Fitzgerald v Williams

Judgment - EX TEMPORE 1On 10 May 2013 I made orders, on the application of Mr Leroy as trustee ("Trustee") in the bankrupt estate of Mr David Lahood, for the appointment of Messrs Philip Campbell-Wilson and Simon Cathro as joint provisional liquidators of David Lahood Pty Limited ("Company"). Those orders were made on an ex parte basis, in the absence of Mr Lahood. I also made an order that Mr Leroy use his best endeavours to serve the originating process and affidavits in support of the orders made upon Mr Lahood and granted liberty to relist the matter, including on the application Mr Lahood or any interested person, on 12 hours notice. 2On 13 May 2013, Mr Lahood appeared before me, also ex parte, and foreshadowed an application to set aside the appointment of the provisional liquidators, and I informed him that such an application could be made by interlocutory process supported by affidavit or in some circumstances by oral evidence. I invited him to consult with the Trustee's solicitor to agree on a suitable time for that application. On 15 May 2013 Mr Lahood again appeared before me and advised that he had sought to make such arrangements but it appears in the interim the provisional liquidators had attended the Company's premises and changed the locks. I made directions permitting Mr Lahood to file and serve an interlocutory process for the removal of the provisional liquidators which was made returnable today. 3On 16 May 2013 Mr Lahood filed an interlocutory process seeking orders, first, for the removal of the provisional liquidators, second, for removal of the Trustee; and, third, for the liquidator to replace the locks of the premises which had, as I noted above, had been changed. 4The application is supported by Mr Lahood's affidavit which raises certain matters concerning the appointment of the Trustee. I am not able to address those matters or the application for removal of the Trustee brought by Mr Lahood, since s 27 of the Bankruptcy Act 1966 (Cth) confers exclusive jurisdiction in bankruptcy on the Federal Court of Australia and the Federal Circuit Court to the exclusion of the jurisdiction of this Court. This Court has no jurisdiction to appoint a trustee in bankruptcy or to remove such a trustee. Mr Lahood has indicated that his application in respect of the removal of the Trustee, or at least a further application in respect of his bankruptcy, is listed in the Federal Court of Australia on 5 June 2013. It will be open to Mr Lahood to make such submissions as he wishes to make before that Court on that occasion. If he is successful in an application to remove the Trustee on that occasion, then it appears likely that the provisional liquidator would be removed from the Company as a matter of course although a further application may be necessary to achieve that result. 5Mr Lahood also advanced a submission that, contrary to the Trustee's evidence in his affidavit dated 9 May 2013, no amount is owing by Mr Lahood and/or the Company to the Bank of Western Australia. Again, it is not necessary or appropriate for me to determine that matter because its correctness would be relevant only to the appointment of the Trustee and I have no jurisdiction to interfere with that appointment. To the extent that such a submission is successful before the Federal Court of Australia, it would be open to that Court to make such orders as it considers appropriate in respect of the bankruptcy, which may have a consequential effect upon the appointment of a provisional liquidator by this Court if the Trustee were ultimately to be removed. 6The second area canvassed in Mr Lahood's evidence was the circumstances in which the provisional liquidator attended the Company's premises to change the locks and take control of the property. Mr Lahood takes issue with that conduct in circumstances that the Court, he contends, had not made a specific order for that to occur. However, if the appointment of the provisional liquidators stands, then the provisional liquidators were entitled to take reasonable steps to secure the Company's assets in accordance with the powers conferred upon them under the Corporations Act 2001 (Cth). 7A further issue arose in the course of Mr Lahood's application, when he indicated that he was present in the Company's premises when the liquidator attended to change the locks and take control of the property. The fact that Mr Lahood was present at that time raised a question as to whether he was in occupancy of the relevant premises at that time. The significance of that question has been widened by evidence given by Mr Lahood orally that he resides in a room at the Company's business premises, at least from time to time. It appears that that evidence is not now disputed by the Trustee. 8This raised a particular difficulty because the application for the appointment of a provisional liquidator was made before me by reference to the Trustee's affidavit which had indicated that he had been informed by staff assisting him in his investigations that Mr Lahood had said the premises were uninsured and unoccupied. It was also put to me in submissions in support of the application to appoint the provisional liquidator that the fact that the premises were unoccupied gave rise to a particular risk because business premises could be vandalised if left unoccupied too long. 9I relied both on the fact that the premises were unoccupied and uninsured in reaching my judgment that there was urgency to require the appointment of a provisional liquidator. I observed (at [7]]) of my judgment delivered on 10 May 2013 that: "a particular difficulty presently arises, to which the Trustee refers in his affidavit, namely, that he has been informed by his staff that Mr Lahood has advised that the business premises situated on the property...are presently uninsured and unoccupied. [Counsel for the trustee] contends, plainly correctly, that this exposes the assets of the Company and the Trustee and creditors' prospects of distribution to a significant risk of damage. In particular it is foreseeable that the value of the property could be adversely affected by, for example, an uninsured event if the present position continues." 10I also observed (at [9]) that I was satisfied there was good reason for the appointment of a provisional liquidator by reason of risk to the Company's assets, observing that: "The Company's only identified asset, the business premises on which the car sale business has been conducted, is at risk so far as the premises are uninsured and unoccupied and it is in the interests of the Company and its creditors and contributors that that step be taken to secure those premises. It is difficult to see how, where Mr Lahood is bankrupt and unable to act as director and the Trustee's evidence is that he does not wish to be appointed as a director of the company for reasons that he indicates, the present position could be resolved other than by the appointment of a provisional liquidator." 11It now appears that part of the evidence from which I draw that summary was correct and part was incorrect. The statement that the premises were unoccupied appears to be incorrect and the Trustee also accepts that there was an error in his attributing that statement to Mr Lahood. The statement that the premises were uninsured was correct and was properly attributed to Mr Lahood. Mr Lahood has very frankly conceded in his evidence this morning that the premises are presently uninsured. The proposition that the Company was without management when Mr Lahood was bankrupt and unable to act as a director and the Trustee did not wish to be appointed as a director was also correct. 12Mr Lahood has put in submissions that he, or a person appointed by him, should manage the Company as he has done for sixteen years. However, this Court at least faces a fundamental difficulty in that regard. Mr Lahood has been made bankrupt by the Federal Circuit Court of Australia and this Court has no jurisdiction to change that position, which can only be changed by that Court or the Federal Court of Australia, and s 206B(3) of the Corporations Act disqualifies Mr Lahood from managing a corporation while he is an undischarged bankrupt under Australian law. The only way to avoid that disqualification is, as Mr Lahood is doing, to seek to apply in the Federal Circuit Court or the Federal Court of Australia to change the position in respect of his bankruptcy but unless and until that position is changed, this Court cannot disregard the mandatory disqualification arising under the Corporations Act. 13A question arises as to how the orders originally made by the Court are affected, where, in an ex parte application, an error was made in the information provided to the Court and, on one view, a relevant matter, namely, Mr Lahood's occupancy of the premises from time to time was not brought to the Court's attention. 14It is, of course, well established that there is an obligation of full disclosure in respect of an ex parte application (Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading [2005] FCA 955 at [38]; Sutherland v Pascoe [2013] FCAFC 15 at [50]). Rule 36.15 of the Uniform Civil Procedure Rules in turn provides that an order of the Court may, on sufficient grounds being shown, may be set aside if it was made irregularly. Rule 36.16 allows an order to be set aside in an appropriate case after it was made, where it was made in the absence of a party. Such an order may be set aside where, for example, there is a fundamental irregularity in the process by which it was obtained. However, the proposition that an order may be set aside where there is a non-disclosure or error in the description to the Court in an ex parte application does not necessarily mean that it will be set aside. 15In the present case I am satisfied that the information provided to the Court, while incorrect, was not intended to mislead. There is evidence that Ms Bramble, a senior manager with the Trustee's office, had visited the car yard occupied by Mr Lahood and by the Company on one occasion and had noticed the room in which there was a bed and a bathroom on that occasion but had also observed the car yard on two subsequent occasions without seeing any sign of occupancy by Mr Lahood. Mr Jolly, the manager who conducted the matter, had also driven past the car yard without seeing signs of Mr Lahood's occupancy. Mr Jolly's evidence is that he had been informed by Mr Lahood that there was no insurance for the car yard and the correctness of that proposition, as I noted above, has been reconfirmed by Mr Lahood today. Mr Jolly's evidence is that he had informed the Trustee that the car yard looked to be unoccupied, which is a matter not properly reflected in Mr Leroy's affidavit where the statement that the car yard was unoccupied was incorrectly attributed to Mr Lahood rather than to the observations of the Trustee's staff. In these circumstances, I start with the proposition that the error in the information provided to the Court and the non-disclosure of Mr Lahood's occupancy was not culpable. 16There is then a question as to what the Court is to do when such an error occurs. In Hayden v Teplitzky (1997) 74 FCR 7 at 12, Lindgren J recognised the importance of the obligation to make full disclosure in an ex parte application; and also noted that such an obligation did not extend to material facts of which a person had no knowledge and noted that non-disclosure of matters unknown to an applicant would not without more lead to a discharge of the order, although it may lead to an alteration of the order by reason of the changed circumstances arising from disclosure of those facts. In Gold Ribbon (Accountants) Pty Ltd (in liq) v Sheers [2002] QSC 400; [2003] 1 Qd R 683, Holmes J reviewed the relevant authorities and identified two possible approaches. The first was to treat a non-disclosure of a material matter as leading to the automatic discharge of the order while allowing a further application then to be made seeking a further order in which full disclosure could be made. That appears to have been adopted in Hayden v Teplitzky above. The second approach, which appears to have been adopted in Fitzgerald v Williams [1996] QB 657 and also in Gold Ribbon (Accountants) Pty Ltd above, was to determine whether to set aside an order in all the circumstances, including the importance of the statements and non-disclosure and the question of culpability and the merits of the case. On balance, I would be inclined also to take the second approach. It seems to me that there is little practical utility in settling aside the orders made on the last occasion and immediately hearing a further application for them to be re-imposed. 17I should add that a question also arises as to the materiality of any error or non disclosure on the occasion on which the provisional liquidators were appointed, having regard to the other matters to which I will refer below. On one view, if provisional liquidators would in any event have been appointed having regard to the circumstances made known to the Court, an error in the statement as to occupancy of the premises may well properly be characterised as an error but not a material error or material non-disclosure. 18It is necessary now to return to the position before the Court today. First, as I have noted, Mr Lahood seeks to challenge the appointment of the provisional liquidators and seeks an order that the provisional liquidators be removed, because of his challenge to the appointment of the Trustee. I cannot make that order because, as I noted above, this Court does not have jurisdiction to entertain or determine a challenge to the appointment of the Trustee. The second question is whether a winding up order was likely to be made. I had held in my earlier judgment that there was a serious question to be tried as to the making of such an order and, indeed, on one view such an order was likely in the relevant circumstances. Nothing in the evidence before me has changed that position. 19The third question is the balance of convenience and in particular whether there is good reason for the appointment of provisional liquidators so as to, for example, protect the assets of the Company from risk. In the present case, one reason for making the order on 10 May 2013, namely the fact that the premises were unoccupied, has been removed. However, two reasons continue to exist which seem to me to have substantial weight. The first is that the Company's premises were, as Mr Lahood concedes, uninsured. They were, therefore, exposed to the risk that the Company's only asset would be lost in an uninsured event. I had identified that risk and placed considerable weight upon it in my earlier judgment. The second reason for maintaining the appointment of the provisional liquidators is that the Company is presently unable to be managed by its director in the ordinary way because Mr Lahood is, by operation of his bankruptcy and s 206B of the Corporations Act, unable to perform that role and the Trustee has not appointed another director. This also supports the appointment of provisional liquidators. 20I have, therefore, concluded that, on one of two alternative bases, I should not set aside or terminate the appointment of the provisional liquidators. The first basis is that the error on the last occasion, although plainly regrettable, was, neither material nor deliberate. The second is that the need for the appointment of provisional liquidators remains in order to preserve the Company's assets and to ensure that an independent representative is capable of managing it where Mr Lahood is unable to do so. 21I should note that this result is not necessarily a final one. It does not prevent Mr Lahood making a further application to remove the provisional liquidators if he is ultimately successful in his application to the Federal Court of Australia to remove the Trustee or otherwise set aside his bankruptcy. It will be open to Mr Lahood in that situation to rely on the liberty which I have previously reserved in order to renew this application. 22So far as costs are concerned, I have not yet heard the parties. However, my present view is that no order for costs should be made in respect of either party. The application was properly brought by Mr Lahood in circumstances where a question has emerged as to the appointment. I do not consider that any order should be made against Mr Lahood, notwithstanding that he has not ultimately been successful, given the significance of that question. However, I will hear the parties if any of them urge me to a contrary view.