Jenner, Barry Lorne v Selmoore Pty Ltd
[1997] FCA 318
•5 May 1997
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 3322 of 1995
)
GENERAL DIVISION )
BARRY LORNE JENNER in his capacity as Receiver and Manager of Selmoore Pty Ltd (ACN 053 244 152) (Receiver and Manager appointed)
(Applicant)
and
SELMOORE PTY LTD (ACN 053 244 152) (Receiver and Manager Appointed) by its directors CAROL JANE WILLIAMS and BARRY JOHN WILLIAMS
(Respondents)
JUDGE MAKING ORDER: Ryan J
DATE OF ORDER: 5 May 1997
WHERE MADE: Melbourne
MINUTES OF ORDER
THE COURT ORDERS:
That the application be dismissed.
That the applicant pay the respondent's costs of and incidental to the application, such costs to be taxed in default of agreement.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 3322 of 1995
)
GENERAL DIVISION )
BARRY LORNE JENNER in his capacity as Receiver and Manager of Selmoore Pty Ltd (ACN 053 244 152) (Receiver and Manager appointed)
(Applicant)
and
SELMOORE PTY LTD (ACN 053 244 152) (Receiver and Manager Appointed) by its directors CAROL JANE WILLIAMS and BARRY JOHN WILLIAMS
(Respondents)
CORAM: Ryan J
DATE: 5 May 1997
PLACE: Melbourne
REASONS FOR JUDGMENT
RYAN J: On 19 April 1994, Selmoore Pty Ltd ("Selmoore") executed a mortgage debenture in favour of the National Australia Bank ("the Bank"). The mortgage debenture, at least in part, secured an overdraft facility to Selmoore from the Bank under which, when it expired on 31 October 1994, Selmoore was indebted to the Bank in an amount of approximately $102,000. The mortgage debenture under the heading "Payment of Secured Amounts" stipulated that "the Mortgagor undertakes to pay the Bank on demand all the secured amounts referred to in the demand." It was further stipulated by cl. 12 under the heading "Events of Default:"
The following events (whether or not the happening of an event is in the control of the Mortgagor) are Events of Default:
(a)if default is made in the payment of any Secured Amounts;
(b)if an application or order is made for the winding up of the Mortgagor or any Related Body Corporate of the Mortgagor or any surety;
...
(f)if the Mortgagor or any Surety fails to comply with this Deed or any Collateral Security or any agreement of any kind with the Bank or if any representation or warranty made or deemed to have been made by the Mortgagor or any Surety in, or in connection with, this Security or any Collateral Security or any agreement of any kind with the Bank is untrue or misleading when made or when deemed to have been made;
The consequences of an "event of default" were enumerated in cl. 14 under the heading "Rights of Enforcement" which, as far as is relevant, provided:
14.1Rights of the Bank
Subject to Clause 14.2, at any time after an Event of Default occurs the Bank may at its option exercisable by notice in writing to the mortgagor (and notwithstanding there is an agreement in writing or course of dealing to the contrary and notwithstanding any concession or delay or previous waiver by the Bank of its right to demand payment of the Secured Amounts) treat the Secured Amounts as payable immediately and may immediately or at any later time (in addition to any other rights, powers and remedies conferred on a mortgagee by law and so that no delay or failure by the Bank to exercise any of the Rights of the Bank prejudices their later exercise) do all or any of the following things without giving any or further notice or demand to the Mortgagor:
(a)possession: enter upon, and take possession of, collect and get in the whole or any part of the Mortgaged Property and of its rents and profits or both (and for that purpose take any proceedings in the name of the Mortgagor or otherwise as seems expedient to the Bank and to give effectual receipts for any of them) and, if the Bank thinks fit, manage and use any Mortgaged property and carry on at the risk of the Mortgagor any business or pursuit included in the Mortgaged Property or for the time being or usually carried out upon any Land included in the Mortgaged Property, with all the powers of an absolute owner; and
(b)Lease: whether in or out of possession, lease the Mortgaged Property, accept the surrender of any Lease of the Mortgaged property whether or not granted by the Bank, and surrender any Lease included in the Mortgaged property; and
(c)sale: whether in or out of possession, sell the whole or any Mortgaged Property and exercise all other powers conferred upon a mortgagee by law; and
(d)Receiver: whether in or out of possession and whether or not the Bank is entitled to appoint a Receiver under any Statute, appoint any person or persons to be a Receiver of the whole or any of the Mortgaged property; and
(e)powers of Receiver: whether in or out of possession and whether or not a Receiver has been appointed under this Deed, at any time after the Bank has become entitled to appoint a Receiver and without giving any notice, exercise all or any of the powers, authorities and discretions which may be conferred on a Receiver under this Deed or by law; and
(f)agent: appoint under the hand of an Authorised Officer of the Bank and employ one or more agents to act (and, if more than one, jointly or severally or jointly and severally as the Bank thinks fit) on behalf of the Bank in the exercise of any Rights of the Bank.
Clause 14.2 was in these terms:
14.2Procedural Requirements
The Bank is not required to give notice to the Mortgagor before exercising its option under Clause 14.1, but before the Bank exercises any other right, power or remedy conferred by Clause 14.1 or on a mortgagee by law, the Bank must give any notice or demand and allow any period of time to elapse which the Bank is required to give or allow by a law which cannot be excluded, waived or negatived by agreement, but:
(a)to the extent that any of these requirements can be excluded, waived or negatived by agreement, they are excluded, waived and negatived;
(b)to the extent that any notice or demand which is required to be given cannot be excluded, waived or negatived by agreement before the Bank may enforce this Deed or exercise a particular right, power or remedy, then (to the extent that the law permits) no further or other notice or demand is required to be given to exercise any right, power or remedy after that notice or demand has been given or where another right, power or remedy is to be exercised; and
(c)to the extent that any period of time which is required to be allowed before the Bank exercises a right, power or remedy conferred by Clause 14.1 or on a mortgagee by law cannot be excluded, waived or negatived by agreement, but may be abridged by the express stipulation or fixing of a lesser specific period, that period of time is stipulated and fixed as one day or (to the extent the period of time cannot be one day) is stipulated and fixed as being the minimum period in excess of one day which the law permits.
It is also necessary to set out cl. 14.3:
14.3Certain Requirements
Without limiting Clause 14.2, one day is stipulated and fixed (to the extent it can be) or (to the extent that it cannot be) such greater minimum period as the law permits is stipulated and fixed as the period of time during which:
(a)default must continue unremedied before a notice is given or a requirement is otherwise made for payment of any Secured Amounts or the performance or observance of any covenant, condition, obligation or liability on the part of the Mortgagor under this Deed, and
(b)a demand, notice or requirement for payment of any Secured Amounts or the performance or observance of any covenant, condition, obligation or liability on the part of the Mortgagor under this Deed must remain unremedied before the Bank exercises a right, power or remedy conferred by Clause 14.1 or conferred on a mortgagee by law.
On 3 January 1995 the Bank made demand on Selmoore and another company, Deyman Pty Ltd, for payment of the amount due under the overdraft facility. Deyman Pty Ltd, like Selmoore and another company, Overmaster International Pty Ltd, was controlled by a Mr and Mrs Williams. However, because no postage stamp had been affixed to or franked on the Bank's letter of demand to Selmoore, it was never received at Selmoore's registered office. To overcome that omission, a further letter of demand was prepared and dated 21 April 1995. However, the further letter was not received by Selmoore until 28 April 1995. In the meantime, on 26 April 1995, the applicant, Mr Jenner, was appointed receiver and manager of Selmoore. That appointment was concededly invalid but, before its invalidity was realised, Mr Jenner, purportedly as receiver, had issued a summons out of the County Court seeking delivery up by Jetsource Pty Ltd, another company controlled by Mr and Mrs Williams, of certain equipment said to have been owned by Selmoore. As a result, orders were made on 8 May 1995 for the delivery up of that equipment to Mr Jenner as receiver.
After the invalidity of Mr Jenner's purported appointment on 26 April 1995 was realized, he sent to the directors of Selmoore a letter dated 8 June 1995 which contained these passages:
I refer to my appointment as Receiver and Manager on 26 April 1995. I note that Federal Court proceedings have been instituted seeking to challenge the validity of my appointment pursuant to the Instrument of Appointment dated 26 April 1995, and that such challenge is to be heard 9 June 1995.
I now advise that my appointment pursuant to that Instrument has been terminated and now ceases. I now formally hand over possession to you of:-
The undertaking of the company and all its property, assets, rights and privileges whatsoever and wheresoever both present and future including the goodwill of its business and its called but unpaid and uncalled capital for the time being; and
All and singular the property and assets whatsoever and wheresoever both present and future held by the company as trustee of the trust settlement known as the Williams Trust No. 3 constituted by a Deed of Settlement made 10 June 1981.
Please note that the above is without prejudice to my rights to contest the challenge to the validity of the appointment.
That letter was received by the directors of Selmoore at 5.08pm on 8 June 1995 and at 5.14pm on the same day the Bank, taking the view that there had been no compliance with its second letter dated 21 April 1995, again appointed Mr Jenner as receiver and manager of Selmoore. Notice of that appointment was served at the registered office of Selmoore at 6.28pm on 8 June 1995. Subsequently, Mr Jenner instituted further proceedings numbered MC 9502559 in the County Court seeking a mandatory injunction requiring the delivery up by Jetsource Pty Ltd of property and assets claimed to be owned by Selmoore and subject to the mortgage debenture in favour of the Bank.
That prompted the solicitors for Selmoore to write to Mr Jenner a letter dated 16 June 1995 in these terms:
We act for Selmoore by its directors Mr and Mrs Williams.
We are instructed to request:
that you retire as receiver and manager of Selmoore;
that you account to Selmoore by its directors, Mr and Mrs Williams, for your conduct during the course of the purported receivership since 8 June 1995; and
that you undertake to pay all just compensation to Selmoore arising out of your defective appointment on 8 June 1995 as receiver and manager.
The grounds on which Selmoore, by its directors, challenges the appointment are:
(a)no sufficient demand has been made on Selmoore under the terms of the debenture on which the Bank may rely to found the appointment;
(b)if a sufficient demand was made (which is denied), Selmoore did not have a reasonable time to comply with the same; and
(c)your reappointment clearly contravenes section 418(1)(f) of the Corporations Law.
By your actions from 26 April 1995 you are clearly an officer of Selmoore for the purposes of section 418(1) of the Corporations Law and, as such, you as disqualified from acting as receiver and manager of Selmoore without prior permission from the Australian Securities Commission in accordance with section 418(1)(f).
We place you on notice that in the event you fail to advise us that you will act as we have requested by 4.00p.m. Friday, 16 June 1995, we hold instructions to issue a further application in the Federal Court for a declaration under section 418A of the Corporations Law that your appointment is invalid, together with any consequential relief as our clients may be advised. We will seek solicitor client costs on any such application.
This letter should be taken as notice required by Order 71 Rule 27A(1) of the Corporations Rules (Federal Court).
The solicitors for Mr Jenner, in turn, issued the present application seeking the following relief:
A declaration pursuant to Section 418A(2) of the Corporations Law that the appointment of Barry Lorne Jenner as Receiver and Manager of Selmoore Pty Ltd (ACN 053 244 152) (Receiver and Manager Appointed) dated 8 June 1995 is valid.
Further or alternatively a declaration pursuant to Section 418A(2) of the Corporations Law that Barry Lorne Jenner did validly enter into possession or assume control of the property of Selmoore Pty Ltd (ACN 053 244 152) (Receiver and Manager Appointed) under the terms of registered charge number 439909.
Section 418A of the Corporations Law provides:
418A(1)Where there is doubt, on a specific ground, about:
(a)whether a purported appointment of a person, after the commencement of this section, as receiver of property of a corporation is valid; or
(b)whether a person who has entered into possession, or assumed control, of property of a corporation after the commencement of this section did so validly under the terms of a charge on that property;
the person, the corporation or any of the corporation's creditors may apply to the Court for an order under subsection (2).
418A(2)On an application, the Court may make an order declaring whether or not:
(a)the purported appointment was valid; or
(b)the person entered into possession, or assumed control, validly under the terms of the charge;
as the case may be, on the ground specified in the application or on some other ground.
As the application was argued, three separate questions emerged as requiring resolution in order to determine the validity of Mr Jenner's second appointment on 8 June 1995 as receiver and manager of Selmoore. It is convenient to consider those questions separately dealing first with the application of s. 418 of the Corporations Law before turning to examine whether the Bank was entitled, having regard to the terms of the mortgage debenture, to make Mr Jenner's second appointment at the time and in the manner which it did.
Was Mr Jenner, in the events which have happened, disqualified from being appointed on 8 June 1995 as receiver and manager of Selmoore?
This basis of Selmoore's attack on the appointment or re-appointment on 8 June 1995 of Mr Jenner has been disclosed by this passage from a letter dated 10 July 1995 from Selmoore's solicitors to the Australian Securities Commission ("the ASC"):
Mr and Mrs Williams as directors of Selmoore dispute that Mr Jenner was validly appointed as Receiver and Manager of Selmoore on 8 June 1995. One of the grounds for the dispute is that Mr Jenner is not a person who is qualified to act as Receiver because the earlier fact of his invalid appointment means he has been an officer of Selmoore during the last twelve months. If this is so, Section 418(1)(f) requires him to obtain an appropriate direction in writing from the Australian Securities Commission ("ASC") that he may be validly appointed again to Selmoore. We have not been provided with a copy of any such direction by Mr Jenner's solicitors or any statement assuring us that the direction has been either obtained or sought. It is our clients' position that Mr Jenner's conduct of his first administration clearly disentitles him to any further appointment over Selmoore.
The purpose of this correspondence is to determine whether the ASC has directed in writing that Section 418(1)(f) of the Corporations Law shall not apply in relation to Mr Jenner and Selmoore.
Please provide us with an indication of whether the ASC has so directed in writing, to enable us to prepare the respondents' defence. As this matter is returnable before the Court on 20 July 1995, we would appreciate your early assistance.
The ASC's substantive response was made by letter dated 28 July 1995 in these terms:
I understand that Mr Barry Lorne Jenner's appointment as Receiver and Manager on 26 April 1995 ("the initial appointment") was declared invalid pursuant to section 418A(2) by an Order of the Federal Court dated 9 June 1995. According to the ASC's public record however, Mr jenner was re-appointed as Receiver and manager on 8 June 1995. I understand that your clients now wish to dispute Mr Jenner's re-appointment on the basis that he was deemed an officer of the company within the last twelve months.
I advise that, even if Mr Jenner's initial appointment was declared valid by the Court, a Receiver or Receiver and manager is excluded from the definition of "officer" of a body corporate (see definition in subsection 418(2) of the Corporations Law, "the Law"). That is, a Receiver or Receiver and manager is not an officer of a body corporate. I am also not aware of any reason under section 418 of the Law that Mr Jenner may not be qualified to act as Receiver and Manager of Selmoore Pty Ltd. On this basis, a direction by the ASC pursuant to subsection 418(1)(f) of the Law is not required in the circumstances.
Unless the ASC receives any information to determine otherwise, it would appear that Mr Jenner is the company's Receiver and Manager from 8 June 1995.
Section 418 of the Corporations Law provides:
A person is not qualified to be appointed, and shall not act, as receiver of property of a corporation if the person:
(a)is a mortgagee of property of the corporation;
(b)is an auditor or an officer of the corporation;
(c)is an officer of a body corporate that is a mortgagee of property of the corporation;
(d)is not a registered liquidator;
(e)is an officer of a body corporate related to the corporation; or
(f)unless the Commission directs in writing that this paragraph does not apply in relation to the person in relation to the corporation - has at any time within the last 12 months been an officer or promoter of the corporation or of a related body corporate.
In subsection (1):
"officer", in relation to a body corporate, does not include a receiver, appointed under an instrument whether before or after the commencement of this section, of property of the body.
Paragraph (1)(d) does not apply in relation to a body corporate authorised by or under a law of the Commonwealth, of a State or of a Territory to act as receiver of property of the corporation concerned.
Nothing in this section prevents a person from acting as receiver of property of a Division 2 company under an appointment validly made before the company's registration day.
"Officer" is defined by s. 82A of the Corporations Law in these terms:
Subject to subsection (2), "officer", in relation to:
(a)a body corporate; or
(b)an entity within the meaning of Parts 3.6 and 3.7;
includes:
(c)a director, secretary, executive officer or employee of the body or entity; and
(d)a receiver and manager, appointed under a power contained in an instrument, of property of the body or entity; and
(e)an administrator of the body or entity; and
(ea)an administrator of a deed of company arrangement executed by the body or entity; and
(f)a liquidator of the body or entity appointed in a voluntary winding up of the body or entity; and
(g)a trustee or other person administering a compromise or arrangement made between the body or entity and any other person or persons.
None of the following is an officer of a body corporate, or of an entity within the meaning of Parts 3.6 and 3.7:
(a)a receiver who is not also a manager;
(b)a receiver and manager appointed by a court;
(c)a liquidator appointed by a court.
Section 418, it should be pointed out, does not fall within either Part 3.6 or Part 3.7 of the Corporations Law.
It was submitted on behalf of Selmoore that as a result of Mr Jenner's concededly invalid appointment on 26 April 1995, he became a "director" of the company within the meaning of s. 82A(1)(c). In aid of that argument, Counsel for Selmoore enlisted s. 60 of the Corporations Law which provides:
Subject to subsection (2), a reference to a director, in relation to a body, includes a reference to:
(a)a person occupying or acting in the position of director of the body, by whatever name called and whether or not validly appointed to occupy, or duly authorised to act in, the position;
(b)a person in accordance with whose directions or instructions the directors of the body are accustomed to act;
(c)in the case of a body incorporated or formed outside Australia:
(i)a member of the body's board;
(ii)a person occupying or acting in the position of a member of the body's board, by whatever name called and whether or not validly appointed to occupy, or duly authorised to act in, the position; and
(iii)a person in accordance with whose directions or instructions the members of the body's board are accustomed to act.
A person shall not be regarded as a person in accordance with whose directions or instructions:
(a)a body's directors; or
(b)the members of the board of a body incorporated or formed outside Australia;
are accustomed to act merely because the directors or members act on advice given by the person in the proper performance of the functions attaching to the person's professional capacity or to the person's business relationship with the directors or the members of the board, or with the body.
For the purposes of subsection (1), if there are no positions of director (by whatever name called) in relation to a body, the reference in paragraph (1)(a) to a position of director of the body is a reference to a position the holder of which has control, or shares control, over the general conduct of the affairs of the body.
Counsel for Selmoore urged that, because of his earlier invalid appointment as receiver, Mr Jenner was a person who, by "whatever named called and whether or not validly appointed to occupy" it, had acted "in the position of a director" within the meaning of s. 60. In this context reference was first made to Corporate Affairs Commission v Drysdale (1978) 141 CLR 236 where it was held that a de facto director who had held over after his de jure term as director had expired was a director for the purposes of s. 124 of the Companies Act 1961 (NSW) which provided by sub-s. (1) that:
A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office.
Mason J noted, at 242:
To say that a person occupies a position or office is to say something more than that he holds the position or office. The first statement denotes one who acts in the position with or without lawful authority; the second denotes one who is the lawful holder of the office.
However, it is important to note the caveat entered by Aickin J at 255:
In these circumstances I am of opinion that it is now too late to say that the word "director" in these sections and their successors is confined to directors properly so called and duly appointed to such office, whatever view I might have taken in the absence of the authorities. This is, however, not to say that the term "director" wherever it is used in the Act bears this meaning. Whether it should be given this meaning in other sections will depend upon the terms, context and purpose of such sections.
Counsel for Selmoore noted that among the authorities relied on by the High Court in reaching the conclusion which it did in Drysdale was Coventry and Dixon's Case (In re Canadian Land Reclaiming and Colonizing Co.) (1880) 14 Ch. D 660. In that case, Jessel M.R. observed, at 664:
I will consider for a moment whether they are so brought within the description of "any officer" of the company. No doubt they were not properly elected, and were, therefore, not de jure directors of the company; but that they were de facto directors of the company is equally beyond all question. The point I have to consider is whether the person who acts as de facto director is a director within the meaning of this section, or whether he can afterwards be allowed to deny that he was a director within the meaning of this section. I think he cannot. We are familiar in the law with a great number of cases in which a man who assumes a position cannot be allowed to deny in a Court of Justice that he really was entitled to occupy that position. The most familiar instance is that of executor de son tort. In like manner, it seems to me, in an application under this section, the de facto director is a director for the purposes of the section. If he had taken the company's money, if by reason of becoming a director he had obtained the power of disposing of the money of the company (which he certainly could do under the 104th clause of the articles of association) and had appropriated it to his own use, would it be tolerable to allow that man to say he had not acquired the money by virtue of his position as a director, and to say he was not a director under this section? This section is a section intended to punish torts or wrongs. The Act does in the 67th section, and elsewhere in Table A, deal with persons who are de facto directors, and there is no violation of the language in treating the de facto as a director for the purposes of this section. But besides that there is the word "officer," which is a larger term. I have no hesitation in saying under the term "officer" these people are guilty of "misfeasance" under the 104th section, for a disqualified director has the power to manage the company, and by his acts to bind the company. In what capacity except as officer of some kind? Whether, therefore, they can be properly described as directors or not (and I think they can be so properly described) I am satisfied they can be included under the term "officer." Therefore, I think they are within the section.
As regards the first point my view is very strongly confirmed, as it appears to me, by the case to which I have been referred of Gibson v. Barton Law Rep. 10 Q.B. 329. There are other sections in this Act, no doubt, in which a manager is liable to be punished, and Mr. Justice Blackburn, now Lord Blackburn, says Law Rep. 10 Q.B. 337 (the particular person referred to in that case never having been appointed manager, but having acted as such): "The question, therefore, is, whether a person who is thus a manager de son tort - a manager in his own wrong - whether he can protect himself from the liability cast upon a manager under sect. 27, by saying `I am not manager de jure.' I think he cannot. There are many instances in which a person who de facto exercises an office cannot defend himself by saying, when he is called upon to bear liability in consequence of his wrong, `I am not rightfully in the office, there is another man who may turn me out.' An executor de son tort is an instance in which a man incurs all the liabilities of an executor as to third persons, and he is not permitted to say, `I am not executor, there is another man why may take out probate.' The answer is, `Your liability as to a third person rests upon your being executor de son tort; you have usurped the office and must bear the liabilities.'"
I am bound by those authorities to accept that a de facto director by whatever named called is a director for the purposes of the misfeasance provisions of the Corporations Law. However, I do not regard an invalidly appointed receiver as occupying or acting in the position of a director or as being a person in accordance with whose directions or instructions the members of the company's board are "accustomed" to act so as to bring such a receiver within s. 60.
I accept that, prima facie, the combined effect of s. 418 and s. 82A(1) is to disqualify from appointment as a receiver a person who has been appointed, or has acted as, a receiver at any time during the previous twelve months. However, I consider that the exclusion from that disqualification effected by s. 418(2) in respect of a receiver appointed under an instrument extends to any person holding such an appointment even if some prerequisite for the making of the appointment or some other condition of its validity has not been satisfied.
Mr Jenner was appointed under the debenture mortgage. The fact that the appointment was liable to be, and was actually, set aside does not mean that he was to be equated with a person who continued to act as a receiver after the invalidity of his appointment had been established, or otherwise, in a way which made him analogous to an executor de son tort. I am reinforced in this conclusion because the categorization by s. 418 of those precluded from acting as receivers appears to be premised on the view that persons with some other existing or prior connection with the assets or affairs of the company or a corporation related to it lack the necessary independence to discharge the functions of a receiver. Such a lack of independence could not be predicated of a registered liquidator whose only prior connection with the company is that an earlier, abortive attempt has been made to appoint him or her as receiver of its property.
For these reasons, I reject the argument that Mr Jenner was disqualified from re-appointment as a receiver on 8 June 1995.
Was the Bank entitled to rely on its demand dated 21 April 1995 to re-appoint Mr Jenner without a further or fresh notice to Selmoore after 5.08pm on 8 June 1995?
For Selmoore or its directors it was argued that the demand by letter dated 21 April 1995 was not available to be relied on immediately upon notice by Mr Jenner of the termination of his purported receivership because there had been no opportunity for the directors of Selmoore to consider that demand at a time when they were, for practical purposes, in possession of Selmoore's assets. It was put that a fresh demand was required to be served after 5.08pm on 8 June 1995 or alternatively some notice should have been given that the demand by letter dated 21 April 1995 was being relied upon.
The need for renewing a demand in circumstances like the present was adverted to in an obiter dictum of Goff J (as his
Lordship then was) in R.A. Cripps & Son Ltd v Wickenden [1973] 1 WLR 944 where it was observed, at 956:
As it seems to me, if I had held the first appointments bad I would have had to have found the second appointments to be bad also, because no person can take advantage of his own wrong. In my judgment the bank could not appoint a receiver until it had restored the company to possession of its assets and renewed its demand. If it could not do that because it had sold the assets, then there might be a serious question whether it had forfeited its right altogether, or would be entitled to appoint a receiver after restoring the proceeds, the company having an action for damages for conversion for any loss not recouped by return of the proceeds, but the bank never affected to do anything of the sort, and I need not pursue that further. (Emphasis added)
That passage was referred to by Parker J in Velcrete Pty Ltd v Melsom (1995) 13 ACLC 799 where, after noting that it had been conceded by the plaintiffs that there had been an effective demand before the invalid appointment of joint and several receivers and managers, his Honour continued, at 809:
I accept the view that in the circumstances of this case there was no need for a fresh demand for payment to issue. In my view, however, the principle formulated by Goff J is somewhat broader than this; it is based on the rationale that "no person can take advantge of his own wrong". It involves a recognition that an invalidly appointed receiver, insofar as he has possession, is not entitled to such possession and is in law a trespasser. That being so, the invalidly appointed receiver cannot take advantage of his unlawful possession by retaining assets pending a valid appointment. As such, whilst it may not, in this case, have been necessary for a fresh demand to issue, there was, in my view, an obligation on the invalidly appointed receivers and managers to restore the company to possession pending a fresh appointment.
This view is supported by O'Donovan in Company Receivers and Managers, 2nd ed., at [7.570] who formulates the principle in the following way:
"If an invalidly-appointed receiver and manager enters into possession and assumes control of the company's property, the debenture holder cannot validly appoint a second receiver and manager until the control of the property is returned to the company and a fresh demand (if necessary) is made on the company."
It may be observed that the learned author also makes a distinction between the obligation to restore possession and the obligation to issue a fresh demand, the second only arising when the circumstances of the case call for it. Reference is also made to R Jaffe Ltd (in liq) v Jaffe (No. 2) [1932] NZLR 195, a case closer to the present case, in the sense that, while there had not been a valid appointment, there was no need to issue a fresh demand but merely a requirement to make an appointment in writing. Smith J, at 202, observed that the company was entitled to have its assets back and the debenture-holder restrained until such time as a valid appointment was made.
Whether there is a need for a fresh demand is in part a question of fact to be resolved having regard to the terms of the mortgage or other contractual document which provides for the making of the demand. In the circumstances of the present case, a fresh demand was necessary because the demand relied on, that made by letter dated 21 April 1996, was not made on Selmoore until after control of its affairs and assets had past de facto into the hands of the receiver. The directors, on resuming control for the brief interregnum between 5.08pm and 5.14pm on 8 June 1995, cannot be taken to have adverted to the need to comply with the demand by letter dated 21 April 1995 which was not served until 28 April by which time control had passed to Mr Jenner.
Had Selmoore been accorded a reasonable time between 5.08pm and 5.14pm on 8 June 1995 to comply with the Bank's demand dated 21 April 1995?
In view of the conclusion which I have reached on the second question posed above, it is strictly unnecessary to answer this question. However, out of deference to the careful arguments addressed by Counsel on what time needs to elapse between the giving of a notice of demand and the appointment of a receiver, I shall indicate my views on this third issue.
It was contended on behalf of the applicant that where, as here, a debt is repayable on demand and there is no apparent source of funds from which the debtor can pay it, only a very short time need elapse between the giving of notice of demand and the appointment of a receiver. In support of this
contention, reference was made to Cripps (Pharmaceuticals) Ltd v Wickenden (supra) where the relevant demands for payment were handed to the company secretary some time before midday on 8 August 1968. The document of appointment was handed to the receiver by an officer of the appointing bank at about 12.30pm on the same day. Goff J observed at 954:
It was argued by the plaintiffs that even where money is payable on demand, still a reasonable time must be given to enable the payment to be made, see Brighty v. Norton (1862) 3 B. & S. 305; Toms v. Wilson (1863) 4 B. & S. 442 and Upjohn J. in Lloyds Bank Ltd. v. Margolis [1954] 1 W.L.R. 644, 649.
Much was made of the speed with which Mr. Stokoe acted, and it was said that he never really gave the company any chance to put up proposals in answer to the letter of August 6, but in my judgment, that is not the point. The question is whether he gave such time as the law requires where money is payable on demand, and the cases show that all the creditor has to do is to give the debtor time to get it from some convenient place, not to negotiate a deal which he hopes will produce the money. I quote from Blackburn J. in Brighty v. Norton, 3 B. & S. 305, 312:
"I agree that a debtor who is required to pay money on demand, or at a stated time, must have it ready, and is not entitled to further time in order to look for it."
Then he went on to deal with the question of the true construction of the proviso in the particular deed in that case which enabled the creditor to curtail a period loan. The significant words for present purposes are in the opening sentence of his judgment which I have just read. The principle is well stated by Cockburn C.J. in Toms v. Wilson, 4 B. & S. 442 in a passage adopted by the Privy Council in Moore v. Shelley (1883) 8 App.Cas. 285, 293. Sir Barnes Peacock, delivering the opinion of the Board in that case, said:
"The case of Toms v. Wilson, which was cited in the court below (there is a similar case in the 3rd Best and Smith [Brighty v. Norton, p. 305] is an authority to show that there was no default to justify the seizure. It may, therefore, be well to refer to what Lord Chief Justice Cockburn says in that case: `we are all of opinion,' he says [at p. 453], `that...by the terms of the bill of sale, the plaintiff was under an obligation to pay immediately upon demand in writing, and if he did not, then the defendants were entitled to take possession of and sell the goods. Here such a demand was made. The deed must receive a reasonable construction, and it could not have meant that the plaintiff was bound to pay the money in the very next instant of time after the demand, but he must have a reasonable time to get it from some convenient place. For instance, he might require time to get it from his desk, or to go across the street or to his bankers for it.'"
It is abundantly plain that Cripps had not got the money and had no convenient place to which they could go to get it. [His Lordship referred to passages in the evidence and continued:] In my judgment therefore, the plaintiffs cannot object on the ground that they were not given time to find the money or that the interval of time between 11 o'clock or shortly before, when the demand was made, and 12 o'clock or later, when the receiver was appointed, was too short.
A similar question was considered in a joint judgment of five members of the High Court in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 51 ALR 609 where it was observed at 618:
However, it is now a well established principle of law that a debtor required to pay a debt payable on demand must be allowed a reasonable time to meet the demand. Even in a case where a deed provided that the debt was payable "immediately upon demand thereof in writing" it was held that the provision must be given a reasonable construction so that the debtor had a reasonable time to get the money from some convenient place (Toms v Wilson (1862) 4 B & S 442 at 453-5; 122 ER 524 at 529). This does not mean that the notice calling up the debt is invalid unless it requires payment "within a reasonable time". It means no more than that the debtor must be allowed a reasonable opportunity to pay before it can be said that he has failed to comply with the demand. A notice requiring payment forthwith will be regarded as allowing the debtor a reasonable time within which to comply. Until a reasonable time in the sense discussed has elapsed the creditor cannot enforce his security. As Pigott B stated in Massey v Sladen, supra, at p 19: "It is not necessary to define what time ought to elapse between the notice and the seizure. It must be a question of the circumstances and relations of the parties, and it would be difficult, perhaps impossible, to lay down any rule of law on the subject, except that the interval must be a reasonable one. But it is quite clear that the plaintiff did not intend to stipulate for a merely illusory notice, but for some notice on which he might reasonably expect to be able to act" (see also at pp 17-18, per Kelly CB; Wharlton v Kirkwood, at 646, per Kelly CB; and Ronald Elwyn Lister Ltd v Dunlop Canada Ltd (1982) 135 DLR (3d) 1 at 16-17).
In Bond v Hongkong Bank of Australia Ltd (1991) 25 NSWLR 286, Kirby P postulated a test based on the "mechanics of payment" observing at 319:
If therefore, as I believe, the requirement to provide "reasonable time" to meet the demand made on the appellant meant no more than to provide him with time within which to mechanically transfer the amount demanded on the guarantee, it has not been contended that such time was not afforded in this case. All of the notices of demand left varying amounts of time. Because of the International Date Line, intervals of hours were left on the first and second demands and of days on the third. It was conceded that mechanically (if that was the correct test) the appellant could have complied with each of the notices of demand. This was not, for example, a case where a demand was made during a weekend when banks in New York were closed. It was not suggested that the day specified for the payment in New York was a bank holiday. Nor was it suggested that time would have been required to secure the approval of Australian or United States exchange authorities so that compliance was impossible. Admittedly, the times allowed by the first and second demands were very short. But as Walton J pointed out in Bank of Baroda v Panessar, the modern means of communication and transfer of moneys require only an "exceptionally short" time.
The artificiality of the argument advanced for the appellant under this head is finally demonstrated by recalling what the appellant himself said during the trial under cross-examination:
"Q. Well, the reality of it is that you are not in a position to honour the guarantee? A. No, I'm not.
Q. And you haven't been in a position since at least 22 March 1990? A. No. Without using the assets of Queensland Nickel I was never in the position when I signed the guarantee, and I make that point.
Q. And your asset situation, as I think disclosed to the bankers, depended very much upon the value of the assets of Dallhold, because you own 99% of that? A. That's correct.
Q. And that company is now in liquidation? A. That company is now in liquidation. Moreover, I would suggest, by this action."
In the light of these answers, and even if an unspecified reasonable time test were adopted different from the "mechanics of payment" test which I prefer, there is little doubt that no extension of time was or would have been adequate to permit the appellant to meet his obligations under cl 3 of the deed of guarantee and indemnity. He could not pay the sum demanded in any of the three notices on demand. He could not pay the sum as specified. He could not pay in a reasonable time. He just could not pay. With becoming candour he acknowledged this. His acknowledgment defeats his argument that he was not afforded a "reasonable time" to comply with the demand, that is, a time reasonable to his means to pay. Indeed, he sought to use his incapacity to pay to bolster his case on the facts as will be shown.
By contrast there has been no admission on behalf of Selmoore in the present case of inability between 5.08pm and 5.14pm on 8 June 1995 to pay the amount of the demand. If, contrary to the conclusion reached in relation to Question 2 above, the demand can be treated as having been revived during that time, that revival occurred outside ordinary business hours on a Thursday evening in June 1995 when, it can be assumed, that local banks would not have reopened for business before 9.30am on the following morning.
Moreover, Mrs Williams has deposed:
There was therefore, after the close of business on Thursday, 8 June 1995 approximately one hour and ten minutes, between the receipt by Selmoore of the Notice of Termination, and receipt by Selmoore of the Notice of Appointment of Mr Jenner as receiver and manager of Selmoore, for Selmoore to comply with
the demand it received on 28 April 1995 after Mr Jenner's purported appointment on 26 April 1995. In the circumstances, it was impossible for Selmoore to comply with the demand made on it on 28 April 1995.
Against that, I was referred by Counsel for the applicant to an affidavit of Joseph John Desira, a Business Banking Manager of the Bank, sworn 9 August 1995 where it was deposed, amongst other things:
Following the meetings, I was very concerned about the ability of Selmoore and Deyman to repay the debts particularly as the Applicants' solicitor, Peter Kennedy, informed me that if the business was not sold by 7 December 1994 it would be closed. Further, Selmoore's overdraft had expired and was due and payable but the company did not appear to have any means to satisfy the debt. I allowed the applicants until the end of December to procure a sale of the assets the proceeds of which would repay the debt owing, inter alia, by Selmoore. However, when there was no indication of any sale, I authorised the service of demands upon Selmoore and Deyman requiring payment of the amounts owing at the end of December 1994.
In February 1994 as it was clear that Selmoore and Deyman could not repay the Bank's debt, management of the account was transferred to the bank's State Credit Bureau in mid February 1995.
That being the state of the evidence, I am unable affirmatively to conclude that Selmoore could not have complied with the Bank's demand after 5.08pm on 8 June 1995 had it been afforded a practicable opportunity to get the money from some convenient place. As well, it should be remembered that there was no scope for the directors of Selmoore to have activated the "mechanics of payment" immediately after service of the demand on 28 April 1995 because, as explained above, they were, from before that time, no longer in control of Selmoore's resources.
Moreover, although it is unnecessary to reach a concluded view on it, I consider that there is much force in the argument advanced by Counsel for Selmoore that a minimum period of one day was required to elapse between the effective giving of a notice of default and the appointment of a receiver under cl. 14.1 of the mortgage debenture. The option conferred by cl. 14.1 of the mortgage debenture is to treat the secured amounts as payable immediately. That option is exercisable in writing and immediately thereafter the Bank may, amongst other things, exercise its power to appoint a receiver. Clause 14.2 indicates that no notice to a debtor is required before the exercise of that option. The same sub-clause goes on to indicate that, if a statutory period is required to elapse before some action can be taken by the Bank, e.g. entry into possession of land as a mortgagee under some state Transfer of Land Act or Conveyancing Act, that period shall, if possible, be excluded, or reduced to one day or such larger minimum period as is permitted by the relevant State Act. However, cl. 14.3 operates generally and is not confined to the circumstances adumbrated in cl. 14.2. It provides that, in the absence of a larger relevant statutory minimum period, the period during which default must continue before the Bank can exercise any of the powers conferred by cl. 14.1 (including the power of appointing a receiver) is one day. On this view, if the demand by letter dated 21 April 1995 could have been regarded as having come into effect or been revived at 5.08pm on 8 June 1995, the power of appointing a receiver could not validly have been exercised before 5.08pm on 9 June 1995.
Accordingly, had it been necessary, I would have rejected the applicant's submissions on the third question as well.
Conclusion
For the reasons explained above the Bank's application must be dismissed with costs.
I certify that this and the preceding twenty-one (21) pages are a true copy of the Reasons for Judgment of his Honour Justice Ryan.
Associate:
Date:
Counsel for the Applicant : Mr A.T. Schlicht
Solicitors for the Applicant : Russell Kennedy
Counsel for the Respondents : Mr R.S. Randall
Solicitors for the Respondents : Cornwall Stodart
Date of Hearing : 6 May 1996
Date of Judgment : 5 May 1997
0
3
0