restrictions on further securities and dealings. Clause 4 is headed “Automatic Crystallisation”, and I have referred to the relevant provisions in relation to crystallisation and Mr Jacobs’ acceptance that that occurred on the appointment of the Receivers.
63 Clause 11.1 provided for the appointment of a receiver at any time after the Secured Moneys had become payable and/or the Charge had become enforceable, and clause 11.2 set out the powers of the receiver, not specifically excluded by the terms of the appointment:-64 Sub-clause (m) gave the receiver the power:-
“(a) to take possession of, to collect and to get in the whole or any part of the Charged Property, including, but not limited to, any loans to any Related Property Corporate.”
65 Clause 11.3 provided that the receiver would be the agent of the Chargor, which, alone, would be responsible for his acts and defaults:-
“.. to take proceedings at law, in equity or in bankruptcy in the name of the Chargor or otherwise for all or any of the purposes set out in this clause.”
66 Clause 11.5 provided:-
“.. but if at any time a resolution is passed or an order is made for the winding up of the Chargor, the Receiver will be the agent of the Financier and the Financier may exercise the power to appoint a Receiver under clause 11.1 at or after that time.”
This clause recognised the position at law as I have stated it. It may, however, give rise to the question as to how the Receiver, as agent for Doran Holdings, is able to sue in the name of Doran Constructions. The answer to that may be that the legal interest in the choses in action, which constitute the right to take legal proceedings, remain in Doran Constructions, the Charge having brought about an equitable assignment of them.
“Notwithstanding that a Receiver may or may not have been appointed under this clause, it will be lawful for the Financier at any time after the Secured Moneys become payable and without giving any notice to exercise all or any powers and authorities conferred on the Receiver under this Clause.”
67 This becomes of significance in the present situation because the evidence is that as at 16 August 1999 one of the Receivers had informed the solicitors for Doran Constructions that he and the other Receiver were proposing to retire and, it seemed common ground, that that has now occurred.
68 In O’Donovan (2nd Edition) “Company Receivers and Managers” at paragraph 10.200, the author stated:-69 In M. Wheeler & Company, Limited v Warren [1928] 1 Ch 840 the English Court of Appeal implied a power, where no express power existed, for a receiver to bring proceedings in the name of the company. At p.844 Lord Hanworth MR said:-
“A Receiver, as such, is not ordinarily entitled to bring an action in his own name since no property or cause of action is automatically vested in him by his appointment. He can, however, institute legal proceedings in the company’s name even without its consent. By instituting proceedings in the name of the company, a Receiver will not necessarily avoid personal liability for the defendant’s costs if the suit fails.”
“The fact that he was made the agent of the company and given the power to get in the property charged is, in my opinion, sufficient to give him power to take the only effective steps in the name of the company. … The purport of the debenture was to give ample security to the lender, and, taking this into account, I come to the conclusion that the words of sub-clause 1 must be taken to confer power on the Receiver to bring actions as the agent of the company, and so to get in by action in the company’s name the property of the company.”
70 Lawrence LJ thought that there was no real necessity for an express power, because if the authority was not implied the power conferred on the receiver for the greater security of the debenture holder of getting in the property would be illusory.
71 At p.846 Russell LJ said that the contract provided that the receiver was to be the company’s agent and to have the power to get in the property charged. He considered that that involved the receiver’s being able to sue in the name of the company.
72 Both the Master of the Rolls and Russell LJ emphasised the position of the receiver as agent of the company.
73 The position of the receiver, to which I have referred, changes upon the company going into liquidation. I have referred to the authorities for this and, in any event, the Charge in the present case provided so expressly.
74 In my view, upon a proper construction of the Charge, proceedings may be brought by Doran Constructions in its own name, at the behest either of the Receivers or, in the absence of any, in the name of Doran Constructions by Doran Holdings. However, the right to bring such proceedings carries with it the dual requirements of providing a proper indemnification to the Liquidator and, if it be appropriate, providing security for costs to Beresfield. I add that qualification to the entitlement of Beresfield to an order for security for costs because the mere fact that Doran Constructions is in liquidation does not, necessarily, mean that it will be required to provide security for costs. Obviously, there are strong prima facie reasons why it may be. However, it would be quite wrong to conclude that that result must follow.
75 The view to which I have come acquits me of the necessity to consider the various discretionary matters to which I would have to have regard if the application was one for the appointment of a receiver to pursue a cause of action on behalf of another: Lloyd-Owen v Bull (1936) 4 DLR 273; Aliprandi v Griffith Vintners Pty Limited (In Liquidation) (1991) 6 ACSR 250; Russell v Westpac Banking Corporation (1994) 13 ACSR 5; Scarel Pty Limited v City Loan & Credit Corporation Pty Limited (1998) 12 ACLR 30 and Magarditch v Australia & New Zealand Banking Group Limited (1999) 32 ACSR 367.
76 There is another reason why it is unnecessary for me to deal with those authorities. In Cadima Express Pty Limited v Deputy Commissioner of Taxation (1999) NSWSC 1143 Austin J dealt with the law at length and, at paragraph 45, his Honour said:-
“The better view is that the Court should consider whether the cause of action asserted in the pleading, together with such evidence as is relied on in the application, demonstrates an arguable case for the relief which the proposed litigation would seek.”
His Honour, in paragraph 46, also noted what Gummow J had said in Scarel , namely that the ordinary rule is that the liquidator is the appropriate person to decide whether the company should commence proceedings, subject to review under the statutory provisions. In paragraph 47, his Honour referred to the judgment of Cole J in Partnership Pacific Pty Limited v Aliprandi (1990) ACSR 51 at p.54, where his Honour had said that for an application to succeed, more must be shown than that the liquidator’s position is protected by an indemnity. Austin J continued:-
“In particular, if the liquidator is of the view that the proposed litigation is soundly based, but he cannot pursue it because of absence of funds, a Court will be more disposed to admit proceedings by a contributory in the company’s name than if the liquidator has decided that there is no reasonable foundation for the claim.”
77 His Honour continued that Scarel and Partnership Pacific indicated that the Court is entitled to have the liquidator’s assistance in making its assessment whether an arguable case has been demonstrated and that, normally, the Court will give weight to the liquidator’s view.
78 At paragraph 49 Austin J continued:-79 Thereafter Austin J considered any other problems, which may be associated with the appointment of a receiver and, in paragraph 56, concluded that they demonstrated that the Court has the power to appoint a receiver in cases where it decides to permit proceedings to be commenced and prosecuted in the name of the company in liquidation by a person other than the liquidator. He continued:-
“In addition to inquiring whether there is an arguable case or solid foundation for the proceedings, the Court needs to be satisfied that practical considerations support the initiation of the proceedings. The cases to which I have referred indicate that typically the applicant offers to indemnify the company in liquidation and the liquidator in respect of the proceedings, and to conduct the proceedings in such a fashion that liability to pay costs is undertaken by the applicant rather than the company to the extent that it is possible to do so. The Court will wish to be satisfied that the assets of the company in liquidation are not put at risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection, and may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected. To these ends, the Court may require that the person who conducts the litigation gives an indemnity supported by security for the benefit of the company and the liquidator, and perhaps also security for costs to protect the other party to the litigation. It may also be possible, as contended by counsel for the liquidator in the present case, for the Court to make an order permitting the liquidator to be excused from the proposed proceedings, in order to protect the liquidator from personal liability with respect to the proposed proceedings. But I doubt whether it would be appropriate to require the proposed receiver to provide a personal indemnity to the liquidator or the company in circumstances such as the present, notwithstanding Brownie J’s observations in somewhat different circumstances in Kelaw …”.
“Although the appointment of a receiver should not be lightly ordered, the principles by reference to which the order may be made are partly the same as for an order that a creditor or contributory be authorised to take proceedings in the company’s name. First, the Court must be satisfied that there is an arguable case or solid foundation to support the relief which the proposed proceedings seek and, secondly, the Court must be satisfied that the practical considerations to which I have referred, relating to protection of the assets of a company in liquidation, the liquidator’s personal position and the position of the other party to the proposed proceedings.”
80 I have referred to this aspect of the law because, if I am wrong in thinking that the Charge does permit Doran Holdings to bring the proceedings in the name of Doran Constructions, the question would arise as to whether I would allow it to do so conformably with the principles to which I have just referred and, if I did, what conditions I should impose.
81 It is convenient to consider the strength of the case sought to be made in the context of the application, which was argued quite fully, that Doran Constructions’ case was hopeless, such that the Summons should be dismissed.
The Time Limitation Point
82 Mr Jacobs submitted that the provisions of Part 72A rule 5 provided an absolute defence to the assertions that there were manifest errors of law on the face of the Award, such as to attract a grant of leave to appeal under s.38 and for an order under s.42. His submissions were, first, that the material date expired long before the proceedings were instituted, and that there was no evidence before the Court on the basis of which it could exercise its discretion to extend time.
83 This submission requires a consideration of the relevant rule, which provides:-
“5(1) In this rule material date means -
(a) in respect of an award which, by agreement by the parties to the arbitration agreement, may be made with reasons later - the date on which notice of the reasons is given by the arbitrator to the person who wishes to apply or appeal to the Court;
(b) in respect of any other award - the date on which notice of the award is given by the arbitrator to the person who wishes to apply or appeal to the Court.
(2) Notwithstanding Part 51A rule 3 (which relates to time for an appeal) an appeal to which section 38(4)(a) of the subject Act applies (which paragraph relates to an appeal with the consent of the parties) must be instituted not later than twenty eight days after the material date or within such extended time as the Court may fix.”
84 Sub-rule (3) provides that proceedings on an application to the Court for orders under ss.38(4)(b), 42 and 43 are to be commenced within twenty eight days after the material date or within such extended time as the Court may fix.
85 It was not in issue that in the present case the material date was that provided in s.5(1)(b), the requirement being for an award with reasons.
86 The ascertainment of the material date is triggered by the furnishing of the Award, including the reasons, by the Arbitrator to the person who wishes to apply or appeal to the Court. Mr Martin submitted until it was established that the Arbitrator had furnished his Awards to Doran Constructions time did not commence to run as there was no material date. There was some argument as to whether the provisions of rule 5(1) were satisfied by the Arbitrator’s advising the parties that the Award was available, but not releasing it until payment of his fees. However, on reflection, I do not consider that that is the only, nor the better, construction of the rule. It seems to me that a party cannot exercise, if it wishes to do so, a right to appeal until it has been furnished with the Arbitrator’s reasons. And, from a practical point of view, there may be very real difficulties in seeking to bring applications pursuant to ss.42 and 43 without them. Therefore, it seems to me, that prima facie the material date runs from the time when the Award is given by the Arbitrator to Doran Constructions. That is supported by rule 5(1)(a), which provides the relevant date as being that on which the reasons are given. It would be very odd to have different situations obtaining in relation to sub-rules (a) and (b).
87 Mr Jacobs argued, however, that this interpretation would frustrate the arbitral process, which is intended to bring about a speedy resolution to problems. He contended that a party, thinking that it may not have succeeded or no longer being interested in the result, could refuse to pay the Arbitrator’s fees and thereby deny itself of the right to the Award, with the consequence that the time for appealing would be extended by, in effect, the default of that party.
88 In my opinion, it is arguable that where the parties agree with the Arbitrator that the Award is not to be furnished to them until such time as his fees have been paid, the failure by a party to the arbitration to pay the fees does not necessarily mean that the time commences to run once that party has notice that the Award is available. The receipt of the Award and, therefore, the reasons, is dependent on compliance with the condition that the fees are paid and, until that happens, the Arbitrator is not under an obligation to hand over the Award. However, that does not mean that, for the purpose of determining the material date, the fees must be paid.
89 The non-payment of fees by one party would not prevent the other party to the arbitration, however, from paying the outstanding fees and having the Arbitrator deliver the Award to both parties, whereupon the first mentioned party could take proceedings to enforce the Award and the material date, so far as the second mentioned party is concerned, would run from the date of delivery of the Award to it.
90 In certain cases, although there is no evidence to suggest this is one, the party not paying the Arbitrator for a period may rely upon its inability to do so until a later period in support of an application to extend time and the Court may, in the exercise of its discretion, accept that as an appropriate reason for extending the time. As I have said, Mr Jacobs submitted, as is the case, that there is no evidence in this case to show that Doran Holdings did not have the financial ability to pay and, thus, to obtain the Award.
91 Further, if the party which has obtained the Award instituted proceedings to enforce it, it would be necessary for it to place the Award before the Court, so that the Court could be satisfied that the Award is one in form and substance appropriate to be enforced and, at that stage, the other party would have the opportunity, subject to an extension of time being granted, to challenge the validity of the Award. However, all of this comes back to stating that the arguable view is that the material date does not run until such time as the party wishing to apply has received from the Arbitrator the reasoned Award.
92 In these circumstances I am of the opinion that on this point it cannot be said that Doran Constructions does not have an arguable case.93 Mr Martin has submitted that the Arbitrator lacked power, because leave had not been given pursuant to s.500(2), to make either Award or, if I was of the view that he was entitled to make the Interim Award, to make the Final Award. It seems to me that it is arguable that without leave the Arbitrator was able to make the Interim Award, but that thereafter proceeding with the arbitration, arguably, required the leave of the Court pursuant to that section.
The Section 500(2) Point
94 Mr Martin submitted that the Arbitrator was in error in awarding indemnity costs of $470,762, being the “total costs” Beresfield incurred in pursuing its claim and thus, correctly in his submission, constituting an award of costs on an indemnity basis.
The Indemnity Costs Point
95 The power to award costs is contained in s.34 of the Act, sub-ss.(1) and (2) of which provide:-
“(1) Unless a contrary intention is expressed in the arbitration agreement, the costs of the arbitration (including the fees and expenses of the arbitrator or umpire) shall be in the discretion of the arbitrator or umpire, who may -
(a) direct to and by whom and in what manner the whole or any part of those costs shall be paid;
(b) tax or settle the amount of costs to be so paid or any part of those costs; and
(c) award costs to be taxed or settled as between party and party or as between solicitor and client.
(2) Any costs of the arbitration (other than the fees or expenses of the arbitrator or umpire) that are directed to be paid by an award shall, except so far as taxed or settled by the arbitrator or umpire, be taxable in the Court.”
96 Mr Martin’s submission was that the Arbitrator’s power was confined to awarding costs to be taxed or settled as between party and party or as between solicitor and client, and did not extend, notwithstanding the words of sub-s.(b) and (2), to taxing or settling the amount of costs on an indemnity basis. I have some difficulty with this submission.
97 Mr Martin referred me to the recent decision of the Full Court of the Supreme Court of South Australia in South Australian Superannuation Fund Investment Trust v Leighton Contractors Pty Limited (1996) 66 SASR 509, which was a unanimous decision and which is contrary to my prima facie view. This, therefore, indicates that there is a reasonable argument that the Arbitrator was incorrect in coming to the view he expressed in his final Award.98 In the arbitration Doran Constructions cross-claimed against Beresfield for $315,000 for costs and expenses incurred as a result of Beresfield not completing its contract as per the Head Construction Programme. Beresfield denied that allegation on various grounds. The Arbitrator, in reliance upon clause 39(j), refused the claim. That clause stated:-
Manifest Errors Of Law On The Face Of The Award
“Unless otherwise agreed any amount which the Contractor is entitled to recover from the Sub-contractor under the terms hereof including loss and/or damage suffered or incurred by the Contractor in respect of delay by the Sub-contractor in substantially completing the works and any other proper charge arising out of the work under the Contract will be invoiced by the Contractor to the Sub-contractor and if practical within twenty one days of the occurrence and recovered as a debt due and owing.”
99 The Arbitrator found that Doran Constructions had, on many occasions from March 1990 to December 1991, corresponded with Beresfield because the construction programme was behind and that, on 8 March 1991, Doran Constructions had written to Beresfield claiming any delay costs incurred by it together with liquidated damages and stating that they would be “assessed and charged to your account”. The Arbitrator continued that Doran Constructions’ claim was not made until June 1995 and quoted the words “and if practical within twenty one days of the occurrence”. The Arbitrator found that Doran Constructions’ quantified claim “being 3½ years late does not fall within clause 39(j) of the Contract” and disallowed it.
100 My prima facie view is that this was a mixed question of fact and law, and does not give rise to a manifest error of law on the face of the Award. The Arbitrator’s determination was, clearly enough, that the claim was made far too long after Doran Constructions became aware of it having regard to the requirements of the clause.
101 The next point related to the rectification of the sub-contract. Beresfield, by its pleadings before the Arbitrator, sought to rectify the sub-contract to embody the actual agreement made between the parties, namely, that the steel work and insulation did not form part of the scope of works. The Arbitrator noted, in paragraph 7.09 of the Interim Award, that Beresfield stated that the contract failed to incorporate the agreement concluded between the parties on 2 February 1990. He considered the evidence in some detail and, in clause 7.16, stated that he accepted the evidence of the witnesses called by Beresfield concerning the quotation “that it did not include the support steel or insulation for the Curtain Walling”. He continued:-
“7.16 Based on my considerations of the conduct of the parties and my understanding of the reasonable interpretations of the contract documents. I believe the intention of the parties was for the Sub-contractor to supply aluminium Curtain Walling and windows and doors and for some other party to supply and fit the support steel.
7.17 I therefore find that the documents listed in the first schedule are incomplete and should have included all those documents listed in paragraph 7.10 above.”
102 Mr Martin submitted that there was a manifest error of law because the Arbitrator did not give any attention to whether there was a mutual mistake or a mistake on the part of Beresfield of which Doran Constructions was aware, but rather made a finding as to what constituted the contract. In other words, his submission was that the Arbitrator failed to deal with the issue of rectification, as such, but, rather, considered what, as a matter of fact or mixed fact and law, constituted the contract. Mr Jacobs submitted that this was a finding of fact or, at worst from his point of view, mixed fact and law, as to the terms of the contract.
103 Notwithstanding the pleadings, it will be necessary to determine how the case was fought. If the matter proceeded simply on the basis of rectification then, arguably, the Arbitrator is in error. If, on the other hand, the Arbitrator was merely finding the terms of the contract, then the probabilities would seem to be that the finding was of the type for which Mr Jacobs contended, such that leave to appeal would not be granted. However, it cannot be said, at this point, that there is not an arguable point to be made.104 So far as the alleged misconduct on the part of the Arbitrator is concerned it was not really in issue that as the evidence presently stands it may be difficult to establish any misconduct. Certainly there were communications from the solicitors for Beresfield to the Arbitrator, but the Arbitrator, at least prima facie, seems to have dealt with these in an unexceptional way, including taking his own legal advice. However, Mr Martin has submitted that all the evidence as to the alleged misconduct of the Arbitrator is not presently before the Court, and in this particular area I would not be disposed to say that a case was hopeless until all the evidence was received. I should also note that Mr Jacobs has made the point that the pleading is defective because the Arbitrator has not been joined and, therefore, will not be given an opportunity to be heard. It will be necessary for Beresfield Constructions to determine whether it wishes to join the Arbitrator or to take the risk that the failure to do so may lead to its being unsuccessful in relation to the allegations against him.
Misconduct On The Part Of The Arbitrator
Conclusions
105 I have come to the view that there are sufficiently arguable matters advanced by Doran Constructions to enable it to resist the strike out application. As I have said, if I am wrong in relation to the position of the Receiver and it is necessary for the Court to appoint a Receiver to prosecute the litigation, I would find that a sufficiently serious case has been established by Doran Constructions to justify that.
106 The question, which then arises, is as to the appropriate orders to be made. I am not prepared to make the orders sought in the Notice of Motion for the following reasons:-107 In my opinion the way forward for this litigation is, first, that Doran Constructions must come to an arrangement with the Liquidator to secure Doran Constructions and the Liquidator against any order for costs which may be made against Doran Constructions and/or the Liquidator in consequence of the prosecution of these proceedings. That may involve negotiations with the Liquidator and the taking of judicial advice by him but I am not prepared to allow these proceedings to go forward until I am satisfied that the Liquidator is satisfied that he is properly secured. This is no more than Brownie AJ required as long ago as 28 May 1999.
(a) Doran Holdings does not seek the relief which is claimed. It is inappropriate, in my opinion, to grant what is, in effect, declaratory relief, to a party, which is not prepared to seek it.
(b) I do not consider, in any event, that declaratory relief is appropriate. I have held, the parties choosing to conduct the matter in this way, that Doran Holdings is entitled under the terms of the Charge to bring the proceedings in the name of Doran Constructions. Nothing more is justified in circumstances where Doran Holdings does not choose to become a party.
(c) The making of declaratory relief may lead to the conclusion that the Court is doing more than making the basic finding to which I have referred in (b), including the inference that the proceedings may go forward without more.
(d) Relief in the nature of declaratory relief should always be granted with care in relation to a justiciable issue and to achieve a practical result. In view of my findings that is not required.
108 I stand the proceedings over to Friday, 18 February 2000 to enable the Liquidator’s position to be finalised. If that has been achieved by then I will fix a date for the hearing of Beresfield’s application for security for costs. I grant liberty to either party to apply on two days’ or such shorter notice as a Judge of the Court may allow. I reserve the costs of the hearing of this Notice of Motion for further argument.
Once this aspect has been dealt with, it will then be necessary to determine Beresfield’s application for security for costs, but I do not propose to do that until the Liquidator’s position has been resolved.
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