Westpac Banking Corporation v Smith

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FEDERAL COURT OF AUSTRALIA

Westpac Banking Corporation v Smith [2020] FCA 1360  

File number(s): NSD 2173 of 2017
Judgment of: RARES  J
Date of judgment: 8 September 2020
Catchwords: BANKRUPTCY AND INSOLVENCY – Application for inquiry into conduct of receivers pursuant to s 423 of the Corporations Act 2001 (Cth) – whether length of engagement by receivers of a hotel consultant in addition to a licencee manager of licenced gaming hotel raised a prima facie case requiring inquiry – where length of receivership extended due to conduct of mortgagor and its director – where mortgagor obtained statutory assessment that significantly reduced mortgagee’s and receivers’ legal costs and disbursements chargeable against mortgagor under securities – where lack of qualifications for expert giving evidence tendered in support of application for inquiry –whether conduct of receivers liable to attract sanctions or control for what might be broadly described as disciplinary reasons, including lack of diligence – held: inquiry refused
Legislation:

Corporations Act 2001 (Cth), ss 420, 423

Evidence Act 1995 (Cth), s 79

Personal Properties Securities Act2009 (Cth)

Legal Profession Act 2004 (NSW)

Liquor Act 2007 (NSW)
Cases cited:

Belvista Pty Ltd v Murphy (1993) 11 ACSR 628

Hall v Poolman (2009) 75 NSWLR 99

Leslie, in the matter of the Aboriginal Councils and Associations Act 1976, v Hennessy [2001] FCA 371

Northbourne Developments v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434

Oswal v Carson(in their capacity as receivers and managers of Burrup Fertilisers Pty Limited (receivers and managers appointed) (No 3) (2013) 300 ALR 149

Young v Thompson (formerly trustee of the property of Young) (2017) 253 FCR 191
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 48
Dates of hearing: 7 - 8 September 2020
Counsel for the Applicant/Cross Respondent: Mr T Faulkner SC with Ms A Garsia
Solicitor for the Applicant/Cross Respondent: HWL Ebsworth Lawyers
Counsel for the Respondent/Cross Claimant: Mr M Condon SC with Mr E Walker
Solicitor for the Respondent/Cross Claimant: Levitt Robinson Solicitors

ORDERS

NSD 2173 of 2017
BETWEEN:

WESTPAC BANKING CORPORATION

Applicant and Cross Respondent
AND:

JOSEPHINE AAPA SMITH

First Respondent and Cross Claimant

ORDER MADE BY:

RARES  J

DATE OF ORDER:

8 SEPTEMBER 2020

THE COURT ORDERS THAT:

1.The cross claim be dismissed.

2.The parties provide submissions limited to five pages and to file and serve any evidence on the question of costs by 24 September 2020.

3.The matter be set down for an interlocutory hearing on the question of costs on a date to be fixed.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

REVISED FROM TRANSCRIPT

RARES J:

  1. This is an application under s 423(1)(b) of the Corporations Act 2001 (Cth) by Josephine Smith (Ms Smith) and two companies which she controls, Smith & Smith Investments Pty Limited and Nouveau Pacific-A Pty Limited, for an order that there be an inquiry about the…

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Details
Case
[2020] FCA 1360
Decision Date

CaseChat Overview and Summary

In the case of Westpac Banking Corporation v Smith, the dispute arose between the respondent, Ms Smith, and the applicant, Westpac Banking Corporation, as well as the receivers of a hotel. The central issue was whether the engagement of a hotel consultant by the receivers, in addition to a licencee manager of a licensed gaming hotel, constituted a prima facie case for an inquiry under section 423 of the Corporations Act 2001 (Cth). This question was examined in light of the extended duration of the receivership due to the conduct of the mortgagor and its director, as well as the impact of a statutory assessment on the mortgagee's and receivers' legal costs and disbursements chargeable against the mortgagor under securities. Furthermore, the court evaluated the lack of qualifications of an expert providing evidence in support of the application for an inquiry.

The court determined that there was insufficient evidence to establish a prima facie case for an inquiry into the conduct of the receivers, as the likely return of any money derived from such an inquiry would not warrant the expenditure. The court also emphasised the importance of exercising caution when considering an inquiry into a receiver's conduct, particularly in situations where a degree of latitude in the exercise of business judgment is warranted. Moreover, the court found that the assessment of legal costs and disbursements under the Legal Profession Act was a separate process from that dealt with by section 423(1)(b) and its analogues. Consequently, the court concluded that Ms Smith's application for an inquiry should be dismissed.

The court further ordered that the cross-claim be dismissed, and the parties should provide submissions limited to five pages and to file and serve any evidence on the question of costs by 24 September 2020. The matter was set down for an interlocutory hearing on the question of costs on a date to be fixed. In summary, the court dismissed Ms Smith's application for an inquiry and ordered the parties to provide submissions on the question of costs, while acknowledging her partial success in substantially reducing the costs chargeable on the securities.

Orders

Orders of the court

1. The cross claim be dismissed.

2. The parties provide submissions limited to five pages and to file and serve any evidence on the question of costs by 24 September 2020.

3. The matter be set down for an interlocutory hearing on the question of costs on a date to be fixed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

While there can be no doubt that the receivers and their appointor, Westpac, would be able to fund any orders for return of any money derived from that exercise, I am not satisfied, having regard to all of the circumstances, that the likely return would be of a sum sufficient to warrant an inquiry, had I been persuaded (which I am not) that a prima facie case had been made out to the standard set in Leslie [2001] FCA 371 at [6] and [8]. And, of course, as the Full Court said, any inquiry necessarily would be limited to the one matter in issue, being Mr Lucas’ continued retention as a consultant beyond some indefinite date when the circumstances might have changed.Conclusion In all of the circumstances, I am of opinion that Ms Smith’s application for an inquiry fails. I will order that the cross-claim be dismissed subject to making orders as to the payment out of the sum of $123,254.85 as found by the assessor that Westpac paid into court. There are also, as Westpac and the receivers have pointed out, outstanding orders in the multiplicity of proceedings in which Ms Smith has been involved. Any such order might require notice to be given to third parties that money might be available to pay any party with an existing entitlement or claim, although it is unlikely to be the case. Westpac also wishes to seek orders about the amount that it paid into Court in relation to any final costs orders. However, Ms Smith has been partially successful in substantially reducing the costs chargeable on the securities, albeit through the satellite process of an assessment of costs and disbursements. Westpac has accepted that it must pay interest on that sum and it calculated that it is liable to pay interest of approximately $25,000. The parties will need to check the basis of that calculation and determine whether any adjustments need to be made. Thus, although her claim against Westpac in one sense has failed, Ms Smith did establish through the cost assessment process, that she and her companies had been overcharged by a not insubstantial amount. The parties should confer and seek to agree the interest figures, Westpac should identify its claims for costs, including if possible, by trying to negotiate or identify the basis on which I could make a lump sum party and party costs order. At the moment, I am inclined to think that Ms Smith’s success in having the legal costs and disbursements reduced might need some reflection in a modest reduction of the costs to which Westpac and the receivers would otherwise have been entitled, but I will need to hear from the parties on that question.

Ratio Decidendi

Legal Principle Established

Ms Smith relied on Hall 75 NSWLR at 127 [90], where the Court of Appeal discussed the expression in s 536(1)(b), which is relevantly analogous but not exactly so, with s 423(1)(b), “if a complaint is made to the court or ASIC with respect to the conduct of the liquidator in connection with the performance of his or her duty.” There the Court of Appeal held that the expression would cover complaints about incompetence or lack of diligence as well as complaints about failure faithfully to perform duties. They held that natural and ordinary meaning of the words ought not be read down. Consideration Here, s 423(1)(b) allows a complaint to be made about an act or omission of a controller of the property, such as a receiver, of a corporation “in connection with performing or exercising any of the controller’s functions and powers”.The court, relevantly, may inquire into the matter and may take such action as it thinks fit.Thus a complaint about a controller’s lack of diligence is within the scope of s 423(1)(b): cf: Hall 75 NSWLR at 127 [90]. Nonetheless, in my opinion, the power is still one to be exercised with appropriate caution as McLelland J explained in Northbourne 19 NSWLR at 438F–G; Belvista 11 ACSR at 630, which the Full Court applied in Leslie [2001] FCA 37 at [4], [6] and [8]. The power is enlivened to deal with conduct of a controller or receiver that is liable to attract sanctions or control for what might be broadly described as disciplinary reasons, which can include a lack of diligence. The receivers had no onus to establish that their conduct was reasonable. Rather, the onus was on Ms Smith to show that there was a prima facie case for an inquiry to be ordered of the kind that the Full Court explained in Leslie [2001] FCA 371 at [6] and [8]. Ordinarily, the court will allow a person in the position of a receiver or liquidator a degree of latitude in the exercise of business judgment in the performance or the conduct of his or her task. This is particularly so in a situation such as this where Mr Kelly was confronted with the necessity to run a licensed gaming hotel and preserve its value as a security pending sale. That asset’s value was dependent upon the maintenance of its liquor licence in an area in which difficulties with compliance might be expected. It was essential that Mr Kelly ensured that he, and those for whom he was responsible, including the licensee, took reasonable care to ensure that the hotel was managed appropriately and in a way that safeguarded the secured asset, including its licence under the Liquor Act, the value of its land and business. I accept that, as Ms Smith has pointed out, the substantial reduction in the amounts of those legal costs and disbursements that both Westpac, as mortgagee, and the receivers, could charge upon the secured estate raised her bona fide concern about the quantum of the overall receivership costs and expenses. However, the process under the Legal Profession Act for assessment of legal costs and disbursements is different to that with which s 423(1)(b) and its analogues deal, as the authorities that I have referred to explained.