Zakrzewski, John v Rodgers, Peter David as Provisional Liquidator of Desaro Design Interiors Pty Ltd (in liq) [1998] FCA 670

the Court or the Commission, as the case may be, may inquire into the matter and, where the Court or the Commission so inquires, the Court may take such action as it thinks fit. 536(2) [Misfeasance, neglect or omission] The Commission may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss that the estate of the company has sustained thereby and may make such other order or orders as it thinks fit. 536(3) [Court's general powers] The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine the liquidator or any other person on oath concerning the winding up and may direct an investigation to be made of the books of the liquidator."

The applicant seeks the order for an inquiry into the conduct of Peter David Rodgers as provisional liquidator of Desaro Design Interiors Pty Limited (now in liquidation) ("Desaro") and in particular, it is contended, to determine whether Mr Rodgers' conduct was unconscionable, whether any false or misleading statements were made by Mr Rodgers or whether Mr Rodgers acted otherwise contrary to law. Mr Rodgers was appointed provisional liquidator of Desaro on 6 March 1992. On 7 September 1992, Network Painting and Decorating Pty Limited ("Network"), a company formerly controlled by the applicant, Mr John Zakrzewski ("Mr Zak"), instituted proceedings in the Local Court against Mr Rodgers, as provisional liquidator of Desaro, claiming the sum of $34,394.50 in respect of work done and materials claimed to have been provided by Network to Mr Rodgers, as provisional liquidator of Desaro. The particulars annexed to the statement of liquidated claim filed in the Local Court gave details of invoices for goods and services provided in the total sum of $34,394.50, the invoices being fifteen in number bearing dates between 15 July 1992 and 28 August 1992. On 6 October 1992, Mr Rodgers, as provisional liquidator of Desaro, filed a defence in the Local Court proceedings stating that he was not indebted to Network as alleged, or at all; that he did not request work to be done or materials to be provided by Network; that any amount outstanding to Network, which was not admitted, was owed by Desaro and not by Mr Rodgers and, finally, that any contracts which were entered into for work to be done by Network, which was not admitted, were made by Desaro and not by Mr Rodgers. That defence was verified by an affidavit sworn by Mr Rodgers on 6 October 1992. At the same time, a cross-claim was filed by Mr Rodgers, as provisional liquidator of Desaro, against Network. Particulars of the cross-claim were given to the following effect, namely: that Network undertook certain work and provided certain materials for Desaro; that certain sums were paid to Network by Desaro for work undertaken and material provided; and that the sum of $4,848 was paid to Network in excess of the amount due and payable to it. The cross-claim therefore claimed the sum of $4,848 from Network. On 13 November 1992 default judgment was entered on the cross-claim in the Local Court. On 9 August 1993 the solicitors for Mr Rodgers served upon Network a creditors statutory demand for debt pursuant to s 459E(2)(e) of the Law reciting that Network owed Mr Rodgers, as provisional liquidator of Desaro, the amount of $5,693.19 being the amount of the judgment obtained on the cross-claim in the Local Court together with interest. Demand was made for the payment of the debt. On 6 September 1993 Mr Rodgers, as provisional liquidator of Desaro, applied to the Supreme Court of New South Wales by (amended) summons filed on that date for the winding up of Network. On 20 September 1993 a notice of motion was filed in the Local Court on behalf of Network seeking to set aside the default judgment obtained on the cross claim. On 22 September 1993 Network filed in the Supreme Court of New South Wales a notice of intention to defend the winding up application. In that notice of grounds of defence, Network says that it was not indebted as alleged, or at all, and stated that there was presently before the Local Court, proceedings against Mr Rodgers, as provisional liquidator of Desaro, an action commenced by Network to recover the sum of $34,898.36 plus interest, and that the matter had been referred for determination by arbitration on 11 October 1993. Network also stated that the service of the summons on 16 September 1993 did not allow a reasonable timetable for response. Network further stated that on 20 September 1993 it had filed a motion to set aside the judgment obtained on the cross claim.

The application for winding up came before the Supreme Court on 27 September 1993. Although there is no transcript of those proceedings available, it appears that the matter was dealt with by a Registrar who, having heard representatives of both parties, made an order for the winding up of Network. On 12 May 1995 the Local Court ordered that the default judgment obtained on the cross-claim be set aside on condition that a defence be filed within fourteen days. Costs were awarded in favour of Mr Rodgers, as provisional liquidator of Desaro. On 13 December 1995 the Local Court ordered that the proceedings by Network be stayed pending an application to this Court for leave to proceed. On 10 April 1996 Network filed an amended statement of liquidated claim against Mr Rodgers claiming the sum of $40,000 plus interest and costs. In that claim Network alleged: that Mr Rodgers was appointed the provisional liquidator of Desaro on 6 March 1992 and its liquidator on 30 October 1992; that on or about 9 March 1992 an agreement was reached between Network and Mr Rodgers, but the agreement was oral and was made by Mr Zak on behalf of Network and Mr Paul Leroy on behalf of Mr Rodgers; that the terms of the agreement were that Network would complete painting jobs at a city building and another job; that Network would receive an order for each job from Mr Rodgers; that Network would invoice Desaro for payment; and that Mr Rodgers would guarantee the payment of Network's invoices for work done to his order. It was then alleged by Network that pursuant to this agreement, Network received orders from Mr Rodgers, completed the work the subject of the orders and rendered invoices in the name of Desaro on Mr Rodgers. It was further claimed that in or about mid April 1992 this agreement was varied, that the variation was made between Mr Zak on behalf of Network and Mr Leroy on behalf of Mr Rodgers and that the terms of the agreement as so varied were identical to those of the previous agreement except that the directors of Desaro were also able to authorise orders on behalf of Mr Rodgers and Desaro. It was then pleaded that pursuant to the varied agreement, Network received orders either from Mr Rodgers or the directors of Desaro, completed the work the subject of the orders and rendered invoices in the name of Desaro on Mr Rodgers. It was then said that in breach of the agreement and in breach of the varied agreement, Network had not paid for all of the invoices it rendered upon Mr Rodgers in the name of Desaro. There were then set out particulars of invoices, twenty two in number, bearing dates between 15 July 1992 and 7 September 1992. In its amended statement of liquidated claim, Network claimed damages from Mr Rodgers by reason of Mr Rodgers' refusal to pay to Network the amounts outstanding under the agreement and the varied agreement. Alternatively, Network claimed that but for the representation made by Mr Rodgers by his agent, Mr Leroy, Network would not have entered into the agreement or the varied agreement. It is then said that Mr Rodgers had thereby engaged in misleading or deceptive conduct in breach of s 42 of the Fair Trading Act 1987 (NSW) and that owing to that breach, Network had suffered damage. Network then claimed damages pursuant to s 68 of the Fair Trading Act. Prior to the filing of this amended statement of claim, on 16 February 1996 Foster J had granted leave to proceed against Mr Rodgers personally pursuant to a notice of motion, filed in this Court on 11 January 1996, seeking leave to proceed. On 9 July 1996 Mr Rodgers filed a defence to the amended statement of claim. On 8 October 1997 an application was filed under s 536 of the Law purportedly on behalf of Network against Desaro and Mr Rodgers. On 24 October 1997 the solicitor for the liquidator of Network appeared before this Court and informed the Court that these proceedings had been brought without his approval and, therefore, he consented to them being dismissed. Mr Zak then sought to have his name substituted for that of Network. That application was then granted and the matter stood over to 5 December 1997. On 21 November 1997 an amended application was filed. I dealt with aspects of that amended application on a notice of motion filed by Mr Rodgers in my reasons for judgment dated 18 February 1998 where I there struck out part of the claim but allowed the application under s 536 to remain. On behalf of Mr Zak, affidavits sworn by him on 28 January 1998 and on 11 March 1998 have been read. On behalf of Mr Rodgers, affidavits sworn by him on 6 February 1998 and 1 April 1998 have been read together with affidavits sworn by Mr Gregory Bridge on 12 February 1998 and by Mr Leroy on 1 April 1998. What emerges from the evidence is, in essence, the chronology of events that I have recited. There is no dispute about that history. I should, however, mention that there is included in the evidence before the Court correspondence between Mr Zak and those representing him and the Australian Securities Commission ("ASC") and correspondence also with the Commonwealth Ombudsman. I have read that correspondence but it does not appear to me to bear upon the present question and I have accepted it merely as part of the general background to the present matter. On behalf of Mr Zak counsel has handed up a written outline of submissions dated 13 March 1998. In that outline reference is made to the circumstance that Desaro continued to trade after its provisional liquidation on 6 March 1992 and that there was an ultimate sale of Desaro's assets to a company associated with directors of Desaro. Counsel for Mr Zak then referred to statements made by Mr Rodgers in an affidavit sworn by him on 29 October 1992 as follows: "19. Unfortunately there will now not be a dividend to the unsecured creditors of the company prior to my appointment. 20. The sale to the directors however ensures that the creditors during the period of my appointment are paid in full and also that many of the employees will continue to have employment."

Counsel for Mr Zak then points out that Network was a creditor of Desaro at the date of the provisional liquidation in the sum of $32,730 in respect of unpaid work but did not receive any payment in respect of that pre-liquidation debt. During the provisional liquidation Network continued to perform work under an arrangement with Mr Rodgers and Network was paid $67,063 for work performed during the provisional liquidation. However, it is submitted on behalf of Mr Zak that Mr Rodgers did not pay for all of the work performed by Network during the provisional liquidation. It is claimed that the total amount outstanding in respect of work performed by Network during the provisional liquidation is $46,773 and that Network had filed a claim for about $34,000, as has been seen, in the Local Court on 7 September 1992. Counsel submits on behalf of Mr Zak, that an inquiry under s 536 should specifically examine the conduct of Mr Rodgers in relation to five matters as follows: "(a) the refusal to pay amounts invoiced by Network Painting; (b) the validity of the cross-claim; (c) the obtaining of default judgment on the cross claim;... (d) the taking of acting to wind up Network Painting on the basis of the aforementioned default judgment; [and] [(e) the making of the statement on 29 October 1992 when the respondent knew that the cross-claim was substantially less than the claim against Desaro by Network.]"

Counsel for Mr Zak also relies upon the circumstance that in an explanation given to the Australian Securities Commission in connection with the winding up of Network, Mr Rodgers informed the ASC that soon after disputes arose he was unable to contact Mr Zak as he had "temporarily moved overseas". Mr Rodgers went on to inform the ASC that as action was pending against him as provisional liquidator, the matter - "was referred to the courts who subsequently made orders that Network be wound up." On behalf of Mr Zak it is said that this explanation for the winding up of Network is inadequate and that Mr Rodgers should be asked to justify such conduct. Similarly, it is submitted that Mr Rodgers should be asked to explain the apparent contradiction between his sworn statement on 29 October 1992 that - "[t]he sale to the directors... ensures that the creditors during the period of my appointment are paid in full..."

and Mr Rodgers' knowledge as at that date of the claim by Network pending in the Local Court. It is then submitted on behalf of Mr Zak that from initially agreeing to provide a means by which Desaro could continue to trade during provisional liquidation, Network and Mr Zak ultimately suffered considerable detriment and these are matters that warrant the exercise of the Court's discretion to inquire into Mr Rodgers' conduct under s 536. Mr Zak is a member of a category of persons with whom liquidators deal generally and therefore the public has an interest, it is said, in the accountability of liquidators in relation to their conduct and dealings with the public. In his affidavit sworn on 28 January 1998, Mr Zak said, in para 9, that at that moment he was unsure of the exact status of the claim by Network in the Local Court. It will be recalled that on 3 April 1996 Network had amended its statement of claim and that a defence had been filed (on 9 July 1996) to that claim. However, the matter was dealt with by the Local Court on 6 November 1996 and it is common ground now, that on that date there was a verdict entered for the defendant after a trial in the Local Court. On behalf of Mr Rodgers, counsel has provided a written outline of submissions dated 20 April 1998. In those submissions, counsel for Mr Rodgers has relied, amongst other things, upon a submission that the present proceedings are, in effect, an attempt, impermissibly, to re-agitate matters already finally dealt with in the Local Court. It is said, in particular, that the Local Court has finally disposed of the question whether Mr Rodgers guaranteed or promised personally the payment of the debts in question. Whether, in the present case, there is an issue estoppel in these areas, is not a matter I need finally decide. In my opinion, no prima facie case has been made out for the order of an inquiry on any view of the chronology of the events which I have recited. As Young J pointed out in Burns Philp Investments Pty Ltd -v- Dickens (1993) 11 ACLC 272 (at 273) it is not in the public interest that anybody - "who feels that he or she or it has a grievance against the liquidator which they hope might be able to be proved in due course may set in train a full blown inquiry." I further agree, with respect, with the observations of Young J (at 273) that the Court must be given "some material to suggest that it would be in the public interest to conduct an inquiry". That means that the complaint must put forward "material which prima facie satisfies the court of that matter". There is no such material before the Court in the present case. Instead, what emerges is a dispute of fact, and possibly of law, or perhaps of mixed fact and law, as to the parties' respective contractual arrangements and the operation of those arrangements in the events which happened. The evolution of that dispute followed the course I have described over a long period. The matter has been before the Local Court on several occasions and before the Supreme Court on at least one occasion. There is nothing in the material before me which could possibly justify a collateral inquiry at this stage into the conduct of the litigation in either of those Courts. ORDERS It must follow in my view that the application should be dismissed and I so order. I order that the applicant pay the respondent's costs of the application.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont