FEDERAL COURT OF AUSTRALIA Bidjara Aboriginal Housing & Land Company Ltd v Sharma [2003] FCA 1462 BIDJARA ABORIGINAL HOUSING & LAND COMPANY LIMITED v CHANDRA SHARMA, ABORIGINAL AND TORRES STRAIT ISLANDER SERVICES AND ROD ALFREDSON Q113 OF 2003 COOPER J BRISBANE 10 DECEMBER 2003 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q113 OF 2003 BETWEEN: BIDJARA ABORIGINAL HOUSING & LAND COMPANY LIMITED APPLICANT AND: CHANDRA SHARMA FIRST RESPONDENT ABORIGINAL AND TORRES STRAIT ISLANDER SERVICES SECOND RESPONDENT ROD ALFREDSON THIRD RESPONDENT JUDGE: COOPER J DATE OF ORDER: 10 DECEMBER 2003 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The orders entered on 10 October 2003 and 24 November 2003 be set aside. 2. The applicant pay the respondents' costs of entering the orders made on 10 October 2003 and 24 November 2003 to be taxed if not agreed, otherwise all the parties to the notice of motion to set aside the orders bear their own costs of and incidental to the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q113 OF 2003 BETWEEN: BIDJARA ABORIGINAL HOUSING & LAND COMPANY LIMITED APPLICANT AND: CHANDRA SHARMA FIRST RESPONDENT ABORIGINAL AND TORRES STRAIT ISLANDER SERVICES SECOND RESPONDENT ROD ALFREDSON THIRD RESPONDENT JUDGE: COOPER J DATE: 10 DECEMBER 2003 PLACE: BRISBANE REASONS FOR JUDGMENT 1 By order made and entered on 24 November 2003, it was ordered that the application be dismissed and that the applicant pay the respondents' costs. The order was made in consequence of the applicant's failure to comply with a condition of a 'guillotine' order made on 10 October 2003. That condition was that by 4.00 pm on 14 November 2003, the applicant advise the respondents and the Court that it had the consent of the receiver and manager of the applicant to the application proceeding. 2 On 25 November 2003, by notice of motion, the applicant sought that paragraphs 1 and 2 of the orders made on 10 October 2003 be set aside. By leave granted on 28 November 2003, the notice of motion was amended to seek orders setting aside the orders entered on 24 November 2003. The relief claimed in the notice of motion as amended is opposed. 3 In order to set aside the orders which have been entered, the applicant relies upon, amongst other grounds, O 35 r 7(2)(c) of the Federal Court Rules. The order of 24 November 2003 was the summary dismissal of the proceedings for failing to comply with a condition of a conditional order for dismissal made and entered on 10 October 2003. As such, it is an interlocutory order: Bourke v State Bank of New South Wales [1995] FCA 139 (FC) at 5; Meredith v Commissioner of Taxation [2002] FCAFC 271 at [23] - [28]. It did not finally determine legally the issues between the parties as the time for compliance could be extended under O 3 r 3: Bourke at 5. Alternatively, the applicant retained its right to bring fresh proceedings for judicial review under the Judiciary Act 1903 (Cth) and generally: Meredith at [27]. 4 The power under O 35 r 7(2) to set aside an order after it has been entered is not affected in any way by the absence of any inherent power to do so, otherwise than on an appeal: FAI General Insurance Co Ltd v Southern Cross Exploration NL (1988) 165 CLR 268 at 285, 286, 289 - 290; Bourke at 5. Accordingly, I am satisfied that I have a discretionary power under O 35 r 7(2)(c) to set aside or vary the orders made on 10 October 2003 and 24 November 2003, notwithstanding that such orders have been entered. 5 The applicant submits that the conditional order made on 10 October 2003 which gave rise to the 'guillotine' order for dismissal, was based on an incorrect assumption, namely that the applicant or its directors, required the consent of the receiver and manager to continue the proceedings. The respondents submit that the consent of the receiver and manager was both necessary and properly conditioned by the receiver and manager upon the provision of an indemnity by the directors to the applicant and the receiver and manager in respect of any order for costs made against either of them in the proceedings. The respondents rely upon the decision of Sackville J in Deangrove Pty Ltd v Commonwealth Bank of Australia (2001) 108 FCR 77 at [40] as authority for this contention. 6 Section 440D of the Corporations Act 2001 (Cth) has no relevant operation to stay the proceedings as the receivership is not one to which Pt 5.3A of the Corporations Act 2001 (Cth) has any relevant operation. The matter is to be determined under the general law. 7 As the receiver and manager was appointed by Deed of Appointment dated 8 August 2003 by the Aboriginal and Torres Strait Islanders Commission ('ATSIC') under a Deed of Charge registered on 9 January 2001, no consent from the receiver and manager to continue the proceedings was necessary: Newhart Developments Ltd v Co-Operative Commercial Bank Ltd [1978] 1 QB 814 at 819 - 821; 821 - 822; Gartner v Ernst & Young [2003] FCA 152 at [24], [26] - [37], affirmed on appeal Ernst & Young v Tynski Pty Limited [2003] FCAFC 233 at [27] - [28]. This is because the subject matter of the proceedings in no way interferes with the receiver and manager in the carrying out of the receivership: [1978] 1 QB at 819, 821, 822; Re Deangrove at [37] - [39]; Geneva Finance Ltd; Quigley v Cook (1992) 2 WAR 496 at 510 - 511. 8 Nor is the provision of an indemnity to the receiver and manager and to the applicant by the directors a necessary precondition to the Court allowing the proceedings to continue against the respondents: Gartner v Ernst & Young at [28], [31], [33]. These proceedings do not involve a claim against the debenture holder qua debenture holder challenging the debenture under which the receiver was appointed and which the receiver and manager refuses to bring. Nor is it contended by ATSIC as chargee or by the receiver and manager, that the continuation of the proceedings will prejudice the interests of ATSIC under its charge or will stultify the receivers and managers' actions in the receivership so as to be contrary to the terms of the charge. Accordingly, it is not one of the category of cases which concerned Sackville J in Re Deangrove at [40]. 9 The rationale in requiring the provision of an indemnity to a corporation from the directors, is that it is to protect the subject matter of the charge from being diminished to the prejudice of the debenture holder or chargee. Where there is no suggestion of possible prejudice, then there is no rationale which would require the grant of an indemnity. In my view it is for the debenture holder or receiver and manager to at least raise a case on the materials that their position requires that they be protected from a real prospect of prejudice. 10 Where, as here, the chargee and the receiver and manager are parties to the notice of motion and are before the Court, and do not put on any material suggesting that an adverse order for costs in the proceedings would prejudice ATSIC's recovery under the charge, the Court may infer that no prejudice will arise. In any event, a third party in proceedings by a corporation against it, where a receiver has been appointed to the corporation, cannot insist that an indemnity be provided by the directors to the corporation in respect of the costs of the proceedings before those proceedings can be brought or litigated against the third party: Ernst & Young v Tynski Pty Limited at [26], [34]. The first and third respondents are not debenture holders or chargees of the applicant. 11 The applicant submits that the proceedings are by way of Administrative Review concerning the applicant's entitlement to receive funds of $1,121,300.00 in respect of its operations for the period 1 July 2003 - 30 June 2004 and that the proceedings in this Court are not proceedings against ATSIC qua chargee. The charge granted to ATSIC by the applicant, under which the receiver and manager was appointed, has been challenged in proceedings in the Supreme Court of Queensland seeking that the charge and the appointment of the receiver and manager be set aside. The applicant submits that any question of an indemnity from the directors in favour of the applicant falls to be determined in those proceedings by the Supreme Court. Further, the applicant submits that the charge was given to support the indebtedness of another corporation to ATSIC for an amount of approximately $700,000, which is adequately covered by the assets of the applicant stated to be in excess of $13 million. It submits that the financial interests of ATSIC under the charge and the conduct of the receivership are fully protected and will not be prejudiced by the conduct of the proceedings, even if they fail, and an order for costs is made against the applicant in favour of ATSIC and the other respondents. Neither ATSIC nor the receiver and manager suggest that they will be prejudiced under the charge in the event the proceedings continue, nor suggest that the applicant is insolvent. In these circumstances, the receiver and manager, having no interest, and being unwilling to continue the proceedings for the benefit of the applicant, the applicant submits that it and the directors ought to be allowed to continue the action without any requirement that the directors provide personal indemnities to the applicant in respect of any adverse order as to costs in these proceedings. 12 The respondents submit that as a matter of discretion, I should not set aside the orders because of unexplained delay and because no affidavit as to the merits of the proceedings has been filed. The order dismissing the proceedings with costs was made on 24 November 2003. The applicant filed its notice of motion on 25 November 2003 and came before the Court on 28 November 2003 seeking to set the orders aside. There has been no relevant delay nor is there any suggestion of prejudice to the respondents from delay. It cannot be said that if the circumstances pleaded in the application are made out the applicant, nonetheless, has no reasonable prospect of success. There are no matters identified by the respondents which would persuade me, as a matter of discretion, not to set aside the orders if I was of the view that the orders ought not to have been made in the first place. 13 I am satisfied that the orders ought to be set aside because they were made on an incorrect premise, and the condition which was imposed was not one which ought to have been imposed. I am satisfied that the circumstances of this case do not require that a condition be imposed that the directors provide personal indemnities to the applicant, in respect of any order for costs which may be made against the applicant. 14 The applicant is entitled to have the orders set aside, not as a matter of right, but as an indulgence in the exercise of a discretion. If objection had been taken on 10 October 2003 on the grounds taken on this notice of motion, no orders would have been made which contained the condition which the applicant failed to fulfil. However, the respondents have continued to oppose the setting aside of the orders and have failed in their opposition. 15 Accordingly, the applicant in my view must pay the costs of the respondents thrown away in entering the orders on 10 October 2003 and 24 November 2003. The respondents not having ascertained their right to insist on the condition imposed on 10 October 2003 and having continued to oppose the setting aside of that order and the orders of 24 November 2003 in the face of the applicant's material, ought to bear their own costs of the appearance on 10 October 2003, and of the notice of motion. The receiver and manager, having overreached its entitlement in making the demands which it did, must also bear its own costs on the notice of motion. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper. Associate: Dated: 10 December 2003 Counsel for the Applicant: C Hampson QC and L Stephens Solicitor for the Applicant: Frank Jongkind & Co Counsel for the Respondent: D Rangiah Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 10 December 2003 Date of Judgment: 10 December 2003