FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v Ludgates Corporate and Investment Advisory Services Pty Limited [2003] FCA 1368 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v LUDGATES CORPORATE AND INVESTMENT ADVISORY SERVICES PTY LIMITED (ACN 053 972 320) N 3037 of 2003 ALLSOP J 6 NOVEMBER 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 3037 of 2003 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION PLAINTIFF AND: LUDGATES CORPORATE AND INVESTMENT ADVISORY SERVICES PTY LIMITED (ACN 053 972 320) FIRST DEFENDANT BENJAMIN PAUL WHITEHOUSE SECOND DEFENDANT JENNIFER MARTINE SISSON THIRD DEFENDANT JAMES ADRIAN DEAN FOURTH DEFENDANT JUDGE: ALLSOP J DATE OF ORDER: 6 NOVEMBER 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: (1) The court authorises Gregory Michael Maloney and Peter Ivan Felix Geroff of Ferrier Hodgson to complete the contract entered into (on or about 15 April 2003) by the second defendant with Rentfile Pty Limited in respect of the land, the subject of order (1) made by Sackville J on 5 August 2003. (2) The receivers have their costs on a party/party basis from the fund. (3) Rentfile be entitled to $5000 of its costs from the fund. (4) The interlocutory application filed on 27 October 2003 and dated 24 October 2003 is otherwise dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 3037 of 2003 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION APPLICANT AND: LUDGATES CORPORATE AND INVESTMENT ADVISORY SERVICES PTY LIMITED (ACN 053 972 320) FIRST DEFENDANT BENJAMIN PAUL WHITEHOUSE SECOND DEFENDANT JENNIFER MARTINE SISSON THIRD DEFENDANT JAMES ADRIAN DEAN FOURTH DEFENDANT JUDGE: ALLSOP J DATE: 6 NOVEMBER 2003 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 5 August 2003, Sackville J made orders which included the following: 1. Pursuant to s. 1323(1)(h)(i) of the Act, the Receiver be appointed, without security, to the interest created in favour of the Second Defendant, through the Mortgage of Land granted by Murray Raymond Heyhoe, dated 4 June 1999, over the property known as lot 31B on Plan of subdivision 425183u Parent Title Volume 10405 Folio 419, registered number W394864V. 2. The Receiver have all powers necessary for the purpose of protecting the interest of the Members, including the powers identified in s 420(1) and (2)(a),(b), (c), (e), (f), (g), (k), (p), (q), (r) and of the Act. For the purpose of this order, the reference in section 420 of the Act to a "corporation" shall each be taken to include a reference to the Schemes. 3. The Interlocutory Process dated 17 June 2003, be otherwise dismissed. 4. The matter stand over for further directions before the Court on Monday, 5 September 2003. 5. The Parties and the Receiver have liberty to apply on the giving of 3 days written notice. 6. The Plaintiff use its best efforts to serve within 7 days, certified copies of these short minutes of order on: (i) The Trustee in Bankruptcy of Murray Raymond Heyhoe. (ii) Rentfile Pty Ltd (Caveator AC132744X) (iii) GJJ Nominees Pty Ltd (Caveator X543856L) 2 Those orders were made on a process filed in court on 17 June 2003 and brought to the court by the Australian Securities and Investments Commission (ASIC) in connection with what were said to be unregistered managed investment schemes. 3 The applicants in the interlocutory motion before me today are the receivers appointed to the relevant mortgage referred to in order 1 of his Honour's orders of 5 August. 4 The application seeks the following: 1. An order pursuant to s 1323(1)(h) of the Act that a Receiver be appointed, without security, to the Property of each of the Defendants. 2. An order that the Receiver appointed pursuant to paragraph 1 above, have all powers necessary for the purpose of preserving the Property of the Defendants, including the powers identified in sections 420(1) and (2) of the Act. 5 The interlocutory application was supported by two affidavits of one of the receivers, that being Mr Gregory Michael Maloney. A company possibly affected by the application being a purchaser of the land referred to in order 1 of his Honour's orders was given notice of the application and appeared. It filed, and relied upon, four affidavits, three of the instructing solicitor of that company, and the fourth of a director of that company. 6 The company is a company called Rentfile Pty Limited, and it was the purchaser under a contract of sale with the second defendant for the land in question. 7 The evidence reveals the following. The mortgagee second defendant entered into a contract to sell the property to the unrelated third party on the 15 April 2003, for the sum of $850,000. The terms of the sale were unexceptional. The deposit of $85,000 was paid and is currently held pursuant to the terms of the contract. 8 The vendor obtained a professional valuation before entering the contract. That valuation identified a value of $835,000, using comparable sale techniques. The valuation appears on its face to be professionally done. 9 Since their appointment, the receivers have commissioned a valuation. Again, this was a professional valuation, on its face competently done. This valuation identifies a value of $800,000. It is not clear whether this difference of $35,000 is one simply of valuation opinion or whether it identifies some trend in the market. 10 On 6 October 2003, the receivers received an offer from another party to pay $870,000 for the land. This put the receivers in the position of perceiving the availability of a more favourable contract than that which had been earlier entered by the mortgagee second defendant. It also raised the question in their minds as to whether or not the valuations, though professionally done, reflected what might be received from the sale of the land after the marketing of the property over which they had control. Their concern was that they may be criticised for continuing with, and adopting, the contract entered by the mortgagee, second defendant, in circumstances where no marketing of the property had taken place. 11 There are debts owing on the mortgage, with interest, of somewhat over $826,000. There are caveats on the property which are in the process of removal. On the facts available to me, it would appear that there is no basis to impugn the bargain made with Rentfile Pty Limited. There is no suggestion of any sharp practice at all. There is no suggestion of any relationship between the mortgagee and the third party, Rentfile. There was no advertising but a valuation of the character that I have identified took place. Even if there were some possible suggestion that there was some imprudence in the sale (which there is not) Rentfile was not aware of any basis for any possible allegation of breach of duty by the mortgagee, if one existed (which on the evidence it does not appear to). 12 There were concerns set out in [9] and [10] of the affidavit of Mr Moloney. Those paragraphs state the following: 9. The market has never been tested with respect to the Property in the sense that no proper marketing campaign has ever been conducted to determine its proper value. I am informed by the Second Defendant and verily believe that he entered into the Rentfile Contract based on a valuation he had obtained and following a direct approach from a real estate agent. 10. In light of the new offer I am now concerned that completing the Rentfile Contract would be to sell to the Property at an undervalue and in breach of my duties as Receiver. I believe that I ought to properly test the market, by conducting a proper marketing campaign given there is clearly a number of potential purchases for the Property. Further there are a number of parties who will benefit from a higher purchase price namely those parties claiming an interest in the Property as owner being members of the Thomastown Property Syndicate (the registered proprietors), the liquidator of MRH Shop Fittings Pty Ltd and the trustee in bankruptcy of Murray Heyhoe. 13 No basis has been shown for any resistance to an order for specific performance save and except for the fact to the appointment of receiver. Section 1323 of the Corporations Act and Order 26 of the Federal Court Rules do not give the Court power to deal with by way of destruction, equitable or legal rights of parties. 14 If a contract exists, and if a receiver properly exercising his or her duty (in particular if he or she has received a direction from the court), repudiates or refuses to adopt a contract, generally speaking the person the party to the contract, will be the person liable in damages. The actions of the receiver and the directions of the court cannot and do not deprive the wronged party of its contractual rights nor can they deprive the third party of equitable rights arising from some contracts. 15 Contracts which are specifically enforceable or in respect of which an injunction will be given, are generally examined in this area differently to trading contracts. Even in the context of trading contracts a question arises as to whether an injunction will lie against the receiver to prevent his or her refusal to adopt a contract: see generally Schering Pty Limited v Forrest Pharmaceutical Co Pty Ltd (1982) 1 NSWLR 286. 16 However, in relation to contracts of a character which a court of equity will decree specific performance either in the strict sense or the wider sense, the authority of Mr Rattee QC (as his Lordship then was) in Freevale Ltd v Metrostore (Holdings) Ltd [1984] 1 Ch 199 is to the effect that the appointment of the receiver will not of itself amount to a defence to an action in an equity court for specific performance. 17 His Lordship's decision has been relied upon by practitioners and learned academics both in England and Australia since 1984 without apparent criticism: see Picarda, The Law relating to Receivers, Managers and Administrators, (3rd Ed), Ch 11, in particular pages 159 to 162; Lightman and Moss, The Law of Receivers and Administrators of Companies, (3rd Ed) in particular at p 165 and following; O'Donovan, Companies, Receivers and Administrators section 8.2130 and following and section 22.3110 and following; and Kerr, On Receivers and Administrators (17th Ed) at pages 219 and following. 18 Here it seems to me that equities have intervened. There is authority that it is not hardship, in particular for a defence to a suit for specific performance, for creditors not to be satisfied with the price: see AMEC Properties Limited v Planning, Research and Systems plc [1992] BCLC 1149. I see no basis here which could be successfully propounded to context a suit for specific performance merely because of the appointment of a receiver, certainly not in the present circumstances where there is a complete absence on the evidence, of other factors which might conceivably sustain some argument as to resistance to specific performance. 19 The position of these doctrines to which I have referred, and the reasons of his Lordship in Freevale, may need in an appropriate case to be carefully weighed, in particular one where ASIC had appointed the receiver in the circumstances contemplated by s 1323. However, in the circumstances before me, I see no reason to embark on a detailed analysis of the position beyond accepting as reasonably authoritative the approach of Mr Rattee, (as he then was) in Freevale. Put another way, there is no call in this case to examine the outer limits of the principles discussed by Mr Rattee in Freevale. 20 This is so in particular because, on the evidence before me, I cannot be certain that the position of those interested in the sale will be benefited by the course that the receivers might conceivably have undertaken had they been free to do so. 21 The second valuation is less than the first. As I said, that does not necessarily indicate a trend, but the mere fact that there is presently a bona fide purchaser willing for $875,000 does not mean that that same purchaser will be present and willing in the future, after a marketing campaign. The party may, in the meantime, have found better uses for its $875,000 than this particular block of land. 22 In the circumstances where I am unable to be persuaded of the likelihood of benefit to the parties ultimately interested in the fund created by the sale, I do not think it appropriate to embark on, as I said, some detailed exposition on the extent of the Court's power under s 1323 to authorise conduct in circumstances where equities have intervened. 23 For those reasons, I do not propose to make the orders sought in the interlocutory application, but I do propose to, pursuant to O 26 r 7, authorise the receivers to complete the contract entered into by the second defendant with Rentfile Pty Limited. 24 I should add that no party has raised the question of jurisdiction of the Court. Naturally, since 2001 the Corporations Act has been clearly a federal statute and s 39B(1)(a)(c) of the Judiciary Act makes plain this Court's jurisdiction in terms of matters arising in law at the parliament. French J, in a recent case, Hedge as Administrator of Goldfields Medical Fund (No 2) [2002] FCA 1498 dealt with the questions of what might be called, non-controversial "matters", and their legitimacy as "matters" in a constitutional sense. I have no doubt that the use of the traditional method of receivers and liquidators obtaining directions is a matter properly within the jurisdiction of the Court exercising federal jurisdiction. 25 For those reasons I will make an order that the court authorises Gregory Michael Maloney and Peter Ivan Felix Geroff of Ferrier Hodgson to complete the contract entered into on or about 15 April 2003 by the second defendant with Rentfile Pty Limited, in respect of the land, the subject of order 1 made by Sackville J on 5 August 2003. 26 I'll now deal with the question of costs. 27 I order that the receivers have their costs on a party/party basis from the fund. As to Rentfile Pty Limited, I think the appropriate course is to order that it be entitled to have its costs from the fund. I have heard some evidence from the bar table as to the amount of those costs in an effort to restrict any further expenditure on costs. I propose to order that Rentfile be entitled to $5000 of its costs from the fund. 28 The interlocutory application filed on 27 October and dated 24 October 2003 is otherwise dismissed. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop. Associate: Dated: 1 December 2003 Solicitor for the Plaintiff: Australian Securities and Investments Commission Solicitor for the second and third Bennett & Philp Defendants: Counsel for the Receivers: Mr M R Bland Solicitor for the Receivers: McCullough Robertson Counsel for Rentfile Pty Ltd: Mr T McLean Solicitor for Rentfile Pty Ltd: Meltzer Green Solicitors Date of Hearing: 6 November 2003 Date of Judgment: 6 November 2003