FEDERAL COURT OF AUSTRALIA Vouris v Lewarne [2008] FCA 583 JOHN VOURIS IN HIS CAPACITY AS RECEIVER AND MANAGER OF THE EAST VILLAGE HOTEL (RECEIVER AND MANAGER APPOINTED) v RICHARD JOHN LEWARNE, MOMENTUM PRODUCTIONS PTY LTD AND RICHARD JAMES SCOTTS NSD 375 OF 2008 STONE J 28 APRIL 2008 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 375 OF 2008 BETWEEN: JOHN VOURIS IN HIS CAPACITY AS RECEIVER AND MANAGER OF THE EAST VILLAGE HOTEL (RECEIVER AND MANAGER APPOINTED) Applicant AND: RICHARD JOHN LEWARNE First Respondent MOMENTUM PRODUCTIONS PTY LTD Second Respondent RICHARD JAMES SCOTTS Third Respondent JUDGE: STONE J DATE OF ORDER: 28 APRIL 2008 WHERE MADE: SYDNEY THE COURT DECLARES THAT: 1. The assets of the partnership business to which Mr John Vouris was appointed receiver and manager by this Court on 9 October 2007 include any rights to damages arising from or in relation to the lease of the East Village Hotel presently asserted by Momentum Productions Pty Ltd in proceedings number 2911 of 2005 of the Supreme Court of New South Wales. THE COURT ORDERS THAT: 2. Momentum Productions Pty Ltd be restrained from taking any step in the prosecution of the Supreme Court proceedings without first obtaining the consent of the receiver and manager. 3. The receiver's costs of the present application be costs in the receivership. 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 NSD 375 OF 2008 BETWEEN: JOHN VOURIS IN HIS CAPACITY AS RECEIVER AND MANAGER OF THE EAST VILLAGE HOTEL (RECEIVER AND MANAGER APPOINTED) Applicant AND: RICHARD JOHN LEWARNE First Respondent MOMENTUM PRODUCTIONS PTY LTD Second Respondent RICHARD JAMES SCOTTS Third Respondent JUDGE: STONE J DATE: 28 APRIL 2008 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 7 August 2007 I gave reasons for judgment in an earlier proceeding in which the first respondent, Mr Richard Lewarne made a number of claims including claims under the Trade Practices Act 1974 (Cth) against the second and third respondents, Momentum Productions Pty Ltd, and Mr Richard Scotts; Lewarne v Momentum Productions Pty Ltd [2007] FCA 1136. Mr Lewarne was largely successful in his claims and I directed the parties to bring in short minutes of order for the resolution of the matter in the light of my findings and reasons. On 9 October 2007 I made a number of orders including that the present applicant, Mr John Vouris, be appointed receiver and manager of the partnership that I found had existed between Mr Lewarne, Mr Scotts and Momentum Productions and of the business they conducted at the East Village Hotel in Palmer Street, Sydney; [2007] FCA 1530. 2 Order 3 of my orders provided that Mr Vouris was to have the same powers with respect to the partnership and the partnership business as those contained in s 420 of the Corporations Act 2001 (Cth), as if the partnership business were the property of a corporation. Order 4 was that the assets of the partnership and the partnership business be realised by the receiver and 'in due course of administration' be applied by him in accordance with my orders. Among those assets was the lease to Momentum Productions of the East Village Hotel. Order 7 of the orders made on 9 October was as follows: 7. The First Respondent holds any rights at law or in equity to a lease of the East Village Hotel which was subject to the registered lease 0665074 and any legal or equitable right arising from or in connection with that lease for the benefit of the Partnership. Order 8(b) provided that the assets of the partnership included 'the benefit of the rights referred to in order 7'. 3 The lease of the East Village Hotel is currently the subject of proceeding number 2911 of 2005 in the Supreme Court of New South Wales, Equity Division in which Momentum Productions Pty Ltd is claiming damages arising from alleged breaches of the lease from the lessor, Retemu Pty Limited. 4 Mr Vouris now comes to this Court seeking guidance as to whether the orders I made on 9 October 2007 conferred on him, in his capacity as receiver and manager, the right and duty to control and conduct the Supreme Court litigation. Momentum and Mr Scotts submit that Mr Vouris does not have that power and that Momentum is in control of the Supreme Court proceedings. Mr Lewarne strongly opposes this position and submits that pursuant to the orders made on 9 October it is the receiver who is in control of those proceedings. 5 I should stress that the receiver is asking only for clarification of my orders. He is not asking the Court to vary or amplify the powers granted under those orders. The receiver has in my view acted entirely properly in seeking confirmation of his authority to take control of the Supreme Court litigation given the diametrically opposed views of the respondents as to the role the receiver should be taking in those proceedings. Indeed, it is in the interests of all the parties. If, as Mr Ashhurst SC for the second and third respondents submits, Momentum has the obligations of a trustee then it needs to be aware of the high standard of duty that applies in such a case. If Mr Vouris has been given control he needs to exercise that control consistent with the obligations that have been imposed on him. POWERS UNDER s 420 6 As previously mentioned I ordered that Mr Vouris was to have the same powers in respect of the partnership and its business as those conferred by s 420(1) Corporations Act in respect of corporations. Relevantly s 420(2) provides: 420 Powers of receiver (1) Subject to this section, a receiver of property of a corporation has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed. (2) Without limiting the generality of subsection (1), but subject to any provision of the court order by which, or the instrument under which, the receiver was appointed, being a provision that limits the receiver's powers in any way, a receiver of property of a corporation has, in addition to any powers conferred by that order or instrument, as the case may be, or by any other law, power, for the purpose of attaining the objectives for which the receiver was appointed: (a) to enter into possession and take control of property of the corporation in accordance with the terms of that order or instrument; and … (k) to execute any document, bring or defend any proceedings or do any other act or thing in the name of and on behalf of the corporation; and … 7 The receiver submitted that, applied to a partnership, s 420 merely confers on the receiver possession and control of the asset in respect of which he has been appointed and does not vest title in that asset in the receiver. I accept that submission. Where, as here, the asset is a chose in action that has become the subject of a legal proceeding, s 420 does not vest the legal rights asserted in that proceeding in Mr Vouris, rather it gives Mr Vouris the right and power to direct the conduct of that proceeding. Accordingly, the relevant question is not, as Mr Ashhurst contends, whether "the legal ownership in [the] proceedings currently resides in the receiver". The receiver is not required to have legal ownership in the proceeding in order to exercise control over it. That is the very purpose of s 420. 8 It was submitted by Mr Ashhurst that the effect of s 420(2)(k), which gives a receiver the power to bring proceedings in the name of and on behalf of the corporation, is to permit the receiver to take control only of proceedings brought in the name of the partnership. On that view, the fact that the Supreme Court litigation has been brought by Momentum Productions (effectively, it was said, as the trustee of the chose in action) precludes Mr Vouris from taking control of it. In my view it is abundantly clear from the opening words of s 420(2) that the specific powers listed in s 420(2) do not limit the broad powers conferred on a receiver by s 420(1). As stated above, s 420 confers on the receiver possession and control of the asset in respect of which he has been appointed, which in this case includes a legal proceeding commenced by a member of that partnership. The orders made on 9 October 2007 give those powers to the receiver. 9 Two "practical difficulties" were identified by Mr Ashhurst which were said to militate against the making of a declaration that the receiver has control over the Supreme Court litigation. The first such difficulty was that doing so would result in one firm of solicitors (that is, the receiver's solicitors) running the claim against Retemu Pty Limited, whilst another conducts Momentum's defence of the cross-claim brought by Retemu. The second difficulty was said to be that the receiver, being by his own admission without funds, cannot run the proceedings, thereby causing "considerable detriment to the partnership… because those proceedings will not be determined, that asset will not be run". I do not consider these factors to have any bearing on the issue to be determined. As was pointed out by Mr Lee for the first respondent, the fact that the making of a declaration such as that sought by the applicant has particular consequences for the resolution of the Supreme Court litigation has no relevance to whether such a declaration should be made, relating, as it does, to a clarification of existing orders. 10 I am satisfied that the orders I made on 9 October 2007 comprehend the relief sought by the applicant. In addition, I am satisfied that the costs of this application should be costs in the receivership. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone. Associate: Dated: 2 May 2008 Counsel for the First Applicant: S Golledge Solicitor for the First Applicant: Piper Alderman Counsel for the First Respondent: M B J Lee Solicitor for the First Respondent: Sparke Helmore Counsel for the Second and Third Respondents: M Ashhurst SC with M Sahade Solicitor for the Second and Third Respondents: Comino Prassas Date of Hearing: 28 April 2008 Date of Judgment: 28 April 2008