Case: Re Vartex Petroleum Industries Pty Ltd (Unreported, Supreme Court of New South Wales, Hodgson J, 17 August 1989)
Outcome: followed
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. 25 In Vartex , Hodgson J was careful to point out that the direction he proposed to make had a very limited operation. The direction in Vartex was to the effect that a particular agreement for sale would not be improper merely because the purchaser was the appointor of the receivers. His Honour said that such advice would say nothing about the possibility that the sale may be improper because of particular dealings which may or may not have occurred between the appointor and the plaintiff, or on any other grounds unconnected with the mere identity of the purchaser as the mortgagee. 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.' 37 In the present case, the deed of charge dated 17 October 2003 provides that the receiver and manager from appointment is the agent of the chargor, Lake Federation. As Hodson J pointed out in Vartex , the consequence of that agency is that the sale of property by the receivers and managers to a company associated with the appointor does not infringe the mortgage principle: see also Franbridge at 308 and Actwane at [13]-[15]. 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. 44 Thirdly, the defendants point to Hodgson J's view in Vartex concerning the costs of an opposing director. It appears from Hodgson J's reasons for judgment that the form of direction sought in Vartex was wider than the one ultimately made and, in the result, Hodgson J ordered that the costs of the director be paid out of the funds in the hands of the receiver: see also Actwane . The defendants sought a similar order in the present case. 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. 46 The plaintiffs have not obtained the full ambit of the relief which they originally sought. In the circumstances, I propose to make an order to the same effect as the order which Hodgson J made in Vartex . I will order that the costs of the defendants of and incidental to the application be paid out of the funds in the hands of the plaintiffs in their capacity as receivers and managers of Lake Federation. 47 Pursuant to s 424 of the Corporations Act , I will make a direction in the revised form sought by the plaintiffs, that: It is not unlawful solely by reason of the relationship between TIGA (Ballarat) Pty Ltd (ACN 117 812 030) ('TIGA') and the appointor of the plaintiffs, Thorney Properties (Ballarat) Pty Ltd (ACN 106 693 725), for the plaintiffs to enter into the contract of sale dated 17 January 2006 ('Contract') between Lake Federation Pty Ltd (receivers and managers appointed) ('Lake Federation') and TIGA in respect of the property described in Sch 1 of the Contract. 48 I will also order that the defendants' costs of and incidental to the application be paid out of the funds in the hands of the plaintiffs as receivers and managers of Lake Federation. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Young. Associate: Dated: 15 May 2006 Counsel for the Plaintiffs: S Gardiner Solicitor for the Plaintiffs: Corrs Chambers Westgarth Counsel for the Defendants: MW Gerkens Solicitor for the Defendants: FCG Legal Pty Ltd Date of Hearing: 20 April 2006 Date of Judgment: 20 April 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/559.html