Federal Court of Australia|1996-04-12|Before: Mr J, Tamberlin J

Sydlow Pty Ltd (In Liquidation) v T G Kotselas Pty Ltd, Theo George Kotselas and William James Hamilton [1996] FCA 1384 (12 April 1996)

SYDLOW PTY LTD (In Liquidation) v. T G KOTSELAS PTY LTD, THEO

Corporations - application for order that cross-claim be dismissed or permanently stayed - application for preliminary determination of whether cross-respondent is a tortfeasor liable within the meaning of s5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) - application for leave to file cross-claim seeking indemnity or contribution from cross-respondent - nature of office of liquidator - composite elements - courts administering laws in relation to bodies corporate will not allow their officers to be subject to action in another court on basis of same conduct - suit in another court requires sanction of court appointing the officer - court concerned to ensure winding up is implemented in timely and efficient manner - court to protect integrity of winding up process under its jurisdiction - court to prevent wrongful impediment to process - leave necessary to sanction proceedings against official liquidator - not necessary that application for leave be made to court which made winding up order - discretionary power of court to grant leave - court to consider all circumstances including necessity for protection of its process - liquidator's duty of care - liquidator can be a tortfeasor - whether loss suffered is the same loss - whether satisfied there is a real question to be tried.

Practice And Procedure - application for order that cross-claim be dismissed or permanently stayed - application for preliminary determination of whether cross-respondent is a tortfeasor liable within the meaning of s5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) - application for leave to file cross-claim seeking indemnity or contribution from cross-respondent.

Corporations Law (Cth) ss536, 471(2), 598, 232, 82(A)(2), 1318

Law Reform (Miscellaneous Provisions) Act 1946 (no 33), s5(1)(c)

Re Siromath Pty Ltd (No 3) (1991) 25 NSWLR 25, considered

In re Maidstone Palace of Varieties, Ltd (1909) 2 Ch 283, applied

Acton Engineering Pty Ltd v Campbell [1991] FCA 469; (1991) 103 ALR 437, applied

In re Hutton (a Bankrupt) (1969) 2 Ch 201, cited

Aston v Heron (1834) 2 My and K 390[1834] EngR 631; , 39 ER 993, cited

Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith and Ors (1989)

7 ACLC 1232, considered

Daniels v Anderson (1995) 37 NSWLR 438, considered

Albion Insurance Company Ltd v Government Insurance Office of New South

Mahoney v J Kruschich (Demolitions) Pty Ltd (1985)

General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125, cited

Peter Loose MA, Michael Griffiths LLM; Loose on Liquidators, (3rd edition) 1989

Palmer's Company Law, Service (published Sweet and Maxwell)

Ford and Austin's Principles of Corporations Law (7th edition) 1995

B H McPherson and J O'Donovon, The Law of Company Liquidation (3rd edition)

Counsel for Applicant and Cross-Respondent: Mr J Svehla

Counsel for Respondents and Cross-Claimants: Mr S Donaldson

Solicitors for Respondents and Cross-Claimants: Tress Cocks and

Maddox

1. Based on the assumptions set out in the Notice of Motion filed on 10 August 1995, the questions posed for preliminary determination should be answered:

(a) Yes

(b) Yes

2. Leave be granted to file on the cross-claim.

3. The application to stay or dismiss the cross-claim be dismissed.

4. The applicant pay the respondents' costs of the three Notices of Motion.

NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.

TAMBERLIN J On 19 December 1991, the cross-respondent ("Hamilton") was appointed official liquidator of the applicant ("Sydlow") in proceedings commenced in the Supreme Court of New South Wales, on 8 October 1981.

2. The first respondent, T G Kotselas Pty Ltd ("TG Kotselas") is a company which provided a range of accountancy services to Sydlow, including the preparation of accounts, tax returns and provision of financial advice. The second respondent ("Kotselas") was a director of TG Kotselas.

3. Before me are three Notices of Motion. The first was filed by Sydlow on 30 June 1995. It seeks an order that the cross-claim of the first and second cross-claimants be dismissed or permanently stayed.

4. The second Notice of Motion was filed by Hamilton on 10 August 1995. It seeks a separate and preliminary determination of the following question:

"Assuming the matters alleged in paragraphs 1 to 10(a) of the

cross-claim and the matters alleged in the statement of claim:

(a) Whether the cross-respondent would, if sued by the applicant,

have been a tort feasor liable to the applicant in respect of the

damage alleged in the cross-claim within the meaning of

ss. 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946

(NSW);

(b) If so, whether the cross-respondent is liable to the applicant

in respect of the same damage in whole or in part for which the

cross-claimants are liable as tort feasors to the applicant within

the meaning of ss.5(1)(c) of the Law Reform (Miscellaneous

Provisions) Act 1946 (NSW)."

5. The third Notice of Motion filed by Sydlow on 11 August 1995 seeks an order that leave be granted to TG Kotselas and Kotselas to file a cross-claim seeking indemnity or contribution from Hamilton, in respect of any order or judgment that they pay damages or compensation to Sydlow in these proceedings.

6. On 27 January 1995, Sydlow filed an Application seeking a declaration and damages against the respondents and also equitable compensation and interest.

7. The Statement of Claim alleges that Kotselas was a director of TG Kotselas and that, on 14 March 1990, Sydlow and the respondents agreed that the respondents would act as its accountants and provide financial advice. In late 1989 Style Kitchens Marketing Pty Limited, a company related to Sydlow, ("Style Kitchens") agreed that the respondents would provide financial advice to that company.

8. Until 1 November 1991, the respondents provided accountancy services to Sydlow, as a result of which, the respondents owed a contractual and tortious duty of care and also fiduciary duty to Sydlow.

9. On 8 October 1991 a summons to wind up Sydlow was filed in the Equity Division of the Supreme Court of New South Wales by the Commissioner of Taxation.

10. On 19 December 1991, Sydlow was placed in liquidation by order of the Equity Division and Hamilton was appointed liquidator. On, or about 1 November 1991, the Statement of Claim alleges the respondents advised the directors of Sydlow that it was insolvent and would have to cease trading immediately and further that it should transfer all of its assets and some liabilities to Style Kitchens. The advice was said to be that Style Kitchens should manufacture the kitchens.

11. In reliance, on that advice it is said that the directors of Sydlow, resolved to transfer all of its assets and trade creditors to Style Kitchens. Thereafter, Sydlow ceased manufacturing and the directors of Sydlow permitted Style Kitchens to manufacture and to utilise Sydlow's stock in trade, work in progress and plant and equipment. This continued to 12 June 1992 when Style Kitchens went into voluntary liquidation.

12. Shortly after 1 November 1991, the respondents determined the basis on which, and the values at which, the assets of Sydlow should be transferred to Style Kitchens, and took all necessary steps to effect the transfer.

13. Breaches of duty are alleged against the respondents because they failed to inform or warn Sydlow or its directors that the transfer should not take place, because a petition to wind up Sydlow had been lodged and Sydlow was insolvent. Further, that they failed to take legal advice before the transfer resolution was passed in circumstances where there was a likelihood that the liquidator of Sydlow would seek to set aside the transfer and recover the value of the assets.

14. Between 1 November 1991 and 15 September 1992, Style Kitchens disposed of the assets by purportedly selling them as owner. Style Kitchens retained and spent the proceeds of sale.

15. It is further alleged that TG Kotselas and Kotselas knowingly assisted in, or were reckless as to, the breach by the directors of Sydlow of their statutory and fiduciary duties owed to the company and in and about the dishonest and fraudulent proposal by the directors of Sydlow in relation to the transfer of assets.

16. In defence, the respondents admit that TG Kotselas provided accountancy services from 1989 to 1992; that Kotselas was a director of TG Kotselas and a practising certified accountant. It is admitted that in about March 1990, TG Kotselas entered into an agreement with Sydlow, to provide accounting services and that in about late 1989, TG Kotselas agreed to provide accountancy services to Style Kitchens. These services were provided at all material times, up to 1 November 1991. It is admitted that, on or about 31 October 1991, and as at 1 November 1991, the respondents believed that Sydlow was insolvent and should cease to trade. On that date, entries were made in the books and records of Style Kitchens, as at 31 October 1991, to reflect the transfer of the assets from Sydlow to Style Kitchens, in accordance with instructions from Sydlow. It is said that a copy of the summons to wind up Sydlow was sent to insolvency legal experts to obtain advice and assistance and that they did not provide advice to Sydlow in relation to the proposed transfer of assets.

17. Otherwise, in broad times, the defence either does not admit or denies the allegations.

18. The defence also alleges that the transfer of assets was void and that any loss suffered by Sydlow through loss of the assets, was suffered by reason of the failure of the liquidator of Sydlow, to take the assets of the company into his custody and control, or alternatively to preserve the assets of the company.

19. Clause 31 of the Statement of Claim alleges that the value of the assets lost was the value of the assets transferred to Style Kitchens.

20. The cross-claim which the respondents now seek leave to file is dated 12 April 1995. For present purposes it alleges that Hamilton, by reason of his appointment, owed a duty to Sydlow, to take into his custody and control, all property to which the company was, or appeared to be entitled, and to take all necessary steps to preserve and protect the assets. It also asserts a duty to exercise the degree of care and skill appropriate to persons occupying the position of a liquidator, in the exercise of his powers and the performance of his duties, and a general duty to exercise a reasonable degree of care and skill.

21. It is said that by 19 December 1991, Hamilton knew, or ought to have known, that Sydlow had purported to transfer to Style Kitchens, the assets referred to in the Statement of Claim and that Style Kitchens had possession of the assets. He also knew or ought to have known, that the transfer was void or voidable, and that unless steps were taken to recover or protect the assets Sydlow would suffer loss. In the alternative, Hamilton ought to have known of this by 23 January 1992 and acted to recover the assets. It is alleged there was a failure to take the necessary recovery steps and breaches of the above duties are alleged.

22. On 31 March 1992, Hamilton commenced proceedings against Style Kitchens in the Equity Division of the Supreme Court, claiming the value of the assets. However, between October 1991 and September 1992, Style Kitchens disposed of, or otherwise dissipated the assets, Sydlow recovered only about $16,000 in settlement of the proceedings. As a result, Hamilton is said to be a tortfeasor liable in respect of the damage alleged in the Statement of Claim to result from the negligent advice and conduct of the respondents. The cross-claim seeks indemnity or contribution from Hamilton in respect of any order or judgment that damages or compensation be paid by the respondents to Sydlow.

23. The office of a person appointed liquidator to a corporation, does not fit any precise legal category or classification, which defines the rights and liabilities, attaching to that office. It is a hybrid composite with elements of fiduciary, trustee, agent, officer of the corporation and (in some instances) "officer" of the Court. Attached to those elements are the obligations along with the powers and discretions which apply to those roles. The liquidator's office is described in Loose on Liquidators, 3rd edition, 1989, at page 13 as:

"... a cross between a trustee and an agent or, alternatively,

like the directors, whose powers terminate upon the commencement

of a winding up, as a fiduciary agent of the company. Thus a

liquidator must not only act bona fide and reasonably and exercise

his powers for their proper purposes only but must also exercise

reasonable care and skill in the performance of his duties.

Failure to exercise the necessary degree of skill and care may

inter alia deprive him of his costs.

A liquidator is also under a fiduciary duty in respect of the

assets of the company of which he is appointed. As such he should

not purchase assets of the company. Similarly, a liquidator may be

required to disgorge any secret profit made ... in consequence of

... his office as liquidator and transaction with an associate may

be set aside ..."

The liquidator differs from the normal agent, however, in that he

himself controls the actions of his principal, ie. the company.

Furthermore his duties as agent of the company are subject to his

overriding statutory duties to apply the company's assets in

paying creditors and to distribute any surplus amongst the

members."

24. A similar description is contained in Palmer's Company Law Service, (published by Sweet and Maxwell) at 15128-15132.

25. The first questions which arise, are whether it is necessary for the respondents to obtain leave to file a cross-claim seeking indemnity or contribution from Hamilton personally and if so whether leave should be granted.

. It is said for Sydlow that proceedings cannot be properly

brought against Hamilton personally, where Hamilton was

appointed by the New South Wales Supreme Court as liquidator,

except by application in the winding up proceedings

themselves, or pursuant to leave of the court, granted in an

application made in the winding up proceedings. See Re

Siromath Pty Ltd (No 3) (1991) 25 NSWLR 25 at 28-29.

. An allegation that the liquidator has been negligent and

personally liable as a tortfeasor is not an application which a

rises in the winding up of Sydlow. The Federal Court, it is said,

does not have jurisdiction, inherent or otherwise, to determine

the contribution issue in the winding up proceedings.

. The cross-claim raises matters which must be maintained by

way of Statement of Claim in fresh proceedings.

. The liquidator is an officer of the court and therefore subject

to the control of the court. If any wrong has been done by such

officer, that Court will see that justice is done. It will

protect its officer, in relation to charges with respect to his

conduct in the discharge of duties of office and will not permit

its officer to be sued without an investigation as to whether

such action ought properly to be commenced which requires an

investigation of the merits of the case. Reference is made to

In re Maidstone Palace of Varieties, Ltd (1909) 2 Ch 283 at 286.

. Before leave will be granted the court would need to be

satisfied that there is a prima facie case against its officer,

who is winding up the company on behalf of the court.

. Nor will a court undertake an inquiry under s536 of the

Corporations Law (Cth) ("the Law") with respect to the conduct

of a liquidator in the performance of official duties, unless

there is at least a prima facie case to investigate.

. There is said to be no relevant distinction between what the

cross-claimants seek to achieve by way of cross-claim and an

inquiry under s536.

. A consequence of allowing the cross-claim to proceed, is

said to be that the liquidator could be placed in a position of

conflict and thereby forced to retire as liquidator.

. To allow the cross-claim would provide a ready means for a

person sued by a company in liquidation to stifle such an

action, by filing a spurious cross-claim.

26. The respondents make the following submissions.

. The respondents rely on the national scheme for administration

of the Law. There is no statutory requirement for leave to

commence an action against the liquidator in independent Federal

Court proceedings against the company, where the winding up

order was made in a State Supreme Court. Reliance is placed

on the decision in Acton Engineering Pty Ltd v Campbell (1991)

[1991] FCA 469; 103 ALR 437 at 452 where Lockhart J observed that previous

notions of jurisdiction had been:

"... swept away by the corporations legislation of the Federal and

State legislatures ... The evident intent of all legislatures

within Australia is that each of the Federal Court and the

Supreme Courts may exercise jurisdiction in respect of civil

matters arising under the Corporations Law. Hence an order for

the winding up of a company may, ... be made by the Supreme

Court of Queensland and subsequent applications or motions in

the winding up be made to that court or to any other State or

Territory Supreme Court or the Federal Court."

. The decision of Re Siromath Pty Ltd (supra), of McLelland J,

involved an application to restrain a party from continuing

proceedings against the liquidator personally which were

commenced in Pennsylvania. The principles applied in that

case concerned the use of an anti-suit injunction, to protect

the Court process from proceedings in an overseas court. The

relationship of the Supreme Court and the Federal Court, where

both courts can exercise jurisdiction under the national

scheme, is not analogous to the relationship between the Supreme

Court and an overseas court which threatens, albeit

indirectly, to subject an officer of that Court to liability

in the exercise of his functions as an officer of the Court.

27. It is well settled law that courts administering laws with respect to bodies corporate will not allow their officers to be subject to an action in another court which is based on the conduct of such an officer in the discharge of duties of the office, whether right or wrong. It is said that the proper remedy is to apply to the court in the proceedings in which the court officer was appointed, and that if any wrong has been done by the officer, that court will grant the appropriate remedies. There is no right to sue such an officer in another court, without the sanction of the court, which appointed the officer. See In re Maidstone Palace of Varieties Ltd (1909) 2 Ch 283 at 286; In re Hutton (a Bankrupt) (1969) 2 Ch 201 and Aston v Heron (1834) 2 My and K 390; [1834] EngR 631; 39 ER 993.

28. In Re Siromath Pty Ltd (supra), at 29 McLelland J said:

"The control by the court over the circumstances in which, and the

extent to which, its own officers are to be subjected to personal

pecuniary liability in respect of their activities in the course

of the performance of their official duties falls clearly within

the concept of the protection by the court of its own

processes...."

29. The court, when administering the Law, is concerned to ensure that the winding up is implemented in a timely and efficient manner, so as to produce optimum results for all persons interested in the winding up. In order to achieve this result, the Court must protect the integrity of the winding up under its supervision and control, by taking appropriate steps to prevent any proceedings or conduct which will wrongfully impede that process. One way in which this can be carried out is to require the grant of leave by the Court in respect of an action against an official liquidator, so that the Court can satisfy itself that there is no wrongful interference with the process. Such interference may arise where, for example, proceedings are initiated or continued without any legal basis or prospect of success or for an improper or collateral purpose. This appears to be the principle which underlies the established requirement that leave is necessary in order to sanction proceedings against an official liquidator.

30. However, under the national legislative scheme for the regulation and control of corporations, it is not necessary that the application for leave to file such a cross-claim should be made to the same court which made the winding up order. It may be that the same court is the most convenient and appropriate forum. However, it is not essential that the application for leave to proceed is heard by the court which made the winding up order.

31. In the Acton Engineering case (supra) the Full Federal Court held that any court having jurisdiction under the Law, which includes the Federal Court, could grant leave to commence or continue proceedings against a company in liquidation, pursuant to s471(2) of the Law, although the court granting leave had not made the winding up order against the company in question.

32. In my opinion, it is equally appropriate for this Court, to exercise the power to grant leave for an action against a liquidator personally, particularly in circumstances where a liquidator, acting in that capacity, has instituted proceedings in this Court and the cross-claim is sought to be set up in this Court in response to the application.

33. Where leave is granted to pursue an action against a body corporate which is in the course of being wound up, it is necessary to consider the impact of such an action in relation to the orderly winding up of the corporation. Likewise, in circumstances where leave is sought to file and pursue a cross-claim, there is a potential for impact on the course of the winding up. This is an important consideration which needs to be taken into account, in considering whether leave ought to be granted. In the present case, I am of the view, that leave to proceed against the official liquidator, is required and that this Court has the necessary jurisdiction and power to grant such leave. In forming this view, I bear in mind the observations of Lockhart J in the Acton Engineering case, set out earlier in these reasons.

34. The next question is whether leave should be granted to file and pursue the cross-claim.

35. On behalf of Hamilton, it is submitted that before leave to file and pursue a cross-claim against a liquidator is granted, it is necessary to establish a prima facie case.

36. Reliance is placed on the reasons for judgment of McLelland J in Re Siromath Pty Ltd (supra) at 29. At that page his Honour discusses the principles relating to international anti-suit injunctions. However, I could not find any reference to the necessity to establish a prima facie case, where leave is sought to file a cross-claim as in the present hearing.

37. At 28 his Honour said after referring to the decision In re Maidstone's Palace:

" ... that passage should not be treated as being intended to lay

down an unqualified rule that in no case could a claimant be given

leave to sue an officer of the court in another court or that he

should only be so allowed in very special circumstances."

38. The discretionary power of the court to grant leave must be exercised having regard to all the circumstances of the particular cases and bearing in mind the need to protect the integrity of its process. It does not necessarily follow that, in order to obtain leave, a prima facie case must be demonstrated. There is no specific threshold appropriate in all cases, however there must be more than mere assertion. The court's discretion may be exercised on many grounds, including, but not limited to, the sufficiency of the evidence adduced, as to the prospects of success of the action on the application for leave.

39. The following considerations are relevant in the examination of this question in the present matter.

. It would be inconvenient and wasteful to have Sydlow's claim and

the respondents' cross-claim in response to that claim, dealt

with by separate courts, and it is clearly desirable that all

issues should be resolved at the same time.

. There will clearly be common issues of fact and law and if the

matter were heard by different courts, there is the possibility

of inconsistent findings of fact or law.

. The liquidator has elected to commence proceedings in this Court

and although the cross-claim is against him in a different

capacity, it would be inappropriate to allow the liquidator to

pursue the cross-claim in another jurisdiction.

. Parties should be bound by findings of fact in one entire

proceeding, rather than having fragmentation of the dispute.

. To have separate proceedings is contrary to the national

legislative framework, with respect to corporations, where

jurisdiction is vested in both courts, and it would also be

contrary to the policy of ensuring that all issues, facts and

argument are dealt with together.

40. It is true that s536 of the Law provides a possible alternative avenue for recovery of damages against a negligent liquidator, in the form of an inquiry by the Court or the Australian Securities Commission, but in the present case it is desirable that all relevant issues be resolved in the one set of proceedings. This is preferable to the cumbersome separate procedure by way of inquiry under s536, which will only deal with the liquidator's alleged breaches. Similar considerations apply with respect to the further alternative remedy provided by s598. It is, in my opinion, desirable that all issues should be dealt with in the one proceeding where there is an opportunity to grant such indemnity or contribution as may be appropriate. This course avoids fragmentation and duplication of proceedings.

41. In the present matter, I am persuaded on the evidence, after taking account of the above matters and also bearing in mind the need to protect the integrity of the court process, that there is a sufficient case made out at this stage, for grant of leave to file and pursue the cross-claim. The evidence presently before me, is sufficient to lead me to conclude that the cross-claim will not wrongfully interfere with the due conduct and progress of the winding up.

43. The questions on which the parties seek a determination are framed in the notice of motion filed on 10 August 1995 and are set out earlier in these reasons.

44. Section 5(1)(c) of the Law Reform ("Miscellaneous Provisions") Act 1946 (No. 33) (Cth) ("LRMPA") provides:

"5(1) Where damage is suffered by any person as a result of a tort

(whether a crime or not) -

....

(c) any tort-feasor liable in respect of that damage may recover

contribution from any other tort-feasor who is, or would if sued

have been, liable in respect of the same damage, whether as a

joint tort-feasor or otherwise, so, however, that no peron shall

be entitled to recover contribution under this section from any

person entitled to be indemnified by him in respect of the

liability in respect of which the contribution is sought."

45. Hamilton says that he cannot be described as a tortfeasor who would if sued be liable because:

. An official liquidator is an officer of the court. This office

derives from executive appointment and he has been selected on

account of his skill and experience in the area of winding up.

He is subject to the control of the Australian Securities

Commission and of the court. In such capacity an official

liquidator is not subject to a common law duty of care to the

corporation. Section 598 of the Law empowers the Court to make

orders for payment where a corporation has suffered loss or damage

as a result of the negligence of a person in relation to a

corporation. This is said to support the conclusion that there

is a statutory duty to exercise care and diligence rather than a

common law duty.

. The required proximity to found the common law duty does not

exist between a company in liquidation and its official

liquidator. There are said to be sound policy considerations

why a common law duty of care should not be imported into the

duties and obligations of an official liquidator to a company in

liquidation.

. Liquidators can be liable in an action at common law for failure

to exercise due care and skill in the performance of their duties

and are therefore tortfeasors within the strict sense of the term.

This liability is analogous to that of directors.

. Liquidators have a duty to exercise particular professional

skill, care and diligence in the performance of duties. See B H

Mcpherson and J O'Donovon, The Law of Company Liquidation, (3rd

edition), 1987, page 218; Ford and Austin's Principles of

Corporations Law 7th edition, at 1013 to 1017, Palmer's Company

Law Service, para 15.323 at 15130.

. In Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith

and Ors (1989) 7 ACLC 1232, Olsson J held that a liquidator

liable in negligence on the basis that he failed to display that

degree of care and skill, which by accepting office he held

himself out as possessing.

. In Daniels v Anderson (1995) 37 NSWLR 438 at 505, the NSW

Court of Appeal (by majority, Clarke and Sheller JJA) confirmed

a decision that directors owe a duty of care in tort and could be

sued for contribution pursuant to s5(1)(c) of the LRMPA and that

negligent directors are tortfeasors within the meaning of that

subsection.

. The principles adopted in Daniel's case are relevant and are of

even greater force when considering the duties of a liquidator.

Directors, unlike liquidators, are not necessarily professionals,

and they do not necessarily hold themselves out as possessing any

particular skill or experience.

. There is no force in the cross-respondent's submissions that

there are a range of statutory and equitable remedies available

to companies aggrieved by the actions of the liquidator, and

therefore a company would be no better off having a concurrent

or additional right to sue at common law. The availability of

additional or alternative remedies will not necessarily negate

the existence of the particular remedy under consideration.

. If a liquidator has been negligent he or she should be liable to

contribute towards loss sustained thereby in circumstances where

the whole of that loss is sought to be recovered from the

respondents. As Kitto J pointed out in Albion Insurance Company

Ltd v Government Insurance Office of New South Wales (1969)

[1969] HCA 55; 121 CLR 342 at 350-351, the right of contribution at common law

arises where one of several persons has paid more than his proper

share towards discharging a common obligation.

. The argument as to possible difficulty in other cases arising

from conflict of interest should not be accepted. This difficulty

will disappear if the liquidator resigns. If there is no

substance in the case against the liquidator, an application

can be made to strike it out.

47. There is substance in the respondents' submissions on this point. I think they correctly set out the relevant principles.

48. Section 5 of the LRMPA is remedial legislation intended to meet the difficulty and injustice associated with requiring courts to determine a single or substantial cause of loss in circumstances where there are in fact a number of concurrent causes. There is injustice in requiring one of a number of wrong doers to bear the whole of the loss to which all have contributed.

49. The liquidator's duty to exercise reasonable care and skill is similar in substance from the duty of care owed by other professional persons providing services for reward. See s232 of the Law. In that section the term "officers" includes a liquidator of the corporation and there is no exclusion of a liquidator appointed by the Court. Cf s82A(2) of the Law. As a result no difficulty arises, in my opinion, in applying the legislation to breaches of duty on the basis that the liquidator as a matter of law can be a tortfeasor liable. In an appropriate case the Court may relieve the liquidator from liability where he or she had acted honestly and ought fairly to be excused. See s 1318 of the Law.

50. Accordingly, I consider that the first leg of subs5(1)(c) is satisfied.

51. Hamilton also submits that the LRMPA cannot apply because the liability asserted by TG Kotselas and Kotselas against Hamilton is not the same damage ("that damage") as that asserted by Sydlow against TG Kotselas and Kotselas.

. It is said that TG Kotselas and Kotselas, on the allegations, in

the Statement of Claim, are liable for advising and participating

in the transfer of assets on or about 1 November 1991. The damage

suffered by Sydlow, it is said, is complete at the time of the

transfer of the assets.

. On the other hand, the failure by Hamilton to take remedial

action to minimise the net loss to Sydlow is not the same

damage as that caused to Sydlow by TG Kotselas and Kotselas.

. It is said that where there are successive acts of negligence

the "same" damage will only be suffered if the first tortfeasor

is liable for the further damage suffered as a result of the

negligence of the second tortfeasor. This is in part determined

by whether the

further damage was reasonably foreseeable at the time the first

act was committed. Reliance is placed on the decision in Mahoney

v J Kruschich (Demolitions) Pty Ltd [1985] HCA 37; (1985) 156 CLR 522.

. It is said that the respondents claim against Hamilton is that

if Hamilton had not breached his common law duty of care to

Sydlow, timely steps would have been taken to have the assets

restored to Sydlow. If Hamilton had taken these steps, Sydlow

would not have suffered loss.

. There is said to be a distinction between damages arising from

Hamilton's breach which caused the loss of a chance of recovering

the assets, and that suffered by Sydlow as a result of the advice

given by TG Kotselas and Kotselas which led to the transfer of

assets.

. There was never a transfer of assets. The purported transfer was

void and of no effect. This is common ground. At all times the

assets remained the property of Sydlow but the liquidator did

nothing to take control of the company's assets and allowed the

directors to treat the assets as assets of Style Kitchens,

thereby leading to loss.

. Any loss suffered as a consequence of the breaches of TG

Kotselas and Kotselas were suffered when the assets were put

beyond the reach of the company or its liquidator. The loss

alleged by Sydlow is said to be, the value of the assets

transferred. The loss alleged in the cross-claim, is the same

loss, namely the value of those assets. Indeed, the cross claim,

para 11, seeks an indemnity or contribution from Hamilton, in

respect of any order to pay to Sydlow the value of those assets

not received.

53. In my opinion, the damage suffered as the result of the breaches of duty alleged against each party, is the loss of the value of the assets transferred and not recovered. The nature of the damage claimed is the same in each case. The acts and omissions constituting the breach may differ in each case, but the liability can properly be described as a liability in respect of the same damage.

54. The cross-respondent submits that no case has been made out for leave to proceed with the cross-claim in any event, because there is not even an arguable, let alone a prima facie case, that the cross-respondent, Hamilton breached any duty of care owed to Sydlow. Dismissal or Permanent Stay

55. Summary dismissal for want of a cause of action requires a clear demonstration that there is no reasonable basis for it and that the case is one which is so clearly untenable it cannot possibly succeed: General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 128-130.

56. On behalf of Hamilton, it is submitted that there is no evidence of negligence, but rather that the evidence points to diligent performance by Hamilton of the duties of his office.

57. The position advanced by the liquidator is summarised in the written submissions of 23 February 1996 as follows:

"12. When one reviews Mr Hamiltons (sic) conduct in light of what

was then known to him, the lack of assistance provided by Mr

Kotselas and the directors of Sydlow, the lack of available

funds or other assets, the legal advice Mr Hamilton received,

the level of indemnity Mr Hamilton received and the risks of

making an application through interlocutory relief, there is not

even an arguable (let alone a prima facie) case that Mr Hamilton

breached any duty of care which he owed to Sydlow."

58. In further submissions, the conduct of the liquidator and Mr Kotselas are analysed in some detail. However, after reviewing the evidence at this stage, and bearing in mind the sequence of events between the appointment of Hamilton on 19 December 1991 and the settlement with Style Kitchens on 23 September 1993, I am satisfied that the respondents have raised a real question for determination and made out a case sufficient to withstand an application for dismissal or permanent stay.

59. In particular, on the evidence at this stage, there appear to be some significant periods of inaction by Hamilton. For example, between 30 December 1991 and 21 January 1992, nothing of significance took place and the evidence indicates this was because no assistance or explanation was forthcoming by either directors or Kotselas over that period. There was some activity in January. On 29 January 1992 legal advice was sought by Hamilton from Baker and McKenzie.

60. On 6 February 1992, that firm advised him that there may be a basis to avoid the disposition to Style Kitchens under the Law. Indemnity was sought from the Deputy Commissioner of Taxation, on 11 February, in respect of costs to enable Sydlow to commence proceedings against Style Kitchens. However, no reply was received until 12 March 1992. This again is a significant delay given the advice of 6 February. Proceedings were not, in fact, commenced against Style Kitchens until 31 March. There were no steps taken to make any claim for interlocutory relief against Style Kitchens due to the potential costs of such an application but there does not appear to have been any effort made for an early hearing. There were settlement negotiations initiated in about July and the matter continued in Court at a somewhat relaxed pace. On 23 September 1993 a Deed of Settlement was executed between Style Kitchens and Sydlow. Sydlow received $15,679.00 from that company. The value of the property, which had been wrongfully "transferred" was alleged to be approximately $282,000.

61. On the evidence before me and given the apparent significant delays in taking and pursuing action, in respect of the transfer of the assets, I am satisfied that there is a real question raised by the material. It may well be that on all the evidence available at a final hearing that the respondents may not succeed on the cross-claim. However, that is for another day.

62. For the reasons given above, I refuse the application to dismiss or permanently stay the cross-claim.

63. The respondents, in my view, succeed on all points raised and should be awarded costs in respect of each notice of motion.

1. Leave is required to file and proceed on the cross-claim.

2. Leave should be granted.

3. On the assumptions set out in the Notice of Motion filed on

10 August 1995, the questions posed for preliminary

determination should be answered:

(a) Yes

(b) Yes

4. The cross-claim should not be permanently stayed or dismissed.

5. The applicant should pay the respondents' costs of the three

Notices of Motion.

Law Reform (Miscellaneous > > Provisions) Act 1946(NSW)

Reform (Miscellaneous Provisions) Act 1946

Law Reform (Miscellaneous Provisions) Act 1946

Reform ("Miscellaneous Provisions") Act 1946

Sydlow Pty Ltd (In Liquidation) v T G Kotselas Pty Ltd, Theo George Kotselas and William James Hamilton [1996] FCA 1384

At a glance

Court

Decision date

Before

Source

Judgment (95 paragraphs)

Sydlow Pty Ltd (In Liquidation) v T G Kotselas Pty Ltd, Theo George Kotselas and William James Hamilton [1996] FCA 1384 (12 April 1996)

Parties

Legislation Cited (4)

Cases Cited (6)