Eighty Second Agenda Pty Ltd v Handberg
[2014] VSC 665
•22 December 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL COURT
No. S CI 2014 3254
| EIGHTY SECOND AGENDA PTY LTD (in its capacity as trustee of the Rice Family Trust) & ANOR (according to the attached Schedule) | Plaintiff |
| v | |
| GEOFFREY NIELS HANDBERG & ORS (according to the attached schedule | Defendant |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 October 2014 | |
DATE OF JUDGMENT: | 22 December 2014 | |
CASE MAY BE CITED AS: | Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust) v Handberg | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 665 | |
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PRACTICE AND PROCEDURE – Leave to proceed against a liquidator – Is the test different against a court-appointed liquidator as opposed to a voluntary liquidator – Aston v Heron (1934) 2 My & K 390; 39 ER 993 - Australian Securities and Investment Commission v Edge (2007) 211 FLR 137 – Sydlow Pty Ltd (in liq) v T G Kotselas Pty Ltd (1996) 65 FCR 234 – Re Biposo Pty Ltd (1995) 120 FLR 399 – McDonald v Dare [2001] QSC 405.
SUMMARY JUDGMENT – No real prospects of success – Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 – Supreme Court (General Civil Procedure) Rules 2005, Rule 23.03 – Civil Procedure Act 2010, ss 63 & 64.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P. Nugent | Charles Fice |
| For the First and Second Defendant | Mr J.P. Moore QC Ms C. Van Proctor | Mills Oakley Lawyers |
The Third Defendant appeared on her own behalf.
HIS HONOUR:
Introduction
This application has been brought by summons filed on 22 August 2014 by the first and second defendants, Geoffrey Niels Handberg (“Handberg”) and Brent Leigh Morgan (“Morgan”) (collectively, “the Liquidators”), who seek orders, inter alia, that:[1]
(a) the proceeding by the Liquidators be stayed pursuant to rule 23.01 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”) pending the hearing and determination of any application for leave nunc pro tunc to commence the proceeding; and
(b) judgment be entered for the Liquidators pursuant to rule 23.03 of the Rules and/or s 63 of the Civil Procedure Act 2010.
[1]Liquidators’ Summons dated 22 August 2014.
On 19 September 2014 the Plaintiffs, Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust)(“Eighty Second Agenda”) and G.J.R. Investments Pty Ltd (in its capacity as Trustee of the G.J.R. Investments Unit Trust (“G.J.R. Investments”) (collectively, “the Plaintiffs”), filed a summons seeking that leave be granted to commence the proceeding nunc pro tunc.[2]
[2]Plaintiffs’ Summons dated 19 September 2014.
This hearing dealt with both of the applications.
Background
The Plaintiffs are secured creditors of Traditional Values Management Limited (TVM), which is the responsible entity of the Blue Diamond Deposits Trust No. 1 (BDT), a registered managed investment scheme within the meaning of Part 5C of the Corporations Act 2001 (Cth).[3] The only business of TVM was the operation of BDT as responsible entity.
[3]Handberg Affidavit sworn 11 September 2014, [2], [32].
BDT was a mortgage fund that raised money from investors to write loans to both commercial borrowers for commercial ventures, as well as to individual borrowers to fund interests in timeshares schemes.[4] The timeshare schemes were administered by Holiday Concepts Group, an entity which was associated with Mr Geoff Rice (“Rice”) and Mr Noel Reynolds (“Reynolds”), both of whom were at one time directors of TVM.[5] Rice is also a director of Eighty Second Agenda and a director of GJR Investments.
[4]Handberg Affidavit sworn 11 September 2014, [11].
[5]Handberg Affidavit sworn 11 September 2014, [4].
In August 2006, the Plaintiffs were among a number of secured creditors who had advanced funds to TVM pursuant to a loan facility, presumably for the purpose of ensuring that BDT had sufficient cash available to make new timeshare loans.[6]
[6]Liquidators’ Submissions, [8].
On 14 August 2006 TVM granted the secured creditors, including the Plaintiffs, a fixed and floating charge (“TVM Charge”) over certain timeshare loans (the “Timeshare Loans”) made by TVM to individuals to assist in the acquisition of interests in various time share schemes, which loans TVM holds as responsible entity of BDT.
The TVM Charge included the following clauses:
(a) Clause 1.1 (23)(f):
“…it is agreed between the parties that Waters Dace (or such other party as the Chargee shall nominate from time to time) shall on a quarterly basis that the provisions of sub-clauses (a) and (b) have been complied [provisions relating to the value of the secured property]; it will provide monthly management account reports to the Chargee to verify that the provisions of the Agreement and this document are being complied with. Such management accounts shall be in a form agreed upon between the parties and shall be in addition to the audited accounts required to be provided to the charge pursuant to other provisions on this documents and under the terms of the Agreement”
(b) Clause 8.3(2)
The Charger must…upon demand make available for inspection and copying by the Chargee the books, accounts and accounting, and other records of the Chargor.”
(c) Clause 8.4:
(d) “The Chargor must give to the Chargee:
…
(2) Upon demand any other information in the possession or under the control of the Chargor which in the Chargee’s reasonable opinion is relevant to the Secured Property or this document.”
On 14 April 2008 the secured creditors, including the Plaintiffs, and TVM agreed to cancel the loan agreement and some (but not all) of the secured creditors entered into a new loan agreement (the “Second Loan Agreement”).
Sometime in late 2009, Handberg was contacted by Rice and Reynolds, and was informed by the two of them that they had formed the belief that TVM had become insolvent, and that they were considering appointing a voluntary administrator.[7] On 17 December 2009, Handberg and Morgan were appointed jointly and severally as administrators of TVM.[8]
[7]Handberg Affidavit sworn 11 September 2014, [4].
[8]Handberg Affidavit sworn 11 September 2014, [12].
During a number of meetings in late 2009, the Liquidators say that Rice and Reynolds advised Handberg that, while there were significant problems with the recovery of some of the commercial loans made by BDT as almost all of them were in default and TVM held insufficient security over the commercial borrowers, Rice and Reynolds were both confident that there were “no problems” with the Timeshare loans.[9]
[9]Handberg Affidavit sworn 11 September 2014, [11].
Upon their appointment as administrators, the Liquidators provided a report to creditors pursuant to s 439 of the Corporations Act in January 2010. On 3 February 2010, Handberg convened a second meeting of TVM, where the voting creditors resolved that TVM be wound up in insolvency, and that Morgan and Handberg be appointed as liquidators.[10]
[10]Handberg Affidavit sworn 11 September 2014, [16].
On 10 August 2010, on the application of the Liquidators, this Court made orders that BDT be wound up by TVM. A number of other proceedings have also been brought by the Liquidators against various parties related to the winding up of both TVM and BDT.[11]
[11]Handberg Affidavit sworn 11 September 2014, [21] – [28]; Defendants’ Submissions [15].
Collection and management of the Timeshare Loans
The third defendant in this proceeding, Ms Lynne Philistin (Philistin), was a bookkeeper employed by TVM who had worked on the collection of the Timeshare Loans.[12] Upon the appointment of the Liquidators as administrators of TVM, the Liquidators caused TVM to continue to employ Philistin and one other employee on a casual basis to assist them with the continued collection of the Timeshare Loans. It was the evidence of Handberg that Rice and Reynolds had agreed to a number of the arrangements Handberg had implemented regarding the collection of the timeshare loans, but had told him that they believed he only needed to retain one employee, and that this should be Philistin, as she was the “best person for the job, had clean hands and could be trusted as she was the wife of a local Mornington police man”.[13]
[12]Handberg Affidavit sworn 11 September 2014, [39].
[13]Handberg Affidavit sworn 11 September 2014, [42].
On 22 February 2010, Handberg sent to Philistin a letter confirming the details of her engagement by TVM and the scope of her duties, which included daily banking and receipt of timeshare monies, collating caveat withdrawal correspondence, general bookkeeping, as well collecting and managing arrears.[14]
[14]Handberg Affidavit sworn 11 September 2014, [44].
Between the time he was appointed until late 2013, Handberg had believed that the Timeshare Loans were generally in order and performing as expected.[15] However, by August 2013, he had become concerned that collections from the Timeshare Loans were below what was expected, and so asked two of his employees to investigate the reason for this underperformance.[16] This investigation into the Timeshare Loans continued until early March 2014, and culminated in Philistin informing Handberg on 4 March 2014, that between 27 January 2004 and 29 May 2007, she had processed 71 fraudulent loan applications totalling $1,053,350.[17] It appears that the original applications were legitimately made by individuals, but were declined on the basis that they did not satisfy TVM’s lending criteria. Notwithstanding this, Philistin processed the applications in the normal course and recommended that they be approved for funding. Once approved by TVM, the funds advanced were then disbursed by Philistin to one of two bank accounts which she maintained on her own behalf, rather than to Holiday Concepts, as would be the normal course of action once funding had been approved. Handberg informed Rice of this at a meeting on 5 March 2014.[18]
[15]Handberg Affidavit sworn 11 September 2014, [46].
[16]Handberg Affidavit sworn 11 September 2014, [53].
[17]Handberg Affidavit sworn 11 September 2014, 60].
[18]Handberg Affidavit sworn 11 September 2014, [62].
Is leave to appeal required?
The first question which arises for determination in this present application is whether the Plaintiffs requires leave of the court to bring an action against the Liquidators in their personal capacity for conduct in the performance of their duties as liquidators.
It is well established that leave of the court is required to bring an action against a court-appointed liquidator.[19] The rationale behind this requirement derives from two distinct, yet related, aspects of the protective role that a court often must undertake; in this instance, that role is enlivened to ensure that a court appointed liquidator be unencumbered so as to allow them to perform their official functions, as well as providing a means of protecting the court’s own processes.
[19]Re Siromath Pty Ltd (No 1) (1991) 9 ACLC 1580; Re Siromath Pty Ltd (No 3) (1991) 25 NSWLR 25; Bolton v Nathan Nominees Pty Ltd (1992) 10 ACLC 1102; Re Biposo Pty Ltd; Condon v Rodgers (Unreported, Supreme Court of New South Wales, Young J, 2 August 1995); Sydlow Pty Ltd (in liq)v T G Kotselas Pty Ltd & Ors (1996) 65 FCR 234; Mamone v Pantzer (2001) 36 ACSR 743; Searle v Kearns [2001] NSWSC 679; McDonald v Dare [2001] QSC 405; Sullivan v Energy Services International Pty Ltd (in liq) (2002) 43 ACSR 179; Baxter v Hamilton [2005] TASSC 64; Merhi v Green [2007] NSWSC 722.
This latter aspect focuses on the role which a court-appointed official – in this case, a court appointed liquidator – undertakes as a representative of the court. When acting in such a position, the court takes the view that the actions of the appointed official are to be deemed as actions of the court. This proposition can be traced back to a decision of Lord Chancellor Brougham in Aston v Heron,[20] where his Lordship said:
The present case comes clearly within the later description; for although it is not a case where an illegal or oppressive execution is complained of, it is one where a person admitting the jurisdiction asserts a claim of right which interferes with the rights sought to be exercised by the received as standing in the shoes of the party of whose estate the Court has taken possession. The possession of the receiver is the possession of the Court, and no one can disturb it but through an application to the Court. The acts of the receiver, in the administration of the estate, are the acts of the Court; and the Court may, therefore if it pleases, prevent any other jurisdiction from questioning those acts, because, strictly speaking, that would be to question the Court’s administrative proceedings.
[20]Aston v Heron (1834) 2 My & K 390 at 396-7; 39 ER 993 at 995.
As an officer of the court, a court-appointed liquidator must also conduct himself or herself in a manner that upholds the reputation of the court. The significance of this duty which is placed upon a liquidator in a compulsory liquidation was discussed in Australian Securities and Investment Commission v Edge,[21] where Dodds-Streeton J said:[22]
A liquidator is an officer of the Court, through whom the Court itself notionally conducts compulsory liquidations. In that context, although a liquidator is not an employee of the Court:
“the nature of the appointment makes him a representative of it … The winding up is by the Court which for the purposes the liquidator is. As such he is entrusted with the reputation of the Court for impartial and proper despatch of duties. No lesser standard in that regard is to be expected of the liquidator than of a court or a judge.”[23]
[21]Australian Securities and Investment Commission v Edge (2007) 211 FLR 137.
[22](2007) 211 FLR 137 at 150 [39] (Dodds-Streeton J).
[23]Commissioner for Corporate Affairs v Harvey [1980] VR 669 at 696.
The rationale behind the first branch of the principle to which I referred earlier – that a court will act to protect its own officers so as to ensure they may perform their official function - was explained by Robb J in Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (as liquidator of Octaviar Administration Pty Ltd) (in liq) (No 2),[24] where his Honour said:
The … principle is intended to protect liquidators from being subjected to claims against them in their personal capacity in relation to the performance of their duties, so putting their personal assets at risk, by any application made outside the winding up of the company, unless leave be given by the winding up court.
[24]Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (as liquidator of Octaviar Administration Pty Ltd) (in liq) (No 2) [2013] NSWSC 1625.
As the judicial statements in these cases indicate, there is a close relationship between a court and a court-appointed liquidator; so much so that it will protect the liquidator as one of its officers, through the same processes by which it will protect its own processes. This relationship was discussed by Tamberlin J in Sydlow Pty Ltd (in liq) v T G Kotselas Pty Ltd,[25] where his Honour said:[26]
The court, when administering the Law, is concerned to ensure that the winding-up is implemented in a timely and efficient manner, so as to produce optimum results for all persons interested in the winding-up. In order to achieve this result, the court must protect the integrity of the winding-up under its supervision and control, by taking appropriate steps to prevent any proceedings or conduct which will wrongfully impede that process. One way in which this can be carried out is to require the grant of leave by the court in respect of an action against an official liquidator, so that the court can satisfy itself that there is no wrongful interference with the process. Such interference may arise where, for example, proceedings are initiated or continued without any legal basis or prospect of success or for an improper or collateral purpose. This appears to be the principle which underlies the established requirement that leave is necessary in order to sanction proceedings against an official liquidator.
[25](1996) 65 FCR 234.
[26](1996) 65 FCR 234 at 241 (Tamberlin J).
In ASIC v Edge, Dodds-Streeton J set out a detailed analysis of the functions which a liquidator undertakes. In that proceeding, the defendant was found to have repeatedly contravened significant provisions of the Corporations Act while performing as an administrator and, at other times, as a liquidator of various companies. The defendant’s appointments as liquidator of the various companies included appointments made through both court-ordered liquidation and creditors’ voluntary winding-up. His Honour said:[27]
[27](2007) 211 FLR 137 at 151 [40] – [42] (Dodds-Streeton J).
The liquidator’s essential functions are to identify, take possession of and realise the company’s assets, to investigate and determine the claims against the company and to apply the assets to the satisfaction of those claims in accordance with the statutory scheme of priority.
While there is frequently a shortfall of assets with which to satisfy creditors’ claims against a company wound up in insolvency, where there is any surplus the liquidator must distribute it to members and carry out the necessary steps to implement the company’s dissolution.
The liquidator’s functions, which are performed in the fiduciary capacity of agent of the company, necessitate the conferral of wide and extensive powers currently embodied in s.477 of the Act, including the power to carry on the company’s business for the purpose of beneficial disposal or winding up, pay creditors, bring and defend proceedings in the company’s name, enter agreements and (subject to some restrictions) compromise claims, sell and dispose of the company’s property, make purchases and execute documents on its behalf.
While all of the authorities discussed in the preceding paragraphs relate to a court-appointed liquidator, a number of decisions have made reference to the fact that a liquidator appointed under a voluntary winding-up does share similarities with a liquidator appointed by the court in terms of the powers each derive under the Corporations Act and, consequently, the role that each play in the winding-up process. In Re Biposo Pty Ltd,[28] Young J noted that “the liquidator, even in a voluntary winding up, has very strong powers which have been given to him under the Corporations Law, virtually as the delegate of the court.” Similarly, in Cresvale Far East Ltd (in Liq) v Cresvale Securities Ltd (No 2),[29] Austin J said:[30]
In a voluntary winding up, the appointment of a liquidator is consensual but a liquidator’s duties and powers are prescribed by the Corporations Act 2001 (Cth), and there are elements of supervision by the Court.
[28](1995) 120 FLR 399 at 403.
[29](2001) 39 ACSR 622.
[30](2001) 39 ACSR 622 at [63] (Austin J).
In McDonald v Dare,[31] where Mullins J considered an application to remove voluntary liquidators on the basis of an alleged conflict arising from a proceeding commenced against the liquidators for negligence, her Honour said:[32]
Another problem with the Supreme Court proceeding is that it seeks relief against the respondents for alleged breaches of duty arising in the course of performing their duties as liquidators, the leave of the court is required before such a proceeding is commenced: Sydlow Pty Ltd (in liquidation) v TG Kotselas Pty Ltd (1996) 65 FCR 234, 241 and Mamone v Pantzer (2001) 36 ACSR 743, 746.
[31][2001] QSC 405.
[32][2001] QSC 405 at [25] (Mullins J).
In The Presbyterian Church (NSW) Property Trust v Scots Church Development Ltd[33], Young CJ in Eq recognised the similarity, where the Chief Judge said:[34]
It should be noted in the instant case, that as the liquidators were appointed following an administration, they are voluntary liquidators and, as such, not officers of the court in the same as court appointed liquidators. However, the statutory powers of the court are such that they may be treated as if they were officers of the court.
[33](2007) 64 ACSR 31 at 48.
[34](2007) 64 ACSR 31 at 48 [179] (Young CJ in eq).
The Liquidators submit that these authorities indicate that the requirement that leave is required to commence proceedings against a court-appointed liquidator personally in respect of carrying out his or her duties in winding up the company should also include the situation where a company has been wound up at the instigation of a creditor.[35]
[35]Liquidators’ Submissions, [25].
The Plaintiffs, on the other hand, submit that this principle should not be extended to include a situation such as the one in the present proceedings. They say that:[36]
…it is clear that the weight of authority is that there is a difference between a court appointed liquidator and a voluntary liquidation. The difference arises because in the case of the former, but not the latter, a liquidator is acting as “officer of the court” rather than “officer of the company”.
It is true that a voluntary liquidator has wide powers and as a consequence of those powers a Court will scrutinise a voluntary liquidator’s conduct. That a Court may scrutinise voluntary liquidator’s conduct does not, however, mean that a voluntary liquidator is an “officer” of the court.
[36]Plaintiffs’ Submissions, [20] – [21].
The Plaintiffs’ submissions with respect to the distinction between types of liquidators are, of course, correct. The authorities do indeed indicate that there is a distinction between a court-appointed liquidator, as an officer of the court, and a liquidator appointed pursuant to a voluntary winding-up. But it would seem to elevate a very narrow perspective to determine the issue exclusively on this distinction. As the reasons which follow will indicate, it is not necessary to decide this proceeding on this point alone. However, it would appear to me that this distinction between a court-appointed liquidator and a voluntary liquidator is becoming an increasingly artificial one, and to deny a voluntary liquidator the protection afforded to a liquidator appointed by the court ignores important, and indeed necessary, functions that each plays in the winding-up process.
Denying a voluntary liquidator protection only encourages litigation. There are obligations under the Corporations Act which are enlivened when a voluntary winding-up occurs. In this respect if the plaintiffs’ submissions are to be accepted, a situation is created whereby those tasked with the many onerous duties imposed upon a liquidator would find themselves in a position of only being afforded protection once a proceeding has been initiated to wind-up the company, hence being encouraged to decline to act unless and until proceedings are taken which would provide this protection. This would mean that the more expedient and cost-effective measure of winding-up the company voluntarily would be discouraged. As Tamberlin J said in Sydlow (albeit in the context of a court-appointed liquidator), “the court, when administering the Law, is concerned to ensure that the winding-up is implemented in a timely and efficient manner, so as to produce optimum results for all persons interested in the winding-up.”[37] Denying the protection of requiring leave of the court before a proceeding is commenced against a liquidator, whether they be appointed voluntarily or by order of the court, goes against the very idea of ensuring a timely and efficient resolution of the issues at hand.
[37](1996) 65 FCR 234 at 241 (Tamberlin J).
What is the test for leave to sue a liquidator?
The Plaintiffs submit that, even if leave is required, it should be granted in this instance. The Liquidators, on other hand, say that the Court should not exercise its discretion to grant leave “because the plaintiffs are unable to establish a prima facie case against the liquidators personally in respect of their conduct in winding up TVM and BDT.”[38]
[38]Liquidators’ Submissions, [33].
In Re Biposo Pty Ltd; Condon v Rodgers,[39] Young J (as he then was) stated that the court will not enable proceedings to be commenced against a liquidator personally unless it is satisfied that there is a prima facie case:[40]
The court will be very jealous of its delegate exercising the powers that it is given. The court will take every precaution to make sure that those powers are used impartially and for a proper purpose. The corollary of this is that the court will not permit its officers to be sued by a creditor or have an inquiry made under s 536 unless it is satisfied that there is a prima facie case.
[39](1995) 120 FLR 399.
[40](1995) 120 FLR 399 at 403 (Young J).
In Sydlow,[41] Tamberlin J suggested that there was no specific threshold appropriate in all cases when deciding whether to exercise the discretion:[42]
The discretionary power of the court to grant leave must be exercised having regard to all the circumstances of the particular case and bearing in mind the need to protect the integrity of its process. It does not necessarily follow that, in order to obtain leave, a prima facie case must be demonstrated. There is no specific threshold appropriate in all cases, however there must be more than mere assertion. The court’s discretion may be exercised on many grounds including, but not limited to, the sufficiency of the evidence adduced as to the prospect of success of the action on the application for leave.
[41](1996) 65 FCR 234.
[42](1996) 65 FCR 234 at 242 (Tamberlin J).
The threshold for when leave should be granted to sue a liquidator was discussed in Mamone v Pantzer, where Santow J said:[43]
To those ends, a prospective litigant must, to obtain the necessary leave, demonstrate its claim has sufficient merit. What is sufficient is affected by circumstances and timing in which that leave is sought.
[43](2001) 36 ACSR 743 at 746 [4] (Santow J).
Similar sentiments were stated by Brereton J in Re St Gregory’s Armenian School (in liq), where his Honour said:[44]
The discretionary power of the court to grant leave must be exercised having regard to all the circumstances of the particular case and bearing in mind the need to protect the integrity of its process: Sydlow Pty Ltd (in liq) v T G Kotselas Pty Ltd (1996) 65 FCR 234 at 241: 144 ALR 159 at 165; 20 ACSR 47 at 54; [1996] FCA 1384 (Sydlow) per Tamberlin J. An applicant for leave must demonstrate that its claim has sufficient merit. What is “sufficient” is affected by the circumstances and timing in which that leave is sought, and does not necessarily mean a prima facie case: Mamone at [4]. There is no specific threshold applicable to every case, but there must be more than mere assertion. The court’s discretion may be exercised on many grounds, including, but not limited to, the sufficiency of the evidence adduced as to the prospects of success of the action: Sydlow at FCR 242; ALR 166: ACSR 55; Mamone at [5]. Courts recognise that liquidators often have to make decisions on the run, and that to expect perfection in those circumstances in unrealistic: Mamone at [4].
[44](2012) 92 ACSR 588 at 612 [112] (Brereton J).
In this proceeding, the only evidence adduced by the Plaintiffs was an affidavit of Rice sworn on 8 October 2014 (“Rice Affidavit”), together with a number of exhibits. The affidavit is, in effect, an affidavit in reply to the one Handberg swore on 11 September 2014 (“Handberg Affidavit”). While a number of objections were made by the Liquidators to part of the content of the Rice Affidavit, it is not necessary to decide upon these objections for present purposes.
In the Rice Affidavit, a number of statements were made denying statements in the Handberg Affidavit, including those to which I have referred earlier regarding information that was allegedly passed on to Handberg by Rice and Reynolds – information which may be critical to the determination of the proceeding should it continue to trial. As the authorities to which I have referred make clear, what is deemed sufficient to demonstrate a claim has merit for the purposes of enlivening a court’s discretion to grant leave to bring a proceeding against a voluntary liquidator will depend upon the circumstances of the particular proceeding. The Plaintiffs have, for the reasons which follow, demonstrated their claims have sufficient merit. If it is the case that leave is required in this instance, as it is in my opinion, then leave should be granted.
Application for summary judgment
The Liquidators seek summary judgment pursuant to r 23.03 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”) and, in the alternative, under s 63 of the Civil Procedure Act 2010.
Rule 23.03 provides:
23.03 Summary judgment for defendant
On application by a defendant who has filed an appearance, the Court at any time may give judgment for that defendant against the plaintiff if the defendant has a good defence on the merits.
Under s 63 of the Civil Procedure Act, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.
In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd,[45] Warren CJ and Nettle JA (with Neave JA in agreement) discussed the proper construction of s 63, and after identifying the difference between the previous test for a summary judgment application with the current provisions, set out the test for determination an application brought under this provision:[46]
[45][2013] VSCA 158.
[46][2013] VSCA 158 at [30] (Warren CJ and Nettle JA (Neave JA concurring)).
It remains to observe that the question of the proper construction of s 63 of the Civil Procedure Act was referred to this court for decision largely because of uncertainty created by Nettle and Osborn JJA’s joint judgment in Karam v Palmone Shoes Pty Ltd.[47] In that case, their Honours said that:
[47][2012] VSCA 97.
Since the coming into force of s 63 of the Civil Procedure Act 2010, the test for summary judgment in favour of a plaintiff in a civil proceeding has been whether a defence or part of it ‘has no real prospect of success’. In terms, it is a little different to the criterion under Rule 22.02 of the Supreme Court (General Civil Procedure) Rules 2005, of whether the defendant has no defence. But the change in terms was not intended to establish a new or different test; rather to express more accurately the way in which the rule had been interpreted by the courts. It remains, as the High Court said in Fancourt v Mercantile Credits Ltd,[48] that the power to order summary judgment is to be exercised sparingly and not ‘unless it is clear that there is no real question to be tried’. Accordingly, we agree with the judge that the Magistrate correctly identified the test for summary judgment as being that it should only be granted if it is clear there is no real question to be tried.[49]
[48](1983) 154 CLR 87, 99.
[49][2012] VSCA 97, [28].
Looked at in hindsight, it is apparent that what was said there led to misunderstanding. Perhaps, it might have been understood as an endeavour to emphasise the point essayed by French CJ and Gummow J in Spencer that there appears to be little distinction in practical effect between the General Steel ‘hopeless’ or ‘bound to fail’ test and the requirement of a ‘real’ as opposed to ‘fanciful’ prospect of success test prescribed by s 63; and that, under the new test, just as under the old, the power to award summary judgment must be exercise with caution. But, even so, on the present state of authority it is incorrect to say that there is no difference between the tests. As noted, there is a succession of Queensland Court of Appeal decisions to the effect that the two tests are different. And, as Osborn J (as his Honour then was) had earlier recognised in Wheelahan v City of Casey (No 3),[50] despite such similarities as there may be between the tests, the test under s 63 of the Civil Procedure Act has been interpreted as a more liberal test which may in some circumstances extend to cases not regarded as sufficiently hopeless to warrant striking out under the Rules.
[50][2011] VSC 15, [8]-[10].
…
42 Upon the present state of authority:
a) the test for summary judgment under s 63 of the Civil Procedure Act2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
b) the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
c) it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
d) at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.
It is clear that the test which is now to be applied is whether a claim has no real prospect of success.
The Plaintiffs’ Claims
By the amended statement of claim, the Plaintiffs have alleged four separate causes of action. While the strength of each, on the minimal amount of evidence already before the Court, does vary, it cannot be said that these claims can be considered so fanciful that the Plaintiffs’ claim against the Liquidators can have no real prospect of success.
Misleading and Deceptive Conduct
The Plaintiffs allege that the Liquidators engaged in misleading or deceptive conduct in contravention of the provisions of s 18 of the Australian Consumer Law in the course of carrying out their functions as liquidators in winding up TVM. The defendants say that there is a fundamental defect in this claim, as the alleged conduct could not be considered in trade or commerce.
In Concrete Constructions (NSW) Pty Ltd v Nelson[51], Mason CJ, Deane, Dawson and Gaudron JJ said that the phrase “in trade or commerce has a restrictive operation” which applies:[52]
only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character. So construed, to borrow and adapt words used by Dixon J in a different context in Bank of NSW v Commonwealth (1948) 76 CLR 1 at 381, the words “in trade or commerce” refer to “the central conception” of trade or commerce and not to the “immense field of activities” in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business.
… Indeed, in the context of Pt V of the Act with its heading “Consumer Protection”, it is plain that s 52 was not intended to extend to all conduct, regardless of its nature, in which a corporation might engage in the course of, or for the purposes of, its overall trading or commercial business. Put differently, the section was not intended to impose, by a side-wind, an overlay of Commonwealth law upon every field of legislative control into which a corporation might stray for the purposes of, or in connection with, carrying on its trading or commercial activities. What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public. In some areas, the dividing line between what is and what is not conduct “in trade or commerce” may be less clear and may require the identification of what imports a trading or commercial character to an activity which is not, without more, of that character.
[51](1990) 169 CLR 594.
[52](1990) 169 CLR 594 at 603-4 (Mason CJ, Deane, Dawson and Gaudron JJ).
In Murphy v State of Victoria,[53] Santamaria and Beach JJA observed that s 18 of the ACL remains subject to the limitations that were authoritatively identified by the majority in Concrete Constructions.[54]
[53](2014) 313 ALR 546.
[54](2014) 313 ALR 546 at 569 [77] (Nettle AP, Santamaria, Beach JJA).
In support of their submissions, the Liquidators rely on the decision in Baxter v Hamilton,[55] where Tennent J held that the conduct of a liquidator in bringing in assets and fulfilling his statutory duties was not conduct in trade or commerce. His Honour said:[56]
It must be accepted that Mr Hamilton's business or trade is that of a liquidator. Acting as a liquidator is what he does for a living. As such he oversees the winding up of entities which includes taking control of their assets and, if necessary, converting property into money for distribution to the beneficiaries in the winding up. When he discharges a mortgage as he was asked to do here, it is a function of his winding up role. Where a property is sold as part of any winding up process, he personally receives no payment either by way of profit or remuneration. The sale of a property is simply incidental to the winding up process.
The cases canvassed by each counsel on the interpretation of the words “in trade or commerce” make it clear that each case must be determined on its particular facts, subject to certain general principles
[55][2005] TASSC 64.
[56][2005] FASSC 64 at [65] – [66] (Tennent J).
The specific conduct of the Liquidators impugned by the Plaintiffs includes representations made in an affidavit, and those contained in a report to creditors. While it may be true that, as the Liquidators submit, the alleged representations were not of themselves an aspect or element of activities or transactions bearing a trading or commercial character, there is some force in the Plaintiffs’ submissions that the current proceeding involved a “complex relationship of duties, which arose by reason of the Liquidators having entered into various agreements”.[57] Further, they say that the decision in Baxter v Hamilton can be distinguished from the facts in the present case. In any event, the Court of Appeal in Lysaght have made it clear that the power to terminate proceedings summarily should not be exercised unless it is clear that there is no real question to be tried. In these circumstances, it is impossible to say that there are not, even at its lowest point, arguments which need to be explored further before it can be said that there is no real question of whether or not the alleged misleading conduct took place, and whether it can be said that there are occasions when the conduct of a liquidator may occur in trade or commerce.
[57]Plaintiffs’ Submissions, [39].
While, for the preceding reasons, it is not necessary decide whether the Plaintiffs did in fact suffer any loss in reliance on the alleged misleading and deceptive conduct, the issues should be noted as they indicate a further reason for refusing to grant a summary judgment application.
The Plaintiffs contend that they “have lost the chance of bringing a proceeding against TVM’s directors, Susan Mary Taylor and Gavan Linton Lethlean, for their misleading and deceptive conduct.” The substance of the claim is that the Plaintiffs’ cause of action against the relevant directors accrued in August 2006 at the time the first loans were entered into. While the Liquidators say that this is incorrect, and that the relevant period commenced in 2008 (at the time the Second Loan Agreement was entered into), the question of when loss or damage arises is a question of fact to be determined in all of the circumstances of the case.[58] It is equally true that, as the Plaintiffs submit, it is undesirable to strike out a claim on the basis of a limitations issue except in the clearest of cases;[59] and at this stage, there is clearly insufficient evidence before the Court as to the damage sustained and the circumstances in which it was sustained. As Lord Justice Donaldson said in Ronex Properties Ltd v John Lain Construction:[60]
Authority apart, I would have thought it was absurd to contend that a writ…could be struck out as disclosing no cause of action merely because the defendant may have a defence under the Limitations Acts.
[58]Wardley Australia Ltd v Western Australia (1992) 176 CLR 514.
[59]Plaintiffs’ Submissions, [57].
[60]Ronex Properties Ltd v John Lain Construction (1983) 1 QB 398 at 404.
Negligence
The second cause of action the Plaintiffs claim to have is in negligence, in that from the date upon which they were appointed as liquidators of TVM, the Liquidators were under a duty to ensure that TVM properly performed its obligations under the various charge agreements, and that it was reasonably foreseeable that the Plaintiffs would suffer economic loss if the Liquidators failed to properly carry out their duties as the Plaintiffs were vulnerable in that they were unable to protect themselves from the consequences of a want of reasonable care on the part of the Liquidators.[61]
[61]Amended Statement of Claim dated 15 October 2014, [92].
The Liquidators say that this claim is flawed for three reasons. They say that the duties owed at common law by the liquidators are not owed to individual creditors, but to the company; that the Plaintiffs were not ‘vulnerable’ in the relative sense; and that the claims against the directors of the company were not lost to the Plaintiffs by virtue of the expiration of any limitations period.[62]
[62]Defendant’s Submissions, [62].
In support of this first contention, the Liquidators rely upon the decision of Barret J in Hasumann v Smith,[63] where his Honour said:[64]
The second point is that the duties owed by administrators and liquidators are not duties owed to shareholders or to creditors. Reference was made to Kinsela v Russel Kinsela Pty Ltd [1983] 2 NSWLR 452. That case is part of a line of decisions the most recent authoritative element of which is, I think, Spies v R (2000) 201 CLR 603 in which it is recognised that directors duties are owed to the company, even though due performance of those duties may require directors to pay attention to the interests of creditors. There is a difference between the beneficiary of a duty and the delineation of the interests to be taken account of in performing the duty. In my opinion, the same analysis holds good in relation to the duties of administrators and liquidators.
[63]Hasumann v Smith [2006] NSWSC 682.
[64][2006] NSWSC 682, [12].
In response to this, the Plaintiffs say that they do not contend that a liquidator will always owe a duty of care to an individual creditor; rather, they say that the Plaintiffs claim is different in this sense, as it “involves a complex relationship of duties, which arose by reason of the Liquidators having entered into various agreements, in circumstances where the Liquidators are not Court appointed liquidators”.[65]
[65]Plaintiffs’ Submissions, [46].
In response to the Liquidators’ submissions that the Plaintiffs were not ‘vulnerable’ in the relevant sense, the Plaintiffs say that this is a question of fact for determination at trial. The Liquidators’ submission in this regard is based on three factors. They say:[66]
[66]Liquidators’ Submissions, [67].
a) The Plaintiffs have the same access to, and investigation of, the books and records of TVM and BDT that the Liquidators did; pursuant to the terms of the charge upon which the Plaintiffs rely, they were entitled to reports from their accountants or any other accountant nominated by them to audit and certify the value of BDT’s assets, and were entitled to inspect the books and accounts of TVM on demand;
b) The Plaintiffs are related entities of Rice who, as a director of TVM during the period in which the Philistin is alleged to have engaged in the conduct pleaded, had full access to the same books and records that the Liquidators had upon their appointment; and
c) The Liquidators continued the employment of the Philistin at the request, and upon the assurance, of Rice.
These submissions may, in fact, be correct; however, determining the truthfulness of these submissions does involve a thorough investigation into the factual circumstances surrounding the various arrangements which were entered into, while there is considerable disagreement between the parties as to the arrangements which led to Philistin being retained as an employee, and under what terms. On the evidence which is currently before the Court, dismissing the proceeding by way of summary judgment for the Liquidators would be to ignore the test established in Lysaght, as it cannot be categorically stated with any real authority that there is no real question to be tried as to whether the Liquidators were negligent in fulfilling any of the duties to which they may have owed the Plaintiffs.
Vicarious Liability
The Plaintiff’s third claim is the that the Liquidators are vicariously liable for misleading conduct engaged in by Philistin. The substance of this claim is that, between 3 February 2010 and 5 March 2014, the Liquidators failed to provide any adequate supervision of Philistin, as a consequence of which Philistin’s fraud went undetected for approximately four years.
Again, the Liquidators say there are a number of reasons why this claim of vicarious liability should fail. First, they say that Philistin was employed by TVM; she was not an employee, servant or agent of the Liquidators, nor can it be said that there is “evidence that could come anywhere near to a proper suggestion that there’s any hope of establishing Ms Philistin as an employee of the liquidators rather than TVM.”[67] To this, the Plaintiffs simply say that the proper characterisation of Philistin’s employment status is a fact in issue which is properly determined at trial. Secondly, they say that the impugned conduct of Philistin was not conduct for which she was employed to do. I n this respect, the Liquidators rely upon Barrick v Qantas Flight Catering,[68] where Spender J said that the wrongful alteration of a weekly pay run and fabrication of payslips was:[69]
…not conduct “in the court of” her employment, but were actions independently performed for her own benefit and that of her co-conspirators. Her actions were not performed in the furtherance of the interests of Qantas Catering. Qantas catering is not liable for her criminal acts.
[67]Transcript, p 68, lines 16 to 19.
[68]Barrick v Qantas Flight Catering [2007] FCA 835.
[69][2007] FCA 835, [102]–[103].
In response to this, the Plaintiffs say that it is not suggested that the Liquidators, as the employer of Philistin, are liable for her theft. Rather, they say it is the manner in which she performed the services for which he was retained that complaint is made. Philistin’s duties included preparing reports for an on behalf of the Liquidators, including loans or purported loans where were in default, such reports to be distributed to the chargees. In performing her duties, such as the preparation of reports, it is said that Philistin engaged in misleading and deceptive conduct of which the Liquidators should have been aware. In support of this argument, the Plaintiffs rely, in part, on the decision of Burchett J in Capricorn Financial Planners Pty Ltd v Australian Securities and Investments Commission,[70] where his Honour summarised the relevant principles:[71]
[70]Capricorn Financial Planners Pty Ltd v Australian Securities and Investments Commission (1999) 31 ACSR 46.
[71]1999) 31 ACSR 46, [10].
The leading case is Lloyd v Grace, Smith & Co [1912] UKHL 1; [1912] AC 716. There, a client sought advice from a firm of solicitors with a view to the augmentation of the return she was getting from some houses she owned. The managing clerk with whom she dealt persuaded her to bring in the deeds and to sign some documents, the nature of which she did not understand, which were in fact a transfer of a mortgage and a conveyance. Thereby, he defrauded her for his own benefit. Lord Macnaghten said (at 731):
“[I]n the opinion of the Court a principal must be liable for the fraud of his agent committed in the course of his agent's employment and not beyond the scope of his agency, whether the fraud be committed for the principal's benefit or not.”
His Lordship refuted (at 733) the argument that the business in which the agent was engaged could not be the defrauding of clients, by quoting some words of Willes J:
“In all these cases it may be said, as it was said here, that the master had not authorized the act. It is true he has not authorized the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which that agent has conducted himself in doing the business which it was the act of his master to place him in.”
The application of this proposition to the present case is obvious; for the giving of advice about loans to companies was certainly within the class of acts that formed part of the business of Capricorn, as a dealer in securities. Lord Macnaghten made it clear (at 736) that the expressions “acting within his authority,” “acting in the course of his employment,” and “acting within the scope of his agency” are expressions which “must be construed liberally”.
In this present case, the Plaintiffs say, the Liquidators could have, but chose not to, verify the accuracy of the information provided to them by Philistin.
In these circumstances, again, it simply cannot be said the Plaintiffs’ claim can be seen to have no real prospect of success.
Breach of Contract
By the amended statement of claim dated 15 October 2014, the Plaintiffs added a claim for a breach of contract, in that the Liquidators failed to perform their obligations with the degree of skill, care and attention reasonably to be expected from competent and professional liquidators, and would not misrepresent or incorrectly state any amounts owing, the value or performance of the loans, nor the nature or amount of security in place in respect of the loans
The Plaintiffs submit that where one is engaged to do a job involving essentially collecting moneys due under various contracts, it is implicit that one ought to, at the very least, make enquiry as to whether the money said to be being collected is in fact being collected, and as to appropriate amounts.[72] The Liquidators contend that no such implied term should exist, as it could not possibly be the case that a person would necessarily agree to a term in a contract which would effectively mean they would be in breach of that contract should they make an incorrect statement, for any reason. Despite any force that may be present in the Liquidators’ submission in this respect, again it is impossible to make any proper assessment at this stage of the proceeding of the prospects with respect to this claim.
[72]Transcript, p 109, line 17 to p 110, line 13.
Conclusion
For the preceding reasons there is no basis for a finding under s 63 of the Civil Procedure Act or under s 23.03 of the Rules that any of the Plaintiffs’ claims are open to being disposed of summarily. Moreover, even if I were of the view that some or all of these claims were, in general terms, open to summary disposal, I am of the opinion that the nature of the facts and circumstances of each of these claims is such that it is in the interests of justice – particularly having regard to the position that the allegations include obligations imposed upon liquidators – and that only a full hearing on the merits is appropriate. Hence, applying s 64 of the Civil Procedure Act I am of the view that neither this proceeding nor any part of it should be disposed of summarily.
Orders
The parties are to bring in orders to give effect to these reasons. The question of costs is reserved.
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