69 A similar provision to section 419(1) and (2) has appeared in New South Wales corporations legislation since 1936 -- section 337(3) Companies Act 1936, section 188 Companies Act 1961, section 324 Companies (NSW) Code 1981, section 419 Corporations Law. It has the effect that if any property of a corporation is under the control of a receiver, the receiver is personally liable for any debts he incurs in the course of the receivership. Thus if the corporation needs to enter a new contract, once the receivership has started, to receive any goods or services or other valuable benefit, the receiver must pay for it. However, when a receiver carries out an existing contract which was made by the company before the receiver went into possession the receiver does not "incur debts", so as to trigger any liability under such a section: Associated Newspapers Ltd v Grinston (1949) 66 WN (NSW) 211. In particular, if a receiver continues in occupation of leased premises, under a lease which the company made before the receiver was appointed, he does not incur any debt, and so is not liable by virtue of the section to pay the rent, or any other amounts which are payable by the lessee under the lease: British Investments and Development Co Pty Ltd (1979) CLC ¶ 40-522; and cf Russell Halpern Nominees Pty Ltd v Martin [1987] WAR 150, Hawkins v Bank of China (1992) 26 NSWLR 562; Shepherd v Australia and New Zealand Banking Group Ltd (1996) 20 ACSR 81 at 89.
Extrinsic Aids to Construction of Section 419A
70 Section 419A was first introduced into the companies legislation by the Corporate Law Reform Act 1992 (Cth). It implemented some recommendations made by the General Insolvency Inquiry of the Commonwealth Law Reform Commission in 1988 ("The Harmer Report") (The Law Reform Commission, Report No. 45, General Insolvency Inquiry, AGPS Canberra 1998). That report said:
"218. Liability under leases . The second matter considered was that of liability under leases of property. Although a receiver should not be considered to have adopted a lease merely because the company remains in occupation of the leased property, it does not appear equitable that a receiver should permit a company to continue to obtain the benefit of the occupation of premises or the use of chattels under a lease agreement without being liable for the payments which the company is liable to make for that continued occupation or use. It might be suggested that the owners of such property have a remedy in evicting the company from possession of the land or taking possession of the chattels, but that can take considerable time. In the meantime the company (and, indirectly, the chargeholder) has obtained the continued benefit of occupation or use while the owner of the property must rank after the chargeholder as an unsecured creditor for the payments due for such occupation or use.
219. Proposal . In DP 32 (para 156) the Commission proposed that the receiver be personally liable for rent or similar payments payable by the company in respect of the possession, use or occupation of property the legal title to which belongs to another person, where the company continues in that possession, use or occupation while the receiver is in control. As a safeguard for receivers the Commission proposed that the liability should not apply for a period of seven days immediately after the appointment of the receiver. Payments falling due during this period would be a claim against the company only. It was suggested that this should enable the receiver sufficient time to determine the extent to which the company is leasing property from others and thereby avoid a situation where the receiver may unwittingly become personally liable, a result which would seem to run contrary to the notion of when a person should become liable for the debts of another. Apart from this period of seven days, the receiver would be personally liable for the rent or similar payments for the period during which the company remains in occupation while the receiver remains in office. If the company remains in occupation for only part of a period in respect of which rent or other payments is or are payable, it was proposed that the liability of the receiver be apportioned accordingly. DP 32 also proposed that, as at present, the receiver not be deemed to have adopted the relevant agreement and also that the receiver not be liable for the performance of other terms of the agreement (for example, liability under a covenant to repair or paint in a lease).
220. Recommendation . The Commission's proposal was supported by the Director of Public Prosecutions (Cth), the Australian Credit Forum and the Queensland Law Society. No submissions opposed it. Accordingly, the Commission recommends that a receiver or other person enforcing a charge be liable for rent or similar payments payable by the company except for an initial seven day period. However, as in the case of the administrator, the Commission recommends a power for the court to order that the receiver or person not be liable. This would, for example, assist a receiver who is unaware of the existence of certain property of a company or of the fact that the legal title to the property belongs to another person."
71 The reference to "as in the case of the administrator" in the second last sentence in paragraph 220 is to recommendations made in the Harmer Committee Report concerning the circumstances in which an administrator should be liable for rent and similar payments:
"90. Liability for rent and similar payments. The personal liability of the administrator will extend to liability for rent or similar obligations in respect of possession, use or occupation of property during the administration. However, this liability will not apply for the first seven days of the administration. Payments falling due during this period will be a claim against the company only. The administrator will thus have an opportunity to investigate the affairs of the company and avoid a liability of which the administrator may not have had notice at the time of accepting the appointment. Several submission suggest that the liability of an administrator under leases should commence seven days after the administrator has been notified of the relevant agreement by the owner of the property. In this way, the administrator would be protected from liability under contracts for use or occupation of property where the administrator was unaware of the existence of property or of the fact that the property was not owned by the company.
91. Conclusion . While the Commission recognises the concerns expressed by the submissions, a better way of dealing with this problem is to give the court a discretion to exempt the administrator from liability where it appears that the administrator ought fairly to be excused and the Commission recommends accordingly. The emphasis will thus remain on the administrator's duty to investigate but the administrator can still be protected from genuinely unknown liability. One circumstance in which the court might excuse an administrator is where a company is leasing equipment, but the administrator is unaware that the equipment is subject to a lease."
72 The dependence of section 419A on the Harmer Report is acknowledged in the Explanatory Memorandum for the Corporate Law Reform Bill 1992. That Memorandum contained the following provisions:
" Proposed section 419A - Liability of controller under pre-existing agreement about property used by corporation
399. At present, a receiver is liable for debts incurred in the course of the receivership but is not liable for, or deemed to have adopted, a pre-receivership contract for the lease or hire of property merely because the company remains in occupation or retains possession of the property.
400. The Harmer Report was of the view that, although a receiver should not be considered to have adopted a lease merely because the company remains in occupation of the leased property, it does not appear equitable that a receiver should permit a company to continue to obtain the benefit of the occupation of premises or the use of chattels under a lease agreement, without being liable for the payments which the company is liable to make for that continued occupation or use. The Report proposed that a receiver be personally liable for rent or similar payments payable by the company in respect of the possession, use or occupation of property the legal title to which belongs to another person, where the company continues in that possession, use or occupation while the receiver is in control. As a safeguard for receivers, the Report proposed that this liability not apply for a period of seven days immediately after the appointment of the receiver.
401. It is also appropriate that this liability be imposed upon other persons who have control of company property under a charge (for example, mortgagees in possession) or their agents.
402. These changes are implemented in proposed section 419A. The operative provision will be subsection (2), which will make a 'controller' (to be defined in section 9 to mean a receiver and any other person who has control of company property under a charge, such as a mortgagee in possession) liable for rent or other amounts payable under a relevant agreement, from the seventh day after the controller is appointed or enters into possession of property of the company of which someone else is the owner or lessor ('third party property'). The controller will be liable only in relation to third party property that is actually used or occupied or in the possession or control of the controller (proposed paragraph 419A(1)(b) and proposed subparagraph 419A(2)(b)(ii)).
403. It may be that in some circumstances, such as where the third party property consists of a chattel that is not capable of being moved within 7 days, or where an owner or lessor declines to take possession of the property, the personal liability imposed on controllers may be unduly onerous. Proposed subsections (3) and (4) will alleviate such situations by allowing a controller 7 days in which to give to the owner or lessor notice that the controller does not propose to use or occupy certain property. Where such a notice is given, the controller will be relieved of liability in respect of that property. Such a notice will, however, cease to have effect if expressly revoked by the controller or where the controller uses or exercises or purports to exercise a right in relation to the property (proposed subsections (5) and (6)).
404. Proposed subsection (7) will also allow the Court to excuse the controller from liability. This might be appropriate in a case where the controller could not have been expected to have been aware of the existence of a relevant lease or agreement until after the 7 day period had expired.
405. Subsection (8) will provide that, notwithstanding subsection (2), the controller is not to be taken to have adopted the agreement or be liable under it otherwise than as mentioned in subsection (2)."
73 The Corporate Law Reform Bill 1992 also, when passed, added to the then Corporations Law section 443B, which in some ways parallels section 419A so far as administrators are concerned. The Explanatory Memorandum concerning section 443B gave, at paragraphs 654 - 568, explanations for that section quite similar to those given for section 419A. Paragraph 567 contained one more example of the power of the court to excuse, by comparison with those given for section 419A(7):
"It might be appropriate for the Court to use this power where, for example, the books of the company were in such a disordered state that the administrator was unable, even using his or her best endeavours, to ascertain within 7 days whether the company had any assets. Any such order exempting the administrator from liability will not affect the liability of the company."
74 These extrinsic aids were ones which the receivers drew to my attention. The use of extrinsic material in construing a Commonwealth Act is permitted within the limits set by section 15AB of the Acts Interpretation Act 1901 (Cth). It provides:
"15AB. Use of extrinsic material in the interpretation of an Act
(1) Subject to subsection (3), in the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material:
(a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or
(b) to determine the meaning of the provision when:
(i) the provision is ambiguous or obscure; or
(ii) the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable.
(2) Without limiting the generality of subsection (1), the material that may be considered in accordance with that subsection in the interpretation of a provision of an Act includes:
….
(b) any relevant report of a … Law Reform Commission, … that was laid before either House of the Parliament before the time when the provision was enacted;
…..
(e) any explanatory memorandum relating to the Bill containing the provision, … that was laid before, or furnished to the members of, either House of the Parliament by a Minister before the time when the provision was enacted; ….
(3) In determining whether consideration should be given to any material in accordance with subsection (1), or in considering the weight to be given to any such material, regard shall be had, in addition to any other relevant matters, to:
(a) the desirability of persons being able to rely on the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; and
(b) the need to avoid prolonging legal or other proceedings without compensating advantage."
75 There is only one limited way in which this extrinsic material can be used. This is because there is not, it seems to me, any ambiguity or obscurity of meaning in section 419A(7) except as to whether a court "excusing the controller from liability" includes excusing a controller from a liability which has already accrued, at the time of the court order, as well as excusing the controller from a liability which will accrue after the court order. Nor does the ordinary meaning of section 419A(7), taking into account its context in the Act and the purpose or object underlying the Act, lead to a result which is manifestly absurd or unreasonable - there is nothing absurd or unreasonable in a Court hearing a wide discretion on the topic of section 419A(7).
76 Another reason why this extrinsic material can be used only to clarify the one ambiguity or absurdity I have identified is that extrinsic evidence can be used, in the circumstances set out in section 15AB, to determine the meaning of a provision. But the meaning of a statutory provision is a different thing to its purpose. That difference is recognised in the Acts Interpretations Act itself, where section 15AA provides:
"15AA. Regard to be had to purpose or object of Act
(1) In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object."
77 The purpose of the introduction of section 419A is not permitted to be gathered from the Harmer Report, or the Explanatory Memorandum, save insofar as that purpose needs to be ascertained to resolve an ambiguity of meaning. Deciding what matters are appropriate to take into account in exercising the discretion under section 419A(7) does not involve clarifying any ambiguity of meaning in section 419A(7).
How Section 419A Operates
Application of section 419A(1)
78 Before section 419A applies the conditions of subsection (1) must be met. In the present case, they are met because:
· The agreement for lease of the Plant was made before 20 February 2003,
· 20 February 2003 is the "control day" (date of appointment of the receivers),
· Nardell is a corporation
· the receivers are receivers of property of Nardell,
· Nardell continued, after 20 February 2003, to use or occupy or be in possession of the Plant under the agreement for lease of the Plant,
· HVCP was someone other than Nardell, and was the owner or lessor of the Plant, and
· the receivers are receivers in relation to that Plant.
79 A sufficient reason why the element consisting of Nardell continuing after 20 February 2003 to use or occupy or be in possession of the Plant is satisfied is that, regardless of whether the Plant was used by the receiver after 20 February 2003, Nardell continued to be in possession of the Plant. Section 86 Corporations Act 2001 (Cth) says:
"A thing that is in a person's custody or under a person's control is in the person's possession."
80 The Plant was erected on land to which Nardell had a title. That the receivers were appointed receivers of that land, is enough to put the Plant into the possession of the receivers. As well, however, under the terms of the lease, Nardell was a bailee of the Plant with a right to use it (clause 5.1). This contractual right also resulted in the Plant being in the possession of Nardell.
81 Before Nardell continues, after 20 February 2003, to use or occupy or be in possession of the Plant under the agreement for lease of the Plant, it is not enough that Nardell be, as a matter of fact, using or occupying or in possession of the Plant. As well, that use, occupation or possession must be in accordance with the terms of an agreement made before the control day which confers a right to use, occupy, or be in possession of, that property. Clause 5.1 of the Lease has the effect that that requirement is satisfied in the present case.
The Liability of the Receivers Under Section 419A(2)
82 The liability which is imposed on a controller by section 419A(2) is not an absolute liability. It is a liability which is expressly made subject to two possible bases for freedom from liability. The first of those bases is that arising under subsection (4), which makes the controller not liable for rent or other amounts which accrue while a notice, of the type provided for by section 419A(3), remains in force. The second basis for freedom from the liability imposed is if the Court excuses the controller from liability, under subsection (7). Thus, it is not as though section 419A ever subjects a controller to an unconditional legal liability to pay the rent or other amounts which accrue during the period referred to in section 419A(2), and the Court is given a power to excuse the controller from that liability - instead, the liability is one which is imposed on the controller with a built-in condition of defeasance, whereby it does not apply if or to the extent that the Court excuses the controller from liability.
83 The liability which is imposed on a controller under section 419A(2) is to pay so much of the rent or other amounts payable by the corporation under the agreement as is attributable to a particular period. Thus, the liability of the receiver under section 419A(2) for any particular period of time is equal in quantum to the liability of the corporation which is attributable to that period. There is no room, under section 419A(2) considered by itself, for a receiver to argue that, if the corporation continues to use or occupy or be in possession of the third party property, he ought pay anything less than the contractually stipulated amount, under the lease. If a receiver wished to continue to use or occupy or be in possession of the third party property, but pay less than the contractual amount of rent or other amounts payable under the agreement for the period of that use, occupation or possession, he would need to persuade the Court that it was appropriate to make an order excusing him part of the rent or other amounts payable, under section 419A(7). In saying that, I am not expressing a view that it would be an appropriate exercise of the power under section 419A(7) to permit a receiver who was using or in control or possession of the leased property to pay less than the contracted for amount of rent, just that if there is any way at all in which such a receiver could pay less than the contracted for amount of rent, during the period of his use possession or occupation, that way could only be section 419A(7).
84 Another consequence of the receivers' liability under section 419A(2) being to pay the precise amount of rent which is payable by the corporation under the agreement made before the control day is that, once the corporation's liability to pay rent under such an agreement comes to an end, so does the receiver's liability under section 419A(2). Thus, a receiver would cease to be liable, under section 419A(2) for payments of rent once the term of a lease expired, if the lease contained no holding-over clause. In the present case, the liquidator of Nardell disclaimed the lease of the Plant on 28 May 2003. There is no evidence of any application to set that disclaimer aside. The evidence does not disclose the precise steps which the liquidator took under section 568 Corporations Act 2001 (Cth) to give notice of the disclaimer, or when all such steps were taken. Hence it is not possible, on the evidence, to nominate the precise day when the disclaimer takes effect. However, section 568D Corporations Act 2001 (Cth) says:
"(1) A disclaimer is taken to have terminated, as from the day on which it is taken because of subsection 568C(3) to take effect, the company's rights, interests, liabilities and property in or in respect of the disclaimer property, but does not affect any other person's rights or liabilities except so far as necessary in order to release the company and its property from liability.
(2) A person aggrieved by the operation of a disclaimer is taken to be a creditor of the company to the extent of any loss suffered by the person because of the disclaimer and may prove such a loss as a debt in the winding up."