Ernst & Young (Reg) v Tynski Pty Ltd - [2003] FCAFC 233

FEDERAL COURT OF AUSTRALIA
Ernst & Young (Reg) v Tynski Pty Limited [2003] FCAFC 233
CORPORATIONS – appeal from an interlocutory judgment – authority of directors to institute proceeding in name of companies after appointment of receivers and managers – directors instituted proceeding challenging appointment of receivers and managers and against third party – application by third party to have proceeding dismissed against them – whether prior consent of receivers and managers necessary to institute proceeding in name of companies – whether costs indemnity conditional to institution of proceeding in name of companies in receivership - validity of the solicitors retainers – significance of the directors’ challenge to the validity of appointment of the receivers and managers
Brooklands Motor Co Ltd (in rec) v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1993] MCLR 448 considered
Chartspike v Chahoud [2000] NSWSC 625 cited
Deangrove Pty Ltd (Receivers and Managers Appointed) v Commonwealth Bank of Australia [2001] FCA 173; 108 FCR 77 discussed
Dow Jones & Company Inc v Gutnick (2002) 77 ALJR 255 cited
Halliday v High Performance Personnel Pty Ltd (in liq) (formerly SACS Group Pty Ltd) (1993) 113 ALR 637 referred to
Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd [1969] 2 NSWR 782 referred to
Inglis v Moore (No 2) (1979) 46 FLR 470 referred to
Moss Steamship Company, Limited v Whinney [1912] AC 254 considered
Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 referred to
Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53 referred to
ERNST & YOUNG (REG) v TYNSKI PTY LIMITED (ACN 008 162 123) (RECEIVERS AND MANAGERS APPOINTED)
S 417 of 2003
BRANSON, MARSHALL and STONE JJ
21 OCTOBER 2003
SYDNEY (HEARD IN ADELAIDE)

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

S 417 of 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

ERNST & YOUNG (REG)
FIRST APPELLANT

ERNST & YOUNG CORPORATE FINANCE PTY LIMITED (ACN 003 599 844)
SECOND APPELLANT

AND:

TYNSKI PTY LIMITED (ACN 008 162 123) (RECEIVERS AND MANAGERS APPOINTED)
FIRST RESPONDENT

NORSBAY PTY LIMITED (ACN 008 205 687) (RECEIVERS AND MANAGERS APPOINTED)
SECOND RESPONDENT

FRESREND PTY LIMITED (ACN 008 174 990) (RECEIVERS AND MANAGERS APPOINTED)
THIRD RESPONDENT

GARTNER FARMS PTY LIMITED (ACN 086 128 880) (RECEIVERS AND MANAGERS APPOINTED)
FOURTH RESPONDENT

AUSVINE VITICULTURAL MANAGEMENT PTY LIMITED (ACN 007 184 901) (RECEIVERS AND MANAGERS APPOINTED)
FIFTH RESPONDENT

GARTNERS’ VINICULTURE MANAGEMENT PTY LIMITED (ACN 080 534 989) (RECEIVERS AND MANAGERS APPOINTED)
SIXTH RESPONDENT

SKYBAY PTY LIMITED (ACN 008 163 782) (RECEIVERS AND MANAGERS APPOINTED)
SEVENTH RESPONDENT

VAMTOWN PTY LIMITED (ACN 008 061 407) (RECEIVERS AND MANAGERS APPOINTED)
EIGHTH RESPONDENT

M J GARTNER PTY LIMITED (ACN 077 644 181) (RECEIVERS AND MANAGERS APPOINTED)
NINTH RESPONDENT

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)
TENTH RESPONDENT

JUDGES:

BRANSON, MARSHALL AND STONE JJ

DATE OF ORDER:

21 OCTOBER 2003

WHERE MADE:

SYDNEY (HEARD IN ADELAIDE)

THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellants pay the respondents’ costs.

IN THE…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2003] FCAFC 233
Decision Date: 21 OCTOBER 2003

CaseChat Overview and Summary

Ernst & Young (Reg) v Tynski Pty Ltd involved a dispute between Ernst & Young, a partnership of chartered accountants, and Tynski Pty Ltd, a consulting company, among others, concerning the validity of a debenture and the appointment of receivers and managers. The case was heard in the Federal Court of Australia, which was required to decide whether the directors of the Gartner companies had the authority to instruct solicitors to institute and maintain the proceeding against Ernst & Young in the name of the Gartner companies.

The primary legal issues in this case were whether the directors of the Gartner companies had the authority to institute and maintain the proceeding against Ernst & Young, and whether the receivers had exclusive power to make claims against the respondents. The appellants argued that the directors did not have the power to institute the proceeding because the receivers had exclusive control over the assets subject to the debenture. They further argued that the right of a debenture holder to take proceedings in the name of the company was just as much a security for the debt as any other rights given by the debenture. The court found that the power of the Gartner companies to cause the proceeding to be commenced, in both of its aspects, was clear. The court further concluded that the capacity of the directors of the Gartner companies to instruct solicitors to institute and maintain the proceeding in the name of the Gartner companies was not open to challenge on the application of the appellants.

The court dismissed the appeal and ordered that the appellants pay the respondents' costs. The court found that the directors of the Gartner companies had the authority to instruct solicitors to institute and maintain the proceeding against Ernst & Young in the name of the Gartner companies. The court further found that the receivers did not have exclusive power to make claims against the respondents, and that the directors had the authority to institute and maintain the proceeding against Ernst & Young in the name of the Gartner companies.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellants pay the respondents’ costs.

Background

Background to the litigation

For the reasons set out below we have concluded that this appeal should be dismissed. In summary, we have concluded that the power of the Gartner companies to cause this proceeding to be commenced, in both of its aspects, is clear. We have further concluded that the capacity of the directors of the Gartner companies to instruct solicitors to institute and maintain this proceeding in the name of the Gartner companies is not open to be challenged on the application of the appellants.BACKGROUND FACTS It is necessary to set out the facts which lie behind this appeal in greater detail. The first appellant is a partnership the members of which carry on business as chartered accountants. The second appellant is a company which carries on a consulting business. A reference in these reasons for judgment to ‘Ernst & Young’ is, unless the context suggests otherwise, a reference to both appellants. The Gartner companies are companies in which Michael John Gartner (‘Mr Gartner’) and Alice Winifred Gartner (‘Mrs Gartner’), or Mr Gartner alone, hold shares. Mr and Mrs Gartner and the first to ninth respondents will together be referred to as ‘the Gartner Family Group’. Each of the Gartner companies in November 2001 executed a debenture in favour of NAB which was subsequently registered in accordance with Part 2K.2 of the Corporations Act 2001 (Cth). It is agreed that the debenture executed by Tynski Pty Limited as mortgagor on 23 November 2001 is representative of the debentures executed by the other Gartner companies. By that debenture Tynski Pty Limited, described as ‘the Mortgagor’, in return for NAB agreeing to give or to continue giving credit and banking facilities to it or at its request, charged all and every part of its undertaking ‘and all its property and assets whatsoever and wheresoever both present and future’. Clause 4.3 of the debenture relevantly provides:‘Without the consent of the Bank, the Mortgagor may not:(a)dispose of, part with or deal with the whole or any major part of its undertaking; or…(g)dispose of, part with or deal with any Mortgaged Property upon which the charge created by this Deed is fixed.’ Clause 14.1 of the debenture sets out the rights of the NAB on enforcement after an event of default under the debenture. Those rights include the right to appoint a receiver ‘of the whole or any of the Mortgaged Property.’ Clause 17.4 of the debenture is concerned with the powers of the receiver. It gives the receiver very extensive powers including the power, in the name of the mortgagor and at the cost of the mortgagor, to exercise in respect of the mortgaged property all of the powers of an absolute owner. The clause also gives the receiver power to take, defend, compromise or appeal proceedings in the name of the mortgagor. This proceeding was instituted on 13 August 2002 by the filing of an application in the Court in which the members of the Gartner Family Group are named as applicants and Ernst & Young and NAB are named as respondents. The application discloses that the members of the Gartner Family Group claim relief against Ernst & Young pursuant to ss 51AA, 52 and 82 of the TPA and at common law for breach of contract and negligence. The relief claimed by the members of the Gartner Family Group against NAB includes a declaration that certain facilities, guarantees, mortgages and debentures have been validly rescinded.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Mansfield J at [39] concluded:‘There is here no apparent clash between what the directors regard as being in the best interests of the Gartner companies and what the receivers regard as being in the best interests of the bank, as their appointor. So long as that position is maintained, I do not consider that the directors can be said to have no power in law to have instituted and to maintain the proceedings against the accountants. If there were such a clash, its resolution would depend upon the terms of the several debentures, the terms of appointment of the receivers, and their statutory powers. But, in my judgment, the accountants are not entitled to the order they seek, which in effect assumes such a clash, in the present circumstances. If permitted to do so, they would be seeking to take advantage indirectly of contractual arrangements between the Gartner companies and the bank where, as between those parties, there is no relevant disputation at present.’CONSIDERATION The appellants argued that the following four inter‑related propositions were relevant to this appeal and, as we understood it, dictated that the appeal should be allowed:(1)a chose in action may be secured in the same way as any other asset or property;(2)the right of a debenture holder to take proceedings in the name of the company is just as much a security for the debt as any other rights given by the debenture;(3)the broad effect of the appointment of a receiver and manager is to divest the directors of the company of their management powers during the currency of the receivership in respect of the assets which are the subject of the appointment; and(4)the powers of the receivers and managers are exclusive in relation to assets the subject of the appointment, unless and until the receivers and managers relinquish possession and control over such assets. We do not find it necessary to determine whether each of the above propositions would be valid in its entirety were the validity of the appointment of the receivers not subject to challenge. In this case the appellants do not challenge the capacity of the directors to instruct solicitors to institute proceedings in the name of the Gartner companies to challenge the validity of the appointment of the receivers. This proceeding was itself instituted for that purpose albeit that it was also instituted for other purposes. The continuing challenge to the validity of the appointment of the receivers has, in our view, a greater significance than the appellants are willing to accept. We return to this issue in [24]‑[28] below. It is a curious aspect of this case that it is the appellants, and not the receivers or NAB, who seek to have the claims brought by the Gartner companies against the appellants dismissed on the ground that it is the receivers who have the exclusive power to make such claims against them. On the issue of the right of the appellants to move the Court for an order dismissing the proceeding Mr Robertson, counsel for the appellants, argued:‘… it comes from the position that my clients are on notice of the appointment of the receiver and manager. My clients will have an obvious prejudice if the matter proceeds and the companies have brought the action without authority and, in those circumstances, my clients would be in a position at the end of the day where, not only might they only be unsecured creditors – as the correspondence between the solicitors discloses – but they may be in a position where they have forever forsaken their position in relation to costs.’

BETWEEN:	ERNST & YOUNG (REG) FIRST APPELLANT
ERNST & YOUNG CORPORATE FINANCE PTY LIMITED (ACN 003 599 844) SECOND APPELLANT
AND:	TYNSKI PTY LIMITED (ACN 008 162 123) (RECEIVERS AND MANAGERS APPOINTED) FIRST RESPONDENT
NORSBAY PTY LIMITED (ACN 008 205 687) (RECEIVERS AND MANAGERS APPOINTED) SECOND RESPONDENT
FRESREND PTY LIMITED (ACN 008 174 990) (RECEIVERS AND MANAGERS APPOINTED) THIRD RESPONDENT
GARTNER FARMS PTY LIMITED (ACN 086 128 880) (RECEIVERS AND MANAGERS APPOINTED) FOURTH RESPONDENT
AUSVINE VITICULTURAL MANAGEMENT PTY LIMITED (ACN 007 184 901) (RECEIVERS AND MANAGERS APPOINTED) FIFTH RESPONDENT
GARTNERS’ VINICULTURE MANAGEMENT PTY LIMITED (ACN 080 534 989) (RECEIVERS AND MANAGERS APPOINTED) SIXTH RESPONDENT
SKYBAY PTY LIMITED (ACN 008 163 782) (RECEIVERS AND MANAGERS APPOINTED) SEVENTH RESPONDENT
VAMTOWN PTY LIMITED (ACN 008 061 407) (RECEIVERS AND MANAGERS APPOINTED) EIGHTH RESPONDENT
M J GARTNER PTY LIMITED (ACN 077 644 181) (RECEIVERS AND MANAGERS APPOINTED) NINTH RESPONDENT
NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) TENTH RESPONDENT
JUDGES:	BRANSON, MARSHALL AND STONE JJ
DATE OF ORDER:	21 OCTOBER 2003
WHERE MADE:	SYDNEY (HEARD IN ADELAIDE)

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 417 of 2003