Lardis v Free

Case [2014] FCA 304

FEDERAL COURT OF AUSTRALIA

Lardis v Free [2014] FCA 304

Citation: Lardis v Free [2014] FCA 304
Parties: MICHAEL VICTOR LARDIS v STEWART FREE
File number: NSD 1514 of 2013
Judge: FARRELL J
Date of judgment: 31 March 2014
Catchwords:

CORPORATIONS - winding up on just and equitable grounds - potential breaches of directors’ duties - assignment of choses in action by liquidator - whether Court approval required pursuant to s 477(2B) of the Corporations Act 2001 (Cth) - protection of position of contributories - whether directions should have been sought by liquidator

COSTS - case terminated before the end of the hearing -  position of liquidator where plaintiff and where defendant - whether liquidator in effect plaintiff -  discretionary factors - whether liquidator entitled to indemnity from assets of the company   
Legislation: Corporations Act 2001 (Cth)
Cases cited:

AMC Commercial Cleaning (NSW) Pty Ltd v Coade [2013] NSWSC 332
Cant, Re Novaline Pty Ltd (in liq) [2011] FCA 898
Hypec Electronics Pty Ltd (in liq) v Mead [2004] NSWSC 731
Ibrahim v Peri Australia Pty Ltd [2013] NSWCA 328
In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568
International Cat Manufacturing Pty Ltd (in liq) v Rodrick (No 2) [2013] QSC 307
One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548
Re London Metallurgical Company [1895] 1 Ch 758
Re Minister for Immigration and Ethnic Affairs, Ex parte Lai Qin (1997) 186 CLR 622
Re Wilson Lovatt & Sons Limited [1977] 1 All ER 274
Silvia v Brodyn Pty Limited [2007] NSWCA 55
Date of hearing: 24 and 25 March 2014
Date of last submissions: 25 March 2014
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 70
Counsel for the Plaintiff: Mr M Condon SC with Mr P Wallis
Counsel for the Defendant: Mr F F F Salama
Solicitor for the Plaintiff: Pryor Tzannes & Wallis
Solicitor for the Defendant: Moray & Agnew

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1514 of 2013
BETWEEN:

MICHAEL VICTOR LARDIS
Plaintiff
AND:

STEWART FREE
Defendant

JUDGE:

FARRELL J

DATE OF ORDER:

31 MARCH 2014

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The defendant’s costs be costs in the liquidation of Amazon Pest Control Pty Limited

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1514 of 2013
BETWEEN:

MICHAEL VICTOR LARDIS
Plaintiff
AND:

STEWART FREE
Defendant

JUDGE:

FARRELL J

DATE OF ORDER:

27 MARCH 2014

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

2.The defendant is granted approval pursuant to s 477(2A) and s 477(2B) of the Corporations Act 2001 (Cth) (Corporations Act) to enter into a deed of assignment with Michael Victor Lardis in the form of Exhibit B in these proceedings.

3.The defendant is granted approval pursuant to s 477(2A) and s 477(2B) of the Corporations Act to enter into a deed of assignment with…

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AGLC
Lardis v Free [2014] FCA 304
Case
[2014] FCA 304
Decision Date

CaseChat Overview and Summary

In the case of Lardis v Free, the primary dispute involved the entitlement of Mr. Free to have his costs covered by the liquidation of a company, as well as the validity of his actions as liquidator in assigning the company’s choses in action. The court was tasked with determining whether Mr. Free's actions in assigning the company's claims against its directors were consistent with his duties as liquidator, and if he should be indemnified from the company's assets for his costs.

The legal issues before the court included whether Mr. Free's assignment of the company's claims complied with statutory requirements, specifically under sections 447(2A) and 447(2B), and whether his actions were in good faith and reasonable. Another key issue was whether Mr. Free should be allowed to recover his costs from the company's assets. The court also had to consider the conduct of both parties in relation to the deeds of assignment and whether there was an opportunity to avoid adversarial proceedings by proposing amendments.

The court found that although Mr. Free's conduct could be criticised, it was not sufficiently lacking in good faith or unreasonable to deny him indemnity from the company's assets. The court held that Mr. Free's actions were within the scope of his duties as liquidator, and it was appropriate for his costs to be considered costs in the liquidation. Furthermore, the court ruled that both parties could have avoided protracted litigation by proposing amendments to the deeds of assignment, which would have been more persuasive for an award of costs. The court also concluded that it was not appropriate to make an order as to costs as the matter had been resolved through the parties' agreement on the deeds of assignment.

The court ordered that Mr. Free's costs be costs in the liquidation of the company, reflecting its view that Mr. Free's actions, while not ideal, did not breach his duties as liquidator to an extent that would justify denying him indemnity. This decision underscores the importance of liquidators acting within their statutory powers and the court's willingness to consider the broader context of the proceedings when making decisions on costs.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

Is Mr Free entitled to an order that his costs be costs in the liquidation of the Company? Mr Lardis has argued that he is the effective defendant because Mr Free said that he would sign the deed of assignment with Mr Lakis unless Mr Lardis approached the Court. Although there is some force to this argument, had Mr Free approached the Court for approval under s 447(2A) or s 447(2B) in the conduct of his duties as a liquidator (as Mr Lardis argued that he should do), it is likely that his costs would have been costs in the liquidation. I do not consider Mr Free’s conduct lacking in good faith or sufficiently unreasonable to deny him indemnity from the assets of the Company. I will therefore order that Mr Free’s costs be costs in the liquidation.Conclusion Both counsel submitted at the hearing that it was not for his client to propose amendments to the deeds of assignment as the issues became clearer. I disagree: it was open to both to propose amendments to the deeds to the effect now adopted in Exhibits A and B, albeit that Court approval would have been required to the adoption of that form, as there are now no creditors available to approve Mr Free entering into deeds which now have substantive requirements which may occur more than three months after the deeds are executed. Either party’s argument for an award of costs would have been substantially more persuasive had either attempted to avoid adversarial proceedings by proposing amendments. I note that Mr Free did ask Mr Lardis for any comments on a number of occasions and that he did accommodate comments made by Mr Lakis. The course adopted by agreement between the parties avoids the need for final determination of the application and it is substantially congruent with the assignment considered by North J in Novaline which protects the interests of creditors and contributories. This is a preferable course to absolute assignment of claims unless the claims have been valued and consideration reflecting that value is obtained or there are some other factual circumstances justifying the assignment in that form.

Ratio Decidendi

Legal Principle Established

In relation to the agreed statement of issues: although at the commencement of the hearing Mr Lardis abandoned his contentions that approval had not been obtained pursuant to s 477(2A) to the assignment of the choses in action at the creditors’ meeting on 26 April 2013, the question of whether s 477(2B) court approval was required superseded that point. The resolution did not refer to a particular form of deed. It is not now necessary to determine whether or not the deeds propounded by Mr Free constituted a “compromise”. There remains the question of whether Mr Free acted consistently with his duties in propounding deeds in the form which he did on 7 May 2013. The assertion in the pleadings is that Mr Free acted beyond power – that is what is meant by “fraud on the power” – not that he acted fraudulently. CONSIDERATION Subject to the issue of whether Mr Free should be entitled to recover his costs out of the assets of the Company, I consider that this is a case in which it is not appropriate to make an order as to costs. It was only at the commencement of the hearing that Mr Lardis resiled from his contention that a resolution authorising the liquidator to compromise debts in excess of $100,000 by the assignment of the Company’s cause of action against the directors for $1 had not been passed at the creditors’ meeting on 26 April 2013. That position was unsustainable but it informed the correspondence which preceded Mr Lardis’ application to the Court on 26 July 2013. It remained a live issue in the Statement of Agreed Facts filed in early March 2014. I accept Mr Salama’s submissions that Mr Lardis’ case was substantially framed by the contention that Mr Free had no authority to propound the deeds and approval of the Court was required under s 477(2B), without specification of the clauses in the draft deeds of assignment which might have required such approval until submissions were filed in March 2014 preparatory to the hearing. This is so even though Mr Lardis only sought to amend the application filed on 26 July 2013 on 5 March 2014 to make claims based on s 477(2A) and s 477(2B). I accept Mr Free’s observation that the deeds could have taken effect without the draft clauses 4(c) and 6 and his evidence that he would have been willing to make those deletions had Mr Lardis sought that amendment. Further, while it is not necessary for me to decide the point, I do not consider that Novaline is, as contended in the correspondence, authority for the proposition that Court approval would be required to an absolute assignment of a chose in action because it would require the discharge of obligations by performance more than three months after the deeds are executed: the factual situation in Novaline was different from an absolute assignment which is complete once notice has been given to the debtor. Having said that, the correspondence from Mr Free’s lawyers failed to address the complaint clearly made by Mr Lardis’ lawyers on 26 June 2013 and 12 July 2013 that the result of the absolute assignment was to deprive Mr Lardis of a share in the proceeds of any successful claims against him or a share in the consideration for the true value of the right being assigned which he would obtain as a contributory in the distribution of surplus upon the winding up of a solvent company. I accept Mr Condon’s submission that this controversy would have remained even if Mr Lardis had specified clauses 4(d) and 6 of the draft deeds of assignment as the provisions which required creditor or Court approval under s 477(2B).