Eamon Pty Ltd, Rador Pty Ltd & Blackedged Pty Ltd v Sanwa Home Australia (Formerly Balfield) Pty Ltd [1993] QSC 172

() u IN THE SUPREME COURT OF QUEENSLAND No. 690 of 1991 Brisbane Before Mr. Justice Thomas [Eamon & Ors. v. Sanwa Home Australia Pty~ Ltd.] BETWEEN: EAMON PTY. LTD. First Plaintiff AND: RADOR PTY. LTD. Second Plaintiff BLACKEDGED PTY. LTD. Third Plaintiff SANWA HOME AUSTRALIA (FORMERLY BALFIELD) PTY. LTD. Defendant REASONS FOR JUDGMENT - THOMAS J. Judgment delivered 23/06/93. CATCHWORDS: Counsel: Solicitors: Companies - receivers - application for discharge of appointment of receiver made under 0.47 r.37 on basis that property for which receiver was appointed does not exist - calls on member for unpaid shares - whether member's name was in company's register of members -delay in raising point -possibility of rectification money judgment obtained by receiver - no sufficient reason to discharge appointment. P. Keane Q.C. and P. O'Shea plaintiffs/respondents G. Gibson Q.C. for defendant/applicant Corrs Chambersplaintiffs/respondentsSly & Weigall Cannan defendant/applicant Westgarth & Peterson for for for Hearing Date: 18th June, 1993 -- 1 of 13 -- ' \ ( j L) IN THE SUPREME COURT OF QUEENSLAND No. 690 of 1991 BETWEEN: EAMON PTY. LTD. First Plaintiff AND: RADOR PTY. LTD. Second Plaintiff BLACKEDGED PTY. LTD. Third Plaintiff SANWA HOME AUSTRALIA (FORMERLY BALFIELD) PTY. LTD. Defendant REASONS FOR JUDGMENT- THOMAS J. Delivered the 23rd day of June, 1993 This is a motion that the appointment of a receiver be discharged. The receiver was appointed by the court on 15th May, 1992, on the application of the plaintiffs, the primary purpose of the order being to aid execution of specific performance decrees already obtained by the plaintiffs. The appointment was made under 0.47 r.37. Both parties agree that the court has the power to discharge the receiver and that a discretion is involved. The applicant is Sanwa Homes Inc. ( "SHI"). It is not a party to the action. It is the parent company of the defendant Sanwa Home Australia Pty. Ltd. ( "SHA") against which the specific performance orders have been made. SHI is a foreign corporation -- 2 of 13 -- I 2 resident in Japan. Its interest in the present matter lies in the fact that the receiver is endeavouring to obtain from it monies said to be owed by it to its subsidiary. SHA. If such monies ar~ obtained by the receiver, SHA will be able to carry out the specific performance decrees that have been ordered by the court. The ·decrees were obtained by the plaintiffs as vendors agairist SHA respecting sales of real property. As the result of additional directions after the initial decrees, the plaintiffs (') have now done all that is required on their behalf to give title and transfer to-SHA, ·and all that effectively remains to be done by SHA is to pay the money. The aggregate of the monies payable under the contracts is of the order of $28 million. The receiver was appointed when evidence wa_s discovered of dealings between SHA and SHI whereunder in June 1990 SiU applied for and was allotted 50 million $1 shares. These were paid for to the extent of two cents each. The asset in respect of which the receiver was appointed on 15th May, 1992 was SHA's right to make calls on SHI in respect of shares issued to SHI. 0 0 A. great deal of material has been filed on each side in 0 relation to this application, and I heard three and a half hours submissions last Frid-ay during a Chamber day. I do not consider that a lengthy judgment is required although many issues were canvassed by counsel. I propose firstly to mention what I regard as the major factors in. the decision, and then to lay out for the benefit of the court which .hears the inevitable appeal a summary of events and some of the more important submissions. -- 3 of 13 -- () L ) 3 Although SHA and SHI are separate entities in law, they have had three common directors since at least June 1990 and SHA is the wholly owned subsidiary of SHI. There is also evidence in the company register that in June 1990 article 57 was amended so that the directors were authorised to use the company seal on the condition that every instrument to which the seal is affixed is ••countersigned by the president of SHI or the duly appointed attorney of the president of SHI or the duly appointed attorney of SHI 11 • I have no doubt that the companies are in collusion to take every step possible to avoid the consequence of injecting money into SHA that would enable it to comply with the decrees of the court. The story to date is of an extremely long and persistent series of attempts to avoid the consequences of the decrees and of a series of further court orders. In the event, the receiver has obtained a judgment in favour of SHA against SHI for a little over $35 million and costs. It was obtained on 3rd June, 1993. The application for the dismissal of the receiver is based upon the allegation that the chose in action which he was appointed to realise is a nullity, and that therefore there was no basis for the continuation of the appointment. For my part I find it difficult to respond favourably to such a submission when it is Shown, as it is here, that the receiver has converted the now disputed right into a judgment debt by means of a valid subsisting judgment in this court. It may be noted that the right was not disputed when the receiver was appointed. It is unthinkable to me that the receiver should be removed while the judgment subsists. To do so would be to -- 4 of 13 -- 4 deny his opportunity to enforce it. It would open up. the opportunity of the collusive conduct between SHA and SHI to destroy the entitlement and frustrate ultimate recovery. Indeed, even were the judgment to be set·aside, I should not be inclined to dismiss the receiver so long as there remains an arguable case that a right exists or that steps are available. to perfect the disputed right of SHA to obtain money from SHI in respect of the allotment of shares by the former to the latter. '") The present application for the discharge of the receiver ( . is in my view hopeless. I shall however present a summary of the facts and of what I understand to be the more important submissions. 0 Facts 1. Three contracts were entered into on 23rd June, 1990 for the purchase by BHA trom the plaintiffs of land at the Gold Coast for a total price exceed.ing $26 million. 2. In October 1991 Robin A.J. declared that· the contracts 0 ought to be specifically performed. 3. The time fixed for completiqn was 29th March, 1991. The court's decree, which was made after that date had passed, Q was formulated on the basis that completion should be made within a reasonable time. The order conferred liberty to apply for· further orders or directions. 4. An appeal to the Full Court was brought. It was dismissed on 11th December, 1991. 5. One of the . points raised at trial, but not on appeal, concerned the validity of certain Orders in Council relating to rezonings. -- 5 of 13 -- ( \ \.___) 5 6. On 19th December, 1991 Byrne J. gave further directions for the specific performance of the contracts, including completion time 2 p.m. on 3rd February, 1992. Only three matters were raised for Byrne J.'s decision, and His Honour dealt with these. 7. On the new settlement day ( 3rd February, 1992) although 8. there wa~ no objection to the performance·offered by the applicants, a letter was delivered suggesting that the plaintiffs had not made time of the essence. Further, dates for settlement were fixed on behalf of the plaintiffs (20th February and 1Oth March) but on . each occasion the respondent did not complete. On 11th March de Jersey J. made an order described as a Morgan v. Brisco order (based on Morgan v. Brisco (1886) 32 Ch.D~ 192) which gave the vendor plaintiffs the libe~ty to tender the documents first, and ~mposed an obligation on SHA to pay the balance of the purchase price in late March plus interest. SHA resisted the making of this .order. An appeal was brought to the Court of Appeal, on the basis that such order should not be made because "town planning points" remained to be determined. 9. The Court of Appeal dismissed the appeal and extended the time for compliance with de Jersey J.'s order to 4 p.m. on 6th April. SHA sought to argue the planning points, but the Court of Appeal declined to permit this. 10. On 10th April, 1992 the High Court refused special leave to appeal from the Full Court's order. -- 6 of 13 -- 6 11. In proceedings before Byrne J. between 30th April and 8th May, 1992 (judgment 28th July, 1992) further points were raised including questions of interest, whether a release had been signed by two attorneys or not, absence of partial discharge for plans,. the town planning issues (despite a submission on behalf of the plaintiffs of estoppel) and the effect of special conditions 4 and 5. Byrne J.'s judgment affirmed the requirement of specific performance. 12. In the meantime, 15th May, 1992, the court (fortuitously ('J myself) appointed the receiver with the right to make calls on $32,653,061 SHA shares issued to SHI The receiver was authorised to take in the name of SHA any proceedings or other steps that might be necessary to realise those rights. 13. Tbe receiver made demand on SHI for payment of the balance owing on the partly paid shares. 14. The demand was not met by SHI. 15. Action was commenced (No.1355 of 1992) in the name of SHA against SHI, and service of notice in lieu of the writ was 0 0 effected on 10th December, 1992. 0 16. On th~ 60th day after service SHI entered an appearance. 1 7. SHA (under the direction of the receiver) applied for summary judgment before,Dowsett J. on 11th March, 1993. SHI then asserted for the first time that the letter in which it was said to have agreed to take up these shares was a forgery. Dowsett J. indicated that he was minded to make leave to defend conditional on payment into court of a substantial sum of ··money, but granted an adjournment -- 7 of 13 -- . { 7 until 19th March, 1993 to allow evidence to be produced of impecuniosity of SHI. 18. On 19th March, 1993 a further adjournment was granted until 2nd April, 1993. 19. On 2nd April, 1993 Dowsett J. granted SHI leave to defend, conditional upon its paying into court the sum of $3,015,890 on or before 2nd June, 1993, with further sums of $266,666 each month. (\ \. ) 20. On 2nd June, 1993 (the last day available pursuant to Dowsett J.'s order) SHI applied to Moynihan S.J.A. for an interlocutory injunction to restrain SHA from proceeding in the action, pending determination of two applications including the present one that has now been brought on before me. That application was refused by Moynihan S.J.A. 21. On 3rd June, 1993, SHI having failed to satisfy the conditions imposed by Dowsett J., · SHA entered judgment ( against SHI for a little over $35 million. 22. The first exposure of the point upon which the ··present application is based was on. 28th May, 1993 when SHI u delivered a "further amended defence and counterclaim" in which it alleged that SHI was not a "member" of SHA because it had never been entered into the plaintiff's register of members in respect of its shares. Submissions Mr. Gibson Q.C. for SHI submitted that at the time of the appointment SHA had no right to make calls on SHI in respect of the shares; that th~ receiver can have no greater entitlement than SHA to demand payment of the unpaid balance;· that the -- 8 of 13 -- 8 property in respect of which the receiver was appointed did not and does not exist; and that consequently the appointment was erroneous and should now be discharged. Tne premise upon which the whole argument depends is that SHI is not a "member" of SHA because its name has not been entered in SHA' s "register of members". That premise is arguably incorrect, as Mr. Keane Q.C. (who appeared for the plaintiff and for the receiver) submitted that ex.2 which is described as "the , ' company register" may be regarded as recording SHI as a member. (} The share register, in his submission, includes the allotment journal and other parts of the company register which show SHI as having applied for. and having been allotted 50 million ordinary shares on 21st June, 1990, with serial numbers from 3 to 50,000,002, having paid $1 million and the balance payable being. $49 million. The company register is a large looseleaf volume, containing inter alia, 11 sections each commenced with a :blue tab containing.a heading. In the section headed "Minutes of Members" it is recorded that on 21st June, 1990 there was a gener~l meeting which amended the memorandum of association by increasing the share capital to 50,000,002 shares. In the section headed "Minutes of Directors" the minutes of a meeting of 22nd June, 1990 state that the chairman produced a letter from SHI accepting the Director's offer of allotment .of shares and allotting 50 million $1 shares as partly paid to two cents to SHI Under the section headed "Register of Members" the only details recorded in the loose leaves presently there, are of the subscriber shares (30th May, 1990) with transfers on 18th June, 0 0 -- 9 of 13 -- 9 1990. Under the heading "Journals of Allot. and Transfer" under the sub-heading "Application and Allotment Journal" there appears the allotment of 50 million shares to SHI, with the details aforementioned. Under the heading "Share Certs. and Transfer" there appears a Share Certificate (Certificate No. 6) relating to shares numbered 3 to 50,000,002, reciting that the sum of two cents per share has been paid, and given under the common seal of the company. Certificates also appear in respect of the other fully paid shares in the company. Assuming in favour of SHI that one may look behind the judgment, it is at least arguable that SHI' s name has been entered in the company's register of members. Certainly if the company register is read as a whole it would be seen to be a member. SHI 's main argument is based upon ss. 184 and 209 of. the Corporations Law and upon Maddocks v. D.J.E. Constructions Pty. (: Ltd. (1982) 148 C.L.R. 104 117, 120~ The right to make calls is confined to calls on "members" under Article 94 of the company's / \ v articles. Accordingly, so the argument goes, the receiver was not entitled to make any demand on SHI and is still precluded from so doing. Numerous answers to the submission have been suggested. I may summarise these, and my own views as well, very briefly as follows. (a) The primacy of the judgment makes it inappropriate to entertain the argument on an application of this kind. In my view it would be inappropriate to grant the present -- 10 of 13 -- 10 application on any basis that attacks the validity of a judgment without first setting it aside. (b) If: (contrary to (a)) it is permissible at this stage to look behind the judgment, it is at least arguable that the register . does record SHI as a member. It would be inappropriate to terminate the appointment whilst some purpose may be served by its continuation. (c) If SHI is no~ yet entered in the register of members, it should be, and there is every reason to believe that n rectification would be ordered. There is enough evidence to support this as a real prospect (to put it no higher) notwithstanding the scenario of an unwilling company and unwilling member both motivated to prevent "the entry being effected... This is perhaps another r~ason why the receiver should remain in office. (d) It is conceivable that the members' register could be written up administratively, and that the receiver has the authority to do so unilaterally. I suppose that if he did so, its validity would be challenged, and that it is inevitable that sooner or later 1 if the judgment is ever set aside, some court challenge will be mounted on the question of membership. These considerations. however tend to reinforce the necessity for letting the receiver's appointment stand. (e) · If there has . been an omission it is probably capable of being cured. It is not appropriate that SHI and SHA be allowed to take advantage of their own omissions. 0 CJ 0 -- 11 of 13 -- (_) CJ 11 (f) The point has been raised very late (only in the past three weeks). There were many opportunities for it to have been raised, and had this been done any deficiencies (administrative or otherwise) could have been attended to. I am not in a position to find deliberate suppression, and so far as the solicitors for the parties are concerned, consider that it is a legal point upon which they probably stumbled for the first time a few weeks ago. Had they been aware of the point when the proceedings were conducted before Dowsett J. I consider that they would be likely to have raised it then, along with the alleged forgery as the basis upon which they wished to defend. However this is not to say that there is any merit or truth in the allegation. There is no evidence that an appropriate sheet did not at some time exist in the loose leaf "Register of Members" setting out the shareholding of SHI The. evidence is confined to the state of the document since January 1992. Knowledge of such facts is peculiarly within the knowledge of SHA and SHI and their directors. Indeed, no evidence has been presented by any such persons. Assuming in their favour that nothing was ever written up in the relevant part of the register of members, one would expect them to present some evidence to the court, especially if the failure to do so is anything more than a technical omission or oversight that would be easily rectifiable even at this stage. Mr. Keane mounted an argument based upon an estoppel of the kind discussed in Port of Melbourne Authority v. -- 12 of 13 -- ·~.: 12 Anshon Pty. Ltd. (1981) 147 C.L.R. 589, 598. However as at present advised I do not consider that that argument is made out and would not base my decision upon it. Mr. Gibson conceded that the delay is a point that goes to discretion, but submitted that any disadvantage to the other parties would be overcome by the making of a special order. The type of order he suggested was a discharge of the receiver conditional upon refund to him of (\ amounts that he can show to have expended or to be entitled I / to by reason of the point not having been raised sooner. This follows a concession that his client's legal representatives had custody of the documents for a 0 substantial period and his instructions that they only "became aware of" the point recently. The arguments canvassed under this sub-paragraph (f) are not in my view as persuasive as the other factors I have already mentioned, although some of them considerably 0 strengthen the case against the present application for the peremptory removal of the receiver. The delay is a discretionary factor which fortifies my resolve to refuse 0 the application. The application will be dismissed with costs. -- 13 of 13 --