Martyniuk v King [2000] VSC 319

[2000] VSC 319

Supreme Court of Victoria|2000-08-14|Before: Warren J

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Source facts

Court

Supreme Court of Victoria

Decision date

2000-08-14

Before

Warren J

Source

Original judgment source is linked above.

Judgment (72 paragraphs)

[1]

The applicant for the appointment of a receiver, Illawong Retirement Living, relies upon a number of grounds in support of the application. First, the fact that taxation returns have not been lodged for the trust for a period of approximately 15 years. As a consequence, the applicant submits that as matters stand the affairs of the trust are in disorder and disarray. There was no dispute between the parties that taxation returns for the trust had not been lodged since 1985. Recently an attempt had been made for the filing of taxation returns for the approximate 15 year period from 1985-2000. However, Martyniuk, in his capacity as public officer of the trust refused to sign the taxation returns that were prepared. Upon the forwarding of the returns to the Taxation Office the trustee was informed by that office that the returns in an unsigned form were unacceptable. Hence, the returns for the period 1985-2000 remain unlodged.

[2]

The next set of circumstances that the applicant relies upon is the fact that the trust owns three companies one of which, Riverside Nursing Care Pty Ltd, has been placed in administration and is the subject of a deed of company arrangement. In addition, the company, Riverside Nursing Care Pty Ltd has instituted separate proceedings against Martyniuk on 26 March 1999 alleging breach of director's duties and other allegations and claiming damages in excess of $1m. The companies are engaged in the operation and management of nursing homes. It was argued in support of the interim appointment of a receiver of the assets and undertakings of the trust that in all respects Martyniuk refuses to co-operate and continues to frustrate the management of the trust and its affairs at a time when ongoing management is necessary.

[18]

"The equitable remedy of receivership is available against both executors and trustees where the circumstances make it appropriate. The criteria for the appointment of a receiver to displace these fiduciaries are almost identical. Primarily it is jeopardy or the risk of jeopardy that justifies an application to the court. Assessing the degree of jeopardy or risk involves a qualitative judgment. A proper case must be made out: the court will not dispossess an executor or a trustee of the trust estate in favour of a receiver on slight grounds. The testator or other creator of the trust is presumed to have known what he was about; and normally the court respects the expressed wishes as to who should administer the trust estate. What then constitutes a proper case? The cases warrant the assertion that it should be a strong case,[15] and it must be borne in mind that receivership is a drastic and not inexpensive remedy, with the possibilities of further expensive applications to the court for directions. Misconduct is obviously a prime ground for the appointment of a receiver where the misconduct is sufficiently grave. A strong case is necessary.[16] Where one of several executors or trustees is guilty of misconduct the court will not, as a general rule, appoint a receiver on the interlocutory application of the beneficiaries without the consent of all the other trustees,[17] though it seems that the court might dispense with the consent of a trustee living abroad, or one who had practically ceased to act. On the other hand wherever all the executors or trustees are, or a sole executor or trustee is, guilty of such conduct as to endanger the property, the court will appoint a receiver.[18] Thus in Clarke v Heathfield (No 2)[19] trustees of a trade union who were thwarting court orders and putting union funds to the jeopardy of substantial depletion were removed and replaced by an interlocutory receiver. If part of a trust fund has been lost, that is prima facie evidence of a breach of duty by the trustee, sufficient to justify the interference of the court by the appointment of a receiver for the purpose of preserving the remainder of the fund on the interlocutory application of a beneficiary.[20] The fact that a sole executor or trustee is under some personal disability[21] or is of such a character as is likely to lead to the jeopardy of the trust fund is sufficient ground for the appointment of a receiver, as for example if he is of violent conduct and drunken habits.[22] If the maladministration is sufficiently serious the absence of any corrupt motive is by the by. Thus in Whitehead v Bennett[23] a sole trustee who had been guilty of improvident expenditure and wilful waste in converting farming lands into a race course was guilty of conduct justifying his replacement by a receiver."

[29]

"Of course in a strong enough case the court might, without warning to a trading company, divest it of control of its undertaking and assets. But it must always be borne in mind that the appointment of a receiver in such a case authorises an irresistible invasion and that even if the army of occupation is withdrawn after only a short time things may never be the same again. Rights of property and the company's privacy are violated. Only the most pressing need can warrant such an invasion without notice. Quite apart from the taking out of the companies' hands of control of their assets and the management of their businesses, there was in the present case the added consideration (which will not infrequently be present where a receiver is appointed to a company) that the making of the order might well have most serious legal consequences for the companies or for related companies having regard to the terms of securities given by them. An addition to the legal consequences there was the commercial consideration that, as Picarda, Receivers and Managers, p.4_,_ has observed, the receiver often seen not as the company doctor but as the undertaker, so that a blow is struck to the standing and credit of the defendants. In the present case the order sought, although interim or interlocutory, was one with extremely grave consequences for the defendants. Putting to one side a winding up order, which will in the normal course ultimately result in a company's being given its quietus, we cannot for the moment think of an order of greater consequence to a company than one which, until further order, robs it of its control over its own assets and business. No court will make such an order unless convinced of its necessity. A case for some kind and degree of interlocutory relief may be made out which falls short of this extremely drastic remedy; for example, the court may not be satisfied - and it is of course for the applicant to persuade the court that nothing less than what he seeks will do - that in all the circumstances it should do more than grant an injunction. At times the court will be induced to refuse the remedy of a receiver by. undertakings offered by the defendant."

[44]

"The basic authority that a receiver is an officer of the court appears to be an Irish equity case of Hutchinson v Massareene (1809) 2 Ball & Beatty 55 (a report which is not available in Sydney). That decision was followed by Lord Eldon in Angel v Smith [1804] EngR 147; (1804) 9 Ves 335; 32 ER 632 and also in Davis v Marlborough [1819] EngR 678; (1819) 2 Swans 108, 118; [1819] EngR 678; 36 ER 555, 559. However, the furthest Lord Eldon seems to go is to say that receivers were like an officer of the court. In one sense they were like trustees, in that they owed fiduciary duties, but they were unlike trustees in that they had no property vested in them. They were, however, considered to be officers of the court in the United States. In Davis v Gray [1872] USSC 43; (1872) 83 US 203 at 217-218, Swayne J, giving the decision of the court, said that: 'A receiver is appointed upon a principle of justice for the benefit of all concerned ... [The receiver] is virtually a representative of the court, and of all the parties in interest in the litigation wherein he is appointed. He is required to take possession of property as directed, because it is deemed more for the interest of justice that he should do so than that the property should be in the possession of either of the parties in the litigation. He is not appointed for the benefit of either of the parties, but of all concerned. Money or property in his hands is in custodia legis. He has only such power and authority as are given him by the court, and must not exceed the prescribed limits. The court will not allow him to be sued touching the property in his charge, nor for any malfeasance as to the parties, or others, without its consent; nor will it permit his possession to be disturbed by force, nor violence to be offered to his person while in the discharge of his official duties.' I do not think that the status of the receiver is stated with any greater clarity than in that passage. The receiver seeks directions of the court as an officer of the court. However, his status as an officer of the court is not quite the same as other officers. I said in Moclair v Moclair, 18 December 1986, unreported, following Re St George (1887) 19 LR Ir 566, that receivers are officers of the court and they should resort to the court for guidance when they think it is desirable to do so. I stand by what I there said, but I think it should be appreciated that there is a difference between a liquidator, who is doing the work that last century the court did itself in the Master's Office, or even with a trustee, in that those people have unlimited functions, whereas a receiver has a very limited and usually relatively mechanical function. Instead of making a broad statement that receivers may always seek the opinion of the court, it would be better to put the proposition more narrowly, that if a receiver within his own limitations requires the guidance of the court, then normally he should have it. Accordingly, I do not consider that many of the cases dealing with the sort of advice that is given to trustees, on the one hand, or liquidators, on the other hand, necessarily apply in the case of applications by receivers to get advice. There are, of course, statutory rights for certain receivers under the Corporations Law to obtain the directions of the court under s.424 of the Corporations Law. This is not relevant to the present receiver. However it should be noted that even under that section the court does not give advice: Re North City Developments Pty Ltd (1990) 20 NSWLR 286; Re Geneva Finance Ltd (1992) 7 WAR 496. One must first look to see the order appointing and empowering the receiver to see what his limitations are. Traditionally courts have made orders appointing receivers only upon security, so that disappointed parties have access to a fund should the receiver not carry out his fiduciary duties. It has become customary to appoint official liquidators as receivers without security on the basis that their professionalism probably means that they will not create situations where they will be sued. However, the prime reason for granting security is that receivers are liable for breaches of fiduciary duty and it follows that they are not entitled to be completely indemnified against each step in carrying out their duties."

[51]

"The order appointing the receivers operated as an injunction:. see the decisions cited in Picarda, Receivers and Managers, pp. 274-5. The usual undertaking as to damages is the price that must be paid by almost every applicant for an interim or interlocutory injunction. An injunction will by its nature require a person to do or abstain from doing some act and so is by its nature an order with a tendency to prejudice the person to whom it is directed. The practice of requiring the undertaking recognises that, the injunction being only interim or interlocutory and so the rights of the parties not having been finally determined, it may at a later stage appear that the applicant should in fairness compensate the party enjoined for the harm he has suffered: Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249, at p.311, per Gibbs J. The principles governing the enforcement of the undertaking, are discussed in Spry, Equitable Remedies_,_ 3rd. ed., Appendix A. In Chapman v Rose-Snider Fur Co. 69 DLR 639, at p.641 (cited by Picarda, p.268) Middleton J of the Supreme Court of Ontario said that any ex parte order appointing a receiver, operating in effect as an injunction, should contain an undertaking as to damages. For examples of the undertaking in damages on the interim appointment of a receiver see Taylor v Eckersley (1876) 2 Ch. D. 302; Evans v Lloyd [1889] WN 171; Seton, Judgments and Orders, 7th ed., vol. 1, p.727, Form 6 and Atkins Court Forms, 2nd ed., vol. 33 (1989 issue), p.205, Form 20, and Practice Paragraph 10. Even where a statute authorising the appointment of a receiver on the application of a public authority directs the court not to insist on the usual undertaking as to damages, it has been said that the court may in exercising its discretion take into account whether an undertaking is offered: Corporate Affairs Commission (NSW) v Lombard Nash International Pty Ltd (1986) 11 ACLR 566, at p.571. Property over which a receiver is appointed may not be in the actual enjoyment of anyone, and the circumstances in which a receiver may be appointed are infinite in their variety. This case can be disposed of without considering whether any general assertions can safely be made about the circumstances in which an interim or interlocutory order appointing a receiver should be supported by the usual undertaking in damages. For it is clear that the present order operated as an injunction against the defendants at a time when there had been no final determination of rights and had such a prejudicial tendency so far as they were concerned as to require imperatively the exaction of the undertaking. The great danger of great prejudice need riot be enlarged upon: it is too obvious."

Martyniuk v King [2000] VSC 319

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Judgment (72 paragraphs)

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Cases Cited (5)