Supreme Court of SA|1995-08-01|Before: Doyle CJ

SOUTH AUSTRALIAN ASSET MANAGEMENT CORP (Respondent) v SHEAHAN and HEALTH AND LIFE CARE LTD (Appellants) No. SCGRG 94/2077 Judgment No. 5182 Number of pages - 15 Corporations - receivers and managers (1995) 65 SASR 59 [1995] SASC 5182 (1 August 1995)

COURT IN THE IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA DOYLE CJ(1), DUGGAN(2) and NYLAND(3) JJ

CWDS Corporations - receivers and managers - other matters - right of receiver to custody and control of assets - leave of Court required - no general discretion in Court to refuse leave - leave correctly granted. Re Landmark Corporation (1968) 1 NSWR 705; in re Potters Oils Ltd , applied.

HRNG ADELAIDE, 13 June 1994 #DATE 1:8:1995 #ADD 27:11:1995

Counsel for appellants: Mr W J Wells QC with him

Solicitors for appellants: Minter Ellison Baker O'Loughlin

Counsel for respondents: Mr M L Abbott QC with him Mr G Grieves

JUDGE1 DOYLE CJ This is an appeal from a decision of a Judge of this Court. The Judge declared that the chose in action the subject of Action No. 289 of 1993 in the Supreme Court between Health and Life Care Limited (In Liquidation) ("HLC") as plaintiff and Price Waterhouse (a firm) as defendant was an asset of HLC which was subject to a mortgage debenture given by HLC in favour of South Australian Asset Management Corporation ("SAAMC"). His Honour held that SAAMC was entitled to possession of the chose in action, which for practical purposes meant entitled to take control of the conduct of the action. The defendants in the action heard by His Honour were Mr Sheahan and Mr Sims, the Liquidators of HLC. I will refer to them hereafter simply as "the liquidators".

In this appeal His Honour's decision is challenged by the liquidators. SAAMC and the liquidators each challenge the order which His Honour made as to costs.

To explain the issue which was presented to the Court on appeal it is necessary to summarise the facts. I will do so as briefly as I can. In doing so I will omit altogether reference to a number of details which, to my mind, are irrelevant to the outcome of the appeal. The facts are taken from His Honour's judgment.

FACTS 4. SAAMC is a secured creditor of HLC by virtue of a mortgage debenture granted by HLC. This debenture gave SAAMC a fixed and floating charge over the undertaking and assets of HLC. On 22 February 1993 SAAMC appointed a receiver and manager of HLC. The appointment was made in exercise of its powers under the mortgage debenture.

On 23 February 1993 HLC instituted proceedings in the Supreme Court against Price Waterhouse, a firm of Chartered Accountants. That is Action No. 289 of 1993. In that action HLC claimed damages for breach of contract and for negligence in relation to accounting advice given by Price Waterhouse to HLC.

Acting on the view that the cause of action was an asset or property of HLC and subject to the charge given by the debenture, the receiver and manager took over the conduct of action. Just how this came about does not appear, but I do not think it matters. The title of the proceedings was amended to reflect that fact on 20 May 1993.

On 24 May 1994 HLC was ordered to be wound up on an application made to the Supreme Court by SAAMC. The liquidators were appointed to act as the liquidators of HLC.

On 30 June 1994 the receiver and manager resigned as receiver and manager of HLC. This was done with the concurrence of SAAMC. The Judge noted that there appeared not to have been any application or order made concerning who was to continue to prosecute the action against Price Waterhouse. The Judge dealt with the matter before him on the assumption that the liquidators took over the conduct of the action.

It is therefore clear that SAAMC effectively surrendered possession of the charged asset, represented by the cause of action, to the liquidators. There is no indication that SAAMC thereby intended to or did surrender its security, nor does that appear to have been argued before His Honour. I mention in passing that in other proceedings the liquidators did argue that SAAMC had surrendered its security by reason of its conduct at a meeting of creditors. That is the subject of another appeal.

It seems a reasonable and appropriate inference to draw that SAAMC did what it did because it wished to take advantage, for the purposes of the action against Price Waterhouse, of the statutory rights which the liquidator had to examine persons in relation to the events the subject of the action. Another factor influencing SAAMC may well have been the desire to avoid or lessen the risk of it having to meet an adverse costs order if one were made in the action against Price Waterhouse.

It seems that thereafter the liquidators proceeded with the conduct of the action against Price Waterhouse. Once again, the details of their conduct of the action do not emerge from the judgment, but I do not consider that that matters.

Later, differences arose between SAAMC and the liquidators related to the conduct of the cause of action. That was His Honour's finding. I mention that in the written submissions in this appeal the liquidators attacked this finding on the basis that it was not open to His Honour on the evidence before him. Nevertheless, in their written reply to SAAMC's submissions the liquidators argued that "the dispute was one as to the control of the litigation, in particular who had the right to direct settlement". I cannot see any material difference between the finding that the liquidators attack and what they assert in their written submissions. In any event, for present purposes it is clear that differences of some sort arose, and I do not think it matters precisely what they were. I am prepared to assume that SAAMC wanted to have a greater say in the conduct of the action than the liquidators were prepared to allow to it.

As a result of this SAAMC wished to take over the conduct of the action. Some correspondence between SAAMC and the liquidators ensued. Apparently the liquidators indicated that they intended applying to the Court for directions. Before they could do so SAAMC instituted proceedings which came before His Honour and which are the subject of this appeal. In those proceedings SAAMC claimed a declaration that the chose in action the subject of action No. 289 of 1993 between HLC as plaintiff and Price Waterhouse as defendant were assets of HLC and subject to the mortgage debenture given by HLC in favour of SAAMC. SAAMC claimed a further declaration that it was entitled to possession or to resume possession of the action.

In substance SAAMC was claiming that the charge granted by the mortgage debenture applied to the chose in action, and that SAAMC was entitled to assert and to exercise rights under the mortgage debenture which prior to the winding up order it had been exercising through the receiver and manager but which, after the resignation of the receiver and manager, it ceased to exercise. The liquidators disputed SAAMC's entitlement to do so.

In his judgment His Honour records that the matter came on at short notice before him on affidavits. The affidavits were quite voluminous. There were many disputes of fact. The dispute over the control of the cause of action was delaying the action by HLC against Price Waterhouse. The parties wanted the issues resolved and His Honour agreed to do so promptly.

At the hearing before His Honour the liquidators argued that the cause of action was not in fact subject to the charge granted by the mortgage debenture. His Honour found, as a matter of construction, that the cause of action was an asset or property of HLC which HLC had purported to charge. He held that the appointment of the liquidators did not terminate the capacity of the receivers to continue to prosecute the action. He held further that the making of the winding up order did not put to an end the rights of HLC to enforce its security. He rejected an argument advanced by the liquidators that the chose in action in this particular case could not properly be charged, the argument being that it could not be charged because to do so would savour of maintenance and champerty and so be contrary to public policy. He therefore held that SAAMC was entitled to exercise its rights as secured creditor and to take control of the cause of action. Having made a number of ancillary orders to protect the position of the liquidators he gave leave to SAAMC to take over the conduct of the action.

The liquidators now complain that having resolved these issues adversely to them, His Honour decided that SAAMC was entitled to possession of the charged asset by leave as of right. They complain that he failed to hear the liquidators on the issue of whether SAAMC was nevertheless disentitled from taking control of the cause of action. This, they argued, was an issue with which the liquidators had not dealt in their submissions before His Honour. They argued that the hearing before His Honour had proceeded on the basis that, and counsel for the liquidators had believed that, the issue of whether SAAMC was in any event disentitled from exercising its rights would be dealt with in further submissions to His Honour were His Honour to find that cause of action was subject to the charge.

There is some support for this contention in the transcript of proceedings on 14 December 1994. I refer in particular to pages 5 - 9.

In this appeal the liquidators do not challenge His Honour's conclusions as to the law summarised above. In short, they do not challenge the finding that the cause of action is validly subject to the charge granted by HLC. Most of His Honour's judgment is no longer in issue or relevant. The liquidators argue that they have not been heard on an outstanding issue, and the liquidators contend that SAAMC required leave to take possession of the relevant asset even though the charge applied. In effect, they complain that the hearing before His Honour has miscarried.

The liquidators also challenge the order which His Honour made as to the costs of the action before him. The part of the order of which they complain is the order that the liquidators be entitled to be indemnified in respect of their costs of the action before His Honour out of the assets of HLC but with priority next after SAAMC's security over those assets. The effect of the order is that unless the proceeds of the action are more than sufficient to cover monies owing to SAAMC and its costs of action, the liquidators will not have a fund to which they can resort for payment of the costs of the action before His Honour. The liquidators argued in the appeal that they should have their costs of action against SAAMC.

SAAMC also challenges His Honour's order as to costs. His Honour made the point that SAAMC had permitted the liquidators to prosecute the action against Price Waterhouse and then sought to resume control over the action. He said that the conduct of SAAMC disentitled it from recovering its costs of the action before His Honour. He made the further point that in any event the liquidators would have had to apply to the Court for directions as to the disposition of the action against Price Waterhouse, and that it would have been appropriate for SAAMC to have borne its own costs of an application for directions. For those reasons he declined to order that the liquidators pay the costs of action of SAAMC. SAAMC argued that having succeeded on the issues which were contested before His Honour, it should have had its costs of action against the liquidators.

THE APPELLANTS' COMPLAINT 22. The liquidators complain that what His Honour decided was merely a threshold issue, as indeed His Honour seems to have regarded it at some stages of the submissions before him. I refer again to the transcript of proceedings on 14 December 1994 at pages 7 and 64 in particular. The liquidators argue that event though the threshold issue of the applicability of the charge was decided against them, that gave rise to the issue of leave to resume possession of the asset. They argue that it was understood before His Honour that this issue would be separately addressed. They complain that His Honour decided that the cause of action was subject to the charge and then held that SAAMC was entitled to leave as of right, as it was described, to take possession of the asset. The liquidators argue that they were not heard on the merits on the issue of leave and that His Honour had not in fact decided whether leave should be granted. The liquidators argue that the matter should be sent back to His Honour so that they could contest the issue of leave. It is submitted that there is further factual material which they wish to adduce and that there is further legal argument to be put. They have been deprived of the opportunity to do so.

There may have been some misunderstanding between His Honour and counsel for the liquidators. At pages 7 and 8 of the transcript already referred to, His Honour identified as the first and second issues before him the question of whether SAAMC was entitled to resume possession of the chose in action as a matter of right or as a matter of leave. He said that if it succeeded on those issues and it was a matter of leave, the question then arose as to the extent to which other issues raised in the liquidators' affidavit were relevant. He said that he would deal with the first two issues and with the third issue if there was time. There seems to have been an understanding that His Honour should first determine those first two issues. I refer also to page 64 of the same transcript. At page 67, when counsel for the liquidators referred to the issue of leave arising if it was found that the cause of action was subject to the charge, His Honour said: "I am not sure whether the question of leave arises in any sense other than the sense referred to in Landmark Corporation (a case cited to His Honour), ... and there would be leave as a (sic) right ....."

It seems to me that this should have alerted counsel for the liquidators to the fact that His Honour was not agreeing that another major issue necessarily arose, as counsel for the liquidators was contending. But I am prepared to accept that there was some confusion as between His Honour and counsel.

But I do not consider that that leads to the result that the matter must be remitted to His Honour for further hearing.

In my opinion the argument for the liquidators before His Honour and before this Court on appeal was affected by a basic misconception. The argument for the liquidators assumed that even though the charge applied to the cause of action, SAAMC could not resume possession of the cause of action (this was how it was described) or resume the exercise of its right under the debenture unless the Court decided, having regard to all relevant considerations, that it should be permitted to do so. It was not entirely clear to me just how, as a matter of law, it was said this position came about. The argument seems to have been that this state of affairs arose because SAAMC had surrendered its control over the asset to the liquidator and further or alternatively because the liquidator was disputing the claim of SAAMC to control the asset. The point made by counsel for the liquidators was that having allowed the liquidators to deal with the asset in the course of the liquidation, SAAMC had no right to assert its rights of control under the debenture unless the Court thought it appropriate that it should do so, having regard, as already mentioned, to all relevant considerations. Cases suggesting that the appointment of a liquidator did not affect the right of a secured creditor to possession or control of charged assets were said not to apply to a situation in which the secured creditor had allowed the liquidator to take possession or control of the asset.

I repeat that it was not contended that SAAMC had surrendered its security. It seemed to be implicit in the argument that it retained its charge over the proceeds of the cause of action. The argument seemed to be that what it had lost was its right to control the conduct of the cause of action. In other words, as it was put somewhat loosely, the right to possession of the cause of action.

It was never completely clear to me during the course of submissions just what issues should be considered by the Court, on the liquidators' contentions. I mean what issues relevant to the grant of leave. There were a number of matters alluded to in the affidavits, in submissions before us and in the written submissions which were filed by leave. I proceed to summarise them.

It was said that SAAMC was estopped by its conduct from asserting its rights. But when counsel for the liquidators was pressed on the issue of detriment he identified only the costs of the liquidators and the fact that the liquidators had exercised powers to examine witnesses under s549 of the Corporations Law. It was also argued that the interests of unsecured creditors and of shareholders of HLC were relevant, and it was said that in a liquidation the Court would supervise the conduct of the liquidators to protect their interests, the point being made by implication that no such supervision would be exercised over the receiver and manager. It was not made clear how it was that these interests now stood between SAAMC and its rights as a secured creditor. Then the point was made that SAAMC as a secured creditor should not be allowed to make use of the liquidation process when it saw fit to do so and then cease to do so by resuming control. Once again, as I see things, it was not made clear how this comment became an obstacle to the exercise of rights under the debenture. Then it was said that the Court should examine the conduct of SAAMC, apparently in the sense of determining whether it was behaving fairly and reasonably in now seeking to retake control of the cause of action. It was argued that SAAMC would or might settle the action for the amount of its secured debt, to the detriment of creditors and shareholders. It was said that there was a contract between SAAMC and the liquidators that the liquidators would be funded to pursue the action against Price Waterhouse. It was argued that given the opportunity appropriate evidence of this contract could be adduced, although I must say I had the strong impression that what was being referred to was nothing more than arrangements for funding which had as the unexpressed basis the assumption that the liquidators would be conducting the action. It was said that SAAMC had caused the liquidators and creditors to act to their detriment, but just what this detriment was was never made clear. In the liquidators' written reply to the submission for SAAMC it was said (para 15) that SAAMC had "attenuated its rights" and had submitted control of the cause of action to the Court's "absolute discretion". It was said that it had done this by appointing a liquidator and allowing the liquidator to take control of the cause of action. It was also argued that the action of SAAMC in doing this was akin to a surrender of its security, event though it was not precisely that. The point was made that a liquidator, having regard to his duties and obligations, was not a person who could be dismissed from that position at the whim of the client. The point was made that the liquidator could not resign or be released without going through appropriate procedures under the Corporations Law, and that a liquidator has duties and responsibilities to a variety of persons.

Despite this avalanche of points I remain of the view that underlying all of it is a misconception. If, as His Honour decided, the cause of action is an asset subject to the charge, and if the security by which the charge is given is not surrendered (as must be assumed for present purposes) then one is left wondering how and why SAAMC loses the right to exercise its right under its security. His Honour dealt at some length with the fact that the making of the winding up order has no effect on most of the rights of a secured creditor, and in particular no effect on the right to possession of the asset to which the security attaches. None of this was challenged. I am content simply to adopt what His Honour said on these points. To my mind no legal basis was ever established for saying that because the secured creditor had chosen not to exercise its right of control, and had willingly acquiesced in the liquidator exercising the right of control, it was now for the Court to determine on a broad basis whether or not the secured creditor should be permitted to resume the exercise of the rights which it had desisted from exercising.

Of course, the point that SAAMC had changed its tack is obvious. But the law allows people to change their minds, and within certain limits allows them to act inconsistently. It seems to me that the argument for the liquidators was that without having to identify a true estoppel or some other recognised legal obstacle to the exercise of rights under the debenture, they could require SAAMC to submit its proposed course of action in taking possession to the general scrutiny of the Court. The argument amounts to saying that rights of possession or control under the security have ceased, because now they become available only if and when the Court decides that it is appropriate (in the sense already identified), that they should again be exercised.

I am not aware of any authority which supports this proposition. I am not aware of any authority which deals with the precise point, but in my opinion such authority as there is points towards a rejection of the argument.

In Re Landmark Corporation Ltd (In Liq.) (1968) 1 NSWR 705 the Court had before it an application by a receiver for leave to take possession of an asset of a company which was in liquidation. In a decision which has been referred to on a number of occasions, but never so far as I am aware disapproved of, the Judge held that ordinarily there was no need to apply for leave, whatever the position might be in England: cf. Re Henry Pound, Son, and Hutchins (1889) 42 ChD 402. The Judge made the point that if the security was valid and applied to the relevant asset then there was no reason why the liquidator should not surrender it to the receiver. If there was any doubt or dispute then leave to take possession should be sought, because the liquidator was an officer of the Court and the receiver could not dispossess the liquidator of the asset without running the risk of being found guilty of contempt. In that situation it was appropriate to apply to the Court for leave, but if it was established that the security was valid and applied to the asset then leave would be granted as of right.

In my opinion it cannot be said that Re Landmark applies only to a secured creditor who stands wholly outside (as it was expressed by counsel) the liquidation.

The principle underlying the decision is that a secured creditor is entitled to exercise its rights under its security notwithstanding the making of an order for the winding up of the company which granted the security. There are some qualifications to be made to this principle, but the right to possession of the asset or assets over which security is granted is not subject to any relevant qualification. It is hardly necessary to refer to authority to support this basic proposition, but I refer in passing to O'Donovan, "Company Receivers and Managers" (2nd ed) para 13.120, to McPherson "The Law of Company Liquidation" (3rd ed) pp200-202 and to Ford's Principles of Corporations Law (6th ed) para 1267.

The fact that leave is required if the liquidator disputes the right of the receiver to take possession of an asset seems to have engendered, in the mind of the liquidators, the idea that the exercise of rights under the security is subject to the approval of the Court. In truth, the application for leave is but a mechanism for determining the applicability of the relevant security and for enabling the Court to make any incidental orders which may be appropriate. That is why, in my opinion, the expression "leave as of right" is used. In my opinion the need for leave does not transform the rights of the secured creditor into rights available only after a favourable assessment by the Court of the appropriateness of allowing the secured creditor to exercise those rights.

In my opinion when leave is sought, in the event of a dispute between a secured creditor and a liquidator, the role of the Court is to determine the validity and applicability of the security, and whether there is any legal obstacle to the exercise of rights under the security. It is not for the Court to exercise some sort of general discretionary judgment. It is not a question of what to the Court seems fair to all those who might have an interest in the matter, nor is it a matter of what course of action will best protect the interests of creditors generally and shareholders.

It follows in my opinion that the matters which the liquidators sought to agitate on appeal were not, subject to what follows, relevant matters. In my opinion it is likely that His Honour recognised this. He held that SAAMC was entitled to leave as of right, having referred to the decision in Re Landmark and reflecting the language of the judgment in that case. The tenor of His Honour's decision was that once SAAMC had established that its charge applied to the asset, leave would be given to take control of the asset subject to orders necessary to deal with any matters affecting the orderly administration of the liquidation and subject to any orders required to protect the proper interests of the liquidator. I consider that by inference His Honour was almost certainly rejecting the relevance of the issues raised by the liquidators and argued on this appeal. His Honour clearly took the view, which I consider to be correct, that once the applicability of the charge was established the right to possession followed. He said: " ... it would be entirely inconsistent with the plaintiff's position as secured creditor if it were denied the entitlement to exercise those powers. The plaintiff would

be unable to exercise its powers only if it surrendered its security."

I have mentioned that there is a qualification to be made. An asset of a company might be subject to a charge, and the relevant security may not have been surrendered, but still there might be some legal obstacle (as distinct from the exercise of a discretion) to the exercise of rights by the secured creditor. An estoppel preventing the exercise of such rights is an obvious example. In this appeal the liquidators argued that there were such obstacles and that they were denied the opportunity to advance this argument before His Honour.

At the hearing of the appeal the Court required counsel for the liquidators to identify the matters upon which he relied. The Court made it plain that it was not prepared simply to remit the matter for further hearing on the basis that there were unidentified issues which the appellants wished to argue. There were several reasons for taking this course of action.

First, the Court was concerned over the time and money already expended on the issues before it. If the receiver takes control of the asset he is not at liberty to disregard the interests of the mortgagor (and so to some extent the interests of the general creditors) although the extent of the duty of the receiver is not clear: see Ford's Principles of Corporations Law (6th edition) para 1266. Clearly, the present dispute is of importance to the parties, but in the end it is a dispute over who will take control of the asset with a view to realising its value. In that context the Court is concerned over the expenditure of time and money, and concerned about the prospect of delaying the action itself while the present dispute is resolved. For that reason it is reluctant to remit the matter unless there seems to be good reason to do so.

Secondly I was not satisfied that the liquidators had clearly identified this distinct argument before His Honour. That is, the argument that putting aside the question of obtaining leave, there were legal obstacles to the exercise by SAAMC of its rights under the security. My impression from my perusal of the transcript is that the case at all times seems to have been put as an appeal to the discretion of the Court, although mixed up in the grounds which were urged before the Judge were grounds which could constitute a legal obstacle to the exercise of powers under the debenture.

Thirdly, after the Judge delivered his Reasons no protest seems to have been made that this further ground had yet to be determined. In response to this point counsel for the liquidators argued that as His Honour had decided that leave would be given as of right, and it was then up to the liquidators to test that issue on appeal, there was no occasion for further opposition to the grant of leave and no occasion for further protests. In other words, counsel argued that there was no protest made because His Honour appeared to have decided, by his Reasons, that these further grounds would not be entertained. That may have been the view of counsel at the time, but it seems to me that if counsel had in mind an obstacle to SAAMC's success, an obstacle unrelated to the issue of leave, it was appropriate for counsel to point that out by way of reminder to His Honour. The failure to do so makes me all the more reluctant to allow these further matters to be raised now and further investigated.

Fourthly, when the question of costs was argued before His Honour the liquidators appeared to abandon any argument other than an argument based upon the need to obtain leave in the exercise of the Court's discretion. During the course of the argument on costs, at page 133 of the transcript, counsel for the liquidators argued that the matter had been an appropriate matter to be brought to the attention of the Court and for opposing views to be put for the Court to resolve. This provoked the response from the Judge that the liquidators seemed to be more concerned to protect a source of professional fees. The Judge commented that the approach of the liquidators had not been one of simply putting points so that the interests of the unsecured creditors and shareholders of HLC would be considered, but that the attitude had been one of "a very concerted attempt by the liquidators to preserve, as I say, a source of fees." (at page 134). This provoked the response from Counsel that the attitude of the liquidators was now that they no longer resisted the order sought. He said: " ... We do not wish to argue any issue of estoppel or prejudice, which shows that our opposition has purely been on the basis that this is a matter that needed a ruling of the Court because the liquidator is an officer of the Court." (at page 134).

A little later (page 136) there was again a discussion about the attitude of the liquidators. The Judge alluded to the argument on estoppel, and made the point that it had been kept in reserve, the Judge apparently meaning to indicate that every conceivable point was being taken by the liquidators. In response, Counsel for the liquidators said that the estoppel point was kept to be dealt with after the other points, and he went on to say, referring to the points with which His Honour had dealt: " ... and Your Honour having dealt with them first, the liquidator, on advice, has said, promptly, `I don't wish to continue with that argument' and it is now only an issue of the terms in (sic) which the action should be taken over."

There is a very strong flavour about this of abandonment of the point now under consideration. Counsel for the liquidators was asked to deal with this question in his written reply to the appellant's submissions. In paragraphs 5 and 6 of that reply the answer made is that His Honour's decision had rendered the issue of estoppel pointless. I find it difficult to reconcile this submission with what I find in the transcript. If His Honour's judgment was seen as having precluded an argument based upon estoppel, there was no cause for counsel to say what he did. The response would simply have been that in the light of His Honour's judgment estoppel was no longer an issue. There would be no point in saying that the liquidators' attitude was that they did not wish to continue with the argument.

In short, I am far from satisfied that the liquidators should now be permitted to advance these separate arguments.

However, because my opinion is that the proposed arguments have no reasonable prospect of success I do not need to come to a final conclusion on this point. I think it is simpler to consider whether the points which counsel wishes to advance have any arguable prospect of success.

Counsel protested that he should not be put in this position. He argued that the points he wished to advance should not be passed upon until he had had full opportunity to develop them in terms of facts and law. I am not prepared to accede to that submission. I consider that having regard to the circumstances the Court is now quite entitled to satisfy itself that there is a good arguable point before allowing the matter to go any further.

Even at this stage the precise points which the liquidators wish to advance are not completely clear to me. Counsel was given the opportunity before us and by way of supplementary written submissions to identify the points.

It is clear that the liquidators wish to advance some kind of estoppel argument. It was submitted that SAAMC had made representations and had engaged in a course of conduct with the liquidators to the effect that if the liquidators agreed to act as joint liquidators of HLC then SAAMC would fund the conduct of the litigation against Price Waterhouse. It was said that on the basis of those representations that the liquidators had done so and had applied to conduct examinations under s597 of the Corporations Law and had instructed solicitors in relation to the action against Price Waterhouse. It was said that it would be unconscionable to allow SAAMC to depart from the representations so as to prevent the joint liquidators from conducting the litigation against Price Waterhouse.

I fail to see how matters like this could have estopped SAAMC from exercising its rights under the debenture. The orders made by the Judge seem to me to have protected the liquidators in respect of things which they did in the course of the liquidation. Granted, they are not now in a position to resign their office simply as a matter of course, but I do not think that that is sufficient to give rise to an estoppel. I do not think that the argument for the liquidators is advanced by vague references to SAAMC approbating and reprobating. I realise that counsel for the liquidators claims that for a second time his clients are being turned away from the Court without an opportunity to develop their argument properly, but it seems to me that the time has come to put an end to this issue. I am not prepared to allow the appeal for the purpose of this argument being further investigated.

There was also some reference to a contract between SAAMC and the liquidators relating to the provision of funds for the action against Price Waterhouse. Although the information which I have is limited, I consider it to be most unlikely that a Court would find that there was a contract the effect of which was that come what may SAAMC must continue to make funds available to the liquidators for so long as they considered it proper to pursue the action. I do not consider this point to be tenable.

The only other points which were identified seem to be the same points as were advanced in support of the argument that leave was required in the exercise of a broad discretion. These were matters such as the interests of other creditors and shareholders, the wider powers available to liquidators, the ability of the Court and interested parties to supervise the conduct of liquidators and other like matters. I fail to see how these can give rise to an argument that SAAMC has lost the ability to exercise its powers as it sees fit.

In that context I mention the decision of In re Potters Oils Ltd (1986) 1 WLR 201. In that case there was a somewhat similar dispute. The liquidator sought a declaration from the Court that the appointment of a receiver had been unnecessary and that his fees and disbursements were unnecessary and excessive. The liquidator said that he was doing all that could be done to protect the interests of the secured creditor and the appointment of the receiver had caused duplication of effort and unnecessary expense. Hoffman J (at 205-206) rejected this argument on two grounds. First, that the secured creditor was contractually entitled to appoint the receiver to protect its own interests. Because the liquidator was an officer of the Court and already in possession the receiver could not exercise his right to possession without the leave of the Court, but the receiver would be entitled to that leave as of right. It was no answer that the property could be realised by the liquidator more cheaply and no less effectively. The second answer was that the secured creditor was justified in thinking that its own interests would best be served by the appointment of a receiver to assert a right to possession of the plant. It seems to me that this reasoning is an answer to those aspects of the argument for the liquidators which assumed that the underlying issue was the question of what would best serve the interests of creditors generally or whether it was really necessary or appropriate for the secured creditor to have control of the cause of action.

I do not consider that the Court is doing the liquidators any injustice in dealing with these arguments in this summary way. I think that the course which the proceedings have followed justifies the approach which I have taken. In my opinion the appeal should be dismissed.

THE APPEALS ON COSTS 58. As already mentioned, both parties appeal against His Honour's decision in relation to costs.

His Honour was not prepared to deprive the liquidators of their costs. He did not make a finding that in the proceedings before him they had not acted properly. He concluded that they were entitled to recover their costs but that SAAMC should not be required to pay them. No doubt he took this view because the liquidators had failed on the issues argued before His Honour.

On the appeal the liquidators contended that they had succeeded, at least in part, because they came to Court to argue that leave was required and on that issue they had succeeded. However, it seems to me that in substance the liquidators failed. The argument which they advanced was that the Court should exercise a very broad discretion. By implication His Honour rejected that argument. In my opinion the argument is unsound. On the particular issues which were dealt with in His Honour's judgment the liquidators failed completely. In my opinion His Honour was right to regard the liquidators as the unsuccessful parties in the litigation.

I am not prepared to say that His Honour was wrong in taking the view that SAAMC should not be required to meet the liquidators' costs. Had His Honour not ordered that the liquidators recover their costs out of the assets of HLC but that their entitlement ranked after SAAMC's security, SAAMC as the secured creditor would have been in the position of effectively meeting the liquidators' costs. In my opinion His Honour was not wrong in making the order which he did make.

SAAMC cross-appealed on costs, leave having been given by His Honour. His Honour deprived SAAMC of its costs. The basis of His Honour's order was that the liquidators were acting properly in requiring SAAMC to seek the leave of the Court to take control of the asset. There being a dispute about the applicability of the mortgage debenture, it was appropriate to bring the matter before the Court. It was also appropriate for the liquidators to seek protection in respect of the costs which they had incurred in the conduct of the action, although it seems that the giving of such protection was never in issue. His Honour made the further point that the issues between the parties had arisen because SAAMC had changed its tack. For those reasons, he declined to order that the liquidators pay the costs of SAAMC.

It may be that strictly His Honour should have taken a slightly different approach. Having regard to his conclusions in relation to the conduct of the liquidators, it is arguable that he should have given them their costs of action against SAAMC up to the point at which it should have become clear that they were pursuing misconceived grounds of opposition to SAAMC taking control over the cause of action. Alternatively, he might have given them some proportion of their costs against SAAMC. Had His Honour taken this approach it is equally arguable that His Honour should have given SAAMC some proportion of its costs against the liquidators. In my opinion the liquidators' opposition to the course proposed by SAAMC was unfounded, and to the extent that this protracted what would otherwise have been relatively straightforward proceedings, it would have been appropriate to reflect that in an order for costs.

It follows that in strictness it may be that His Honour should have given the liquidators part of their costs against SAAMC, and as to the balance an order that their claim for costs rank after the charge of SAAMC, and should also have given SAAMC an order for part of its costs against the liquidators.

Nevertheless, I consider that His Honour was entitled to take the more broadbrush approach that he took and I doubt whether, in the end, what he did makes much practical difference. For that reason, although I would have approached the matter differently, I think that the end result would have been much the same, and I do not consider it appropriate to interfere with the decision which His Honour made.

For those reasons it is my opinion that the appeal and cross- appeal against His Honour's orders for costs should be dismissed.

JUDGE2 DUGGAN J I agree that the appeal and the cross-appeal, should be dismissed for the reasons given by the Chief Justice.

JUDGE3 NYLAND J I have had the advantage of reading the draft reasons for judgment of the Chief Justice. For the reasons he has expressed I agree that the appeal should be dismissed. I also agree that the appeal and cross-appeal should be dismissed.

SOUTH AUSTRALIAN ASSET MANAGEMENT CORP (Respondent) v SHEAHAN and HEALTH AND LIFE CARE LTD

At a glance

Court

Decision date

Before

Source

Judgment (75 paragraphs)

SOUTH AUSTRALIAN ASSET MANAGEMENT CORP (Respondent) v SHEAHAN and HEALTH AND LIFE CARE LTD (Appellants) No. SCGRG 94/2077 Judgment No. 5182 Number of pages - 15 Corporations - receivers and managers (1995) 65 SASR 59 [1995] SASC 5182 (1 August 1995)

Parties

Cases Cited (1)