Gallop Investments Pty Ltd v Jones - [2002] WASC 66

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: GALLOP INVESTMENTS PTY LTD -v- JONES & ANOR [2002] WASC 66

CORAM: MASTER SANDERSON

HEARD: 26 FEBRUARY 2002

DELIVERED : 4 APRIL 2002

FILE NO/S: CIV 2098 of 2001

BETWEEN: GALLOP INVESTMENTS PTY LTD (ACN 077 439 322)
Plaintiff
AND
MARTIN JONES
GARRY TREVOR
Defendants

Catchwords:

Corporations Act - Liability of administrators for debts incurred while in control of corporation when breach of contract initiated by administrators - Application for summary judgment by defendant

Legislation:

Corporations Act, s 436A, s 437B,s 443A(1), s 443A(1)(c), s 443B(2), s 443C

Supreme Court Rules, O 16

Result:

Summary judgment granted

Category: A

Representation:

Counsel:

Plaintiff: Mr M N Solomon & Mr A G Jones
Defendants: Mr K J Martin QC & Mr C F McLeod

Solicitors:

Plaintiff: Gadens Lawyers
Defendants: Deacons

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

Astor Chemical Ltd v Synthetic Technology Ltd [1990] BCC 97
Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (Administrator Appointed) & Anor (1996) 14 ACLC 1371
O'Brien v Dawson (1942) 66 CLR 18
Ogdens Ltd v Weinberg (1906) 95 LT 567
Said v Butt [1920] 3 KB 497

Case(s) also cited:

Cater-King Pty Ltd v Westpac Banking Corporation (1989) 7 ACLC 993
Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64
Dey v Victorian Railway Commissioners (1949) 78 CLR 62
Forsayth NL v Northern Gold NL, unreported; FCt SCt of WA; Library No 940012; 20 January 1994
Lathia v Dronsfield Bros Ltd (1987) BCLC 321
Michael & Anor v Nicolson, unreported; FCt SCt of WA; Library No 950660; 1 December 1995
Osborne Computer Corporation Pty Ltd v Airroad Distribution Pty Ltd (1995) 37 NSWLR 382
Singh v Varinder Kaur (1985) 61 ALR 720

MASTER SANDERSON: This is the defendants' application for summary judgment. It is brought under the provisions of O 16 of the Supreme Court Rules. The application was brought more than 21 days after the appearance was filed and the defendant requires leave to bring the application. The plaintiff opposes leave being granted.
The explanation for the delay in bringing the application is to be found in par 51 to par 56 of an affidavit of the first‑named defendant sworn 7 November 2001 and filed in support of the application. It is clear that, from the time the defendants received the writ of summons, which was endorsed with a statement of claim, they held to the view that the action could not succeed. On advice from their solicitors, they applied to strike out the statement of claim and for judgment. This application was determined on 17 October 2001. I resolved that the plaintiff's claim, as then pleaded, was arguable. The defendants took further advice. Their solicitors discussed the position with the plaintiff's solicitors, but no resolution of the dispute could be achieved. The defendants thereupon resolved to make an application for summary judgment. The application was brought within 21 days of the dismissal of the strike‑out application. The defendants say that the plaintiffs have suffered no prejudice as a consequence of the delay and the plaintiffs do not argue otherwise. The plaintiffs say there has been delay and the fact that the defendants' solicitors proceeded in an inappropriate fashion should not be regarded as justification for bringing an application out of time.
On balance, I am satisfied that this is an appropriate case to grant leave. The evidence of the first‑named defendants makes it plain that the delay was not occasioned by indifference or inaction. The defendants' solicitors resolved to pursue one course of action which, while ultimately unsuccessful, was not, in all the circumstances, an unreasonable approach. Having failed with that line of attack, they moved expeditiously to issue this application. While all this was happening, the plaintiffs took no step which could, in any way, be regarded as a waste of time or money. Moreover, I am satisfied that the defendants' application has merit and no point would be served in allowing the action to proceed. In the circumstances, I am prepared to extend time to the defendant to make the summary judgment application.
As they are required to do in an application of this nature, the defendants accept the plaintiff will be able to establish the facts pleaded in the statement of claim. The pleaded facts are as follows. In or about August 1993, Kao Holdings Pty Ltd purchased a property in West Perth known as the "WestCentre" on trust for the MC Trust. In December 1997, the plaintiff became the trustee of the MC Trust and consequently became the registered proprietor of the WestCentre. The WestCentre itself was an office and retail shopping centre, which included premises designed as a tavern and restaurant ("the tavern"). By written lease dated 13 March 1992, a company known as JIMWA Pty Ltd, the then registered proprietor of the WestCentre, leased the tavern to O'Connor's Management Pty Ltd. On or about 30 April 1999 O'Connor's Management Pty Ltd assigned its right, title and interest in the lease to Jack Corporation Pty Ltd ("Jack"). The result of these transactions was that, as from April 1999, the plaintiff was the lessor of the tavern and Jack was the lessee.
Pursuant to cl 4.6 of the lease, the plaintiff was entitled to exercise an option at the expiration or sooner determination of the term of the lease to purchase the fitting and fixtures belonging to Jack in the tavern. The price at which the fixtures and fittings were to be purchased was determined by a mechanism set out in the lease. The plaintiff was entitled to set off against the purchase price, any amount payable to the plaintiff from Jack in respect of arrears of rent. Clause 4.6 provided, not surprisingly, that during the continuance of the option to purchase the fixtures and fittings, no part of them would be sold, encumbered, removed or otherwise disposed of by Jack. As at 3 April 2001, Jack was indebted to the plaintiff in an amount of $288,629.06, being arrears of rent.
On 3 April 2001, the defendants were appointed administrators of Jack pursuant to s 436A of the (then applying) Corporations Law. On 4 April 2001, the administrators advised the plaintiff (they actually advised their agents, but nothing turns on this point) of their appointment and further advised that they would be liable for the rent and other amounts payable by Jack pursuant to the lease for a period beginning seven days subsequent to their appointment. Reference was made to s 443B(2) of the Corporations Law. In fact, the administrators remained in occupation of the tavern and operated a business up until 25 May 2001.
Over the weekend of 26 and 27 May 2001, without notice to the plaintiff, the administrators removed the fixtures and fittings of Jack from the tavern and delivered them to an auctioneer for sale. By letter dated 28 May 2001, the administrators advised the plaintiff that they had vacated the leased premises and gave notice they no longer intended to be bound by the lease. Reference was made to s 443A(1)(c) of the Corporations Law. The plaintiff pleads that, in removing the fixtures and fittings, Jack was in breach of cl 4.6 of the lease. It was accepted by the defendants, for the purposes of this application, that on pleaded facts that was so - Jack had usurped the plaintiff's right to purchase the fixtures and fittings. That renders Jack liable to the plaintiff. Of that, there can be no doubt. But that leaves the plaintiff with a claim against a company of dubious worth. They say that the defendants, as the administrators who caused Jack to act as it did, are liable for any loss and damage the plaintiff has sustained. The plaintiff pleads its case against the administrators in this way:
"22A.By reasons of the matters set out in paragraphs 20 and 22 above the Administrators acted beyond the scope of their authority as agents of Jack Corporation Pty Ltd.
23.The conduct of the Administrators referred to in paragraph 22 above constituted an interference with the contractual relations between the Plaintiff and Jack Corporation Pty Ltd."
The plaintiff goes on to plead that, by letter dated 1 June 2001, the plaintiff exercised its rights to purchase the fixtures and fittings under the option contained in cl 4.6 of the lease. The plaintiff then pleads:
"24A.At all material times after 1 June 2001 the Administrators failed and refused to deliver up and re‑install the fixtures and fittings in breach of the obligations of Jack Corporation Pty Ltd under clause 4.6 of the lease.
24B.By reason of the matters referred to at paragraph 24A above the Administrators acted beyond the scope of their authority as agents of Jack Corporation Pty Ltd."
Against the plaintiff's claim the defendants raise two arguments. Both are simple and straightforward. First, it is said that, pursuant to s 437B, the administrators are the agents of the company. That is what the section says and there can be no doubt on the matter. That being the case, they are in precisely the same position as the company's directors. It has long been established that so long as the directors, as agent of the company, are acting within the scope of their authority, they cannot be liable for interference with contractual relations between the company as principal and a third party. Reference was made to the decision of Said v Butt [1920] 3 KB 497 and the numerous cases which have followed that decision.
In answer to that submission, counsel for the plaintiff submitted that it was pleaded and must be accepted for the purposes of this application that, in interfering with the contractual relations between the plaintiff and Jack Corporation Pty Ltd, the administrators were acting beyond the scope of their authority. It was submitted that an administrator was not entitled to disregard a contract entered into before the administrator was appointed. Counsel referred to a statement to that effect in O'Donovan "Company Receivers & Administrators", Vol 1, par 17.155. The learned author refers to the English decision of Astor Chemical Ltd v Synthetic Technology Ltd [1990] BCC 97.
The facts in the Astor Chemical case taken from the headnote were, relevantly:
"This was an application by Astor Chemical Ltd ('Astor') in an action against Synthetic Technology Ltd ('Syntec') to continue an ex parte injunction until trial.
In August 1986 Syntec had entered into a distribution agreement with Astor under which Astor was given the right to distribute a product which Syntec made under licence from a third party. Sales of the product did not reach the expected level and Syntec's financial position deteriorated. In March 1989 joint administrators of Syntec were appointed on Syntec's application. In April the administrators wrote to Astor alleging that Astor had breached the distribution agreement, and in June Syntec purported to terminate the agreement. Astor obtained leave to issue proceedings against Syntec, claiming a declaration that the agreement had not been validly terminated, and obtained injunctive relief ex parte.
…
Syntec submitted, first, that by analogy with the position of a receiver, if the administrators declined to perform the distribution agreement or acted in contravention of it, the court would not enforce the agreement by the grant of an injunction (leaving Astor with only a remedy in damages). … "
Vinelott J determined that the interlocutory injunction ought be continued. His Honour found (once again quoting the headnote):
"2.In respect of a receiver's right not to fulfil the company's outstanding contracts, there was no analogy between the position of a receiver appointed to realise the assets for the benefit of the creditor making the appointment and that of an administrator appointed to manage the company's affairs. The fact that administrators had been appointed was therefore irrelevant in deciding whether or not an injunction should be granted … "
It can be seen immediately that this decision dealt with a situation where equitable relief was sought in relation to an alleged breach of contract. Counsel for the defendants conceded during the course of argument that, if prior to the removal of the fixtures and fittings from the tavern, the plaintiff had become aware that removal of the chattels was imminent, an injunction could have been obtained to restrain the administrators acting contrary to the terms of the lease. But it was submitted that does not alter the fact that, once the chattels were removed, any liability that may have been incurred for breach of the terms of the lease was a liability of the company and not a personal liability of the administrators. I accept that submission.
In O'Brien v Dawson (1942) 66 CLR 18 McTiernan J, dealing with the question of the personal liability of directors of a company for breach by the company of a contract, put the position this way (at 34):
"But an action by the plaintiff would not lie against the company for procuring a breach of its own contract with him (the third party) nor against the individual defendants (directors) on that cause of action if in terminating the agreement they were acting in pursuance of their authority as directors."
In this case, I can see no basis upon which it could be said that the administrators were acting in any capacity other than as agents of the company. There is nothing in the pleading or in the evidence which suggests they did not have the authority to act as they did. That being the case, this action brought against the administrators must fail.
Having reached that conclusion, it is unnecessary for me to deal with the second of the defendants' arguments. However, for the sake of completeness, and in deference to the full argument put by both parties, I will deal with this aspect of the application.
Section 443A(1) of the Corporations Act is in the following terms:
"The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for:
(a)services rendered; or
(b)goods bought; or
(c)property hired, leased, used or occupied."
This section must be read in conjunction with s 443C. That section reads as follows:
"The administrator of a company under administration is not liable for the company's debts except under this Subdivision."
It was submitted on behalf of the defendants that any liability they may have for breach of cl 4.6 of the lease is not a "debt". It is a claim for unliquidated damages. Further, even if it was a debt, it does not fall within any of the categories specifically mentioned in the section. That being the case, the administrator is protected from liability under s 443C and the plaintiff's claim must fail.
In response, counsel for the plaintiff submitted that this suit was not brought with respect to the debts of the company. Rather, it was brought against the administrators because they had exceeded their authority and had therefore incurred personal liability. It might be the case, so it was argued, that the plaintiff had a right of action against Jack for breach of the terms of the lease. But that did not alter the plaintiff's right to bring this action. The protection offered by s 443 extended only to an administrator who, as a consequence of his actions, had incurred a personal liability.
Counsel for the defendants referred to the decision of Branson J in Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (Administrator Appointed) & Anor (1996) 14 ACLC 1371. The facts of the case taken from the headnote were as follows:
"Lam Soon Australia Pty Ltd was the lessee of a supermarket. An administrator was appointed to Lam Soon. The administrator closed the supermarket and removed the stock and fittings, thereby allegedly causing damage to the premises.
The lease required Lam Soon to make good any damage caused by the removal of fixtures and fittings. Accordingly, the lessor applied for an order that the administrator pay a sum of money for the alleged damage.
The lessor argued that, among other things, the administrator was liable under s 443A(1) of the Law for any damage to the premises."
The defendant applied to strike out the plaintiff's claim. Her Honour identified the application as giving rise to three issues. She summarised them in this way (at 1373):
"First, does the applicant here claim a 'debt'? Secondly, if it does, is such debt one which was incurred by the Administrator? Thirdly, assuming an answer to the first two questions in favour of the applicant, was such debt incurred 'for … property hired, leased, used or occupied'? It was not contended that the claim relates either to services rendered or to goods bought."
I might pause at this point to observe that the facts in the Molit decision bear a remarkable similarity to the facts in this case. Furthermore, it is clear that all three of the questions posed by her Honour are precisely the questions which fall to be determined on this application.
Her Honour went on to refer to the well‑recognised distinction between the incurring of the debt and the incurring of the liability for unliquidated damages. She referred in particular to the speech of Lord Davey in Ogdens Ltd v Weinberg (1906) 95 LT 567 where his Honour said:
"The word 'debts', no doubt, means something recoverable by an action for debt, and nothing can be recovered in an action for debt except what is ascertained or can be ascertained. A claim for an amount which is uncertain, and cannot be adjusted in an account, cannot, I think, be justly called a 'debt'."
Her Honour concluded that the term "debt" is used in the Corporations Law in its usual sense "which invokes the well‑recognised distinction between a debt and a liability for unliquidated damages". She concluded that s 443A did not apply to the claim made by the applicant and the action ought be struck out. Her Honour then went on, in a passage which is clearly obiter, as follows:
"It is therefore not necessary for me to determine whether, had the obligation under the lease to make good amounted to a debt, such debt would have been a debt incurred by the Administrator within the meaning of s 443A(1) of the Corporations Law, or whether such debt would have been 'for' one of the subject matters listed in s 443A(1). I consider it appropriate to state, however, that, in my view, the argument of Mr Clayton that an administrator does not personally incur liability merely because he or she is acting at the relevant time as the agent of a company of which he or she as the administrator is plainly right (see Corporations Law, s 443C)."
It is true, as counsel for the plaintiff pointed out, that the claim put by the applicant in Molit did not raise as an issue the question of the administrator acting outside the scope of his authority in breaching the terms of the lease. It was on that ground that counsel sought to distinguish the Molit decision. With respect, I am not satisfied that it is a distinction which can be drawn. In my view, there is no question that in this case the administrators could be liable to the plaintiff under s 443A. Counsel for the plaintiff did not seek to argue otherwise. That being so, it seems to me the administrators are entitled to the protection offered by s 443C. Any liability which accrues to the plaintiff is a liability of Jack. That being so, this action cannot succeed.
For these reasons, I would grant judgment in favour of the defendants. I will hear the parties as to the precise form of orders and as to costs.