King v Peters

[2007] NSWSC 200

CITATION:	King v Peters [2007] NSWSC 200
HEARING DATE(S):	5 & 6 March 2007
JUDGMENT DATE :	9 March 2007
JUDGMENT OF:	Hammerschlag J
DECISION:	That the Notice of Motion dated 12 December 2006 be dismissed. No order as to costs.
CATCHWORDS:	CORPORATIONS – Winding up – Application for leave to proceed against a company in liquidation sought under s.500(2) Corporations Act 2001 (Cth) – Requirements for leave – Whether applicant as partner in a dissolved partnership with receivers appointed has standing to bring a claim in relation to partnership property
LEGISLATION CITED:	Corporations Act 2001 Uniform Civil Procedure Rules 2005 (NSW)
CASES CITED:	Murray v King (1984) 4 FCR 1 Ogilvie-Grant v East (1983) 7 ACLR 669 Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373
PARTIES:	Larry Edward King & Anor v Mark Arthur Peters & Anor
FILE NUMBER(S):	SC 005348/2005
COUNSEL:	S Chrysanthou (Plaintiffs/Cross Defendants) G Mahony (2nd Defendant/Cross Claimant)
SOLICITORS:	Speed and Stacey Lawyers (Plaintiffs/Cross-Defendants) Purcell Lawyers (2nd Defendant/Cross-Claimant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMMERSCHLAG J

9 March 2007

5348/2005
LARRY EDWARD KING & ANOR v MARK ARTHUR PETERS & ANOR

JUDGMENT

1 By notice of motion dated 12 December 2006, Mrs Tina Peters seeks leave pursuant to s 500(2) of the Corporations Act 2001 to proceed with an Amended Statement of Cross-Claim against Mendarma Pty Ltd (in liquidation) (“Mendarma”), the fifth cross-defendant to that pleading. That pleading was filed in the proceedings on 15 September 2006.

2 The proceedings arise out of a partnership to which Mrs Peters and her husband Mark Arthur Peters had with Mr Larry Edward King and Mrs Pamela Elizabeth King, the plaintiffs in the proceedings. The proceedings were commenced by Summons claiming various orders in relation to the now dissolved partnership which was known as “The Written Bloodstock” and which operated a horseracing syndicate. Apart from a declaration as to dissolution of the partnership and the appointment of receivers and managers to the partnership property, the Summons seeks the taking of partnership accounts. Originally, and on 9 November 2005, a Statement of Cross-Claim had been filed on behalf of both Mr and Mrs Peters. However, Mr Peters became bankrupt and by operation of provisions of the Bankruptcy Act 1966 (Cth) his trustee was deemed to have abandoned his proceedings.

3 The Amended Statement of Cross-Claim was filed so as to reconstitute the cross-claim without Mr Peters as a cross-claimant. However, at the time of its filing Mendarma was in liquidation and no leave was then sought to proceed. On 2 November 2005 this Court appointed Mr A M Sims to be the receiver and manager of the partnership giving to him, mutatis mutandis in relation to the partnership, the powers provided for in s 420 of the Corporations Act. The Court ordered the then parties namely, Mr and Mrs King and Mr and Mrs Peters, to deliver all assets of the partnership in their custody, possession, control or power to the receiver and manager within seven days of the making of the order.

4 Mendarma itself had administrators appointed to it on 3 November 2005 and liquidators were appointed on 30 November 2005. The consent of the administrators under s 440D of the Corporations Act was obtained on 8 November 2005.

5 Mr Peters was the sole director of Mendarma. Mrs Peters was never an officer or member of or shareholder in Mendarma.

6 The background to the cross-claim is, in brief terms, set out below.

7 Denham Properties Pty Limited (“Denham”) is a company associated with the Kings.

8 The defendants to the Amended Statement of Cross-Claim are the Kings (as first and second cross-defendants), Denham (as third cross-defendant), Mr Donnelly and Ms Duggan (as fourth cross-defendants) and Mendarma (as fifth cross-defendant).

9 Mendarma had entered into certain transactions with Denham including:

a an instrument described as a Mortgage over Horses (“the Mortgage”) dated 15 June 2005;

b an instrument dated 12 May 2004 described as a Deed of Option over Horses (“the Option”); and

c a loan agreement dated 12 May 2004 with Denham as lender and Mendarma as borrower (“the Loan Agreement”).

10 It was not made clear to me precisely what the relationship was between the business of the partnership and the various transactions between Denham and Mendarma. However, the transactions appear to presuppose that the particular horses concerned were the property of Mendarma.

11 On about 26 October 2005 Mr Donnelly and Ms Duggan were appointed by Denham as receivers and managers of the horses asserted to be the subject of the Mortgage.

12 The cross-claims in respect of which leave is sought to proceed against Mendarma, fall into two broad categories:

a the first category is relief including declaratory relief that the partnership is the sole beneficial owner of the horses so that they were never subject to the Mortgage (prayers 1, 5, 7(a) and 8 which could also be in category 2); and

b the second category consists of orders going to the validity or effectiveness of the Mortgage and the Option insofar as they purport to operate on the horses (including relief based on an asserted proper construction of those instruments), and with respect to the Loan Agreement, relevantly here, insofar as it purports to give rise to a debt payable by Mendarma. This second category also includes an estoppel claim asserted to affect the operation of the transactions (prayers 2, 3, 4, 6 and 7(b)).

13 There is also a claim for an injunction restraining the fourth cross-defendants (i.e. the Denham appointed receivers and managers of the horses) from dealing with the horses and a claim for damages against the fourth cross-defendants for trespass, including aggravated and exemplary damages which relief would flow, it seems, from success in either category.

14 The liquidator of Mendarma has not appeared to oppose or to consent to the relief sought. The evidence reveals that these proceedings have been before the Court on at least eleven occasions between March 2006 and December 2006 and that Mendarma has never appeared. The evidence also reveals that one of the liquidators of Mendarma informed a meeting of creditors on 30 March 2005 that legal advice had been sought with respect to Denham’s charge over Mendarma (presumably the Mortgage) and that the liquidators were preparing to commence proceedings. No proceedings have been commenced.

15 I will deal in turn with each of the two categories of claims sought to be brought against Mendarma.

16 Ms S Chrysanthou of counsel appeared for Mr and Mrs King, Denham and the Receivers and Managers appointed by Denham under the Mortgage. She initially put that leave should be refused because Mrs Peters had no standing to bring those claims in that they related to partnership property and only the receiver and manager appointed by the Court could bring them given the powers the Court conferred upon him. However she accepted that the appointment of a receiver to partnership property gives him no more than possession of the assets in respect of which he is appointed and that his appointment does not in any way affect any right to the property in question. The law is that the Court itself has possession by the receiver and his possession is by all parties to the action according to their titles: Murray v King (1984) 4 FCR 1 at 7 citing with approval Kerr on Receivers 15th Ed at 130. In appointing a receiver the Court deals with the possession only, until the right is determined, if the right be in dispute: Kerr and Hunter on Receivers and Administrators 18th Ed at 138 par 6-4. An attempt by a partner to interfere with the exercise of the receiver’s duties or to deal with property vested in him constitutes contempt of court.

17 The submission on the first category crystallised into one that, as a matter of discretion, leave should not be given because the receivers were not joined as parties, coupled with the fact that the partnership had been dissolved and the claim was purportedly brought on behalf of the partnership. The issue concerns whether the partnership and not Mendarma was the sole beneficial owner of the horses in question. Mrs Peters seeks nothing that interferes with the receiver’s powers or the exercise of his duties but rather looks to ensure that property which is asserted to be partnership property is declared so to be, which, it seems to me would result, if the order was granted, in the parties having to deliver possession of the horses up to the receiver. I do not accept the submission that Mrs Peters should be denied leave on the basis ultimately articulated.

18 Joinder of the receiver would not strictly be necessary given that he is Court appointed in the proceedings themselves. His non-joinder would also not defeat the proceedings: Part 6 Rule 6.23 Uniform Civil Procedure Rules 2005 (NSW). It will be a matter for the Court if and when leave is ultimately given to determine the conditions such as joinder or the obtaining of an appropriate confirmation from the receiver to be bound by the order upon which it is given. It would be prudent before such leave is sought for the applicant first to ascertain the receiver’s attitude to making the claim himself and to inform the Court of it.

19 There is however, a further hurdle which an applicant for leave must overcome. One of the policies behind provisions such as s 500(2) is that “without the relevant restriction, a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well in some cases unnecessary”: Ogilvie-Grant v East (1983) 7 ACLR 669 at 671-672 per McPherson J.

20 Before leave will be granted the Court needs to be satisfied that there is a real dispute between the parties, that is, the evidence must establish the existence of a serious claim and a real dispute: Vagrand Pty Ltd (in liq) v Fielding & Or (1993) 10 ACSR 373 at 380.

21 The first category claims stem from the basal proposition pleaded in paragraph 6 of the Amended Statement of Cross-Claim that, as at the date of dissolution, the partnership was the sole beneficial owner of the horses concerned.

22 There is no evidence adduced by Mrs Peters which establishes any foundation for this, let alone a solid one. The only evidence sought to be adduced and to which my attention was drawn by Ms G Mahony of counsel who appeared for the cross-claimant, is paragraph 13 of the affidavit of David John Purcell sworn 12 December 2006 in which the deponent says:

“The main issue for determination in these proceedings is whether a significant number of bloodstock (which have since been sold by the Fourth Cross-Defendants in their purported capacity as Receivers and Managers of Mendarma) were in fact owned by Mendarma or were owned by The Written Bloodstock syndicate as alleged by Mrs Peters”.

Ms Mahony relies also on the fact that the Amended Statement of Cross-Claim is verified. That is not evidence substantiating the claims.

23 In the circumstances I consider, in relation to the first category, that the cross-claimant has not met one of the threshold requirements for leave to proceed and I consider that leave should accordingly be refused.

24 As to the second category, Ms Chrysanthou put that these claims were bound to fail because they were in substance claims by a stranger to transactions as to the efficacy or otherwise of those transactions. For example, a declaration is sought that the Mortgage was not validly entered into, alternatively is void, and declarations as to construction are also sought.

25 It was put that Mrs Peters has never had an interest by way of shareholding in Mendarma and is not one of the persons referred to in s 236(1) of the Corporations Act who might bring proceedings in Mendarma’s name. Section 236(3) abolishes the right of a person at general law to bring, or intervene in, proceedings on behalf of a company.

26 It is clear, in my view, that the second category consists of claims concerning the operation of instruments to which Mendarma and not Mrs Peters is a party and that those claims if they are to be brought cannot be brought by her.

27 Moreover, Ms Mahony accepted that the relief claimed in relation to the efficacy of the various transactions had no impact on what was or was not partnership property. If the Mortgage, for example, was void but the partnership did not own the horses, they would revert unencumbered to Mendarma. Perhaps this is merely a symptom of the substantive proposition, which I accept, that the cross-claimant has no standing on what is pleaded to seek the relief which is sought in relation to those transactions.

28 The orders sought in this category appear to be solely for the benefit of Mendarma which would accordingly have no interest in any opposition. Although no costs would be incurred by Mendarma if it merely stood by, there is real difficulty with the nature of the second category of claims sought to be brought impermissibly on its behalf. The necessity to seek leave because Mendarma is made a party is merely a by-product of that difficulty. Such claims should not be the subject of leave.

29 For these reasons I consider that leave should be refused with respect to the second category as well.

30 In addition, part of the claims in the second category concerns an estoppel affecting the operation of the instruments. There is no evidence to establish any foundation for the estoppel claimed. This is an additional difficulty with this category.

31 There are also, it appears to me, difficulties with the form of the pleading. For example paragraph 7 alleges that Mr Peters executed the Loan Agreement and Option without the prior knowledge, consent or authority of Mrs Peters. It is difficult to see how that can be a relevant averment against Mendarma. The same can be said of paragraph 9(a) which alleges that the Mortgage was entered into without her prior knowledge. There are also prayers for relief concerning the construction of documents where the issue does not appear from what is pleaded. These are additional reasons, although not determinative, why I consider leave should be refused.

32 I do mention however, that there are averments in the Defence of the Amended Statement of Cross-Claim on behalf of the Kings, Denham and the receivers and managers to the horses asserting ratification by Mrs Peters of the Loan Agreement, the Option and the Mortgage. These may have their own difficulties. Ms Chrysanthou indicated that if leave were granted then application to strike out would follow. Although leave is refused, it is open to Mrs Peters to overcome the threshold she has failed to meet with respect to the first category of claims and to move the Court afresh. Either way, it seems to me the parties need to give fresh and earnest consideration to their pleadings in this case.

33 Ms Chrysanthou put that leave should be refused because of delay on the part of Mrs Peters. I do not accept that any basis for exercising a discretion against Mrs Peters on the basis of delay was made out.

34 There are a number of considerations pertinent to the issue of costs. Firstly, Ms Chrysanthou put that she was appearing to draw particular matters to the Court’s attention but on the basis that those for whom she appeared neither consented nor opposed the relief sought. Although it seemed clear to me that she was in substance opposing the relief and that particularly the second category of claims were directly adverse to all of those for whom she appeared, she maintained the stance that she neither consented nor opposed the application and put that even if leave were granted an order for costs should not be made against her clients but should be in the cause. This appeared to me to be trying to have a bet each way, namely, seeking to protect the opponents against an order if leave is granted but to get an order if leave is refused. I do not think the applicant can have it both ways. Secondly, although leave was refused on the first category it was not refused on the basis of what was originally put by Ms Chrysanthou. Thirdly, the delay submission did not find favour. The consequence of these matters is, in my view, that even though leave has been refused, there should be no order as to costs.

35 The orders are that Notice of Motion dated 12 December 2006 is dismissed. There is no order as to costs.

36 The matter will be stood over to the list of the Registrar in Equity for directions.

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