Mamone & 1 Ors v Pantzer

(1) The Plaintiffs are the registered proprietors of commercial premises at 13 Walker Street, Wetherill Park ("Premises").

(2) By lease dated 17 April 1998, the Plaintiffs leased the Premises to Starway Electric Pty Ltd ("Company") for a period of three years commencing on 4 April 1998. The lease was duly registered.

(3) The Company's business was the supply and repair of electric motors for the automotive, mining and other industries.

(4) On application of a creditor, on 6 August 1998 this Court appointed the defendant, Warren Pantzer, as liquidator of the Company provisionally.

(5) By letter of 17 August 1998, the defendant wrote to the Plaintiffs and, with a view to keeping the lease on foot and thus preserving the status quo, confirmed rent would be paid until "further notification" (WP Ex 1, doc 3).

(6) By further order of this Court made 4 September 1998, the Company was wound up and the defendant became its liquidator. The Company was insolvent at that time and probably at an earlier time.

(7) Upon appointment as liquidator, in early September 1998 the defendant circulated an Information Memorandum inviting tenders for the purchase of the Company's business as a going concern or the separate purchase of its plant and equipment and goodwill.

(8) The Information Memorandum stated (at page 4, Doc 5): "It may be possible for the purchaser to gain an assignment of the lease, and I am happy to assist you in this regard. However, continuing in the current premises is not a prerequisite of the sale. The successful purchaser may relocate if desired."

(9) By mid to late September 1998, a prospective purchaser of the fixed assets (but not of the business as a whole) was identified.

(10) At this time, the lessors made enquiry of the Liquidator as to the Liquidator's intentions concerning the lease and by letter of 21 September 1998 (both at WP Ex 1, doc 6), the liquidator tells the Plaintiffs: "A sale of the business is expected by 25 September 1998. Until a sale is effected I am unable to advise whether the purchaser would require an assignment of the lease."

(11) On 25 September 1998, the liquidator settled a sale of the fixed assets and by circular of the same date, informed all creditors, including the Plaintiffs, that contracts had been exchanged and "Accordingly, Starway has ceased to trade." (WP Ex 1, doc. 10).

12. By specific letter of 2 October 1998 (WP Ex 1, doc 11), the liquidator informed the Plaintiffs: "I advise that the business assets of the company have been sold to a company by the name of Welltina Pty Limited on 25 September 1998. Consequently, Starway has ceased trading and no longer occupies premises at 13 Walker Place, Wetherill Park NSW 2164. In relation to future occupancy of the premises I suggest you contact Ms Kristina Sinclair of Welltina Pty Limited on 9756 0500."

(13) Under that letter the liquidator tendered a cheque for $11,829.16 comprising rent for the period commencing on his appointment as provisional liquidator and ending on the day of the sale of the assets. The letter stated "that by banking this cheque you acknowledge that you have no further claim against the Provisional/Official Liquidator." The cheque was banked and duly met on first presentation (Doc 12).

(14) What then occurs is undisputed: the Plaintiffs permitted a company controlled by Ms Sinclair to remain in occupation and for the next seven months, from 25 September 1998 to 5 May 1999, accept rent without further ado (statement of claim paras 17, 18, 19; defence paras 18, 19), thus giving rise to at least a tenancy at will.

(15) During those seven months, and without presuming an obligation to do so, there is no evidence to indicate that any steps at all were taken by the Plaintiffs to formalise the tenancy in writing (or even to ascertain precisely who their new tenant was).

(16) When the new tenant vacates after seven months (following an alleged significant rent increase), the Plaintiffs write to the liquidator on 30 August 1999 asking ".. if you could assist in identifying who took occupation" a year earlier. (WP Ex 1, doc 13).

(17) By letter the next day, 31 August 1999, the liquidator responds and says: "Your client was requested to contact Kristina Sinclair to organise arrangement for future occupancy. The liquidator is unaware of what arrangements were made by your client." (WP Ex 1, doc 14).

(18) Nothing further was heard from the Plaintiffs until the letter from their solicitors of 5 April 2000 serving the District Court process (WP Ex 1, doc 17).

(19) The Plaintiffs thus sue the liquidator personally in the District Court and now bring this application for leave nunc pro tunc.

(20) The causes of action pleaded against the liquidator personally are: (a) First, that he repudiated the lease by abandoning possession and ceasing to pay rent (paras 5, 8 and 9); (b) Secondly, that he converted the Plaintiffs' fixtures (8, 14, 15 and 16); and (c) Thirdly, that the liquidator owed the Plaintiffs a "duty of care" and, by selling the fixtures and abandoning the lease, "broke that duty of care"(para 12).

So far only as this leave application is concerned, (b) is abandoned.

APPLICATION OF PRINCIPLES TO RELEVANT CIRCUMSTANCES 4 The applicable principles and their public purpose which underlie the requirement that a prospective litigant must obtain leave to sue a court appointed liquidator can be stated in the following propositions.

(i) The Court will protect its officer from spurious or vexatious litigation: Re Siromath Pty Ltd (No.3) (1991) 25 NSWLR 25 at 29; Re Magic Aust. Pty Ltd (in liq) (1992) 10 ACLC 929 at 932; and

(ii) The Court will protect the integrity of the winding up process to ensure no wrongful interference with that process: Sydlow Pty Ltd (in liq) v T G Kotselas Pty Ltd & Ors (1996) 65 FCR 234 at 241; 144 ALR 159 at 165-6.

To those ends, a prospective litigant must, to obtain the necessary leave, demonstrate its claim has sufficient merit. What is sufficient is affected by the circumstances and timing in which that leave is sought. Moreover courts recognise that liquidators, like administrators, often have to make decisions on the run; to expect perfection in those circumstances is unrealistic. In Sydlow (supra) Tamberlin J stated: "The discretionary power of the court to grant leave must be exercised having regard to all the circumstances of the particular cases and bearing in mind the need to protect the integrity of its process. It does not necessarily follow that, in order to obtain leave, a prima facie case must be demonstrated. There is no specific threshold appropriate in all cases, however there must be more than mere assertion. The court's discretion may be exercised on many grounds, including, but not limited to, the sufficiency of the evidence adduced, as to the prospects of success of the action on the application for leave. " (at page 242; 165). 5 I would adopt the reasoning of Tamberlin J in Sydlow, recognising that he was at pains to avoid laying down a rigid test for when the court should refuse leave. Thus I would not adopt as a universal rule some variant of the test applicable to the setting aside of statutory demands or which draws on the analogy of interlocutory injunctions. This is because the two factors earlier identified will have a significant effect on how the court should exercise its discretion. Indeed they do so here. 6 A powerful factor operating in the present circumstances is apparent from the earlier agreed facts. It is that the Liquidator, having acted as he did in relation to the lease, completed his liquidation tasks with not a word of complaint from the Plaintiffs. They were aware from the outset that the lease was abandoned. They knew a new occupier had gone in to occupation. They happily accepted rent so rendering the occupier a tenant at will, at least. They had after all a tenant who was substituted for an insolvent company. The Plaintiffs do nothing to formalise the terms of occupation or even enquire as to who was in occupation beyond accepting cheques for rent. It was only after seven months' of rental payments that rent ceased to be paid and the new tenant vacated. It was only then that the Plaintiffs belatedly asked for assistance in identifying who took occupation with the response set out in the Agreed Facts under paras 3(16) and (17) above. 7 From the time of the Liquidator's response of 31 August 1999 until 5 April 2000 nothing was heard from the Plaintiffs. Then on 5 April 2000 a letter was received serving the District Court process. At that time the Liquidator was in no position to be indemnified from the assets of the liquidation, having completed his tasks. 8 The Plaintiffs through their Counsel frankly concede that had the substitute tenant continued to pay the rent and stayed in occupation, the Plaintiffs would have had no complaint. Essentially what the Plaintiffs wanted was to have it both ways. To approbate the Liquidator's actions leading to the new tenancy whilesoever the rent was paid, but reprobate it after later default. 9 Quite apart from any argument based upon waiver, litigation brought in such circumstances has all the hallmarks of the spurious. That the litigation does not interfere with the particular current winding up does not detract from its capacity to do so in a broader sense. If leave were to be given following completion of the liquidation and for litigation so weakly grounded no future liquidator could have any sense of safety in carrying the onerous tasks imposed. No liquidator could feel safe that there would not be some belated action brought at the very time when the liquidator has no longer the wherewithal to be indemnified from the company's assets. It would be incongruous indeed if a plaintiff were precluded from bringing such an action during the winding up because of its capacity to interfere with that process, but were to be advantaged by holding back and suing thereafter. Nothing could be more calculated to interfere with the integrity of the liquidation process. 10 Turning to the merits of the claim, it is difficult to understand, as the Plaintiffs' argument assumes, why a disclaimer would have been unimpeachable but effective abandonment of the lease, when openly disclosed to the lessor, should have a more sinister cast. The Plaintiffs could readily at the time have treated the abandonment of the lease as a repudiation having the effect of a disclaimer and proved in the liquidation accordingly. Instead, knowing of the substitution, the Plaintiffs were content to receive the rent, though lower. 11 I need express no view on a final basis as to whether a liquidator could be said to owe a lessor any kind of duty, whether of care or otherwise, which would preclude the abandonment of the lease. It suffices for me simply to say that such a contention faces some considerable difficulty. While that is a factor which may be weighed in the balance, the earlier factors I have identified in my opinion suffice to decline leave to the Plaintiffs even without that additional factor.

CONCLUSION 12 The Plaintiffs are unsuccessful in their application for leave to bring the relevant actions against the Liquidator.

1. Leave is refused to bring the relevant actions the subject of the District Court process of 5 April 2000 No. 2243 of 2000.

2. The Plaintiffs are directed to file a notice of termination of such proceedings.

3. Costs of to-day's application to be paid by the Plaintiffs.

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