Mujkic Family Company Pty Ltd v Clarke and Gee Pty Ltd
[2017] TASSC 49
•1 December 2017
[2017] TASSC 49
COURT: SUPREME COURT OF TASMANIA
CITATION: Mujkic Family Company Pty Ltd v Clarke & Gee Pty Ltd [2017]
TASSC 49
PARTIES: MUJKIC FAMILY COMPANY PTY LTD (ACN 110 386 457) in its own right and as trustee of the Mujkic Family Trust
MUJKIC, Asim
MUJKIC, Goran
vCLARKE & GEE PTY LTD (ACN 161 543 102)
t/as Clarke & Gee Lawyers
LESTER, William Frederick
FILE NO: 2041/2017
DELIVERED ON: 1 December 2017
DELIVERED AT: Hobart
HEARING DATE: 23 November 2017
JUDGMENT OF: Holt AsJ
CATCHWORDS:
Professions and Trades – Lawyers – Duties and liabilities – Solicitors' duties to other persons – Generally – Negligence – Existence of duty of care – Company in liquidation – Instructions by contributory to make application to terminate winding-up – Claim by company that duty of care owed to it by solicitor – Whether interests of contributory coincident with interests of company in liquidation – No coincidence of interests – If there was coincidence of interests, the company in liquidation had a liquidator to protect its interests - No duty of care owed by the solicitor to the company in liquidation capable of arising.
Badenach v Calvert [2016] HCA 18; (2016) 257 CLR 440 and Woolcock Street Investments Pty Ltdv CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 considered.
Aust Dig Professions and Trades [1180]
REPRESENTATION:
Counsel:
Plaintiffs: M A Karam
Defendants: S B McElwaine SC
Solicitors:
Plaintiffs: McInnes Wilson Lawyers
Defendants: Shaun McElwaine + Associates
Judgment Number: [2017] TASSC 49
Number of paragraphs: 13
Serial No 49/2017
File No 2041/2017
MUJKIC FAMILY COMPANY PTY LTD in its own right and as trustee of the
Mujkic Family Trust, ASIM MUJKIC and GORAN MUJKIC v
CLARKE & GEE PTY LTD t/as Clarke & Gee Lawyers and
WILLIAM FREDERICK LESTER
REASONS FOR JUDGMENT HOLT AsJ
1 December 2017
On 6 February 2015 the Supreme Court of Queensland ordered that Mujkic Family Company Pty Ltd (the company) be wound up in insolvency and appointed a liquidator. The company had been the trustee of the Mujkic Family Trust (the trust) and on 10 December 2015 the liquidator was appointed as receiver and manager of the trust. In the statement of claim it is alleged that on 25 July 2016 an order was made pursuant to the Corporations Act 2001 (Cth), s 482, terminating the winding up of the company. The receivership of the trust was also terminated. In February 2015, shortly after the winding up order had been made, Mr Asim Mujkic, being the sole director (but because of the winding up in insolvency having no function or power as an officer of the company), and also being a contributory of the company, a creditor of the company and a discretionary beneficiary under the trust and Mr Goran Mujkic, a discretionary beneficiary under the trust, attended upon a solicitor and it is alleged that they issued instructions for the institution of proceedings for the termination of the company's winding up. The solicitor held the retainer until it was withdrawn in May 2016. There had been no satisfactory progress with the termination application and new solicitors were appointed in May 2016 to act for Mr Asim Mujkic in the proceeding. It was only after the appointment of new solicitors that an order was made terminating the winding up of the company. By then the liquidator's costs had increased significantly.
The present action was commenced in July 2017. It is claimed, amongst other things, that the original solicitor had been negligent in the conduct of the proceedings to terminate the winding up. The first plaintiff is the company. An application has been filed by the plaintiffs seeking leave to amend the statement of claim with the proposed amendments including a refinement to the company's claim in negligence. An application has been filed by the defendants seeking that the negligence claim of the company be struck out for failing to disclose a reasonable cause of action.
On the hearing of the pleading applications the only question which I have been asked to resolve is whether it is so clear at the pleading stage that the solicitor, during the course of his retainer, had no duty of care to the company in liquidation, that the claim in negligence should be summarily ended by allowing the strike-out application and refusing the amendment application.
The company in liquidation could not have been a client of the solicitor unless instructions to the solicitor issued by the liquidator or with his written approval or with the approval of the Court. There is no suggestion that either Mr Asim Mujkic or Mr Goran Mujkic had the authority of the liquidator or the Court to issue instructions to the solicitor to act on behalf of the company. The Corporations Act 2001 (Cth), s 471A (applicable until 1 March 2017 when it was repealed by the Insolvency Law Reform Act 2016 (Cth), s 3 and Sch 2 Item 139) relevantly provided:
"(1) [Winding up in insolvency or by Court] While a company is being wound up in insolvency or by the Court, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company.
(1A) [Limitation re winding up in insolvency or by Court] Subsection (1) does not apply to the extent that the performance or exercise, or purported performance or exercise, is:
(a)as a liquidator appointed for the purposes of the winding up; or
(b)as an administrator appointed for the purposes of an administration of the company beginning after the winding up order was made; or
(c)with the liquidator's written approval; or
(d)with the approval of the Court."
Counsel for the plaintiffs accepted that in order for a duty of care to be owed to the company by the solicitor there had to be, amongst other things, a coincidence of the interests of the solicitor's clients and the company in liquidation. In my view the concession was necessary. As explained by the plurality in Badenach v Calvert [2016] HCA 18; (2016) 257 CLR 440 at [20] and [47–49] the duty to the client is one protective of the client and the client's interests alone and cannot be compromised by a duty to a non-client where the interests are not the same.
A duty to the client to take all steps to have the winding up terminated is far narrower than the duties owed in respect of a company in liquidation.
A company in liquidation acts through the liquidator and the responsibilities of the liquidator are far more extensive than an obligation to act in the interests of the company. I refer to Keay's Insolvency, 9th ed (2016) at 344 where it is said:
"Importantly the liquidator owes responsibilities to a wide range of interests in liquidation – the creditors, the members and the company itself, the regulators and the courts, and the wider community. A feature of the liquidator's position is that he or she has no client, as in a typical professional relationship, but a number of stakeholders, mainly the creditors, for whom largely, the liquidator is acting. The liquidator does not act at their direction, but in their interests, and their control of the process is limited. This unique position confers strong powers on the liquidator over the creditors and other stakeholders involved in the liquidation. Those powers and obligations to the disparate interested parties impose on the liquidator a high standard of fiduciary responsibility and independence of action."
The protection of the interests of Mr Asim Mujkic as contributory and creditor and the protection of the interests of Mr Asim Mujkic and Mr Goran Mujkic as discretionary beneficiaries under the trust in not having trust assets depleted was not at one with the interests of the company in liquidation. There were calls on the funds and assets of the company. This is apparent from the contents of a letter from the liquidator's solicitors to the solicitor for Mr Asim Mujkic dated 26 May 2015, which was tendered by the plaintiffs. The letter includes the following:
"The normal manner to terminate a winding up order is for the applicant to prove solvency and to pay out all of the creditors prior to the termination order being made.
In this case you have advised that your client does not have sufficient funds to pay out all of the creditors from his own resources and that you would like the payment of creditors to be made from the funds held by the liquidator.
We understand that the creditors of the Company are as follows:
Liquidation Costs
Liquidators fees & disbursements as at 25/505/2015 (ex GST) $65,256.69
Liquidators' Legal Costs as at 25/05/2015 (ex GST) $28,389.00Total Liquidation Costs $93,645.69
Secured Creditor
Toyota Finance (payout figure valid to 11/02/2015) $24,690.04
Unsecured Creditors
Australian Taxation Office $48,356.81
Petitioning Creditor's original debt $59,351.19
Petitioning Creditor's costs $11,086.00
Tasmanian Government Land Tax $712.50
Asim Mujkic (Beneficiary Loan Account) $1,192,997.96Total Unsecured Creditors $1,312,504.46
As liquidator our client can only pay out money in the order of priority recorded in the Corporations Act 2001 ("the Act") or with an order of the Court directing the liquidator to do so. Therefore without an order of the Court our client cannot release money held in the liquidation to pay creditors unless it is through a liquidator's distribution under the Act.
In order to progress your client's application in an expedient manner, our client will neither consent to nor oppose your client's application for termination if your client:
1Provides an undertaking that he will not repay his debts in circumstances where there is a risk of financial instability; and
2Requests an order of the Court that our client pay:
a)The liquidator's fees
b)The liquidator's legal costs
c)The petitioning creditor costs
dThe creditors of the Company
from the assets of the Company under the liquidator's control."
Counsel for the plaintiffs submitted that where it appears that a company, in the course of being wound up in insolvency, is solvent, the duties of the liquidator to the company "take prominence". This may be so, but the duties of the liquidator to other stakeholders, to the Court and to the community are not thereby extinguished. The interests of the company in liquidation by reason of an acceptance by the liquidator of solvency do not necessarily become "the same, consistent or coincident" (Badenach at [74]) with the interests of a person seeking the termination of the winding up. The interests of the company being wound up in insolvency include having the liquidation conducted in accordance with law.
Even if, at the conclusion of the presentation of evidence at a trial, the judge was to find that in the circumstances of the case the interest of Mr Asim Mujkic and Mr Goran Mujkic in having the winding up terminated was coincident with the interests of the company in liquidation, a duty of care owed by the defendant solicitor to protect the company from economic loss could not arise. This is because the requirement of vulnerability, necessary to give rise to the duty, could not be satisfied. The liquidator had standing to bring a termination application under the Corporations Act, s 482 and if the sole interest of the company in liquidation was in having the winding up terminated, the company had the necessary protection through the agency of its liquidator.
The necessity for the existence of the element of vulnerability for a duty to protect from economic loss to arise was explained in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515, where the plurality said at [23]:
"Since Caltex Oil, and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. 'Vulnerability', in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, 'vulnerability' is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp, the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company." (footnotes omitted)
The result is that the company cannot succeed unless there was a coincidence of its interests with the interest of the clients of the defendant solicitor. If there was such a coincidence of interests, the company was not unable to protect itself. The company had a liquidator with a power, and perhaps a duty, to bring proceedings to terminate the winding up. The claim of the company is so clearly recognisable as having no prospect of success that it should be put to an end.
These are the orders:
1The claim of the first plaintiff as pleaded in the statement of claim paragraphs 60 to 64 is struck out.
2Leave to amend the statement of claim is refused with the plaintiffs being at liberty to further apply for amendment with any such application to exclude the claim of the first plaintiff in negligence.
3 Any questions as to the costs of the interlocutory applications stand adjourned sine die.
4 There is a certificate for the attendance of counsel in respect of the interlocutory applications.
2
0