Oswal, in the matter of Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Carson, McEvoy and Theobald

Federal Court of Australia|2012-02-15|Before: Siopis J

The plaintiff is to pay the defendants' costs of, and incidental to, the hearing on 3 February 2012.
By 4.00 pm on 29 February 2012, the plaintiff is to provide security for costs for the defendants in the amount of $40,000, to be paid into an interest bearing trust account in the joint names of the solicitors for the plaintiff and the defendants.
These proceedings are stayed until the security for costs is given in accordance with order 2.
If the security for costs is not provided by the date in order 2, these proceedings stand dismissed.
The defendants have liberty to apply for further security following any further amendment to the application or determination of the Court to order an inquiry into the conduct of the defendants as receivers and managers of Burrup Fertilisers.
The parties have liberty to apply on two days written notice.
The plaintiff is to pay the defendants' costs of this application.
The matter is adjourned to a directions hearing at 10:15 am on 14 March 2012. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 370 of 2011

IN THE MATTER OF BURRUP FERTILISERS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 095 441 151) BETWEEN: PANKAJ OSWAL

AND: IAN MENZIES CARSON, DAVID LAWRENCE MCEVOY AND SIMON GUY THEOBALD (IN THEIR CAPACITIES AS RECEIVERS AND MANAGERS OF BURRUP FERTILISERS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 095 441 151))

JUDGE: SIOPIS J DATE: 15 FEBRUARY 2012 PLACE: PERTH

REASONS FOR JUDGMENT 1 The plaintiff is a shareholder in Burrup Holdings Limited (BHL), which is the holding company of Burrup Fertilisers Pty Ltd (Burrup Fertilisers) - a wholly owned subsidiary. The defendants were appointed as receivers and managers by the Australian and New Zealand Banking Group Limited (the Bank) to take possession of the shareholding of the plaintiff in BHL. At about the same time, the defendants were, also, appointed by the Bank as receivers and managers to the assets and undertaking of Burrup Fertilisers. It is in respect of the manner in which the defendants carried out their duty as receivers and managers of Burrup Fertilisers, that the originating application in this matter has been made by the plaintiff. 2 On 5 September 2011, the plaintiff filed an originating process seeking orders, pursuant to ss 423(1)(a), 423(1)(b) and 423(3) of the Corporations Act 2001 (Cth), that the Court inquire into whether the defendants as receivers and managers of Burrup Fertilisers, failed faithfully or properly to perform their duties, functions or powers. 3 Section 423 of the Corporations Act provides as follows: (1) If: (a) it appears to the Court or to ASIC that a controller of property of a corporation has not faithfully performed, or is not faithfully performing, the controller's functions or has not observed, or is not observing, a requirement of: (i) in the case of a receiver - the order by which, or the instrument under which, the receiver was appointed; or (ii) otherwise - an instrument under which the controller entered into possession, or took control, of that property; or (iii) in any case - the Court; or (iv) in any case - this Act, the regulations or the rules; or (b) a person complains to the Court or to ASIC about an act or omission of a controller of property of a corporation in connection with performing or exercising any of the controller's functions and powers; the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit. (2) ASIC may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of a controller of property of a corporation and the Court may order the controller to make good any loss that the estate of the corporation has sustained thereby and may make such other order or orders as it thinks fit. (3) The Court may at any time: (a) require a controller of property of a corporation to answer questions about the performance or exercise of any of the controller's functions and powers as controller; or (b) examine a person about the performance or exercise by such a controller of any of the controller's functions and powers as controller; or (c) direct an investigation to be made of such a controller's books. 4 By his application, the plaintiff asked the Court to inquire into whether the defendants had by using, and by disclosing confidential information and documents in respect of which Burrup Fertilisers owed duties of confidentiality, for the purposes of selling the plaintiff's shares in BHL, breached their duties as receivers and managers of Burrup Fertilisers. 5 The scope of the plaintiff's originating process has been expanded subsequently, by including some further complaints, into which the plaintiff asks the Court to inquire. I will refer to those further complaints later. 6 The defendants have, by the interlocutory application currently before the Court, applied for security for costs. The defendants seek security for costs in the sum of AUD 40,000, as well as orders, including an order that the proceeding be stayed until the security for costs is given. The defendants also seek an order that if security for costs is not provided, the proceedings be dismissed. 7 In support of their claim for security for costs, the defendants have relied on a number of affidavits. 8 The plaintiff has accepted that the defendants' affidavit evidence demonstrates that he is not resident in the jurisdiction and does not have assets in the jurisdiction which are available to pay the defendants' costs, if so ordered. It is, also, accepted that the plaintiff is not suing for someone else's benefit. 9 The evidence, relied on by the defendants, also, deposed that the plaintiff had not met security for costs orders that had been made in other proceedings in which he is a party. However, the weight to be given to that evidence is limited. This is because there is, also, evidence that in one of the cases, the security for costs order has not been extracted. In the other case, a proceeding in the Victorian Supreme Court, the evidence is that discussions are underway between the parties in relation to the possible transfer of that proceeding to a related proceeding in this Court. 10 The question of whether to order that a party provide security for costs, is a matter which is in the discretion of the Court. The Court does not approach the question of whether it should order security for costs with a disposition in favour or against making the order. In exercising its discretion, the Court takes into account a number of different factors. In this case, because it is accepted that the plaintiff is ordinarily resident out of the jurisdiction and has no unencumbered assets in the jurisdiction, the following observations of Greenwood J in NV Sumatra Tobacco Trading Company v British American Tobacco Australian Services Limited (2008) 79 IPR 286 at [13], have application: In exercising the discretion under s 56, the practice in Australia for a very long time has been that a party who is not ordinarily resident in this country and has no assets within the jurisdiction, is normally ordered to give security for costs. These two factors are regarded as circumstances of "great weight" in determining whether such an order should be made: PS Chellaram and Company Ltd v China Ocean Shipping Co (1991) 102 ALR 321; 65 ALJR 642; 5 ACSR 633; [1991] HCA 36 (PS Chellaram). The qualification upon the weight to be attributed to these factors was put by McHugh J in PS Chellaram at ALR 323; ALJR 643; ACSR 635 in these terms, "unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction". These well established principles have been applied more recently in Logue v Hansen Technologies Ltd (2003) 125 FCR 590; [2003] FCA 81 at [38] and [39]; Tan Kah Hock v AWAP SGT 26 Investment Ltd [2008] FCA 540 at [7] and [8]; Cheng XI Shipyard v Ship "Falcon Trident" [2006] FCA 759 at [9]. 11 Counsel for the plaintiff identified three factors to be weighed in the balance with the two factors to which I have referred. The main battleground between the parties was whether the weight to be given to those three factors outweighed the weight to be given to the other two factors.

THE NATURE OF THE PLAINTIFF'S APPLICATION IN RELATION TO S 56 OF THE FEDERAL COURT OF AUSTRALIA ACT 1976 (CTH) 12 The first of the factors relied on by the plaintiff, was what was referred to in argument, as being the nature of a proceeding under s 423 of the Corporations Act. 13 Counsel for the plaintiff argued that his application, seeking, as it did, no more than that the Court conduct an inquiry, was of a special kind; and was not to be regarded as a "proceeding" to which s 56(1) of the Federal Court Act had application. 14 Section 56 of the Federal Court Act provides as follows: (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security. 15 The plaintiff argued that under s 423 of the Corporations Act the Court's power to order an inquiry into the conduct of a receiver and manager was not dependant upon any person first bringing an application seeking that relief. Thus, for example, submitted the plaintiff, the Court may during the course of a hearing, come across an issue affecting the conduct of a receiver and manager which excited the Court's interest, and may order an inquiry to be conducted into that issue. The plaintiff went on to contend that by his application, he was doing no more than bringing a matter to the Court's attention and it was a matter for the Court to decide whether to order an inquiry. It followed, said the plaintiff, that the plaintiff's application did not comprise a proceeding. 16 In my view, the plaintiff's argument is not to be accepted. 17 In my view, it does not follow from the fact that s 423 of the Corporations Act empowers the Court to embark upon an inquiry of its own motion, that, if a party does make an application seeking an inquiry, the application is not to be regarded as a "proceeding" to which s 56 of the Federal Court Act applies. 18 First, s 4 of the Federal Court Act, defines "proceeding" in the following terms: proceeding means a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal. (Original emphasis.) 19 In my view, this definition is wide enough to embrace the plaintiff's application before the Court for an inquiry. 20 Secondly, the Federal Court (Corporations) Rules 2000, recognise that the making of an application under s 423(1)(b) of the Corporations Act is a "proceeding". 21 Rule 2.2(1)(a) of the Federal Court (Corporations) Rules, provides that the means of making an application in a proceeding not already commenced, is by filing an originating process. Rule 2.2(3)(b) states that the originating process must state the section of the Corporations Act "under which the proceeding is brought". 22 Rule 4.1 of the Federal Court (Corporations) Rules, provides that a complaint to the Court under s 423(1)(b) of the Corporations Act about an act or omission of a receiver, manager, or controller appointed by the Court, must be made by an originating process seeking an inquiry in relation to the complaint. 23 The plaintiff commenced his application by filing an originating process invoking s 423(1)(b) and other subsections of the Corporations Act. The fact that the plaintiff has embarked upon that process, in my view, means that the plaintiff has used the process of the Court to bring the defendants before the Court for the purpose of obtaining the relief he seeks. In my view, therefore, the plaintiff's application is to be regarded as a "proceeding" to which s 56 of the Federal Court Act applies. 24 The plaintiff, also, argued that his application was not a proceeding to which s 56(1) of the Federal Court Act applied because, if the Court refused the plaintiff's application to order an inquiry, it would not award costs against the plaintiff. 25 The plaintiff argued that s 423 of the Corporations Act was part of the armoury of the Court to exercise a supervisory jurisdiction in respect of liquidators and other controllers of companies, and that s 423 reflected a public interest element. Therefore, said the plaintiff, the ordinary rule that costs follow the event did not apply. 26 Counsel for the plaintiff, in the course of argument, pointed to cases where the courts had, in certain cases with a public interest element, declined to make an order that the unsuccessful party pay costs where that party's complaint had had some legitimacy. On the other hand, counsel for the defendants referred to a case with a public interest element, where the Court had ordered the unsuccessful party to pay indemnity costs because the application was devoid of merit. 27 In my view, there is substance in the contention that there is a public interest element to s 423 of the Corporations Act. However, it does not follow that the Court would never order that the unsuccessful party pay the cost of an application brought under that provision. In my view, costs will be determined in the exercise of the Court's discretion. The fact that there is a public interest element to the legislation in question will be weighed against the fact that there are persons who have been brought by an unsuccessful plaintiff to the Court, who have incurred substantial costs in opposing the order sought by the plaintiff. One only has to have regard to the numerous affidavits which have been prepared in this case, to gauge the amount of the costs that have been incurred. 28 Accordingly, in my view, the fact that there is a public interest element to s 423 of the Corporations Act, does not mean that this is a proceeding to which s 56 of the Federal Court Act would have no application.

THE PLAINTIFF'S APPLICATION IS DEFENSIVE 29 The second factor relied on by the plaintiff, was that the application was defensive in nature. 30 Counsel for the plaintiff contended that this was a factor of considerable weight. Counsel said that he had not been able to find a case where, in circumstances where the Court had found that the proceeding was defensive, the Court had ordered that security for costs be given. 31 The cases to which I was referred, demonstrated a generally accepted principle that where a party brought a proceeding opposing the other party from engaging in a self-help process, or seeking to abate the consequences of such a process, that proceeding would be regarded as a defensive proceeding. However, the authorities, also, demonstrated that, insofar as a party was seeking to recover damages or an account in respect of the other party's conduct, the proceeding, or part of the proceeding, was regarded as offensive. The paradigm defensive proceeding was where a party sought to enjoin a receiver, appointed by a party exercising self-help remedies, from taking possession of the applicant's property. 32 Counsel for the plaintiff said that the plaintiff's application was defensive because his application was in the nature of a proceeding brought to abate the self-help process undertaken by the Bank in appointing the defendants as receivers and managers. 33 The plaintiff referred to the case of KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 (KP Cable), in support of a contention that a proceeding could be defensive even when it did not conform to the paradigm defensive proceeding. In the KP Cable case, there was a joint venture dispute in which one of the joint venturers had taken self-help remedies by removing one of the directors appointed by the other joint venturer, from the board of the joint venture vehicle company and appropriating the shares in the joint venture vehicle company held by the other party. The applicant sought remedies to restore the status quo, and, also, made claims seeking to enforce the joint venture agreement and claims alleging oppression. The Court held that insofar as the remedies were directed to restoring the position to that which prevailed before the respondents resorted to self-help remedies, the proceeding was defensive, but was otherwise offensive. 34 The plaintiff contended, however, that because he was not seeking to benefit himself by bringing the application, his application was not to be characterised as offensive. The plaintiff said that he was simply bringing certain matters to the attention of the Court and the relief sought was not for his own benefit. It was, said the plaintiff, for the Court to decide whether an inquiry into the conduct of the defendants was warranted. 35 In my view, that is not the appropriate way to characterise the plaintiff's application. 36 The plaintiff in this proceeding is, in my view, engaging in an offensive proceeding. The plaintiff does seek relief in this case, and is not simply bringing matters to the attention of the Court. The plaintiff by his application seeks specific relief, namely, the Court exercise its discretion in favour of making orders for an inquiry. The fact that the plaintiff does not seek further orders to remedy any wrong which has been done to the plaintiff, or any other party, in my view, does not affect the characterisation of the proceeding as offensive. 37 However, in any event, even if I am wrong in the way that I have characterised the proceeding as offensive, it would be my view that a proceeding of this nature seeking, as it does, the convening of an inquiry into the conduct of the defendants, falls into a separate sui generis category of proceedings. This means that the proceeding would not be classified, in any event, as a defensive proceeding within that classification as referred to in the cases.

THE MERITS OF THE PLAINTIFF'S CLAIM 38 The third factor which the plaintiff raised was the merits of his application. The plaintiff contended that he had a strong case for the ordering of an inquiry. 39 The plaintiff's first complaint was in relation to the costs which the defendants had incurred in the course of their appointment. The primary complaint made by the plaintiff was the fact that the defendants had incurred an excessive amount of costs in respect of travel and accommodation. The way that the complaint was characterised by counsel for the plaintiff during argument, was that the defendants had "sourced the receivership in Melbourne", whereas the property of Burrup Fertilisers was located in Western Australia. The defendants responded that it was not uncommon for costs of this nature to be incurred in relation to a large receivership and whether the defendants were warranted in incurring the costs, complained of, was really a matter between the defendants, the appointor and Burrup Fertilisers. 40 At the hearing of the plaintiff's application, it will be a serious issue for the Court to determine whether an inquiry is warranted, in circumstances where the complaint goes to whether there has been compliance with the terms of the deed pursuant to which the defendants were appointed as receivers and managers of Burrup Fertilisers. It may be relevant in determining whether to order an inquiry, whether a complaint has been made by any of the parties who are immediately affected by the defendants having incurred the costs complained of. There is an issue as to the extent of the plaintiff's interest in this issue. This is because it appears that his shares in BHL have been sold to a third party. 41 The second complaint the plaintiff has made is that the defendants had used and disclosed confidential information that they had obtained in their capacity as receivers and managers of Burrup Fertilisers, during the process of the selling of the plaintiff's interest in BHL, in their capacity as receivers and managers of that shareholding. The plaintiff complained that Burrup Fertilisers had contracted to keep the disclosed information, confidential, and that the defendants had caused Burrup Fertilisers to breach that agreement. 42 Counsel for the defendants, however, pointed to the evidence that two of the parties to whom Burrup Fertilisers had promised to keep the information confidential, have commenced an action against Burrup Fertilisers and the defendants as the receivers and managers of Burrup Fertilisers, in the Supreme Court of Western Australia. The plaintiffs in the Supreme Court proceeding, make a complaint to similar effect as the complaint made by the plaintiff in his application in this Court. It follows that the subject-matter of the plaintiff's complaint in this proceeding, may well be the subject of alternative proceedings. This circumstance will be a relevant factor in determining whether the Court will order an inquiry. 43 The third complaint is that the defendants retained a substantial amount of cash - USD 128 million - longer than they should have, and that they should have used it to repay the principal creditor of Burrup Fertilisers at an earlier time. The defendants contended that this was an operational matter to be determined in accordance with the business judgment of the defendants, and that a Court would not seek to second-guess the way in which the defendants conducted the administration by ordering an inquiry. 44 The plaintiff's fourth complaint is that during the defendants' administration, there had been a fire at the fertiliser plant, which disabled the plant for a considerable period of time. The plaintiff complained that the defendants had not responded to his inquiries as to how the fire had been caused. Counsel for the defendants contended that the plaintiff had no standing to inquire about the cause of the fire, because by then he had ceased to be the managing director of Burrup Fertilisers. Counsel for the defendants went on to say that the defendants were, therefore, justified in not responding in a fulsome way to the plaintiff's inquiries. 45 I am prepared to accept that the plaintiff's complaints give rise to an arguable question as to whether there should be an inquiry. Accordingly, in considering the merits of the case as a factor in determining whether to order security for costs, that factor will be accorded no greater weight, than that the complaints made by the plaintiff, are all arguable. 46 It, also, follows that I am not of the view that there is, as presently advised, sufficient merit in the plaintiff's complaints that it is likely that the Court would, at the hearing of the application, order that the plaintiff, if unsuccessful, not pay the costs of the defendants because of the legitimacy of the plaintiff's complaints. 47 In my view, the weight to be accorded to the three factors to which I have referred, does not outweigh the substantial weight to be given to the fact that the plaintiff is ordinarily resident out of Australia and the fact that he does not have assets within Australia. Therefore, the Court will order the plaintiff provide security for costs. 48 There has not been any dispute between the parties as to reasonableness of the amount of the security for costs proposed by the defendants - in my view, correctly so. My own view is that the sum of AUD 40,000, which is the sum sought, is a reasonable sum.

ORDER FOR SECURITY FOR COSTS 49 I will order that the plaintiff provide security for costs in the sum of AUD 40,000. That amount is to be paid into an interest bearing trust account in the joint names of the solicitors for the plaintiff and the solicitors for the defendants, by 4 pm on 29 February 2012. 50 I will, also, order that the proceeding be stayed until the security for costs is provided, in accordance with the order which I have just made. 51 The next order sought is that if the security for costs is not provided by the due date, this proceeding be dismissed. I was minded not to make this order. However, having heard counsel for the defendants' arguments, I am of the view that making an alternative order which gives the defendants leave to apply to have the proceeding dismissed if the security for costs is not given by the due date, would run the risk of further costs being expended, which may well not be recoverable. Therefore, I will order that if the security for costs is not provided by the date in order 2, then the proceeding stands dismissed. 52 There seems to have been no contest in relation to the other orders sought in the interlocutory application. 53 No argument has been advanced in support of the defendants' claim that the costs of the defendants, in respect of the hearing of 3 February 2012, should be on an indemnity basis. I will, therefore, order that the plaintiff pay the costs of, and incidental to, the hearing on 3 February 2012, but not on an indemnity basis. The matter is adjourned for directions to 14 March 2012 at 10.15 am. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

Corporations Act 2001(Cth)ss 423(1)(a), 423(1)(b), 423(3)

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