Felkro Nominees Pty Ltd v Commonwealth of Australia
[1998] FCA 1612
•16 December 1998
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 341 of 1996
BETWEEN:
FELKRO NOMINEES PTY Ltd
(ACN 005 574 514)
First Applicant
MOREPACK MERCHANDISING (NSW) PTY Ltd
(ACN 056 351 592)
Second Applicant
AND:
COMMONWEALTH OF AUSTRALIA
First Respondent
JOHN SYDNEY DAWKINS
Second Respondent
JUDGE:
RYAN J
DATE OF ORDER:
16 December 1998
WHERE MADE:
MELBOURNE
MINUTES OF ORDER
THE COURT ORDERS:
1. That the applicants within 28 days of the date of this Order provide security in a form acceptable to a Registrar of the Court for the respondentsÕ costs up to and including the first day of the trial of the application in the sum of $20,000.
2. That subject to paragraph 4 of this Order there be a stay of the application until security is provided in accordance with paragraph 1 hereof.
3. That, subject to any further or other order, the costs of all parties of and incidental to the respondentsÕ motion on notice dated 16 March 1998 be costs in the cause.
4. That any party desiring to contend for another or different order for costs from that made by paragraph 3 of this Order file and serve such contentions in writing by 23 December 1998 and any answering written contentions by any other party be filed and served by 15 January 1999.
5. That the motion on notice dated 16 March 1998 be otherwise dismissed.
Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 341 of 1996
BETWEEN:
FELKRO NOMINEES PTY Ltd
(ACN 005 574 514)
First Applicant
MOREPACK MERCHANDISING (NSW) PTY Ltd
(ACN 056 351 592)
Second Applicant
AND:
COMMONWEALTH OF AUSTRALIA
First Respondent
JOHN SYDNEY DAWKINS
Second Respondent
JUDGE:
RYAN J
DATE:
16 December 1998
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
On 27 June 1997, I published reasons for an interlocutory order striking out the applicantsÕ amended statement of claim. It is convenient to extract from those reasons the following description of the substantive application in this Court:
The firstnamed applicant, Felkro Nominees Pty Ltd (ÒFelkroÓ) is a manufacturer of paper products made from raw recycled paper. Felkro purchased raw recycled paper from Austissue Pty Ltd. As from 26 June 1992 paper products made in Australia from raw recycled paper lost their exemption from sales tax. In September 1992, the firstnamed respondent (Òthe CommonwealthÓ) established a bounty scheme to assist Australian producers of recycled paper adversely affected by the removal of the tax exemption. The scheme involved payments by the Commonwealth to State governments over a three year period for passing on to the producers, thereby allowing them to sell their products at the same prices which would have been charged had the goods remained exempt from sales tax. Felkro did not receive any payments under the bounty scheme, though its supplier, Austissue Pty Ltd did.
In October 1995 the Commonwealth served on Felkro a statutory demand under s 459E of the Corporations Law for unpaid sales tax. On 6 November 1995 Felkro applied under s 459G to set aside the statutory demand (VG 3661 of 1995). The affidavits in support of the application were then used as the basis of a proceeding commenced by Felkro and Morepack Merchandising (NSW) Pty Ltd [ÒMorepackÓ] on 17 June 1996 against the Commonwealth and the former Treasurer, the secondnamed respondent (ÒMr DawkinsÓ).
The applicants alleged that, as manufacturers of paper products made from raw recycled paper, they were entitled to payments under the Commonwealth's bounty scheme, and also that they were entitled to set off such payments against the amount claimed in the statutory demand. In reasons for judgment published on 10 December 1996 in relation to an earlier motion by Mr Dawkins to strike out the original statement of claim and seeking dismissal of the whole proceeding as disclosing no cause of action or as being frivolous, vexatious or an abuse of process, Sundberg J summarised the relevant parts of the claim as follows:
Ò(i) The first is that the respondents represented to Felkro that it was entitled to bounty payments, and as a result of Felkro's reliance thereon the respondents are estopped from denying that Felkro is entitled to payments.
(ii) The second alternative is that the respondents misrepresented the effect of the bounty scheme by stating that manufacturers of raw recycled paper products were entitled to bounty payments, and that the entities which were liable to pay sales tax in respect of the wholesale sale of the products were to be recipients of the bounty. The respondents owed Felkro a duty of care to state the effect of the scheme accurately. In breach of duty the respondents misstated its effect, which was that the producers of the paper, not the producers of the products, were to be recipients. As a result Felkro suffered loss.
(iii) The third alternative is that Mr Dawkins, who administered the scheme, committed the tort of misfeasance in a public office. It was his duty under the scheme to authorise payments to Felkro. Contrary to the scheme, he authorised payments to Austissue of money that should have been paid to Felkro. Mr Dawkins knew that Felkro was entitled to the payments. He also knew that Austissue was not entitled to them, alternatively was reckless in authorising the payments to Austissue.Ó
As contemplated by my order of 27 June 1997, a further amended statement of claim was filed on behalf of the applicants on 23 July 1997 and that prompted a fresh motion on notice by the respondents seeking, amongst other things, that:
1. The proceeding be dismissed or permanently stayed on the ground that Ð
(a) the further amended statement of claim dated 23 July 1997 was delivered without the authority of the Applicants; or
(b) the leave of the Court has not been obtained in relation to the further prosecution of the proceeding, as required by s 471B of the Corporations Law.
2. Alternatively, security for the RespondentsÕ costs of the proceeding be provided by Ð
(a) the Applicants; or
(b) Precious Metal Sales Pty Ltd.
In support of their motion for that relief, the respondents relied on an affidavit of Stephen Antony Linden sworn 12 February 1998 which recited that Felkro had been wound up by order of the Supreme Court of Victoria on 23 October 1996 and that, on 19 March 1997, Morepack had been wound up by order of the same Court. Mr LindenÕs affidavit went on to indicate that the liquidators for each of Felkro and Morepack had advised him that they did not wish to take any part in these proceedings. As well, Mr Linden deposed that ÒMorepackÕs liquidators have stated that they did not authorise the filing and service of the further amended statement of claim.Ó
By paragraph 8 of Mr LindenÕs affidavit, it was deposed that Kelly & Chapman, the solicitors on the record for the applicants in the present proceedings, had written to him asserting that a receiver had been appointed to Morepack and it was on his instructions that the further amended statement of claim had been filed and served. Further correspondence elicited that Precious Metal Sales Pty Ltd (ÒPrecious MetalÓ) had, as mortgagee, on 8 April 1997, executed a deed of appointment of Andrew Cameron as receiver and manager of the assets of Morepack as mortgagor. Subsequently, Kelly & Chapman wrote to the solicitor for the Commonwealth asserting that their instructions to file and serve the further amended statement of claim had come from Precious Metal as a secured creditor which had been contemplating the appointment of a receiver and manager to Morepack and which was the assignee of the chose in action pleaded in the further amended statement of claim.
The following facts have been established by documents adduced in evidence or are common ground:
á On 16 October 1995, Felkro by a Deed of Charge and Equitable Mortgage gave Precious Metal a fixed and floating charge over its assets (Òthe Felkro chargeÓ) to secure repayment of the sum of $150,000.00.
á On 16 October 1995 Morepack gave a charge in substantially identical terms to Precious Metal (Òthe Morepack chargeÓ) to secure repayment of the sum of $200,000.00.
The Morepack charge included the following provisions:
15. That the moneys hereby secured shall not only become payable on demand but shall also notwithstanding any delay or previous waiver immediately become payable without any demand or notice and the floating charge hereby created shall immediately become a fixed charge upon the property and assets previously subject to a floating charge only in each or any of the following events:
(a) If any Order is made or an effective resolution is passed for the winding up of the mortgagor.
(b) If a Receiver of the undertaking of the mortgagor or any part thereof shall be appointed or if the mortgagor is placed under Official Management.
(c) If any execution or other process of any Court or Authority is issued out against or levied upon the mortgaged premises.
(d) If the mortgagor shall without the consent in writing of the mortgagee first had and obtained create or purport or attempt to create any charge or mortgage ranking or which might by any means be made to rank on the mortgaged premises or any part thereof in priority to or pari passu with these presents or shall without the like consent execute or effect any charge over or assignment of its book debts or any of them.
(e) If the mortgagor shall fail to observe or perform any of the covenants on its part or conditions herein contained or implied.
16. That at any time after the moneys hereby secured become payable the mortgagee may appoint in writing any person to be a Receiver or Receiver and Manager (hereinafter called ÒReceiverÓ) of the mortgaged premises and may remove any such Receiver and appoint another Receiver in his place and may fix the remuneration of any such Receiver PROVIDED ALWAYS that every such Receiver shall be the agent of the mortgagor and the mortgagor alone shall be responsible for his acts and defaults and such Receiver so appointed shall without any consent on the part of the mortgagor have power:
(a) To take possession of collect and get in the whole or any part of the mortgaged premises
...
(k) To take proceedings at Law or in Equity in the name of the mortgagor or otherwise for all or any of the purposes aforesaid.
...
18. That notwithstanding a Receiver may or may not have been appointed as aforesaid it shall be lawful for the mortgagee at any time after the principal moneys hereby secured become payable and without giving any notice to exercise all or any of the powers authorities and discretions conferred on a Receiver as aforesaid.
á On 7 November 1996, Precious Metal assigned to Morepack the further debt and the benefit of the Felkro charge, in consideration of the payment of $150,000.00. That sum was not, in fact, paid by Morepack to Precious Metal.
á On 7 November 1996 the principal sum secured by the Morepack charge was increased to $350,000.00.
á On 10 December 1997 an agreement under seal was executed between Morepack and its liquidators, Precious Metal, Norton Vale Pty Ltd (ÒNorton ValeÓ), Michael Felberbaum (ÒMr M. FelberbaumÓ), Alfred Felberbaum (ÒMr A. FelberbaumÓ) and Izzy Herzog (ÒMr HerzogÓ). That deed included the following recitals:
C. Mr A. Felberbaum and Mr M. Felberbaum (Òthe DirectorsÓ) have been recorded as the only directors of Morepack (NSW) since 12 May 1994.
D. The Directors have been the only directors of Norton Vale since 16 April 1996.
...
G. The liquidators have claimed that Morepack (NSW) has an entitlement to:
(a) the businesses of Paper Conversion at Moorabbin in Victoria and Paper Mill in Albury New South Wales carried on by Norton Vale;
(b) the land or buildings being Lot 1 on DP863962 in Fallon Street, Albury, New South Wales, Folio identifier 1/863962 (Òthe Albury landÓ); and
(c) claims against Norton Vale or the Directors in connection with Norton Vale, the Albury land or the Directors taking the businesses carried on by Morepack (NSW) (Òthe claimsÓ).
GA. The claims are denied by the Directors and Norton Vale.
H. Felkro and Morepack (NSW) instituted proceeding no. VG 341 of 1996 in the Federal Court of Australia, Victoria District Registry, General Division against the Commonwealth of Australia and John Sydney Dawkins (ÒVG 341Ó).
I. Since their appointment the Liquidators have not authorised the taking of any steps in VG 341 by or on behalf of Morepack (NSW).
...
K. The Directors with a denial of liability have requested that the Liquidators:
(a) accept $405,000.00 in settlement of the claims; and
(b) consent to Precious Metal retaining the security pursuant to ASC charge no. 512255 only with respect to the claim Morepack (NSW) may have as Applicant in VG 341 which includes any security Precious Metal may have pursuant to Charge No. 582034 over Felkro.
á The operative terms of the deed of 10 December 1997 included the following:
3. Consideration
(1) The Directors shall pay to the Liquidators on the date of this Agreement the sum of $405,000.00 which payment shall be by way of bank cheque made payable to ÒMorepack Merchandising (NSW) Pty Ltd (In Liq)Ó.
...
(5) On the date of this Agreement Precious Metal shall deliver to the Liquidators an Instrument of Release of Charge No. 512255 with respect to any assets or property the subject thereof save for any claim that Morepack (NSW) may have in VG 341 which includes any security Precious Metal may have pursuant to Charge No. 582034 over Felkro.
...
(7) Precious Metal at its own cost shall do all things necessary to replace, without cost to the Liquidators or Morepack (NSW), Morepack (NSW) as applicant in VG 341.
(8) The Directors at their own cost shall do all things necessary to procure the replacement of Morepack (NSW) as applicant in No. VG 341 without cost to Morepack (NSW) or the Liquidators.
...
6. Further Assurances
...
(2) Without limiting the foregoing, the Liquidators undertake if required to sign any documents or do anything necessary in order to effect the replacement of Morepack (NSW) as applicant in VG 341 subject to payment of their costs by the Directors.
á On 11 December 1997, Precious Metal lodged with the Australian Securities Commission a notification of release of the Morepack charge. According to the notification, Precious Metal released Ð
all assets and property the subject of the [Morepack] charge save and except for any claim Morepack has pursuant to proceedings No VG 341 of 1996....
á On 28 January 1998, Kelly & Chapman wrote to Precious MetalÕs Sydney solicitors suggesting that Precious Metal should sign an Òappropriate Retainer Agreement pursuant to the Legal Practice Act 1966Ó (Vic) and Òa retrospective authority to file and serve the Further Amended Statement of ClaimÓ.
á On 9 February 1998, William Shagrin, a director of Precious Metal, purported to give Kelly & Chapman retrospective authority to conduct the present proceedings. That authority was in the following terms:
I, WILLIAM SHAGRIN of 3rd Floor, 85 William Street, Potts Point in the State of New South Wales, being the Proper Officer of Precious Metal Sales Pty Limited (ACN 001 661 007) of 3rd Floor, 85 William Street, Potts Point, New South Wales DO HEREBY AUTHORISE AND INSTRUCT Messrs Kelly & Chapman, Legal Practitioners, of 437 Centre Road, Bentleigh in the State of Victoria to act on behalf of Precious Metal Sales Pty Limited in the proper conduct of Felkro Nominees Pty Ltd and Morepack Merchandising (NSW) Pty Ltd v Commonwealth of Australia and John Sydney Dawkins in Suit No VG 341 of 1996.
Such authority is to be retrospective as and from 23 July 1997.
A deed of assignment dated 24 March 1998 between Morepack as assignor, Precious Metal as assignee and Norton Vale contained the following provisions:
1. MOREPACK (Assignor) hereby assigns any residual rights which it may have in the proceedings to Precious Metal (Assignee) absolutely.
2. PRECIOUS METAL (Assignee) agrees at its own cost to do all things necessary to replace Morepack (Assignor) as the Applicants in the proceeding.
3. NORTON VALE PTY LTD shall indemnify and keep indemnified Precious Metal (Assignee) and the ApplicantsÕ solicitors (Kelly & Chapman) against all costs and expenses incurred in relation to the proceedings.
After argument on the respondentsÕ motion had concluded on 6 April 1998, the respondents moved for leave to adduce further evidence and procured the issue of subpoenas addressed to Mr A. Felberbaum, Mr William Shagrin and Mr David Chapman, a partner in the firm of solicitors acting for the applicants. As I perceived it, the respondents sought to direct additional evidence to the question of whether the action was properly being pursued in the interests of Precious Metal, the assignee named in the deed of assignment dated 24 March 1998, or whether it was being unlawfully maintained in the interests of Norton Vale. I granted the respondents leave to adduce further evidence which was received on 3 June 1998.
Evidence received at that further hearing revealed that Norton Vale, on behalf of the Felberbaum family interests, had been continuing to pay interest to Precious Metal on the Morepack debt after Morepack went into liquidation. Those payments reflected the fact that Mr A. Felberbaum and his associated companies had assumed liability for MorepackÕs total indebtedness of $350,000.00 and had provided substitute security for the discharge of that indebtedness. Part of that security was a mortgage granted by Pirko Pty Ltd, the trustee of the Felberbaum family trust, the Albury Paper Mill Trust. Interest payments by Norton Vale on behalf of Mr A. Felberbaum and his family interests and companies had been made, presumably, with the knowledge of MorepackÕs liquidators. It was Mr A. FelberbaumÕs understanding that, if Precious Metal were to succeed in its prosecution of the proceedings in this Court, the fruits of that success would be applied in reduction of MorepackÕs debt to Precious Metal, correspondingly reducing the exposure to Precious Metal of the Felberbaum interests.
Having regard to the extensive substitute security which has been provided by the Felberbaum interests, it is understandable that Precious Metal was unwilling to incur a liability for its own costs of the present proceeding and a potential liability to pay the respondentsÕ costs unless an appropriate indemnity against those costs were provided by Mr A. Felberbaum or an entity associated with him. Norton Vale was the vehicle by which that indemnity was provided.
It was contended on behalf of the respondents that Precious Metal was no longer a creditor of Felkro and, accordingly, had no genuine commercial interest in the outcome of FelkroÕs action. In a related way, it was urged that the indemnity which Norton Vale, on 24 March 1998, gave to Precious Metal against any liability in respect of the costs of the action pointed to Norton Vale as the real beneficiary of the prosecution of the action at the time when the further amended statement of claim was filed and served. Those contentions were said to support this CourtÕs staying the action in application of the principle articulated e.g. by the House of Lords in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 where Lord Roskill said at 702:
My Lords, just as the law became more liberal in its approach to what was lawful maintenance, so it became more liberal in its approach to the circumstances in which it would recognise the validity of an assignment of a cause of action and not strike down such an assignment as one only of a bare cause of action. Where the assignee has by the assignment acquired a property right and the cause of action was incidental to that right, the assignment was held effective. Ellis v Torrington [1920] 1 KB 399 is an example of such a case. Scrutton LJ stated, at pp 412-413, that the assignee was not guilty of maintenance or champerty by reason of the assignment he took because he was buying not in order to obtain a cause of action but in order to protect the property which he had bought. But, my Lords, as I read the cases it was not necessary for the assignee always to show a property right to support his assignment. He could take an assignment to support and enlarge that which he had already acquired as, for example, an underwriter by subrogation: see Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101. My Lords, I am afraid that, with respect, I cannot agree with the learned Master of the Rolls [1980] QB 629, 657 when he said in the instant case that ÒThe old saying that you cannot assign a `bare right to litigateÕ is gone.Ó I venture to think that that still remains a fundamental principle of our law. But it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance. For my part I can see no reason in English law why Credit Suisse should not have taken an assignment to themselves of TrendtexÕs claim against CBN for the purpose of recouping themselves for their own substantial losses arising out of CBNÕs repudiation of the letter of credit upon which Credit Suisse were relying to refinance their financing of the purchases by Trendtex of this cement from their German suppliers.
My Lords, I do not therefore think that Mr Brodie is correct in criticising the judgment of Oliver LJ on the ground that the learned Lord Justice failed to distinguish between the interest necessary to support an assignment of a cause of action and the interest which would justify the maintenance of an action by a third party. I think, with respect, that this submission involves over-analysis of the position. The court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.
But, my Lords, to reach that conclusion and thus to reject a substantial part of Mr BrodieÕs argument for substantially the same reasons as did Oliver LJ does not mean that at least article 1 of the agreement of January 4, 1978, is not objectionable as being champertous, for it is not an assignment designed to enable Credit Suisse to recoup their own losses by enforcing TrendtexÕs claim against CBN to the maximum amount recoverable. Though your Lordships do not have the agreement between Credit Suisse and the anonymous third party, it seems to me obvious, as already stated, that the purpose of article 1 of the agreement of January 4, 1978, was to enable the claim against CBN to be sold on to the anonymous third party for that anonymous third party to obtain what profit he could from it, apart from paying to Credit Suisse the purchase price of US $1,100,000. In other words, the Òspoils,Ó whatever they might be, to be got from CBN were in effect being divided, the first US $1,100,000 going to Credit Suisse and the balance, whatever it might ultimately prove to be, to the anonymous third party. Such an agreement, in my opinion, offends for it was a step towards the sale of a bare cause of action to a third party who had no genuine commercial interest in the claim in return for a division of the spoils, Credit Suisse taking the fixed amount which I have already mentioned.
In the light of the whole of the evidence as finally adduced, it cannot be contended that Norton Vale was an assignee from Precious Metal of the chose in action which is being sought to be enforced in this Court. Indeed, Mr Maxwell of Counsel for the respondents expressly disclaimed such a contention. In my view, Precious Metal, as the holder of the security from Morepack, has a genuine commercial interest in the enforcement of the subject chose in action against the respondents. To paraphrase Lord Roskill in Trendtex, there was no reason in law why Precious Metal should not have taken an assignment from Felkro and Morepack of those companiesÕ claims against the respondents for the purpose of recouping for Precious Metal the advances totalling $350,000 which it had made to Felkro and Morepack.
It also follows, I consider, that Mr A. Felberbaum and his associated companies, having assumed responsibility for payment to Precious Metal of the Felkro/Morepack debt, had a legitimate commercial interest in Precious MetalÕs realising as much as possible from the cause of action over which it retained security. That interest was analogous to the underwriterÕs right of subrogation used as an illustration in the passage from Trendtex which I have already quoted. More importantly, the interest which I have just identified is sufficient to warrant Norton ValeÕs indemnifying Precious Metal against the costs of the action without implicating the provider of the indemnity in the tort of maintenance.
It is unnecessary to consider for present purposes the application of the second exception to the rule against maintenance which permits the liquidator of an insolvent company to assign to a purchaser, by way of realising the companyÕs assets, a cause of action vested in the company. In the present case, the cause of action was vested in Precious Metal as mortgagee long before Morepack went into liquidation and was expressly excepted from the assets over which Precious Metal previously held security and which were released to the liquidators by the deed of 10 December 1997 embodying the release of Precious MetalÕs charge. Accordingly, I consider that Precious Metal and the Felberbaum interests which have elected to indemnify Precious Metal have satisfied the test of genuine commercial interest postulated in these terms by Lindgren J in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 at 540:
By reference to three matters, however, I do not think that the Ògenuine commercial interestÓ limb of the Trendtex test is satisfied. First, the genuine commercial interest referred to in Trendtex is not a nebulous notion of the general commercial advantage of the assignee but something more specific and limited. In particular, it does not embrace an interest arising from an arrangement voluntarily entered into by the assignee of which the impugned assignment is an essential part, like the arrangement in the present case. Rather, the expression refers to a commercial interest which exists already or by reason of other matters, and which receives ancillary support from the assignment.
Because of the genuine commercial interest which I have imputed to Mr A. Felberbaum and his associates, including Norton Vale, this is not a case of the kind predicated by a Full Court of this Court in Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 at 268 where questions arise as to the integrity of the CourtÕs Òprocesses and in particular as to the uses to which they are being put, and as to the conduct of the maintained party and the maintainor with respect to the proceedingsÓ.
It was also argued on behalf of the respondents that s 471B of the Corporations Law required Precious Metal to obtain leave before it could take possession of the cause of action and, accordingly, further amend the statement of claim. That section provides:
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a) a proceeding in a court against the company or in relation to property of the company; or
(b) enforcement process in relation to such property;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
In this context, Mr Maxwell referred to the judgment of Debelle J in South Australian Management Corporation v Sheahan (1995) 13 ACLC 328 which was affirmed on appeal, (1995) 13 ACLC 1138. In that case, a bank which claimed security over the assets of a company which had gone into liquidation brought an action against the company and its liquidators seeking a declaration that the right to sue the companyÕs auditors was subject to the bankÕs debenture and that the bank was entitled to resume possession of that cause of action. It was accepted on both sides that s 471(2) of the Corporations Law (the predecessor of s 471B) applied. As to s 471(2), his Honour observed, at 339:
I turn to the question whether the plaintiff is entitled to take over this action. As the plaintiff intends to prosecute the action, s 471(2) of the Corporations Law requires that it obtain leave to do so. Leave is required in order to ensure so far as is possible the orderly administration of the liquidation, to ensure that the assets of the company in liquidation should be administered in accordance with the provisions of the Corporations Law, to ensure that no person should get an advantage to which, under those provisions, he was not properly entitled, and to enable the Court effectively to supervise all claims brought against the company: Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646, 649 to 650; Re A.J. Benjamin Ltd (in liq) (1969) 90 WN (Pt 1) (NSW) 107, at 109.
However, as that passage makes clear, his Honour was there concerned with the need to obtain leave to bring action against the company in liquidation. The purpose of that action was to establish that the bank was entitled to resume possession of the action against the auditors. Here, there was no suggestion of Precious MetalÕs pursuing an action against Morepack. Precious MetalÕs entitlement to possession of the cause of action against the respondents has never been in issue because, as I have already noted, possession of that cause of action was expressly preserved to Precious Metal by the terms of the deed of 10 December 1997. I also agree with the submission of Mr Strahan QC who appeared with Mr T Rosen of Counsel for the applicants, that the action pending in this Court is not an action Òin relation to the property ofÓ Morepack within the meaning of s 471B of the Corporations Law. Those words, I consider, refer to an action to recover, or establish title to, property of a company in liquidation and do not comprehend an action brought by a creditor or assignee to enforce a cause of action originally vested in the company in liquidation.
A final submission on behalf of the respondents was to the effect that the retrospective authorisation of 9 February 1998 by Mr Shagrin on behalf of Precious Metal was ineffectual to enable Kelly & Chapman to file the further amended statement of claim of 23 July 1997. In support of that submission reference was made to Re Manias; Ex parte Edsill Pty Ltd (1986) 15 FCR 1 where a bankruptcy petition had been signed by a director of the company which was the petitioning creditor. The evidence did not establish that the director had authority to sign the petition or, indeed, how many directors of the petitioning creditor there were. After noting those deficiencies, Jackson J held that the signing of the petition had been retrospectively ratified by a meeting of all three directors of the petitioning creditor. However, in that case the Bankruptcy Rules and Form 150 in Schedule 1 to the Rules of this Court required that a creditorÕs petition be signed by the petitioner or the solicitor for the petitioner. No such formality is required for an authorisation to a solicitor to institute or continue proceedings in the name of, or at the instigation of, a company. I therefore consider that Mr Shagrin as the Òproper officerÓ of Precious Metal had ostensible authority to confer or confirm Kelly & ChapmanÕs retainer and to do so retrospectively if he saw fit. I find no assistance in this respect in Australian WorkersÕ Union v Bowen (1946) 72 CLR 575 to which I was referred by Mr Maxwell. That case concerned a bankruptcy petition issued without the authority of two of the three defendants in the Supreme Court proceedings who obtained the order for costs on which the bankruptcy notice and the petition had been founded. It is true that Starke J, in his dissenting judgment, observed, at 586:
A party to legal proceedings brought without his authority is entitled to have the proceedings stayed (Reynolds v Howell (1873) LR 8 QB 398; Fricker v Van Grutten (1896) 2 Ch. 649; and so is a defendant to those proceedings (Hubbart v Phillips (1845) 13 M & W 702 [153 ER 294]; Bayley v Buckland (1847) 1 Exch. 1 [154 ER 1]; Bowen v Bowen (1873) 7 IR Eq 251). But joint contractors or joint creditors in a legal proceeding subject to an application on the part of any joint contractor or joint creditor who objects, to stay the proceedings until an indemnity against costs is given.
The three last-mentioned cases cited in that passage establish that a defendant may obtain a stay of an action commenced by a solicitor without any authority from the plaintiff. However, Australian WorkersÕ Union v Bowen says nothing about the form which an authorisation or a retainer to commence or continue an action must take. As I have already held that Precious Metal was effectively in possession of the cause of action against the Commonwealth and Mr Dawkins before Morepack went into liquidation, no question arises whether authority to continue the action was required from MorepackÕs liquidators.
For the reasons which I have endeavoured to explain, so much of the respondentsÕ motion as seeks the dismissal or permanent stay of the action as having being brought without authority or in breach of the rule against maintenance must be refused. As well, I have rejected the argument that the further prosecution of the proceeding requires the leave of the Court pursuant to s 471B of the Corporations Law.
It was not disputed that the respondents are entitled to an order for security for costs. I indicated in the course of argument that I would be disposed to order security for the respondentsÕ costs from the date of their notice of motion up to and including the first day of the trial of the action. The respondentsÕ total future costs up to judgment after a trial occupying three days have been estimated by Mr Linden, a solicitor employed by the Australian Government Solicitor, at $34,093. After deducting the costs of the second and third days of the trial, that estimate would be reduced to approximately $28,000. Since the facility to order security is not designed to provide a respondent or defendant with a complete and certain indemnity (Brundza v Robbie & Co [No 2] (1952) 88 CLR 171 at 175) I consider it an appropriate exercise of the CourtÕs discretion to require the applicants to provide security for the respondentsÕ future costs of the action up to and including the first day of trial in the sum of $20,000. The respondentsÕ motion shall be otherwise dismissed.
Although the respondents have failed on the issues raised by their motion which occupied almost all of the time taken to hear the motion, they have obtained an order for security for costs. As well, the adjourned hearing of the motion was arguably attributable, at least in part, to the applicantsÕ failure at the outset to disclose fully the circumstances in which Norton Vale came to indemnify Precious Metal against the costs of the action and the complicated relationship between Precious Metal, the liquidators of Morepack and the Felberbaum interests including Norton Vale. In these circumstances, my initial inclination, without the advantage of argument on the matter, is to order that the costs of all parties of and incidental to the motion on notice dated 16 March 1998 be costs in the cause. However, should any party desire to contend that some different order as to those costs should be made, that party should file and serve those contentions in writing by 23 December 1998. Any answering contentions by the other parties should also be in writing and filed and served by 15 January 1999.
I certify that this and the preceding (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.
Associate:
Dated:
Counsel for the First and Second Applicants:
(Respondents to the Motion on Notice)
Mr J Strahan QC
with Mr T Rosen
Solicitors for the First and Second Applicants:
(Respondents to the Motion on Notice)
Kelly & Chapman Counsel for the First Respondent:
(First Applicant to the Motion on Notice)
Mr C Maxwell Solicitor for the First Respondent:
(First Applicant to the Motion on Notice)
Australian Government Solicitor Counsel for the Second Respondent:
(Second Applicant to the Motion on Notice)
Mr C Maxwell Solicitor for the Second Respondent:
(Second Applicant to the Motion on Notice)
Fiocco Hopkins Rattigan Date of Hearing: 6 April, 7 May and 3 June 1998 Date of Judgment: 16 December 1998
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