May v Vincent Smith as Administrator for Cole Engineering Pty Ltd (Under Administration) - [2001] WASC 291

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: MAY -v- VINCENT SMITH as Administrator for COLE ENGINEERING PTY LTD (Under Administration) & ANOR [2001] WASC 291

CORAM: MASTER SANDERSON

HEARD: 15 OCTOBER 2001

DELIVERED : 23 OCTOBER 2001

FILE NO/S: CIV 2589 of 2000

BETWEEN: KENNETH GEORGE MAY
Plaintiff
AND
VINCENT SMITH as Administrator for COLE ENGINEERING PTY LTD (Under Administration)
First Defendant
COLE ENGINEERING PTY LTD (Under Administration) (ACN 008 825 689)
Second Defendant

FILE NO/S :CIV 1709 of 2001

BETWEEN :KENNETH GEORGE MAY
Plaintiff
AND
TOMAS MIJATOVIC
Defendant
RURAL ACTION MOVEMENT OF WA INC
First Third Party
GREGORY OCTAVIUS COLE
Second Third Party

Catchwords:

Practice and procedure - Preliminary questions on assessment of damages on an undertaking given on grant of interlocutory injunction - Turns on own facts

Legislation:

Corporations Act, s 439B(2), s 435C(2), s 435C(3), s 437A(1)(b), s 437A(1)(c)

Result:

Questions answered in affirmative

Category: B

Representation:

CIV 2589 of 2000

Counsel:

Plaintiff:     Mr A Metaxas
First Defendant             :     Ms F C Davis
Second Defendant         :     Ms F C Davis

Solicitors:

Plaintiff:     Metaxas & Vernon
First Defendant             :     Phillips Fox
Second Defendant         :     Phillips Fox

CIV 1709 of 2001

Counsel:

Plaintiff:     Mr A Metaxas
Defendant:     Mr P V Lansell
First Third Party           :     No appearance
Second Third Party       :     No appearance

Solicitors:

Plaintiff:     Metaxas & Vernon
Defendant:     Jackson McDonald
First Third Party           :     No appearance
Second Third Party       :     No appearance

Case(s) referred to in judgment(s):

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249
Henville v Walker [2001] HCA 52
May v Smith [2000] WASC 313
Victorian Onion & Potato Growers' Association v Finnigan [1922] VLR 819
Wardley Australia Ltd & Anor v The State of Western Australia (1992) 175 CLR 514

Case(s) also cited:

Anfrank Nominees Pty Ltd v Connell [1991] 6 WAR 271
Thiess Contractors Pty Ltd v Bond Corporation Pty Ltd, unreported; SCt of WA; Library No 8409; 3 August 1990

MASTER SANDERSON: In CIV 2589/00 an application for determination of certain preliminary questions in relation to an assessment of damages. The application arose in the following way.
On 20 November 2000 the plaintiff issued proceedings against the first and second defendants. The indorsement of claim on the writ was in the following terms:
"1.The plaintiff claims as against the defendant relief under the Corporations Law for the extension of time to convene a meeting under section 439A(6), the removal of the Administrator and the prevention of the placing of the Company into Liquidation by the First Defendant, breaches of duties by the First Defendant causing the plaintiff and the second defendant losses contrary to the interests of creditors.
2.The plaintiff claims losses as a result of the actions of the First Defendant, including losses to the Second Defendant, breach of fiduciary duty and other duties under the Corporations Law."
Reading that indorsement of claim it is somewhat difficult to know precisely what the plaintiff's claim might be. As matters transpired, what was important to the plaintiff was that a meeting of creditors convened by the administrator pursuant to s 439A(6) not take place. The plaintiff sought and obtained an interlocutory injunction which, relevantly, was in the following terms:
"… the time period affixed by s 439B(2) of the Corporations Law be extended by 28 days and that the adjourned meeting of the meeting of creditors not be held before 21 days from today's date unless otherwise ordered by the Court."
The plaintiff's application for an interlocutory injunction was accompanied by the usual undertaking as to damages. A written undertaking was filed at the same time as the writ and the chamber summons seeking the injunction. It is in the following terms:
"The plaintiff undertakes to the Court that he will pay to any party affected, restrained or affected by the restraints imposed by this application for an interlocutory injunction or relief as the case may be or to any party affected by any interim orders of the Court as made, such compensation as to the Court may in its discretion consider in the circumstances to be just, such compensation to be assessed by the Court or in accordance with such directions as the Court may make and to be paid in such manner as the Court may direct."
Pursuant to the liberty to apply granted to the defendants by the terms of the injunction, on 29 November 2000 the defendants applied for its discharge. The matter came on for hearing before his Honour Justice Roberts‑Smith who discharged the injunction and gave written reasons for doing so: see May v Smith [2000] WASC 313. The defendants then sought an assessment of damages they say were occasioned by the grant of the injunction. The claim for damages was supported by an affidavit of the first defendant sworn 1 June 2001. The defendants' claims are as follows:
1.$26,300.34 being trading losses of the first defendant for the period 20 November to 11 December 2000 ('the damages period');
2.$26,408.36 plus GST for the first defendant's costs as administrator of the second defendant for the damages period; and
3.$16,586.90 for Norgard Clohessy on the basis that this was a discount on fees that should (could) have been rendered by the first defendant or to him.
(The third limb of this claim has subsequently been dropped. We are concerned now only with items 1 and 2.)
The plaintiff sought and obtained an order that two questions be tried as a preliminary matter prior to the assessment of damages. The two questions are as follows:
1.Whether the first and/or second defendants are entitled to bring for assessment of damages:
(a)any claim in respect of trading losses of the second defendant during the period 20 November to 11 December 2000; and
(b)any claim for professional fees written down by Norgard Clohessy for that period; and
2.Whether the claim of the first and/or second defendants can include professional fees and disbursements charged to the second defendant during the period 20 November to 11 December 2000, which fees and disbursements would have been incurred in the administration of the second defendant in any event.
Before dealing with these two questions there is one other matter which should be mentioned. The plaintiff has also initiated proceedings against the solicitor who represented him on the application for an injunction and at the hearing where the injunction was discharged: see May v Mijatovic, CIV 1709/01. In these proceedings the plaintiff alleges that his former solicitor was negligent. He claims damages. Whatever the amount of these damages might be, there is no doubt that they would include any damages for which the plaintiff was found liable in these proceedings. That being the case, counsel for the defendant Mijatovic in CIV 1709/01 was granted leave to appear and make submissions on the preliminary questions. Further, in the proceedings CIV 1709/01 the defendant obtained leave to issue third party proceedings against an individual and an association. Neither of these two third parties has filed an appearance. At the commencement of this hearing counsel for Mijatovic sought and obtained an order that the third parties in proceedings CIV 1709/01 would be bound by any determination as to damages made in these proceedings. Counsel for Mijatovic provided evidence that notice of this hearing had been given to both third parties in the related proceedings. The order was made without objection from either the plaintiff or the defendants in this action.
Before dealing with the issues raised by this application I should say something about the evidence. In his affidavit of 1 June 2001 the first defendant sets out what occurred following the grant of the injunction. Paragraph 5 through to par 7 of his affidavit read as follows:
"5.As a result of the injunction being imposed, administration of the company was extended by 21 days. Accordingly, the company incurred losses associated with the continued operation over this period. There were also professional costs and disbursements incurred both by myself and my staff during this period, as a direct result of the injunction.
6.The creditors meeting of 20 November 2000, that was cancelled as a result of the injunction, was rescheduled to 11 December 2000. This was the first date on which the meeting could reconvened pursuant to section 439A of the Corporations Law. At the meeting on 11 December 2000, a resolution was made by the creditors to wind up the Company.
7.I verily believe that if the injunction had not been imposed, the Company's creditors would have elected to wind up the Company at the meeting originally scheduled to take place on 20 November 2000. At that time, it was my recommendation to wind up the company."
The first defendant then sets out his calculation of the trading losses incurred by the company between 20 November 2000 and 11 December 2000 and details his professional costs and disbursements for the same period. He then continues in par 11.
"11.The professional costs that myself and my staff incurred by reason of the injunction were significant by reason of the difficulties experienced as a result of the injunction and the complications that arose therefrom. The difficulties and complications include:
11.1Prior to the injunction I had a number of discussions with certain parties who were interested in purchasing the business of the company. Immediately prior to the grant of the injunction, I was advanced in discussions with Mrs Sue Head of CBH Direct in New South Wales. Those discussions related to the purchase of the business as a going concern. The purchase price being discussed was in excess of the auction values of the land and buildings and plant and equipment. Therefore, I was keen to maintain their interest, as I saw that it represented the best chances of the maximising the value of the business. This became very difficult after the grant of the injunction, as Mrs Head expressed concern to me that it did not appear that I was in a position to be able to deliver the business to her, and that she was concerned that damage was being done to the business. Accordingly, I had to increase my dealings and contact with Mrs Head in order to keep her fears allayed, and to ensure a possible sale of the business was not jeopardised.
11.2The ongoing management of the trading matters of the business was a time consuming task. The management of the ongoing trading of Cole Engineering was particularly difficult because the business was trading at a loss at the time the injunction was imposed and because I was having difficulty in obtaining reliable information on the trading results from the directors of the company, Mr and Mrs Cole. Relations with Mr and Mrs Cole were very strained. The injunction necessarily extended the period of the trading of the company, in which I had to continue to deal with Mr and Mrs Cole on trading matters.
11.3The fact that the reconvened second meeting of the creditors was injuncted. This caused a great deal of confusion for the creditors. As a result of that, my staff and I received numerous queries from creditors after the scheduled meeting seeking information about the impact of the injunction upon them, whether they still needed to deal with the administrators, and how long it was likely to last. It was necessary for me to communicate in writing with many of the creditors to answer these queries and to keep them advised.
11.4By reason of the injunction, it was necessary for me to reconvene and chair a further meeting of creditors. It was also necessary for me to report in writing to the creditors prior to this meeting."
The arguments put by the plaintiff and the defendants can conveniently be summarised in this way. The plaintiff says that he should only be liable for the costs incurred by the defendants in adjourning the creditors meeting which was to have taken place on 20 November 2000, but which did not take place until 11 December 2000. For instance, such costs would include costs associated with advising creditors that the meeting was cancelled, the costs of mailing out notices of the reconvened meeting, any costs associated with organising a new venue and like matters. But any trading losses sustained by the company and the costs of the administration, it was submitted, did not directly flow from the injunction obtained by the plaintiff. The injunction the plaintiff obtained prevented a meeting being held on 20 November. The injunction did not by its terms require that the first defendant continue to keep the company trading, or that he incur professional fees. This was a decision, so it was submitted, that was unrelated to the terms of the relief granted to the plaintiff by the injunction.
On behalf of the defendants it was submitted that the administrator intended to recommend at the reconvened creditors meeting that the company be placed into liquidation. All the evidence suggests that the creditors would have supported that recommendation. After all, that is what they did on 11 December when the meeting was eventually held. That would have meant that the administration would have come to an end on 20 November 2000, not on 11 December 2000. It was submitted that the administration was prolonged directly as a consequence of the grant of the injunction. On this basis it was submitted that the trading losses and the professional fees incurred were properly damages which flowed from the injunction and should be paid by the plaintiff.
During the course of her submissions counsel for the defendants referred to the decision of the High Court in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249. This was the only authority referred to by either party during the course of the hearing. Aickin J, at first instance, traced the development of the undertaking as to damages and the way in which it had been applied: at 259 ‑ 266. His Honour refers to the statement of principle expressed by Cussen J in Victorian Onion & Potato Growers' Association v Finnigan [1922] VLR 819 at 822. His Honour then concluded (at 266 ‑ 267):
"In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case. … However it will in my opinion be seldom that it will be just or equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time."
When considering the basis upon which an assessment of damages awarded under an undertaking is to be made, it is, I think, relevant to look carefully at the terms of the undertaking. Two things immediately emerge. First, the undertaking gives to the Court the widest possible discretion in the assessment of damages. That being the case it is questionable whether or not the principles which govern the assessment of damages in tort or contract are of any assistance. Secondly, the notion of causation is introduced by the use of the words "affected by". Both counsel accepted that any award of damages pursuant to the undertaking must be based on some causal connection between the granting of the injunction and the loss suffered. Essentially the difference between the parties was a matter of degree.
The broad terms of the undertaking are, in many respects, analogous to the damages provision found in s 82 of the Trade Practices Act 1974. That section reads as follows:
"A person who suffers loss or damage by conduct of another person that was done in contravention of the provision of Part IV, or IV(B) or V or section 51AC may recover the amount of loss or damage by action against that other person or against any person involved in the contravention."
The way in which damages are to be assessed under that section has been the subject of discussion in numerous cases, among them the High Court decision of Wardley Australia Ltd & Anor v The State of Western Australia (1992) 175 CLR 514. Discussing the nature of the assessment of damages under s 82(1) the majority (Mason CJ, Dawson, Gaudron and McHugh JJ had this to say (at 525):
"The statutory cause of action arises when the plaintiff suffers loss or damage 'by' contravening conduct of another person. 'By' is a curious word to use. One might have expected 'by means of', 'by reason of', 'in consequence of' or 'as a result of'. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s82(1) should be understood as taking up the common law practical or common‑sense concept of causation recently discussed by this Court in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act."
This question received further consideration from the High Court in the recent decision of Henville v Walker [2001] HCA 52. The facts of that case are, for present purposes, immaterial. It is enough to say that the High Court was concerned with the question of causation and damages payable pursuant to s 82. On this question, McHugh J said (at 97):
"The common law concept of causation recognises that conduct that infringes a legal norm may be causally connected with the sustaining of loss or damage even though other factors may have contributed to the loss or damage. Every event is the product of a number of conditions that have combined to produce the event. Some philosophers draw a distinction between a condition that is necessary only and a cause that is both necessary and sufficient to produce the event. The common law has avoided the technical controversies inherent in the logic of causation. Unlike science and philosophy, the common law is not concerned to discover universal connections between phenomena so as to enable predictions to be made. The common law concept of causation looks backward because its function is to determine whether a person should be held responsible for some past act or omission. Out of the many conditions that combine to produce loss or damage to a person, the common law is concerned with determining only whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of the damage."
His Honour went on to consider a number of other cases and then concluded (at 106):
"If the defendant's breach has "materially contributed" to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions have played an even more significant role in producing the loss. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In the exceptional cases, where an abnormal event intervenes between the breach and the damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional."
In my view, in the circumstances of this case the act on the plaintiff's part of obtaining the interlocutory injunction and so preventing the reconvened meeting of creditors taking place was a direct cause of the loss suffered by the defendants. It is at least arguable that it was the sole cause of such loss. After all, faced with the injunction, what was the first defendant to do. The administration did not come to an end once the injunction was granted: see s 435C(2) and s435C(3). The administrator was then left with the powers given to him by s 437A(1). Effectively then he was faced with the prospect of carrying on the business (under s 437A(1)(b)) or terminating or disposing of all or part of the business (under s 437A(1)(c)). The first defendant has said in his affidavit that he was anxious to dispose of the business as a going concern. That being the case, he had no alternative but to continue to trade. It was submitted by counsel for the plaintiff that it was open to the administrator to terminate the business and so not incur any further losses. But based upon what the first defendant says in his affidavit, that course of action would not have maximised the returned creditors. In my view, in all respects the first defendant acted reasonably. It follows then that the trading losses incurred and the professional fees charged are both aspects of damage flowing from the grant of the injunction.

Even if it is not possible to conclude that the losses claimed by the defendants were a direct result of the grant of the injunction, in my view the grant of the injunction materially contributed to the loss or damage suffered. It may be that it was the decision to continue to trade which can be said to have been the direct cause of the losses and costs being incurred. I am not satisfied that this is an exceptional case where any abnormal event has intervened so as to break the causal connection between the granting of the injunction and the loss and damage suffered by the defendants.
Based on the above I would answer both questions in the affirmative. I will hear the parties as to what further orders should be made and as to costs.