FINDINGS IN RELATION TO events from june 2008
12 The Forest Marsh land was listed for sale on 27 June 2008, with an auction scheduled for 18 August 2008. As events transpired, the auction scheduled for that date was postponed. Prior to the land being rescheduled for auction, the second applicant sought to have the land withdrawn from sale on the basis that the debts due to the second respondent under the factoring agreement and the collateral securities, including the costs of the receivership, would be paid. To this end, correspondence passed, variously, between the second applicant or the applicants' solicitors and the first respondent or the respondents' solicitors, including correspondence stipulating payout amounts at various times. The correspondence makes clear that, in each case, the payout amount would need to be updated when settlement was to occur.
13 On 1 October 2008 the applicants' solicitors informed the respondents' solicitors, by email, that they had funds in their trust account "sufficient to discharge any alleged liability or debt to your client", no doubt intending to refer to the second respondent. On 7 October 2008 the respondents' solicitors responded by letter. This letter assumes considerable importance in this case. The body of the letter was as follows:
I refer to your email of 1 October 2008 and confirm that you now have sufficient funds in your Trust account to discharge the liability to my client's appointor Bibby Financial Services Pty. Limited ("Bibby").
Accompanying this letter is a spreadsheet setting out the amount required for your clients to discharge the debt to Bibby as at 30 September 2008. The amount being $309,423.26.
As discussed in our telephone conversation on 29 September 2008, your client will need to determine whether or not it requires Bibby to simply retire the Receiver at this stage or requires a discharge of the securities that Bibby has over the companies and the real property.
If your client requires the securities to be discharged, then as a precondition of the discharge, your clients will be required to enter into a Deed of Release and Indemnity in terms similar to those particularised in the draft Deed which has previously been forwarded to your clients and their advisors. Attached is a copy of the current draft of the Deed.
Obviously, given that your clients are now paying out the indebtedness, there will need to be some amendments to the Deed. We do not wish to embark upon that process until such time as we receive your clients [sic] instructions as to how they wish to proceed, that is, by way of discharge or merely through the retirement of the Receiver at this stage.
As you will appreciate, as a result of the receivership process our client and Bibby may have accrued certain contingent liabilities. In the circumstances Bibby is not prepared to release the securities, unless and until it receives the indemnities and releases which are generally outlined in the draft Deed.
Would you please let us have your comments in this regard.
In the meantime, we advise that until such time as the amount required to payout Bibby as indicated above, $309,423.26 is paid into this firms [sic] Trust account, the Receiver intends to continue to [sic] with the marketing of the Forest Marsh property for sale. We note that the auction of the Forest Marsh property is currently scheduled for 16 October 2008.
Should you wish to discuss then please do not hesitate to contact the writer.
[Capitalisation, emphasis and definition in original]
14 The evidence discloses that a copy of this letter was sent by email to the applicants' solicitors at 3.25pm on 7 October 2008. Having regard to the date of the letter, the sum of $309,423.26 stated as the amount to discharge the debt to the second respondent as at 30 September 2008 (the September payout amount) was indicative of the amount that would be required at settlement (whenever that came to be appointed) to discharge the then indebtedness of the second applicant and his companies to the second respondent. Objectively considered, the letter could not reasonably be understood as stating otherwise. Apart from anything else, in the context of the first respondent actively seeking to sell the Forest Marsh land, it could be confidently predicted at that time that costs and expenses were continuing to be incurred in relation to the receivership. There is in fact evidence before the Court as to the work being carried out by the first respondent in the period 30 September to 13 October 2008. Interest was also accruing. The sum identified as the September payout amount would need to be updated and finalised when settlement was actually appointed. Nevertheless, it was implicit in the letter of 7 October 2008 that, if the September payout amount was paid, the first respondent would desist from marketing the Forest Marsh land for auction. The auction date was fast approaching.
15 Later in the afternoon on 7 October 2008 (at 4.31pm) the respondents' solicitors sent another email to the applicants' solicitors confirming that the first respondent would continue to market the Forest Marsh land with a view to it proceeding to auction on 16 October 2008, pending payment of the September payout amount into the respondents' solicitors' trust account.
16 This particular email or its contents was apparently passed on to the second applicant. On 8 October 2008, he sought to engage in correspondence with the respondents' solicitors directly, apparently in the absence of Mr Saric (the solicitor handling the matter on behalf of the second applicant and his companies) due to illness. In an email sent at 10.56 am on 8 October 2008, the second applicant informed the respondents' solicitors (amongst other things) that:
Jim Saric also advised you that as a result of his holding adequate funds in Bradfield's Trust Account that any further expenditure that you care to make on this matter prior to us settling your alleged debt (which WILL be before your proposed auction date) will need to be on your own account.
Trusting that you understand that with you furnishing your alleged account balance as of close of business yesterday, coupled with Jim's unavailability today, that payment of said alleged amount will be expedited in order to finalise this stage of our relationship, without the need for further unnecessary costs to be incurred by you.
[Emphasis in original]
17 This email indicates that the second applicant was well aware of the likelihood that costs and expenses in relation to the receivership were being incurred on a daily basis, particularly in relation to the intended sale by auction of the Forest Marsh land. The reference to the "account balance" being "as of close of business yesterday" misstates the fact that the September payout amount was given as the amount that would have discharged the indebtedness as at 30 September 2008, not at a later date.
18 In the meantime, on 6 October 2008, the managing controllers appointed by B E Capital had written to the first respondent demanding payment of the sum of $116,650.77 (the managing controllers' claim). This amount was said to represent payments made to the second respondent by Holdings' customers arising from the sale of goods by Holdings during the appointment of the managing controllers which they (the managing controllers) claimed were payments properly due to B E Capital. Plainly any payment erroneously received by the second respondent which was required to be refunded to the customer or paid to B E Capital would result in a corresponding increase in the indebtedness of the second applicant and his companies to the second respondent. This claim (the managing controllers' claim) was coupled with a threat to sue the second respondent for the claimed amount and to sue the first respondent personally for consequential costs incurred by B E Capital should the managing controllers' administration be unnecessarily prolonged. This demand was sent by facsimile to the first respondent at 5.45pm on 6 October 2008.
19 When armed with this demand, the respondents' solicitors sent an email to the applicants' solicitors at 11.57 am on 8 October 2008 enclosing a copy of the managing controllers' letter dated 6 October 2008 and advising that, as a result of the managing controllers' claim, the amount required to discharge the indebtedness to the second respondent "will be increased by $116,650.77 to $426,074.03, plus the additional costs incurred by the Receiver and Bibby since 30 September 2008".
20 Later on 8 October 2008 at 12.05 pm the respondents' solicitors sent another email to the applicants' solicitors, attaching a copy of the second applicant's email to the respondents' solicitors earlier on 8 October 2008 from which I have quoted. Amongst other things, the email confirmed that until the sum of $426,074.03 was paid into the respondents' solicitors' trust account, with a direction that it be unconditionally released to the second respondent, the marketing of the Forest Marsh land for auction would continue.
21 On 9 October 2008 the applicants' solicitors responded by email. They advised the respondents' solicitors that the sum of $116,650.77 claimed by the managing controllers on behalf of B E Capital was disputed and that there was an "ongoing legal dispute between our client and B E Capital which is currently before the Tasmanian Supreme Court". The applicants' solicitors proposed settlement on the following basis:
Therefore as a result of the above we believe settlement can be reached in a matter [sic] that protects both of our client's [sic] mutual interests. We propose that we deposit the sum of $309,423.26 into your trust account. The receiver could then be retired. Furthermore the ongoing advertising regarding sale of Forest Marsh and the scheduled auction can both be cancelled. Your client can then retain the security it holds over Forest Marsh as security for any contingent liability which may arise as a result of this demand which has been made by Michael Gawler. That way your clients [sic] interests are protected, the receiver can be retired and for all intensive [sic] purposes our respective clients will have settled all matters between them up until and as at the date of settlement.
22 The reference in this email to "your client" retaining security over the Forest Marsh land was clearly a reference to the second respondent. The first respondent held no such security. The effect of this proposal was that, on payment of the September payout amount, the first respondent should retire as receiver and manager, notwithstanding that the September payout amount was only current as at 30 September 2008, and notwithstanding the existence of the managing controllers' claim (which directly related to the amount of the indebtedness of the second applicant and his companies to the second respondent) and the threat to sue both the first and second respondents in relation to that claim.
23 The respondents' solicitors responded by email on the same day (9 October 2008), saying (in part):
The ongoing legal dispute between your client and BE Capital is not a matter with which our clients' [sic] wish to become embroiled. To do so will only add to the cost of the receivership and it is in everyone's interest that same be avoided.
We acknowledge that your clients strongly disputes [sic] the demand being made by BE Capital. Similarly, BE Capital disputes your clients' position - this is self evident from the fact that the dispute between your clients and BE Capital is still being litigated before the Supreme Court of Tasmania.
In the circumstances, my clients' position is that until such time as the $426,074.03 referred to in my email of 8 October 2008 is paid into this firm's Trust account, the receivership and the marketing campaign for the auction on 16 October 2008 will continue. However, as a partial compromise, my client will agree to this firm to hold [sic] $116,650.77 of the $426,074.03 in Trust pending the claim by BE Capital being properly reconciled and determined. In the absence of this occurring the receivership will continue.
[Capitalisation in original]
24 On 10 October 2008 the applicants' solicitors responded by email. After recounting the history of the correspondence that had passed between 6 and 9 October 2008, and after stating again that the retention of the security over the Forest Marsh land would be more than adequate to cover the amount of the managing controllers' claim, the applicants' solicitors said:
The sum of $309,423.26 will be deposited into your firms [sic] trust account before the 16th of October 2008. We have firm instructions to issue proceedings in the Supreme Court of Tasmania seeking an injunction and damages against the receivers [sic] for this attempted sale. We will also be seeking costs of the application. We are in the process of drafting that documentation and also considering adding Bibby Financial as a third respondent. Please note that unless you confirm in writing that your client will accept the sum of $309,423.26 as sufficient to retire the receiver then proceedings will be filed without further notice to you. To that end could you please confirm whether or not you have instructions to accept service of the Court process with respect to the receivers Hall Chadwick [sic] and Bibby Financial.
If you do not confirm in writing that you accept our clients [sic] offer as listed above to have the receiver retired and/or alternatively confirm you have instructions to accept service of the Court process referred to above, we will do the following actions;
1. File the proceedings in the Supreme Court of Tasmania.
2. Have your client [sic] served personally.
We look forward to hearing from you.
25 The second applicant then sought to force the issue. On 10 October 2008 his solicitors deposited the September payout amount in the respondents' solicitors' trust account. In an email dated 13 October 2008, the respondents' solicitors acknowledged the deposit and stated that, provided the funds were cleared, the auction of the Forest Marsh land would be called off, thereby obviating the need for any application for interlocutory relief restraining the sale of the land. However they made clear that, until such time as the additional sum of $116,650.77 was paid into their trust account or the managing controllers' claim was withdrawn, the first respondent would not be retired. The auction scheduled for 16 October 2008 was subsequently called off.
26 I pause at this stage to make the following observations. At this time the respondents were in an unenviable position. The managing controllers had made a claim for a significant sum of money ($116,650.77) for which they sought immediate payment, failing which they had threatened proceedings, including against the first respondent personally for unspecified consequential damages. On the other hand, the second applicant disputed that claim and sought the immediate retirement of the first respondent as receiver and manager, upon payment of the September payout figure, leaving the respondents to deal with the managing controllers' claim with recourse by the second respondent, if necessary, to the security it held with respect to the Forest Marsh land. The second applicant had then threatened to sue the first respondent in respect of the attempted sale of the Forest Marsh land and the second respondent should it fail to revoke the first respondent's appointment as he (the second applicant) had required. It is clear on the correspondence that the legitimacy of the managing controllers' claim was disputed by the applicants. But I am satisfied that, at that time, prudence and reason dictated that, failing agreement, the claim needed to be investigated and that such an investigation would require, as a minimum, a reconciliation of the invoices and receipts giving rise to it. Apart from anything else, the managing controllers' claim needed to be resolved before the indebtedness of the second applicant and his companies to the second respondent could be determined. The issue at the heart of the present proceeding is: what were the respondents to do in these circumstances? Specifically, was the first respondent required, as a matter of legal obligation, to retire as receiver and manager on his own motion, simply because the September payout amount was paid into the respondents' solicitors' trust account? The second respondent's position on that issue is clear: at the time, it instructed the first respondent to deal with the managing controllers' claim. The respondents' solicitors also advised the respondents that the first respondent should not be retired "until such time as a sufficient amount was isolated to cover that potential claim".
27 On 24 October 2008 the applicants put forward another proposal to "settle matters between our clients". The applicants proposed that: (a) the first respondent would retire as receiver and manager; (b) the second respondent's security over the Forest Marsh land would be discharged except for one parcel which would stand as security in respect of the sum claimed by the managing controllers; (c) the applicants' solicitors would prepare a deed providing for the retirement of the first respondent as receiver and manager, which would include a clause that provided that the first respondent would make his best efforts to cooperate in contesting the managing controllers' claim, and (d) the second applicant would bear the legal costs of and be responsible for running any litigation with the managing controllers in respect of that claim.
28 This proposal was not acceptable to the respondents. On 31 October 2008 the respondents' solicitors sent an email to the applicants' solicitors stating this fact and stating that the first respondent would not be retired until the managing controllers' claim was paid or withdrawn or the sum of $116,650.77 was deposited in the respondents' solicitors' trust account and the balance of the costs of the receivership paid in full. The email continued:
Furthermore, we have made plain that the Securities will not be discharged until Bibby is satisfied that all contingent liabilities accruing to it or its Receiver have been met, or, it is otherwise appropriately indemnified in relation to same. We note that your client's constant threats to sue our clients only fortify them in their resolve that this is necessary in order to protect their interests in the matter.
[Capitalisation in original]
29 The email noted that no details had been given of the terms of the proposed deed and stated that the respondents would not under any circumstances agree to any litigation between the managing controllers and the respondents being "run" by the second applicant. The email also advised that the second respondent was continuing to determine the validity of the managing controllers' claim and that the applicants' solicitors would be advised of progress in that regard.
30 On 7 November 2008 the second applicant commenced a proceeding in this Court against the first respondent's firm (Hall Chadwick), seeking an order that the first respondent be removed as receiver. Following a mediation the proceeding was, by consent, discontinued on 15 December 2008 with an order for costs against the second applicant. The second applicant's own evidence is that it was agreed at that time that the first respondent "would look into" the managing controllers' claim.
31 It would seem that, at this time, resolution of the managing controllers' claim was the only substantial remaining matter delaying the retirement of the first respondent as receiver and manager. The respondents' solicitors pursued resolution of the claim by letter to the managing controllers dated 18 February 2009, seeking further particulars of the claim.
32 Despite their persistence, this letter and other correspondence from the respondents' solicitors to the managing controllers seem to have fallen on deaf ears until 3 April 2009, when the managing controllers wrote directly to the second respondent informing it that the claim was now for $122,469.20, covering 70 separate alleged debtors who were said to have incorrectly paid the second respondent. In this correspondence the managing controllers advised that 11 debtors represented 87.01% of the total sum allegedly paid in error. Rather than seeking to deal with the respondents (either directly or through their solicitors) in respect of that revised claim, the managing controllers stated that they had been advised to commence debt recovery proceedings in an appropriate court or tribunal in Tasmania against each of the alleged debtors, informing those debtors that they should commence their own proceedings against the second respondent or otherwise join the second respondent in the proceedings commenced by the managing controllers. The managing controllers also told the second respondent that, in Tasmania, debts under $5,000 were dealt with in a Small Claims Tribunal in which representation was not permitted, company representatives were required to attend, and costs could not be recovered. The managing controllers then said that they proposed to write immediately to all the alleged debtors informing them of the advice that the managing controllers had received.
33 The managing controllers made clear in their letter that they were informing the second respondent of this intended strategy to induce it to explore "the potential for a commercial solution" to the dispute. Plainly enough, if the managing controllers' threat was carried out, the second respondent would be exposed to multiple legal proceedings in respect of multiple small claims, at obvious cost and inconvenience.
34 By letter dated 7 April 2009, the respondents' solicitors again pressed the managing controllers for the information they had previously sought in respect of the claim "so that our clients may assess the legitimacy of your claim". However, it would seem that, after initially agreeing to provide particulars, the managing controllers then wrote to the alleged debtors as they had originally threatened to do.
35 The managing controllers did, in fact, commence proceedings in the Magistrates Court of Tasmania against some of those who had allegedly incorrectly paid the second respondent rather than the managing controllers or their appointor, B E Capital. By way of illustration, one debtor was sued for $3,645.89 in respect of 17 invoices issued between 14 April 2008 and 30 June 2008 that were said by the managing controllers to have been unpaid. It would seem that the defendant to that claim had also unsuccessfully sought particulars from the managing controllers of their claim before the commencement of that proceeding. Unfortunately the particulars only came to be provided as particulars in the initiating process served on that defendant. That defendant advised the respondents' solicitors that, unless the claim could be resolved, the second respondent would be joined as a party to the debt recovery proceedings. A broadly similar pattern emerges with respect to other proceedings brought by the managing controllers against other alleged debtors.
36 The evidence shows that, inexplicably, at no time did the managing controllers provide the respondents with the particulars that they had sought in order to assess the managing controllers' claim. Rather, the managing controllers left the respondents to deal with individual debtors after the managing controllers had either commenced or threatened to commence recovery proceedings against those debtors.
37 On 15 October 2009 a barrister and solicitor acting on behalf of the managing controllers sent a letter of demand to the first respondent seeking payment of the sum of $49,133.00 in relation to one debtor (Berri Limited) who was said to have erroneously deposited that sum in an account controlled by the first respondent as receiver and manager. This resulted in the respondents' solicitors again seeking details of all payments alleged by the managing controllers to have been incorrectly received by one or other of the respondents.
38 In the meantime, and despite his discontinuance of the proceeding commenced in the Court on 7 November 2008, the second applicant continued to press for the retirement of the first respondent as receiver and manager. In a letter dated 5 March 2009 the applicants' solicitors sought: (a) a full reconciliation of receipts and payments; (b) a "formal and acceptable document" showing a payout figure; and (c) a detailed explanation as to the status of the managing controllers' claim. In that letter the applicants' solicitors continued to assert that that claim was "vehemently denied" and that "it would seem fair, reasonable and prudent if the $116,000.00 [sic] which had been allowed for by Hall Chadwick as a contingent liability be deducted from the final payout figure".
39 The evidence indicates that, during March 2009, discussions occurred between the applicants' solicitors and the respondents' solicitors. It was proposed that the second applicant's companies would pay approximately $240,000.00 and enter into a Deed of Release and Indemnity. In return, the first respondent would retire and the second respondent would discharge its security, with the sum of $116,650.77 being "isolated" in case the managing controllers' claim was "made out". Apparently by email dated 3 April 2009, the applicants' solicitors advised that payment of the $240,000.00 could be made "within 10 working days". However, it seems that no further communication was made to arrange settlement.
40 In a letter dated 11 September 2009 the respondents' solicitors informed the applicants' solicitors of the difficulties that they had faced with the managing controllers, including the fact that the managing controllers had not provided the respondents with details of the claims but had embarked on a strategy of simply commencing proceedings against alleged debtors. They put forward a proposal whereby: (a) the sum of $162,000.00 be paid to discharge the obligations of the second applicant and his companies to the second respondent (which included the first respondent's costs); (b) the sum of $116,650.77 (or such other sum claimed by the managing controllers) be paid to the first respondent so that he could then pay that amount to the managing controllers, and (c) a Deed of Release and Indemnity be entered into with the respondents.
41 In putting forward this proposal the respondents' solicitors said:
Both Bibby and the Receiver are anxious to extricate themselves from the matter as soon as possible. Given the belligerence of the Managing Controllers and in particular their refusal to communicate with either this firm, the Receiver, or Bibby, in any sensible manner, our clients consider that the only way that they can effectively extricate themselves from the matter and avoid as far as possible any further litigation with the Managing Controllers' [sic] is for the amount claimed by the Managing Controllers' [sic] to be paid.
42 The respondents' solicitors concluded by saying:
If the arrangement proposed above is not acceptable to your client then the Receiver will have little alternative but to proceed to realise the remaining security to discharge the balance of the debt due to it, with the amount claimed by the Managing Controllers' [sic] being paid into court.
[Capitalisation in original]
The letter enclosed a reconciliation statement.
43 The applicants' solicitors responded in a letter dated 14 September 2009, saying:
Thank you for your letter and attached reconciliation of 11 September last. We along with our client are sympathetic to your plight regarding correspondence, negotiations and reasonableness not being forthcoming from the Managing controllers in any way, shape or form. We agree with your aforementioned correspondence that it is certainly not in our mutual clients' interests for your client to commence proceedings in a superior Court with respect to the allegations made by the Managing Controllers. Could you please forward us copies of the correspondence which give rise to your comments in the aforementioned correspondence. We would be grateful for the same. As you are aware our client has at all times disputed the ambit claim made by the Managing Controllers. We also note the contents of your aforementioned correspondence in that the Managing Controllers have failed to provide you with any particulars or evidence with respect to the alleged outstanding sums owing to the Managing Controllers. Our client's position has not changed with respect to the attitude [sic] of the claim and allegations made by the Managing Controllers. That is, the claim remains disputed. Notwithstanding the above, our client certainly is of the view that he wishes to work with you in order to negotiate a mutually beneficial outcome.
[Capitalisation in original]
44 After seeking clarification of the reconciliation statement that had been earlier sent, the applicants' solicitors then put forward a counterproposal whereby: (a) a Deed of Release and Indemnity would be entered into with the respondents; (b) the amount of $162,000.00 would be paid to discharge the obligations to the second respondent (including the first respondent's costs); (c) the first respondent would retire as receiver and manager; and (d) the second respondent would discharge its security over the Forest Marsh land.
45 The apparent rationale for this proposal was that, if the managing controllers were successful in obtaining judgment in respect of their claim, that judgment "could be enforced as per their existing charge on Forest Marsh in their favour". However, that proposal ignored the fact that any such judgment would be one (presumably) against the second respondent personally. The fact that the managing controllers (or, more accurately, B E Capital) had a charge in respect of the Forest Marsh land would be of little comfort to the second respondent, especially when the second respondent was being asked by the second applicant to discharge its own security in respect of that land. The proposal also ignored: (a) the fact that the managing controllers had urged others to sue the second respondent in respect of allegedly incorrect payments; (b) the fact that the managing controllers had threatened separate proceedings against the first respondent for consequential loss and damage; and (c) the fact that the position remained that the amount of the indebtedness of the second applicant and his companies to the second respondent depended on finalisation of the managing controllers' claim.
46 The respondents rejected that counterproposal. In a letter to the applicants' solicitors dated 23 October 2009 the respondents' solicitors resubmitted the proposal of 11 September 2009, and stated:
The Receiver and Bibby are not prepared to wait any longer to resolve the matter. Both the Receiver and Bibby are keen to conclude the Receivership and in the circumstances intend to proceed with the sale of the remaining security, including the land. If your client wishes to take up the Receivers [sic] offer and a final settlement can be agreed upon prior to a sale of the land being concluded then our clients are happy to work with your clients to achieve same.
[Capitalisation in original]
47 The respondents' solicitors subsequently forwarded copies of their correspondence with various parties (including the managing controllers) in respect of the managing controllers' claim, to the applicants' solicitors.
48 This proceeding was commenced on 23 November 2009. I will say something more about the conduct of the proceeding in a later part of these reasons. The matter of present relevance is that, both before and after the commencement of this proceeding, the respondents sought to resolve the managing controllers' claim as best they could. Without descending into detail, that claim has now been resolved in relation to three debtors on the basis of the second respondent making certain refunds to those debtors. The total amount refunded was $28,442.94.
49 On 30 April 2010 the respondents' solicitors wrote to the managing controllers informing them of the resolution of the three claims to which I have referred. They asked whether the managing controllers sought to maintain any other claim, including the one that had already been threatened in relation to Berri Limited. They raised the prospect that, in the absence of a response, they would seek to join the managing controllers as parties to the present proceeding. The managing controllers made a somewhat Delphic response. The respondents' solicitors wrote again to the managing controllers on 20 May 2010. The managing controllers later advised that they did not intend "to make any claims of the kind and against the claimants specified in the first two paragraphs of your letter of 20 May 2010". Significantly, that position was only achieved well after the commencement of the present proceeding and shortly before the commencement of the hearing of the matter.