FEDERAL COURT OF AUSTRALIA Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Oswal (No 4) [2011] FCA 1503 Citation: Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Oswal (No 4) [2011] FCA 1503 Parties: BURRUP FERTILISERS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) v PANKAJ OSWAL, RADHIKA OSWAL, COMICAL ALI MILITANT VEGETARIAN PTY LTD and OSWAL INDUSTRIAL PTY LTD (ACN 121 121 659) File number: WAD 66 of 2011 Judge: MCKERRACHER J Date of judgment: 22 December 2011 Catchwords: CORPORATIONS – statutory power to appoint receiver – circumstances in which a receiver and manager will be appointed by the Court – whether it is necessary or desirable to appoint a receiver and manager for the purposes of protecting interests – whether a real risk of substantial diminution in value of the property is established – risk of asset being taken outside the jurisdiction – considerations relevant to Court's discretion to appoint a receiver and manager – limited evidence on deterioration - alternative means of protection – Corporations Act 2001 (Cth) s 1323 – Federal Court of Australia Act 1976 (Cth) s 57 – Federal Court Rules 2011 r 14 Legislation: Corporations Act 2001 (Cth) s 1323(1)(h) Federal Court Act 1976 (Cth) s 57(1) Federal Court Rules 2011 rr 14.11, 14.12, 14.21 Cases cited: Australian Securities & Investments Commission v Burke [2000] NSWSC 694 Australian Securities and Investments Commission v Carey (No 5) (2006) 58 ACSR 6 Beach Petroleum NL v Johnson (1992) 9 ACSR 404 Ferrari v Beccaris [1979] 2 NSWLR 181 Porter v Australian Prudential Regulation Authority (2010) 184 FCR 382 Pyke v Tuckey (unreported, Supreme Court of Victoria, Gobbo J, 24 May 1988) Re Richstar Enterprises Pty Ltd (2006) 232 ALR 577 Seminara v Ferguson (1993) 16 Fam LR 410 Date of hearing: 28 November 2011 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 29 Counsel for the Applicant: K de Kerloy with S Dundas Solicitor for the Applicant: Freehills Counsel for the First Respondent: PW Collinson SC with JM Ross Solicitor for the First Respondent: Murcia Pestell Hillard Counsel for the Second and Third Respondents: P Durack SC with KJ Williams Solicitor for the Second and Third Respondents: Jones Day Counsel for the Fourth Respondent: The Fourth Respondent did not appear IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 66 of 2011 BETWEEN: BURRUP FERTILISERS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) Applicant AND: PANKAJ OSWAL First Respondent RADHIKA OSWAL Second Respondent COMICAL ALI MILITANT VEGETARIAN PTY LTD Third Respondent OSWAL INDUSTRIAL PTY LTD (ACN 121 121 659) Fourth Respondent JUDGE: MCKERRACHER J DATE OF ORDER: 22 DECEMBER 2011 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The application for the appointment of a receiver/manager in respect of the yacht referred to in paragraph 10 of the further amended statement of claim be dismissed. 2. The applicant do pay the costs of the second and third respondents to be taxed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 66 of 2011 BETWEEN: BURRUP FERTILISERS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) Applicant AND: PANKAJ OSWAL First Respondent RADHIKA OSWAL Second Respondent COMICAL ALI MILITANT VEGETARIAN PTY LTD Third Respondent OSWAL INDUSTRIAL PTY LTD (ACN 121 121 659) Fourth Respondent JUDGE: MCKERRACHER J DATE: 22 DECEMBER 2011 PLACE: PERTH REASONS FOR JUDGMENT INTRODUCTION 1 The applicant (BFPL) seeks orders that a receiver and manager be appointed in respect of the yacht referred to in para 10 of the further amended statement of claim (the yacht). BFPL relies on to r 14.21 of the Federal Court Rules 2011 (the Rules), s 57(1) of the Federal Court Act 1976 (Cth) (the Act), s 1323(1)(h) of the Corporations Act 2001 (Cth) (CA), or, alternatively, the Court's inherent jurisdiction. 2 The purpose of the appointment would be to detain, take into custody, preserve, inspect, maintain, repair and/or make ready for sale in such a manner as the receiver thinks fit and to sell and/or otherwise dispose of the yacht in such manner as the receiver thinks fit. 3 Alternatively, pursuant to r 14.11 and r 14.12 of the Rules, orders are sought for the receiver to detain, take into custody, preserve and inspect the yacht and/or sell or dispose of it. LEGAL FRAMEWORK 4 Section 57(1) of the Act provides as follows: 57 Receivers (1) The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. … 5 The power to appoint a receiver who, subject to any contrary orders, is to have the power of a receiver and those of a manager is construed broadly: Porter v Australian Prudential Regulation Authority (2010) 184 FCR 382 per Perram J (at [27]). 6 Rule 14.21 of the Rules contains a similar power. 7 Rule 14.11 and r 14.12 read as follows: 14.11 Preservation of property (1) A party may apply to the Court for an order: (a) for the detention, custody, preservation or inspection of property; or (b) authorising a person to do any act or thing for the purpose of giving effect to an order (2) In a proceeding about the right of any party to a fund, a party may apply for an order that the fund be paid into Court or otherwise secured. 14.12 Disposal of personal property A party may apply to the Court for an order for the sale or disposal of personal property, or any part of the property, if: (a) the proceeding concerns personal property; and (b) the property is perishable or is of a kind that requires that it be sold or disposed of before the hearing of the proceeding. 8 Section 1323(1) CA provides: … (c) a civil proceeding has been begun against a person under this Act; and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders: … (h) an order appointing: (i) if the relevant person is a natural person—a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or (ii) if the relevant person is a body corporate—a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person; … 9 BFPL argues that pursuant to that s 1323(1)(h) CA, a Court may appoint a receiver manager where a civil proceeding has been commenced against a person (in this case the third respondent (Comical)) under the CA and the Court considers it is necessary or desirable to do so for the purposes of protecting the interests of a person, in this case BFPL. Protection may be required if Comical is found to be liable to BFPL for damages, equitable compensation or account for property. The purpose of the remedy is to protect the interests of a person who may have claims against corporations and others who are subject to the provisions of the CA. THE FACTUAL FOUNDATION 10 Receivers and managers were appointed to BFPL on 17 December 2010. Seven weeks prior to that appointment, the yacht was purchased by BFPL for AUD2,710,000. On 26 October 2010, the purchase price was paid by BFPL out of funds held in a BFPL account with the Commonwealth Bank. The first respondent (Mr Oswal) caused BFPL to make the payment. At the time, Mr Oswal was the managing director of BFPL. 11 BFPL claims an interest in the yacht and claims that the yacht is currently deteriorating at a rapid pace due to lack of care and maintenance. 12 Although BFPL paid the purchase price of the yacht, the yacht was registered in the name of Oswal Projects Pty Ltd. Company searches indicate that there were no Australian companies with that name. However, there were Australian companies with similar names including Oswal Projects Perth Pty Ltd (the former name of Comical) and Oswal Projects Sydney Pty Ltd, now deregistered. 13 Comical claims that it is the owner of the yacht. The second respondent/first cross-claimant (Mrs Oswal), Mr Oswal's wife, is the sole director and ultimate beneficial shareholder of Comical. 14 There have been communications exchanged between legal advisors to BFPL and those of Comical. The former have requested the latter to provide details of the basis on which it asserts that it was entitled to be registered as the owner of the yacht. It is contended that no explanation has been forthcoming. 15 The receivers and managers of BFPL contend that its funds were used improperly to purchase the yacht for Comical and that Comical gave no consideration in return for the yacht. It is submitted for BFPL that there is, at the very least, a serious question to be tried that BFPL is the true owner of the yacht and Comical holds the yacht on constructive trust for BFPL. 16 There is a debate about the condition of the yacht. For BFPL, it is emphasised that the yacht was new when purchased in October 2010 and its condition is 'rapidly deteriorating'. It is argued that even if BFPL succeeds at trial, there is a real risk that the yacht will, at that stage, have decayed so much so as to result in a substantial diminution in its value. The yacht is a depreciating asset which requires substantial upkeep and maintenance. 17 It is difficult to form a view at this stage as to the extent of deterioration. BFPL rely upon evidence of an executive employee with maritime experience who is concerned about the deterioration to the yacht. On the other hand, photographs produced by Comical do not appear to disclose deterioration to a particularly significant level. 18 On discovering that the yacht was uninsured and being concerned about the prospects of liability to third parties, the receivers and managers took steps to insure the yacht for the period from 23 September 2011 to 23 December 2011. It is also paying pen fees for the yacht at the rate of $5,500 per quarter as Comical is not paying those fees and BFPL is concerned to ensure that the yacht has a proper berth. 19 The receivers of BFPL have been informed by the manufacturer of the yacht that a service, inspection and turnover of the diesel motors and an inspection, clean and maintenance of the hull and superstructure needs to be immediately performed. The manufacturer estimates that costs involved will be in the region of $10,000. Works would be needed to be conducted periodically thereafter on a quarterly basis at a similar cost. 20 On 12 January 2011, Comical gave the receivers and managers an undertaking not to transfer or otherwise encumber the yacht. On 29 April 2011, BFPL's solicitors wrote to Comical's solicitors with a proposal for the maintenance and repair works to the yacht and its sale. That proposal was refused. A further proposal was made in August 2011, following a report received from the expert referred to above. That proposal for the repair and sale of the yacht was also declined. CONSIDERATION 21 BFPL contend that the rapidly deteriorating valuable asset is to be protected and the question is 'not the character of the alleged wrongdoing of the defendants, but the overriding concern is to protect assets for the benefit of those entitled to them' per Austin J in Australian Securities & Investments Commission v Burke [2000] NSWSC 694 (at [6]). BFPL equates the yacht with perishable product property capable of protection under r 14.12. Reliance is placed on the Macquarie Dictionary definition of 'perishable' as including 'subject to decay or destruction'. 22 BFPL rely upon Pyke v Tuckey (unreported, Supreme Court of Victoria, Gobbo J, 24 May 1988) where Gobbo J made an order for a fishing vessel to be sold and the proceeds to be held on trust pending the outcome of the question in dispute. (See also Seminara v Ferguson (1993) 16 Fam LR 410 and Ferrari v Beccaris [1979] 2 NSWLR 181). 23 While it is obvious that the yacht will be deteriorating while it lies idle and is not being maintained, it seems to me that other considerations are also important. 24 The Court has the power to appoint a receiver and manager to the yacht under s 1323(1)(h) CA and/or s 57 of the Act but such an appointment is an extraordinary step, the purpose of which is to protect and preserve property in question so as to protect the interests of the 'aggrieved person'. 25 As noted by von Doussa J in Beach Petroleum NL v Johnson (1992) 9 ACSR 404, where his Honour said (at 406): The appointment of a receiver or receiver and manager, whether in aid of a Mareva injunction or under s 1323(1)(h), is a drastic step not lightly to be taken. The party seeking such a remedy must make out a clear case not only that the protection of the interests of people to whom the company may be or become liable require protection, but also that a lesser remedy which does not involve removing the administration of the company from the directors would fit the circumstances of the case. (emphasis added) 26 In the present circumstances, there is no obvious risk of the assets being dissipated or removed from the jurisdiction, having regard to the very nature of the property, and the fact that it is secured and having regard to the undertaking it has given. In Re Richstar Enterprises Pty Ltd (2006) 232 ALR 577, French J (as his Honour then was) said (at [29]): 29 It is not a necessary consequence of an order appointing a receiver that the receiver should deal with or liquidate the assets in question. The interlocutory and protective character of orders made under s 1323 must be borne in mind when defining the powers of the receiver. The appointment of a receiver has rightly been described as "an extraordinary step" - ASIC v Burke [2000] NSWSC 694 at [8] (Austin J). However, depending upon the nature of the powers conferred on the receiver it may be less drastic than a freezing order which can only be varied by order of the court. The interlocutory history of this case has already demonstrated that circumstances not contemplated when the original interim freezing orders were made have required their variation from time to time. I accept, with respect, the observation made by Austin J in Burke at [8]: [8] Without wishing to lay down any general rules, it appears to me that the extraordinary step of appointing a receiver may be justified, even though Mareva Orders are in place, in a case where there is real doubt about the existence and location of assets such as investments, and about the number and identity of claimants and the nature of their claims, and additionally the defendants are engaged in business activities which entail that any Mareva Orders must allow assets to be turned over in the course of business. Where these circumstances exist in combination, and especially where there are allegations of serious fraud involved, the Court may conclude ... that the Mareva Orders are not enough to ensure that the assets are preserved and protected, and indeed identified and brought in for the benefit of investors. The decision was cited with approval by Santow J in ASIC v Adler, above at 268-9. (emphasis added) See also Australian Securities and Investments Commission v Carey (No 5) (2006) 58 ACSR 6 (at [19]-[24]). 27 In the present situation the yacht is identified, its location is known and undertakings have been given not to remove it or to interfere with or encumber it. It follows that there can be no suggestion that the yacht may be removed so as to frustrate the enforcement of any judgment in favour of BFPL if it succeeds in its claim. As I have already said, the quality of the evidence in relation to the deterioration of the yacht is a little sketchy. Of course there will be some deterioration but there is no evidence of a satisfactory standard that deterioration in the condition of the yacht would be permanent or irremediable or would adversely affect the value of the yacht in any long term significant way. There is also only limited evidence of the costs that would be incurred to restore the condition of the yacht or as to the extent of any diminution in value in the event that maintenance was not carried out. 28 I would entertain, if necessary, making an order permitting full access by an independent expert so that a more comprehensive and qualified analysis can be given. It seems to me that rather than appointing a receiver for the sale of the yacht in the present circumstances it should be possible to cater for the concerns held by BFPL by some maintenance regime being instituted pending the outcome of the principal proceedings. I think it is appropriate that orders be made permitting the receivers to have access to the yacht to carry out maintenance work at their own expense pending the outcome of the claim. Obviously, if the claim ultimately succeeds, the expenses should be reimbursed. 29 As it is not presently possible, in the absence of more particular evidence, to frame an order in relation to maintenance, albeit at the receivers' expense, which would meet the objective of preserving the property, pending resolution of the dispute the present application must be dismissed with costs. Those orders are made. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. Associate: Dated: 22 December 2011