Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Bitar Pty Ltd v Hebbel Constructions Pty Ltd [2019] NSWCA 38 Hearing dates: 20 February 2019 Date of orders: 20 February 2019 Decision date: 05 March 2019 Before: Gleeson JA at [1] McCallum JA at [47] Decision: (1) Extend the time for the service of the summons seeking leave to appeal to 27 August 2018. (2) Summons seeking leave to appeal dismissed with costs. (3) Applicant to pay the Receiver's costs of and incidental to the application for leave to appeal on an indemnity basis. Catchwords: APPEAL – Leave to appeal from interlocutory decision not to discharge court appointed receiver – Where complaints of delay by the receiver – Whether error of principle in approach to removal of receiver – Whether manifest injustice in refusing to remove the receiver – Where futility of an appeal given receivership almost complete – Where other remedies available CORPORATIONS – Receivers and managers – Appointment by court – Application for removal of receiver – Conduct of receivership – Powers – Where receiver makes commercial judgments as to timing and staging of sale of assets Legislation Cited: Home Building Act 1989 (NSW) Supreme Court Act 1970 (NSW), s 101(2)(e) Uniform Civil Procedure Rules 2005 (NSW), rr 26.6, 51.4, 51.10 Cases Cited: ACN 151 726 224 Pty Ltd (in liq) formerly Ridley Capital Holdings Pty Ltd [2016] NSWSC 1801 Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 House v The King (1936) 55 CLR 499; [1936] HCA 40 MLW Investments Pty Ltd v Tacsum Pty Ltd [2006] NSWSC 1256 Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 Tomko v Palasty (No 2) (2007) 71 NSWLR 61 at [55]; [2007] NSWCA 369 Category: Principal judgment Parties: Bitar Pty Limited (Applicant) Hebbel Constructions Pty Limited (First Respondent) Daniel Frisken (Second Respondent) Representation: Counsel: P. E. King (Applicant) P. Wiggins (Solicitor) (First Respondent) S. Golledge (Second Respondent) Solicitors: Priest Legal (Applicant) Paramonte Legal (First Respondent) Yates Beaggi Lawyers (Second Respondent) File Number(s): 2018/192212 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2018] NSWSC 758 Date of Decision: 25 May 2018 Before: Black J File Number(s): 2014/269117 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. GLEESON JA: The applicant, Bitar Pty Limited (Bitar), seeks leave to appeal against a decision of a judge of the Equity Division made on 25 May 2018 and orders made on 8 June 2018 dismissing an application by Bitar to discharge a receiver appointed by the Court over the assets of a partnership which had been dissolved: Hebbel Constructions Pty Limited v Bitar Pty Limited [2018] NSWSC 758 (the Principal Judgment). Bitar also seeks leave to appeal against orders made on 19 June 2018 dismissing Bitar's application to invoke the liberty to apply granted on 8 June 2018: Hebbel Constructions Pty Limited v Bitar Pty Limited [2018] NSWSC 1089 (the Ancillary Judgment). 2. As the orders sought to be challenged involve an interlocutory decision, Bitar requires leave to appeal: Supreme Court Act 1970 (NSW), s 101(2)(e). 3. On the hearing, the Court receiver, Mr Daniel Frisken (the Receiver), was joined as the second respondent to the proceeding on his own application. Plainly the Receiver ought to have been joined as a party to the proceeding in this Court as a person directly affected by the relief sought: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 51.4. The first respondent is Hebbel Constructions Pty Limited (Hebbel). 4. At the conclusion of argument on 20 February 2019, the Court made the following orders: 1. extend the time for the service of the summons seeking leave to appeal to 23 August 2018; 2. summons seeking leave to appeal dismissed with costs; 3. applicant to pay the Receiver's costs of and incidental to the application for leave to appeal on an indemnity basis; 4. reasons reserved. 1. These are my reasons for joining in those orders. The order referred to in [4(a)] above should be corrected under the slip rule (UCPR, r 36.17), so as to extend the time for the service of the summons seeking leave to appeal to 27 August 2018, being the date of service on Hebbel. Background 1. Bitar and Hebbel are former partners who carried out a residential and commercial development at Petersham. Bitar and Hebbel equally owned the shares in Bitar Hebbel Constructions Pty Ltd (BHC), the company which undertook the construction. Following a dispute between the partners as to their respective entitlements, Hebbel commenced proceedings claiming a variety of relief. On 4 July 2017, Rein J made orders and declarations including that the partnership should be dissolved as of that date, appointing Mr Frisken as receiver and manager of the assets of a partnership of Hebbel and Bitar, including the shares in BHC, with power to wind up the affairs and business of the partnership, and appointing Mr Matthew Gwynne as referee to determine certain questions that remained in dispute: Hebbel Constructions Pty Limited v Bitar Pty Limited (Supreme Court (NSW), Rein J, 4 July 2017, unrep) (the Receivership Judgment). 2. By notice of motion filed 24 April 2018, Bitar applied for an order under UCPR, r 26.6 for the discharge of the Receiver for cause, and the appointment of a real estate agent to undertake the sale of three remaining properties that were in the Receiver's possession. Bitar also sought an interim distribution. Prior to the hearing, Bitar amended its notice of motion by seeking the appointment of a replacement receiver, rather than a real estate agent, to sell the remaining properties of the partnership. 3. On 25 May 2018, Black J delivered reasons for concluding that no order for discharge of the Receiver should be made, and that no basis for an interim distribution by the Receiver to Bitar was established. His Honour determined that it was appropriate to reserve liberty to apply on two business days' notice in respect of any further complaint of substantial delay by the Receiver in completing the sale of unit 11 in the development. His Honour indicated his preliminary view as to costs, and allowed the parties a short opportunity to be heard. 4. Following receipt of written submissions on costs, Black J concluded on 8 June 2018 that he should adhere to the proposed costs orders: Hebbel Constructions Pty Limited v Bitar Pty Limited [2018] NSWSC 859 (the Costs Judgment). His Honour made formal orders on that date as follows: 1. Notice of Motion filed by Bitar Pty Ltd on 24 April 2018 is dismissed. 2. Bitar Pty Ltd is to pay Daniel Frisken's costs of and incidental to the motion on an indemnity basis. 3. Bitar Pty Ltd is to pay Hebbel Construction Pty Ltd's costs of and incidental to the motion on the ordinary basis. 4. The parties have liberty to apply on 2 business days' notice in respect of any further complaint arising in respect of any substantial delay by the receiver in completing the sale of unit 11, whether to Ms Anna Taouk or to any third party. 1. On 14 June 2018, the solicitor for Bitar requested that the proceedings be restored for further argument pursuant to the liberty to apply granted on 8 June 2018. On 19 June 2018, Black J gave ex tempore reasons dismissing that application with costs on the basis that the matter sought to be raised was not within the scope of the liberty to restore. 2. Although Bitar filed a notice of intention to appeal against the Principal Judgment on 21 June 2018, this notice was not served or otherwise brought to the attention of Hebbel or the Receiver until 27 August 2018. During that time, the Receiver continued to substantially progress the remaining aspects of the receivership including: (a) undertaking and completing the sale of three residential units which were unsold as at the date of the May 2018 hearing; (b) preparing a final tax return for the partnership and circulating that to the partners for comment prior to it being revised (if needed) and lodged with the Australian Tax Office; and (c) advertising for Proofs of Debt from partnership creditors. 3. The current position in the receivership is as follows. All assets have been realised and the net proceeds of those sales are currently held by the Receiver, except for an amount of $3 million, which was the subject of an interim distribution to the partners, approved by the Court. The remaining tasks in the receivership are: prosecuting or otherwise dealing with a claim against Mr Joseph Katter for breach of contract; distributing the balance of funds held by the Receiver between the partners; the passing of the Receiver's accounts; and obtaining Court approval of the Receiver's remuneration. Extension of time 1. Bitar requires an extension of time to file and serve the summons seeking leave to appeal, given that the summons was filed and served more than 28 days after the material date in respect of both judgments: UCPR, r 51.10(1)(b). The longer time period of three months specified in UCPR, r 51.10(1)(a) does not apply because the notice of intention to appeal, although filed within time on 21 June 2018, was not served on Hebbel until 27 August 2018. The circumstances in which that delay occurred are explained in an affidavit from Bitar's solicitor, Mr Jeremy Brigden, dated 20 February 2019. 2. The Court may grant an extension of time under UCPR, r 51.10(2). The discretion to extend time is given for the purpose of doing justice between the parties, and is to be exercised by reference to the principles in Tomko v Palasty (No 2) (2007) 71 NSWLR 61 at [55]; [2007] NSWCA 369. Hebbel and the Receiver only opposed an extension of time on the basis that Bitar did not have a fairly arguable case. An extension of time should be granted so that the application for leave to appeal can be determined on the merits. Bitar's argument 1. The draft notice of appeal contains three grounds. Proposed ground 1 asserts that the primary judge erred in not discharging the Receiver for breach of fiduciary duty. In oral argument, Bitar asserted that there was an error of principle in the primary judge's approach by treating the question of the removal of the Receiver for cause as similar "in all respects" to the removal of a liquidator. According to the submission, the primary judge wrongly adopted an overly protective concern for the reputation and confidence in the Receiver, rather than for the observance of the Receiver's duties. This asserted error was said to have vitiated the exercise of the discretion whether to remove the Receiver: Tcpt, 20 February 2019, p 30 (30-34). 2. Proposed ground 2 asserts that the Receiver breached his fiduciary duty by his dealings with unit 11, and that the Receiver profited from his position by delay in selling the partnership properties and charging "large" fees. 3. Bitar accepted that the decision of the primary judge not to remove the Receiver was a discretionary decision and that review of that decision was limited to error of the kind described in House v The King (1936) 55 CLR 499 at 504-505; [1936] HCA 40. 4. Proposed ground 3 challenges the refusal of the application under liberty to apply on 19 June 2018. No submissions were directed to this proposed ground. Disposition of the application 1. The approach to an application for leave to appeal is well established. As summarised in Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28] (Gleeson JA, Macfarlan and Payne JJA agreeing): Only if the decision is attended with sufficient doubt to warrant its reconsideration on appeal will leave be granted: Sharpe v Heywood [2013] NSWCA 192 at [34]; McMahon v Permanent Custodians Ltd [2013] NSWCA 275 at [57]. Ordinarily, it is only appropriate to grant leave where there is an issue of principle, a question of general public importance, or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]. It is well established that it is not sufficient merely to show that the trial judge was arguably wrong: Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]. Ground 1 – asserted error of principle 1. In the Principal Judgment at [2], his Honour extracted the statement of Campbell J in MLW Investments Pty Ltd v Tacsum Pty Ltd [2006] NSWSC 1256 (MLW) at [27] concerning the circumstances in which a court will remove a receiver. That statement included the observation by Campbell J that the reasons for removal are "similar" to the removal of a liquidator, citing the statement of Austin J in Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 (Domino) at [58]. In turn, the primary judge extracted in the Principal Judgment at [3], the statement by Austin J in Domino. 2. No complaint is made by Bitar in relation to the statements at [2] or [3] of the Principal Judgment. 3. Bitar's complaint was directed to [4] and [5] of the Principal Judgment. After referring at [4] to his own summary of the principles applicable to the removal of a liquidator in ACN 151 726 224 Pty Ltd (in liq) formerly Ridley Capital Holdings Pty Ltd [2016] NSWSC 1801, the primary judge went on at [5] to remark that "the principles that relate to the removal of a liquidator provide a useful guide in an application for removal of a receiver". (Emphasis added.) 4. Contrary to Bitar's contention, to describe the removal of a liquidator as a "useful guide" was to do no more than acknowledge, as Campbell J had done in MLW, that the reasons for removal of a receiver for cause are similar to the removal of a liquidator. The primary judge correctly acknowledged that the court has a wide discretion in the case of removal of a receiver. The impugned references by his Honour to relevant authority on the removal of a receiver were unexceptionable. 5. Further and importantly, on a fair reading of the Principal Judgment, his Honour did not adopt an overly protective concern for the reputation or confidence in the Receiver. There is no merit in the implicit suggestion in Bitar's submissions that his Honour took into account an irrelevant consideration. Grounds 2 – challenge to factual findings 1. After a careful review of each of Bitar's thirteen complaints and an additional complaint raised at the hearing, the primary judge found that Bitar had failed to discharge the onus of proof of establishing a case for the removal of the Receiver. In reaching that conclusion, the primary judge made factual findings rejecting each of Bitar's complaints. 2. Proposed ground 2 asserts that the primary judge erred in not making seven factual findings. As indicated, in argument Bitar confined its complaints to two matters: the Receiver's dealings with unit 11, and the delay in selling the partnership properties from which the Receiver profited by charging "large" fees. Dealings with unit 11 1. Before the primary judge, Bitar complained that unit 11 was occupied by Ms Taouk, a daughter of a director of Hebbel, and had been occupied by her rent-free without Bitar's consent for a substantial period; that Hebbel continued to receive the benefit of the unit; and that Bitar's request for information and action had not been adequately addressed by the Receiver. 2. The primary judge dealt with these complaints by Bitar in the Principal Judgment at [26]-[31]. His Honour observed that this issue arose from a matter that was addressed by Rein J in the Receivership Judgment. Specifically, Rein J had noted the position in respect of Ms Taouk's occupancy of unit 11: Receivership Judgment at [21]. Rein J recorded that Hebbel (through its director Mr Taouk) accepted that it must account for the lost rent for the period that Ms Taouk occupied unit 11 free of charge. The primary judge noted that the dispute as to the weekly rental amount was subsequently determined by the referee and that the accounting by Hebbel to the partnership would bring about reimbursement for the amount of rent foregone by Ms Taouk's occupancy of unit 11. His Honour also referred to the Receiver's report dated 3 May 2018 which noted that Ms Taouk had been paying rent of $700 per week since February 2018; that the Receiver had received offers from Ms Taouk to purchase the unit, he was seeking an updated valuation for the unit, and advice from the agent as to likely sale values and outlining the steps he was proposing to take with respect to the sale of the unit. 3. The primary judge found in the Principal Judgment at [30]-[31]: [30] It seems to me that, once Rein J had determined that Hebbel must bear the costs of Ms Taouk's occupancy of unit 11, the Receiver could properly then take a course that would maximise the value of unit 11 for the Partnership, and there is no reason to think that the course adopted by Mr Frisken was not a reasonable course to achieve that objective. Mr King also submitted that the Receiver should have sought a direction from the Court as to what was to be done in respect of unit 11, occupied by Ms Taouk. I also do not accept that submission, because this matter seems to me to be a matter of commercial judgment, which would not properly, or at least not reasonably, have been a matter for a direction by the Court. [31] I am not persuaded that, at present, this matter warrants the removal of the Receiver, alone or together with other matters. As I have noted above, the position in respect of unpaid rent for the unit is addressed by the judgment delivered by Rein J, and Hebbel's acceptance of liability for that rent; rent has been paid by Ms Taouk since early 2018; and the evidence establishes that the Receiver is progressing arrangements for sale of that property. I will, however, reserve liberty to Bitar to apply, since there may well be cause for complaint, and possibly cause for the Receiver's removal, if the present position is permitted to continue for any substantial period without completion of a sale of unit 11 to Ms Taouk or, if she does not promptly complete that sale, to a third party. 1. Bitar contended that the primary judge erred in finding that the course adopted by the Receiver was reasonable and that it was a matter for the commercial judgment of the Receiver whether he sought a direction from the Court as to what was to be done in respect of unit 11. However, Bitar did not point to any factual basis for doubting the primary judge's assessment of the Receiver's conduct. 2. Bitar also contended that the Receiver was in a position of conflict in having allowed Ms Taouk to occupy unit 11 rent-free up until February 2018. Although not expressly stated, the nature of the alleged conflict would appear to be that of duty and interest. Nonetheless, Bitar accepted that it was not alleged that the Receiver had made a profit from his position, and submitted that this would not be known until the end of the receivership: Tcpt, 20 February 2019, p 11(30). 3. The primary judge rejected Bitar's submission that the Receiver was in a position of conflict because he might have to account to the partnership for his actions, finding that the asserted conflict was not material in circumstances where the substance of Bitar's criticisms of the Receiver's conduct had been addressed (and rejected by the Court): Principal Judgment at [50]. Bitar did not attempt to challenge this reasoning. 4. No injustice has been demonstrated in his Honour's rejection of the complaints concerning the Receiver's dealings with unit 11. Delay and alleged conflict of interest 1. Before the primary judge, Bitar contended that the Receiver had failed to effect sales of partnership properties within a reasonable time and had profited from the additional work done because of the delay in carrying out the receivership. Bitar asserted that the Receiver should have sold all ten units (including unit 11) within three months of being appointed. 2. The allegation of a delay in the sale of the partnership properties was addressed by Black J in the Principal Judgment at [14]-[17]. His Honour found that Bitar had not proven why the properties should have sold by November 2017, and that Bitar could not complain of delay in circumstances where Mr Joseph Katter had failed to pay the deposit on his purchase of units 25 and 26, causing the sale of those units to fail. His Honour further found that no suggestion of a general fall in the market was established by evidence. His Honour concluded that removing the Receiver would further delay the process of realising the partnership properties. 3. Again, Bitar failed to identify any error in these factual findings, which were based on the evidence, or lack thereof, tendered by Bitar. 4. Bitar also submitted that the primary judge, when addressing its complaints that the Receiver had unnecessarily delayed the receivership, had erred in finding that he Receiver had acted reasonably, and had erred in taking into account his findings at [22], [35] and [41] of the Principal Judgment. 5. This submission is misconceived. First, the timing and manner of sale of the partnership properties quintessentially involved questions of commercial judgment as to what course was in the best interests of the receivership given the Receiver's functions and powers. In this regard it is of significance that there is no challenge to the primary judge's findings in the Principal Judgment that: * the Receiver could reasonably conclude, as he did, that the best possible prices had been obtained for residential units 1 and 2 at the completion of the auction marketing campaign in February 2018: at [22]; * the Receiver had adopted a staged process for the sale of the relevant units, so that they were not all on the market at the same time and although this extended the period of the receivership, it was "within the scope of a proper commercial judgment": at [22]; * the decision whether to sell the commercial units in a single line or separately was a matter of commercial judgment, or of a kind that is properly made by an experienced insolvency practitioner, and as to which the Court would likely have declined to give a direction in any event: at [35]; and * the delay in the sale of the shares in BHC was explicable given that the Receiver had sought clarification from the Department of Fair Trading as to Hebbel and Bitar's obligations to purchase units in the project and the amounts that should be set aside as contingencies and in respect of any breach of the Home Building Act 1989 (NSW) since 10 July 2017, and the Receiver had followed up on that request, but had not received any response: at [41]. 1. Second, there was no error of the House v The King kind in the primary judge taking into account these findings concerning the reasonableness of the Receiver's conduct when addressing Bitar's complaints of delay. Other matters 1. There are two further reasons why leave to appeal should be refused. First, given the delay by Bitar in bringing this application for leave to appeal, the receivership is now almost complete. It is not in the interests of the partners that they be subjected to the costs of a second receiver. An appeal at this time would be futile. 2. Second, in the event of a breach of duty by the Receiver, or a claim for fees which is not reasonable, Bitar has another remedy. As counsel for the Receiver correctly pointed out, any complaint by Bitar in relation to the Receiver's conduct or the reasonableness of his fees is a matter that can be dealt with by way of surcharges at the time of the passing of the Receiver's accounts, and objections at the time of an application for approval of the Receiver's remuneration. Ground 3 1. Proposed ground 3 asserts that the primary judge erred on 19 June 2018 in refusing Bitar's application to re-agitate the matter pursuant to the liberty to apply granted to the parties on 8 June 2018. 2. As indicated, the liberty to apply was limited to any further complaint arising from any substantial delay in completing the sale of unit 11: Costs Judgment at [6(4)]. Nonetheless, Bitar sought liberty to apply a mere four business days after liberty to apply was formally reserved on 8 June 2018. 3. The primary judge found that Bitar sought to "re-agitate the matters" determined in the Principal Judgment, albeit on an interlocutory basis, "absent any change in circumstances dealt with in the earlier judgment" rather than raising any new, substantive complaints: Ancillary Judgment at [7]. Unsurprisingly, the primary judge dismissed this application. 4. The decision by the primary judge on 19 June 2018 was a discretionary order. Given that no error of the House v The King kind has been identified with respect to this discretionary decision, there is no merit in this complaint. Conclusion and costs 1. For the above reasons, leave to appeal was refused with costs. Hebbel sought an order that Bitar pay the Receiver's costs on an indemnity basis, given that it would otherwise have to bear 50 per cent of the Receiver's costs on an indemnity basis, as an expense of the receivership. Bitar did not advance any argument to the contrary, and it is appropriate that such an order be made. 2. McCALLUM JA: I agree with Gleeson JA. ********** 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: 05 March 2019