KERRY LOWE MANAGEMENT PTY LID v ISHERWOOD and SHERLOCK SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SAMUELS, PRIESTLEY and CLARKE JJA 24 April 1989, 21 June 1989 [1989] NSWCA 122 APPOINTMENT OF RECEIVERS AND MANAGERS — whether deed of charge authorised appointment of joint and several receivers and managers, or joint receivers and managers only — if the latter, whether appointment of joint and several receivers and managers invalid, completely or pro tanto — on construction of documents in the case, Court holds the joint appointment valid: Wrights Hardware Pty Ltd v Evans (1988) 13 ACLR 631 and RJ Ward Pty Ltd v Sherlock (Davies J, Federal Court, 18/3/88, not reported) distinguished. Kerry Lowe Management Pty Ltd ("KLM") and two others as plaintiffs commenced proceedings against various defendants including two who had been appointed joint and several receivers and managers of property of KLM. In the proceedings the plaintiffs claimed the appointment of the receivers and managers was invalid. Brownie J decided this question as a preliminary issue, in favour of the defendants. KLM applied for leave to appeal, and, as the point was very short, the Court heard full argument on it. The question arose in the following circumstances. A Deed of Charge dated 13 October 1986 between KLM and the companies collectively called the Second Defendants contained the following provisions: "6. At any time after the Moneys Hereby Secured become payable the Mortgagee may appoint in writing any person to be a Receiver of the Mortgaged Property or any part thereof and may remove any such Receiver and in case of the removal retirement or death of any such Receiver may appoint another in his place and may fix the remuneration of any such receiver at such rate as the Mortgagee may from time to time determine but not exceeding whichever is the greater of the standard hourly rate from time to time charged for work of this type by the firm of accountants of which such Receiver is a member of five percentum (5%) of the gross amount of all moneys collected by such Receiver PROVIDED ALWAYS that every such Receiver shall be the agent of the Mortgagor and the Mortgagor alone shall be responsible for his acts and defaults and such Receiver so appointed shall without any consent on the part of the Mortgagor have power..." CL65 contained power to sell all or any of the mortgaged property. Clauses 2614 and 2615 were in the following terms: "26.14 That except to the extent that such interpretation shall be excluded by or be repugnant to the context whenever the same is used herein the expression 'the Mortgagor' shall mean and include the Mortgagor and its assigns; the expression 'the Mortgagee' shall mean and include the Mortgagee and its assigns; the word 'person' shall include a corporation; words importing the singular number or plural number shall include the plural number and singular number respectively; references to acts codes ordinances statutes or regulations shall include all acts codes ordinances statutes or regulations amending or consolidating or replacing the acts codes ordinances statutes or regulations 2 UNREPORTED JUDGMENTS referred to' 'Receiver' shall include a Receiver and Manager and, where more than one person has been appointed as a Receiver or Receiver and Manager, be construed as a reference to each other such person or persons. Where any word or phrase is given a defined meaning in this Charge any other part of speech or other grammatical form in respect of such word or part of speech shall have a corresponding meaning. 26.15 If any term or condition of this Charge or the application thereof to any person or circumstances is or becomes void voidable or otherwise unenforceable it shall be severed and the remaining terms and conditions shall not be affected." By deed dated 17 August 1987 the Second Defendants appointed the First Defendants as Receivers and Managers. CL1 of that deed was in the following terms: "1. The Mortgagee being entitled under the powers conferred by the said Deed of Charge to appoint a Receiver and Manager of the Mortgaged Property in exercise of such power HEREBY APPOINTS ANTHONY GARDINER SHERLOCK AND PAUL DEAN RAMSBOTTOM ISHERWOOD of 6 O'Connell Street, Sydney both Chartered Accountants (hereinafter called 'the Receivers') to be the joint Receivers and Managers and each of them to be the several Receivers and Managers of the Mortgaged Property with all the powers conferred upon the Receivers by the said Deed of Charge and by Law." The plaintiffs contended before Brownie J that the appointment of the First Defendants was invalid because the appointment was as joint and several Receivers and Managers, the argument being that the Deed of Charge only authorised the appointment of either a single person as Receiver and Manager or of two or more persons as joint Receivers and Managers. The steps which it was submitted led to this conclusion were those in the reasons in Wrights Hardware Pty Ltd v Evans (1988) 13 ACLR 631 at 633 to 634 in paragraphs numbered 1 to 6. This was the only argument advanced in support of the plaintiffs' contention that the First Defendants had not been validly appointed. Before Brownie J the defendants raised three answers. First, as a matter of construction of the Deed of Charge, that deed authorised the appointment of joint and several Receivers and Managers. Second, even if the appointment of the First Defendants as several Receivers and Managers were defective, CL2615 of the Deed of Charge operated to save the validity of their appointment as joint Receivers and Managers and, third, the decisions in Wrights and in RJ Ward Pty Ltd v Sherlock (Davies J; Federal Court of Australia, 18 March 1988, not reported) are wrong. Brownie J accepted the first of these answers. His reasoning was as follows. CL2614 of the Deed of Charge provided that where one or more persons have been appointed as Receiver and Manager, a reference to "Receiver", which expression means Receiver and Manager, should be construed as a reference to each such Receiver and Manager. Reading that into CL6, it provided that such Receiver, meaning every such Receiver or every Receiver and Manager so appointed, either initially or subsequently, should have power to do the various things listed, including selling the mortgaged property. Once it became clear that every Receiver and Manager appointed had power to sell the Mortgaged Property, that being the subject matter of the litigation, it followed that the power to appoint Receivers and Managers was a power to appoint joint and several Receivers and Managers. URKERRY LOWE MANAGEMENT PTY LTD v ISHERWOOD and SHERLOCK (Kerry) 3 Brownie J noted that CL2614 of the Deed of Charge was different to CL63 of the mortgage debenture which Davies J was considering in Ward. That deed contained a distinction between Mortgagors acting jointly and severally and the usual formula in a definition clause providing that words importing the singular number include the plural number. In this Court the parties made the same submissions that were put to Brownie J. Although I think there is force in the reasoning which led Brownie J to his conclusion, it seems to me that the better construction of the relevant provisions is the one that yields the second of the three answers relied on by the defendants. This is because CL6 of the Deed speaks of one Receiver, to receive one commission of 5%. CL2614 then makes it clear that the one Receiver may comprise more than one person; this seems to me to point more clearly to a power to make a joint appointment than both joint and several appointments. If the latter construction were to be adopted, it would be more difficult (although not of course impossible) to give a sensible meaning to the commission provision in CL6. The deed by which the Receivers were appointed separated the joint and several appointments in a way which in my opinion calls for the conclusion that if the power of appointment was only that of appointing one receiver or joint receivers, then the deed of appointment succeeded in achieving the latter; and that the further purported appointment of the Receivers as several Receivers effected nothing and should simply be disregarded. The decisions in Wrights and Ward both dealth with two points: did the deed of charge empower the appointment of joint and several receivers and managers, and, if it supported the appointment only of joint receivers, was the appointment of joint and several receivers and managers valid as a joint appointment only: in both cases the answer to both points was no. For the reason I have briefly indicated I think the same conclusion should be reached in the present case on the first point. In regard to the second point, Davies J in Wrights reached his answer after referring to three considerations; (i) the limitations to the exercise of such powers of appointment must be strictly observed; (ii) the analogy of Harold Meggitt Ltd v Discount and Finance Ltd (1938) 56 WN (NSW) 23; and (iii) the appointment to act as receivers and managers jointly and severally was different in substance and effect from an appointment of them to act jointly. Proposition (i) does not stand in the way of reading the appointment in the present case as pro tanto invalid; such a reading seems to me to be an affirmation of the proposition; or, if that is going too far, certainly consistent with it. As to proposition (ii), in Harold Meggitt, the purported exercise of the power to appoint a receiver and manager, was the appointment of a receiver only, the court held that where the power was to appoint a receiver and manager that only could be done, and not something less. This does not seem to me to throw any light on the present case, where something more was attempted than was permissible, and the question is whether the exercise of the power can be read down so as to be limited to what was permissible. As to proposition (iii), it may well be applicable to a case where the deed of appointment is to be construed as showing that the appointment was of receivers and managers jointly and severally or not at all, but in a case such as the present, where the appointment in my opinion purported to effect distinct appointments of the First Defendants as joint receivers and managers, and then of each of them as several managers, the proposition can have no operation. In the present case the position seems to me to be in substance the same as if there had been one document appointing joint receivers and managers 4 UNREPORTED JUDGMENTS and another appointing them severally. In that case one appointment would be effective and the other not. On the documents in the present case I therefore reach a different result on the second point from that of Davies J on the documents in Wood. The same observations apply to what Franklyn J said on the same point in Wrights. In my opinion therefore leave to appeal should be granted; in the appeal the Court should make a declaration in accordance with the construction I have indicated, and because, despite the form of the result, the defendants have substantially succeeded, (since the proceedings aimed at having the actions of the Receivers and Managers invalidated) KLM should be ordered to pay the defendants' costs of the application and the appeal. Short minutes should, therefore, be brought in embodying the foregoing and also the consequential orders which the parties foreshadowed to us should be made if the court reached the conclusion which I have stated. Counsel for the Appellant: D Robinson Solicitors for the Appellant: Freehill Hollingdale and Page Counsel for the Respondent: BR McClintock Solicitors for the Respondent: Clayton Utz