Supreme Court New South Wales Medium Neutral Citation: In the matter of Pinata Pty Limited (in liquidation) (ACN 001 777 920) Bryce Geoffrey Lyle Killen -v- William James Hamilton [2012] NSWSC 162 Hearing dates: 14,16 & 17 February 2012 Decision date: 05 March 2012 Jurisdiction: Equity Division - Corporations List Before: Hammerschlag J Decision: Proceedings dismissed Plaintiffs to pay the defendant's costs on an indemnity basis Catchwords: CORPORATIONS - s 423(1) Corporations Act 2001 (Cth) - defendant was appointed as a joint receiver to wind up a partnership between a corporation (Pinata) and a number of individuals by a deed of dissolution made on 9 April 1996 - the plaintiffs are, and have at all times, been associated with Pinata - Pinata brought proceedings in 2001 against its individual former partners and the joint receivers claiming that the individual partners owed monies to the partnership and for an accounting - Pinata also made claims by way of cross-claim against the defendant - the proceedings failed as against the individual partners because Pinata did not put up security for costs in accordance with orders of the court and the claims against the defendant were statute barred - the plaintiffs complain that the defendant, as receiver to the partnership, should have brought claims against the individual former partners and move the court for an inquiry under s 423(1) of the Act - whether the defendant was a controller - whether the plaintiffs are entitled to invoke the section - EQUITY - PARTNERSHIP - whether the plaintiffs have established that the defendant should have brought the claims the plaintiffs say he should have brought - whether the plaintiffs have established that the defendant did not faithfully perform a requirement of the instrument under which he entered into possession or took control of property or that he committed an act or omission appropriate to inquire into - HELD - plaintiffs have not satisfied the requirements of s 423 - HELD - Pinata was the party which could and should have motivated the complaints - HELD - the plaintiffs guilty of gross delay in bringing the proceedings without explanation - HELD proceedings are an attempt to obtain a collateral advantage beyond what the law offers and are an abuse of process - COSTS - HELD - the plaintiffs maintained these proceedings although they should have known that they had no real prospects of success - order for indemnity costs appropriate Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Bolton v Federal Commissioner of Taxation [1965] ALR 481 Canny Gabriel Castle Jackson Advertising Pty Limited v Volume Sales (Finance) Pty Limited (1974) 131 CLR 321 Commissioner of State Taxation v Cyril Henschke Pty Ltd (2010) 272 ALR 440 Belvista Pty Ltd v Murphy (1993) 11 ACSR 628 Richardson v Bank of England 41 ER 65 Hurst v Bryk [2002] 1 AC 185 Artistic Builders Pty Ltd v Elliott & Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16 Williams v Spautz (1992) 174 CLR 509 Texts Cited: Peter Watts and FMB Reynolds, Bowstead and Reynolds on Agency (17th ed, 2001) Category: Principal judgment Parties: Bryce Geoffrey Lyle Killen - First Plaintiff Edward Darrel Lyle Killen - Second Plaintiff Baldon Pty Ltd (ACN 000 211 782) - Third Plaintiff Cinema Center Services Pty Ltd (ACN 008 542 612) - Fourth Plaintiff Castanair Pty Ltd (ACN 008 513 157) - Fifth Plaintiff William James Hamilton - Defendant Representation: T.J. Morahan - Plaintiffs D.A. Lloyd - Defendant Mitry Lawyers - Plaintiffs Kennedys - Defendant File Number(s): 2010/417532 Judgment BACKGROUND The parties 1HIS HONOUR: Pinata Pty Ltd (in liquidation) ACN 001 777 920 (Pinata or the company) is, and at all material times was, a company associated with members of the Killen family, including the first plaintiff, Bryce Geoffrey Lyle Killen (Bryce Killen), and the second plaintiff, Edward Darrel Lyle Killen (Darrel Killen). The shares in Pinata are owned by the fifth plaintiff, Castanair Pty Ltd (Castanair), which is the trustee of the Killen family trust. The shares in Castanair are, in turn, owned by Bryce Killen and Darrel Killen, to whom I shall refer, where it is not necessary to distinguish between them, together as the Killens. 2The third plaintiff and the fourth plaintiff are also companies associated with the Killens. According to the Killens those companies are creditors of Pinata. 3The defendant, William James Hamilton (Hamilton), is a registered liquidator. The partnership, the administration and the DOCA 4Pinata owned a rural property in western New South Wales called Marra North. The adjacent property, known as Marra, was at all material times owned by members of the Leigo family, which included Robert Peter Leigo (Bob Leigo), his wife Yvonne Leslie Leigo (Yvonne Leigo), their daughter Kerrie Joy Davies and their son-in-law Geoffrey Naunton Davies (together the Davies). The Killen and Leigo families had been associated for many years. From 1979 until March 1997 Bob Leigo was a director of Pinata. 5From the 1980s until 9 April 1996, there existed a partnership at will (the partnership) between Pinata and six members of the Leigo family. The partnership interests were Pinata as to 50 percent and the Leigo family as to 50 percent. The partnership business ran livestock, mainly sheep but with some cattle, across both blocks of land. 6On 11 March 1996 Pinata appointed Hamilton voluntary administrator after Moonagee Pty Ltd (Moonagee) obtained judgment against it for $436,652. Moonagee too was associated with the Killens. However, a creditor of Moonagee had appointed receivers to it and the receivers caused it to move against Pinata. 7On 2 April 1996 Castanair proposed a Deed of Company Arrangement (DOCA) with Pinata, which provided for the establishment of a fund and for Pinata to be returned to the control of its directors. Under the DOCA, creditors (totalling some $594,000) would receive about 50 cents in the dollar. 8In light of Pinata's financial plight, the Leigo interests determined to terminate the partnership. On 9 April 1996 the partners entered into a Deed of Dissolution (the deed). The defendant signed the deed on behalf of Pinata in his capacity as administrator. 9The following are the relevant operative provisions of the deed: 1 Dissolution of the Partnership 1.1 The Partners jointly and severally agree to dissolve the Partnership effective from the date of this deed. 2. Appointment of Receivers 2.1 The Partners hereby jointly and severally appoint the Receivers jointly to be their agent to take all steps necessary to: 2.1.1 wind up the affairs of the Partnership; 2.1.2 pay all liabilities of the Partnership; 2.1.3 dispose of all assets of the Partnership; and 2.1.4 divide up the surplus among the Partners according to their respective interests in the Partnership. 2.2 In consideration of the agreement by each of the Partners to the winding up of the Partnership each of the Partners acknowledges that the appointment of the receivers as agents of the Partners shall unless the Partners otherwise unanimously agree, be irrevocable. 3. Powers as a Receiver 3.1 In the exercise of their appointment under clause 2 the receivers shall: 3.1.1 be entitled to act in the name of and as agent for each of the Partners so far as may be necessary to wind up the affairs of the Partnership and to complete the transactions begun but unfinished at the time of dissolution; 3.1.2 distribute assets of the Partnership in accordance with section 44 of the Partnership Act; 3.1.3 have the same powers as the powers granted to a liquidator under section 277 of the Corporations Law except that: 3.1.3(a) for the purposes of paragraph (b) of section 477(1) the words "subject to the provisions of section 556" shall be deleted; 3.1.3(b) paragraph (2)(ca) of section 477 shall not apply; 3.1.3(c) the provisions of section 477(2A), 477(2B) and section 447(6) shall not apply. 4. Decisions of the Receiver 4.1 The appointment of the receivers as agents of the Partners shall be an appointment of the receivers jointly. 4.2 All actions in relation to the dissolution of the partnership shall be carried out jointly by the receivers; 4.3 In the event that the receivers cannot agree upon any action to be taken in relation to the dissolution of the Partnership the question shall be referred for determination to a partner of Greenwood Challoner, Chartered Accountants (such partners to be nominated by the Managing Partner of Greenwood Challoner) who shall in making such determination act as an expert. 10On 10 April 1996, as administrator of Pinata, Hamilton convened the second meeting of creditors in the administration for 17 April 1996 and reported to unsecured creditors in accordance with s 439A of the then applicable Corporations Law . A Report as to Affairs in relation to Pinata, dated 2 April 1996, was signed by Darrel Killen. The Report contains a Statement of Assets and Liabilities and a list of unsecured creditors. According to the Report, Pinata had a deficiency of assets over liabilities of $231,525. It valued Pinata's interest in the partnership at an estimated $60,000. 11Pinata's creditors voted in favour of the DOCA and it was executed on 10 May 1996. Hamilton became deed administrator. The DOCA itself is not before the Court. The parties were at odds as to precisely when Pinata was returned to the control of its directors. An ASIC historical company extract records that Hamilton's appointment as voluntary administrator ceased on 20 May 1996. From that date Pinata must have been back in its directors' hands. Hamilton's appointment as deed administrator terminated on 17 July 1996. Accordingly, he held office as voluntary administrator or deed administrator for a period no longer than from 11 March to 17 July 1996. The Disputes 12The documentary material before the Court is incomplete. It is, however, clear that from the outset, the winding up of the partnership was beset with controversy. 13In May 1996, after a visit to Marra and Marra North, Bryce Killen prepared a written report for Darrel Killen. The report made a series of complaints against the Leigo interests, including a complaint that the Davies had run non-partnership sheep on partnership property without paying agistment and that a quantity of black polythene piping, which had been bought in about 1987 by Moonagee for some $15,000 and which was supposed to have been installed on Marra North and to provide water points to both blocks, had wrongly been installed by the Leigo interests entirely on Marra. The report foreshadowed legal action. 14On 4 June 1996 Darrel Killen, on behalf of Castanair, wrote to the Killens' solicitor, Mr McKell (with copies to Hamilton, Bob Leigo, and Bryce Killen), referring to a substantial dispute between the former partners and asserting that Pinata must apply to the court for the appointment of a receiver. Hamilton responded the same day cautioning against legal proceedings. The next day Hamilton and Bob Leigo provided the partners with a letter report on the assets and liabilities of the partnership. They referred to some of the disputes and suggested a meeting between the legal representatives of the respective partners to discuss how the final accounting should be achieved and submissions from both sides. They cautioned against legal proceedings and requested the addressees' views "especially in view of the partnership not having any funds most likely to pay for any costs satisfying creditors debts". They suggested a procedure whereby access to the books and records would be given first to the Killens and agreement obtained from them to make submissions within 14 days after which access would be given to the Davies and submissions would be obtained from them. They foreshadowed the possibility that if a conclusion acceptable to each party was not reached, it may be practical to rely on a partner of Greenwood Challoner to make a determination. 15There is no evidence that either side embarked on the procedure suggested by the receivers or that they communicated their views about the proposal. 16On 8 July 1996 Darrel Killen received a report from an accountant, Mr McLean, which referred, amongst others, to the controversies concerning the piping and agistment. In addition, Mr McLean had inspected the partners' salary accounts, which reflected that there had been an overdrawing by "the Managing Partners" (presumably the Davies) but that no interest had been charged. 17By March 1997 there was, it seems, significant tension between Hamilton and Bob Leigo. Bob Leigo was allied with the Leigo interests. There were apparently even disputes as to whether particular matters were in fact in dispute. On 15 April 1997 Hamilton produced and provided an overview of adjustments with the Davies which recorded that the claim for interest on loan accounts was not admitted, that there was a lack of detail with respect to the agistment issue and that the piping issue was not admitted and not considered material. There is a paucity of information as to what took place between then and 2001. Nothing before the Court indicates any positive action on the part of the Killens to force any issue until 2001. The 2001 Proceedings 18On 29 June 2001 Pinata, under the stewardship of the Killens, commenced proceedings citing Hamilton, Bob Leigo and the remaining partners, including the Davies, as defendants. The summons claimed a declaration that the partnership was dissolved on 9 April 1996 and an order that it be wound up under the direction of the Court, with Hamilton being appointed receiver and manager. The summons also claimed an order that the Davies pay to the appointed receiver $101,435.46 and $8,186.04 as monies owing to the partnership, with interest, or that an account be taken. The summons claimed an order that Hamilton or a partner of Greenwood Challoner be appointed to conduct the said account and an inquiry. Hamilton's son, a partner in a Sydney law firm, was Pinata's solicitor on the record. Although Hamilton was cited as a defendant, he was at that time not viewed as an adversary by Pinata or the Killens. 19On its face the summons did not appear to motivate any claim in respect of the piping issue. This, however, changed when on 1 February 2002, Pinata filed an Amended Statement of Claim asserting against the Leigo interests breach of fiduciary duty, misrepresentation and a claim for damages arising out of the laying of the piping on Marra. It maintained the claim for an account and an inquiry and that Hamilton or a partner of Greenwood Challoner be appointed to take them. 20Bob and Yvonne Leigo served their Defence on 5 June 2002. Mostly their Defence did not plead to allegations made in the Amended Statement of Claim but it did deny that Pinata was entitled to an order for accounts or an inquiry. The Davies filed their Defence on 21 June 2002, denying all essential averments made by Pinata. On 16 May 2002 Hamilton filed a cross-claim against all the other parties claiming his remuneration, at that time totalling, after payments already made, $99,021.65. 21The Davies, as well as Bob and Yvonne Leigo, thereafter moved the Court for an order that Pinata provide security for costs. 22On 28 April 2005 Prothonotary Riznyczok made orders requiring Pinata to give security in the sum of $160,000 each for the costs of the Davies and Bob and Yvonne Leigo, respectively, and that the proceedings be stayed until it was given. In his judgment the Prothonotary commented on the lack of financial details from Darrel Killen, who he described as a major beneficiary should the action succeed. The Prothonotary also commented on the absence of financial details from other family members. The judgment reflects that Castanair held its shares in Pinata on discretionary trust for various members of the Killen family. 23Pinata sought review of the Prothonotary's decision. This was dealt with by Macready AsJ, who gave judgment on 30 June 2005 reducing the amount of security to $130,000 in respect of Bob and Yvonne Leigo and $100,000 in respect of the Davies. 24The matter, however, did not rest there. Pinata appealed the decision of Macready AsJ. The appeal was heard by Barrett J who dismissed it with costs on 3 November 2005. Pinata applied for leave to appeal to the Court of Appeal. The application was dismissed on 25 September 2006 by Bryson and Basten JJA. On 23 October 2006 Pinata filed an application in the High Court for special leave to appeal. That application was refused although there is no original material before the Court in relation either to it or to the proceedings in the Court of Appeal. 25Bob Leigo passed away on 21 November 2005. 26Pinata did not put up the security ordered. The proceedings were listed before Young CJ in Eq on 15 December 2006, at which time Bryce Killen apparently (with leave) filed a pleading entitled 'Third Cross-Claim - Statement of Cross-Claim' which sought, both on Pinata's and on his own behalf, relief against Hamilton. Various acts and omissions against Hamilton were alleged. Orders were sought that he be barred from receipt of any remuneration or costs and that he pay compensatory and punitive damages. 27The result of Pinata's failure to put up security was that on 16 August 2007 Young CJ in Eq dismissed Pinata's proceedings with costs. The Record of Proceedings before His Honour on that day reflects that His Honour also struck out the Third Cross-Claim with costs "... on the basis that it is outside the limitation period". For reasons which are not clear, the matter came before His Honour on 15 November 2007. Bryce Killen appeared in person. A solicitor for Hamilton sought confirmation that the proceedings had been dismissed, which His Honour gave. There does not seem to have been any order for the dismissal of Hamilton's cross-claim for remuneration. Mr Hamilton's evidence was that his proceedings died with the 2001 proceedings. 28Yvonne Leigo died in 2009. Prior to her death she fully administered the estate of Bob Leigo. 29In November 2010 Hamilton moved offices and destroyed all his files relating to Pinata, the partnership, the administration and the DOCA. The material destroyed comprised in excess of 50 ring binder folders. He gave evidence, which I accept, that he destroyed his hard copy files because he understood that the orders of Young CJ in Eq had finalised forever all actual and potential claims which might be made against him arising out of the administration of Pinata and the receivership of the partnership. He did retain some documents in soft copy. THESE PROCEEDINGS 30Against this background, on 16 December 2010, the plaintiffs sued out of the Court an Originating Process containing an application described as one under ss 423, 447E and 1321 of the Corporations Act 2001 (Cth) (the Act). The Originating Process further describes the application as "a complaint about the actions and default of the Defendant as administrator of Pinata Pty Limited (in liquidation)." It claims the following relief: 1. An inquiry be conducted by the Court into the management of the company's business by the Defendant. 2. Any order or orders that the Court deems appropriate. 31The Originating Process was amended on 24 December 2010 in an immaterial respect. The plaintiffs were ordered to plead their complaints and filed an Amended Statement of Claim on 27 June 2011. 32The following are the complaints made against Hamilton: (a)that on or about 11 September 1996 Hamilton requested Bob Leigo to agree to the service of a demand on the Davies to repay the loan monies, which request Bob Leigo refused, and that Hamilton neglected to refer this refusal for determination under cl 4.3 of the deed; (b)that Hamilton wrongfully refused or neglected to take action to recover loan monies owed by the Davies and interest on those monies; (c)that Hamilton failed to recover the agistment charges; and (d)that Hamilton failed to recover the costs and loss of profits associated with the wrongful use of the piping. 33The pleading goes on to allege that as a consequence of the neglect and default of Hamilton as receiver of the partnership and as administrator of Pinata, the partnership and Pinata suffered damage, being the Davies' overdrawings plus accumulated interest, an amount for the agistment of stock, the cost of the piping, a loss of income by the partnership and Pinata due to the lack of the pipeline, the loss of Pinata property value due to the lack of the pipeline and loss of additional increases to the Pinata property value. In addition, the pleading asserts that as a consequence the fourth plaintiff suffered damage due to a forced sale of a motel and home park. THE RELEVANT SECTIONS OF THE ACT 34Section 9 of the Act defines "controller", in relation to property of a corporation, relevantly to mean a receiver, or receiver and manager of that property. 35Section 423(1) of the Act provides as follows: If: (a) it appears to the Court or to ASIC that a controller of property of a corporation has not faithfully performed, or is not faithfully performing, the controller's functions or has not observed, or is not observing, a requirement of: (i) in the case of a receiver--the order by which, or the instrument under which, the receiver was appointed; or (ii) otherwise--an instrument under which the controller entered into possession, or took control, of that property; or (iii) in any case--the Court; or (iv) in any case--this Act, the regulations or the rules; or (b) a person complains to the Court or to ASIC about an act or omission of a controller of property of a corporation in connection with performing or exercising any of the controller's functions and powers; the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit. 36Section 447E(1) of the Act provides as follows: Where the Court is satisfied that the administrator of a company under administration, or of a deed of company arrangement: (a) has managed, or is managing, the company's business, property or affairs in a way that is prejudicial to the interests of some or all of the company's creditors or members; or (b) has done an act, or made an omission, or proposes to do an act, or to make an omission, that is or would be prejudicial to such interests; the Court may make such order as it thinks just. 37Section 1321(1) of the Act provides as follows: A person aggrieved by any act, omission or decision of: (a) a person administering a compromise, arrangement or scheme referred to in Part 5.1; or (b) a receiver, or a receiver and manager, of property of a corporation; or (c) an administrator of a company; or (ca) an administrator of a deed of company arrangement executed by a company; or (d) a liquidator or provisional liquidator of a company; may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit. 38Although relevant events occurred before the coming into force of the Act, the parties agreed that the provisions of the Act presently in force are no different to those at any other relevant time and that the proceedings should be determined with reference to the provisions of the Act as they now stand. CONSIDERATION Section 447E of the Act - Hamilton as administrator 39The complaints against Hamilton in his capacities as voluntary administrator and deed administrator were manifestly unsustainable and were abandoned during the hearing. 40These complaints have difficulties, including the insuperable difficulty, which is dealt with below, that Hamilton did not have standing or authority to bring the claims against the Leigo interests that the plaintiffs say he should have brought. Those claims themselves have difficulties, which are also dealt with below. 41Beyond this, however, Hamilton occupied the offices of voluntary administrator and deed administrator only from 11 March 1996 to 17 July 1996. During that time Castanair put up the DOCA, which was to, and did, end his tenure only weeks after he took office. It is not fairly open to the plaintiffs (particularly Castanair, which proposed the DOCA) now in retrospect to complain that Hamilton did not embark on expensive and difficult litigation during the brief period he was voluntary administrator and deed administrator, especially given that Pinata was insolvent and that such a course would undoubtedly have destabilised the very DOCA process which Castanair was promoting. Moreover, Castanair itself did not disclose the existence of these alleged claims to the creditors of Pinata, who voted in favour of the DOCA. If these claims had substance, they would have been items in a final partnership accounting of credit in favour of Pinata and therefore a potential asset in its hands available for the benefit of the creditors of Pinata. Section 423(1) of the Act - Hamilton as receiver 42Section 423 of the Act applies to Hamilton only if, by the deed, Hamilton was a controller of property of Pinata. Under s 9 of the Act he was a controller in relation to property of Pinata if he was a receiver of that property. 43It was put on behalf of Hamilton that by the deed he did not become a receiver of Pinata's property as contemplated by s 9 but rather, was appointed by the partners as a receiver to be their agent, to take steps to wind up the partnership, including by disposing of all assets of the partnership in which one of the partners simply happened to be a corporation. This, it was put, was not an appointment as receiver and manager of property of Pinata. 44Long standing authority establishes that a partner's share in a partnership does not give the partner title to specific property but is a right to the partner's proportion of the surplus after realisation of assets and the payment of debts and liabilities. It is a fractional interest in a surplus of assets over liabilities on a winding up and in the future profits in the partnership business; see Bolton v Federal Commissioner of Taxation [1965] ALR 481 at 485, 491; Canny Gabriel Castle Jackson Advertising Pty Limited v Volume Sales (Finance) Pty Limited (1974) 131 CLR 321 at 327; Commissioner of State Taxation v Cyril Henschke Pty Ltd (2010) 272 ALR 440 at 446 [24]. Hamilton was not appointed as receiver to this interest but rather as an agent to carry out steps which would ultimately result in the determination of the extent of this interest. 45There is therefore some force in Hamilton's submission given that the deed did not appoint him receiver of Pinata's property in the sense of its interest in the partnership. It is, however, not necessary to determine this issue because there are a plethora of other compelling reasons why the proceedings must fail in any event. 46In Belvista Pty Ltd v Murphy (1993) 11 ACSR 628 McLelland CJ in Eq considered s 536(1) of the Corporations Law as it stood in 1996. That section (which applied to liquidators) was in its terms materially indistinguishable from s 423(1) as it would apply to Hamilton if he was a controller. At 630 His Honour observed the following: I wish to add that where, as here, a creditor or other interested party wishes to challenge the decision of a person in the position of a scheme administrator, or a liquidator, apparently arrived at in good faith, it is generally inappropriate to utilise the "complaint" provisions of s 536 of the Corporations Law rather than the "appeal" provisions of s 1321. As I observed in Northbourne Developments v Reiby Chambers Pty Ltd (1989) 8 ACLC 39 at 43 in relation to the predecessor of s 536, that section is concerned with aspects of the conduct of liquidators and others which are liable to attract sanctions or control for what might be broadly described as disciplinary reasons. 47On this footing, the plaintiffs fail at the first hurdle and are not entitled to invoke the section because during submissions they eschewed any assertion that Hamilton had acted other than in good faith in relation to the actions and omissions of which they complain. The complaints are not of a disciplinary nature. No reliance was placed on s 1321 of the Act. Further reasons why the plaintiffs must fail follow. 48First, it was put on behalf of Hamilton that the deed did not confer upon him the power or authority to sue one or more of the partners on behalf of another or others of them, as the plaintiffs contend he should have done. This submission was put on the basis that cl 3.1.3 of the deed does not comprehend a power in the receivers to commence proceedings by one partner against another or others. Clause 3.1.3 provides that the receivers shall have the powers granted to a liquidator under s 477 of the Corporations Law . Section 477(2)(a) of that enactment provides that a liquidator may bring or defend any legal proceedings in the name and on behalf of the company. It was put that this was not a power to commence proceedings for one partner against others. 49This is undoubtedly correct. 50For over 150 years it has been settled that neither during the partnership nor after its termination has any partner a cause of action at law to recover monies due to that partner from his fellow partners. The amount owing to one partner by his or her fellow partners is recoverable only by the taking of an account in equity after the partnership has been dissolved; see Richardson v Bank of England 41 ER 65. This principle has been affirmed by the High Court as recently as 2010; see Commissioner of State Taxation v Cyril Henschke Pty Ltd (above) at 445 [22]; see also Hurst v Bryk [2002] 1 AC 185. 51Under cl 3.1 of the deed the partners appointed the receivers their agent to wind up the affairs of the partnership. The powers they gave the receivers were given in aid of winding up the affairs of the partnership by gathering in its assets, paying its liabilities and dividing the surplus according to the partners' respective interests in the partnership. Clearly, this does not comprehend power in the receivers to bring proceedings to determine the extent of those interests, including by proceedings to determine monies due to one partner by his or her fellow partners, and on its plain meaning cl 3.1 does not confer such a power. To construe the provision otherwise would place the receivers in an impossible position of conflict and would assume an intention on the part of the partners to have an instrument which envisaged a course directly in conflict with long established principle. 52In any event, the partners could not validly authorise their agents to bring proceedings which they themselves could not bring; see Peter Watts and FMB Reynolds, Bowstead and Reynolds on Agency (19 th ed, 2011) [2-2006]. 53The only proper course for resolution of the loan, interest, agistment and piping claims was for Pinata to bring proceedings for an accounting, a course which it ultimately took in 2001 and which, for reasons already discussed, failed. 54Secondly, each of the matters complained of relates to a claim that should have been instigated by an ordinary piece of adversary litigation (in this case a claim for an accounting); see Artistic Builders Pty Ltd v Elliott & Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16 at [147]. 55The proper motivator of each of the claims was Pinata. It motivated them from as early as 1996 but squandered its opportunity to obtain relief. In the 2001 proceedings it sued in respect of the loan account and interest claims and in respect of the piping. (Why it did not sue in respect of the agistment claim is unexplained). Under the Killens' stewardship, Pinata failed to put up the security it was ordered to provide and those behind it (including Darrel Killen) and standing to gain from the proceedings declined to accept any personal risk for costs. By the Third Cross-Claim Pinata and Bryce Killen complained of Hamilton's conduct but that claim was dismissed because it was out of time. There was no appeal. 56It follows that the plaintiffs' attempt now to invoke s 423(1) of the Act is an attempt to achieve by indirect means an outcome which the proper plaintiff, Pinata, failed to, and can no longer, achieve by direct means. The machinery of the section is unavailable to the plaintiffs in these circumstances. In my view, the proceedings are an attempt to obtain a collateral advantage beyond what the law offers and are an abuse of the process of the Court: Williams v Spautz (1992) 174 CLR 509 at 526-7. 57Thirdly, if the plaintiffs were otherwise entitled to invoke the section, the first requirement resting on them would be to establish some respect in which Hamilton did not faithfully perform or observe a requirement of the deed, that is, a failure faithfully to perform or observe a requirement of him as a receiver of the partnership. In my view they have failed to meet this requirement. 58Their first complaint is that Hamilton did not refer for determination under cl 4.3 of the deed the refusal of Bob Leigo to agree to the service of a demand on the Davies for the loan monies. This is an empty complaint. The evidence does not establish that Hamilton and Bob Leigo did not agree upon action to be taken in relation to dissolution of the partnership. Hamilton, correctly, was reluctant to commence proceedings and, as referred to above, Bob Leigo would have been in an untenable position. Moreover, there was no money in the partnership to embark on this exercise. Hamilton's evidence was that "there were no funds available". There is no basis upon which the Court could now determine what the expert would have decided. However, even if he or she would have determined that demand should be made, subsequent events reveal that the demand would have been rejected. The Davies' defended the very claim when Pinata brought it in 2001. 59As to the remaining complaints, for the reasons which follow, even if Hamilton could have prosecuted the claims against the Leigo interests, in my view he acted reasonably in not doing so. Leaving aside the lack of funds, the claims were attendant with significant difficulties justifying him in acting as he did. 60As to the assertion that Hamilton wrongly refused or neglected to take action to recover the Davies' loans and interest, this complaint is likewise without substance. The claim had difficulties. Hamilton gave evidence that the claim was attendant with lack of precision; that the terms of the alleged loans were not reduced to writing; that the records and accounts of the partnership had not provided for interest; that had interest been charged in earlier years the partners would have been entitled to claim a tax deduction on the gross amount; and that there were possible adverse taxation consequences for the partners if interest were to have been charged subsequently. He also gave evidence of an early meeting at which Darrel Killen and Bob Leigo were present at which the overdrawings were referred to but at which interest was not mentioned. I mention that Hamilton gave evidence of a final settlement with the Davies but the evidence of this was left in an unsatisfactory state at the conclusion of the hearing. 61The complaint against Hamilton in connection with the piping claim is also without substance. This claim too clearly had difficulties. Hamilton testified that he had no evidence as to the discussions or the terms and conditions agreed between the parties about where the pipeline was to go and as to its use, although he thought there was fairly firm evidence that Geoffrey Davies put it in the wrong position. Hamilton gave evidence that it is difficult to say whether the action was under contract or conversion and that the pipeline had been purchased for about $15,000 but the Davies said that they had installed it "so that the cost has gone to them". 62The final complaint concerns agistment. Hamilton's view was that there were arguments as to whether or not the landlords (meaning the respective owners of the blocks of land) were entitled to have a certain amount of their own cattle or sheep agisted on their properties. The amount involved was very small and his view was that the cost of trying to work it out was not worthwhile. It is significant that Pinata itself did not motivate this claim in the 2001 proceedings. 63Fourthly, the plaintiffs have failed to establish that Pinata suffered any loss by reason of anything done or not done by Hamilton. A somewhat perfunctory submission was put that Pinata suffered loss because by the time it took proceedings in 2001 its financial position had deteriorated from its position in 1996 so that it could not put up the security ordered and that the delay was attributable to Hamilton because, had he acted to pursue the claims the subject of the complaints, Pinata would have been able to put up security. The plaintiffs' evidence does not establish any of these propositions. The plaintiffs' evidence also does not establish the existence of any claim in the hands of the fourth plaintiff arising out of anything done or not done by Hamilton and it was not addressed in submissions. 64Finally, the plaintiffs' delay in bringing these proceedings, for which there is no acceptable explanation, can only be described as gross and in the circumstances it is on its own sufficient to disentitle the plaintiffs to the exercise of the Court's discretion under s 423(1). Hamilton, as he was entitled to do, has destroyed relevant records and Bob Leigo, who may have been a material witness in any contest on the merits of Pinata's claims, is deceased. CONCLUSION 65The plaintiffs have fallen far short of satisfying the Court that they are entitled to invoke s 423(1)(b) of the Act, or indeed that the circumstances are such as to warrant the Court inquiring into the matter or taking any further action even if the section applied. 66Indeed, in my view these proceedings have been maintained despite the fact that the plaintiffs should have known that they could not succeed. The claim against Hamilton as administrator was correctly abandoned, but late. The plaintiffs have been guilty of gross delay. I have also concluded that the proceedings amount to an abuse of process. Arguably, each of these considerations on its own warrants an order for indemnity costs. In my view their cumulative effect is such as to put the matter beyond any reasonable doubt. 67The proceedings are dismissed. The plaintiffs are to pay the defendant's costs on an indemnity basis. 68The exhibits are to be returned. ********** Amendments 06 March 2012 - error identified in paragraph Amended paragraphs: para 65 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. Decision last updated: 06 March 2012