Nordemesne Pty Ltd (Receiver & Manager Appointed) v Burns Philp Trustee Company Ltd

[1989] FCA 415

Re: NORDEMESNE PTY LTD; WILLIAM ROSS JACKSON; THOMAS JOHN O'TOOLE;
ANDREW ANTHONY PAPPAS; ROCKBRIDGE PTY LTD in its own right and
ROCKBRIDGE PTY LTD as trustee for the ROCKBRIDGE NO 1 TRUST UNIT
And: BURNS PHILP TRUSTEE COMPANY LIMITED and ESTATE MORTGAGE MANAGERS
LIMITED
No. QLD G59 of 1989
FED No. 415
Receivers

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.(1)

CATCHWORDS

Receivers - Mortgage debenture - application for stay by mortgagee of trade practices action by company - whether directors of company have right to bring suit against mortgagee after receiver and manager appointed - probable challenge to receiver's appointment - powers of receiver - question of receiver suing party that appointed him - rights of mortgagor to challenge appointment of receiver - whether any restriction on director's powers.

Trade Practices Act 1974, s.52

HEARING

BRISBANE

#DATE 28:7:1989

Counsel for the applicants: Mr W. Sofronoff Q.C. and Mr S.M. Ure

Solicitors for the applicants: Bowdens

Counsel for the respondents: Mr P. D. McMurdo

Solicitors for the respondents: Messrs Bennett and Philp

ORDER

The notice of motion for dismissal or stay as against the first respondent filed on 19 July 1989 be dismissed.

The first respondent pay the costs of and incidental to the notice of motion to be taxed;

The statement of claim be filed and served by 8 August 1989.

The defence and counterclaim be filed and served by 22 August 1989.

The reply and answer, if any, be filed by 29 August 1989.

The affidavit of documents be filed and served by 5 September 1989.

Inspection occur by 19 September 1989.

The matter be set down for further mention on Friday, 22 September 1989 at 9.15 a.m.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The first respondent applies for an order that the principal application, so far as brought by the first applicant (Nordemesne) be dismissed or stayed. The first applicant has executed a mortgage debenture in favour of the first respondent (Burns Philp) and a receiver and manager, Mr P.G. Jefferson, was appointed under that security on 20 January 1989; some $8 m is secured by the mortgage debenture.

1. In the principal application, Nordemesne claims damages and other relief under the Trade Practices Act 1974, on the basis that the respondents have been guilty of misleading conduct. The second applicants claim similar relief and also seek to be relieved of liability as guarantors of the obligations of Nordemesne to Burns Philp. However, the application gives no details of the allegations to be made; the first respondent claims to be entitled to dismissal or a stay whatever the content of the allegations against it turns out to be.

2. Burns Philp argues for an order for dismissal or a stay against Nordemesne, on the basis that the directors of Nordemesne had no right to bring this suit, a receiver and manager having been appointed.

3. No statement of claim has yet been delivered, but Mr McMurdo, for Burns Philp, points to the fact that the principal application does not specifically attack the mortgage debenture or the appointment of the receiver. On the basis of counsel's explanation of the case sought to be made by Nordemesne, however, it appears likely that Nordemesne's case, when pleaded, will challenge the receiver's appointment. A ground of that challenge will be that the existence of a fund of half a million dollars, said to be available to meet interest payments due, had the result that Burns Philp was precluded from asserting that a default had occurred, justifying the appointment of Mr Jefferson. The fund I have mentioned is the subject of some rather rambling affidavits made on behalf of the applicants, which affidavits do not lucidly explain what the suit is to be about. One thing which seems clear, however, is that the applicants' claim is based in substantial part on allegedly misleading statements made by or on behalf of the respondents, connected with loans made or to be made to the first applicant.

4. The mortgage debenture (clause 19.16) operates to give Mr Jefferson (assuming him to have been validly appointed) power to "institute and prosecute all action suits and proceedings at law or in equity or in bankruptcy in the name of the Borrower or the Lender or otherwise which the Receiver considers necessary expedient or proper for all or any of the purposes aforesaid".

5. Those purposes include recovering moneys due to Nordemesne (the borrower) carrying on its business and the like, but none of them, as I read the document, unambiguously includes bringing a suit for damages and other relief against Burns Philp (the lender). I note that cl.19.01 gives Mr Jefferson power to sue for "all monies due owing or payable to the Borrower" and cl.19.14 allows him to "enforce specific performance of or otherwise obtain the benefit of all contracts and securities entered into or held by the Borrower"; but I can see nothing in the "purposes aforesaid" which expressly entitles Mr Jefferson to sue for damages under s.52 of the Trade Practices Act, whether against Burns Philp or otherwise. In my opinion, the expression "monies due owing or payable to the Borrower" in cl.19.01 does not include a mere claim for damages under the statute.

6. Mr McMurdo for Burns Philp argued that the decision in Newhart Developments Ltd v. Co-operative Commercial Bank Ltd (1978) QB 814 establishes that Nordemesne's claim must be stayed. I prefer to leave consideration of that decision for the time being.

7. In Inglis Electrix Pty Ltd v. Healing (Sales) Pty Ltd (1965) NSWR 1652, the expression "any of the purposes aforesaid" in a clause roughly corresponding to cl.19.16, quoted above, was construed as if it read "herein contained". That brought into consideration a receiver's powers set out later in the mortgage. The question in that case was whether a receiver could sue in the company's name for damages relating to the conduct of the business of the company. It was held that, to avoid absurdity, "aforesaid" should be read as "herein contained" and reliance was placed on a later provision entitling the receiver -
   

"... to do all such other acts and things without limitation as such receiver shall think expedient in the interests of the mortgagee".

There is a similarly worded power in the mortgage debenture with which I am concerned: cl.19.21.

1. The line of reasoning in the Inglis Electrix case cannot assist Burns Philp here, since it is by no means absurd to assume that the parties did not intend the receiver to be empowered to sue Burns Philp in the name of the borrower for such purposes as challenging his own appointment, nor could one reasonably describe such a suit as being an act or thing which could be thought by the receiver to be "expedient in the interests of" Burns Philp.

2. There is authority for remedying by a process of implication deficiencies which come to light in the powers given to a receiver by a mortgage debenture: e.g. M. Wheeler and Company, Limited v. Warren (1928) Ch 840 and Burns Philp Trustee Company Limited v. Ironside Investments Pty Ltd (1984) 2 Qd R 16 at 22. I would be disinclined, in such an elaborate and a detailed document as this mortgage, so drawn as to maximise the lender's rights and reduce those of the borrower, to make any generous implications in favour of the former. But in any event, there is plainly no room for an implication vesting in the receiver (exclusively or otherwise) the right to sue the party appointing him, in respect of matters of the sort in issue here.

3. In Newhart Developments Ltd v. Co-operative Commercial Bank Ltd (above) the U.K. Court of Appeal held that an action of a kind similar to that with which I am concerned could properly be brought at the instance of the directors. Shaw L.J. justified the result on the basis that there the company had been indemnified by a third party against its liability for costs and so there was no "prejudice or detriment" to the mortgagee involved, by way of costs. Stephenson L.J. referred to a power given by the mortgage debenture to take proceedings and said that he would -
   

"... not like to decide without argument whether that power includes the power to bring actions

against the debenture holder who appointed him ..." (821, 822).

1. Stephenson L.J., however, also referred without disapproval to a concession that a claim for damages of the kind there in question was part of the property caught by the mortgage. For myself, I would be surprised if, without clear and specific words, the result would be reached that Nordemesne had mortgaged to Burns Philp its cause of action against Burns Philp for alleged wrongdoing by Burns Philp relating to the mortgage itself; but it is not necessary to reach a conclusion on that point.

2. I have come to the view, therefore, that Mr Jefferson had no power to cause to be instituted against Burns Philp such a suit as has been brought here by Nordemesne at the instance of its directors. There is, in my opinion, no express or implicit restriction on the directors' powers to do what they have done contained in, or reasonably to be construed out of, the mortgage debenture. Except to the extent that the mortgage debenture vests the board's powers in the receiver, the latter powers continue to subsist.

3. A mortgage debenture, which had the effect of taking away completely a company's right to challenge the appointment of a receiver and the Court's power to adjudicate in such a suit would seem to be of doubtful validity: Scott v. Avery (1856) 5 HL Cas 811, Brooks v. Burns Philp Trustee Co. Ltd (1969) 121 CLR 432.

4. It should be added that there was some discussion about the question dealt with by Shaw L.J. in the Newhart case, namely whether the suit involved "prejudice or detriment" to Burns Philp, by expenditure of Nordemesne's assets on costs. Mr Sofronoff Q.C., senior counsel for Nordemesne, argued that it did not, for all the company's assets are held by the receiver, Mr Jefferson, and the proceedings can be funded by Nordemesne's directors only with money other than that of Nordemesne; that appears to me to be so.

5. Burns Philp's notice of motion must be, as I have already ordered, dismissed with costs.