Sipad Holding ddpo v Popovic, Nikola
[1995] FCA 1141
•12 DECEMBER 1995
CATCHWORDS
Corporations Law - Receivers and managers - effect of appointment by the Court on contracts of employment between a company and its employees - whether receiver acts as agent or principal of the company - receiver appointed to maintain status quo during dispute as to ownership of shares rather than due to impending insolvency - effect thereof upon liability of the receiver - clear contemplation that receiver would be withdrawn and the directors would continue to control the company - contracts of employment remained on foot - whether receiver personally liable for certain employment-related claims of employees - whether s 419 of the Corporations Law can apply to impose a personal liability on the receiver in the circumstances - whether any personal liability imposed on the receiver in the circumstances by s 433 of the Corporations Law - whether giving receiver notice of an employee's claim against the company can have the effect of making the receiver personally liable to meet that claim.
Corporations Law s 419, s 433
Reid v Explosives Company (1887) 19 QBD 264 considered
Nichol v Cutts [1985] BCLC 322 considered
Parsons v Sovereign Bank of Canada [1913] AC 160 considered
International Harvester Export Co. v International Harvester Australia Ltd [1983] 1 VR 539 applied
Associated Newspapers Ltd v Grinston (1949) 66 WN (NSW) 211 applied
British Investments and Development Company Pty Ltd [1979] ACLC 32100 applied
Woods v Winskill (1913) 2 Ch 303 considered
Inland Revenue Commissioners v Goldblatt [1972] 2 AllER 202 considered
Re: Tarjan Construction Co Pty Ltd [1964] NSWR 1054 considered
SIPAD HOLDING d.d.p.o. & Anor. v NIKOLA POPOVIC & ORS.
No. NG 3192 of 1995
CORAM: Lehane J
PLACE: Sydney
DATE: 12 December 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG3192 of 1995
GENERAL DIVISION )
IN THE MATTER OF
SIDEX AUSTRALIA PTY LIMITED
(A.C.N. 000 828 606)
BETWEEN:
SIPAD HOLDING d.d.p.o.
First Applicant
PERO VLADIC
Second Applicant
AND:
NIKOLA POPOVIC
First Respondent
DRAGAN KARAC
Second Respondent
MILAN JOVICIC
Third Respondent
JOSEPH JOHN GILLES
Fourth Respondent
AUSTRALIA FURNITURE PTY LIMITED
Fifth Respondent
SIDEX AUSTRALIA PTY LIMITED
Sixth Respondent
SIPAD EXPORT IMPORT d.d.p.o.
Seventh Respondent
CORAM: Lehane J
PLACE: Sydney
DATE: 12 December 1995
MINUTE OF ORDERS
THE COURT DECLARES:
THAT the receiver has no personal liability for statutory and other employment-related entitlements claimed by the first, second and third respondents for accrued long service leave untaken, annual leave, redundancy and other employment related matters.
THE COURT ORDERS:
THAT the costs of the receiver of and incidental to this Application be paid on a continuing basis out of the assets of the sixth respondent.
THAT the first, second and third respondents pay one half of the costs of today's proceedings of the receiver, the sixth respondent and the party for whom Mr Baird appears by leave, up to the time of the making of this order.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG3192 of 1995
GENERAL DIVISION )
IN THE MATTER OF
SIDEX AUSTRALIA PTY LIMITED
(A.C.N. 000 828 606)
BETWEEN:
SIPAD HOLDING d.d.p.o.
First Applicant
PERO VLADIC
Second Applicant
AND:
NIKOLA POPOVIC
First Respondent
DRAGAN KARAC
Second Respondent
MILAN JOVICIC
Third Respondent
JOSEPH JOHN GILLES
Fourth Respondent
AUSTRALIA FURNITURE PTY LIMITED
Fifth Respondent
SIDEX AUSTRALIA PTY LIMITED
Sixth Respondent
SIPAD EXPORT IMPORT d.d.p.o.
Seventh Respondent
CORAM: Lehane J
PLACE: Sydney
DATE: 12 December 1995
EXTEMPORE REASONS FOR JUDGMENT
LEHANE J:
On 24 November 1995 I ordered that the appointment of Michael Gregory Jones (to whom I shall refer as the receiver) as receiver and manager of the assets and undertaking of the sixth respondent be terminated at 5 pm on that day.
I ordered also that the receiver retain the sum of $264,648.75 in an interest-bearing trust account by way of provision for certain employment-related claims of the first to third respondents. That sum was to be retained until one of three things happened. The first of those three things was that a court should declare or direct that the receiver has no personal liability for those employment-related claims.
The question before me today is whether I should make that declaration or direction or whether, on the other hand, I should make an order of a kind such as that sought by the receiver in his application filed today, that is, an order for the increase to $448,796.71 of the sum retained in accordance with the order of 24 November which I have mentioned.
The relevant facts may be briefly summarised as follows: Beaumont J appointed the receiver to be receiver of the assets and undertaking of the sixth respondent. The receiver had all the powers conferred on a receiver by section 420 of the Corporations Law. The purpose of the appointment was to resolve a position of deadlock that had arisen as a result of the fact that in these proceedings there were, in effect, two rival groups each claiming to be entitled to control the sixth respondent.
In other words, the appointment was not made because, for example, of feared or impending insolvency or liquidation. Rather, it was made for the purpose of maintaining the position until the dispute between the parties as to the right to control the sixth respondent should be resolved.
At the time of the receiver's appointment the first three respondents were employees of the sixth respondent. They remained in its employ at the time when the receiver's appointment came to an end on 24 November this year. I understand it to be common ground that since the termination of the receiver's appointment the sixth respondent has terminated the employment of each of the first three respondents.
Before 24 November each of the first three respondents had notified the receiver of claims which he asserted against the sixth respondent and it was on the basis of those claims that the order to which I have referred was made on 24 November.
On 24 November I ordered additionally that the first, second and third respondents file and serve on the receiver and the sixth respondent within seven days points of claim setting out in respect of each and every claim which they might wish to make against the receiver personally the nature of the claim, the basis of the claim, the amount of the claim and the person against whom the claim was made.
Since that date the first three respondents have notified the sixth respondent and the receiver of claims of amounts additional to the amounts of the claims which they had previously made, but without giving any further particulars of the nature or basis of the claims or of the basis on which they claimed that the amounts they asserted to be due to them were the personal responsibility of the receiver.
It is in those circumstances that the receiver has today sought the order increasing the amount of the sum set aside in accordance with my earlier order to which I have already referred. Although by his application the receiver seeks such an order, he has in fact by his counsel this morning supported the argument of counsel for the sixth respondent that I should declare or direct that the receiver has no personal liability for the claims concerned or, alternatively, declare that the receiver's personal liability extends only to amounts which accrued due under the contract of employment of each of the first three respondents during the time when the receiver was in office.
I have been referred to a number of authorities dealing with the effect of the appointment by the Court of a receiver and manager on contracts of employment between a company and its employees. A brief summary of their effect will, I think, suffice.
I was referred first to the decision of the English Court of Appeal in Reid v Explosives Company (1887) 19 QBD 264. The opinions of their Lordships in that case are by no means unanimous or unambiguous, but the case has - perhaps with justification - been taken as authority for the proposition that the appointment by the Court of a receiver of the undertaking of a company operates to terminate contracts of employment of the company. The same view was expressed by Dillon LJ, although obiter, in Nichol v Cutts, reported at [1985] BCLC 322.
On the other hand I was referred to the well known decision of the Privy Council in Parsons v Sovereign Bank of Canada [1913] AC 160 which, while not dealing with contracts of employment, held that where the court appoints a receiver and manager of the assets of a company, that appointment by no means necessarily operates to terminate contracts entered into by the company in the course of its trading activities.
One might ask rhetorically, if generally there is nothing in the appointment by the Court of a receiver which operates to terminate contracts, why ought there be a special rule in relation to contracts of employment? The answer suggested by Dillon LJ, in Nichol v Cutts, though obiter as I have said, is that a contract of employment is for many well known purposes regarded as a contract involving a personal relationship which cannot survive what he describes as:
... a change in the personality of the employer effected by the appointment of a Receiver who acts, not as agent of the company, but as principal.
In the light of more recent Australian authority I may perhaps be pardoned for expressing the view that that opinion expressed by the learned Lord Justice is by no means self evidently right or convincing. Of the Australian authority the most clearly relevant is the decision of Beech J in the Supreme Court of Victoria in International Harvester Export Co. v International Harvester Australia Ltd [1983] 1 VR 539 where, it may be noted, the question was plainly fully argued by eminent counsel representing, as far as one can tell, all interested parties.
In that case Beech J expressed the view that it is necessary to look at the facts in each case to determine whether or not the appointment of receivers and managers has had the effect of terminating the contracts of employment between a company and its employees. His Honour then held that in the circumstances of that particular case, and in view of the terms of the orders of Crockett J appointing the receivers and managers, it was clear that the only conclusion consistent with the facts and with the order was that the employees remained the employees of the company rather than that their contracts of employment were immediately terminated and that they were then re-employed by the receivers and managers.
It may be noted that a view similar to that expressed by Beech J is expressed, though somewhat tentatively, by Professor O'Donovan in his work on receivers and managers at pp 7738 and 7739. In my view the decision of Beech J is, if I may say so, clearly right and I should follow it. That of course does not necessarily conclude the question whether in this case contracts of employment, including those with the first three respondents, were terminated by the appointment of the receiver by Beaumont J's order.
The circumstances are that the order was made for the purpose of maintaining the status quo pending the resolution of the dispute as to entitlement to control the sixth respondent. The receiver was given wide powers which included powers to carry on the business of the sixth respondent and to continue to perform its contracts. The clear contemplation was that the receiver would ultimately be withdrawn, as has indeed happened, and the company's business would continue under the control of its directors. Evidence as to the actual dealings in relation to contracts of employment between the receiver and the employees, including the first three respondents, is somewhat scant but such evidence as there is - and there is none to contradict it - supports the conclusion that, assuming it to be legally possible, the company's contracts of employment continued on foot. My conclusion is that in the case of the first three respondents their contracts of employment with the sixth respondent continued when the receiver was appointed, throughout the time when the receiver was in office and after the termination of the receiver's appointment until the contracts were terminated by those whom I had held were entitled to control, as directors, the sixth respondent.
The next question is whether in those circumstances the receiver has any personal liability for claims of the first three respondents under their contracts of employment. On this aspect of the case counsel for the sixth respondent pointed out, and I accept, that section 419 of the Corporations Law cannot apply to impose a personal liability on the receiver because, on the authorities, any liability incurred by the sixth respondent for services rendered by the first three respondents was incurred when the contracts of employment were entered into by the company before the receiver's appointment. Counsel for the sixth respondent referred me particularly to the well known and frequently cited decision of Street J (as he then was) in Associated Newspapers Ltd v Grinston (1949) 66 WN (NSW) 211 and the more recent decision
of Needham J in British Investments and Development Company Pty Ltd [1979] ACLC 32100.
It is also clear and was not disputed that in the circumstances of this case, where the appointment was made by the Court and particularly not by or on behalf of the holders of any debentures, no personal liability is imposed on the receiver, at least directly, by section 433 of the Corporations Law. So far, I think, the argument of the sixth respondent supported by the receiver encountered little by way of opposition from the solicitor who appeared today for the first three respondents. He did, however, argue that the receiver was personally liable, or at least might be so, for at least part of the amounts claimed on a different basis: by making it known to the receiver that the first three respondents made the claims which in fact they asserted, in circumstances where if the sixth respondent were to go into liquidation part at least of those claims would be entitled to priority over ordinary unsecured debts of the sixth respondent, the first three respondents had placed the receiver in a position where he could not safely pay over any remaining funds to the sixth respondent without first providing for the amount of the liability which might thus have a preference or priority in a liquidation. By "safely", I mean of course that the receiver could not do so without risking personal liability, at least if the sixth respondent should at some future time be wound up. Again, I was referred to some well known authorities dealing with the operation of section 433 of the Corporations Law and its predecessors and equivalents.
Particularly, I was directed to Woods v Winskill (1913) 2 Ch 303, Inland Revenue Commissioners v Goldblatt [1972] 2 AllER 202, and the decision of the Supreme Court of New South Wales in Re: Tarjan Construction Co Pty Ltd [1964] NSWR 1054. It seems to me clear, however, that what all those cases stand for is the proposition, now clearly established, that section 433 and its equivalents operate not merely to confer a priority for certain claims but also to impose a personal liability on a receiver to pay those claims where the receiver pays away property which has come into his control without either discharging the claims concerned or making proper provision for them.
I can see no basis for applying a principle of that kind in circumstances where section 433 itself clearly does not apply, where the sixth respondent is not in liquidation and where there is no apparent immediate prospect that it is to be wound up. Indeed, even if there were such a prospect, I find it not altogether easy to see what the basis for applying such a principle might be. The liability is after all, as I have held, one of the company not one of the receiver.
Neither is it by any means easy to see, in the absence of some express statutory provision to the contrary, how being made aware of a claim that an employee has against the company of which he is receiver has the effect of making the receiver either generally or in particular circumstances personally liable to meet that claim.
I think those reasons are sufficient to enable me now to make orders in relation to the matters canvassed this morning. It follows from what I have said that I should not make the order for which the receiver applied increasing the amount to be set aside. Instead, I should make the order contemplated by paragraph 2(b)(i) of my orders of 24 November. That is, I declare that the receiver has no personal liability for statutory and other employment-related entitlements claimed by the first, second and third respondents for accrued long service leave untaken, annual leave, redundancy and other employment related matters.
That leaves the question of costs. It was put to me this morning by counsel for the receiver, and had been foreshadowed in correspondence between the receiver's solicitors and the solicitors for the first three respondents, that the first three respondents should pay the costs of the participation of the receiver in today's proceedings. The basis on which such an order was sought was that the costs should be regarded as resulting from the action of the first three respondents in lodging a document which, rather than justifying the claims already made, merely made claims for additional amounts without providing any further information as to the basis upon which those claims were made or as to the grounds on which they were asserted against the receiver personally.
I think there is, inescapably, some merit in that submission. On the other hand, as I pointed out to counsel this morning, the orders of 24 November contemplate, indeed probably require, that at some time one of the events referred to in paragraph 2(b) of the orders will occur so as to enable the receiver to pay over the sum retained to the sixth respondent. In other words, it seemed to me likely that at some time it would be necessary for the receiver, or possibly the sixth respondent, to seek an order offering appropriate protection against those who would appropriately be bound against further claims of the sort referred to in paragraph 2(b).
It will be apparent to anybody who has read my judgment that I do have a certain amount of sympathy, albeit provisional sympathy because the matter is still to be argued, with the first three respondents on the question of the costs of the main proceedings for the reasons I mention in my judgment. I do think that this matter is somewhat different because it involves separate claims of the first three respondents personally against the receiver and the sixth respondent in circumstances where the question of costs had been squarely raised in correspondence by the receiver's solicitors and where, although unrepresented on 24 November, the first three respondents were represented by a solicitor today.
In my view, the appropriate orders are that the costs of the receiver of and incidental to this Application be paid on a continuing basis out of the assets of the sixth respondent and that the first, second and third respondents pay one half of the costs of today's proceedings of the receiver, the sixth respondent and the party for whom Mr Baird appears by leave, up to the time of the making of this order.
I note the undertaking of the sixth respondent, by its counsel, that the sixth respondent will not seek to enforce the costs order made today in favour of the sixth respondent before Tuesday, 19 December 1995.
I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.
Associate:
Dated: 8 February 1996
Heard: 12 December 1995
Place: Sydney
Decision: 12 December 1995
Appearances: Mr J E Sexton of counsel instructed by Mallesons Stephen Jaques appeared for the applicants and the sixth respondent.
Mr S J Gallant of A G Robinson Creais appeared for the first, second and third respondents.
Ms S Kaw-Bains of counsel instructed by Blake Dawson Waldron appeared for the fourth respondent.
Mr S G Finch of counsel instructed by Phillips Fox appeared for the previous receiver and manager of the sixth respondent.
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