He also quoted the words of Sir George Jessel MR in Re Peters; Ex parte Lloyd (1882) 47 LT 64, 65, where his Lordship said in a bankruptcy case:
"The court will not interfere unless the trustee is doing that which is so utterly unreasonable and absurd that no reasonable man would so act."
15 In Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207, 230-1, L W Street CJ in Eq discussed and applied these principles to the conduct of liquidations in this State. Both the York-O-Matic case and the Mineral Securities case have been followed on countless occasions by courts in this country in the last 30 years; see eg Yeomans v Walker (1986) 5 NSWLR 378 and UTSA Pty Ltd v Ultra Tune Australia Pty Ltd [1997] 1 VR 667.
16 Mr Smallbone, subject to what I set out below, basically does not contest that what I have just set out contains the test to be applied to this case. However, he submits that, even on that test, the liquidator's conduct is such that the Court should interfere. In particular he points to what he says is a fact, that the liquidator has never given any reasons why he acted the way he did and in particular ignored the legal advice which was proffered through the plaintiff's solicitors.
17 Mr Coles QC says that this is not correct, that the liquidator in fact did give an explanation, and he points to the liquidator's letter of 30 January 2002 in which he says:
"On 30 October 2001, I terminated the Deed of Indemnity due to your failure to comply with your obligations pursuant to clause 4 thereof.
With great respect to you, given the financial factors that are inherent in the on-going conduct of this litigation, my reliance upon your failure to comply with clause 4 was not 'petty and unconscionable'.
Further, I hold grave doubts about the viability of the Company's claim against NCR given:
(i) advice I have received from my solicitors;
(ii) 'conflicting' opinions from Counsel retained on your behalf; and
(iii) the apparent failure by the Company (and by implication, you as a director of the Company) to comply with the relevant Government statutory requirements, in relation to licencing.
Finally, I have considered your proposal for an assignment of the cause of action and it is not acceptable to me for the following reasons:
(a) there is no certainty of actual recovery to benefit the creditors of the Company; and
(b) it exposes me, as Liquidator of the Company, to a potential costs order in circumstances where I do not hold any assets to meet any such costs order/s. In this respect, I do not believe that the security proffered by you is adequate to meet my concerns."
18 In addition, by the liquidator's solicitors' letter of 6 March 2002, DX06, the solicitors set out the reason why they consider that the liquidator was not sufficiently covered and why they were uneasy about the opinions that had been obtained by the plaintiff from various counsel.
19 Mr Coles submits that that letter quite plainly shows the matters taken into consideration by the liquidator and that the liquidator in fact did answer the plaintiff's request for information and further that it shows that the settlement reached was a result of the commercial judgment of the liquidator which this Court should not "interfere with", at least save for good and sufficient grounds.
20 He further submits that it should not be said of a liquidator faced with conflicting legal advice in a case that, if fought, might take weeks of court time, that he was unreasonable in settling the case for what he could get, despite the fact that that amount might be small. Particularly is this so when the case involves "an exploration of the murky depths of the law of statutory illegality". (The quote is, of course, from the judgment of Meagher JA in the case involving non-members claiming poker machine jackpots from licensed clubs, Mendonca v South Sydney Junior Rugby League Club Ltd (NSWCA 11.9.1996, unreported)).
21 Mr Smallbone, however, points to the fact that in Bayswood Pty Ltd (1981) 6 ACLR 107, 112, Needham J noted that there was a submission that the Court could overturn even a completed contract made by a liquidator even if there were no lack of bona fides and no error of principle. Mr Smallbone submits that his Honour must have recognised that the power of the Court does extend beyond situations where the liquidator has behaved as no reasonable liquidator would behave.
22 In Bayswood, his Honour did not rule on that submission because he said at 113:
"Even if the court had power to set aside a contract on the basis that the liquidator's decision to sell to the other party was unreasonable or commercially imprudent … I would not set this contract aside."
23 Mr Smallbone next referred to a line of authority of which Aliprandi v Griffith Vintners Pty Ltd (1991) 6 ACSR 250 and Vouris v Deputy Commissioner of Taxation (1999) 33 ACSR 527, are examples that where there is an arguable case for relief against a third party and practical considerations such as indemnifying the liquidator against costs are met, then it is usually appropriate to take some action such as appointing a receiver to bring proceedings in the name of a company. Accordingly, when the Court can see that the liquidator is protected, and there is a reasonable chance of the proceedings succeeding, the Court should not permit the liquidator to destroy those proceedings of his own motion.
24 Mr Coles submits that Mr Smallbone is reading too much into Bayswood. I think this is right. It is significant that no authority was cited either to Needham J or me in support of the proposition. His Honour merely thought it was wise to leave it open. Indeed, I am not myself convinced of Mr Smallbone's proposition.
25 Mr Coles says that cases such as Vouris are dealing with a completely different situation. Even if they were in point, one would have to examine very closely both the provision to protect the liquidator and also the chances of success of the proceedings, both of which tasks I hope I will do during the course of these reasons.
26 Mr Coles points out that whilst it may well be that no personal order for costs will be made against the liquidator, the practical effect of an order for costs against the Company must always be borne in mind because those costs will need to be paid ahead of the liquidator's remuneration so that in fact he will suffer pecuniary loss. There was no answer to that submission.
27 (3) I have already made reference to the decision of Needham J in Bayswood. At 112, just after the passage I cited, the learned Judge noted the respondent's submission that the Court's power in a case where it thought that the liquidator should not have entered into the contract or compromise was to order the liquidator to pay the company the damages or loss suffered by his decision. No authority was presented to his Honour in support of the proposition.
28 I have not myself found any case where a contract has been set aside made by a liquidator under his powers given under the Corporations Act. I have also looked at cases under the Trade Practices Act 1974 and Contracts Review Act 1980.
29 Mr Smallbone puts that the decision of Lord Romilly in Re The Central Darjeeling Tea Co Ltd (1886) 15 LT 234 was such an authority. I do not, with respect, think it is. That was a case where it is unclear from the report as to whether the compromise was actually approved before the Court came into the picture or else whether it was only provisionally approved. In any event, the contract was voidable because of material non-disclosure by the promoter who was to be paid £1500.0.0. as a result of the compromise.
30 On the other hand, Mr Coles also submitted an authority which he said was in his favour, again very sketchily reported, namely In re Norske Lloyd Insurance Co Ltd [1928] WN (Eng) 99. That was a case where there was a compromise but later the points of law on which the compromise had been reached were decided to be wrong by the English Court of Appeal. The liquidator then sought to deal with the proofs of debt on the basis of the later decision. Eve J held that he was bound by the compromise already reached. In my view, the case does not help in the present matter.
31 As a matter of general principle, courts are usually only prepared to activate the power to set aside contracts where there has been some misconduct, sharp practice or unconscionable behaviour on the part of one contracting party and if the contract can be set aside without undue side effects which cannot be compensated in some other way. In the present case, there is no attack made on NCR's conduct, nor is it now said that the liquidator had no authority. It is just said that he behaved as no reasonable liquidator would have behaved. Even if, which I doubt, there is some ability to set contracts aside under s 536 of the Corporations Act when the Court is supervising liquidator's conduct, I do not consider that such power would be exercised in circumstances such as the present. Accordingly, the question posed can the Court set aside the compromise is answered "No".
32 (4) Mr Coles QC put that the plaintiff has no standing to bring this application.
33 It is noted that the application is made under ss 477(6), 536, 1321 and 1324 of the Corporations Act. No question of standing arises under the former sections, but s 1321 is only open to a person who is aggrieved by an act, omission or decision of, inter alia, a liquidator, and under s 1324 a person whose interests have been, are, or would be affected by the liquidator's conduct has standing.
34 The matter of standing was considered by McLelland J in Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 1 ACSR 79. His Honour noted at p 83 that under s 536 no question of standing may arise because any person may draw the Court's attention to the problem. However, he said that for the purposes of s 1321, a person is only aggrieved if he or she has suffered a legal grievance, that is, that a legal right or interest was affected by the liquidator's decision or that the decision constituted a breach of a legal duty owed by the liquidator to the applicant, see also Ex parte Sidebotham (1880) 14 Ch D 458, 465.
35 Mr Smallbone says that in the instant case, Mr Naumoski holds 99 of the 100 issued shares, the effect of the liquidator's decision on him is that he may well be deprived of recovery of a surplus on the winding up.
36 The definition of "person aggrieved" in the corresponding legislation was examined by the English Court of Appeal in Re Edennote Ltd [1996] 2 BCLC 389, 393. It was there said that, in the light of the legislative history in Britain, the words are to be read as shorthand for "any creditor, debtor or other person aggrieved".
37 I need only consider facts on questions of standing on a prima facie basis. Judges do not do the circular exercise of deciding the facts and then working out whether there is standing. It seems to me that under s 477 and s 1321, the plaintiff may have a legal right which is affected by the decision. In particular he may be a creditor or he may be a shareholder entitled to participate in the surplus of a winding up if the action succeeds. He does not need to have any special standing under s 536 under which much the same orders can be made so that the point is rather academic.
38 Mr Naumoski is probably under s 1324 of the Act a "person affected", but section 1324 cannot really come into the mix in the light of my decision that I cannot or should not set the contract aside in any event because it is now too late to get an injunction. I say this because the evidence points to the fact that there has been a final agreement between the liquidator and NCR, the only thing lacking is its final consummation. Accordingly I resolve the question of standing in favour of the plaintiff.
39 (5) The deed of indemnity is dated 19 July 2001, the parties being Ray and Gina Naumoski of the first part, and Mr Parbery, the liquidator, of the second part. Clause 1 provides that the Naumoskis jointly and severally indemnify the liquidator against: (a) any costs order made against the Company or the liquidator personally in proceedings 2316/00; (b) $8,000 being the liquidator's costs of assessing the merits of the Company's defence and cross claim; (c) any legal costs incurred by the liquidator in instructing D G Bowles & Company pursuant to its retainer; and (d) any legal costs of the liquidator in obtaining his own advice on any relevant issue.
40 Clause 4 provides that the directors, that is, Mr and Mrs Naumoski, in reduction of the preliminary costs, shall pay to the liquidator $500 per month, the first payment due on 1 July 2001 and thereafter on the first day of each month.
41 Clause 5 is as follows:
"5. The liquidator retains the absolute right to:-
(a) negotiate a commercial settlement of the proceedings (as it relates to Credit Connection) on terms which he considers to be in the interests of all the creditors of Credit Connection;
(b) terminate the continuance of this indemnity upon written notice to D G Bowles & Company without, in any way, limiting the indemnity already granted in favour of the liquidator."
42 On 30 October 2001, the liquidator wrote to D G Bowles & Company advising:
'"That pursuant to clause 5(b) of the Deed of Indemnity … I hereby terminate the continuance of this indemnity. I note that the termination does not, in any way, limit the indemnity already granted in my favour.
I also advise that I withdraw from the court proceedings forthwith. I have instructed David Cowling of Clayton Utz to give effect to my withdrawal by giving appropriate notice to the court."
43 Bowles & Company, on 31 October asked the liquidator for reasons, and on the same day Clayton Utz faxed Bowles & Company the following:
"Our client is entitled to terminate the continuance of the indemnity pursuant to clause 5(b) of the Deed of Indemnity without notice to you and without the need to specify any reasons.
We note that your clients are in default of paragraph 1(b) of the Deed."
44 There is no dispute that the $500 per month due on the first day of each month was at least one instalment behind at the time when the liquidator gave his notice. The plaintiff has offered to pay the balance of what is due and tendered a cheque to the Court for the amount. The liquidator says that it is an idle gesture because (1) he did not have to give any reasons for discontinuing the deed of indemnity; (2) that in any event he has come to a commercial settlement of the dispute as he was entitled to do under 5(a) of the deed; and (3) that payment of the $500 was a condition under which time was of the essence and an essential condition having been broken, he was entitled to place no further reliance on the deed of indemnity.
45 Mr Smallbone argued particularly on this last point that time was not of the essence. However, in commercial contracts, at least those not involved with freeholds and leases, the general rule is that time is of the essence unless the circumstances or the terms of the contract show otherwise; see eg Lindsay v Mahoney (1979) 1 BPR 9584, 9587-9 (affirmed without mentioning this point sub nom Mahoney v Lindsay (1980) 55 ALJR 118). It seems to me that the probabilities are that in this contract which was a commercial contract and which the times for payment were distinctly set out that time was of the essence. Alternatively, even if time were not of the essence, because the contract depended so much on the creditworthiness of the indemnifier, it was a reasonable attitude for the liquidator to take that once small payments had got into arrears, that there was reason to doubt the value of the indemnity.
46 However, none of this really matters because, as the liquidator pointed out, he was able under clause 5 to terminate without giving a reason, and furthermore he also had full reign to compromise the proceedings on a commercial basis. The essential question as to whether he did compromise on a commercial basis depends on the analysis under the next head.
47 (6) The cross claim: its merits and demerits. This is the essential part of the case. The plaintiff says that the Company has a good claim against NCR. Essentially, the claim is based on a contract which was made on 11 August 1998 to end on 11 August 1999. The contract is by deed. Recital B is:
"Credit Connections is a mercantile agent registered pursuant to the Commercial Agents & Private Enquiry Agents Act, 1963 (NSW)."
48 Under the deed, clause 9, NCR agreed that it shall refer all its debts to the Company at the time they become 60 days overdue. The commission payable to Credit Connection in respect of these debts shall be in accordance with clause 2. Clause 2 provided that NCR would pay Credit Connection a commission of 12% on each debt it was instructed to collect. The document indicated that the commission was to be payable (a) when the debt or part thereof is recovered; (b) if NCR withdraws its instructions to collect; or (c) if it entered into an arrangement with the debtor. Under clause 7, where Credit Connection received money on trust, it was authorised to apply those monies for payment of its commission and disbursements. The agreement was signed by the plaintiff Mr Naumoski, for the Company, and by one John Cannon, who described himself as the National Credit Manager for and on behalf of NCR.
49 Although one could take many pages to set out the full content of the dispute between NCR and the Company, essentially it is that NCR believes that Mr Cannon, who had only recently entered its employ, made a pact with the plaintiff to give the Company this extraordinarily favourable contract. Moreover, the accounts for November/December 1998 show that the Company collected $314,010.24 but it has attempted to offset legal costs and commission of $314,051.00. This is far in excess of the 12% commission which would be $37,681.00 and the allegation by the Company is that there has been some $270,000.00 worth of legal costs paid out. No bills from the lawyers have actually been produced, and Mr Naumoski was rather uncomfortable when asked by Mr Newlinds for NCR in cross examination how there could be such a large amount of expenses to recover a relatively small amount of money. Thus NCR says that even on its own accounts, unless it can prove these disbursements, there is a substantial amount of money owing to NCR.
50 The Company claims against NCR $39 million for lost commissions. The exact break-up of this figure has never been revealed. The basis is that clause 9 of the mercantile agreement entitles the Company to claim 12% on all debts owed to NCR over 60 days and that it is entitled to damages for this amount less a factor for the costs not incurred in recovering those debts. Again, Mr Naumoski was rather uncomfortable when questioned by Mr Newlinds on this allegation. Mr Newlinds asked at T13:
"This is the basis of the cross-claim you are complaining the liquidator has unreasonably settled isn't it? You say every single debtor of NCR that owed money for more than 60 days had to be referred to your company?
A. For the duration of this agreement yes.
Q. And that once it was referred to your company you were entitled to charge a 12% commission if the person paid their debt?
A. Correct.
Q. Regardless of whether you did anything at all in relation to that debt?
A. The understanding was we would do something.
…
Q. You are saying the deal struck in August 1998 was that if one of those blue chip companies happened to take 61 days to pay its debt you would get 12%?
A. If it was referred for collection and we had to do something about recovering that debt, yes."
51 This seems to suggest that there is a doubt as to the proper construction of the agreement as to whether the Company was only able to claim commission on debts that should have been referred to it. Whether the way Mr Naumoski viewed the contract is admissible in the court where the cross claim is being tried, if it continues to be pressed is another matter.
52 Accordingly, the issues on the cross claim are: (a) the authority of Mr Cannon to make the contract on behalf of NCR; (b) the true construction of the contract; (c) the proof by the cross claimant of the quantum of its claim; and (d) the question of illegality. Of these matters, only (d) can be assessed at this stage. The other matters involve questions of fact and will be determined, if they ever have to be determined, by an assessment of the credibility of the various witnesses after cross examination.
53 However, before turning to (d) I should note that any liquidator or adviser to the liquidator would take into account factors (a), (b) and (c), at least to the extent of discounting the value of the cross claim when assessing the costs of running the cross claim in court. The accounts rendered by the Company in November/December with the high amount of unsupported legal fees would, unless there is a proper explanation, be a factor which would tell against the credibility of the Company's witnesses. There would be considerable accountancy costs in quantifying the claim. Furthermore, one could expect that the case would take some days to hear because of the questions of credit and complex accounting. All these would be factors that would be in the mind of the person assessing the reasonableness of proceeding with the cross claim. However, I will turn to factor (d).
54 The problem under factor (d) arises because although Mr Naumoski personally held a licence under the Commercial Agents & Private Enquiry Agents Act 1963, the Company never held such a licence. Recital B was simply wrong.
55 Sections 6 and 26 of the Act prescribe as follows:
"6. No person shall … exercise or carry on … the business or any of the functions … of a commercial agent, unless the person is the holder of a commercial agent's licence … .
26. Subject to this Act no person shall be entitled to bring any proceeding in any court to recover any commission, fee, gain or reward for any service done or performed by the person as a commercial agent … unless the person was the holder of a commercial agent's licence … at the time of doing or performing such service."
56 The Company when it was under Mr Naumoski's control, obtained a series of advices from three members of the senior bar and a member of the junior bar as to the effect of these sections. The majority view appears to be that the Act does not prohibit an action such as the present cross claim for damages for breach of contract for not permitting the debt collector the opportunity to collect the debts. The majority view was that an action based on failure to comply with clause 9 of the August 1998 agreement was not an action to recover commission.
57 Clayton Utz appear to have tendered some advice to the liquidator on this matter but what they advised is not in evidence. It also seems that NCR obtained advice from extremely eminent members of the senior bar, but again that advice is not in evidence.
58 Mr Naumoski says that when a liquidator receives advice from three members of the senior bar and one member of the junior bar, it is extraordinary that he would just virtually throw in the towel.
59 As to this, Mr Newlinds submits that the junior member of the bar, Mr McVay, in his latest advice, suggested that the cross claim be discontinued. Mr Newlinds submitted that Mr McVay has the reputation for being a fighter whenever fight is appropriate, but he was the person who was going to have to run this case and he realised that it was not likely to succeed. Mr Coles QC for the liquidator says that even if Mr McVay were wrong and the opinions of the three silk which advised Mr Naumoski were correct, they did not deal with the vital question.
60 Mr Coles submits that even if it be the case, as may well be so, that s 26 does not apply to the present action, one has still got to work out what are the damages.
61 As at the date of the breach, NCR had made it quite clear that it was not going to pay the Company a cent. It considered, rightly or wrongly, that it had been "ripped off" by the Company and had serious concerns about Mr Cannon's role in the matter. Accordingly, the only way as at the date of the breach that the Company could recover any money under the agreement of 11 August, was to sue for its commissions. Had it sued, it would have received nothing because of s 26 of the Act. Accordingly, the damages suffered by a breach of clause 9 of the agreement being the equivalent of what the Company should have recovered had it been given all the debts over 60 days, would be nil.
62 Mr Smallbone says that this is the wrong way of looking at things. When one looks at the damage that has been suffered, the damage that naturally flows from the breach of the contract, one does not direct one's mind as to whether the damage is recoverable by action.
63 I was not referred to any authority by either side. There is some support for Mr Smallbone's proposition from the decision of the English Court of Appeal in Manubens v Leon [1919] 1 KB 208, 211. That case involved an action for wrongful dismissal of a barber who, in addition to his wages, reasonably expected to receive tips from customers. The Court of Appeal held that he was entitled to be compensated for the loss of the right to get the tips. It could be said that this was a recognition of the fact that one can get damages even though one cannot sue for all the amount which one seeks to recover.
64 The case is, however, distinguishable from the present situation where, as at the date of the breach, the Company could only recover by action, there was no reasonable possibility that NCR would be making an out of court payment, and any action that was brought must be defeated by s 26.
65 Mr Smallbone also says that in an action for damages for breach of contract, the Court should calculate damages on the basis of the position it would have obtained had the breaching party performed its obligations. Thus I should not assume that the Company would have been obliged to sue for its commission. As s 6 would not have had any effect on payments voluntarily made, it must follow that the whole of the damages are payable.
66 On the other hand, Mr Coles QC puts that where there are alternative means of performing the contract the Court must assume that the defendant would have performed the contract in the way least advantageous to the plaintiff and most advantageous to the defendant: TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, 150, applying the principle often known as the principle in The Mihalis Angelos [1971] 1 QB 164. Thus, in the present case the Court should assume that NCR would only have paid The Credit Connection seven days at least after an account was rendered and probably not at all because its liability to do so could not be enforced.
67 Mr Smallbone argues that the Mihalis Angelos principle does not apply in the instant case because this is not a case of someone performing the contract to the best of his advantage, but, after the contract has been breached, minimising its damages. He emphasizes the words of the Court of appeal in the TCN case at the page I have noted.
68 However, in view of the fact that as at the date of the breach, the relationships between the parties were such that the controllers of NCR considered the Company and the plaintiff as complete rogues, there was no possibility of monies being paid to the Company otherwise than by order of the Court. This is accordingly, not a case of loss of a chance.
69 I prefer Mr Coles' submissions.
70 Mr Smallbone's submissions then turn to s 6 of the Act. He put that this section does not contain any sanction other than a penalty and accordingly, on the principles of Nelson v Nelson (1995) 184 CLR 538 and Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 it should not be said that the contract is unenforceable.
71 On the other hand, Mr Coles QC puts that it can hardly be right that a person could assert a right to damages for deprivation of financial opportunities which it says it could have gained from breaching the Act. He puts that the claim must be seen at the very least within the implied prohibition contained in s 6 of the Act. Plainly, the modern law of illegality preserves the denial of enforceability which arises from circumstances where a statute, on its proper construction by implication or necessary inference prohibits the enforcement of any contract which offends the subject of a statute. This is the second category recognised and confirmed in Yango Pastoral Co v First Chicago Australia Ltd (1978) 139 CLR 410, 424.
72 I do not derive much assistance from Nelson's case as it is a case in equity. Nor is Fitzgerald's case really of much assistance as the Court held that the manner of performance of the contract by the driller involved did not require him to rely on any illegal act to establish his cause of action.
73 However, in so far as the cases say that one must identify the public policy derived from the statute and consider how far it requires interference with the enforceability of the contract, it seems to me that in the instant case the performance directly infringed s 6. The public policy in the statute is to avoid the problems of unlicensed people who may be connected in some respects with unprincipled and heavy handed debt collectors from being involved in the industry and being remunerated therefor.
74 It is not necessary to rule on this particular submission. If I had to do so I would favour Mr Coles QC's interpretation which is reinforced by cases such as Sutton v Zullo Enterprises Pty Ltd [2000] 2 Qd R 196. It is not necessary to rule on the matter because of my view taken on the previous submission as to what would be the damages if the contract were enforceable.
75 Accordingly, I uphold Mr Coles QC's submission that even if any cross claim succeeded, the damages would be nil.
76 (7) The result of the matters that I have considered is that the cross claim was a difficult action, it was likely to fail, the costs of mounting it were considerable and so a liquidator would be wary, despite holding an indemnity, to run the risk of maintaining the action. The fact that there were legal opinions favouring the cross claim is not the whole story, as not only was there a conflict in opinions, but also the opinions do not direct their minds to one of the vital points involved. The fact that the plaintiff defaulted under the deed of indemnity was a factor that the liquidator could take into account when deciding that it was not a commercial proposition for him to trust fully the deed of indemnity to save him harmless from any adverse verdict on the cross claim. Although the liquidator would almost certainly not be ordered to pay costs personally, the commercial effect of an order for costs against the Company would be to minimise the chances of the liquidator being properly remunerated for the work he did. He was entitled to take this into account.
77 Furthermore, in my view it is too facile a view to take of the settlement that it was a mere sacrifice of the cross claim in return for virtually nothing. In my view it is more appropriate to look at the matter the way Mr Coles QC for the liquidator put it.
78 In any event, the matter was one for the liquidator's commercial judgment, such judgment is not shown to be one which no reasonable liquidator could reach and thus in my view is not one with which the Court should interfere.
79 It follows that the present proceedings should be dismissed with costs and I do so order.