Lester v Chilcott & Son Pty Ltd
[1991] TASSC 36
•18 February 1991
Serial No 4/1991
List "A"
COURT: SUPREME COURT OF TASMANIA
CITATION: Lester v Chilcott & Son Pty Ltd [1991] TASSC 36; A4/1991
PARTIES: LESTER
v
D H & L S CHILCOTT & SON PTY LTD
FILE NO/S: 249/1990
DELIVERED ON: 18 February 1991
JUDGMENT OF: Underwood J
Judgment Number: A4/1991
Number of paragraphs: 39
Serial No 4/1991
List "A"
File No 249/1990
LESTER & ANOR v D H & L S CHILCOTT & SON PTY LTD
REASONS FOR JUDGMENT UNDERWOOD J
18 February 1991
On 5 November 1990, the learned Master made an order that the first and fourth defendants provide further and better answers to interrogatories numbered 1(a) to 5 inclusive, administered by a document dated 4 August 1990. He further ordered that the costs of the application upon which the order was made be costs in the cause. This is an appeal against those orders.
By a writ and statement of claim the respondent (plaintiff) D H & L S Chilcott & Son Pty Ltd, commenced proceedings against five defendants, all of whom were alleged to have been directors of Industrial Fish Tasmania Pty Ltd (the company). The statement of claim alleges that "between in or about April 1989 and February 1990" the respondent, at the request of the company, supplied certain labour and materials being electrical works to a total value of $313,007.11. The statement of claim sets out a list of 31 invoices showing with respect to each a number, a date and an amount. The earliest date is 17 May 1989 and the latest is 27 February 1990. By way of particulars subsequently delivered, the respondent pleaded that in about June 1989 the first defendant, as agent for the company, told an agent of the plaintiff that "he" was going ahead with a fish factory at Triabunna and that "he" wanted the respondent "to do all electrical works associated therewith" and asked for an estimate. An estimate of $600,000.00 was particularised as having been supplied and the first defendant told the agent of the respondent "that he should commence to do the necessary electrical works which the plaintiff agreed to undertake on a do and charge basis".
By their defences, the first and fourth defendants (the appellants) put these allegations in issue.
After alleging that the prices were reasonable prices the statement of claim pleads that the company has paid only $174,062.80 leaving a sum due of $138,944.31. This sum is claimed by the respondent together with interest.
The statement of claim alleges that between June 1989 and January 1990, all defendants were directors of the company. In his defence, the first defendant admits this allegation and the fourth defendant pleads that he was a director between August 1989 and January 1990. The statement of claim proceeds as follows:
"8On the 27th day of April 1990 receivers and managers were appointed in respect of all of the assets and property of the company present and future used to conduct the company's business as fish processor at Triabunna in the State of Tasmania pursuant to an Instrument of Charge dated the 29th day of January 1989 between the company and the Honourable Robin Gray and the Tasmania Bank registered in the Register of Company Charges at Hobart in Tasmania on the 21st day of February 1989.
9In the premises, the company is a company to which section 556 of the Companies (Tasmania) Code applies.
10At the times that each of the debts referred to in paragraph 3 were incurred, there were reasonable grounds to expect that the company would not be able to pay all of its debts as and when they became due or alternatively there were reasonable grounds to expect that if the company incurred that debt, it would not be able to pay all its debts as and when they became due."
The appellants joined issue with all of the foregoing allegations. Learned counsel for the respondent was unable to tell me, during the course of argument, whether the respondent's case was that there was one contract between it and the company or several contracts made over the period of time referred to. However, counsel for the appellants was content to proceed with his submissions on either basis. However, if the case is one of several contracts no case is pleaded against the appellants with respect to any agreement made after January 1990, for it is not alleged that either was a director after that time.
The interrogatories, which the appellants refused to answer and which are the subject matter of this appeal are as follows:
"1 Look at the copy document annexed hereto and marked 'A' and say:–
(a)Does that document accurately represent the financial position of the company as at 27th April 1990, and if not in what respects is it inaccurate.
2 On each of:–
(i) 17th May 1989;
(ii) 5th June 1989;
(iii) 10th August 1989;
(iv) 10th September 1989;
(v) 13th September 1989;
(vi) 31st October 1989;
(vii) 1st November 1989;
(viii) 29th November 1989;
(ix) 16th January 1990;
(x) 16th February 1990;
(xi) 27th February 1990;
excluding any debt incurred on that date by the company to the Plaintiff:–
(a) What debts did the company then have which were then due for payment.
(b)What cash or other resources (specify the resources) did the company then have to pay those debts.
3 On each of the dates listed below:–
(a)Did you have grounds to expect that the company would not be able to pay all of its debts as and when they became due; and
(b) If yes, what were those grounds.
(i) 17th May 1989;
(ii) 5th June 1989
(iii) 10th August 1989;
(iv) 10th September 1989;
(v) 13th September 1989;
(vi) 31st October 1989;
(vii) 1st November 1989;
(viii) 29th November 1989;
(ix) 16th January 1990;
(x) 16th February 1990;
(xi) 27th February 1990;
(c) If no, what facts matters or circumstances do you rely upon.
4 On each of the dates listed below:–
(a) Did the liabilities of the company exceed its assets; and
(b) If yes, then give your best estimate of the amount of that excess.
(i) 17th May 1989;
(ii) 5th June 1989;
(iii) 10th August 1989;
(iv) 10th September 1989;
(v) 13th September 1989;
(vi) 31st October 1989;
(vii) 1st November 1989;
(viii) 29th November 1989;
(ix) 16th January 1990;
(x) 16th February 1990;
(xi) 27th February 1990;
5 On 27th April 1990 was a Receiver and Manager appointed in respect of the assets and property and undertaking of the company."
The document referred to in interrogatory 1(a) is a copy of a report as to the affairs of the company and a statement verifying it. On its face, the report appears to be a document prepared pursuant to the provisions of the Companies Code, s328(1) or 329(1), the former of which (so far as is material) provides:
"Where a receiver of property of a company ... is appointed ... the persons who were directors ... of the company ... at the date of the receiver's appointment [my emphasis] shall ... make out and submit to the receiver a report in the prescribed form as to the affairs of the company ... as at the date of that appointment".
The report appears to be signed by the second, third and fifth defendants but not the appellants, and the statement verifying it appears to be made by the second defendant. The report is some 25 pages long and discloses (inter alia) that the estimated realisable value of the assets is in excess of $6.3m but that the estimated deficiency is in excess of $2.3m. It sets out in detail, all the information required to be set out by the Code, reg3(1), form 30.
The appellants refused to answer interrogatories 1(a) to 4 inclusive on several grounds expressed in each case next to the interrogatory. Although the grounds of objection were not common to all interrogatories, in all cases, objection was taken (inter alia) on the grounds of oppression and relevance. Thus it is appropriate to consider in the first place, some matters of principle.
The administration of interrogatories is permitted by the Rules of Court, O33, r1(1). The scope of permissible interrogatories is restricted by r1(2) which deems irrelevant any interrogatory which does not "relate to any matter in issue". With respect to the meaning of that expression, Gibbs J in Sharpe v Smail& Anor (1975) 49 ALJR 130 at 133 referred to "the well settled principle that interrogatories may be directed not only as to matters directly in issue but also to facts which are relevant to some question in issue". See also Potter's Sulphide Ore Treatment Ltd v Sulphide Corporation Ltd (1911) 13 CLR 101; Carr v Denny, Chambers J 2577. The common law position finds succinct expression in pars(a) and (b)(i) of O33, r3(1) which provides that interrogatories may be administered with respect to:
"(a) an admission of any fact which the party interrogating is required to prove on issue between himself and the opposite party; or
(b) any of the following:–
(i) An answer as to–
(A)any fact directly in issue between the party interrogating and the opposite party; or
(B)any fact, the existence or non–existence of which is relevant to the existence or non–existence of any fact directly in issue between the party interrogating and the opposite party;"
Whether or not a question falls within the scope of O33, r3(1) is determined by reference to pleadings and particulars. See Ring–Grip (Australasia) Pty Ltd v H P M Industries Pty Ltd [1971] 1 NSWLR 798 at 800; Aktiengesellshaft für Autogene Aluminium Schweissungv London Aluminium Co Ltd [1919] 1 Ch 67 at 76.
The pleaded cause of action relies on the provisions of the Companies Code, s556(1) which provides:
"If–
(a) a company incurs a debt, whether within or outside the Territory
(b) immediately before the time when the debt is incurred–
(i)there are reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or
(ii)there are reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and
(c)the company is, at the time when the debt is incurred, or becomes at a later time, a company to which this section applies,
any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred is guilty of an offence and the company and that person or, if there are two or more such persons, those persons are jointly and severally liable for the payment of the debt."
Subsection (3) provides that proceedings under subs(1) for the recovery of debt may be brought whether or not any person has been convicted of an offence under that section. Subsection (2) provides a statutory defence in the following terms:
"In any proceedings against a person under sub–section (1), it is a defence if the defendant proves–
(a)that the debt was incurred without his express or implied authority or consent; or
(b)that at the time when the debt was incurred, he did not have reasonable cause to expect –
(i)that the company would not be able to pay all its debts as and when they became due; or
(ii)that, if the company incurred that debt, it would not be able to pay all its debts as and when they became due."
Thus, it can be noted that, unlike its predecessor, the Companies Act (Tas) 1962, s303(3) (which imposed only criminal liability), the Code, s556(1) imposes both criminal and civil liability and such liability arises without establishing the actual knowledge of the director/defendant. See 3M Australia Pty Ltd v Kemish (1985) 10 ACLR 371 where Foster J said at 375:
"A prima facie liability in a director of the company or a person in a managerial position, can be established without proof that such person had any personal knowledge of, let alone involvement in, the incurring of the relevant debt. Such matters form no part of the ingredients of the offence."
His Honour went on to say:
"It is to be noted that questions of knowledge of and participation in the incurring of the relevant debt are now relegated to the status of factual matters which may arise should the defendant seek to establish one of the statutory defences afforded by the provisions of section 556(2)."
Neither of the appellants have pleaded any of the matters referred to in s.556(2) and therefore, such matters are not questions in issue. See Rules of Court, O21, r17.
Therefore, the questions in issue (so far as is relevant for present purposes) are:
1 Did the company incur a debt or debts to the respondent.
2Immediately before that time or times (i.e. between in or about April 1989 and February 1990 or on divers dates between those two dates),
(a)were there reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due or,
(b)were there reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due?
The reasonableness of the grounds involves an objective test and must be judged by the standard appropriate to a director or manager of ordinary competence. See 3M Australia Pty Ltd v Kemish (supra) at 373. In Heide Pty Ltd (Trading as Farmhouse Smallgoods) v Lester & Anor (1990) 8 ACLR 958, O'Bryan J postulated the test in the following terms at 963:
"To succeed, the plaintiff must prove on the balance of probabilities that at the relevant time a reasonable and prudent person, in the position occupied by each defendant as a director, with their state of knowledge of the company, would not have reasonable grounds of expectation of the company being able to pay all its debts as and when they become due if the company incurred the debt."
Applying the words of Wilson J in Shapowloff v Dunn (1981) 148 CLR 72 at 85, but bearing in mind that in that case his Honour was referring to the Companies Act (NSW), s303(3) which concerned itself with the subjective test, O'Bryan J said in Heide's case, also at 963:
"In determining whether the company would be able to pay the debt as and when it became due, all the cash resources available to the company, including credit resources, are to be looked at and in determining those credit resources there are to be taken into account the times extended to the company to pay its creditors, on the one hand, and the times within which it will receive payment of debts owing to it on the other hand."
Foster J in 3M Australia Pty Ltd v Kemish (supra) expressed this issue in the following terms at 378:
"I have come to the conclusion that, as a matter of construction, it lies upon a plaintiff, in establishing the head of liability constituted by section 556(1)(a) and (b)(i) and (c) to prove the existence of facts at the time of the incurring of the subject debt which would reasonably induce a director or manager of ordinary competence to anticipate or predict that the company would clearly be unable to pay all its debts as and when they became due. Nothing short of this will satisfy the section."
In the Court of Appeal (NSW) Mahoney J said in Dunnv Shapowloff (1978) 3 ACLR 775 at 789,790:
"Whatever meaning be given to 'expectation' it goes beyond a mere hope or possibility. It requires, in a sense, a prediction as to the future ability of the company and the measure of the reliability of that prediction is in the words 'reasonable or probable'. Where the company's ability is seen as affected by a number of contingencies, it will be proper in determining whether, in a particular case, that prediction has the necessary degree of reliability to take into account the margin available to accommodate matters such as an unfavourable outcome of contingencies and costs which have been unprovided for."
Although his Honour was there referring to the former New South Wales s303(3) his comments are applicable to the use of the word "expect" in the Code, s556(1).
The foregoing, together with the question of whether the company, after the debt was incurred, was a company to which s556(1) applies, are "the matters in question" and the appellants can be required (subject to any other ground of objection) to answer interrogatories relevant to those matters and/or which fall within the scope of the Rules of Court, O33, r3(1).
At the commencement of the appeal I decided to hear argument from both sides with respect to each interrogatory seriatim. At the conclusion of argument on interrogatory 1(a) I made an oral ruling that it would be oppressive to require the appellants to answer it. At the conclusion of argument on interrogatory 2, it became clear that I would have to reserve my decision with respect to it and the following interrogatories. In the circumstances then, it is appropriate that these reasons should deal with all interrogatories as if no order had been made with respect to the first.
If the respondent's case on the statement of claim, relies upon a single agreement it was, according to the particulars, made in June 1989. If the respondent's case relies upon many separate agreements, they were made between June 1989 and February 1990. How the respondent puts its case with respect to the amounts invoiced prior to June 1989 is unclear. Interrogatory 1(a) refers to the "financial position" of the company as at 27 April 1990, ten months after the agreement was made on the first view of the respondent's case and three months after the last agreement was made on the second view of the respondent's case (bearing in mind that it is not alleged that either appellant was a director after January 1990). Clearly, the "financial position" of the company immediately before the debt or each debt was incurred is a relevant fact. Equally clearly, the "financial position" of the company within a reasonable time before and after the material time is a fact relevant to a fact in issue. What is a reasonable time is a question of degree in each case but, as learned senior counsel for the appellants was content to put his argument on either view of the respondent's case, I am satisfied that the "financial position" of the company, that is, the assets and liabilities of the company and all those other matters referred to by Mahoney J. in Dunn v Shapowloff (supra), at the material time and within a reasonable time before and after the material time, are facts in issue or facts relevant to facts in issue.
Order 33, r9(2) empowers the court or a judge to disallow all or any of the interrogatories on the grounds specified in the sub–rule including "any other grounds they or it should be disallowed". This rule incorporates the equitable rules of practice common in all Australian jurisdictions.
Although the "financial position" of the company at 27 April 1990 is a fact relevant to a fact in issue, interrogatory 1(a) poses the question with reference to a document prepared by persons other than the appellants. This document does more than assert relevant facts. It contains many expressions of opinion the formulation of most of which require expert knowledge. It is unnecessary to refer to this aspect of the document in detail. Page 1 is a summary of what is there described as the company's assets and liabilities. It contains two columns of figures one is entitled "Valuation" and the other, "Estimated Realisable Value". Page 2, headed "Interests in Land", refers to two properties. Five columns have been completed headed "Valuation", "Estimated Realisable Value" "Valuation for Rating Particulars – Purposes of Tenancy", "Where Deeds may be Obtained", "Short Particulars of Title". The amounts attributed to each of the listed assets of the company are shown in two columns, one headed "Book Value" and one headed "Estimated Realisable Value". That is sufficient to show that the document on which interrogatory 1(a) is founded contains many matters of opinion and consequently, that interrogatory contains many questions of opinion and not fact and for that reason alone, the appellant should not be compelled to answer it. See Rofe v Kevorkian [1936] 2 All ER 1334 at 1338; American Flange and Manufacturing Co Inc v Rheem (Australia) Pty Ltd [1965] NSWR 193 at 199.
Having regard to the detail contained in the document annexed to interrogatory 1(a) it is clear that, although the interrogatory is expressed in the form of a single question, in reality it comprises very many questions. It was on this basis I took the initial view that it would be oppressive to require the appellants to answer it. See American Flange and Manufacturing Co Inc v Rheem (Australia) Pty Ltd (supra) at 198. I adhere to that view but my considered opinion is that oppression does not arise because the interrogatories inquire about (inter alia) matters of opinion.
Learned counsel for the respondent submitted that the provision of the answer sought by interrogatory 1(a) could not be described as oppressive as there was a statutory duty under the Companies Code to produce the same information. Whilst there is considerable force in that submission, as the pleadings do not allege that either of the appellants were directors at the date of the appointment of the receiver, and as there is no suggestion that the receiver has required either of the appellants to submit any report, in the circumstances of this case there is nothing to suggest that the appellants were under any statutory compulsion to supply the information set out in form 30 either by virtue of s328(1) or 329(1).
With respect to interrogatory 2, learned counsel for the appellants also submitted that an answer would require the appellants to make enquiries of others, not their servants or agents and this, they are not obliged to do. This argument is not open to the appellants. The interrogatory is not answered, "I do not know"; it was not answered at all. Objection was taken to making any answer and expressed to be based on the grounds of relevance, matter of law, fishing, vagueness and oppression. Therefore, this submission proceeds upon an assumption, not deposed to, that the appellants do not know the answer nor do they have any information, knowledge and belief as to the answer and cannot obtain such information, knowledge and belief without making enquiry of persons not their agents or servants. If all of the objections to making any answer failed, an order for a further and better answer should be made. Such further and better answer may or may not ground this submission.
"The answer given to these interrogatories is insufficient. It does not state that proper – or indeed any – enquiries have been made, and it is quite consistent with the answer given that if the defendant had made further enquiries he could have obtained further information which he might have believed to be true. It is well established that a party interrogated must answer to the best of his knowledge, information and belief (unless he objects to answer) and that, to use the words of Bankes LJ in Douglas v Morning Post Ltd (1923) 39 TLR 402 at 403, if he affirms as to one of these elements he must affirm as to all three. It is not enough to say that he has no knowledge because he is bound also to answer according to information acquired from servants or agents who have gained it in that capacity, and where appropriate his answer must show he has made all proper enquiries and that having made them, he has no information enabling him to answer further." – Per Gibbs J, Sharpe v Smail (supra) at 132.
This proposition was applied by Blackburn CJ in Derham v Amev Life Insurance Co Ltd (1978) 20 ACTR 23 at 24. See also, Cupresak v Clifton Bricks (Canberra) Pty Ltd (1984) 57 ACTR 32.
The general rule is that a person interrogated is only obliged to make enquiry of his or her servants or agents. See for example, Hawkes v Schubach [1953] VLR 468; Sharpe v Smail (supra); Ormond v Gunnersen [1920] VLR 402. This obligation is couched in the following terms in Hawkes v Schubach (supra) at 472:
"As a general rule, therefore, a party may be interrogated as to his own knowledge and he may also be interrogated as to his information and belief obtained from persons, such as servants or agents, with whom he is, in connection with the particular transaction or event that gives rise to the litigation, in such legal relationship that he is entitled to ascertain their knowledge. (McMeckan v Aitken (supra); Ormond v Gunnersen, [1920] VLR 402). He is not bound, however, to enquire or answer as to knowledge which his servants or agents may have happened to acquire outside the course of their employment by him."
In cases where the appropriate servant or agent has ceased to be a servant or agent at the time the interrogatories have to be answered, Blackburn CJ in Derham's case referred to the following passage from National Trustees, Executors and Agency Co Of Australasia Ltd v Christian [1933] 39 ALR at 111:
"The question, therefore, comes to the second objection raised, that there is a rule that an interrogated party is not bound to make enquiries from a person who was his agent at the time of the transaction, but who is not his agent at the time he is interrogated. I think that is not a rule, and I do not find any authority showing that it is a rule."
Blackburn CJ went to say that his Honour in that case held that the fact that the agency had been terminated did not relive the party interrogated from making enquiry but of course, refusal to give the information would no doubt excuse the giving of an answer. With the qualification that the duty extended only to make enquiry of such former servants or agents as is reasonable, Blackburn CJ adopted the passage he cited. This would appear to be the position in the United Kingdom where the party interrogated is obliged to make all reasonable enquiries of persons who were servants or agents at the material time. See Stanfield Properties Ltd v National Westminster Bank Ltd [1983] 2 All ER 249. However, as interrogatory 2 has not been answered at all, this point does not arise for decision.
With respect to this interrogatory it was also submitted that the question was directed to a matter of law or mixed law and fact on the basis that whether a debt exists and when it is due for payment involves a question of law. Generally, interrogatories as to matters of law are not allowed. See Corsair Consolidated Gold Mines Ltd v Gray (No 1) (1889) 5 ALR 112. Whilst this objection might be good with respect to some of the debts of the company, indebtedness and liability to make payment does not necessarily always involve a question of law or a question of mixed law and fact and in my opinion, the blanket objection is not made out.
With respect to interrogatory 3, although the expectation of the appellants as to the ability of the company to pay all its debts as and when they become due, is not a fact in issue as the statutory defence is not pleaded, it might be said that it is a fact relevant to a fact in issue namely, whether there were in fact reasonable grounds for such ability.
However, it is unnecessary to consider this further for in end result, I have come to the firm view that to require the appellants to answer interrogatories 2 to 4 inclusive would be oppressive and unreasonable. Together, those interrogatories seek in excess of 60 answers. Assuming that the document annexed to interrogatory 1 is an indication of the size and complexity of the company's affairs at the date it purports to have been made, the burden placed on the appellants if required to answer all of these questions is extremely weighty. Notwithstanding the preparedness of counsel for the appellants to deal with this appeal on the basis that either the cause of action is a breach of one contract or a breach of several contracts, clarification of the pleadings in this respect is fundamental to a proper understanding of what interrogatories are proper. The material issue on the pleadings is whether there existed reasonable grounds to expect that the company could pay all its debts as and when they became due immediately before the time the debt was incurred. The respondent is presently unable to identify that time and consequently, there can be no justification requiring the appellants to answer a multitude of complex financial questions on 11 separate dates over a period of some nine months.
Interrogatory 5 asks if a receiver and manager was appointed on 27 April 1990. The answer given is as follows:
"The first named defendant believes that, on or about the 27th day of April 1990, the Honourable Michael Field and the Tasmania Bank purported to appoint receivers and managers in respect of the affairs of the company pursuant to an Instrument of Charge dated the 29th of January 1989 but otherwise refuses to answer this interrogatory on the grounds that it is oppressive and requires a legal conclusion".
The question's reference to an appointment must be construed as a reference to a valid appointment. Whether or not an appointment is valid is a question of law. A receiver and manager may be appointed by order of the court or under a power contained in an instrument of charge. In the latter case the validity of an appointment will depend on a number of facts including whether the event stipulated in the instrument as an event of default has occurred and whether the chargee has exercised the power given by the instrument in accordance with its terms. Interrogatory 5 asks no relevant question or questions of fact which would ground a submission in law that there was a valid appointment of a receiver and manager. It asks for a conclusion in law to be drawn from facts and, consequently the appellants should not be required to answer it.
In result therefore I would allow the appeal and set aside the Master's order that the appellants answer interrogatories numbered 1(a) to 5. I will hear counsel with respect to the question of costs of the proceedings before the Master and on this appeal.
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