Ultra Tune Australia Pty Ltd v Mc Cann [1999] VSC 58

Supreme Court of Victoria|1999-03-25|Before: Hansen J.

For the reasons which I have given the application for a declaration that pursuant to s.532 the respondents are disqualified from acting as liquidators of UTSA is refused, as is the application for an order pursuant to s.504 reviewing the respondents' remuneration as liquidators of UTSA. In the circumstances I decline to order an inquiry pursuant to s.536. I apprehend that the lessons of this litigation have been, and are still being, learned hard and will not be forgotten. The declaration sought by para.5 of the Notice of Motion is unnecessary, and as discussed with counsel in argument should not be made in the absence of other interested persons or without appropriate notice to them. The balance of the orders sought in the Notice of Motion is concerned with the payment of UTA's costs by the liquidators, payment of the said sum of $350,838.85 into court as security for that payment or, alternatively, to UTSA and orders in relation to disgorgement of that amount (para's 6-11). As I said earlier, counsel for UTA did not seek orders under para's 6-9. The orders sought in para's 10 and 11 relate to disgorgement and are refused.

In view of the conclusions I have reached I have not had to consider an alternative submission of counsel for the respondents that if I found that they were disqualified from acting as liquidators under s.532(2) they should nevertheless be granted leave under that section. Rule 4.02 of the Corporations Rules 1992 requires that unless the Court otherwise orders, such an application and each supporting affidavit be served on the ASC a reasonable time before the application is heard. This was not done. Indeed there is no written application. The application was made orally by counsel as an alternative submission. Thus the ASC has not been able to consider the application. For this reason, and because it is unnecessary to do so, I will not consider the application.

Corporations Rules 1992

On the power of the court under s.503, on cause shown, to remove a liquidator, see Commissioner for Corporate Affairs v. Harvey [1980] VicRp 64; [1980] VR 669 at 696 and City & Suburban Pty Ltd & Ors v Smith (as liquidator of Compac (Aust) Pty Ltd (in liq)) [1998] FCA 822; 1998) 28 ACSR 328 at 336. In Harvey Marks J said that the Court will order removal where it is considered in the best interests of the liquidation to do so. Personal misconduct or unfitness does not have to be shown. In City and Suburban at 336 Merkel J, quoting Bowen LJ in Re Adam Eyton Ltd: Ex parte Charlesworth (1887) 36 ChD 299 at 306, said that:

In support of his submissions counsel referred to authorities in the area of actual or apparent or potential conflict of interest: Re The Mutual Live Stock Financial and Agency Company Ltd [1886] VicLawRp 159; [1886] 12 VLR 777 at 782, in which case Webb J removed a liquidator because there were several matters involving him which required investigation; Re National Safety Council of Australia [1990] VicRp 2; [1990] VR 29 at 32 and 34, in which case a liquidator was removed because the relationship between his firm and the company may have required investigation; and City and Suburban at 336. The requirement is that the liquidator be and be seen to be independent and impartial: see Re Allebart Pty Ltd [1971] 1 NSWLR 24 at 28 and 30. In that case Street J warned of the need for a liquidator to not:

Counsel then submitted that even if the money were paid pursuant to some "side arrangement", it is nonetheless money for which the liquidators are liable to account to UTSA as persons under a fiduciary duty in relation to UTSA. As to the status of the liquidator, counsel referred to the description accepted by Tamberlin J in Sydlow Pty Ltd v. T.G. Kotselas Pty Ltd [1996] FCA 1384; (1996) 14 ACLC 846 at 850. See too The Law of Company Liquidation, supra, at 212-219 where both the status and duties of a liquidator as a fiduciary are referred to; Jacobs' Law of Trusts in Australia, 5th ed., para's.202-208.

As to the duties of a fiduciary, counsel for UTA then referred to the following cases: Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1; Regal (Hastings) Ltd v. Gulliver [1967] 2AC 137; Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46 at 105; Consul Development Pty Ltd v. D.P.C.Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 393; and Chan v. Zacharia [1984] HCA 36; (1983-1984) 154 CLR 178. A fiduciary must not have a conflict between his duty as a fiduciary and his private interest and he must be independent and impartial as I have already mentioned. A further consequence of the fiduciary relationship is that the fiduciary is not permitted to profit from his position beyond his authorized remuneration.

According to Deane J, however, in Chan at 204-205, in circumstances where "there is no possible conflict between personal interest and fiduciary duty and it is plainly in the interests of the person to whom the fiduciary duty is owed that the fiduciary obtain for himself rights or benefits" then "the liability to account for a personal benefit or gain obtained or received by use or by reason of fiduciary position, opportunity or knowledge will not arise". This passage was cited with approval in a joint judgment of the High Court in Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 559.

The concept of a fiduciary and the duties owed lie in equity. The actual scope of the fiduciary's obligations, and in particular whether they have been breached, is determined by reference to the facts of each case. The nature and terms of the relationship are critical. See Birtchnell v. Equity Trustees Executors and Agency Co. Ltd [1929] HCA 24; (1929) 42 CLR 384 at 480, referred to in Noranda Australia Limited v. Lachlan Resources N.L. (1988) 14 NSWLR 1 at 15; Fiduciary Obligations, Finn, para's 540-547. In para. 542 Dr. Finn refers to the observation of Upjohn LJ in Boulting v. Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606 at 637-638 that the conflict of duty and interest rule:

In Re David A. Hamilton and Co Ltd (in liq.) [1928] NZLR 419, a shareholder had agreed, in consideration of the liquidator advancing the costs from the funds of the company, to indemnify the liquidator against his costs of prosecuting an appeal from a judgment against the company. The appeal was successful although no costs were allowed to either party. It was then contended by other contributories that the liquidator should enforce the indemnity for costs rather than recover his costs from the funds of the company in liquidation. The contention would have put the full burden of the costs on the one indemnifying shareholder as distinct from all of the contributories. The contention was rejected. In the first place the terms of the arrangement did not preclude the liquidator from paying the costs out of the funds of the company. The arrangement was simply one by way of indemnity which the liquidator could rely on if he wished. Skerrett C J held that the indemnity agreement was personal to the liquidator and the shareholder and conferred no rights on the other contributories of the company. His Honour said at 425-426:

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