MLW Investments v Tacsum [2006] NSWSC 1256 | Case summary

4536/06 MLW INVESTMENTS PTY LIMITED v TACSUM PTY LIMITED JUDGMENT - Ex Tempore 1 HIS HONOUR: This is the hearing of a Notice of Motion relating to the affairs of a partnership. The partnership was effectively a two man partnership involving a business of motor vehicle body modifications, that the two men involved conducted through their respective companies. It is those companies that are the plaintiff and the defendant. The plaintiff and the defendant had, by August 2006, reached a situation where it was fairly clear that the partnership could not continue. On 11 August 2006 the defendant sent to the accountant for the plaintiff, Mr Plataniotis, an email that explained that on Wednesday, the 30th, the defendant would be terminating all staff and paying out all entitlements. The defendant's alter ego said that on the 31st of the month he would be leaving the firm with certain equipment and stock that he itemised. He said he wished to dissolve the partnership. He said to Mr Plataniotis, "I request that since you created the partnership that you also dissolve the partnership." 2 On 30 August 2006 these present proceedings were begun by the filing of a Summons in Court. Leave to serve short notice was granted. 3 The matter came back before his Honour Palmer J on 1 September 2006. On that day various orders were made. One of them dealt with the fact that the defendant had begun a rival business. It appears that it was using a name quite similar to that of the partnership business and there was an order preventing it from carrying on business under two particular names "or a name which is only colourably different". An order was made up to and including 5pm on 25 September 2006 that Mr Plataniotis be appointed receiver of the partnership. Other orders were made, as follows: "3. Up to and including 5pm on 25 September 2006 the receiver have power to carry on the said partnership business and be given the powers of in relation to the said business as are given to a receiver pursuant to the provisions of section 420 of the Corporations Act 2001 to the extent to which the provisions of that section are capable of being applied to a receiver of a partnership and as if each reference in that section to "corporation" was and is a reference to "said partnership". 4. Up to and including 5pm on 25 September 2006 the receiver have power to employ such person or persons to manage and assist in the conduct of the said partnership business and at such salary as the receiver considers appropriate. 5. Up to and including 5pm on 25 September 2006 the receiver have power to realise the said partnership business and assets including the goodwill thereof subject to the approval of the parties and that either party be at liberty to bid at any auction sale of such assets." 4 As well, there was a direction: "10. The Receiver to provide to the parties and to the Court by 4pm on 20 September 2006 a report as to the affairs of the partnership, particularly with reference to whether the partnership can be sold as a going concern." 5 The evident thinking behind these orders was that the receiver would produce the Report as to Affairs in sufficient time to enable the parties to decide prior to 25 September 2006 what course they wished the partnership business to take. The proceedings were stood over before the Duty Judge on 25 September 2006. 6 On 20 September 2006 the receiver provided a report, of the kind contemplated by the orders of 1 September. The highlights of that report were that the business was trading at marginal profitability, and that the business was unlikely to be attractive to any potential purchaser as a going concern, other than the partners themselves. Reasons were given for those conclusions, which included the fact that the departure of some significant staff, and the fact that the defendant was conducting a rival business, would both be likely to be seen as unattractive by any third party purchaser. 7 On 21 September, the receiver made what he described as an addendum to his report of 20 September 2006. That report contained some allegations that money had been received by the defendant that was properly due to the partnership. The money totalled $25,500 and related to two particular transactions. The receiver's report described the conduct involved as "fraudulent and deceptive activity". 8 By the time of this addendum, the defendant was conducting its new rival business under a name that was nothing like the name of the partnership business. The receiver included in his addendum report the statement that that name "is a name that is colourably different to the business name of the partnership business." 9 On 25 September 2006 the matter came back before Gzell J. On that date orders were made that included orders 1 and 2 in the Summons - namely, a declaration that the partnership business was dissolved and an order that it be wound up under the direction of the Court. Mr Plataniotis was appointed as receiver (not merely as interim receiver), and an order was made that he had, until further order, the powers granted to him as interim receiver by Palmer J. As well, orders were made for the taking of accounts, in the form commonly granted in partnership suits. In accordance with that usual form, there was provision for the defendant to pay or transfer to the plaintiff such amount as might be found to be due upon the taking of accounts and inquiry. In accordance with the Court's usual practice, and Part 46 of the Uniform Civil Procedure Rules, any such inquiry would be held before an Associate Justice. 10 Other orders made by Gzell J on 25 September 2006 by consent were: "9. Direct the plaintiff or interest associated with the plaintiff to offer to purchase the partnership business as a going concern or such part of the partnership business or assets of the partnership business as it may wish to purchase by 29 September 2006. 10. Defendant also be at liberty to make any offer it wishes for the partnership business or any part or asset of it. 11. In the event that the parties do not agree concerning the acquisition by one of them or interests associated with them by 5 October 2006 then any disputes concerning such sale or term of such sale be referred to an Associate Justice of the Court for determination."

The matter was stood over to the Registrar's list on 16 October 2006. 11 The plaintiff did not make an offer to purchase the business as a going concern within the time limited by Gzell J. However the plaintiff made, it seems, an offer very soon after that. While the terms of that offer are not in evidence, the receiver has said that there was a provision in it that he did not regard as commercial, and hence he was not prepared to accept that offer as it was originally made. 12 On 3 October 2006 the defendant filed a Cross-Claim. In broad terms, that Cross-Claim alleged that the plaintiff had received various assets of the partnership, and not accounted for them to the partnership. The cross-claim was provided to the solicitors for the receiver on 9 October 2006, under cover of a letter that said that the defendant was not proposing to make any offer for the business. 13 On 16 October, when this matter came back before the Deputy Registrar, other orders were made by consent. One of them varied orders 9 and 10 that Gzell J had made on 25 September 2006 so that they read: "Directs the plaintiff and defendant or any interest associated with them to make any offer they wish to make to purchase all or part of the assets of the partnership business by 30 October 2006". 14 Another order made that day by consent was: "In amplification of order 2 of the orders of Gzell J of 25 September 2006 the Court order the plaintiff and defendant or otherwise account to the receiver for all moneys received by them on account of the partnership." 15 The receiver made another report on 26 October 2006. In it, he set out the result of some investigations he had made of the allegations that were made by the defendant in the cross-claim. He also stated that there was another respect in which, in his view, the defendant had engaged in fraudulent and deceptive activities. 16 Further, that report disclosed that the receiver had reported some of the conduct that he had described as fraudulent to the New South Wales police. 17 On 2 November 2006 the defendant's solicitors wrote to the solicitors for the receiver, saying that the defendant would be making an offer, and asking: "… would you ensure that any offer held by you or your client from Mr Williams or any associated persons or entity is not communicated to either my client or this office until such time as my client has tabled his formal offer." 18 On 14 November 2006 the defendant's solicitors wrote to the plaintiff's solicitors, requesting considerable information, including information relating to the ongoing business activities of the partnership, of a kind that would disclose its existing customer base, in order to finalise an offer to purchase the plaintiff's share in the partnership business. However, that information has not been provided, and no offer has been forthcoming from the defendant. Failure to provide that information is one matter that the defendant complains about, as the receiver has employed the man behind the plaintiff as manager of the business, and by that means the plaintiff has access to the sort of information that the defendant wants. 19 The orders that were initially made by Palmer J gave the receiver power to employ such person or persons to manage the partnership business as he considered appropriate. He chose to employ Mr Williams, the man behind the plaintiff. The receiver had been the accountant of Mr Williams for ten or fifteen years before the appointment was made. This is something that the defendant knew at the time he consented to Mr Plataniotis being appointed as the receiver. 20 The defendant seeks the removal of the receiver on various grounds. One is that the receiver had no obligation to investigate all the past transactions of the partnership, or to take accounts of the assets and liabilities of the partnership. 21 There is not evidence before me of the detail of the activities that the receiver has engaged in. However, it seems to me that when a receiver has been appointed to manage a partnership business, part of the duties of the receiver involves or includes keeping the books of that business up to date, and getting in any debts that might be due to the partnership business. These debts might be ordinary trade debts, or they might be debts that arise from one partner having a liability of some form or another to account to the partnership business. I am not persuaded that the mere fact that the receiver has sought to investigate what are the assets and liabilities of the business shows that he has gone beyond his proper role. It may be that when one looks at the detailed evidence concerning what he has done, there may be respects in which he has gone beyond his proper role, but the evidence does not enable me to draw a conclusion about that. When I say, "there may be" I am doing nothing more than recognising an abstract possibility. 22 Another basis upon which the removal of the receiver is sought is that the receiver has reported that the defendant has engaged in fraudulent conduct before the matters alleged against the defendant were put to him, and before the defendant was given the opportunity to put his side of the story. On the material before me, it seems that that is indeed so. If there were any question of the receiver's report being in some fashion adopted or endorsed by the Court, this may well be a very serious consideration. However, there is no question of the Court needing to adopt or endorse any of the reports of the receiver. The prime purpose of those reports was to provide information to the parties themselves. 23 As well, complaint is made about the receiver reporting the alleged fraudulent activities of the defendant to the police, before the defendant had had the opportunity to put his side of the story. 24 Given the obligation that any citizen who comes across what he takes to be serious criminal activity has to report that matter to the police, and when the detail of the material that was before the receiver has not been examined in evidence (only its general nature) I am not prepared to conclude that he was acting improperly in contacting the police at the time he did. 25 Another complaint is made about the receiver having refused to disclose details of the offer to purchase the business that he has received from the plaintiff. It is correct that the procedure that the parties envisaged was one whereby the terms of an offer made by either the plaintiff or the defendant would become known to the other, so that the other could decide whether they required the question of whether that offer should be accepted to be referred to an Associate Justice for decision. However, I do not construe the orders that were made as being ones that required the offer made by one party to be disclosed to the other in circumstances where that other party had not already put any offer that he wished to make, in a way that was final. 26 It would be completely contrary to the procedure for winding up that the orders envisaged, that there be an ongoing auction, with bids made in writing, perhaps days apart or weeks apart, and bids continuing until the parties were exhausted. Indeed, that understanding of the matter is illustrated by the letter of the defendant's solicitors of 2 November 2006 to which I have earlier referred. 27 In deciding whether it is appropriate for a court appointed receiver to be removed, the Court has a wide discretion. Reasons for removal can include demonstrated illegal or unprofessional conduct by the receiver, bias, lack of independence, incompetence, or any other unfitness for office. The reasons for removal are in that respect similar to those referred to by Austin J in Domino Hire v Pioneer Park [2003] NSWSC 496 at [58] for removal of a liquidator. However, the discretion is wide and a leading factor that the Court takes into account is whether removal of the receiver is needed to enable the broad objective that was sought to be obtained by the appointment of the receiver in the first place to be obtained. 28 In the present case, the receiver has very little work remaining to be done. The receiver's primary remaining task, apart from rendering a final accounting, is to dispose of the partnership business as a going concern, or if that cannot be done, to dispose of the partnership assets. The disposing of the business as a going concern is a topic concerning which the orders already on foot contemplate that, if either party is dissatisfied with the preference of the receiver, judicial control over the ultimate decision on that topic will be exercised, by an Associate Justice. In those circumstances, it seems to me that there is not occasion for removal, at this stage, of the receiver. 29 While it is true that there has been a much more drawn out process than the parties originally envisaged for the winding up of the business, to some extent that is as a result of the parties themselves not keeping to the court ordered timetable for the lodgement of offers, and by the defendant leaving the receiver in a state of uncertainty about whether the defendant wished to make another offer or not. 30 In my view, that problem can now be dealt with by directing that, if the defendant wishes to make any offer for purchase of the business, it do so in writing by 2:00pm tomorrow, 21 November 2006. I would envisage, without making any order, that promptly after 2:00pm tomorrow the receiver form a view about what, if any, of the offer or offers he then has on the table should be accepted, and the parties should be given the opportunity to decide whether they wish the acceptance of that particular offer to be referred to an Associate Justice. 31 The receiver has put in a bill for the fees that he claims. That bill is not itemised by reference to particular types of work that the receiver did. The defendant wishes to assert that the receiver, while entitled to remuneration for those tasks that he performed that were properly pursuant to the orders of the Court, has gone beyond the Court's orders in carrying out the investigation that he has. 32 Any application for approval of remuneration of the receiver would ordinarily be dealt with by an Associate Justice. In my view, and given that on the material before me, I have not been able to make a conclusion about whether the receiver has gone beyond the proper scope of his activities, the preferable course is to leave the making of such an order to directions given by an Associate Justice. 33 As well, the defendant seeks an order that the parties "file accounts on a wilful default basis". Accounting on the basis of wilful default involves taking an account of what would have been received by the partnership if the partner said to be in default had performed his duty to the partnership. Taking accounts on that basis can require complex questions of fact and estimation to be engaged if the breach of the duty established on the part of the party is, for instance, diversion of a business opportunity from the partnership to some other business. In that type of case, it is necessary for the judicial officer hearing the accounting to decide what would have happened if, for instance, the business opportunity had been available to the partnership. 34 There is one example of the plaintiff having admitted, in an affidavit, that he paid into an account that was not the partnership bank account a cheque that had been received by the partnership for work done. While conduct like that results in the plaintiff having an obligation to account for the amount that was paid into the incorrect bank account, bringing such an item into account does not involve the sort of factual inquiry that is ordinarily involved when an order is made for an accounting on the basis of wilful default. I am not persuaded in the present case that there is any justification for such an order. 35 Directions are also sought for the filing of accounts. That is a matter that ought to be attended to by an Associate Justice, when and if the formal procedure for taking of accounts is begun, pursuant to the orders that the Court has already made. 36 In the result, the only order I shall make is to direct the defendant to make to the receiver, by 2:00pm tomorrow, in writing, any offer that it wishes to make for the purchase of the receivership business. The Notice of Motion will be otherwise dismissed. * * * * * * * * * * 37 The plaintiff seeks the costs of today's Notice of Motion. The plaintiff seeks those costs on the basis that the costs of the plaintiff, on a party/party basis, be paid by the defendant, and that the costs of the receiver, on the indemnity basis, be paid by the defendant. The plaintiff's reason for making the latter application is that if the receiver were to receive an order for costs only on a party/party basis he would, prima facie, be entitled to recover the difference between his actual costs, and the party/party costs from the partnership assets, and it would be the plaintiff who would thereby end up bearing half of that difference. 38 The defendant opposes that order on the basis that the reason why the matter needed to come to Court at all was because the parties have, between them, caused the process to miscarry. I do not accept that submission of the defendant. While it is true that the plaintiff did not meticulously adhere to the Court timetable, the defendant is the one that has changed hits mind about whether an offer would be submitted or not, and as well the defendant has made applications for orders, beyond the direction that I have made, where those applications have not succeeded. 39 It seems to me that the basis upon which the special order in relation to the order of the costs of the receiver is sought is right in principle. I order the defendant to pay the costs of the plaintiff of the Notice of Motion on a party/party basis. I order the defendant to pay the costs of the receiver of the Notice of Motion on an indemnity basis. * * * * * * * * * * 40 Mr Tregenza asks that the order for costs be made payable forthwith. The proceedings are still on foot. There are still other interlocutory procedures which will need to be dealt with. I am not minded to make that order. 41 The receiver's Notice of Motion filed 13 November 2006 is referred to an Associate Justice. I direct that that Notice of Motion not be finalised by any order in chambers prior to 11 December 2006. I direct that, if the defendant wishes to contend that directions ought be given for the provision of fuller accounting or any other form of additional information before that Notice of Motion is determined that the defendant file, on or before 24 November 2006 a Notice of Motion returnable before an Associate Justice seeking such directions, of the general type I have outlined, as the defendant might be advised. **********

MLW Investments v Tacsum

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Judgment (12 paragraphs)

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Cited By (6)