Strazdins v Clarke
[2015] SASC 134
•28 August 2015
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
STRAZDINS & ANOR v CLARKE & ORS
[2015] SASC 134
Reasons of Judge Dart a Master of the Supreme Court
28 August 2015
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - APPLICATIONS TO COURT FOR DIRECTIONS OR ADVICE
Whether company bound by orders of the Court - authority of director to bind company - orders made by consent - caveatable interest in land - whether orders of the Court are a voidable transaction.
Inheritance (Family Provision) Act 1972 s 7; Corporations Act 2001 s 128, s 129, s 198E, s 248B(1), s 479(3), s 499(4), s 511, s 588FB, s 588FC, s 588 FDA, s 588 FE, s 588 FF, referred to.
Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337; Coulls v Bagot’s Executor and Trustee Company Limited and Others (1967) 119 CLR 460; Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Galvasteel Pty Ltd v Monterey Building Pty Ltd (1974) 10 SASR 176; Hannaford v Billingsley [1949] SASR 220; Hore v Perpetual Trustee Co Ltd & Ors (Unreported, Supreme Court of New South Wales, Equity Division, Windeyer J, 8 June 1995, Judgment No BC9504786 at 13); Kinch v Walcott [1929] AC 482; L Schuler A.G. v Wickman Machine Tool Sales Ltd [1974] AC 235; Meadow Springs Fairway Resort Pty Ltd v Balance Securities Ltd (2007) 25 ACLC 1433; Northside Developments Proprietary Limited v Registrar-General and Others (1990) 170 CLR 146; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Perkins v National Australia Bank Ltd (1999) 30 ACSR 256; Re Centrifugal Butter Co [1913] 1 Ch 188; Re GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674; Reardon Smith Line Ltd and Anor v Yngvar Hansen-Tangen (trading as H.E. Hansen) & Anor [1976] 1 WLR 989; Singer v Berghouse (1994) 181 CLR 201; Toll (FGCT) Pty Limited v Alphapharm Pty Limited and Others (2004) 219 CLR 165; Tresize & Ors v National Australia Bank Ltd [1994] FCA 968, considered.
STRAZDINS & ANOR v CLARKE & ORS
[2015] SASC 134
The plaintiffs in this action are the joint liquidators of Micden Pty Ltd (“Micden”). They were appointed liquidators by a resolution of the company’s sole director on 9 September 2013. Accordingly, it is a voluntary, rather than a Court-ordered, liquidation.
The liquidators made application to the Court, pursuant to s 511 of the Corporations Act 2001 (Cth) (“the Act”), asking the Court to advise in respect of some questions arising in the winding up. The application seeks the following:[1]
1.That this Honourable Court provide advice and directions to the Plaintiffs and in particular answer the question in relation to the Orders entered in the Supreme Court of South Australia (Civil) Action No. 1777 of 2010 by His Honour Judge Dart on 10 April 2013 (“the Orders”) as to whether those Orders (in particular paragraph 3 therein) are binding on the Plaintiffs.
2.That if the answer to Paragraph “1” hereof is that the Orders are not binding on the Plaintiffs, that the Plaintiffs have advice answering the question as to whether they should:
2.1. warn or apply to remove Caveat Number 12016417 from the Title of the Properties;
2.2. use their powers pursuant to Section 477(2)(c) of the Corporation Act 2001 (“the Act”) to effect the sale of the whole of the land situated at Lots 3 and 4, 322 Port Pirie Road, Port Broughton in the State of South Australia, being the land comprised in Certificates of Title Register Book Volume 5985 Folio 666 and Volume 5987 Folio 667 (“the Properties”); and
2.3. deal with the proceeds of sale of the Properties without the burden of the legacies referred to in paragraph 1 of the Orders.
[1] Plaintiffs’ Interlocutory Application filed 16 December 2014 (FDN3).
The four defendants named in these proceedings were parties in a separate action in which the first, second and third defendants, as plaintiffs, sought a further provision out of the deceased estate of Vincent Michael Edwards (“Mr Edwards”), pursuant to the provisions of the Inheritance (Family Provision) Act 1972 (SA) (“IFP”). The plaintiffs in that action are each children of Mr Edwards. Prior to his death, Mr Edwards was one of the directors and shareholders of Micden. The fourth defendant was the second wife of Mr Edwards and the executor of his estate. She was the defendant in the IFP proceedings. After the death of Mr Edwards she became the sole director and shareholder of Micden. The company’s primary business was operating a hotel at Casterton in Victoria.
Separately, and apart from conducting the hotel business, Micden was the registered proprietor of two vacant blocks of land at Port Broughton. This application deals with the Port Broughton land only.
Since the commencement of these proceedings, the parties have agreed a regime to permit the sale of the two blocks of land with the payment of the net proceeds of sale into the Suitors Fund pending the resolution of the issues between the parties.
The previous proceedings
In the IFP proceedings the sole director and shareholder of Micden agreed to orders to resolve the action. Micden was not a named party in those proceedings.[2]
[2] Clarke & Ors v Edwards Supreme Court Action Number SCCIV-10-1777.
The Court’s jurisdiction in an IFP claim is enlivened if a person with standing to bring such a claim has been left without adequate provision for his proper maintenance, education or advancement in life.[3] The question of whether someone has been left without adequate provision is a jurisdictional question.[4] Unless answered in the affirmative, the Court’s discretion to make an order for further provision is not enlivened. Strictly speaking that means, of course, that parties cannot simply consent to the making of orders. The Court must be satisfied that it has jurisdiction before it can make an order.
[3] Inheritance (Family Provision) Act 1972, s 7.
[4] Singer v Berghouse (1994) 181 CLR 201 at 211.
The position was explained by Windeyer J in Hore v Perpetual Trustee Co Ltd & Ors where he said: [5]
Settlements of claims under the Family Provision Act are of course, very common. It is obviously in the interests of the parties and the court, to encourage settlement and in any week the Masters in the equity division may be asked to make a number of orders agreed between the parties in such actions. In such matters in my experience, the Court looks quickly at the evidence, and is informed of the relevant facts by counsel or solicitor, and if the matter appears to be reasonable makes orders. No detailed consideration of jurisdiction takes place so long as the plaintiff appears to have a proper basis for his or her claim.
[5] Unreported, Supreme Court of New South Wales, Equity Division, Windeyer J, 8 June 1995, Judgment No BC9504786 at 13.
Much the same approach is adopted in this Court. The Court looks in a fairly summary way at the evidence contained in affidavits and, if satisfied that it is an appropriate case, will generally make the orders sought by the parties.
The IFP claim had a fairly lengthy history. The parties reached an agreement between themselves. Their solicitors provided the Court with minutes of order in the agreed terms. The Court, being satisfied that it was an appropriate matter in which to do so, made orders in terms of the minutes.
The terms of the orders made were as follows:[6]
[6] Clarke & Ors v Edwards, SCCIV-10-1777, 10 April 2013.
THE COURT ORDERS that:-
1.The following provision be made out of the estate of Vincent Michael Edwards late of 322 Port Pirie Road, Port Broughton in the State of South Australia Retired Publican deceased who died on the 13th day of October 2008 for the maintenance, education or advancement in life of the plaintiffs namely:
1.1.the first plaintiff Julie Anne Clarke be paid a legacy of $60,000.00 inclusive of interest to the date of this order;
1.2.the second plaintiff Sandra Marie Brynhildsen be paid a legacy of $60,000.00 inclusive of interest to the date of this order; and
1.3.the third plaintiff Gary John Edwards be paid a legacy of $60,000.00 inclusive of interest to the date of this order.
2.The burden of the legacies referred to at paragraphs 1.1 to 1.3 inclusive of these orders, and of the costs referred to in paragraph 10 of these orders, be borne by and paid out of the estate of the deceased.
3.The defendant in her capacity as executor of the estate of the deceased, and as a director and sole shareholder of Micden Pty Ltd (ACN 062 494 839) in order to procure the payment of the legacies referred to in paragraph 1 of these orders and the costs referred to in paragraph 10 of these orders will procure Micden Pty Ltd to offer for sale by private treaty as soon as is reasonably practicable the whole of the land situated at Lot 3 and Lot 4, 322 Port Pirie Road, Port Broughton in the said State being the land comprised in Certificates of Title Register Book Volume 5985 Folio 666 and Volume 5985 Folio 667 (‘the Land’);
4.The defendant will use her best endeavours to procure Micden Pty Ltd to sell the Land, and will take into consideration any reasonable requests or directions made by the plaintiffs in relation to the marketing of the Land.
5.The defendant must not cause or permit Micden Pty Ltd to deal with or encumber the Land in any manner after the date of these orders except in accordance with these orders or in accordance with the prior written consent of the plaintiffs.
6.If the Land is sold within 12 months of the date of these orders, the defendant must procure Micden Pty Ltd forthwith upon settlement of the sale of the Land to pay to the plaintiffs the legacies and costs referred to in paragraphs 1 and 10 of these orders.
7.If the Land is not sold within 12 months of the date of these orders:
7.1.the defendant must procure Micden Pty Ltd forthwith thereafter as transferor to execute in registrable form and have registered by the Registrar-General of South Australia in accordance with the Real Property Act 1886 memoranda of transfer of the Land in fee simple to the plaintiffs as transferees as tenants in common in equal shares for no consideration, and must cause Micden Pty Ltd to pay all costs registration fees and charges relating thereto including any stamp duty payable in respect of the transfers of the Land to the plaintiffs; and
7.2.The plaintiffs will accept the transfer to them of the Land in accordance with paragraph 7.1 of these orders in full satisfaction and discharge of the legacies and costs referred to in paragraphs 1 and 10 of these orders.
8.Save as aforesaid the defendant in her capacity as executor of the estate shall stand possessed of the estate of the deceased upon the subject to the trusts declared in the will so far as such trusts shall be capable of taking effect.
9.There be no order as to the costs of the defendant of this action.
10.The defendant pay the costs of the plaintiffs of this action fixed in the sum of $30,000.00.
11.A certified copy of this order be made on the probate of the will of the deceased and, for that purpose, the defendant in her capacity as executor produce the probate to the Registrar of Probates.
12.The parties may apply for further orders and directions.
Prior to order number 3 being carried into effect, the liquidators were appointed. Shortly thereafter the three plaintiffs in the IFP action lodged a caveat in respect of the Port Broughton land claiming an equitable interest, or an interest as chargee, arising from the order made by the Court in the IFP proceedings.
Was this a consent order?
The making of an order by consent has a number of consequences. As mentioned, strictly, it is not possible to obtain a consent order in an IFP matter. However, once the Court has satisfied itself that its jurisdiction is properly enlivened and makes an order in terms put forward by the parties jointly, in my opinion, it should be regarded as having the same consequences as any other order made by consent.
A consent judgment is a formal judgment of the Court that has the same binding force as a judgment given after a contested hearing.[7]
[7] Kinch v Walcott [1929] AC 482 at 493.
The orthodox position is that where an order is made by consent pursuant to an agreement between the parties to the action, that judgment or order will not be set aside, even before it is entered, unless there are established grounds to set aside the agreement.[8] That usually requires a party to establish fraud, mistake or misrepresentation.
[8] Tresize & Ors v National Australia Bank Ltd [1994] FCA 968 at [14].
One of the complaints of the liquidator is that there is no evidence of an enforceable contract between Micden and the other parties to the IFP proceedings. The common law of contract requires that consideration be provided before an agreement will be enforceable.[9] The principal purpose of the requirement for consideration is to distinguish between those promises which are unenforceable and those which are not. However, if a party comes to court, if that is what Micden did here, and consents to the making of an order binding upon it, no question of the enforceability of the antecedent agreement can arise because the agreement has, in effect, been enforced by the making of the Court order.
[9] Coulls v Bagot’s Executor and Trustee Company Limited and Others (1967) 119 CLR 460.
The liquidators’ contentions
In their application the liquidators seek an answer to the question as to whether the orders made in the IFP proceeding are binding on them. The starting point, and perhaps the end point, is whether, at the time the orders were made, they were binding on Micden. If so, then that presents a considerable difficulty for the liquidators.
The liquidators put forward a considerable number of contentions in respect of their application. For the reasons that follow, a number of contentions cannot be dealt with on this application. However, I set out the principal contentions below.
1.Micden was not a party to the IFP proceedings and therefore could not be bound by the orders.
2.The company’s director can no longer cause the company to sell the land or otherwise deal with the land.
3.The Court had no power pursuant to the IFP Act to make the orders that it made against Micden.
4. Micden was not separately represented in the proceedings.
5.There was no evidence before the Court that the director could lawfully bind Micden in the manner contemplated by the orders.
6.There was no commercial benefit to the company in submitting to the orders and that:
6.1. The fourth defendant acted in breach of director’s duties.
6.2. The transaction was an uncommercial transaction as defined by s 588FB of the Act.
6.3. Was an unreasonable director-related transaction as defined by s 588FDA of the Act.
7.There was no enforceable contract between the company and the other parties to the IFP litigation.
8.If there was a binding contract between the parties it is a voidable transaction for the purpose of the Act.
The contentions of the liquidators that the orders amount to a voidable transaction only arises if the order is binding on Micden. If not, there is no relevant transaction for the purposes of the Act.
Nature of this application
We are here dealing with a voluntary winding up of Micden. The application is made pursuant to s 511 of the Act rather than s 479(3), which is the applicable provision in respect of a Court-ordered winding up. The provisions are similar but not identical.
The provisions of s 511 of the Act provide as follows:
511Application to Court to have questions determined or powers exercised
(1)The liquidator, or any contributory or creditor, may apply to the Court:
(a)to determine any question arising in the winding up of a company; or
(b)to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court.
(1A)APRA may apply to the Court under subsection (1) in relation to a company that is a friendly society within the meaning of the Life Insurance Act 1995 and which may be wound up voluntarily under subsection 180(2) of that Act.
(2)The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just.
(Emphasis added.)
The jurisdiction provided by s 511 is primarily to give protection to a liquidator who acts on the advice and direction given by the court. However, the authorities suggest there is no reason why binding orders cannot be made on such applications where the opportunity to be heard has been given to all relevant parties.[10]
[10] Meadow Springs Fairway Resort Pty Ltd v Balance Securities Ltd (2007) 25 ACLC 1433.
As mentioned, there are differences between s 479(3) and s 511. One difference is that, in respect of the Court-ordered winding up, the Court is providing advice and direction to one of its officers. Where, as here, the Court is dealing with a voluntary winding up, that is the appointment of a liquidator outside of any court procedure, it is more difficult to say that the liquidator is an officer of the court.
The other difference is that in s 511 of the Act a court has a discretion whether or not to deal with the application. The court has to be satisfied that determination of the question to exercise the power will be just and beneficial. No equivalent provision is found in s 479(3).
In Re GB Nathan and Co Pty Ltd (in liq)[11] McLelland J said in respect of an application under s 479(3) of the Act: [12]
Modern Australian authority confirms the view that s 479(3) “does not enable the court to make binding orders in the nature of judgments” and that the function of a liquidator's application for directions “is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before the liquidation”.
[11] (1991) 24 NSWLR 674.
[12] Re GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 679.
Similarly, the provisions of s 511(1)(a) provide a summary procedure which is not intended for use as a means of trying issues involving complex questions of law and fact.[13]
[13] Re Centrifugal Butter Co [1913] 1 Ch 188 as explained in Re F&E Stanton Ltd [1929] 1 Ch 180.
The question of whether Micden is bound by the orders is a matter which may appropriately be dealt with by the Court summarily. The evidence before the Court is limited. It consists of some agreed facts and an affidavit of one of the liquidators. However, all relevant parties have been heard. It is just and beneficial to determine that question. Many of the other matters raised by the liquidators require a proper trial, affording all parties an opportunity to put more complete evidence before the Court.
Provisions of the Act relevant to the issue of the director’s power to bind the company
One of the complaints of the liquidators is that the orders cannot have been intended to bind the company because no record was made in respect of the matter in the books and records of the company, nor is there any evidence of a board resolution.
There is, of course, a degree of artificiality in circumstances where one person is the sole director and sole shareholder of a company, in treating decisions of the company as requiring a board resolution.
However, the Act provides in s 248B(1) as follows:
(1)The director of a proprietary company that has only 1 director may pass a resolution by recording it and signing the record.
The obligations of the director in respect of recording the agreement in the books of Micden are of little moment in deciding the relevant question as to whether it is bound by the orders. At the time the parties settled the IFP matter the fourth defendant was holding herself out as negotiating as the executor of the deceased estate and also as the sole director and shareholder of Micden.
The Act further provides in s 198E as follows:
(1)The director of a proprietary company who is its only director and only shareholder may exercise all the powers of the company except any powers that this Act or the company’s constitution (if any) requires the company to exercise in general meeting. The business of the company is to be managed by or under the direction of the director.
It is necessary to consider some other provisions of the Act which may bear on the question of whether Micden is bound by the orders. Section 128 of the Act provides as follows:
128Entitlement to make assumptions
(1)A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(2)A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(3)The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.
(4)A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.
The nature of the assumptions that can be made are then set out in s 129 of the Act, which provides as follows:
129Assumptions that can be made under section 128
Constitution and replaceable rules complied with
(1)A person may assume that the company’s constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with.
Director or company secretary
(2)A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:
(a)has been duly appointed; and
(b)has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.
Officer or agent
(3)A person may assume that anyone who is held out by the company to be an officer or agent of the company:
(a)has been duly appointed; and
(b)has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.
Proper performance of duties
(4)A person may assume that the officers and agents of the company properly perform their duties to the company.
Document duly executed without seal
(5)A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
Document duly executed with seal
(6)A person may assume that a document has been duly executed by the company if:
(a)the company’s common seal appears to have been fixed to the document in accordance with subsection 127(2); and
(b)the fixing of the common seal appears to have been witnessed in accordance with that subsection.
For the purposes of making the assumption, a person may also assume that anyone who witnesses the fixing of the common seal and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
Officer or agent with authority to warrant that document is genuine or true copy
(7)A person may assume that an officer or agent of the company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that the document is genuine or is a true copy.
(8)Without limiting the generality of this section, the assumptions that may be made under this section apply for the purposes of this section.
Separately from the statutory provisions, there is a considerable amount of common law on the question of director’s authority. A director acts as an agent of a company. The normal rules of agency apply to companies. The authority of an agent may be actual (express or implied), or may be apparent.
Where a company has more than one director, a single director does not have authority to bind the company as a director’s normal power to bind the company is only by joining with the other directors to pass a resolution as a board.[14] That issue cannot arise in the situation where there is a single director only.
[14] Northside Developments Proprietary Limited v Registrar-General and Others (1990) 170 CLR 146 at 198.
Usually the express actual authority of a director arises from the constitution of a company or from some other formal act such as a resolution of the board of directors.[15] In this case it would seem that the express actual authority of the fourth defendant arises from the provisions of s 198E of the Act.
[15] Perkins v National Australia BankLtd (1999) 30 ACSR 256.
Separately, there is the question of apparent or ostensible authority. It arises where a principal represents another person as having authority to act on behalf of a company. In such circumstances the principal is bound by the acts of a person who appeared to have authority and acted within that authority.[16]
[16] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 466.
In Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd Diplock LJ said:[17]
Four conditions must be satisfied to establish apparent authority:
(a)that a representation that the agent had authority to enter on behalf of a company into a conduct of the kind sought to be enforced is made to the contract;
(b)that such representation was made by a person or persons who had “actual” authority to manage the business of the company either generally or in respect of those matters to which the contract relates;
(c)that he (the contractor) was induced by such representation to enter into the contract, ie that he in fact relied on it; and
(d)that under its [constituted] the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.
[17] [1964] 2 QB 480.
Of course, where a company has only one director and shareholder and no other officers, the only person who can make relevant representations is the person who asserts that he or she has the authority to act. That produces a circular result.
Do the orders create an equitable interest in the subject land?
It may not be necessary to deal with the question of the claimed caveatable interest, but it was raised by the liquidators. The orders made required the sale of the Port Broughton land and the payment of the net proceeds to the first three defendants. In default of a sale within a period of 12 months, which has now expired, the orders required the transfer of the title in the land to the first three defendants as tenants in common and equal shares.
It is well-established that a valid contract for the sale and purchase of land creates the vendor as a trustee for the purchaser of the land, because equity regards the purchaser as the owner of the land.[18] A court order requiring a transfer of land creates the same result. Accordingly, if Micden is bound by the orders, it would seem that it holds the Port Broughton land as a trustee for the first three defendants. Such an interest is caveatable.[19]
[18] Hannaford v Billingsley [1949] SASR 220 at 230.
[19] Galvasteel Pty Ltd v Monterey Building Pty Ltd (1974) 10 SASR 176 at 180.
Orders a voidable transaction?
The liquidators contend that the orders give rise to a voidable transaction. The court’s powers in respect of such transactions are found in Part 5.7B of the Act. The orders that a court may make are set out in s 588FF of the Act, which relevantly provides:
588FF Courts may make orders about voidable transactions
(1)Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
…
(h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;
…
(j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.
Section 588FE sets out those transactions which are voidable. I do not propose to deal with that section other than to say, in respect of uncommercial transactions, the transaction must also be an insolvent transaction as that term is defined by s 588FC of the Act. An uncommercial transaction is a transaction defined by s 588FB of the Act, which provides as follows:
588FB Uncommercial transactions
(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:
(a)the benefits (if any) to the company of entering into the transaction; and
(b) the detriment to the company of entering into the transaction; and
(c)the respective benefits to other parties to the transaction of entering into it; and
(d) any other relevant matter.
(2) A transaction may be an uncommercial transaction of a company because of subsection (1):
(a)whether or not a creditor of the company is a party to the transaction; and
(b)even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
For practical purposes, therefore, an uncommercial transaction is not voidable unless it is entered into at a time when a company was insolvent or became insolvent because of the transaction. The fact that the transaction arises from a court order does not prevent it being an uncommercial transaction.
There is no evidence on the question of insolvency at the moment. In any event, whether or not a transaction is a voidable transaction because it is an uncommercial transaction is a trial issue. It is not a matter that can be determined summarily in a proceeding such as this.
A similar problem arises in respect of an unreasonable director-related transaction which is defined by s 588FDA of the Act. That is also an issue for trial.
Consideration of the issues
The first question that has to be determined on this application is whether or not Micden is bound by the orders made by this Court on 10 April 2013.
Two possibilities arise from the wording of orders 3 to 7. The first is that the fourth defendant was simply giving a personal undertaking to the other parties and to the Court to cause Micden to do the acts required by the orders.
The second is that the fourth defendant was intending to bind Micden as a party to the orders and, in consenting to the orders, was acting as agent for Micden.
If the first interpretation is the correct one, then the defendants have a difficulty, because the orders will not be binding on Micden. The effect of the appointment of a liquidator to a company is that the authority of directors to act on behalf of the company, subject to limited exceptions, is removed.
In respect of a voluntary winding up, the relevant provision is in s 499(4) of the Act which provides as follows:
On the appointment of a liquidator, the powers of the directors cease except so far as the committee of inspection, or, if there is no such committee, the creditors, approve the continuance of any of those powers.
There is no contention that there is any approval permitting the fourth defendant to continue to have powers of directorship. Therefore, if the orders are simply a personal obligation of the fourth defendant, the orders will be frustrated because the fourth defendant has no capacity to carry the orders into effect.
One of the contentions of the liquidators is that the fourth defendant had no authority to bind Micden. I cannot accept that proposition. The relevant authority of the fourth defendant was provided by s 198E of the Act. I also do not accept the proposition that the Court had no power to make an order against Micden.
Separately, and apart from that, the first three defendants were entitled to assume, by reason of the provisions of s 128 and 129 of the Act, that the fourth defendant had authority to exercise the powers and perform the duties customarily exercised or performed by a director and a sole shareholder in a single director company. Section 128 provides that Micden is not entitled to assert in any proceedings that the assumptions provided in s 129 of the Act are incorrect. The fourth defendant had actual authority as the sole director of Micden to act as its agent, and to bind it to an agreement. The question is whether she did so.
It is necessary to construe the wording in the orders, bearing in mind they were in a form agreed to between the solicitors for all of the parties to the IFP litigation. The Court must resolve the meaning of the wording in the orders. It is necessary to bear in mind, of course, that parties to the consent orders had them entered pursuant to an antecedent agreement to settle the IFP action. The orders are the means by which that agreement was carried into effect.
For the reasons that I outlined earlier, I do not think that the question whether the antecedent agreement was enforceable or not is of any moment once the Court has made an order to give effect to it. There is no application to set aside the orders. The construction process is to determine and give effect to the common intention of the parties. In my opinion, the approach to the interpretation of contractual terms is also appropriate to the interpretation of the orders of the Court.
It is the objective intention of the parties, rather than the subjective intention, that is under consideration.[20] The relevant question to be asked is what is the meaning of what the parties have said; not what did the parties mean to say?[21]
[20] Reardon Smith Line Ltd and Anor v Yngvar Hansen-Tangen (trading as H.E. Hansen) & Anor [1976] 1 WLR 989 at 996.
[21] L Schuler A.G. v Wickman Machine Tool Sales Ltd [1974] AC 235 at 263.
The Court is concerned with determining what a reasonable person in the position of the party to whom the words were addressed would regard as the other party’s intention.[22] It is necessary to consider what is called the factual matrix. In Reardon Smith Line Ltd and Anor v Yngvar Hansen-Tangen (trading as H.E. Hansen) & Anor,[23] Lord Wilberforce said that when construing a contract the court must place itself in the same factual matrix as that in which the parties were when the contract was made.[24]
[22] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 463.
[23] [1976] 1 WLR 989.
[24] Reardon Smith Line Ltd and Anor v Yngvar Hansen-Tangen (trading as H.E. Hansen) & Anor [1976] 1 WLR 989 at 997.
In Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales[25] Mason J said that the words in issue must be susceptible to more than one meaning to justify the use of the surrounding circumstances or factual matrix.[26]
[25] (1982) 149 CLR 337.
[26] Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350.
That position seems to have been modified in Toll (FGCT) Pty Limited v Alphapharm Pty Limited and Others where the majority in the High Court said: [27]
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
[27] (2004) 219 CLR 165 at 179.
The text of the orders made by the Court must therefore be considered in light of the surrounding circumstances known to the parties and the purpose and object of the parties agreeing to the orders of the Court.
The relevant circumstances to be considered would appear to be:
·the purpose of the orders was to settle litigation amongst family members;
·the settlement was to effect the distribution, among family members, of the assets acquired by Mr Edwards over his lifetime;
·the distribution of the assets acquired by Mr Edwards over his lifetime included the distribution of the assets in the control of Micden, being the company used by Mr Edwards to conduct his business affairs and hold various assets;
·the fourth defendant was, at the relevant time, the owner of and the sole decision-maker for Micden;
·the fourth defendant indicated that she was engaging in the settlement negotiations in both of the aforementioned capacities.
In my opinion, in all of the circumstances, at the time the parties were negotiating the settlement of the IFP proceedings, all parties would have understood that the fourth defendant was acting as agent of Micden with the intention of binding Micden to the outcome agreed between the parties.
The only matter that stands against that is the form of the drafting of the orders which required the defendant using her best endeavours to procure Micden to do various acts. In my opinion, the drafting was done in that way to meet the exigencies of the situation, namely Micden not being a party to the IFP proceedings. The form of the orders do not detract from the finding that it was the common intention of the parties that Micden be bound by the settlement of the proceedings.
The answer to the liquidator’s first question is, therefore, they are bound by the orders because Micden is bound by the orders made on 10 April 2013. I will hear the parties on the form of the orders that should be made.
In the circumstances, it is not necessary to answer the questions in paragraph 2 of the application. Nor is it appropriate to deal at the moment with the liquidators’ other contentions that the agreement and the orders of the Court are a voidable transaction.
Unfortunately for the parties, the finding that Micden is bound by the orders of the Court does not necessarily mean the matter is at an end. Whether the orders can survive a challenge under Part 5.7B of the Act is a matter to be determined separately and after a trial of such an action. I will hear the parties about the further conduct of the matter, if it is to be pursued. My preliminary view is that it would be appropriate to allow the liquidator to file a statement of claim in this matter seeking to have the orders set aside as being a voidable transaction. I will also hear the parties as to any consequential orders.
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