Strazdins v Clarke - [2015] SASC 134

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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2015] SASC 134
Decision Date: 28 August 2015

CaseChat Overview and Summary

The case of Strazdins v Clarke involved a dispute concerning the binding effect of court orders on a company in liquidation. The respondents were liquidators of Micden Pty Ltd, which had been wound up. They sought to have certain orders made in relation to the company set aside as voidable transactions under the Corporations Act 2001 (Cth). The primary issue before the court was whether the company was bound by the orders made by the Court on 10 April 2013. The court had to determine if the orders were personal obligations of the defendant, who was a director of the company, or if they were intended to bind the company itself. The court examined the relevant provisions of the Act and the authority of the director to bind the company, considering whether the orders were a voidable transaction.

The court held that the fourth defendant, as the sole director of Micden, had actual authority to act as the company's agent and to bind it to an agreement. The court rejected the argument that the fourth defendant lacked the authority to bind the company. The court also dismissed the proposition that the court had no power to make orders against the company. The court concluded that the orders were intended to bind the company, and not merely a personal obligation of the fourth defendant. The court noted that the orders were made in the form agreed upon by all parties in the IFP litigation, and they were a means of carrying out the settlement agreement. The court found that the orders were not voidable transactions under the Corporations Act.

The court's reasoning was based on the interpretation of the wording of the orders, which were made by consent and in the context of an antecedent agreement to settle the IFP action. The court held that the liquidators' contention that the orders were merely personal obligations of the fourth defendant was not supported by the evidence. The court also rejected the liquidators' argument that the orders were a voidable transaction under the Corporations Act. The court found that the orders were valid and binding on the company, and not merely a personal obligation of the fourth defendant. The court dismissed the liquidators' application to set aside the orders.

In summary, the court held that the company was bound by the orders made by the Court on 10 April 2013, and that the orders were not voidable transactions under the Corporations Act. The court rejected the liquidators' arguments that the fourth defendant lacked the authority to bind the company, and that the court had no power to make orders against the company. The court found that the orders were valid and binding on the company, and dismissed the liquidators' application to set aside the orders.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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.