Nauru Phosphate Royalties Trust v Business Australia Capital Mortgage Pty Ltd

REASONS FOR JUDGMENT 1 The applicants have commenced a proceeding in this Court, claiming relief against the respondents under the Trade Practices Act 1974 (Cth). The proceeding was commenced in the name of the applicants after the appointment of receivers and managers ('the Receivers') in respect of the first and the third to seventh applicants ('the Relevant Applicants'). Instructions for the commencement of the proceeding were given on behalf of the Relevant Applicants by their directors and not by the Receivers. Indeed, other legal representatives have appeared on behalf of the Relevant Applicants in circumstances to which I shall refer shortly. 2 Three of the respondents have been served and have appeared. Those respondents ('the Respondents') have challenged the retainer of those appearing for the Relevant Applicants, on the instructions of their directors. They assert that the proceeding has not been properly instituted on behalf of any of the Relevant Applicants because it was instituted on instructions given by the directors who, they say, no longer have authority to give such instructions on behalf of the Relevant Applicants, following the appointment of the Receivers. 3 Clearly, it is in the interests of a defendant or respondent in a proceeding commenced on the instructions of directors of a company, where receivers and managers have been appointed to assets of the company that include the relevant chose in action, to know that the proceeding has been commenced properly in the name of the company. Otherwise, even if the proceeding was successfully defended, there could be the spectre of a second proceeding, brought on the basis that the first proceeding did not bind the company, since it was commenced without its authority. Clearly enough, therefore, the Respondents have standing to challenge the retainer of those legal practitioners who have purported to commence this proceeding in the name of the Relevant Applicants. 4 The Relevant Applicants own parcels of real estate in respect of which they have granted mortgages to GE Capital Security Agent Pty Ltd ('the Security Agent'), to secure advances made to them by General Electric Capital Corporation ('GE'). In addition, each of the Relevant Applicants has granted a charge to the Security Agent as security for the same advances. The charges are expressed to be fixed or floating in respect of various assets. In the case of certain of the Relevant Applicants, however, the charge does not relate to all of the assets of that applicant. Nevertheless, for present purposes, it will be assumed that each charge extends to the chose in action comprising the cause of action that the Relevant Applicant seeks to enforce in this proceeding. 5 The Respondents claim to be creditors of the Relevant Applicants. They also claim the benefit of securities, alleged to have been granted to them by the Relevant Applicants, in respect of the properties that are the subject of the securities in favour of the Security Agent. In the proceeding, in addition to claims for damages, the applicants seek ancillary relief relating to the securities relied on by the Respondents. 6 Notwithstanding that receivership and management may well exclusively dominate a company's affairs in its dealings and relations with the outside world, it does not permeate the company's internal domestic structure. That structure continues to exist, notwithstanding that the directors no longer have authority to exercise their ordinary business management functions. While a valid receivership and management will ordinarily supersede, it will not destroy, the company's internal organs through which it conducts its affairs - Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd (1970) 92 WN 199 at 209, Deangrove Pty Ltd v Commonwealth Bank of Australia [2001] FCA 173 at [29]-[42] and Ernst & Young v Tynski Pty Ltd [2003] FCAFC 233. 7 Under the charges granted by the Relevant Applicants to the Security Agent, power to institute legal proceedings in the name of the Relevant Applicants is conferred on receivers and managers appointed pursuant to the charges. Nevertheless, it is clear that the directors of the Relevant Applicants retained a residual power to sue in the name of those applicants, at least where the proceeding was against the Receivers or against the Security Agent, to challenge the appointment of the Receivers or the validity of the charges. There has been no challenge by any of the Relevant Applicants to the validity of the securities granted to the Security Agent or to the appointment of the Receivers. That residual power, therefore, has no relevance in the present context. 8 However, there is a further residual power vested in directors of a company, notwithstanding the appointment of receivers and managers to the company, to institute a proceeding in the name of the company in some circumstances. The precise extent of the circumstances in not without considerable doubt (see O'Donovan, Company Receivers and Administrators at par [8.90] - [8.130] Meagher, Gummow & Lehane, Equity Doctrines and Remedies, pars [28-240] to [28-260], Picarda, The Law Relating to Receivers, Managers and Administrators, 3 ed pp 104-108, Lightman & Moss, The Law of Receivers and Administrators of Companies, 3 ed at pars [2-023] to [2-026] and Blanchard and Gedye, The Law of Company Receiverships in Australia and New Zealand, 2 ed, par [10.02]). Clearly, grave difficulty could arise if two different sets of people, being the directors, on the one hand, and receivers and managers on the other hand, who may have widely differing views and interests, each have power to bring proceedings on the same cause of action. Accordingly, where receivers and managers purport to commence a proceeding on a particular cause of action, it is clear that that excludes any power on the part of the directors to give instructions to do the same. Doubt arises, however, where receivers and managers do nothing. 9 The solicitors and counsel purporting to appear on behalf of the Relevant Applicants have received no instructions from the Receivers. On the other hand, the Receivers instructed other legal practitioners to appear in this proceeding on behalf of the Relevant Applicants for limited purposes. A notice of motion filed on 4 August 2004, purportedly on behalf of the Relevant Applicants, claimed orders that the proceeding be stayed until the following conditions were met: