Federal Court Rejects Claimant's Request to Halt Property Sales by Receivers

FEDERAL COURT OF AUSTRALIA

[NAME] v J & [COMPANY] [2012] FCA 404 Citation: [NAME] v J & [COMPANY] [2012] FCA 404

Parties: [NAME] and [NAME] v J & [COMPANY] (RECEIVERS APPOINTED) (ACN 109 526 614), [NAME] and NATIONAL AUSTRALIA BANK LIMITED (ABN 12 044 937)

File number: VID 254 of 2012

Judge: BROMBERG J

Date of judgment: 30 March 2012

Catchwords: BANKRUPTCY AND INSOLVENCY – s 1321 of the Corporations Act 2001 (Cth) – interlocutory application to restrain sale of properties by receivers – whether receivers' conduct is unreasonable – application dismissed.

Legislation: Corporations Act 2001 (Cth) s 1321 Federal Court (Corporations) Rules r 14.1

Cases cited: [NAME] v [NAME] (2006) 227 CLR 57 Australian Securities and Investments Commission v [COMPANY] (Receivers and Managers Appointed) [2006] FCA 1530 Re Equity Funds of Australia (In Liquidation) (1976) 2 ACLR 238 [COMPANY] v [NAME] (No. 2) [2007] FCA 1943

Date of hearing: 27 and 29 March 2012

Place: Melbourne

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 28

Counsel for the [NAME]: [NAME]

Solicitor for the [NAME]: [NAME]

Counsel for the Defendants: [redacted]

Solicitor for the Defendants: [redacted]

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 254 of 2012

BETWEEN: [NAME]

First Plaintiff

[NAME] Plaintiff

AND: J & [COMPANY] (RECEIVERS APPOINTED) (ACN 109 526 614)

First Defendant

[NAME] Defendant

[NAME] Defendant

NATIONAL AUSTRALIA BANK LIMITED (ABN 12 044 937)

Fourth Defendant

JUDGE: BROMBERG J DATE OF ORDER: 30 MARCH 2012 WHERE MADE: MELBOURNE

THE COURT ORDERS THAT:

1. The [NAME]' interlocutory application be dismissed. 2. The costs of the second, third and fourth defendants be paid by the [NAME] on a party-party basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BETWEEN: [NAME]

First Plaintiff

[NAME] Plaintiff

AND: J & [COMPANY] (RECEIVERS APPOINTED) (ACN 109 526 614)

First Defendant

[NAME] Defendant

[NAME] Defendant

NATIONAL AUSTRALIA BANK LIMITED (ABN 12 044 937)

Fourth Defendant

JUDGE: BROMBERG J DATE: 30 MARCH 2012 PLACE: MELBOURNE

REASONS FOR

JUDGMENT 1 The [NAME] have brought a proceeding seeking to restrain the sale by the second and third defendants ("the receivers"), of 23 properties located in Tasmania ("the properties"). They rely on s 1321 of the Corporations Act 2001 (Cth). The receivers were appointed by the fourth defendant ("[NAME]") as: (a) receivers and managers to the property and assets of the first defendant ("[NAME]") and; (b) receivers to real property of the first and second [NAME] which is mortgaged to [NAME]. 2 Each of the properties is the subject of one or other of the receiverships. [NAME] is the registered proprietor of five of the properties and the [NAME] are the registered proprietors of the remainder. By their claim for interlocutory relief, the [NAME] press for an order that until further order, the receivers be restrained from taking any further steps to offer the properties for sale. Alternatively, the [NAME] seek an interlocutory order that the following three properties not be offered for sale: [ADDRESS], Burnie; [ADDRESS], Romaine; and [NAME], Burnie, ("the farm properties"). 3 Of the farm properties, only the [NAME] property is owned by [NAME]. Whilst not formally resiling from their primary claim for interlocutory relief, the submissions of the [NAME] concentrated upon persuading the Court that an order should be made in relation to the sale of the [NAME] property. 4 The receivers have undertaken a marketing campaign since on or about 1 March 2012 and auction dates for the properties have been set and advertised. All the properties are due to be sold by public auction to be held either later this morning or tomorrow morning. Fifteen of the properties, all located in or around Burnie, are to be auctioned tomorrow at fifteen consecutive auctions to be conducted at the same venue in Burnie. Eight of the properties, all located in Strahan, will be auctioned consecutively at a venue in Strahan. That will occur today. 5 From some time early in February 2012 and possibly earlier, the applicants requested that the receivers not sell the farm properties until the sales of the balance of the properties have been realised. The express basis for that request is that: the balance of sales will realise sufficient funds to meet the outstanding debts owed by the [NAME] and [NAME] ("the debts"); and the farm properties are located close to the domestic properties of the [NAME] and are used by them for purposes unrelated to the receiverships. The receivers have considered the [NAME]' request and rejected it. That rejection was made in writing by letter of 7 March 2012 which confirmed an earlier rejection made at a meeting held on 29 February 2012. 6 A renewed request was made by the [NAME] on or about 15 March 2012, and on the material before me does not appear to have been expressly responded to, but has clearly been rejected. On 22 March 2012, the [NAME] filed their originating application. The [NAME]' interlocutory application was called on for hearing on 27 March 2012. The hearing was adjourned until yesterday afternoon on the request of the [NAME] and in order for the [NAME] to file further affidavits. For the reasons which follow, I have determined to decline to make the interlocutory orders sought by the [NAME].

Interlocutory injunctions - legal principles 7 In determining an application for interlocutory relief, the Court addresses two main inquiries. First, whether the applicant has made out a prima facie case, in the sense that if the evidence remains as it is, there is a probability that at the trial of the action, the applicant will be held entitled to relief. Second, whether the inconvenience or injury which the applicant would be likely to suffer if an injunction were refused, outweighs or is outweighed by the injury which the respondent would suffer if the injunction were granted: [NAME] v [NAME] (2006) 227 CLR 57 at [65] (Gummow and Hayne JJ, Gleeson CJ and [NAME] J agreeing at [19]). 8 The requirement of a prima facie case does not mean that the applicant must show that it is more probable than not that the applicant will succeed at trial. It is sufficient that the applicant show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. How strong the probability needs to be, depends upon the nature of the rights the applicant asserts, and the practical consequences likely to flow from the order the applicant seeks. In that context, there is no objection to the use of the phrase "serious question" to convey the strength of the probability: [NAME] at [65] to [72] (Gummow and Hayne JJ, Gleeson CJ and [NAME] J agreeing at [19]).

Serious issue 9 Section 1321 of the Corporations Act is in the following terms: (1) 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. (2) Paragraph (1)(b) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation. 10 Rule 14.1 of the Federal Court (Corporations) Rules ("the Rules") is also relevant in two respects. Firstly, the rule requires that the originating application state the act, omission or decision complained of. Secondly, although the court is empowered to extend time, the application must be made within 21 days after the act, omission or decision. The [NAME]' originating application specified the act of the receivers complained of as "to offer" the properties for sale. That rather incomplete description was expanded upon in submissions as being the act of offering to sell the properties for sale at the auctions to take place today and tomorrow and the refusal of the receivers to withdraw the offer for sale of the three farm properties.

Non-compliance with rules 11 The receivers contended that the act of offering the properties for sale is merely the manifestation of the decision made by the receivers to sell the properties, a decision made on 16 February 2012. Alternatively, the receivers say that the offering of the properties for sale is a manifestation of the decision of the receivers made on 22 February 2012 to sell the properties by public auction. As the originating application was filed on 22 March 2012, the receivers contend that the [NAME]' appeal to the Court pursuant to s 1321 is out of time. 12 The [NAME]' response, in essence, is that they do not rely upon the initial decision but rely on the continuing act or acts involved in putting the decision into effect. 13 I would not deny the interlocutory relief sought on the basis of this contention of the receivers. As I intend to deny interlocutory relief to the [NAME] for other reasons, it is not necessary that I explain why I consider that there is a serious issue that the appeal is not out of time. I will proceed on the basis that the act or acts complained of is the receivers' conduct in giving effect to their decision to sell the properties by auction in the manner earlier outlined and their refusal to reverse their decision in relation to the farm properties.

Does Section 1321 apply to the properties held by the [NAME]? 14 The receivers contended that s 1321 can only be applicable to "a receiver or a receiver and manager of property of a corporation" and can have no application to the properties held by the [NAME]. Of the twenty-three properties, only five are held by [NAME]. Those properties are: [NAME], Mooreville; [ADDRESS], [ADDRESS]; Unit 6, 107 to [ADDRESS], [ADDRESS]; Lot 4, [ADDRESS], Strahan; and [ADDRESS], Strahan. 15 The [NAME] contended that the Court's power pursuant to s 1321 extended to the properties of the [NAME] because they were being sold together with the properties of the corporation. That contention is not seriously arguable. Each of the properties is to be sold separately at a separate auction. The fact that a series of coordinated auctions is to take place in the context of two separate and distinct receiverships does not confer upon the Court jurisdiction over a receivership that it would otherwise not have.

Is the Receivers' Conduct Unreasonable? 16 The [NAME] relied upon the following observations made by French J in Australian Securities and Investments Commission v [COMPANY] (Receivers and Managers Appointed) [2006] FCA 1530 at [45]: I would not set the threshold required under s 1321 in respect of the discretionary decisions of private receivers and managers so high that it is necessary to show that there has been something akin to unreasonableness in the sense necessary to vitiate the exercise of a statutory power under administrative law. It is sufficient to say that at the very least the person bringing an appeal under s 1321 in these circumstances must demonstrate that the decision is informed by some error of law or significant factual error or is otherwise so unreasonable, in the circumstances, that it should not be allowed to stand. The content of those somewhat ambulatory considerations will be informed by the significance of the decision to the affairs of the company. 17 Other authorities upon which the receivers relied may be said to take a narrower view of the Court's capacity to intervene than that which is propounded by French : see Re Equity Funds of Australia (In Liquidation) (1976) 2 ACLR 238 at 239 (Bowen CJ); [COMPANY] v [NAME] (No. 2) [2007] FCA 1943 at [42] (Graham J). Without deciding, I am inclined to agree with the more expansive formulation of French J. I will proceed on that basis, as applying that more favourable basis to the [NAME]' position, does not alter my ultimate conclusion. 18 By reference to the observations of French J, the [NAME] contended that the evidence demonstrated that the impugned conduct of the receivers was "so unreasonable in the circumstances that it should not be allowed to stand". Reliance was also placed on the concluding observations of French J that the considerations will be informed by the significance of the conduct to the affairs of the corporation affected. No reliance was made upon any other of the grounds that French J identified. The alleged unreasonableness was directed at two aspects of the receivers' conduct, although there was some overlap between the two. Firstly, the alleged unreasonableness was directed at what was said to be the 'fire sale' manner in which the properties are to be sold. Secondly, the alleged unreasonableness was directed at the receivers' insistence on selling the farm properties and, in particular, the [NAME] property in circumstances where funds from the other sales will likely be sufficient to meet the outstanding debts. 19 In support of its criticism of the way the properties are to be sold, the [NAME] relied upon the evidence of an experienced real estate agent from Burnie, [NAME]. [NAME]'s opinion was that a staggered release of the properties over a period of time may achieve a better result for the vendors than selling the properties at the one time. In his view the small property markets involved may be saturated by the auctioning of many properties at the one time. He suggested that a below market result of some 10 to 30 per cent may be expected if the properties are sold in the manner intended. 20 [NAME] is the real estate agent engaged to affect the sales. [NAME], he has extensive familiarity with the properties in question. [NAME] recommended to the receivers that the properties in Strahan be sold at auction at the same time and at a central location. He also made the same recommendation in relation to the properties in and around Burnie. His opinion is that to do so creates interest in the market, attracts all potential buyers to the one location and creates the best opportunity for competition. He is not concerned about saturation of the markets as there are, in each case, a number of distinct markets involved. Some of the properties are farms, others are investment properties or development properties and yet others will appeal to the residential market. The [NAME] have contended that [NAME]'s evidence ought to be preferred over that of [NAME] and invited me to find a serious question to be tried on that basis. I declined to do so. 21 It is not for the Court to come to a view as to the best method of sale. The onus rests with the [NAME] to demonstrate a prima facie case of unreasonableness of such depth that it is likely that at trial the intended conduct will be halted. At the very least, that would require the [NAME] to demonstrate that the receivers' decision to adopt [NAME]'s recommendations was unreasonable. In a field involving a high level of speculation, opinions will differ and the adoption of one expert opinion in preference to another could rarely be described as unreasonable. There is no evidence before me upon which I could be satisfied, even on a serious question basis, that [NAME]'s opinion is unreasonable, let alone that its adoption by the receivers could be so described. 22 In support of the second allegation of unreasonableness, the [NAME] rely upon valuations of the properties either made or accepted by [NAME] when funding was provided by [NAME] to the [NAME] or to [NAME]. Based on a list of those valuations, the [NAME] contend that it is unnecessary for the farm properties to be sold or, at least, for the [NAME] property to be sold, because the other properties will realise sufficient funds to meet the outstanding debts. 23 The uncontested evidence of the receivers is that the outstanding debts to [NAME] total $6,434,726. The receivers' decision to sell all of the properties is based upon opinions in relation to the current market value of the properties obtained from real estate agents and a certified practising valuer, [NAME]. [NAME] has valued the current market value of the properties as in a range between $4,700,000 and $5,900,000. Taking into account the likely selling costs, the receivers say that the sale of all the properties will likely result in a significant shortfall. 24 Further, the evidence of the receivers is that they have considered the list of valuations upon which the [NAME] rely. One property on that list is not the subject of the auctions as it was sold some time ago. Another was burned and no longer holds the value it did at the time it was valued. But more fundamentally, the valuations relied upon are said to be stale. Many of the valuations are over four years old. The valuation of the [NAME] property, the most significant of the properties in question and valued at $1,095,000 is nearly two and a half years old. That evidence, the receivers rightly contend, is to be seen in the context of evidence from [NAME] that property prices are under extreme pressure in a downward trend. 25 I am not satisfied that a prima facie case of unreasonableness is made out. The receivers' view that the sale of all the properties will be necessary in order to recoup the outstanding debts is cogent and well supported by the material considered by them. It is not possible to say that in arriving at that view, the receivers acted unreasonably. Even if there had been evidence before me, which there was not, that demonstrated that the [NAME] property was of particular importance to the affairs of [NAME], I would not have reached a different conclusion that, in the circumstances, the [NAME] have failed to demonstrate a prima facie case of unreasonableness of the kind that French J had in mind in [NAME].

Disposition 26 I should say that there was one further argument raised by the receivers based on the proposition that s 1321 does not apply to a receiver appointed under a real property mortgage. In the circumstances, it is not necessary that I consider that argument. 27 I am not satisfied that a prima facie case or serious issue to be tried has been demonstrated by the [NAME]. In those circumstances, I need not consider the balance of convenience. [ADDRESS] will make the following orders:

1. The [NAME]' interlocutory application be dismissed.

2. The costs of the second, third and fourth defendants be paid by the [NAME] on a party-party basis. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg.

Associate: Dated: 19 April 2012