New South Wales Supreme Court CITATION : Yusen Daly Smith International Pty Ltd v Smith [2000] NSWSC 853 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 2400/97; 1913/95 HEARING DATE(S) : 12 July 2000 JUDGMENT DATE : 30 August 2000 2400/97 Yusen Daly Smith International Pty Ltd (In Liq) (P1) Richard Graham Kent Binet (P2) Thomas Edwin Curtis Smith (D1) PARTIES : John D Green (D2) 1913/95 Thomas Edwin Curtis Smith (P) Australia & New Zealand Banking Group Limited (D1) Richard Graham Kent Binet (D2) Yusen Daly Smith International Pty Limited (In Liq) (D3) JUDGMENT OF : Hamilton J 2400/97 A W Street SC (P1 & 2) R Cameron (D1) COUNSEL : P Harrison, Solicitor (D2) 1913/95 R Cameron (P) No appearance (D1) A W Street SC (D2 & 3) 2400/97 Blake Dawson Waldron (P1 & 2) McLaughlin & Riordan (D1) SOLICITORS : Kemp Strang (D2) 1913/95 McLaughlin & Riordan (P) No representation (D1) Blake Dawson Waldron (D2 & 3) CATCHWORDS : CORPORATIONS [189] - Receivers, managers and controllers - Appointment - By creditors - Whether party appointing may rely on ground not relied on at time of appointment to justify validity of appointment - Whether receiver may be appointed on ground of winding up where no sum presently owing to appointor. LEGISLATION CITED : Supreme Court Act 1970 s 94 Drewry v Barnes (1826) 3 Russ 94; 38 ER 511 Kendle v Melsom (1998) 193 CLR 46 CASES CITED : McMahon v State Bank of NSW (1990) 8 ACLC 315 Retail Equity Pty Ltd v Custom Credit Corporation Ltd (1991) 4 ACSR 23 Yusen Daly Smith International Pty Ltd v Smith [1999] NSWSC 450 Yusen Daly Smith International Pty Ltd v Smith [2000] NSWSC 498 DECISION : Appointment of receiver valid. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J WEDNESDAY, 30 AUGUST 2000 2400/97 YUSEN DALY SMITH INTERNATIONAL PTY LIMITED (In Liquidation) & ANOR v THOMAS EDWIN CURTIS SMITH & ANOR 1913/95 THOMAS EDWIN CURTIS SMITH v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED & ORS JUDGMENT His Honour: 1 Before me for consideration are three final matters in these long and complex proceedings. In the proceedings I have already delivered two substantive judgments: Yusen Daly Smith International Pty Ltd v Smith [1999] NSWSC 450 ("my first judgment"); and Yusen Daly Smith International Pty Ltd v Smith [2000] NSWSC 498 ("my second judgment"). The matters that remain to be dealt with are considered under the three headings which follow. Terms defined in my first judgment are used in the same sense in these reasons. Validity of Appointment of Receiver 2 As a result of the cross claimant failing to establish that the sum of $27,787.88 referred to in my earlier judgments was secured under the mortgage debenture (see my first judgment at [25] - [28] and my second judgment at [10]), doubts arose as to the validity of the appointment of the receiver. The establishment by Mr Smith of an entitlement to have the sum of $9,937.50 in respect of guarantee fees treated as secured under the mortgage debenture could not justify the appointment of the receiver, because Mr Smith (who appointed the receiver under the mortgage debenture) first became entitled to the recovery of this sum by reason of the 1998 assignment; the receiver was appointed on 8 May 1997, so that this entitlement did not exist at that time and could not justify his appointment. Indeed, it was not argued that it could. 3 The provisions of the mortgage debenture relevant to the validity of the appointment are as follows: "The moneys hereby secured are defined as including 'ALSO ALL moneys costs (as between Solicitor and own client) charges and expenses which the Bank shall pay or become liable to pay … on account of or arising out of any default by the Mortgagor in duly performing or observing any of the covenants or agreements on the part of the Mortgagor contained or implied herein …" The following provisions of the mortgage debenture are also material: "18 The moneys hereby secured shall at the option of the Bank (notwithstanding anything hereinbefore contained) immediately become due and payable and the security hereby created shall immediately become enforceable without the necessity for any demand or notice (and notwithstanding any delay or previous waiver of the provisions of this Clause by the Bank) upon the happening of any one or more of the following events: (a) if a petition is presented or an order is made or an effective resolution is passed for the winding up of the Mortgagor or a meeting is summoned or convened for the purpose of considering such a resolution; …… 19 At any time after the moneys hereby secured become payable the Bank by notice in writing signed by any officer of the Bank may appoint any qualified person to be a Receiver of the mortgaged premises or any part thereof …" 4 In the original proceedings, 1913/95, the summons sought the winding up of the company and the company was in fact wound up by an order of the Court made by Young J on 13 March 1995. It was not disputed on behalf of the plaintiff (as I shall refer to YDSI throughout these reasons for judgment) that at the time of appointment of the receiver an occasion for his appointment had arisen by reason of clause 18(a). However, it was said that Mr Smith, who was in fact the appointor, having had the rights of the Bank under the mortgage debenture assigned to him by the first assignment, could not make the appointment unless it was demonstrated that there was actually a debt owing to him and secured under the mortgage debenture at the time of the appointment. There is no doubt that in the correspondence at the time Mr Smith asserted that he was owed the $27,787.88 by virtue of the first assignment and that it was secured under the mortgage debenture. He did not at that time purport to rely on the fact that a winding up summons had been taken out against the company or indeed that the company had been wound up upon that summons. However, the lack of assertion of this right at the time cannot preclude him from now relying upon the existence of that ground to justify the appointment: McMahon v State Bank of NSW (1990) 8 ACLC 315; Retail Equity Pty Ltd v Custom Credit Corporation Ltd (1991) 4 ACSR 23. However, the plaintiff is right in saying that the result of the proceedings was that Mr Smith, because he failed to establish that the $27,787.88 which he had paid to the Bank had been paid in the guise of co-surety, had not established the liability of the plaintiff to him under the security of that sum as at the date of the appointment of the receiver: see my first judgment at [27]. As I have already said, it is not argued that Mr Smith's entitlement to the $9,937.50 paid by Management Services as guarantee fees and held to be secured under the mortgage debenture can be relied on as giving to Mr Smith a right to appoint the receiver in May 1997. 5 Mr R W Cameron, of counsel for Mr Smith, has argued before me that it matters not that there was no enforceable debt owing to Mr Smith at the time of the appointment of the receiver. He argues, first, that as between the Bank and the plaintiff the debt for $27,787.88 was still be treated as outstanding so that it might in appropriate circumstances enure for the benefit of anyone who became entitled under the mortgage by reason of payment of moneys as a co-surety. This argument is complex and faces a number of difficulties, but I do not need to determine it in light of the view that I take in relation to Mr Cameron's second argument. The second argument is, that an event stipulated in clause 18(a) having admittedly occurred, the moneys owing under the mortgage debenture had fallen due and the security had become enforceable by virtue of the provisions of clause 19 and that the security could then be enforced by anyone entitled to enforce the same, whether or not there was at the time of enforcement a debt established as owing to the person exercising the right of enforcement. Mr Street, of Senior Counsel for the plaintiff, says in reply that to permit the appointment of a receiver by Mr Smith, even though there were no moneys outstanding to him secured by the mortgage debenture as at the date of appointment, "makes a commercial nonsense of the power of appointment". He cites in support of this proposition what was said by Hayne J in Kendle v Melsom (1998) 193 CLR 46 at 68. He says that the closest case that he can find by way of analogy (whilst admitting that there is a good deal of distance between the analogy and the present facts) is Drewry v Barnes (1826) 3 Russ 94; 38 ER 511. There Sir J S Copley MR refused to appoint a receiver of church rates where the rates were to be fixed by a future assessment and to be collected at a future period. Until at least assessment, if not the commencement of collection, there was no subject matter for the receiver to be appointed to. That was a case of a Court appointed receiver. The Court will certainly not appoint a receiver where there is no subject matter. The occasions of appointment in the present case are defined by the terms of the consensual document. What is more, it does not appear to me correct to suggest that there is no interest to be protected or that it would be a commercial nonsense for a receiver to be appointed in the circumstances, even if the existence of a debt had not been established at that time and, as it turned out, was not subsequently established. The point of the appointment of a receiver in circumstances where a winding up summons has been filed, is the preservation and protection of the subject matter of the security in the interests of the secured creditors in circumstances where the company is threatened with winding up. Equally, if a liquidator has been appointed, whose duty is to all the creditors and contributories, a receiver may be necessary to assert the rights of the secured creditors. Here, Mr Smith was at all times asserting a claim to be entitled to the benefit of the security in respect of a particular sum, albeit when his entirely serious claim to that sum was determined it was found not to be made out. It seems to me that he had an entitlement to protect the security during the pendency of his claim. By the time that claim had been determined, as it turned out, the state of affairs had supervened that he had undoubtedly become entitled as at a later date to the protection by the security of a separate claim ultimately quantified in the sum of $9,937.50. It seems to me that the point of the not uncommon provision relating to winding up proceedings embodied in clauses 18 and 19 of the mortgage debenture is to ensure the protection of the rights of persons entitled or claiming to be entitled to the security, whether or not a debt actually due and payable to the person appointing at the time of the appointment is ultimately established. Once it was established that the claim which Mr Smith asserted was baseless then a receivership would have no commercial point and it may well be that at that time the company would be entitled to have the receiver discharged, but I do not think it follows that the appointment of the receiver on the winding up ground was bad at the time it was made. By the time that the original claim was determined against Mr Smith, who had appointed the receiver, he had a further claim which was acknowledged to be within the security. This means that the point of the receivership is not spent and the company is not entitled to an immediate discharge of the receivership. 6 In those circumstances I am of the view that the receiver was validly appointed by Mr Smith on 8 May 1997 and there should be judgment for the defendant on the plaintiff's claim for a declaration to the contrary. Mr Smith may have a declaration in his favour on this issue if it is thought necessary. Form of Orders 7 Each side sought orders in quite different forms relating to the declaration of entitlement to the security of the mortgage debenture in respect of the $9,937.50 paid by Mortgage Securities as guarantee fees. The form brought forward by Mr Street on behalf of the company was simpler and provides for a declaration that what is secured under the mortgage debenture is the sum of $9,937.50 together with interest calculated at the rates provided for under s 94 of the Supreme Court Act 1970. The form brought forward by Mr Cameron for Mr Smith was more elaborate and provided various mechanisms for enforcement of the payment of the relevant sum. Mr Street assures the Court that once the order is made and the amount of interest agreed, which should not be difficult, as the calculation is purely mechanical, his client will immediately pay the sum and will not seek to hold it to be set off against costs orders in favour of the plaintiff, even if such costs are ordered. On that basis Mr Cameron agrees that the declaration as proposed by Mr Street is sufficient. I shall reserve liberty to apply which will protect Mr Smith's ability to apply for further orders for enforcement in the unlikely event of the plaintiff's intention as stated by Mr Street not being carried out. There is no other controversy as to the form of the substantive orders. Costs 8 Costs remain to be determined in respect of both proceedings. In the case of 2400/97 it is the costs of the whole proceedings that are to be determined. In the case of 1913/95 it is the costs of a motion taken out by the plaintiff in mid 1997 which have been reserved and remain to be determined. 9 I turn first to the costs of proceedings 2400/97. The nature and course of these proceedings are set out in my first judgment at [11] - [15] in the context of an account of the course of the litigation generally after the judgment of the Court of Appeal. The plaintiff asserts that the claim under its summons is ancillary rather than substantive, so that failure upon it should have little influence on the costs regime. The substantive claims, it says, three in number (see [16] of my first judgment), were dealt with on the cross claim. Of these, Mr Smith succeeded on one only, and only to the extent of some $10,000. The largest claim, that for costs, which involved hundreds of thousands of dollars, was comparatively easily disposed of, and did not take a great deal of time at the hearing: see [17], [20] and [23] of my first judgment. The claim for $27,787.88 was obviously smaller, and took more time. In it, also, Mr Smith failed. Mr Smith succeeded on the third claim, but only in a sum much smaller than that originally claimed. On behalf of Mr Smith, it must be taken into account that he has succeeded in wholly defeating the plaintiff's claim and obtaining some relief on his cross claim. 10 This is not one of those cases where one can, in my view, simply talk of costs following the event, nor did either of the parties put it that way. There were diverse and separate claims. It seems to me that Mr Smith, having succeeded on the claim and on the cross claim relating to guarantee fees, should in general terms be entitled to the costs of those claims, despite his succeeding on only one of the bases propounded in relation to the former, and as to only a small part of the claim in monetary terms in relation to the latter. The costs on the other heads of cross claim should go in the plaintiff's favour. It could be left to a costs assessor to analyse what costs were attributable to which claim. That would be a complicated and onerous task, and rendered more so because there was overlap in the matters argued in respect of the various claims. Considering the degrees of success of the respective parties and the amounts of time spent on the various issues as I perceive them, in my view, justice will best be served by an order that there be no order as to the costs of the proceedings, and I propose so to order. 11 As to the reserved costs of the motion in 1913/95, in my view, Mr Smith in the event obtained no relief under that motion, and it did not serve any useful purpose. The questions it sought to raise were determined in part by Meagher JA upon the motion referred to in [14] of my first judgment, the costs of which were determined by his Honour, and as to the balance in proceedings 2400/97, the costs of which I have determined in [10]. In those circumstances, the appropriate order is that Mr Smith pay the plaintiff's costs of that motion. 12 Short minutes should be brought in to reflect the decisions embodied in this judgment. …oOo… Last Modified: 09/27/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.