Frigger v Mervyn Jonathon Kitay in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liquidation) [No 5] - [2014] WASC 195

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: FRIGGER -v- MERVYN JONATHON KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION) [No 5] [2014] WASC 195

CORAM: ALLANSON J

HEARD: ON THE PAPERS

DELIVERED : 30 MAY 2014

FILE NO/S: CIV 2765 of 2010

MATTER :Section 78 of the Trustees Act 1962 and Section 1321 of the Corporations Act 2001

BETWEEN: ANGELA CECILIA THERESA FRIGGER
First Plaintiff
ANGELA CECILIA THERESA FRIGGER AND HARTMUT FRIGGER IN THEIR CAPACITIES AS TRUSTEES OF THE FRIGGER SUPERANNUATION FUND
Second Plaintiff
HARTMUT HUBERT JOSEF FRIGGER
Third Plaintiff
AND
MERVYN JONATHON KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION)
First Defendant
COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION)
Second Defendant

Catchwords:

Practice and procedure - Application to direct liquidator to transfer property to plaintiffs - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 477(2), s 477(2B), s 477(6)

Result:

Application dismissed

Category: B

Representation:

Counsel:

First Plaintiff                :     No appearance
Second Plaintiff            :     No appearance
Third Plaintiff              :     No appearance
First Defendant            :     No appearance
Second Defendant        :     No appearance

Solicitors:

First Plaintiff                :     Peter J Griffin & Co
Second Plaintiff            :     Peter J Griffin & Co
Third Plaintiff              :     Peter J Griffin & Co
First Defendant            :     Holborn Lenhoff Massey
Second Defendant        :     Holborn Lenhoff Massey

Case(s) referred to in judgment(s):

Nil

ALLANSON J: Computer Accounting & Tax Pty Ltd is in liquidation. The first defendant is its liquidator. Computer Accounting & Tax is the registered proprietor of land situated at 269 South Western Highway, Armadale. The plaintiffs and the defendants are litigating about who is the beneficial owner of the Armadale land, and whether it is available for the benefit of the company's creditors.
In a minute of proposed orders dated 21 February 2014, lodged with the court on about 2 May 2014 the plaintiffs applied for orders that:
1.On payment by the plaintiffs of $1,500,000 into court, the Armadale property be transferred to the first and third plaintiffs.
2.The amount of $1,500,000 be deposited into an interest-bearing account until further order by the court.
The plaintiffs also included a proposed order that these proceedings be stayed pending resolution of proceedings in the Federal Court. The plaintiffs have not yet commenced proceedings in the Federal Court, and there is no information before the court about that matter except the proposed parties. The plaintiffs do not press for the stay at this time, and have produced no evidence in support of it. In their submissions in response to this application, the defendants have also not dealt with the proposed stay. The plaintiffs submitted that I should adjourn this part of the application. On the material before me, I see no reason why it should not be dismissed, but I will give the parties the chance to put their positions.
On 20 May 2014, the plaintiffs provided a minute of proposed orders which depart from the orders originally sought. They now seek:
The Court orders pursuant to section 477 (6) of the Corporations Act 2001 as follows:
1.A direction that upon the payment into Court within 4 months of the net proceeds of a sale at $1.5 million of the Armadale property (to be held pending final determination of this action) the first defendant will cooperate and do all things necessary to effect a transfer of the Armadale property into the name of the first and third plaintiffs so as to allow them to sell the Armadale property; or
2.A direction that the first defendant cooperates and does all things necessary to effect a sale of the Armadale property for the sale price of $1.5 million and upon the sale being achieved and settled that the net proceeds of sale be paid into this Court pending final determination of the action or agreement between the parties.
The words in bold in order 1 were proposed in the written submissions of the plaintiffs 'to add some temporal certainty to the order'.
The originating summons and statement of claim, and these proposed orders, are directed only to the land at Armadale, which is defined in terms of its registration details. Mr and Mrs Frigger conduct a service station business on the Armadale land, and have exhibited a written lease, dated 1 July 2009, under which Computer Accounting & Tax, as trustee of the Frigger Super Fund, leases the land to them for a term of three years, with an option to renew for a similar term.
In her affidavit, Mrs Frigger asserts that the liquidator has not, since his appointment, exercised any right over the business. There is no express claim in either the statement of claim or the counterclaim regarding the business. Part of the evidence in this application, however, is a letter from the first defendant to Mr and Mrs Frigger, dated 11 February 2014. The letter refers to an earlier proposed sale of the property and the BP service station conducted on it. In the last paragraph of that letter, the first defendant states,
In my view, given the documentation and other evidence at my disposal, the business at all material times has been owned by CAT. I am currently taking legal advice as to whether an amendment to the Counter Claim is necessary.
It is over four years since Computer Accounting & Tax went into liquidation, and nearly four years since these proceedings began. If it is necessary to amend the counterclaim, it should not be further delayed.

The present application

The plaintiffs' application was originally listed for hearing on 22 May 2014. Unanticipated complications regarding the plaintiffs' representation emerged immediately before the hearing. The result was that the application was adjourned for determination on the papers, with the plaintiffs given leave to lodge further submissions. Accordingly, I have had regard to:
1.the orders sought in the second of the proposed minutes;
2.an affidavit in support of the application sworn by Mrs Frigger on 19 May 2014;
3.a written outline of submissions prepared on behalf of the plaintiffs dated 19 May 2014;
4.the defendants' outline of submissions, dated 21 May 2014;
5.the plaintiffs' submissions, dated 26 May 2014.
The plaintiff also filed a second affidavit of Mrs Frigger dated 26 May 2014. It contains some background regarding the business on the Armadale land, and an email from the prospective purchaser.
Although it is unnecessary to go into detail about the background to this litigation, it is essential to keep in mind that Computer Accounting & Tax is the registered owner of the Armadale land, and the beneficial ownership of that land is one of the primary matters in issue between the parties. For practical purposes, it may be desirable for the land to be sold immediately so that its value may best be realised for the benefit of whichever party is entitled to it. But the unilateral actions of the plaintiffs cannot achieve that result.

The evidence

The only evidence on the application is in the affidavits of Mrs Frigger, and the attached documents. I have also had regard to the procedural history of this action. The present application was brought on at very short notice to the defendants, and they have not been able to respond to the evidence put forward on behalf of the plaintiffs. I am satisfied, however, that I can properly determine the application on the evidence now available.
This is not the first attempt by the plaintiffs to sell the Armadale property and business. In April 2013, I heard and dismissed a similar application.
In her affidavit, sworn 19 May 2014, Mrs Frigger says that on 4 December 2013, the plaintiffs received a verbal offer from United Fuel Pty Ltd to purchase the property and the service station business for a total price of $2.8 million. The plaintiffs advised the liquidator by letter dated 12 December 2013 that United Petroleum was willing to pay $1.5 million for the property, being the amount of a valuation they had obtained in May 2013. The letter also advised the liquidator that United Petroleum
has indicated that they will not make a formal written offer until your consent to such a sale is obtained in writing. Accordingly, we request that you provide a written consent urgently, so that we do not lose United's current interest in the property.
The company is referred to as United Fuel in the text of Mrs Frigger's affidavit, and United Petroleum in the correspondence to the liquidator. There are no documents from the proposed purchaser in evidence, so the discrepancy cannot be resolved.
The liquidator replied by email the same day, requesting that the plaintiffs 'advance the offer and let me consider it as a draft, at which time suitable arrangements can be made regarding paying the proceeds into Court and any other matters relevant to the sale itself and the current legal proceedings'.
On 30 January 2014, the plaintiffs advised the liquidator:
United Petroleum Pty Ltd withdrew its verbal offer on the grounds of your involvement in Armadale, the litigation over the property and the fact the registered proprietor is in external administration.
We now request that you forthwith agreed to a transfer of the Armadale land to Hartmut Frigger being executed by CAT to enable the sale to United Petroleum Pty Ltd to be completed. The writers will agree for that portion of the sale price for the land to be paid into the Supreme Court pending resolution of CIV 2765/2010.
The letter concluded with a notice that the plaintiffs would commence proceedings against the liquidator personally for any damages resulting from loss of the sale of the business and the real property to United Petroleum.
The liquidator responded on 11 February 2014. In relation to the sale of the land, he advised:
[If] there is to be a sale of the Property and/or the BP service station conducted on the Property (the Business), because the Property is registered in CAT's name, I, as CAT's liquidator, will have to be a party to the contract pursuant to which the Property and/or the Business is sold. Neither you nor your husband have the authority to sell the Property. Consequently, the relevant officers of United Petroleum Pty Ltd should be directed to my office for the matter to be taken further.
Alternatively, if an offer to purchase the Property and/or the Business is made by United Petroleum Pty Ltd (or any other potential purchaser) then, as previously advised, any offer should be addressed to me and be in writing and capable of forming a binding contract upon acceptance. Such an offer should be presented to me for my consideration together with valuation of the Business and sales and turnover figures in respect of the Business. Without such information I will be unable to make an informed decision whether to agree to the sale or not. You have already provided me with a valuation on the Property.
As CAT's liquidator I am obliged to act in the interests of its creditors so that, absent the presentation to me of appropriate documentation and other relevant information to enable me to make an informed decision, it would not be possible for me to consider whether any proposed sale transaction would be in the interests of creditors and should be consented to by me.
If the proposed realisation of the Property and the Business is at an appropriate value and upon appropriate terms then, should a sale eventuate, the net proceeds of such sale (after deduction of relevant expenses such as agents commission and the like) will have to be paid into the Supreme Court or an agreed segregated interest-bearing bank account. Those proceeds will then be held pending determination of the Action.
The plaintiffs replied on 12 February 2014. Relevantly, they advised that they would not be referring the relevant officers of United Petroleum to the liquidator to take the matter further, as those relevant officers had made it clear that United Petroleum would have nothing to do with the liquidator or a registered proprietor who is externally administered.
Despite what had happened on the earlier occasions, the plaintiffs have persisted with their attempt to sell the Armadale land. The current proceedings relate to an 'offer' conveyed in a letter dated 1 May 2014 from Blaak & Associates, a firm of legal practitioners in Victoria. It is in these terms:
We confirm we act for Harbir Khurana and have been instructed to confirm the following offer to purchase the above property.
1.Purchaser to be a company to be incorporated upon confirmation of acceptance of offer.
2.Purchase Price $2,200,000.00.
3.Settlement to be on 31 March 2015 or such earlier date as the Purchaser may nominate.
4.A deposit of $10,000.00 to be paid within 7 days of the acceptance of the offer. The deposit to be non‑refundable provided the Contract becomes unconditional.
The letter then contains special conditions, including conditions relating to the value of retail sales, other than petrol, for the 12 month period commencing 1 March 2014, and fuel sales for the same period. The sales evidence is to be provided on a monthly basis within seven days of the expiry of each month.
The letter contains no reference to the liquidator, or the need to obtain his agreement.
An email from Mr Khurana, attached to the second affidavit of Mrs Frigger, refers to the court hearing on 22 May. It shows that Mr Khurana is, at least, aware of the proceedings.

Consideration

It is immediately apparent that the offer is to enter an agreement in which the obligations of the parties may be discharged by performance more than three months after the agreement is entered into. The first defendant, as liquidator, would need approval under s 477(2B) of the Corporations Act 2001 (Cth) to enter into that agreement. I assume that the intention of the orders sought by the plaintiffs is that the liquidator would not be a party to such an extended agreement, but would immediately dispose of the company's interest in the property, so approval would not be required.
Much of the submissions in this matter have been directed to the extent of the court's power under s 477(6) to give directions to the liquidator as to the exercise or proposed exercise of the power to sell or otherwise dispose of the property of the company, and whether there has been a refusal by the liquidator to exercise his powers under s 477(2) in relation to the Armadale land. But in my opinion, assuming the court has power to make the orders sought, the evidence falls far short of satisfying me that the proposed exercise of the liquidator's power of sale would be reasonable and prudent, and something the court should direct.
First, in his letter of 11 February 2014, the liquidator stated plainly what he required if he was to agree to a sale of the land: the offer should be addressed to him and capable of forming a binding contract on acceptance; and he should be given the valuation of the business, together with sales and turnover figures, so that he might be in a position to make an informed decision. While the liquidator has been provided with a valuation of the land (although now 12 months old), there is no valuation of the business, and no information to enable that to be done. The letter reflects a commercial judgment that the court will not second guess without good reason.
Second, without the information the liquidator requested, it is impossible to assess the special conditions of the offer, for example, the condition regarding the value of retail sales for the 12 month period commencing on 1 March 2014 and the likelihood of any contract becoming unconditional and proceeding to settlement.
Third, the letter confirming the offer has a degree of ambiguity about it. And while there are six special conditions, the general conditions for the sale of land or a business are not incorporated.
Fourth, the offer has unusual features, including the extended period before settlement and the size of the deposit relative to the purchase price.
Fifth, there is no information about the purchaser or Mr Khurana. Where the court's order would require the liquidator to immediately dispose of the company's interest in the land, the capacity of the proposed purchaser to complete the sale is not immaterial.
Finally, the terms of the proposed orders are unsatisfactory. It is unnecessary to discuss them in more detail because, were a direction otherwise called for, it may be possible to craft a suitable order.
Assuming that an order could be made under s 477(6), in the absence of evidence demonstrating that the proposed sale is commercially prudent and in the interests of the creditors, I would not attempt to direct the liquidator in the exercise of his powers. I dismiss the application.