FEDERAL COURT OF AUSTRALIA Webster, in the matter of Retravision Southern Limited v QLS (Vic) Pty Ltd [2012] FCA 606 Citation: Webster, in the matter of Retravision Southern Limited v QLS (Vic) Pty Ltd [2012] FCA 606 Parties: BRYAN WEBSTER (IN HIS CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETRAVISION SOUTHERN LIMITED (ADMINISTRATOR APPOINTED) (ACN 004 509 755)), LEANNE KYLIE CHESSER (IN HER CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETRAVISION SOUTHERN LIMITED (ADMINISTRATOR APPOINTED) (ACN 004 509 755)) and RETRAVISION SOUTHERN LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 509 755) v QLS (VIC) PTY LTD (ACN 114 199 334) and QUALITY LOGISTICS SERVICES PTY LTD (ACN 115 268 409) File number: VID 393 of 2012 Judge: KENNY J Date of judgment: 1 June 2012 Catchwords: CORPORATIONS – application under s 1323 of Corporations Act 2001 (Cth) – appointment of administrators – goods the subject of a lien allegedly sold in contravention of s 440B of the Corporations Act 2001 (Cth) – undertakings given – orders made transferring the proceeds of the alleged sales to the administrators. Legislation: Corporations Act 2001 (Cth) Date of hearing: 1 June 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 19 Counsel for the Plaintiffs: Ms S Marks SC with Mr M Costello Solicitor for the Plaintiffs: Mills Oakley Counsel for the Defendants: Mr P Cawthorn with Mr R Settle Solicitor for the Defendants: Settle Legal IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 393 of 2012 IN THE MATTER OF RETRAVISION SOUTHERN LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 509 755) BETWEEN: BRYAN WEBSTER (IN HIS CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETRAVISION SOUTHERN LIMITED (ADMINISTRATOR APPOINTED)) (ACN 004 509 755)) First Plaintiff LEANNE KYLIE CHESSER (IN HER CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETRAVISION SOUTHERN LIMITED (ADMINISTRATOR APPOINTED)) (ACN 004 509 755)) Second Plaintiff RETRAVISION SOUTHERN LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 509 755) Third Plaintiff AND: QLS (VIC) PTY LTD (ACN 114 199 334) First Defendant QUALITY LOGISTICS SERVICES PTY LTD (ACN 115 268 409) Second Defendant JUDGE: KENNY J DATE OF ORDER: 1 JUNE 2012 WHERE MADE: MELBOURNE THE COURT NOTES: 1. The plaintiffs' undertaking, until further order, not to transfer or deal with any funds received by them as a consequence of these orders except to refund Lloyds Auctioneers and Valuers Pty Ltd and/or NDL Group Pty Ltd for stock delivered into the plaintiffs' possession by them. 2. The defendants' undertaking that they will not, by their directors, employees, servants and agents dispose of, or deal with, any goods of the third defendant in their possession save to comply with purported sales which have already occurred to Lloyds Auctioneers and Valuers Pty Ltd and/or NDL Group Pty Ltd or to dispose of the goods to the plaintiffs. THE COURT ORDERS THAT: 1. The defendants procure the transfer of the sum of $540,420.00 held in the trust account of Settle Lawyers to an account nominated by the first and second plaintiffs ("nominated account"). 2. The defendants comply with order 1 within 24 hours of being notified of the nominated account. 3. The plaintiffs file points of claim by 4:00 pm on Wednesday, 20 June 2012. 4. The defendants file points of defence by 4:00 pm on Wednesday, 11 July 2012. 5. The plaintiffs file points of reply by 4:00 pm on Wednesday, 25 July 2012. 6. The plaintiffs file any further evidence upon which they intend to rely at trial by 4:00 pm on 27 July 2012. 7. The defendants file any further evidence upon which they intend to rely at trial by 4:00 pm on 3 August 2012. 8. The plaintiffs file an outline of submissions by 4:00 pm on 7 August 2012. 9. The defendants file and outline of submissions by 4:00 pm on 10 August 2012. 10. The plaintiffs file an outline of reply submissions by 4:00 pm by 14 August 2012. 11. The matter be listed for trial on 17 August 2012 at 10.30 a.m. 12. Each party have liberty to apply on 24 hours notice. 13. The defendants pay the plaintiffs' costs of this day. 14. Costs be otherwise reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 393 of 2012 IN THE MATTER OF RETRAVISION SOUTHERN LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 509 755) BETWEEN: BRYAN WEBSTER (IN HIS CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETRAVISION SOUTHERN LIMITED (ADMINISTRATOR APPOINTED)) (ACN 004 509 755)) First Plaintiff LEANNE KYLIE CHESSER (IN HER CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETRAVISION SOUTHERN LIMITED (ADMINISTRATOR APPOINTED)) (ACN 004 509 755)) Second Plaintiff RETRAVISION SOUTHERN LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 509 755) Third Plaintiff AND: QLS (VIC) PTY LTD (ACN 114 199 334) First Defendant QUALITY LOGISTICS SERVICES PTY LTD (ACN 115 268 409) Second Defendant JUDGE: KENNY J DATE: 1 JUNE 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 This is an application made under ss 1323 and 1324 of the Corporations Act 2001 (Cth) (the Act). Orders have already been made pursuant to this application, the hearing of which was adjourned to today to enable the defendants to file material in opposition. The matters in dispute have been circumscribed, with various undertakings being given by the parties. In particular, the defendants gave an undertaking today that, until further order, they will not, by their directors, employees, servants and agents: dispose of, or deal with, any goods of the third defendant in their possession save to comply with purported sales which have already occurred to Lloyds Auctioneers and Valuers Pty Ltd and/or NDL Group Pty Ltd or to dispose of the goods to the plaintiffs. 2 Today, the plaintiffs seek orders that: (a) The defendants procure the transfer of the sum of $540,420 held in the trust account of Settle Lawyers, to an account nominated by the first and second plaintiffs; and (b) The defendants comply with the order within 24 hours of being notified of the nominated account. These orders are sought on the basis that the plaintiffs undertake that, until further order, they will not transfer or deal with the funds received by them as a consequence, except to refund Lloyds Auctioneers and Valuers Pty Ltd (Lloyds Auctioneers) and/or NDL Group Pty Ltd (NDL) for any stock delivered into the plaintiffs' possession by them. I interpolate here that, on 29 May 2012, the Court ordered that the sum of $540,420 be placed in the trust account of Settle Lawyers, subject to further order. 3 The plaintiffs' application is supported by the three affidavits of Stuart Andrew Lewin sworn on 29 May 2012, 31 May 2012 and 1 June 2012, and the affidavit of Bryan Webster sworn on 29 May 2012. In opposition, the defendants relied on the affidavit of Alexander McGregor sworn on 30 May 2012. The Court also received written submissions from the plaintiffs and the defendants. 4 On 21 May 2012, the first and second plaintiffs became, and remain, the administrators of the third plaintiff (Retravision). Since their appointment, the administrators have continued to trade, including by endeavouring to fill orders from client stores. 5 Retravision operates a business in which it: (a) licenses the "Retravision" brand to all Retravision stores in Victoria, Tasmania and Southern New South Wales (client stores); and (b) purchases electrical and white goods ("goods") in bulk from manufacturer suppliers and on-sells the goods to client stores. 6 The defendants (together, the QLS Group) operate a storage business. 7 Retravision stored goods with the QLS Group pursuant to a written contract. These goods were, as already noted, on-sold by Retravision to client stores. The QLS Group has asserted a contractual (and, possibly, statutory) lien over the Retravision goods in its storage facility. 8 Upon the appointment of the administrators, the statutory moratorium effected by Div 6 of Pt 5.3A of the Act came into effect. As part of this moratorium, the rights of parties with a possessory security interest, such as a lien, to deal with the property in their possession the subject of the interest are restricted. This is the effect of s 440B(1) of the Act and, with respect to a lien, item 2 of the table found within s 440B. That is, in such a case as this, the QLS Group cannot sell Retravision's goods in its possession, or otherwise enforce its security interest, except in accordance with the terms of the Act. Relevantly, s 440B(2) provides that this restriction may be displaced by the administrator's written consent or with the leave of the Court. The restriction does not, however, affect the secured party's right to possession: see s 440B(3). 9 An administrator's rights in respect of the goods in circumstances like the present are governed by the statutory regime in ss 442CA to 442CC of the Act. These provisions: (a) provide rights of inspection by prospective purchasers; (b) provide a right to possession upon the administrator effecting a sale; (c) impose a duty of care upon the administrator in connection with the sale of goods subject to a security interest; and (d) establish a regime for the distribution of the proceeds of sale. 10 The defendants opposed the orders sought by the plaintiffs upon a number of bases. The first was that the goods have been sold and the administrators cannot invoke s 442CC, since they have not disposed of the property by way of sale in accordance with the Act. The argument was that the regime in ss 442CA and 442CC has not been followed and cannot now be followed. That is, so the defendants say, the plaintiffs cannot, in effect, unravel the sale transactions. 11 Second, the proper remedy is, so the defendants say, limited to a claim for damages. If the plaintiffs are successful in their claim for damages, then the defendants will be ordered to pay damages, which it is not suggested they will be unable to pay. 12 Thus, the defendants argued that they opposed the order sought by the plaintiffs upon the twin bases that to make this order would be to provide for security for the action for damages and, in effect, to allow the transactions to be unravelled. 13 In addition, the defendants noted that no freezing order of the kind originally sought was pursued. The defendants submitted that the proposed order was, in reality, also in the nature of an illegitimate freezing order. This was another reason why, so the defendants submitted, the plaintiffs should be held to their proper remedy, namely, their claim for damages against the defendants – a claim that would be determined subsequently at trial. 14 The defendants conceded that there was a serious question to be tried regarding the plaintiffs' entitlement to recover against them for breach of s 440B of the Act and for conversion, although the defendants also claimed that they would have a number of defences. Notwithstanding the opportunity to do so, however, the defendants have not filed any affidavit or other evidence contesting that, during Retrovision's administration, they sold, or purported to sell, goods owned by Retrovision in purported exercise of a lien, but contrary to s 440B(1) of the Act. Further, the defendants have not contested that the sales were made even though they had been given prior notice of the operation of s 440B and the associated provisions of the Act. The administrators' consent was not forthcoming and nor was the leave of the Court sought. 15 As the plaintiffs' counsel noted, the plaintiffs have not abandoned their claim for injunctive relief. Rather, the substance of the relief they sought in this regard had been met by way of the undertaking given by the defendants today. 16 Had the administrators sold the goods as contemplated by the Act in ss 442CA to 442CC, then the administrators would have been under a statutory duty to set aside so much of the net proceeds as equals the debt owed by the lien claimant and then apply the funds in accordance with the order of priority of claims: see s 442CC(1). Apart from the defendants, there would in this case appear to be other interests also to be considered in the application of the funds realised upon the sales that the defendants effected or purported to effect. 17 In the circumstances, it seems to me appropriate to make the orders sought by the plaintiffs. These orders would place the parties as nearly as possible in the position that they would have been in had the administrators, and not the defendants, made or purported to make the sales in accordance with the regime contemplated by the Act. In addition, this will assist the administrators in carrying out their duties, as the statutory regime also contemplates. 18 As to the undertaking that has been proffered, it is, so it seems to me, an appropriate undertaking to be given and accepted. Its effect may be to diminish the quantum of damages which might otherwise be awarded. Even if this is not so, it appears to be a practical solution to the problem that has arisen. 19 The jurisdiction of the Court to make the orders I am about to make derives from s 1323 of the Act and s 23 of the Federal Court of Australia Act 1976 (Cth). Noting the plaintiffs' and the defendants' undertakings, the orders I would make are: 1. The defendants procure the transfer of the sum of $540,420 held in the trust account of Settle Lawyers to an account nominated by the first and second plaintiffs. 2. The defendants comply with the first order within 24 hours of being notified of the nominated account. 3. Each party have liberty to apply on 24 hours notice. 4. The defendants pay the plaintiffs' costs of this day. 5. Costs be otherwise reserved. There will be further orders, preferably by agreement between the parties, in order to ready the matter for trial on 17 August 2012. The plaintiffs have undertaken to file a minute of proposed orders later today. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 18 June 2012