Case: Re One.Tel Networks Holdings Pty Ltd (2001) 40 ACSR 83
Outcome: approved
However, in the course of argument, counsel for the plaintiffs made it clear that the form of direction sought was based upon, and confined to, a direction of the kind made by Austin J in Re One.Tel Networks Holdings Pty Ltd (2001) 40 ACSR 83 (' One.Tel '), and/or by Hodgson J in Re Vartex Petroleum Industries Pty Ltd (Unreported, Supreme Court of New South Wales, Hodgson J, 17 August 1989) (' Vartex' ). It was accepted by counsel for the plaintiffs that the revised form of direction would be appropriate in the circumstances and the defendants did not oppose a direction expressed in those more limited terms. 23 Similar views have been expressed in other cases. In One.Tel , Austin J said that there is some doubt as to whether directions of a court given under a section of this kind can bind anyone, even a party to the application, citing Best &amp; Less : at 93 [37]. In Vartex , Hodgson J was less equivocal, stating that a direction would not bind a director of the company who was represented before the court. 26 In One.Tel, Austin J made a similar observation, at 98 [65]: 'In these circumstances, it seems to me that a direction in terms of [the proposed direction] is justified. I hesitate to use the word "declare", which suggests a binding declaration of right rather than a direction having the more limited significance that I have described. I note that the word "declare" is used in some of the cases, no doubt in a special sense, but I have decided it would be better to use the word "direct", which is sanctioned by s 424 itself. While Hodgson J in Vartex Petroleum indicated a willingness to direct that the proposed sale was not "improper" by virtue of the mere fact that it was from a receiver to the mortgagee, I would prefer not to use the word "improper", which might suggest a conclusion with respect to the factual circumstances of the sale and the bona fides of the plaintiff.' 27 Other limits on the court's power to give directions under s 424 have been discussed in the authorities. In particular, the authorities make it clear that it is not appropriate for the court to give directions about the commercial propriety or reasonableness of a transaction that the receiver proposes to enter into: see One.Tel at 91 [30], 92 [33] and 93 [38]; and Best &amp; Less at 247, 249 and 250. In Franbridge Pty Ltd v Societ&eacute; &amp; Generale Finance Corporation Pty Ltd (1994) 14 ACSR 304 (' Franbridge') , Einfeld J refused to make directions to the effect that a particular transaction was not improper and, more particularly, that the receiver had acted reasonably: at 308, 309. 36 The cases make it clear, however, that it may be appropriate to make a direction to the effect that a particular transaction is not unlawful solely because the counter-party to the transaction is a company associated with the entity which appointed the receivers and managers. This is precisely what was done by Hodson J in Vartex. In that case, his Honour referred to the principle of mortgage law that a mortgagee cannot exercise a power of sale in favour of itself ('the mortgagee principle') and went on to find that the mortgagee principle does not apply so as to prevent a receiver appointed by a mortgagee from selling the mortgage property to the mortgagee who appointed him. The same approach was adopted by Austin J in One.Tel at 95-97 [51]-[60]. Moreover, in Re Actwane Pty Ltd [2002] NSWSC 572 (' Actwane' ), Austin J followed the approach in Vartex and One.Tel and made a direction that: '... notwithstanding the principle of mortgage law that the mortgagee cannot exercise a power of sale in favour of itself, it would not be unlawful for the plaintiff to... enter into an agreement with Temujin Securities Pty Ltd solely by reason of the fact that the Appointor of the Receiver and Manager under a Deed of Appointment dated 1 August 2001 is also the director and sole shareholder of Temujin Securities Pty Ltd.' 38 In the circumstances that I have described and in the light of the authorities I have discussed, I consider that it is appropriate in this case to make a direction in the revised form sought by the plaintiffs. That form closely adheres to the form of order made by Hodson J in Vartex. In my view, it is much clearer to provide that the Contract is not 'unlawful solely by reason of' the relationship between TIGA and Thorney than to use the form of words which appeared in the originating process in this case, namely 'notwithstanding the relationship between' TIGA and receivers' appointor, Thorney. I appreciate that Austin J in One.Tel used the form of words 'notwithstanding' etc, but I prefer the more direct expression 'not unlawful solely by reason of'. I also note that Austin J used the expression 'solely by reason of' in Actwane . 39 Like Austin J in One.Tel and Hodson J in Vartex , I would stress that the direction is intended to establish only that the Contract is not unlawful by reason of the relationship between TIGA and Thorney. The direction does not deal with the position of the plaintiffs under the law concerning the proper exercise of powers of sale by a receiver and manager, which depends upon considerations relating to good faith, proper procedure and fair price. I am not expressing any view about those matters; nor is it appropriate to do so in a summary procedure such as this, where a limited direction only was sought. However, I would add that nothing I have seen on the evidence before me suggests any impropriety on the part of the receivers and managers. 42 Several grounds were advanced by the defendants in support of the application. Firstly, the originating process filed by the plaintiffs sought a direction that was expressed in wider terms (the defendants say significantly wider) than the revised form ultimately obtained by the plaintiffs without opposition from the defendants. The original form of the direction concerned not only the lawfulness of entering into the Contract with TIGA, notwithstanding its relationship with Thorney, but also sought a direction that the Contract was not 'improper' 'on the facts and in the circumstances presently known to them'. The defendants submitted that the original form was suggestive that the plaintiffs were seeking a direction from the Court which went towards the commercial reasonableness of the plaintiffs' conduct, and was a direction of the kind that Austin J refused to make in One.Tel . 43 Secondly, the defendants argued that their appreciation of the wide scope of the original form of the direction was a reasonable one in view of Mr White's affidavit of 15 February 2006. Paragraph 152 of the affidavit expressed Mr White's belief that he had taken all reasonable care in selling the Lake Federation property and had performed his obligations under s 420A(1) of the Corporations Act to sell the property for market value, and that he had sufficiently tested the market so as to obtain an offer that was not less than market value. Mr White's affidavit does, to some extent at least, tend to support the defendant's view that they thought they were coming to oppose a direction which sought court approbation of the reasonableness of the receivers' conduct. Perhaps another factor relevant to the defendants' appreciation of the scope of the direction sought by the plaintiffs is the form of the special condition and definition of 'Court Approval' in the Contract. 45 In opposition to the defendants' application for costs, counsel for the plaintiffs submitted that, as a matter of substance, the direction sought by the plaintiffs was always confined within the limits indicated by the Vartex and One.Tel cases. Counsel for the plaintiffs also submitted that the lengthy affidavit by Mr White was entirely appropriate because the Court needed to have before it a full account of the transactions that had led up to the contract of sale in question. I accept the latter point that the affidavit material was entirely appropriate in supporting the discretionary order that was sought from the Court, even assuming it was always limited in the form of the direction that I have made. However, I consider that the defendants were affected in their opposition to the direction because of the wider way in which it was originally cast.