Harvey v Burfield & Smith as Liq of Normans Wines Ltd (REC & Mgr App) No. Scciv-02-1364

[2003] SASC 232

HARVEY AND ORS v BURFIELD & SMITH AS LIQUIDATORS

FOR NORMANS WINES
[2003] SASC 232

Civil

1. BESANKO J (Extempore):  This is an application for leave to appeal from a decision which I made on 19 June 2003. I heard submissions on the application this morning. The applicants’ submissions are contained in their outline of argument. The points that the applicants’ counsel emphasised in the course of his oral submissions started with a challenge to my finding that the liquidators’ purpose or purposes in seeking the relevant orders did not include the purpose of assisting Sandhurst Trustees in its claim against Deloitte.

2. The applicants’ counsel said I erred in making what is clearly a finding of fact and that I should have found that one of the liquidators’ purposes, indeed predominant purpose, was to assist Sandhurst Trustees in its claim against Deloitte. He submitted that it was at least arguable that such a finding should be made, particularly in light of the following:

   1. The liquidators’ alleged breach of s 486 of the Corporations Act. This point was not argued at the hearing of the application before me to discharge the orders and I very much doubt that the applicants would be permitted to raise it for the first time on appeal.

   In any event, it has never been suggested that the liquidators knowingly breached s 486 (assuming for the purposes of argument only that there has been a breach) and, in those circumstances, I cannot see how the matter is relevant to the question as to what inference should be drawn as to the liquidators’ purpose.

   2. The applicants submit that the liquidators’ belief that the company would benefit if Sandhurst Trustees was successful in its legal action against Deloitte was erroneous. It has never been suggested that the liquidators did not hold such a belief in good faith. The applicants were forced to argue that even if there was no bad faith or wilful blindness, a liquidator’s belief may constitute an improper purpose if the belief is not based on reasonable grounds, including advice as to the correct legal position. To my mind, that argument is untenable. It is unsupported by any authority and is contrary to well-established principle that it is the liquidator’s subjective purpose which is critical. Of course, a failure to inquire or take advice may be evidence leading to a conclusion of improper purpose but that is not how the argument was put. It was put that the failure to take advice or acting on an incorrect view of the law was, of itself, an improper purpose.

   3. It was put that there was a breach of the implied undertaking when JWS and Mr Hoffmann started acting for Sandhurst Trustees and that if this is right as a proposition of law, then improper purpose is made out. Again, this argument is untenable because it proceeds on the basis that an objective fact (that is, breach of the implied undertaking) of itself, can constitute an improper purpose.

3. In essence, the applicants seek to challenge a finding of fact as to the liquidators’ purposes. I am not satisfied that there is any reason to doubt the correctness of my earlier decision on this point. In these circumstances, it is unnecessary to consider whether the applicants can establish an arguable case that the liquidators’ purpose of assisting Sandhurst Trustees in its claim against Deloitte was the sole or predominant purpose, or if it was, whether it is an improper purpose.

4. Nor am I satisfied that the applicants will suffer substantial injustice if the orders I refused to discharge stand.  In this regard, I refer to the reasons of Debelle J in Re Bosun Pty Ltd (In Liquidation);  Makris & Ors v Sheahan (No.2) [2000] SASC 247 at paragraph 10:

   “There is a further reason which encourages me to conclude that this is not a fit matter for leave to appeal. The examination does not affect the rights of Makris. His rights would be affected only if an action is commenced against Makris and Makris fails in his defence in that action. The refusal to grant leave does not therefore visit any injustice on Makris. Further, s597(14) of the Corporations Law provides a safeguard as to the extent to which the evidence given in the examination might be used.”

5. For these reasons, I would refuse the application for leave to appeal. If it is also a requirement that the applicants show that their appeal raises a question of general principle, I think the application fails on this ground as well.  There may be some interesting arguments about the circumstances in which the implied undertaking is breached and the rights of Sandhurst Trustees in the liquidation should it recover damages from Deloitte, but I cannot see how the resolution of those issues impinges or could impinge on the finding of fact that the liquidators’ purpose in seeking the relevant orders did not include a purpose of obtaining information and/or material for use in the action by Sandhurst Trustees. The application by document No.121 is dismissed.