Elcos Australia Pty Ltd v James Hardie Building Services & Technology Ltd [1998] QSC 308

n State ~5~'1~ Reporting TRANSCRIPT OF PROCEEDINGS Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau. SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION CHESTERMAN J No 402 of 1995 ELCOS AUSTRALIA PTY LTD and REVISED COPfESISSUED State Reporting Bureau Date « Plaintiff JAMES HARDIE BUILDING SERVICES AND TECHNOLOGY LTD Defendant o BRISBANE .. DATE 19/10/98 o ORDER 1 .... '."' ..•• "'1. .• , .•••. r ......... r .......... c ........ " .. ;e.I ....... n ..illllli T.oI ... ,I, .. ",,· (1\71 ".17 .1,(,() I;.,y. 1()71 17.17 <;.::;1' -- 1 of 14 -- 191098 T10/SLF21 M/T 3175/98 (Chesterman J) HIS HONOUR: The plaintiff, Elcos Australia Pty Ltd (in liquidation) (receiver and manager appointed) sues the defendant James Hardie Building Services and Technologies Limited in action no 402 of 1995 for damages for breach of contract. The amount claimed arises from the performance of two contracts and totals just under $2,000,000. There is a counter-claim brought by the ·defendant against the plaintiff, the amount of which is, in round figures, $1,000,000. The plaintiff was ordered to be wound up on 14 August 1995. c=) Messrs Stephenson and Jefferson have been appointed liquidators. By a mortgage debenture dated 20 May 1994 the company charged all its undertaking and all its property and assets whatsoever and wheresoever both present and future including the goodwill of its business, its called but unpaid and uncalled capital, and all its intellectual property rights as defined in the mortgage debenture to receive a loan from the National Australia Bank. o The plaintiff, having defaulted in its performance of the terms of the debenture, the mortgagee, appointed Mr Anthony C) Woodings as receiver and manager pursuant to an instrument dated 22 August 1996. By Clause 17 of the mortgage the plaintiff conferred powers upon the receiver when appointed. Clause 17.4 provided: "Subject to any limitations or restrictions set out in the deed or other instrument of appointment, and despite any insolvency, winding up, or other insolvency administration, or dissolution of the Mortgagor (the plaintiff), every Receiver for the time being appointed under this Deed has in relation to the Mortgage Property and income in respect to which the Receiver is appointed, the following powers ... : 2 ORDER 10 20 30 40 50 60 -- 2 of 14 -- · 191098 T11/SE13 M/T 3172-3175/98 (Chesterman SCJ) Then: "(m) legal action: power to take, defend, compromise or appeal and to give any undertaking or security and incur costs and expenses relating to any proceedings in the name of the Mortgagor or otherwise, including proceedings for the winding-up of the Mortgagor by a court;" II (n) compromise: power to enter into or make any agreement, arrangement or compromise and carry out and enforce specific performance or otherwise obtain the benefit of all contracts entered into or held by the Mortgagor or entered into in exercise of the powers conferred by this 10 Deed" . 20 o On 1 August 1996 the amount owed by the plaintiff to the ~) National Australia Bank was $268,658.23. On that day, the National Australia Bank assigned the debt and the mortgage debenture to Royal Sunset Pty Ltd. Notice of the assignment 30 was given to the plaintiff. The action between the plaintiff and the defendant has been o supervised by the Court. 40 o It has been thought by the Court and by the parties that a mediation would have a good chance of resolving the matter. The parties are prepared, and indeed are willing, to mediate in the hope of compromising but a point has arisen. The defendant, naturally enough, is concerned that if it should 50 mediate and reach terms, that the person with whom it compromised has, in fact, power to bind the company. A question has been raised whether the receiver has that power. The summons was brought for the opinion of the Court on that 60 question. 3 -- 3 of 14 -- 191098 T11/SE13 M/T 3172-3175/98 (Chesterman SCJ) It seems to me, having heard the submissions of counsel for the plaintiff, that the receiver does have power to bind the company should a compromise eventuate from the mediation or, indeed, apart from the mediation which is proposed. The powers which I read from the mortgage debenture are quite clear. Despite the appointment of liquidators on the winding up of the company, it seems to me that the power conferred by the mortgage debenture continues in existence. The only (~ restriction on the power of the receiver to act on behalf of the company after winding up is that, after that date, the o C) o receiver may not act as agent for the company for the purpose of incurring debts, which would be a liability of the company and therefore diminish the land available to pay the unsecured creditors. With that exception, it seems to me that the receiver may continue as before, though being personally liable for the debts he incurs in the conduct of the receivership or of the business of the company in receivership. Those debts will become part of the secured debt which can be paid from the proceeds of the realisation of the secured property. I was referred to a number of cases which seemed to me to make good that proposition. The first was Kelaw Pty Ltd v. Cat co Developments Pty Ltd (1989) 15 New South Wales Law Reports at 587. The head note says: "If, under the proper construction of a mortgage debenture, a receiver has power to conduct 10 20 30 40 50 litigation in the name of and as agent for the 60 company, then upon the making of a winding up order, 4 -- 4 of 14 -- o o o o , 191098 T11/SE13 M/T 3172-3175/98 (Chesterman SCJ) the receiver might continue the conduct of the litigation in the name of the company, but no longer as agent for the company." That last phrase, I think, needs some explanation. In his reasons for judgment, Mr Justice Brownie said at p.591 letter F: "It is quite clear that the making of the winding up order effectively terminated some of the receiverls powers, for example, ... to carryon the defendantls business as agent for the defendant. II . However, a receiver may be able to carryon the business of 10 the company after the making of a winding up order as agent 20 for the debenture holders for the purposes of a beneficial winding up. In the same passage, his Honour said: II ••• upon liquidation, the receiver of a company retained the power to continue litigation he had previously commenced on behalf of and in the name of the company, although no longer as agent for the company. The powers granted by the debenture mortgage and the deed of appointment must yield to the provisions of the Companies Code, so that whilst the receiver might continue the prosecution of the cross-claim, he cannot do so in such a way as to create liabilities provable in the winding up. In a practical sense, therefore, it is the receiver or the mortgagee standing behind him who must fund the continuing prosecution of the cross-claim. II The statements to the effect that the receiver, after winding up, can no longer act as agent of the company, must, I think, be understood in the light of his Honourls remarks about the appointment of a liquidator depriving the receiver of the power to incur debts on behalf of the company. After winding up he incurs them as principal. 5 30 40 50 60 -- 5 of 14 -- o o o 191098 T11/SE13 M/T 3172-3175/98 (Chesterman SCJ) In Wily and Another v. Commonwealth (1996) 66 Federal Court Reports at 206, the full Federal Court considered a similar point. After a ~horough review of the authorities by Justice Lindgren, his Honour said at 224: "The view which has come to be accepted is that a winding-up order brings about a termination of a receiver's authority to act as agent of the company only to a limited extent: his authority to incur debts or liabilities provable in the winding up is at an end but not his authority, as the company's· agent, to dispose of company property ... " His Honour then refers to a number of cases for that proposition and continues: "statements in some of the cases that liquidation terminates the authority of a receiver and manager as agent of the company to carryon its business should be treated with caution and as being directed against a carrying on of the company's business 'so as to create debts provable against the unmortgaged assets of the company' . " Justice Shepherd took a similar view in Re Yates; National Mutual Life Association v. Catco Developments Pty Ltd (1988) Australian Law Reports 583 at 587. His Honour referred to a judgment of Mr Justice McLelland in Re Leslie Homes (Aust) Ltd and to the judgment of Mr Justice Street in Re Landmark C) Corporation. Quoting Mr Justice McLelland's judgment his Honour said: "Winding up deprives the receiver, under such a debenture as that now in suit, of power to bind the company personally by acting as its agent. It does not in the least affect his powers to hold and dispose of the company's property comprised in the debenture, including his power to use the company's name for that purpose, for such powers are given by the disposition of the company's property which it made ... by the debenture itself. That disposition is binding on the company and those claiming through it, as well in liquidation as before liquidation " 6 10 20 30 40 50 60 -- 6 of 14 -- 191098 T12/PMD/22 M/T 3172/98 (Chesterman J) That seems to be a complete answer to the question about the receiver's authority. He has power to deal with the property comprised in the mortgage debenture, including the chose in action the subject of the suit against the defendant. A disposition of that property by compromise of the action is within the express power conferred by the mortgagor, the company, or the receiver. This authority survives the appointment of a liquidator. Any disposition of the property by the receiver is binding on the company. c=) I am satisfied that the plaintiff's view of the matter is correct and that I should make a declaration in terms sought. The summons seeks two declarations. The first is that the receiver was validly appointed and no question is taken about that. It is, I think, not necessary to make the declaration. But I do declare that Anthony John Leslie Woodings, the receiver and manager of the plaintiff pursuant to deed of appointment dated 22 August 1996, has the authority to enter c=) into a compromise on behalf of the plaintiff in relation to the issues the subject of action number 402 of 1995 in the Supreme Court of Queensland between the plaintiff and the c=) defendant. That's all you need, isn't it, Mrs Mullins? MRS MULLINS: Yes, Your Honour. Technically the applicant needed an order that the time for service of the originating summons and accompany affidavit be abridged to allow the hearing today. HIS HONOUR: I order that the time limited for the hearing of the summons today be abridged. 7 ORDER 10 20 30 40 50 60 -- 7 of 14 -- 191098 T12/PMD/22 M/T 3172/98 (Chesterman J) MRS MULLINS: In relation to costs, Your Honour, the applicant seeks an order for costs against the respondent James Hardie and also seeks an order that James pay the liquidator's costs of the application. The reasons for that are foreshadowed by paragraphs 9 and 13 of my written outline and I just need to quickly take Your Honour to some correspondence that's passed between the parties. HIS HONOUR: You say that the position was quite clear. If the defendant wanted the comfort of a Court declaration he should pay for it? MRS MULLINS: That's correct, and----- HIS HONOUR: Did you say paragraph 14 of your submissions? MRS MULLINS: No, 9 and 13. (~ HIS HONOUR: All right, show me the correspondence. o MRS MULLINS: Ms O'Connor's affidavit filed on 15 October very helpfully has the correspondence numbered so I'll take - use that, if Your Honour could find her affidavit. HIS HONOUR: Which one is this? MRS MULLINS: Ms Elizabeth Ann O'Connor's affidavit that was 10 20 filed on the 15th. It's the----- 30 o o HIS HONOUR: Yes, I've got that. MRS MULLINS: And it has a large number of - amount of correspondence. HIS HONOUR: Yes. MRS MULLINS: If you start at page 1. At the outset the liquidators attitude probably wasn't strictly correct and that's I think where the respondent, James Hardie, has taken its lead from. HIS HONOUR: Yes. MRS MULLINS: Then if Your Honour goes over to page 32. The receiver and manager provided Corrs Chambers Westgarth on that date with a copy of Clayton utz's letter to Gadens dated 11 September 1998 and that letter is one from the liquidator that clarifies its position, the position of the liquidator, and that's found at page 35. HIS HONOUR: Yes. MRS MULLINS: And then Corrs Chambers Westgarths letter of 12 October that's set out at page 39. It's----- HIS HONOUR: Yes, I've read that. 8 ORDER 40 50 60 -- 8 of 14 -- o o o 191098 T12/PMD/22 M/T 3172/98 (Chesterman J) MRS MULLINS: Your Honour will also need to dispose of the chamber summons that was filed in the action on 5 October which sought a declaration in virtually identical terms to the second order that was sought in the originating summons. HIS HONOUR: I think what I have is the - no, it's the summons of 16 October. MRS MULLINS: Yes, that's the originating summons. There was also a chambers summons filed in the action. I. haven't taken Your Honour to all the correspondence----- HIS HONOUR: I've got that. MRS MULLINS: -----but the applicant proposed to have the matter dealt with just between the----- HIS HONOUR: I see what you mean, yes. MRS MULLINS: And as the correspondence had increased between the parties the applicant decided on Friday well it better file an originating summons and join the liquidator so that today wasn't a waste if Corrs Chambers Westgarth----- HIS HONOUR: Mrs Mullins, I'm inclined to take your side on the question of costs. My only reservation is that costs are a sensitive issue always and to make an order for costs may just, quite irrationally, raise the emotional stakes at the mediation and put a stumbling block. MRS MULLINS: There are ways of getting around that, Your Honour. Your Honour could make an order in favour of the applicant and put conditions on it that could take out the problem that Your Honour's seeing. I haven't got any instructions to suggest anything. I'm just saying if that's the only impediment it seems to me that it doesn't prevent Your Honour from making an order in favour of the applicant. HIS HONOUR: I suppose the costs order really - the amount would be quite small compared to what's at stake in the litigation. MRS MULLINS: That is correct, Your Honour. HIS HONOUR: And it's a commercial dispute. MRS MULLINS: And it really was a question of law and----- HIS HONOUR: Yes, the decision appears quite clear really. MRS MULLINS: Yes, but as I said in my written outline the respondent seems to have misinterpreted what the liquidator was actually saying because I think ultimately the liquidator's solicitors did correctly set out the position in their letter of 11 September and as far as their paragraph in that letter about the question of costs, that was just a 10 20 30 40 50 matter between the liquidator and the receiver and manager and nothing to do with the real issue which was the power of the 60 receiver and manager to compromise the Supreme Court action. 9 ORDER -- 9 of 14 -- 191098 T13/IK29 M/T 3172/98 (Chesterman J) HIS HONOUR: I'll hear from Mr Freeburn. Why shouldn't you pay for the comfort that you've got from the declaration, Mr Freeburn? MR FREEBURN: Well, it's not only my comfort. It's everybody's comfort and Your Honour can I say that----- HIS HONOUR: But you didn't even raise a question mark over the position. MR FREEBURN: We did raise a question mark and that was because the liquidator was saying as early as 30 June, "Look, we will not consent to a compromise of the action by the receiver on any other basis then these two grounds." HIS HONOUR: But by 11 September he'd said it was really a matter for you. If you've got the power go ahead and settle but just make sure you settle reasonably. 10 MR FREEBURN: Well, 11 September is an interesting letter. 20 I') First of all it doesn't say, "Well, we made a mistake \- earlier. " But what it does say is - the first paragraph numbered 1, "If you are validly appointed, then the liquidator does not contest the receiver's powers into the compromise. o o u HIS HONOUR: But there was never a doubt about the validity of the appointment, was there? MR FREEBURN: No. But then they go on, paragraph 2, "It is the liquidator's responsibility to ensure that any compromise 30 entered into by the receiver on behalf of our costs is a reasonable and proper settlement in terms of being in breach of the duties", et cetera. So, that is very similar to what they said back in June, which is "Look, we want to put our stamp of approval on this settlement and we want our costs." Paragraph 3, they refer "For the first time we're agreed to the undertaking about costs." See, Your Honour, in my submission what's happening is the liquidator is saying, "We might give our approval but we're qualifying it. We're. qualifying it subject to two things. We're saying, "We want our costs and we want to approve the figure. The receiver and manager's saying "Well, no approval is necessary and don't agree" - even today they don't agree to the costs. So, you have that contest between the liquidator and the receiver and in the context of that my client says, as Your Honour commented in the judgment naturally enough - my client says, "Well, what's happening here? Are we going to go along to a mediation and have it challenged by the liquidator?" And it's interesting also to note----- HIS HONOUR: What order for costs do you suggest? MR FREEBURN: Costs in the cause on the basis that the loser ultimately will pay what ultimately was a necessary application. I might say they served us with the material in 40 50 respect of the OS on Friday afternoon. They served the 60 10 ORDER -- 10 of 14 -- o o o (J 191098 T13/IK29 M/T 3172/98 "(Chesterman J) liquidator as well. Both sides have come along and dealt with that. Both sides - for the first time we----- HIS HONOUR: I must say it surprises me because this date was set weeks ago. MR FREEBURN: Yes, yes. An illustration of our attitude and our bona fides about it is we get this bundle of documents including the mortgage debenture for" the first time and we agree to that - we say there's no contest about that aspect of it. We deal with it. In my submission it really is a thin argument to rest a costs argument on our supposed misinterpretation of the letter - the so-called subtle change in stance of the liquidator. HIS HONOUR: Where's the first letter setting out the liquidator's attitude? MR FREEBURN: It's page 1 of that exhibit, Exhibit A to Ms O'Connor's second affidavit. HIS HONOUR: Yes, I've got it. And then you say the change is----- MR FREEBURN: The next one is on page 35. I might this battle had raged between the solicitors for the receiver and the solicitors for the liquidator without our being involved until we get this letter - I think we get this letter in October. 10 20 HIS HONQUR: You say there's not much change really between 30 the letter of 30 June and paragraph 2 of the letter of 11 September. MR FREEBURN: They're still saying it has to go through us. They're still saying we won't agree unless we consider it to be a reasonable and proper settlement. HIS HONOUR: Where do they say that they wouldn't come along to the mediation? MR FREEBURN: They don't say that. But all along they're saying, "We don't want to be involved in an application." That's what the liquidator's saying. And out stance was they had----- HIS HONOUR: And has the liquidator taken no part in the conduct of the litigation? MR FREEBURN: No. HIS HONOUR: So, an order for mediation wouldn't have bound the liquidator - wouldn't oblige him to go along and take part. MR FREEBURN: No. HIS HONOUR: Well, he could have done it, I suppose, without an order. MR FREEBURN: That's right. It's a consensual procedure. 11 ORDER 40 50 60 -- 11 of 14 -- '191098 T13/IK29 M/T 3172/98 (Chesterman J) HIS HONOUR: Yes. But is there no indication that he would have done that? MR FREEBURN: No, the only indication is in relation to the application in which the liquidator consistently said - well, both the liquidator and receiver said to each other - the liquidator is saying, "If you make a party to this application then I'm going to seek costs." And the receiver was saying the reverse in a sense. Your Honour, in my submission it quite plainly is a battle and has been a battle between the receiver and liquidator and the bottom of it is costs. But costs and consent and part of that continues up to today. And my submission is the appropriate order ought to be that costs be in the cause or alternatively that my client's costs be it's costs in the cause so that we don't have to pay for the costs ultimately. Whatever the result. 10 MRS MULLINS: Your Honour, may I refer you to some more of the 20 c=) correspondence that passed between the parties? c=) c=) HIS HONOUR: Yes. MRS MULLINS: If Your Honour could go back to page 15? HIS HONOUR: Yes. MRS MULLINS: The issue in relation to power was the subject of a letter from the Western Australia solicitors for Elcos on 13 August and you'll see it's a lengthy letter that sets out all the provisions of the Corporations Law and deals with the authorities such as Wily· and O'Donovan and goes through. And just sets out what the law is. Then at page 20 on 28 August Gaidens advised Corrs Chambers Westgarth what question it was that they had instructions to put to the Court and warned that if the applicant was successful in it's application it would seeks costs on an indemnity basis against both James Hardie 30 and the liquidator. Then you will see the attitude taken by Corrs Chambers Westgarth at page 21. They weren't convinced by 40 the letter from Williams and Hughes. c=) HIS HONOUR: 21 of the transcript? MRS MULLINS: No, page 21 of the numbered - I see. It's 26 Your Honour. HIS HONOUR: Yes I've got that. MRS MULLINS: And you will see in paragraph 3 of that letter the questions that the liquidator is----- HIS HONOUR: Mrs Mullins~ I think I'll make the costs in the cause. For two reasons; one is that there is something in what Mr Freeburn says that there was still a question mark over the liquidator's attitude and it was I think sensible to sort the thing out before the mediation. And the other is that my apprehensions are made out that costs clearly are a sensitive issue. They always are in Chamber applications. I'm just reluctant to make an order that's going to make one party or 12 ORDER 50 60 -- 12 of 14 -- C) o o o . 191098 T14/MW23 M/T 3175/98 (Chesterman J) another feel aggrieved .. It might in some small way or some large way inhibit the mediation process. MRS MULLINS: Well, in that case Your Honour would you take up Mr Freeburn's suggestion that it be the applicant's costs that be the costs in the cause of the Supreme Court action? Because the - James Hardie have been unsuccessful on the question of law. HIS HONOUR: Well, they didn't oppose it really. What they said was there's a potential problem, putting it as neutrally as I can, there's a potential problem and we don't want to get involved in the expense of a mediation if in the end there are squabbles of the authority of the receiver or the liquidator to settle. Yes, sort it out· before we go to mediation. I'm not sure that's not in the end a sensible attitude. It could be done differently but I'm not sure it was unreasonable to do it the way it was done. I think I'll make the costs of all parties costs in the cause. That's, when I say "all parties II that's the plaintiff, defendant and liquidator. MRS MULLINS: Well, there's a problem with that that the liquidator's not a party to the cause if Your Honour's referring to the Supreme Court action. HIS HONOUR: I will make the costs of all parties to the originating summons filed on 16 August 1998 costs in the cause in action 402 of 1995. MRS MULLINS: And Your Honour would you make an order in relation to the Chamber summons filed on 5 October that that be dismissed and there be no order as to costs? HIS HONOUR: Yes, I will do that certainly. I order that the summons in action 402 of 1995 dated 5 October 1998 be dismissed with no order as to costs. And Mr Nash in relation to your client's application simply bring it on when you want on notice and you can contact my Associate to arrange an appropriate time. I will adjourn the review of the action to a date to be fixed but to be within the next month or so but I will let the parties work out a suitable date and contact my Associate and we will fix a day that suits us all. MR NASH: Your Honour, will you regard this as a part of this application? Part of this application or requiring a separate 10 20 30 40 50 one in relation to the lien undertaking issue? 60 13 ORDER -- 13 of 14 -- 191098 T14/MW23 M/T 3175/98 (Chesterman J) HIS HONOUR: I think you should issue a new summons Mr Nash just so that what you want is spelt out clearly. MR NASH: And in making costs in the cause in the action involving the receiver and James Hardie if it's ultimately ruled that the liquidator is entitled to his costs how will he recover those if the receiver - should there not be an order that the receiver be liable for those but they be costs in the cause perhaps? Whoever is determined to be liable for them ultimately has to pay the liquidator. Otherwise he may have no entitlement to recover them. One or either parties should be liable or both perhaps with a ruling made in that action. MR FREEBURN: Neither Mrs Mullins or I object to an order that either or us pay the costs. The loser pay the costs of the liquidator to date. HIS HONOUR: That's what I had in mind. The order will be c=J that the costs of the liquidator of today will be taxed and paid by whichever party in action 402 of 1995 is ordered to o pay the costs of the other. o o 14 ORDER 10 20 30 40 50 60 -- 14 of 14 --