Telaro Pty Ltd v Burns & Ors

COUNSEL : Mr J M Ireland QC for plaintiff Mr C A Vindin for defendants SOLICITORS : McGirr James Hall & Associates for plaintiff S A Teen for defendants CATCHWORDS : Corporations - administration - whether the lessor of a company under administration needs leave to continue existing proceedings for possession of land occupied by company - Corporations - administration - about s435A of Corporations Law should be applied LEGISLATION CITED : Corporations Law Pt 5.3A CASES CITED : Re Java 452 Pty Ltd Permanent Trustees Australia Limited v Stout (1999) 32 ACSR 507 DECISION : Declaration & order sought in paras (3) and (4) of summons; dismiss claim for relief in para (5). Plaintiff to have costs up to 10am 4 February 2000 except for para 5 costs; defendant to have costs of para (5) and the last five hours. Short minutes may be brought in.

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

3394/99: TELARO PTY. LIMITED v GRAEME ALBERT AUSTEN BURNS &ORS JUDGMENT

1 HIS HONOUR : The plaintiff is the registered proprietor of certain lands at Granville. The third defendant is the tenant of a part of that property, known as Unit 2. 2 On 6 December 1999 the plaintiff sold the property at auction. The contract of sale requires the plaintiff to give vacant possession of unit 2 and to complete the sale within 42 days. 3 On 14 December 1999 the plaintiff gave notice to quit to the third defendant. That notice required vacation within a month, it being the plaintiff's contention that the third defendant was a tenant from month to month. 4 On 22 December the then solicitor for the third defendant wrote to the plaintiff's solicitors asserting the existence of a longer lease and on 24 December the plaintiff commenced these proceedings. 5 So far as concerns the third defendant, the plaintiff seeks a declaration that the third defendant holds unit 2 as tenant from month to month only, an injunction restraining the third defendant from lodging a caveat asserting a greater term of the tenancy, and judgment for possession of unit 2. 6 On 7 January 2000 an administrator under Part 5.3 A of the Corporations Law was appointed to the third defendant. Two meetings of creditors have since been held but no precise proposal has yet emerged concerning the future affairs of the third defendant. 7 In the meantime the purchasers of the property have given to the plaintiff a notice to complete requiring completion by 9 February 2000 and threatening to terminate the contract if completion does not occur by that date. For the moment the plaintiff is unable to complete because it cannot give vacant possession of unit 2. 8 Earlier the third defendant claimed to have a lease other than a lease from month to month. That claim is no longer pressed but the third defendant resists the plaintiff's claim for judgment for possession. 9 The first issue for resolution now is whether section 440 C of the Corporations Law prevents the plaintiff from proceeding without the leave of the Court. That section provides relevantly that during the administration of a Company the owner or lessor of property that is occupied by, or is in the possession of the Company cannot take possession of the Company or otherwise recover it except with the leave of the Court. 10 The plaintiff contends that section 440 C does not apply because of the operation of section 441 F. 441 F provides relevantly that if before the beginning of the administration of a company a person such as the plaintiff exercises any power in relation to that property, for the purpose of enforcing a right of the owner or lessor of the property to take possession of the property or otherwise recover it, then section 440 C does not prevent the plaintiff from exercising that power in relation to the property. 11 The plaintiff's contention in brief is that either when it served the notice to quit or when it commenced the present proceedings for possession of the land, or when it did those two things in combination, it was exercising a power in relation to the property for the purpose of enforcing a right held by the plaintiff as owner or lessor to take possession of the property or otherwise recover it. 12 At common law the plaintiff had no right to take possession of the property before the expiry of the notice to quit so that, it seems to me, the plaintiff can only now rely upon so much of section 441 F as speaks of otherwise recovering the property. 13 The third defendant submits (and I accept) that the claim for possession of land, contained in paragraph 5 of the summons, was premature as at the date of the filing of the summons. However, the other claims made in paragraphs 3 and 4 of the summons for the declaration and the injunction that I have mentioned were properly brought, given the circumstances that prevailed as at 24 December 1999. 14 The question is apparently free from authority. Reading Part 5.3 A, and more particularly Divisions 6 and 7, I have come to the view that what the plaintiff did in giving a notice to quit and then in commencing an action for possession of land did not amount to the exercising of a power for the purpose mentioned. 15 It seems to me that the word "power" is not apt to describe what the plaintiff did. This conclusion seems to be reinforced by a consideration of the provisions of Part 5.3 A overall, particularly when one reads section 435 A, which provides that the object of Part 5.3 A is to provide for the business, property and affairs of an insolvent company to be administered in a way that (a) maximises the chances of the Company or as much of its business continue in existence, or (b) , if it is not possible for the Company or its business to continue in existence, results in a better return for the Company's creditors and members than would result from an immediate winding-up of the Company. 16 I therefore hold that section 441 F does not operate to take this case outside the scope of section 440 C and that the plaintiff requires the leave of the Court to proceed further if it is to recover the judgment for possession that it seeks. 17 The plaintiff seeks that leave now, and I turn to that question. As tothe circumstances relied upon as going to the exercise of the discretion conferred by section 440 C, Mr Vardy, an accountant employed by the firm of which the administrator of the third defendant is a partner, has sworn an affidavit in which he states the following. "6. The business appears to have developed substantial goodwill which may well be highly saleable in conjunction with its fittings, plant and equipment and stock-in-trade. Since the commencement of the administration, the business has continued to trade on a day to day basis. There has been a positive cash flow. This is consistent with the administrator's view (pages 9 and 10 of annexure "A") that but for the reasons stated therein the third defendant was trading and solvent. This continued trading is essential to maximise the return to creditors whether by means of a deed of company arrangement or a sale of the business as a going concern. These are the principal objects of the voluntary administration procedure.

7. If the third defendant is forced to vacate the premises during the course of the administration or before any sale of the business, it will seriously disrupt its trading operations. It will detrimentally affect the value of the business and the saleability of its goodwill to the detriment of the creditors of the third defendant.

8. If there is to be either a deed of company arrangement or a sale of the business as a going concern, I expect that it will take about three weeks after the second meeting to finalise the arrangements and for the third defendant to vacate the premises.

9. Regardless of how these proceedings are determined, I believe that it is in the best interests of the third defendant and its creditors that the third defendant be permitted to remain in the premises until the end of February, 2000. The third defendant may be able to vacate the premises prior to that date." 18 Mr Vardy was cross-examined, but not as to these matters. Rather, it emerged that so far as Mr Vardy knows no definite proposal has yet been advanced in the nature of a deed of arrangement or for the sale of the Company's business although there has been some oral discussion about some proposal. 19 The plaintiff will of course be disadvantaged if leave is refused. It is at least possible that the purchasers will terminate the existing contract of sale, as they have threatened. Perhaps the plaintiff will be liable to them for damages for breach of contract, although the evidence does not point to any actual loss sustained or likely to be sustained by those purchasers. 20 It may well be that the plaintiff will effectively lose the expense that it has presumably incurred in having the property auctioned in December. It may be that the plaintiff will suffer a loss in that it will ultimately have to resell the property for a lesser sum than the existing contract price. It may be that the property will be vacant for a time. Above all it may well be that the third defendant will be unable to recompense the plaintiff in respect of these various possible losses. 21 Perhaps the plaintiff will suffer other loss that might also not be able to be recompensed by the third defendant. At the moment, no doubt of necessity, the evidence about these possible losses is distinctly thin, but that is the current state of the evidence upon which I have to exercise a discretion. 22 The plaintiff submitted that the evidence went no further than establishing a general inconvenience so far as concerned the third defendant. It seems to me that Mr Vardy's affidavit goes further than that. Perhaps the affidavit can be criticised in that in a sense it does no more than state conclusions reflecting the words of the statute but on the totality of the evidence I do not see that I can do other than accept the opinions of Mr Vardy that I have quoted. 23 The plaintiff also stressed the absence of the existence of any firm proposal at this stage to reorder the affairs of the third defendant. That is certainly a legitimate consideration and in another case it might be decisive. Rather, like ByrneJ in Re Java 452 Pty. Limited, Permanent Trustee Australia Limited v Stout (1999) 32 ASCR 507, I take the view that one should set out to apply the provisions of Part 5.3 A in a way which will give effect to the objects of that Part set forth in section 435 A. That view seems to me to be reinforced by reading the Part in its totality. 24 There will be many cases, including the present one I think, where someone, in this case the plaintiff, will be disadvantaged if the objects enumerated in section 435 A are given precedence, but that seems to be what Parliament intended. 25 I conclude that in all the circumstances I should refuse leave at this stage. Subject to what counsel might now say I propose to make an order under Part 31 of the Rules for the separate determination of all issues separating the plaintiff and the third defendant, and for the determination of those issues before all other issues in the case. I propose to make the declaration and orders sought in paragraphs 3 and 4 of the summons but to dismiss the claim for relief made in paragraph 5. I invite submissions as to that and as to costs. 26 Orders can be formulated and short minutes of order brought in at any convenient time. (Counsel addressed) 27 In the course of discussion it has become clear that the declaration sought in paragraph 3 and the injunction sought in paragraph 4 of the summons should be defined to reflect what has been discussed, and I should record that it seems to me that assuming leave was necessary it is entirely appropriate to grant the leave sought, so as to entitle the plaintiff to successfully establish that the tenancy of the third defendant was only a tenancy from month to month. That is particularly so, given the events of December. 28 As to costs it seems to be the position that until last night the third defendant resisted the relief sought in paragraphs 3 and 4 of the summons. It is true that the third defendant has succeeded on the issue raised by paragraph 5 but it has failed in relation to paragraphs 3 and 4. 29 In those circumstances it seems to me that the plaintiff is entitled generally to its costs of the action as against the third defendant up to 10 o'clock this morning, including the costs of briefing counsel, but excluding such costs as are referrable solely to the issue raised by paragraph 5, and that the plaintiff should pay the costs of the third defendant so far as those costs relate solely to the issue raised by paragraph 5 and except in respect of the third defendant's costs since 10 o'clock this morning. That is to say, the plaintiff gets its costs up to 10 o'clock today except for the paragraph 5 costs and the defendant gets its costs of paragraph 5 and the last five hours. Short minutes can be brought in at any convenient time. **********

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