MATTER : The Receivers and Managers of Narrogin Beef Producers Pty Ltd (Receivers and Managers Appointed)

BETWEEN : MARTIN BRUCE JONES AND DARREN GORDON WEAVER AND ANDREW JOHN SAKER AS RECEIVERS AND MANAGERS OF NARROGIN BEEF PRODUCERS PTY LTD (RECEIVERS AND MANAGERS APPOINTED)

NARROGIN BEEF PRODUCERS PTY LTD (RECEIVERS AND MANAGERS APPOINTED)

Corporations - Receivers and managers - Application for declaration under s 418A of the Corporations Act 2001 (Cth) that appointment valid - Turns on own facts

Australian Securities and Investments Commission Act 2001 (Cth), s 12CC, s 12DA, s 12GM

Corporations Act 2001 (Cth), s 418, s 418A

Trade Practices Act 1974 (Cth), s 51AC, s 52, s 87

Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820

Lancet Pty Ltd v Olholm Developments Pty Ltd [2001] 1 Qd R 22

Nugent v Nugent [1908] 1 Ch 546

Visbord v Commissioner of Taxation [1943] HCA 4; (1943) 68 CLR 354

1 The first defendant, Narrogin Beef Producers Pty Ltd (the company), owned and operated a beef cattle feedlot at Narrogin. The second defendants, Mr and Mrs Thompson, are the sole directors and shareholders of the company. The National Australia Bank Ltd (NAB) provided various facilities to the company on terms and conditions contained in agreements (Facility Agreements). NAB asserted that the company defaulted and on 21 September 2010 and 28 September 2010 NAB appointed the plaintiffs as receivers and managers of property of the company.

2 Mr and Mrs Thompson dispute the validity of the appointment of the plaintiffs. The plaintiffs commenced these proceedings against the defendants seeking an order under s 418A of the Corporations Act 2001 (Cth) (the Corporations Act) that their appointment as receivers and managers of the property of the company was valid. I will sometimes refer to the plaintiffs as the Receivers.

3 The originating process was supported by an affidavit sworn by one of the Receivers, Darren Weaver, on 13 October 2010. The affidavit annexes correspondence from Mr and Mrs Thompson which disputes the validity of the Receivers' appointment. In broad terms Mr and Mrs Thompson said that NAB did not have authority to appoint the plaintiffs as receivers and managers because of a conflict of interest arising from work previously done by Ferrier Hodgson in relation to the company and its affairs. The plaintiffs are partners in the firm of Ferrier Hodgson. In December 2008 Ferrier Hodgson carried out an investigating accountant's review of the company. In January 2009 Ferrier Hodgson carried out an analysis of cash flows and in March 2010 a review of assets of the company. In each case Ferrier Hodgson reported its findings and conclusions to NAB.

4 On 20 October 2010 Mr and Mrs Thompson commenced proceedings in the New South Wales District Registry of the Federal Court against the Western Australian Department of Environment and Conservation, State of Western Australia, Paul Byrnes (who is an employee of the Department), NAB, the plaintiffs and the company. In the Federal Court proceedings Mr and Mrs Thompson claimed damages and compensation against the Department of Environment and Conservation, the State of Western Australia, Mr Byrnes, and NAB for what might broadly be described as misleading conduct. They also seek an order under the Trade Practices Act 1974 (Cth) and Fair Trading Act 1987 (WA) for the restoration or recoupment of the property rights of the company and Mr and Mrs Thompson as a consequence of the conduct of the Department, the State, Mr Byrnes and NAB. Mr and Mrs Thompson seek various declarations or orders in relation to a works approval or licence issued in 2002 by the Department or the State with respect to the operation of the beef cattle food lot business. They also seek a declaration that s 5 of the Environmental Protection Act 1986 (WA) is invalid as it is beyond the power of the Parliament of Western Australia. Mr and Mrs Thompson's action is in part a derivative action on behalf of the company. They seek leave under s 237 of the Corporations Act to bring the proceedings on behalf of the company. Mr and Mrs Thompson seek against the plaintiffs a declaration pursuant to s 418A of the Corporations Act that their appointment as receivers and managers of the company is void and of no effect and an order restraining them from entering into possession of the property of the company or otherwise trespassing on or in relation to the property rights of Mr and Mrs Thompson. Alternatively, Mr and Mrs Thompson seek an order restricting the appointment of the plaintiffs pursuant to s 420 of the Corporations Act and/or s 1323 so as to permit Mr and Mrs Thompson to bring the Federal Court proceedings for or on behalf of the company.

5 On 26 October 2010 the present proceedings came before the Master and was adjourned. On 1 November 2010 the defendants applied in these proceedings for orders that these proceedings and CIV 2637 of 2010 be transferred to the Federal Court pursuant to Jurisdiction of Courts (Cross-Vesting) Act 1987 (WA) (the Cross-Vesting Act) (the cross-vesting application). On 2 November 2010 the present application again came before the Master and was again adjourned.

6 On 9 November 2010 the cross-vesting application came before me for hearing. The present application was also called on. On 10 November 2010 I delivered judgment on the defendants' cross-vesting application. I ordered that the defendants' application to transfer these proceedings and CIV 2637 of 2010 to the Federal Court be refused. I then went on to make directions for the hearing of this application. I directed that the plaintiffs' application be heard on 25 November 2010 and directed the defendants to file and serve on or before 19 November 2010 any affidavits in opposition to the application together with an outline of submissions. The defendants did not do so. The defendants filed an affidavit of Mr Thompson sworn 19 November 2010 and on 25 November 2010, that is, the day of the hearing of this application, delivered an outline of written submissions.

7 In their written outline of submissions the defendants foreshadowed an application that NAB be joined as a defendant in these proceedings and that Lavan Legal, the solicitors acting for the Receivers, be restrained from acting for the Receivers in these proceedings on the grounds that the firm has a conflict of interest in acting for the Receivers and for NAB. I dismissed the application to join NAB. The defendants did not press the application to restrain Lavan Legal from acting for the Receivers.

8 In their written submissions the defendants submitted that the appointment of the Receivers was invalid on the grounds that conduct of NAB leading up to their appointment of the Receivers:

(a) was unconscionable in breach of s 51AC of the Trade Practices Act 1974 (Cth); and

(b) constituted misleading or deceptive conduct in breach of s 52 of the Trade Practices Act.

The defendants also submitted that the appointment of the Receivers was invalid because Ferrier Hodgson owed fiduciary duties to the company or NAB.

9 Section 418A(1) of the Corporations Act provides that where there is doubt, on a specific ground, about whether a purported appointment of a person as receiver of property of a corporation is valid, the person may apply to the court for an order under s 418A(2). Section 418A(2) provides that on such an application the court may make an order declaring whether or not the purported appointment was valid on the grounds specified in the application or on some other ground.

10 An application under s 418A is not an application for an enquiry whether the purported appointment of a receiver was valid. An application may only be made in circumstances where there is a doubt, on a specified ground, about the purported appointment. The order which the court may make is an order declaring whether or not the purported appointment was valid on the specified ground or on some other ground.

11 The Receivers commenced these proceedings on the basis that the defendants had disputed the validity of their appointment. The defendants did so in a letter of 5 October 2010 to the Receivers and NAB. In that letter the defendants stated:

Subject to s 418A of the Corporations Act 2001, there exists serious doubt as to whether the appointment is valid.

We believe that the appointment of Ferrier Hodgson is a direct conflict of interest, given that they conducted:

1. 'independent business review' in December 2008,
2. ongoing analysis of cash flows through January 2009, and
3. a review of assets in March 2010.

That was the only challenge to the validity of the Receivers' appointment. The defendants confirmed that was so in the course of the hearing of the cross-vesting application where counsel for the defendants said:

The grounds on which we say that the Receivers and Managers have not been properly appointed are that there was by the appointor and in relation to the appointees a conflict of interest or an apparent conflict of interest which precludes authority to make such an appointment ...(ts 24).

The misleading or deceptive conduct and unconscionable conduct allegations

12 The defendants have alleged that the appointment of the Receivers was invalid by reason of misleading or deceptive conduct or unconscionable conduct by NAB. Those grounds were advanced for the first time in the defendants' written submissions filed on the morning of the hearing and elaborated upon by counsel for the defendants at the hearing of this application. I will not determine those issues for a number of reasons. First, those were not grounds on which the defendants had challenged the validity of the Receivers' appointment prior to these proceedings being commenced and were not a specified ground which gave rise to the doubt whether the Receivers' appointment was valid which grounded these proceedings.

13 Secondly, the grounds allege that NAB engaged in misleading or deceptive conduct and unconscionable conduct. The court should not make findings on those matters without NAB being heard in relation to those matters. I refused to join NAB as a defendant. NAB was not a necessary party to the proceedings as commenced. The application to join NAB was made at the hearing of the application with no, or no proper, notice to NAB or the Receivers. Joining NAB as a defendant would have necessitated the proceedings being adjourned. The Receivers would have been prejudiced by an adjournment. That is because the Receivers reasonably wish for the challenge to the validity of their appointment on the grounds stated by the defendants before the commencement of these proceedings to be determined promptly and before they must decide whether or not to commence proceedings on behalf of the company in relation to the causes of action alleged by the defendants against the Department and the State in the Federal Court proceedings.

14 Thirdly, the misleading or deceptive conduct and unconscionable conduct grounds for alleging the invalidity of the Receivers' appointment were not adequately or properly developed in the defendants' written or oral submissions. For example, in their written submissions the defendants allege that NAB's conduct was in breach of s 51AC and s 52 of the Trade Practices Act. In oral submissions counsel for the Receivers submitted that the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), and not the Trade Practices Act, was the relevant statute. Counsel for the defendants then resorted to submitting that NAB's conduct was in breach of s 51AC and s 52 of the Trade Practices Act or the corresponding provisions of the Fair Trading Act or ASIC Act without directing the court to the particular statutory provisions. Counsel for the defendants did not state precisely the remedies sought by the defendants for the alleged contraventions of the Trade Practices Act, Fair Trading Act or ASIC Act and how those contraventions lead to the invalidity of the Receivers' appointment.

15 Fourthly, the defendants' claims of misleading or deceptive conduct or unconscionable conduct should be determined in separate proceedings. Counsel for the defendants submitted that the allegations of misleading or deceptive conduct and unconscionable conduct are raised by the defendants in the Federal Court proceedings or at least arise from the matters alleged by the defendants in those proceedings. It appears that the defendants may seek all of the remedies available to them including declaring void terms of the Facility Agreements between Perpetual Nominees and the company, damages or compensation. It is appropriate that those claims be determined in the course of the Federal Court proceedings.

16 Fifthly, the defendants have not made out, or even alleged, any misleading or deceptive conduct or unconscionable conduct by the Receivers. On the face of it, it appears that the defendants wish to contend that NAB's appointment of the Receivers was unconscionable in contravention of s 12CC of ASIC Act and misleading or deceptive conduct in contravention of s 12DA of the ASIC Act. It may be arguable that if those contentions are established then the court has power under s 12GM of the ASIC Act to order NAB to terminate the receivership or to vary the Facility Agreements in such a way as to render the appointment of the Receivers invalid. The defendants did not elaborate upon how such relief might operate. Section 12GM of the ASIC Act, like s 87 of the Trade Practices Act, confers a wide power on the court to make remedial orders in appropriate cases relating to misleading or deceptive conduct or unconscionable conduct. Section 12GM of the ASIC Act and s 87 of the Trade Practices Act empower the court to make remedial orders against the person who has engaged in the contravening conduct. The defendants do not allege that the Receivers have engaged in contravening conduct. Section 12GM of the ASIC Act, or s 87 of the Trade Practice Act, do not empower the court to make an order against the Receivers declaring their appointment invalid.

The conflict of interest and breach of fiduciary duty allegations

17 A receiver of corporate property should not be a person who has a connection with the company and there are specific statutory disqualifications in that regard. Section 418(1) of the Corporations Act provides that a receiver must not be an auditor or a director, secretary, senior manager or employee of the corporation or a director, secretary, senior manager or employee of the body corporate that is a mortgagee of property of the corporation.

18 The defendants do not allege that the Receivers are not qualified to be appointed by reason of s 418. The defendants assert, without citing any authority to support the proposition, that the appointment of the Receivers is invalid because of a conflict of interest. The conflict of interest is said to arise because the Receivers are partners of Ferrier Hodgson and Ferrier Hodgson carried out an 'independent business review' of the company in December 2008.

19 By a letter of 8 December 2008 addressed to Mr Jones of Ferrier Hodgson, NAB engaged Ferrier Hodgson to conduct an investigating accountant's business review of the company. Mr Jones is one of the Receivers. The scope of the review included:

1. review and comment on the financial position of the company as at 30 November 2008;
2. review and comment on the company's cash flow forecasts for the period 30 November 2008 to 31 October 2009;
3. review and comment on the company's accounting/management information systems;
4. review and comment on any loans or other financial accommodation provided to the company from other financiers;
5. review and comment on the industry in which the company operates and its respective position in the industry relative to their competitors;
6. comment on any other matters of relevance to the company arising from the review; and
7. identify and comment upon the alternative as open to NAB and explain the recommended strategy.

20 Ferrier Hodgson reported to NAB on 15 December 2008, 19 December 2008 and 14 January 2009. By letter of 18 February 2010 to Mr Weaver of Ferrier Hodgson, NAB engaged Ferrier Hodgson to conduct a review of the assets of the company. Ferrier Hodgson reported on the assets of the company in a report to NAB dated 5 March 2010. The evidence establishes that Ferrier Hodgson was engaged by NAB to conduct its investigations and make its reports. NAB did so pursuant to terms of the Facility Agreements which provided that if NAB reasonably believes the company is, or may be, in default or that circumstances exist which could lead to it being in default, NAB may appoint a person to investigate the financial and trading condition of the company. The factual basis of the defendants' allegation of a conflict of interest is not made out. The Receivers were not engaged by the company.

21 Counsel for the defendants submitted that the appointment of the Receivers was invalid because Ferrier Hodgson owed fiduciary duties to the company or NAB. Ferrier Hodgson were engaged by NAB to conduct an investigating accountant's business review of the company and subsequently to conduct a review of the assets of the company. The relationship of accountant and client is not one of the nominated fiduciary categories, or presumed categories of relationship which are deemed intrinsically to be fiduciary. The implication of a fiduciary relationship that does not fall within a nominated category will depend on the particular facts of the case and the circumstances governing the relationship between the parties. The engagement of Ferrier Hodgson by NAB to conduct an investigating accountant's business review of one of the bank's customers and subsequently to conduct a review of the assets of the customer does not of itself give rise to a fiduciary relationship between the bank and Ferrier Hodgson. There are no facts established which otherwise give rise to such a relationship.

22 The fact that Ferrier Hodgson carried out an investigation and business review of the company and of its assets does not of itself give rise to a fiduciary relationship between Ferrier Hodgson and the company. The implication of a fiduciary relationship between the company and Ferrier Hodgson will depend upon the establishment of particular facts and circumstances giving rise to such a relationship. The only additional facts or circumstances asserted by the defendants to give rise to a fiduciary relationship is that Mr and Mrs Thompson on behalf of the company provided confidential information to Ferrier Hodgson in the course of its investigation of the affairs and assets of the company. The company had a contractual obligation to provide such information. The terms of the Facility Agreements between the bank and the company provided that NAB may appoint a person to investigate the financial and trading condition of the company and the company must co-operate with and comply with every reasonable request made by that person.

23 For the reasons given, there was no fiduciary relationship between Ferrier Hodgson and NAB or between Ferrier Hodgson and the company prior to the Receivers being appointed receivers and managers of the company.

24 The defendants say that there is a fiduciary relationship between the Receivers, as receivers, and NAB or the company. The distinguishing element of a fiduciary relationship is that its purpose, or essence, is to serve exclusively the interests of others or, put negatively, it is a relationship in which the parties are not free to pursue their separate interests: Meagher RP, Heydon D, Leeming M, Meagher, Gummow and Lehane's Equity - Doctrines and Remedies (4th ed) [5-005]. Certain relationships have always been considered to be fiduciary. The courts have held that receivers are fiduciaries: Haydon JD, Leeming M, Jacobs Law of Trusts in Australia (7th ed) [202] citing Nugent v Nugent [1908] 1 Ch 546 and Lancet Pty Ltd v Olholm Developments Pty Ltd [2001] 1 Qd R 22.

25 In Visbord v Commissioner of Taxation [1943] HCA 4; (1943) 68 CLR 354 Williams J described a privately appointed receiver as a fiduciary. In Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820 Needham J explained the judgment of Williams J in Visbord. Needham J said that Williams J was looking at the relationship between the receiver and the other parties once the receiver has money in his hands and was not suggesting that from the date of his appointment the receiver stands in a fiduciary position vis-à-vis the mortgagor. Needham J said that such a conclusion would be contrary to many statements of that relationship and would involve exceeding the extent of the duty of the mortgagee himself to the mortgagor. The same observation may be made about the statements of Shepherdson J in Lancet Pty Ltd v Olholm Developments Pty Ltd.

26 In any event, the real issue is not whether or not the relationship between the Receivers and the company, after the appointment of the Receivers, is to be characterised as fiduciary. The issue is whether or not any duties owed by the Receivers as receivers and managers of the company conflict with their own interests or any duties they owe to NAB or whether any duties they owe to NAB as receivers and managers of the company conflict with any duties they owe to the company. The defendants have not established that there is any inconsistency between those duties or interests.

27 The Receivers appointment as receivers and managers of the company is not invalid by reason of the alleged conflict of interest or by reason of any fiduciary duties they owe to NAB or the company.

28 Section 418A(2) of the Corporations Act provides that the court may make an order declaring whether or not the purported appointment was valid on the grounds specified in the application or on some other ground. I have found that the appointment of the Receivers as receivers and managers of the company was valid notwithstanding that Ferrier Hodgson conducted an 'independent business review' or 'investigating accountant's business review' of the company in December 2008, analysis of cash flows of the company in January 2009 and a review of assets of the company in March 2010. Those are the grounds on which the defendants contended that the appointment was invalid and which gave rise to these proceedings. It is appropriate that the court make a declaration to the effect that the appointment of the Receivers is not invalid by reason of any conflict of interest or fiduciary duty owed to NAB or the company.

29 In the course of argument counsel for the defendants alleged that the Receivers' appointment was invalid by reason of conduct of NAB that was unconscionable in breach of s 51AC of the Trade Practices Act or constituted misleading or deceptive conduct in breach of s 52 of the Trade Practices Act or their 'respective analogues in the Fair Trading Act and in the ASIC Act'. The defendants did not establish that the appointment was invalid on either of those grounds. However, as the issue was not raised until the hearing, NAB is not a party to these proceedings and the defendants' contentions were not sufficiently particularised or formulated I have not determined those matters in the course of these proceedings. I make no finding whether or not NAB engaged in misleading or deceptive conduct or unconscionable conduct, contravened any provisions of the Trade Practice Act, the Fair Trading Act or the ASIC Act or whether the company or Mr and Mrs Thompson are entitled to any relief under those Acts.