White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) (No 2) [2018] FCA 518

1. The First Plaintiffs would be justified in causing the company to retain possession of the property identified as consignor property in the affidavit of James Michael White, sworn 5 March 2018, to the extent that it has not been collected by 9 April 2018 pending the determination of the First Plaintiff's Notice of Appeal filed in relation to the judgment of Justice Perram delivered on 9 April 2018.

2. Prayer 4 of the Interlocutory Process be stood over for a further hearing on a date to be fixed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

PERRAM J: 1 On 9 April 2018, I gave judgment in a matter: White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) [2018] FCA 471. That judgment concerned an application by administrators of Mossgreen Pty Ltd (Administrators Appointed) ('Mossgreen') for directions whose effect would have been that they were entitled to recoup a levy from the consignors of certain goods. That levy related to the costs of holding, storing, insuring and conducting a stocktake of goods which had been left with the auction house that was conducted by Mossgreen. I determined that they were not entitled to the equitable lien which they claimed and directed that short minutes of order be brought in to that effect. 2 There are, at the premises maintained by Mossgreen, effectively, three kinds of goods: those which have been delivered for auction but not yet auctioned; those which have been delivered for auction but have not been successfully sold at auction; and those which have been successfully sold at auction but the successful bidder has not yet collected them. 3 The title of none of these goods is vested in Mossgreen and it was accepted on all sides that title in them resided in other persons. 4 When they took over the business, the administrators were concerned to conduct the return of the consignors' and other persons' goods to the respective owners in as orderly a process as was possible. On entry into the business, they discovered that the inventory recordkeeping system for the business was deficient in a number of respects. They therefore determined to embark upon a program of inventory system improvement so that they could conduct the process of the return of the consigned goods, as I shall call them, in an orderly and efficient fashion. The cost of that process is not yet fully known but is in excess, so far, of $1 million. 5 One of the pressing expenses to which the administrators were exposed by reason of this process was the obligation of an ongoing kind to pay rent to the lessors of two sets of premises. These premises were in High Street, Armadale and in Clayton. The administrators have also been paying insurance premiums so that the goods are insured. These expenses are considerable. The effect for which the administrators contended by means of their equitable lien was to, in a practical sense, persuade the consignors to pay the levy by otherwise indicating they would not release the goods. 6 That gives rise, following the judgment, to a particular problem. The administrators have signalled their intention to appeal and, indeed, I have granted them leave to appeal this afternoon. The purpose of that appeal is to vindicate their equitable lien. If the goods are no longer in the possession of the administrators, then, in a practical sense, what the Full Court determines about the equitable lien will be otiose, as they will have no goods in respect of which they can assert the lien. 7 This puts the administrators in the difficult position, on the one hand, of wanting to maintain possession in some sense of the consigned goods but, on the other hand, of not having to pay the ongoing rental obligation which attends their current occupation of the two warehouses. For that reason, in addition to a number of other interlocutory spot fires which have been debated this afternoon, they have also sought by way of interlocutory application a series of directions whose effect is, in substance, to protect them in terms of rental and insurance costs going forward. 8 The effect of my decision is that the administrators, to the extent that they have been conducting the process of looking after and attempting to return by means of orderly stocktake the consigned goods to the consignors, have acted outside the functions which are conferred on an administrator and, accordingly, they are not entitled to indemnity or remuneration in respect of that. The consequence of that conclusion, so far as rent which has been paid in the past is concerned, is that the rent is the administrators' cost. 9 If the Full Court reverses my decision, then the administrators will be entitled to recover that rental and insurance cost by means of the equitable lien which will, by that time, have been reinstated. If they are unsuccessful in the appeal to the Full Court, then they will have no equitable lien and they will have no entitlement to be reimbursed in respect of the rent. The difficulty with the proposed interlocutory orders which are being sought is that, although couched, as Mr Foreman of counsel put it, as if it were an interim stay, they are not actually interim in effect. If I now make an order, as is sought, that the administrators are justified in causing the company to retain and to continue to pay the rent, then, even if the Full Court upholds my decision, at least for the period covered by that direction, the administrators will have been acting within their statutory remit. This is because I will have so held this afternoon, even though, on this hypothesis, I will have held in a final order that the administrators are not entitled and the Full Court will have upheld that. 10 That is not a situation which seems to me to be possible. I doubt whether I have the power to make the orders which are sought in relation to trying to put the administrators in a position where they can pay the rent and be sure that it has got to their account. Even if I do have the power, I would not, as a matter of discretion, exercise it for the reasons which I have given. I therefore refuse that aspect of the interlocutory application. On the other hand, the administrators are also concerned that, if consignors begin turning up at the premises in the next day or so before the Full Court appeal and demand their goods and the goods are returned to them, and if thereafter the administrators are successful in their Full Court appeal, they will have lost their lien because the goods will have been gone. 11 This seems to me to be an unanswerable submission. I therefore accede to the suggestion that I should make an order that the administrators in substance would be justified in not returning the goods before the disposition of the Full Court appeal and I will make an order to that effect. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.