The first defendant Gregory Jay Parker is the liquidator in a creditor's voluntary winding up of the second defendant Worldwide Speciality Property Services Pty Ltd pursuant to a resolution of 16 April 2014.
The company owns certain plant and equipment jointly with a related company Precision Mechatronics Pty Ltd which is also in liquidation and of which Mr Brian Silvia is the liquidator. The plaintiff Mr Silverbrook, who was a director of the company, claimed a lien over the plant and equipment by reason of some $400,000 costs and expenses he claimed to have incurred in the transport and storage of the property. It is uncontroversial that in order to facilitate and expedite realisation of that property the plaintiff, the liquidator and Mr Silvia agreed that the property be sold and that each of them receive one-third of the proceeds of sale. That agreement was documented in a letter dated 30 April 2014 sent by Mr Silvia to Mr Silverbrook and Mr Parker, which relevantly recorded:
2. Balance of Equipment
All the items not part of point 1 above located at Silverwater to be listed for sale by an online auction.
The sale to be conducted by a firm agreed by the parties.
The sale to be conducted as soon as practicable.
The net proceeds will be divided equally between Kia Silverbrook (or its nominated entities), Precision Mechatronics Pty Ltd (in liquidation) and Worldwide Speciality Property Services Pty Ltd (in liquidation).
The sale was conducted by Graysonline. In or about August 2014, Graysonline remitted to the liquidator, as the vendor on the sale, the net proceeds including both the one-third share attributable to the company, Worldwide Speciality Property Services Pty, and the one-third share attributable to Mr Silverbrook.
So far as the evidence presently discloses, the one-third share attributable to the company was paid into the company's general liquidation account and treated as an asset in the winding-up. It appears that the one-third share attributable to Mr Silverbrook was placed by the liquidator in the liquidator's firm's trust account. Until May 2016, there was no communication with Mr Silverbrook about it. In May 2016, there was a telephone conversation between Mr Silverbrook and the liquidator. The terms of that conversation are in dispute. The liquidator says that the conversation was as follows:
"Silverbrook: Anyway, I am enquiring about my one-third portion of the moneys from the sale of the plant and equipment. I never received it. Well, do you know where it is?
Liquidator: I received moneys from Grays back in late 2014. Since then I'd sent you a demand about the moneys to your solicitor's trust account and asking your other half of the story, but I have not received anything. What I propose is that I hold the moneys until such time as all actions involving you and/or your related companies in terms of the liquidation are resolved. These issues need to be resolved before I could possibly release any of the Grays funds to you.
Silverbrook: Greg, I understand your proposition and if that is the case then I'm content to proceed on that basis."
Mr Silverbrook's version is, as I have foreshadowed, different; he says that the conversation was as follows:
Silverbrook: Do you know what has happened to the one-third share from the Grays sale?
Parker: Yes, I've got it.
Silverbrook: Can I have it please?
Parker: No, I'm not going to give you the money. I don't want you to have any resources if I choose to sue you in relation to the liquidation.
Appropriately at least in that respect, neither party has been cross-examined on this application, it being accepted that it must be a matter for trial. But that makes clear that there is a dispute as to whether there was an agreement that the liquidator could from May 2016 retain the funds he had received on behalf of Mr Silverbrook.
By originating process filed on 26 July 2017, Mr Silverbrook claims, first, and to the extent necessary, leave to commence and continue these proceedings against the liquidator personally; secondly, leave pursuant to (CTH) Corporations Act, s 500(2), to commence and continue these proceedings against the company in liquidation; thirdly, a declaration that in or about September 2014 the first defendant and alternatively the second defendant receive funds for and on behalf of him from Graysonline; fourthly, an order that the liquidator and alternatively the company in liquidation account to him for those moneys, including interest; fifthly, an order for payment by the liquidator and alternatively the company in liquidation of the moneys as moneys had and received by them or either of them; and alternatively, damages for breach of contract.
Before the Court for hearing at present are the applications for leave referred to or contained in [1] and [2] of the originating process. There are three issues: the first is whether leave is required to sue the liquidator, being not a Court appointed liquidator but a liquidator in a voluntary winding-up; the second is whether if leave is required it should be granted; and the third is whether leave should be granted to bring proceedings against the company in liquidation under s 500(2), and if so upon what terms and conditions.
It is convenient, first, to deal with the application under Corporations Act, s 500(2), for leave to commence and continue the proceedings against the company in liquidation. The liquidator does not oppose such leave being granted, but proposes that it be subject to a number of conditions. Implicit in the absence of opposition to leave being granted is more or less a concession that there is an arguable or viable case against the company in liquidation. Such a concession, if it has been made, was in my view rightly made.
It is plain on the skeletal facts to which I have referred that it is at least arguable that the funds, if they are held, by or on behalf of the company in liquidation are funds that belong to Mr Silverbrook. The only real issue is whether an agreement was made in May 2016 that those funds could be retained pending the outcome of any recovery proceedings brought by the liquidator.
As to conditions, the defendants propose that four conditions be imposed. As to the condition that no enforcement action be brought without further leave of the Court, that is one normally imposed in this context, and is not contentious, and one which I will, therefore, impose.
The next condition proposed is that the proceedings be transferred to the District Court; ostensibly because they involve a claim of something between $105,000 and perhaps at the upper end $140,000, plus interest. This is a case in which the factual dispute seems a very narrow one. This Court is accustomed to dealing with claims by and concerning companies in liquidation. Although it is in a sense unfortunate that proceedings concerning this company have been bifurcated between the Federal Court and this Court, it is at least undesirable that they be further separated so as to involve claims proceeding in a third court, as would be the case if transferred to the District Court.
A Judge of this Court is already familiar with the factual material, which describes the claim in question, and it seems unlikely that much more would be required in the way of evidence for the claim to be determined. There is a better than 50% prospect that the same Judge would hear the claim, if it was set down for hearing. That would achieve considerable economies in terms of the parties' time and judicial time in the final resolution of the matter.
I am not inclined to impose, as a term, that the proceedings be transferred to the District Court. If any party wishes to pursue that matter independently then, of course, an application can be made for a transfer to the District Court, but that observation should not be taken as encouraging any such application.
Next, it is proposed that a term should be imposed that the proceedings proceed by way of pleadings. On the one hand there are aspects of the case which do lend themselves to pleadings, in particular to elicit a clear articulation of the case put against the first defendant, particularly if it includes a claim in the nature of a Barnes v Addy [1] claim - a claim that ought ordinarily be advanced on pleadings. However, as the defendants have adverted to in proposing that the matter be transferred to the District Court, the claim is a relatively small one; the factual dispute is apparently narrower; and it is difficult to see that the way in which the case is put against the first defendant would not be sufficiently articulated in an exchange of written submissions.
Moreover, what is presently relevant is the case against the second defendant, because that is the case to which thee s 500 leave relates. It is difficult to see that there is anything obscure about the claim against the second defendant which would require clarification by pleadings. Once again, if it is really suggested that pleadings are required, then an application can be made by motion for an order that the proceedings continue on pleadings; but once again that observation should not be taken as in any way encouraging such an application, or holding out that it has any prospects of success.
The final proposed condition is that the company not be required to file and serve a defence until at least 21 days after Mr Silverbrook has attended for further examination in the Federal Court of Australia. When that further examination is to take place is not yet clear. In any event, as I do not propose to insist that the matter proceed by way of pleadings, the company will not be required to file and serve a defence at all. Moreover, it seems to me approaching an abuse of these proceedings to use them in that way as leverage to enforce Mr Silverbrook's obligation to attend for examination in the Federal Court of Australia. There are ample remedies available to the liquidator to ensure his attendance in that Court, if they are necessary.
I turn to then to the issues that arise in the application concerning the first defendant. In my view, the liquidation being a voluntary winding-up, the plaintiff does not need leave to bring proceedings against the liquidator in his personal capacity.
In Sullivan v Energy Services International Pty Ltd, [2] Young CJ in Eq held that leave was not required for proceedings against a liquidator in a members voluntary winding-up. His Honour said (at [19]):
They [the liquidators] also submit that no proceedings can be brought against any liquidator, including a liquidator in a members' voluntary winding up, without leave of the Court which the Court has not yet given. They recognise that the authorities only go so far as to say that this applies to a Court appointed liquidator, but cite the 4th edition of McPherson on the Law of Company Liquidation pp 287-8. The submission is one which cannot be accepted. The reason why one cannot sue a Court appointed liquidator is as McLelland J pointed out in Re Siromath Pty Ltd (No 3) (1991) 25 NSWLR 25, 28; based on the decision of Lord Brougham LC in Aston v Heron (1834) 2MY&K 390, 396-7; [1834] EngR 631; 39 ER 993, 995, that the position of a Court appointed liquidator is the position of the Court and no-one can disturb it but through an application to the Court. Even if this point were of some merit, the Court would almost certainly grant leave to sue in the present circumstances.
Contrary to the submissions of counsel for the defendants, I do not accept that his Honour did not decide the issue. His Honour plainly rejected the submission, as is recorded in the passage I have set out above. The subsequent observation "even if this point were of some merit" was an alternative conclusion; essentially his Honour held leave was not required, but even if it were would have granted it.
The authorities to which his Honour referred in that passage make clear that the rationale by which leave to sue a court-appointed liquidator is required -there being, of course, no statutory provision which requires that leave be obtained - is founded on the status of the court-appointed liquidator as an officer of the Court, and the principle that proceedings against an officer of the Court, such as a liquidator or a court-appointed receiver, may not be brought except with the Court's leave. That is apparent from the judgments referred to by McLelland J, as he then was, in Re Siromath Pty Ltd (No 3). [3] His Honour referred (at 28) to the principle expressed in In re Maidstone Palace of Varieties [4] at 286 that:
The Court will not allow its officer to be subject to an action in another Court with reference to his conduct in the discharge of the duties of his office whether right or wrong. The proper remedy for anyone aggrieved by this conduct is to apply to this Court in the action in which he was appointed. If any wrong has been done by the officer the Court will no doubt see that justice is done. But no-one has a right to sue such an officer in another Court without the sanction of this Court.
In Aston v Heron [5] , the principle stated by Lord Brougham was:
The possession of the receiver is the possession of the Court and no-one can disturb it but through an application to the Court. The acts of the receiver in the administration of the estate are the acts of the Court and the Court may, therefore, if it pleases prevent any other jurisdiction from questioning those acts because strictly speaking that would be to question the Court's administrative proceedings.
Those cases made clear why the requirement for leave attends bringing proceedings against a liquidator appointed by the Court, being an officer of the Court. The defendant submitted that this extended to a voluntary liquidator.
First, I do not see any distinction between a creditor's voluntary winding-up and a member's voluntary winding-up, such as was invoked in Sullivan v Energy Services. On this point, the distinction is between a liquidator who is an officer of the Court, having been appointed by the Court; and a liquidator who is not, having been appointed by the members or creditors.
The defendants invoked the judgment of Croft J in the Supreme Court of Victoria in Eighty Second Agenda v Handberg, [6] in which his Honour held that the requirement for leave attended proceedings against a voluntary liquidator as well as against a Court appointed liquidator. His Honour recognised that earlier authorities did not go so far, but concluded that the protection of requiring leave of the Court before court proceedings were commenced against a liquidator should apply also to the voluntary liquidator, for the following reasons set out at [30]:
Denying a voluntary liquidator protection only encourages litigation. There are obligations under the Corporations Act which are enlivened when a voluntary winding-up occurs. In this respect if the plaintiffs' submissions are to be accepted, a situation is created whereby those tasked with the many onerous duties imposed upon a liquidator would find themselves in a position of only being afforded protection once a proceeding has been initiated to wind-up the company, hence being encouraged to decline to act unless and until proceedings are taken which would provide this protection. This would mean that the more expedient and cost-effective measure of winding-up the company voluntarily would be discouraged. As Tamberlin J said in Sydlow (albeit in the context of a court-appointed liquidator), "the court, when administering the Law, is concerned to ensure that the winding-up is implemented in a timely and efficient manner, so as to produce optimum results for all persons interested in the winding-up." Denying the protection of requiring leave of the court before a proceeding is commenced against a liquidator, whether they be appointed voluntarily or by order of the court, goes against the very idea of ensuring a timely and efficient resolution of the issues at hand.
Those reasons, as it seems to me, articulate attractive reasons as a matter of policy as to why it could be contended that it is desirable that a voluntary liquidator have a similar protection. But with great respect they do not demonstrate any reason in law why the protection that a court-appointed liquidator enjoys, derived from his or her status as an officer of the Court, can somehow be transposed to the office of a voluntary liquidator who is not an officer of the Court. It is true that as a number of cases, including those referred to by the defendants, indicate, there are close analogies in many areas between a Court-appointed liquidator and a voluntary liquidator: they perform very similar functions; and the Court enjoys similar powers of supervision over each. But what none of those analogies show is that the voluntary liquidator has become an officer of the Court, such as to attract that special protection which the Court affords its officers of requiring that leave be obtained to sue them.
The point is also well made that McDonald v Dare [7] upon which Croft J relied in part as relating to an application for removal of the voluntary liquidators, does not appear to have in fact involved voluntary liquidators at all, rather it related to court appointed liquidators.
Accordingly, leave is not required to bring proceedings against the first defendant. Having decided that issue, I will nonetheless observe that were leave required it would have been granted.
First, the case is to proceed anyway against the second defendant. Moreover, and contrary to the submissions of the first defendant, I accept that there is a viable case against the liquidator as well as against the company. That, of course, is not to say that case will succeed, and much will depend on the resolution of the competing versions of the May 2016 conversation, as to which at this stage it is unnecessary to make any further observation.
However, as appears from the terms of the originating process, as I have summarised it above, the plaintiffs contend primarily that the moneys which ought to have been made paid to them were received by the liquidator personally and seek an order that the liquidator account for them. The fact that the moneys have been paid into the liquidator's firm's trust account and not the company's general liquidation account are to some extent supportive of that contention. It seems to me that the case against the first defendant does not depend so much on the agreement of April 2014, as on the receipt by the first defendant of moneys which it will be said the first defendant must or ought to have known belonged to and ought to have been paid to the plaintiff.
It will presumably be alleged that the first defendant received them as a trustee and holds them upon trust for the plaintiff, and that is reflected to some extent in the allegation (in para 5 of the originating process) that they are moneys had and received for the use of the plaintiff.
Even if the agreement of May 2014 was made by the liquidator on behalf of the company and as agent for the company, the receipt and retention of funds which were the property of the plaintiff makes it at least arguable that the liquidator has incurred personal liability as was the case in, for example, Wambo Coal Pty Ltd v Ariff [8] in which White J, as his Honour then was, held that a liquidator had incurred personal liability as a constructive trustee through knowledge of the facts constituting the relevant breach of trust.
Accordingly, I conclude, first, leave is not required to sue the liquidator personally; secondly, if leave were required, it would be granted; and thirdly, subject to the condition that execution not be levied against the company without further leave of the Court there should be leave under s 500(2) to proceed against the company.
The Court therefore orders that:
1. Pursuant to Corporations Act s 500(2) the plaintiff have leave to commence and continue these proceedings against the second defendant, upon condition that any judgment recovered not be enforced against the property of the second defendant company without further leave of the Court.
2. The defendants pay the plaintiff's costs of the application for relief under paragraphs 1 and 2 of the originating process.
THE COURT NOTES THAT leave is not required to commence and continue these proceedings against the first defendant.
Although I accept that it was not unreasonable, based on Croft J's decision, to raise an argument about whether or not leave was required, the reasonableness of an unsuccessful party's position is not an answer to an application for costs once the party has been unsuccessful on the relevant issue: it may go to questions of indemnity costs, but it does not go to the issue of liability for costs. The liquidator could have conceded that leave was not required or could have conceded that leave would be granted.
In those circumstances it seems to me that this phase of the proceedings is a phase for which the plaintiff should not be out-of-pocket, and ought to recover its costs. Those costs, however, will in the ordinary course not be assessable in the absence of a special order until the conclusion of the entirety of the proceedings.
Accordingly, the costs order that I have foreshadowed - that the defendants pay the plaintiff's costs of the application for relief under paras 1 and 2 of the originating process will stand.
[3]
Endnotes
(1874) LR 9 Ch App 244.
[2002] NSWSC 937; 43 ACSR 179 at 182-183.
(1991) 25 NSWLR 25.
[1909] 2 Ch 283 at 286.
(1834) 2 My & K 390; 39 ER 993
[2014] VSC 665.
[2001] QSC 405.
[2007] NSWSC 589.
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Decision last updated: 11 April 2018