Fodini Pty Ltd v Perpetual Trustees WA Ltd

[1990] FCA 802

JN THE F - COURT OF AUSTRALIA )

1

m SOU-	D I S W C T RE-	)	No G418 of 1990
)

- )

Iw3€wr	FODINI PTY LIMITW First Applicant
-
Second Applicant
-
Third Applicant
-
Fourth Applicant

m8	J ? E R P E T w U S T E E S WA	LIMITED
First Respondent MARKALINGA PTY L I M I W Second Respondent

RECEIVED NATIONAL MUTUAL LIFE N O M I N B

- 1 MAR 1991	LIMITED
FEDERAL COURT	OF

AUSTRALIA	Third Respondent
PRINCIPAL REQISTRY
-
Fourth Respondent

brought by the applicants concerns the circumstances of the

a:	HILL J
W :	SYDNEY
-8	7 DECEMBER 1990

By two separate motions before the court the first
respondent and the second, third and fourth respondents seek

security for costs of the applicant in respect of the period

up to, but not including, the hearing. The application

acquisition of a private hospital, Pacific Private Hospital, which they, or some of them, acquired in or around November 1989, together with two other private hospitals from some of the respondents.

The statement of claim seeks relief arising out of certain representations said to have been made in relation to that hospital, and the relief sought, in effect, is that a series of documents relating to securities and guarantees inter alia, be declared void. It is unnecessary for present purposes to detail the matters that are dealt with in the statement of claim. It suffices to say that the representations that are said to have been made which constituted inter alia misleading and deceptive conduct, concerned matters such as occupancy rates, operating profit and general profitability. It is said that these representations which, in effect, stem from accounting material provided to the applicant, were false. There are

requirements of the Board of Health and Fire Authorities that	also certain allegations concerning compliance with the
are in dispute between the parties.
As a result of the acquisition of the private hospitals the first applicant, Fodini Proprietary Limited, became indebted to the second respondent, Markalinga Proprietary Limited, in the sum of $6,090,000 secured by various securities. Also as a result of the transaction the National Australia Bank provided finance to the extent of $12,000,000. and as a result became a secured creditor. That bank has, so the evidence indicates, made demand for repayment of the $12,000,000 (whether in respect of the non-payment of that or not I do not know) but it is clear that on 28 September 1990 the bank appointed Mr Desmond Livingstone Nicholl receiver and manager of the first, second and third applicants. The evidence does not indicate the circumstances which gave rise to this appointment, save that it arose pursuant to deeds of appointment dated 28 September 1990, which deeds recite the security which the bank held and that the securities had become immediately enforceable as a result of events which have occurred.
No evidence was adduced by the applicants of the financial situation of the three companies in question. Instead Mr Nicholl offered to each of the respondents an undertaking in the following terms:

November 1990 are ordered against the	" I f costs i n the proceedings from 9
companies of which I am the receiver and manager then such costs (duly taxed) w i l l
be admitted as receivership commitments as
a debt incurred by me as receiver and
manager pursuant to the provisions of section 324 ( 1 ) of the Companies (New South Wales) Code 1981. In the event t h a t the assets o f the company or companies concerned are insuff icient to meet such corrts then they w i l l be supported by the deed o f indemnity. "

The reference to the deed of indemnity is a reference to a deed between The National Australia Bank Limited and Mr Nicholl, which is also in evidence before me.

Counsel for the applicants submitted that there was reason to believe that the corporate applicants would be unable to pay the costs of the respondents if successful in their defence, as those words are used in s.533(1) of the

1998. They each submitted that an inference should be drawn from the only evidence that was before me, namely the non-payment by the applicants of the debts of the respondents when demanded; second, the non-payment by the applicants of the moneys due to The National Australia Bank when demanded and; third, the appointment by The National Australia Bank of a receiver, that there was reason to believe that the applicants would be unable to pay the relevant costs.

In support of this submission I was referred to the decision of Cross DCJ, as his Honour then was, in B . G . P W

-tarv -Lv (1967) 1 DCR 250, which case has apparently been followed in the Supreme Court of Victoria, in the caee of m c k Enaineerinq v cook Australia Pro~rietary

Limited referred to in the notes to the Australian Company Law
3rd Edition, Volume 3.

It seems to me that while it is true that the appointment of a receiver may arise in circumstances which have nothing to do with insolvency the fact that the appointment of a receiver, coupled with evidence of a demand of $12,000,000 from the creditor who has appointed the receiver, leads to an inference that the company is likely to be unable to pay costs if the respondents ultimately are successful. This inference may more readily be drawn by the failure on the part of the applicants to adduce any evidence at all ae to the financial state of the applicants.

Accordingly, subject to the question of the offer that has been made by the receiver, I would be of the view that security should be required under s.533(1) of the com~anies Act 1981. I reach this conclusion notwithstanding that there was evidence that the applicants, or at least some of them, were continuing to trade. The basis upon which that trading is being conducted is not at all disclosed.

The offer from the receiver is somewhat difficult to follow. It refers to s.324(1) of the Com~anies Act 1981 which

section provides as follows:

"A receiver, or any other authorised

person, who, whether as agent for the corporation concerned or not, enters into possession or assumes control o f any property o f a corporation for the purpose o f en forc ing any charge i s , notwithstanding any agreement to the contrary, but without prejudice to his rights against the corporation or any other person, liable for debts incurred by him i n the course of the receivership,

possession or control for services rendered, goods purchased or property hired, leased, used or occupied."

The language of s.324(1) makes it clear that the receiver does not by force of that section itself become liable for costs in the event that the respondents were to be successful.

The applicants are the parties to the proceedings that have been commenced in this court, not the receiver. It is true, as was pointed out by counsel for the applicants, that the receiver has power, inter alia, to bring proceedings: (~.324A(Z)(k)). But it does not follow from that that the receiver is liable for the costs ordered against the corporation of which he is a receiver.

The reference to the cost being "admitted as receivership commitments as a debt incurred by me as
receiver/manager pursuant to the provisions of S. 324	(1 ) of the

South Wales Code 1981" is, if I may say so, somewhat ambiguous. It may be that it was intended to say that the costs, if otherwise ordered, would be costs which the receiver was personally to accept responsibility for so that he became liable to pay them. But if that was what was intended to be said by paragraph 3, it would, indeed, have been a simple matter to have said so.

Notwithstanding opportunities to do so, the receiver has not, at least to date, taken the view that he was prepared in unequivocal terms to accept personal responsibility for the debts. It does not seem to me relevant to decide whether the receiver's indemnity would or would not protect the receiver, if the receiver is not in fact personally liable for the debts. If he were personally liable, no doubt questions would arise as to whether he accepted the liability properly. But it ie unprofitable to pursue that issue.

It follows from what I have said that I would propose, in the event that the receiver did not accept personal responsibility for the costs in the event that an order of costs were properly made, to make an order for security for costs with a consequent order that the proceedings be stayed.

There then arises a question of how much the respondents. The difference between the parties was somewhat

security should be in respect of each of the groups of

reduced in the course of argument. So far as the second, third, and fourth respondents are concerned, counsel for the applicants submitted that the costs of solicitors should be calculated at a rate of $123 per hour. He took no exception to the estimates of time that were made. In these circumstances solicitors costs would amount to $23,600 up to the time of trial.

Counsel for the respondent submitted that solicitors costs should be calculated at the rate of $138 per hour in which event the amount involved would be $32,568. There was no submission put as to the quantum of counsel fees which are referred to in the affidavits of the solicitors for the second, third, and fourth respondents. Counsel for the first respondent calculated that, having regard to the number of hours estimated to be required to be spent, solicitors fees for the first respondent would be in the order of $20,148 calculated at the rate of $138 per hour. Again, no objection was taken to counsels fees which, by any standards, appeared quite moderate in this case.

It is always difficult to set a precise figure on solicitors costs, if only because at the end of the day the number of hours estimated is at the start itself but an estimation, so that the calculation cannot ever be precise.

I would propose that the sum for solicitors costs in respect of the second, third, and fourth respondents be $28,000 and in respect of the first respondent that it be $18,000. In so doing I have not attempted to calculate on either basis a precise figure per hour but have taken a broad approach to the question.

I would propose now to adjourn the motion until Wednesday, 12 December at 9.30 for the purpose of settling the

form of orders to be made in accordance with this judgment.

So far as costs are concerned, it seems to me that this motion would have been totally unnecessary if the receiver had accepted the liability which his counsel at least suggested was intended by the letter of 5 December 1990. The respondents have been successful in respect of the application for security of costs and I see no reason why costs should not, in these circumstances, follow the event. I will, however, of course, make the formal orders next Wednesday.

I certify that this and the

preceding eight (8) pages
are a true copy of the Ex Tempore
Reasons for Judament herein of his

Honour Mr ~ustice Hill.

Associate:
Date: 7

Counsel and Solicitors G.S. Hosking instructed by

for Applicant :  Owen Hodge and Son

Counsel and Solicitors	S.D. Robb instructed by
for Respondent:	Abbott Tout Russell Kennedy for the first respondent S.G. Finch instructed by Mallesons Stephen Jaques for the second to fourth respondents
Dates of Hearing:	7 December 1990
Date Judgment Delivered:	7 December 1990