Martyniuk v King

[2002] VSC 388

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 7115 of 1999

VLADIMIR MARTYNIUK	Plaintiff
v
CECIL KING and ORS	Defendants

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JUDGE:	DODDS-STREETON J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	6 September 2002
DATE OF JUDGMENT:	9 September 2002
CASE MAY BE CITED AS:	Martyniuk v King and Ors
MEDIUM NEUTRAL CITATION:	[2002] VSC 388

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CORPORATIONS LAW - Receiver appointed until trial of proceeding or further order – Whether receiver justified in seeking directions as to passing of final account upon discharge – Entitlement to seek release from particular liabilities upon discharge – Investigation of claims where release is sought - Corporations Act s.432 - Supreme Court Rules – Order 39.07.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M. Bevan-John	Peter Lustig
For the Defendant	Mr A. Schlicht	Corrs Chambers Westgarth

TABLE OF CONTENTS

Outstanding Issues............................................................................................................................ 2

Background......................................................................................................................................... 2

Relevant Legislation, Rules and Legal Principles....................................................................... 4

Conclusion........................................................................................................................................... 6

HER HONOUR:

Outstanding Issues

1. In this matter the principal issues in dispute have been resolved by the agreement of the parties.  The plaintiff and the third defendant each seek an order terminating the receivership of the receiver, Mr Dean McVeigh, over the assets and undertaking of the Watts Castlecrown Unit Trust of which the third defendant was, and is (unless removed in consequence of the appointment of the receiver by the order of Warren J on 14 August 2000) the corporate trustee.  The first defendant and the second defendant did not appear at the hearing before me. 

1. Before me, Mr Bevan‑John, who appeared for the third defendant, also represented the receiver.  Application for the discharge of a receiver should normally be made not by the receiver but by a party to the proceeding.  Although the receiver should have notice of an application for discharge, he or she should usually not appear.[1] 

   [1]Picarda, H.  The Law Relating to Receivers & Managers and Administrators, Butterworths, 2000 pp. 504-505; O’Donovan, J., Company Receivers and Administrators, Looseleaf service, paras 30-100.

1. There are now two outstanding issues between the plaintiff and the third defendant.  The plaintiff seeks:

(a)an order that the third defendant pay the plaintiff’s costs of the hearing on 22 March 2002

(b)an order that there be provision for the plaintiff to apply should it decide to do so, for an assessment of damages should the court hereafter be of the opinion that the plaintiff has sustained any by reason of the adjournment ordered on 22 March 2002 which the receiver ought to pay.

Background

1. The present proceeding was commenced by writ filed on 6 October 1999. 

1. The plaintiff is and was a unit holder in the Watts Castlecrown Unit Trust (“the Unit Trust”) of which the third defendant, Illawong Retirement Equity Pty Ltd, was the corporate trustee.  The first and second defendants were the other unit holders of the Unit Trust.  In essence, the plaintiff alleged, inter alia, breach of an agreement to transfer to him certain units in the Unit Trust, breach of related agreements and breach of the fiduciary duty by the trustee. 

1. Due to the breakdown of the working relationship between the unit holders, there was ultimately a dead‑lock in the management of the affairs of the Unit Trust.  In order to address the resulting impasse and other relevant circumstances, such as the failure of the Unit Trust to lodge taxation returns since 1986, Warren J, on the application of the second defendant, on 14 August 2000 appointed Mr Dean McVeigh receiver of the assets and undertaking of the Unit Trust “until the final determination of the plaintiff’s summons filed 24 May 2000 and the subject of a reserved judgment of the Honourable Justice McDonald or the trial of the proceeding (as the case may be) or further order.”

1. The trial of the proceeding was set down for 15 March 2002 with an estimate of approximately five days.  No judge was allocated that day.  On 15 March 2002, Mr Lustig, the solicitor for the third defendant, became aware that a settlement was likely, albeit not concluded. 

1. It was not until 18 March 2002 that Mr Lustig learnt that the other parties had settled.  Mr Lustig deposes, in his affidavit sworn 21 March 2002, to advice from counsel that the receiver was required to complete a report on discharge.  The report was not ready by March 2002, as a trial, and an interval prior to receiving judgment, had been anticipated. 

1. On 18 March 2002 the third defendant did not consent to the orders proposed by the other parties, on the ground that they did not address the position of the receiver and the consequences of his discharge. 

1. At the hearing before Warren J on 18 March 2002 it was submitted on behalf of the third defendant that there were concerns about the solvency of the Unit Trust and that the receiver had incurred personal liability in respect of certain contracts entered or adopted in the course of the receivership. 

1. In particular, it was submitted that one of the companies in which the Unit Trust had an interest was under a deed of company administration, pursuant to which the third defendant as trustee was obliged to fund litigation against the plaintiff for breach of director’s duty.  The third defendant expressed apprehension that, should the receivership determine, control of the trustee would pass to the plaintiff and it was unlikely that he would cause the trustee to fund the litigation.  It was feared that the company under deed of administration would then become insolvent, the Unit Trust would become insolvent and the receiver’s indemnity would, in consequence, be of no value. 

1. The third defendant further contended that an appropriate course for the discharge of a court appointed receiver was for the receiver to bring in his account and draw the court’s attention to relevant matters.  Mr Bevan‑John pointed to commentary indicating that the court had power, in making an order of discharge, to protect its appointed officer, who should first place before the court information about claims which should be investigated. 

1. In that context, on 18 March 2002 the third defendant ultimately sought an adjournment in order, inter alia, to put affidavit material before the court.  Subject to a caveat on the potential liability for costs, Warren J granted an adjournment until 22 March 2002. 

1. Before me, Mr Bevan-John further submitted that the third defendant required the adjournment on 18 March 2002 in order, inter alia, to fulfil

(a)the requirement established by s.432 of the Corporations Act 2001, which provides that a controller (which under s.9 of the Corporations Act 2001 includes a receiver) must lodge an account within one month after the controller ceases to be a controller of property of the corporation [s.432(b)]

(b)the requirements of Order 39.07 of the Supreme Court Rules.

Relevant Legislation, Rules and Legal Principles

1. Rule 39.07(1) of the Supreme Court Rules provides that “unless the court otherwise orders, a receiver shall submit accounts in accordance with this rule”.  Rule 39.07(2) provides: 

“A receiver shall submit accounts to such parties and at such intervals or on such dates as the court may direct.”

1. While s.432(1)(b) of the Corporations Act 2001 requires the “lodging” of an account (defined in s.9 of the Corporations Act 2001 as to “lodge with ASIC in this jurisdiction”) it does not impose any duty to submit accounts to interested parties. Although the obligation under s.432(1)(b) could have been complied with had the receiver been discharged on 18 March 2002, the requirements of Rule 39.07 constitute a distinct and different obligation.

1. In the present case, the court had not, as at 18 March 2002, made any directions as to the submission of accounts.  It could be argued that there was therefore no obligation to submit accounts under Rule 39.07.  That is, it might be contended that where there are no directions under Rule 39.07(2), there is no obligation under Rule 39.07(1).  That seems an unconvincing construction.  A receiver could justifiably seek to have his or her obligation in relation to passing of final accounts clarified. 

1. The third defendant, in seeking to clarify the fulfilment of the obligation, could have sought a direction on 18 March 2002 that the receiver submit his account at a date subsequent to discharge.  However, there were concurrent concerns respecting liabilities which the receiver had undertaken, of which he sought to notify the court.  Therefore the third defendant sought an adjournment until 22 March 2002 by which date the receiver’s report, which is Exhibit “DMcV1” to the affidavit of Dean McVeigh sworn 21 March 2002, was prepared. 

1. Although the issue has not been the subject of extensive argument before me, it would appear that where the order appointing a receiver does not contain specific provisions for discharge, and directions are not given with the judgment, it would generally be necessary to make application to the court for an order of discharge and related directions.[2]  The receiver, if he or she had already passed the final accounts, would receive notice of the application.  If the receiver had not passed his or her accounts at that stage, the order of discharge would usually give directions for the passing of the accounts.[3] 

   [2]See authorities cited in O’Donovan, supra, paras 30-90. 

   [3]Ibid, para 30-130.

1. Further, it would appear that a receiver may approach the court and seek an order for release from particular liabilities, on the basis of appropriate material upon discharge.  In IRTC v Hoogstraten (CA) [1984] 3 WLR 933 at 944 Dillon LJ observed that:

“It has always been recognised that the court has power, by making an order for release and discharge, to protect its officer, whether a sequestrator or a receiver, from all liability for acts done in the course of his duties.  As I have indicated earlier in this judgment, it would be wrong to exercise this power without first investigating or making provision for the investigation of claims of which the court has notice.”

Conclusion

1. The power of the courts to make an order for costs is, by s.24 of the Supreme Court Act, within the discretion of the court.  The discretion must be exercised judicially.  In all the circumstances, for the reasons outlined above, I do not consider that the third defendant’s conduct in seeking an adjournment on 18 March 2002 was such as to justify an order that the third defendant pay the plaintiff’s costs of the hearing on 22 March 2002. 

1. There may ultimately be a further issue to be decided in relation to this proceeding.  On 22 March 2002, the court was unable in the time available to consider in detail the material adduced by the third defendant.  The third defendant sought orders, including orders addressing the re‑appointment of the trustee (if removed by the appointment of the receiver), the discharge of the receiver, the submission of accounts and delivery up.  While those orders were not opposed by the plaintiff, the plaintiff refused to consent to an undertaking and an order requiring payment of certain taxation liabilities, which were sought by the third defendant. 

1. The parties were unable to agree, and as Warren J was unable to hear the matter, the trial of the proceeding was adjourned to a date to be fixed. 

1. In the intervening period, the receiver’s concerns about his liabilities have been resolved.  The parties are agreed that the receiver should now be discharged. 

1. In ordering the adjournment on 22 March 2002, Warren J required the receiver, Mr McVeigh to “proffer in a personal capacity to abide by any order the court may make as to damages in case the court should hereafter be of the opinion that the plaintiff or the second defendant shall have sustained any by reason of the adjournment herein which the receiver ought to pay”. 

1. Although there is no evidence currently before the court, Mr Schlicht, counsel for the plaintiff, has foreshadowed that in future an application for assessment of damage might be made.  In making such an assessment, it may be necessary for the court to consider further the matters raised at the hearing on 22 March 2002.  It is unnecessary for me to do so now.  At this stage, it is necessary only to make an order providing for liberty to apply for such an assessment.

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