NEW SOUTH WALES SUPREME COURT

Cadima Express (in liq) v Deputy Commissioner of Taxation

Austin J

23-25 August, 22 September, 6 October, 1 December 1999 - Sydney

Austin J. This is an application by notice of motion by Mr Dickerson, the first cross-defendant to the first cross-claim in the proceedings, for orders for the appointment of a receiver to a cause of action and for directions that the receiver commence and prosecute certain proceedings. Appropriately enough, the application was made on the basis of limited evidence, notwithstanding there are several relevant sets of proceedings and a great volume of evidence in those proceedings overall.

2 Although I appreciated the endeavours of counsel in limiting the scope of the evidence for the purposes of the application, after I heard the matter on 23 and 24 August 1999 I decided that I should grant leave for further evidence to be adduced, for reasons which I gave ex tempore on 25 August 1999. That further evidence having been supplied in the form of affidavits, I am now in a position to determine Mr Dickerson's application. I have decided that the application fails for the reasons which I now set out.

Facts and findings

3 The present case arises out of the winding up of Cadima Express Pty Limited (Cadima) by order of this court on 19 December 1996. At the time of the order Cadima had 2 shareholders, Mr and Mrs Dickerson, who were also its directors. It traded as a freight forwarding and parcel delivery business, employing about 140 employees and sub-contractors.

4 Cadima was responsible for remitting Group tax in respect of its employees and prescribed payments system (PPS) tax deductions in respect of its sub-contractors to the Deputy Commissioner of Taxation (Commissioner). It fell into arrears and the Commissioner issued a statutory demand for payment on 18 April 1996. At the time $579,412.12 was claimed as owing to the Commissioner. The Commissioner commenced separate proceedings against Mr and Mrs Dickerson in the District Court to recover penalties for Cadima's failure to pay Group tax, and in this court to recover penalties from them in relation to Cadima's PPS tax.

5 When payment was not made the Commissioner commenced the proceedings for winding up which eventually led to the order of 19 December 1996, namely, proceedings 2830/96. The affidavit in support of the winding up summons in those proceedings, sworn by D B Barclay on 8 July 1996, stated that the amount due and owing by Cadima to the Commissioner for arrears of Group tax and PPS tax was by that time $604,818.10.

6 The hearing of the winding up summons was adjourned to 7 November 1996. By a letter dated 1 November 1996 Cadima's accountant provided an analysis of the company's financial position directed towards assessing whether the company could pay $50,000 per month in reduction of its tax liability. The letter was forwarded to the Commissioner on 4 November 1996 with a covering letter from Cadima's solicitor, Mr Beilby, who claimed the accountant's letter demonstrated his client's ability to make those payments. By his letter of 5 November 1996 Mr Beilby provided his own assessment of his client's ability to pay, in terms similar to the accountant's letter.

7 The Commissioner responded to Mr Beilby's letter of 5 November by letter of 6 November 1996, in the following terms:

Group & PPS Tax: CADIMA EXPRESS PTY LTD

Further to your letter of 5 November 1996 and telephone conversation between yourself and Derrick Barclay of this office today, it is confirmed that this office is prepared to accept your client's repayment proposal as follows:
(1) Payment by bank cheque of $100,000.00 to be handed to Elizabeth Jones (Australian Government Solicitor) before the hearing at the Supreme Court on 7 November 1996.

(2) Payment by bank cheque of $50,000, to be received at this office by close of business on or before the 7th of each following month until the debt is cleared.

(3) Current monthly Group and PPS tax to be paid on time, commencing with October 1996 Group tax, due 7 November 1996.

(4) Details of May 1996 to September Group and PPS tax to be provided within 14 days of the date of this letter. This debt to be included in the repayment arrangement.

(5) Payment will be made by bank cheque paid to the Australian Taxation Office at P O Box 422, Parramatta 2123 or DX 28474 Parramatta.

Attention Derrick Barclay.

If the cheque for $100,000 is received as arranged, the AGS will seek a six week adjournment at the hearing on 7 November 1996.

With reference to the District Court proceedings Nos 763 and 764, against Mr and Mrs Dickerson, we will not seek summary judgment on condition that the terms for repayment are strictly complied with. However, should there be default on the arrangement we may file a notice of motion for summary judgment without further notice.

8 An affidavit of Mr Beilby filed in other proceedings (4534/96, which I shall describe below) states he was instructed to appear in court on 19 December 1996, but that he was involved in a meeting in a different matter on that day and overlooked the notation of the hearing date in his diary. A winding up order was sought by the Commissioner at the hearing on 19 December and in the absence of any appearance for the company, the order was made and Mr Vouris was appointed liquidator. In his affidavit, Mr Beilby states that his office did not receive notice that the Commissioner intended to seek a winding up order, notwithstanding that, from his point of view, the matter had been settled. On the evidence before me, there was no basis for his expectation that he would be given notice that the Commissioner would seek the orders which were the subject of the hearing, nor for his understanding that the matter had been settled. The proposed Second Cross-claim asserts that Cadima and its solicitors did not appear at the hearing of the winding-up summons on 19 December 1996 in reliance on an assumption, created by the Commissioner's conduct, to the effect that as long as Cadima continued to perform its obligations as set out in the letter of 6 November, the Commissioner would adjourn the hearing. But that assertion is inconsistent with the explanation in Mr Beilby's affidavit that he simply overlooked the notation of the hearing date in his diary.

9 Mr Barclay, the responsible taxation officer in the matter, swore an affidavit in the winding up proceedings (2830/96) in which he claimed that by 19 December 1996 Cadima was in default of the arrangements set out in the letter of 6 November 1996 in several respects. Mr Dickerson's evidence (including his affidavits of 20 December 1996 and 1 May 1997 in proceedings 4534 of 1996) is inconsistent with Mr Barclay's evidence in some respects, but he deposes to facts which imply that Cadima did not comply with the terms of the 6 November letter in certain ways. In my opinion it is clear beyond contention that Cadima failed to comply fully with the arrangements set out in the letter of 6 November 1996, but I shall defer further discussion of the matter until I have completed my narrative of the facts and a statement of the applicable law.

10 Mr Barclay gave instructions that the application for a winding up order should proceed on 19 December 1996 in view of what appeared to him to be clear breaches of the arrangements, and the order was made on that day. When Mr Beilby discovered that a winding up order had been made, he quickly prepared an application for a stay of the order. On 20 December 1996 new proceedings (4534/96) were commenced in this court, separate from the winding up proceedings, in which Mr Dickerson as plaintiff sought to set aside the winding up order or to terminate the winding up. By notice of motion in the new proceedings heard on 24 December 1996, Mr Dickerson sought to stay the winding up. Mr Dickerson also filed a notice of motion in the winding up proceedings (2830/96), seeking a stay of the winding up order.

11 An application was made to Bennett AJ on 20 December 1996 for abridgment of service of the summons and notices of motion. Her Honour required Mr Dickerson, as a condition of the leave which she granted, to undertake to replace 4 cheques which he claimed to have sent for payment of October and November Group and PPS tax, but which the Commissioner claimed not to have received, with fresh cheques. On 24 December 1996 orders where made by consent, including an order that the winding up be stayed until 10 February 1997.

12 On 15 January 1997 the Commissioner's office wrote to Mr Beilby saying that if current monthly Group and PPS taxes were paid on time and a bank cheque for $50,000 was delivered to his office by hand on or before 7th of each month until the debt was cleared, the Commissioner would not oppose an application to have the orders winding up the company and appointing the liquidator set aside on 10 February 1997, but if the arrangement was not adhered to an application would be made to have the matter restored on 3 days' notice. The same view was expressed (though without reference to restoring the matter on 3 days' notice) in a letter from the Commissioner's solicitor to Mr Beilby dated 28 January 1997.

13 On 10 February 1997 the stay application was adjourned to 24 March 1997. On 20 March 1997 St George Partnership Banking Ltd, Cadima's banker, appointed receivers and managers of the company's assets and undertaking in order to enforce and protect its security. At a further hearing on 24 March 1997 Mr Dickerson sought an adjournment for 6 weeks and a continuation of the stay during that period to enable him to negotiate with the receivers. The adjournment was granted, notwithstanding the opposition of the liquidator and some creditors, although the Commissioner (consistently with his letter of 15 January 1997) neither consented to nor opposed the application for an adjournment.

14 When the stay application returned to court on 12 May 1997, Mr Dickerson sought a further extension of the stay for 6 weeks with the support of the receivers, who took the view that they would be likely to obtain a higher price for assets of the company which they proposed to sell if a liquidator was not in place. At the hearing Mr Dickerson's counsel notified the court of his client's intention to bring a representative application on behalf of Cadima seeking damages from the Commissioner for breach of contract, the contract being the arrangement evidenced by the Commissioner's letter of 6 November 1996. Simos J directed that any such action be defined by pleadings. Mr Dickerson did not apply to make such a cross-claim in either of the 2 proceedings which were then on foot. Simos J granted an adjournment and extension of the stay to 30 June 1997, and on the latter date, he granted a further adjournment to 7 July 1997.

15 On 7 July 1997, by consent of the all parties in both proceedings, Santow J dismissed the summons in proceedings 4534/96 and the notice of motion for a stay of the winding up orders in proceedings 2830/96, and dissolved the existing stay of the winding up order. Subsequently, on that day, but not before (except fleetingly on 19/20 December 1996), Mr Vouris was able to take up fully his role as liquidator of Cadima.

16 As liquidator of Cadima, Mr Vouris produced a "Report as to Solvency" dated 31 October 1997. The Report stated that he wished to commence proceedings against the Commissioner for the recovery of payments which he alleged to be unfair preferences under s 588FA or void dispositions under s 468 of the Corporations Law. The Report also noted that the liquidator had available to him an action against the directors under s 588FH, since Cadima's payment to the Commissioner relieved the directors of personal liability to pay. The Report pointed out that under s 588FA the action was predicated on the company being insolvent at the time when the payments were made to the Commissioner. Consequently, the report proceeded to review evidence which led the liquidator to conclude that the company was insolvent at all relevant times.

The proceedings for recovery of preferences, and the cross-claims

17 By a Statement of Claim filed on 1 October 1998 in proceedings 4117/98, the liquidator caused Cadima to sue the Commissioner to recover payments made to him by Cadima for Group and PPS tax totalling $699,424.57 as unfair preferences or voidable dispositions.

18 On 24 November 1998 the Commissioner filed a cross-claim (the first cross-claim) against Mr and Mrs Dickerson and Mr Vouris as liquidator. The cross-claim against Mr and Mrs Dickerson asserted their statutory liability under ss 588FGA(2) and 588FGA(4) of the Corporations Law to indemnify the Commissioner, as directors of Cadima, in respect of any loss to the Commissioner which would flow from an order under s 588FF requiring the Commissioner to disgorge unfair preferences paid to him by Cadima. Against the liquidator the first cross-claim sought a declaration that the payments made after the commencement of the winding up were not void under s 468.

19 On 28 June 1999 consent orders and declarations were made by Santow J effectively disposing of the Statement of Claim in proceedings 4117/98. The orders had the effect that the liquidator became entitled to recover a total amount of $560,000 from the Commissioner. Santow J's orders imply that the court had granted leave under s 477(2A) to Mr Vouris as liquidator to compromise his claim against the Commissioner. The orders effectively brought an end to the first cross-claim as against the liquidator. By the same token, Santow J's order under s 588FF for recovery of unfair preferences supplied one of the ingredients of the liability of directors under ss 588FGA(2) and 588FGA(4), and to that extent the first cross-claim against Mr and Mrs Dickerson was strengthened by the consent orders.

20 I referred earlier to Mr Dickerson's intention to bring a representative action on behalf of Cadima against the Commissioner for breach of contract. While not pursuing the claim in proceedings 2830/96 or 4534/96, or by commencing separate proceedings, Mr Dickerson now wishes to do so by causing a second cross-claim to be initiated on behalf of Cadima in proceedings No 4117/98. Combining the first and second cross-claims in the same proceedings may have important practical advantages for Mr Dickerson, and probably also for Mrs Dickerson, especially if the second cross-claim is heard and determined before the first. If Cadima were successful in the second cross-claim the Commissioner would be liable to pay it damages for the indirect benefit of Mr and Mrs Dickerson as contributories, assuming there were no other creditors. That would produce a kind of offsetting, in a practical sense, against the Commissioner's claim made against Mr and Mrs Dickerson personally. It appears that the liquidator has declined to bring the proposed proceedings on behalf of Cadima. I shall return to the liquidator's position.

21 By notice of motion filed in proceedings 4117/98 on 28 May 1999, Mr Dickerson sought orders that he be appointed receiver without security of any rights of action arising out of the events which I have outlined, with power to pursue a cause of action on behalf of the company in the form of the second cross-claim, which was annexed in draft to the notice of motion. In support of the application Mr Dickerson offered personal undertakings and security intended to protect the company and the Commissioner with respect to costs.

22 Subsequently, Mr Dickerson's counsel foreshadowed an amended notice of motion seeking the appointment of an official liquidator of this court as receiver rather than the appointment of Mr Dickerson himself, but otherwise seeking orders in similar terms. The foreshadowed amendments to the notice of motion have included amendments to the draft second cross-claim which is annexed to it.

23 Those amendments were refined up to a hearing of the application which took place on 24 August 1999. At that time counsel for the applicant handed up what was said to be the final form of the annexures to the proposed amended notice of motion (namely, Mr Dickerson's undertakings and the draft second cross-claim) as well as short minutes of the orders which his client seeks in the application. Since these documents replaced earlier drafts I initialled and dated them for the purposes of identification.

24 At the further hearing of the matter on 25 August 1999 I granted leave to Mr Dickerson, as applicant, to file an amended notice of motion to reflect the initialled documents. The amended notice of motion was subsequently filed on 3 September 1999. But that was not the end of the amendments to the notice of motion and the second cross-claim.

25 As I have mentioned, at the hearing on 25 August 1999 I conveyed to the parties my concern about some inadequacies of evidence, delivering some brief oral reasons to clarify the basis of my concern. I said the evidence appeared to me to be unclear with respect to whether the applicant could establish an arguable case for his view that Cadima Express did not repudiate its agreement with the Commissioner prior to 19 December 1996. I also said that there was insufficient direct evidence of the liquidator's attitude to the proceedings proposed by the applicant. I directed that affidavit evidence on these matters be filed and served.

26 The applicant and the liquidator have subsequently filed and served additional evidence, which I have taken into account in preparing these reasons for judgment. The applicant has also sought and been granted leave to file an amended notice of motion which annexes yet another version of the proposed second cross-claim, asserting that if Cadima breached its agreement with the Commissioner, the Commissioner nevertheless affirmed the agreement.

27 The Commissioner submits that the making of the winding up order has created an estoppel by judgment which prevents the company from agitating the question whether the order should have been made (citing Blair v Curran (1939) 62 CLR 464 at 531 and Brewer v Brewer (1953) 88 CLR 1 at 15-16.) The draft second cross-claim pleads that because of an agreement to compromise the terms of payment of the debt, no money was owing at the time when the order was made, and yet in making the order the court must have been satisfied that the plaintiff was a creditor. In view of my conclusion that there is no arguable case to support the proposed proceedings, it is unnecessary for me to make a final decision on this point. However, it seems to me that the making of an order against the defendant in proceedings, upon the application of the plaintiff, does not necessarily estop the defendant from later arguing that the plaintiff's application for the order constitutes a breach of contract for which the plaintiff is liable in damages, especially in a case where the defendant was not present when the order was made. The proposed second cross-claim relies on the making of the order, and presumably its validity, as an ingredient in the loss for which compensation is sought. It does not seek to upset the court's adjudication that the grounds for the making of the order were present; rather, it asserts that the plaintiff in the proceedings broke his promise not to seek the order and failed to place before the court the facts relating to the compromise agreement and in so doing, the plaintiff caused loss and damage to the defendant. In my view, the winding up order would not estop the company from asserting that cause of action.

28 Nor does the dismissal of the proceedings to set aside or terminate the winding up give rise to an estoppel of the kind referred to in Port of Melbourne Authority v Anshun (1981) 147 CLR 589. Even a fully reasoned decision to dismiss proceedings for the termination or setting aside of the winding up order, made some months after the date of the winding up order, would not necessarily create an estoppel of a kind which would prevent the company from subsequently making assertions about the facts which were in existence at the time when the winding up order was made. This is because the decision on the application to terminate or set aside the winding up order would be made having regard to the facts presented to the court at the time of its decision; in particular, evidence with respect to the insolvency of the company at that time, rather than at the time of the making of the winding up order: see, for example, George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464.

29 The Commissioner asserts that the present application is made by Mr Dickerson for a collateral purpose, namely to try to defeat the Commissioner's cross-claim against Mr Dickerson. That submission is consistent with the facts before the court, but it is unnecessary for me to express a view on it.

The liquidator's attitude to the second cross-claim

30 Mr Dickerson's evidence is that he had several conversations with the liquidator in which he asked whether the liquidator intended to take any action against the Commissioner for "wrongly winding up Cadima". He says that the liquidator agreed to consider the matter and call him when a decision had been made, but the liquidator never rang back.

31 I think it unlikely that any such conversation took place. I accept the liquidator's evidence that he cannot recall any such conversations, and that he would have had some recollection of the conversations had they occurred. Further, Mr Dickerson, though a member of Cadima's Committee of Inspection, did not any stage request the liquidator to convene a meeting of the Committee so that the issue of the cause of action now contemplated by him could be considered by the Committee.

32 However, it is not necessary for me to reach a final conclusion as to whether the conversation took place. The important matter for me is not whether the liquidator was asked some time ago to consider taking proceedings and failed to give a proper response at that time; but whether the liquidator gave the matter proper consideration before the close of evidence at the hearing of the present application.

33 The evidence of the liquidator's attitude to the proposed proceedings is contained in his affidavit of 15 September 1999. He refers to his Report as to Solvency dated 31 October 1997, and his Reports to Creditors for the meetings of 22 May 1998 and 11 May 1999. He says he formed the view that Cadima was plainly insolvent at the time it was wound up, and that it had been insolvent for some time prior to that date. He has not subsequently altered his view. The proceedings which he instituted against the Commissioner with respect to voidable transactions were based on his view that there was compelling evidence of insolvency. Those proceedings were prosecuted and settled on that basis. That being so, his view is that to institute against the Commissioner the proceedings contemplated in the proposed second cross-claim would place him in a position of "conflict of interest", because the second cross-claim is based on the assertion that Cadima was solvent.

34 In my opinion the receiver's view that bringing the second cross-claim would put him in a position of conflict of interest is misguided, for 2 reasons. First, the assertion of the second cross-claim does not require the liquidator to embrace the proposition that Cadima was solvent at the time when the winding up order was made. It is true that para 44 of the second cross-claim (part of the amended notice of motion filed on 6 October 1999) asserts Cadima's solvency. But para 45 asserts in the alternative that Cadima's solvency "is of no consequence" to the alleged liability of the Commissioner under the second cross-claim, since the main issue is whether the Commissioner committed a breach of contract, regardless of whether the other contracting party was insolvent.

35 Secondly, the "conflict of interest" to which the liquidator refers is a false one, in my view. His point seems to be that having espoused the view in his report that Cadima was insolvent, he has an interest in maintaining that view which would be in conflict with his duty to establish Cadima's solvency in order to succeed in the proposed proceedings (assuming, for this purpose, that Cadima's solvency is an essential ingredient of the second cross-claim). If there were a conflict of interest of this kind, it would not be solved by the liquidator declining to bring the proposed proceedings, for that course of action would place the liquidator's interest in maintaining consistency above his duty to take proceedings in order to recover assets for the company. If there were such a conflict of interest, it might be necessary for the liquidator to resign. But in my view there is no more a conflict between interest and duty in these circumstances than there would be a conflict between the liquidator's duty to attend to his work during business hours, and his interest in staying in bed. The performance of a duty may be irksome because one is busy, or tired, or because the performance of the duty involves admitting that one has previously made a mistake. But matters of those kinds do not give rise to conflicts between interest and duty. I am not persuaded that the liquidator has any sufficient interest in adhering to an incorrect position (if it be incorrect) that there can be said to be a conflict between that interest and his duty as liquidator.

36 Fortunately the liquidator's affidavit puts forward some other grounds for his view that he should not bring the proposed proceedings. He says that on the basis of investigations conducted by him and on his behalf, his opinion is that the proceeds of the voidable transactions claims represented the only asset of Cadima that he could possibly recover as liquidator. The liquidator does not want to jeopardise that asset by commencing the kind of action Mr Dickerson contemplates, and he takes into account his view of the prospects of success of the action. He expresses the opinion that Mr Dickerson wishes to pursue the proposed proceedings principally, if not entirely, because he sees them as the only possible defence available to him against to the Commissioner's claim against him personally.

37 In my opinion it is appropriate to infer from this evidence that the liquidator has given due and proper consideration to the merits of the proposed proceedings and has decided that their merits are not sufficient to justify putting the company's assets at risk by taking proceedings, even though he has taken a misguided view about conflicts of interest.

The law

38 The application is for the appointment of a receiver to pursue a cause of action on behalf of another. This court's jurisdiction to appoint a receiver is ample enough to permit such an order to be made. The effect of the orders sought would be to give the receiver control over the chose in action to be pursued in the proceedings, which is a species of property, and to empower and direct the receiver to seek to realise that property by litigation for the benefit of the entity on whose behalf it is realised.

39 Difficulty arises because in the present case the entity whose chose in action is to be asserted is in liquidation. The function of the court with respect to a company in liquidation was considered by McLelland J in Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 at 252. His Honour set out the description adopted by the Privy Council in Lloyd-Owen v Bull [1936] 4 DLR 273 at 276:

A judge in winding up is the custodian of the interests of every class affected by the liquidation. It is his duty … to see that all assets of the company are brought into the winding up. In authorising proceedings, especially if they may or will involve some drain on the assets, he must satisfy himself as to their probable success; where … they involve no possible charge on assets, he will nevertheless be careful to see that any necessary action taken in the company's name under his authority is not vexatious or merely oppressive.

40 For present purposes it is worth emphasising that the court's concerns include protection of the assets of the company in liquidation for the benefit of the creditors, and prevention of oppressive or vexatious litigation in the company's name. This necessitates at least a limited investigation of the merits of the proposed litigation.

41 The Corporations Law gives the court statutory jurisdiction to supervise the conduct of a liquidator with respect to litigation proposed in the name of or on behalf of the company. Section 477(6) states that the exercise by the liquidator of his or her powers is subject to the control of the court, and any creditor or contributory or the Commission may apply to the court with respect to any exercise or proposed exercise of any of those powers. (See also s 511 with respect to voluntary liquidation, and s 1321 with respect to appeals to the court from decisions by a liquidator.) Where the liquidator is invited to commence proceedings to assert rights of the company and declines to do so, the normal course is for an aggrieved creditor or contributory to make an application to the court under these provisions. The importance of the statutory provisions is emphasised in the judgment of Cole J in Partnership Pacific Pty Ltd v Aliprandi (1991) 4 ACSR 51.

42 However, in addition to its statutory powers, the court possesses an inherent power in the course of the winding up of a company to permit proceedings to be taken in the company's name at the instigation of a creditor or contributory, including a prospective creditor: Russell v Westpac Banking Corporation (1994) 61 SASR 583. In Aliprandi McLelland J (at FCR 252) confirms that the court has a power "of respectable antiquity and … sanctioned by high authority" to authorise a procedure based on "the same principle on which a man could always have filed a bill in the old Court of Chancery against his trustee to be allowed to use his name to recover the trust property" (citing Cape Breton Co v Fenn (1881) 17 Ch D 198 at 207).

43 Given that there is a power wide enough for the court to authorise that proceedings be commenced in the name of the company in liquidation by a person other than the liquidator, upon what basis will that jurisdiction be exercised?

44 Counsel for the applicant in the present case submitted that it was inappropriate for the court to look at evidence going to the merits of the proposed litigation but instead, the court should make its decision solely on the basis of the draft pleading. That would mean that if the pleading, considered in isolation, appeared to identify an appropriate cause of action, the court would allow the proceedings to be commenced and prosecuted regardless of whether there was any evidence to support the allegations made in the pleading. That cannot be correct.

45 The better view is that the court should consider whether the cause of action asserted in the pleading, together with such evidence as is relied on in the application, demonstrates an arguable case for the relief which the proposed litigation would seek. Thus in Aliprandi, McLelland J (at ACSR 253) inquired as to whether there was an arguable case in support of the claims which the applicant wished to make, concluding that there was no arguable case except in one instance. He made his inquiry by reference to the material which was placed before the court by the parties to the application, not by reference to a draft pleading. In Magarditch v Australia & New Zealand Banking Group Ltd (1999) 32 ACSR 367 at 377, 383-4, the full Federal Court approved McLelland J's formulation and also referred to Vagrand Pty Ltd (in liq) v Fielding (1983) 41 FCR 550 at 556-7 where it was said that an applicant for leave to proceed against a company in liquidation was required to satisfy the court that the claim had a solid foundation and would give rise to a serious dispute, although it was not necessary for the applicant to establish a prima facie case in the accepted sense. Although the test formulated in Vagrand is not quite the same as McLelland J's test in Aliprandi, the full Federal Court's view was that in practice it may be that there is very little to distinguish the 2 approaches. I respectfully agree.

46 A particularly relevant matter for the court is the liquidator's attitude. In Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1998) 17 FCR 344 Gummow J at FCR 733 held that the ordinary rule is that the liquidator is the appropriate person to decide whether the company should commence proceedings, subject to review under the statutory provisions. He considered the authorities on this point and compared them with more general case law on exceptions to the rule in Foss v Harbottle (1843) 67 ER 189. He said that when a company goes into liquidation, it is not appropriate to speak of exceptions to the rule in Foss v Harbottle which would take the carriage of the claim outside the winding up.

47 In Partnership Pacific Ltd v Aliprandi Cole J (at ACSR 54) said that for the application to succeed, more must be shown than that the liquidator's position is protected by an indemnity. In particular, if the liquidator is of the view that the proposed litigation is soundly based, but he cannot pursue it because of absence of funds, a court will be more disposed to permit proceedings by a contributory in the company's name than if the liquidator has decided that there is no reasonable foundation for the claim.

48 These 2 cases indicate that the court is entitled to have the assistance of the liquidator in making its assessment as to whether an arguable case has been demonstrated, and that the court will normally give weight to the liquidator's view.

49 In addition to inquiring whether there is an arguable case or solid foundation for the proceedings, the court needs to be satisfied that practical considerations support the initiation of the proceedings. The cases to which I have referred indicate that typically the applicant offers to indemnify the company in liquidation and the liquidator in respect of the proceedings, and to conduct the proceedings in such a fashion that liability to pay costs is undertaken by the applicant rather than the company to the extent that it is possible to do so. The court will wish to be satisfied that the assets of the company in liquidation are not put at risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection, and may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected. To these ends, the court may require that the person who conducts the litigation gives an indemnity supported by security for the benefit of the company and the liquidator, and perhaps also security for costs to protect the other party to the litigation. It may also be possible, as contended by counsel for the liquidator in the present case, for the court to make an order permitting the liquidator to be excused from the proposed proceedings, in order to protect the liquidator from personal liability with respect to the proposed proceedings. But I doubt whether it would be appropriate to require the proposed receiver to provide a personal indemnity to the liquidator or the company in circumstances such as the present, notwithstanding Brownie J's observations in somewhat different circumstances in Kelaw Pty Ltd v Catco Developments Pty Ltd (1989) 15 NSWLR 587 at 593.

50 The liquidator may derive some comfort from the observations of McLelland J in Aliprandi (at ACSR 253) to the effect that with a possible exception where the liquidator has been guilty of misconduct, there is no legitimate basis on which a costs order could be made against the liquidator personally in proceedings between the company and a third party to which the liquidator is not a party; and that there is no principle which would justify the making of an order for costs against a liquidator who is not a party where the use of the company's name in the relevant proceedings by some other person was authorised by the court.

51 Those being the principles which govern an application to the court for orders permitting a person, other than the company in liquidation or the liquidator, to commence proceedings in the company's name, are there any further or other principles which apply when the application is for the appointment of a receiver to pursue the litigation? This question was addressed by McLelland J in the series of cases, Pollnow v Garden Mews-St Leonards Pty Ltd (1984) 9 ACLR 82; Garden Mews-St Leonards Pty Ltd v Butler Pollnow Pty Ltd (1984) 9 ACLR 91; Garden Mews-St Leonards Pty Ltd v Butler Pollnow (No 2) (1984) 9 ACLR 117; and by the full Federal Court in Christianos v Aloridge Pty Ltd (1995) 59 FCR 273.

52 In the Butler Pollnow cases, McLelland J decided to make an order for the appointment of a receiver to conduct litigation on behalf of a company in provisional liquidation. He noted that such a course of action may be appropriate where the provisional liquidator is unwilling to sue and lacks assets to do so. In the circumstances of that case Mr Pollnow would have set up, by way of defence in the winding up proceedings to which he was a party, the substance of the matters which he wished the company to assert in the other proceedings to which he wished to join the company as a plaintiff. His Honour said (at ACLR 95):

If those matters are to be litigated in proceedings to be brought in the name of the company, it seems to me, as at present advised, likely that those proceedings and the winding up proceedings (or at least the common issues in them) would be heard together. The provisional liquidator cannot have the carriage for the company of any defence to the winding up proceedings … and it would, therefore, be inappropriate for him to have the carriage for the company of proceedings raising similar issues which are heard together with the winding up proceedings.

53 His Honour judged it to be appropriate to appoint Mr Pollnow as receiver of the company's chose in action so that it could be pursued. He said (at ACLR 95):

the court should not allow its processes to be used in a way which would erect procedural barriers or obstacles to the prosecution of these claims on behalf of the company, and the appointment of a receiver of the relevant causes of action (perhaps more accurately rights of action) with power to enforce the same in the name of the company is an appropriate means of avoiding procedural injustice.

54 He noted that Mr Pollnow offered to assume liability for all legal costs incurred by the company in relation to the proposed proceedings and would give appropriate undertakings regarding his personal liability. In subsequent proceedings (9 ACLR 117) McLelland J decided that Mr Pollnow's appointment as receiver should be terminated, on the ground that he was not qualified to act as receiver having regard to s 323 of the Companies Code (NSW) (now s 418 of the Corporations Law), but in reaching this conclusion he did not cast any doubt on the principle as to appointment of a receiver which he had enunciated at 9 ACLR 95.

55 In Christianos v Aloridge the full Federal Court applied the principles enunciated by McLelland J in Butler Pollnow, but concluded that the circumstances of the case before the court did not justify the appointment of a receiver. This was because the company in provisional liquidation was the subject of an unopposed application for winding up and in the circumstances it was appropriate to leave the decision to pursue the claims to the liquidator, once appointed.

56 These cases demonstrate that the court has the power to appoint a receiver in cases where it decides to permit proceedings to be commenced and prosecuted in the name of a company in liquidation by a person other than the liquidator. Although the appointment of a receiver should not be lightly ordered, the principles by reference to which the order may be made are partly the same as for an order that a creditor or contributory be authorised to take proceedings in the company's name. First, the court must be satisfied that there is an arguable case or solid foundation to support the relief which the proposed proceedings seek and, secondly, the court must be satisfied of the practical considerations to which I have referred, relating to protection of the assets of a company in liquidation, the liquidator's personal position and the position of the other party to the proposed proceedings.

57 The cases with respect to receivership demonstrate that an additional consideration is whether, if the liquidator cannot or will not take proceedings, the appointment of a receiver is a mechanism to be preferred to other alternatives which may be available in the circumstances. They suggest that the appointment of a receiver is most likely to be appropriate where the liquidator is prevented from doing so, by some good reason such as the one explained by McLelland J in Butler Pollnow.

58 The Commissioner submits that no case has been decided in which a receiver has been appointed to a cause of action which concerns the liquidation itself. That may be so, but in this case the proposed cause of action does not challenge the validity of the winding up order; instead it seeks damages in respect of the Commissioner's conduct in applying for the order and failing to disclose the compromise agreement to the court. I see no reason in principle why such a cause of action could not be maintained by a receiver in a proper case.

The present case

59 The first question to consider is whether there is an arguable case or solid foundation for the company to obtain the relief which would be sought in the proposed proceedings. In my opinion, the applicant has not established that there is any arguable case or solid foundation to support the causes of action pleaded in the proposed second cross-claim.

60 The applicant says that Mr Beilby's letter of 5 November 1996 was an offer to compromise the terms of payment of the debt claimed by the Commissioner. In its terms that letter merely gives Mr Beilby's assessment of Cadima's ability to pay the debt by instalments of $50,000 per month. However, in my opinion the letter either communicated or confirmed an implied offer to compromise the terms of payment by instalments of $50,000 per month.

61 That implied offer was not accepted, but instead, the Commissioner's letter of 6 November 1996 makes a counter-offer, since it sets out terms which were not part of Cadima's implied offer. Cadima accepted the counter-offer by its conduct in providing a bank cheque for $100,000 in favour of the Commissioner. Assuming for present purposes that valuable consideration was supplied, there was therefore a contract between the parties with respect to payment of the debt, the terms of which were recorded in the Commissioner's letter of 6 November 1996. The Commissioner's express obligations under his letter were that:

• if the bank cheque for $100,000 was received as arranged, he would seek a 6 week adjournment at the hearing of 7 November 1996; and

• if the terms for repayment were strictly complied with, he would not seek summary judgment against Mr and Mrs Dickerson in the District Court proceedings, reserving the right to file a notice of motion for summary judgment without further notice should there be default in the arrangements.

62 The applicant says that the Commissioner agreed to compromise the terms of payment of Cadima's debt. In my view that submission overstates the effect of the 6 November letter. I accept that an implied term of the agreement was that the Commissioner would not seek to recover the full amount of the debt or to proceed with the winding up of Cadima during the 6 week period beginning on 7 November 1996. But the terms of the letter left the Commissioner free to take proceedings for recovery or to wind the company up after the expiration of the 6 week period, and I see no basis for implying a term which would limit the Commissioner over a longer period. However, whether the Commissioner's obligation not to proceed with recovery or winding up was for a 6 week period or for indefinite period, it was clearly a highly conditional commitment on his part. The letter of 6 November set out 5 matters which it described as "your client's repayment proposal", and stated that the Commissioner would not seek summary judgment "on condition that the terms for repayment are strictly complied with". While that sentence appears in the paragraph dealing with the District Court proceedings, in my opinion the proper construction of the letter as a whole is that strict compliance by Cadima with the terms set out in the letter was intended to be of the essence, so that the Commissioner would be free of the obligation not to take further steps towards recovery or winding up as soon as Cadima failed to comply strictly with any of the terms. That intention is clearly implied from the letter and Cadima must have understood it when it accepted the Commissioner's offer by making payment of the $100,000.

63 The affidavit evidence referred to in para 9 of these reasons for judgment shows that Cadima did not strictly comply with the terms of the letter of 6 November 1996. The first breach alleged by Mr Barclay is that the payment of $50,000 due on or before 7 December 1996 was made at the cashier's desk rather than being sent directly to him and marked to his attention as required by the terms of the arrangement; and further, the amount was paid without any direction being made by the company as to which debt it was to be appropriated against, and no file number was quoted at the time of payment. Consequently, he says, the amount was allocated towards payment of the company's income tax account rather than against the Group or PPS accounts. Further, though Mr Barclay does not complain of this, payment was due on 7 December but was made on 9 December 1996. Mr Barclay's evidence is consistent with the payment receipt which is part of Exhibit J in the present application, except that the receipt contains a reference to a file number. Except in that respect, his account is not contradicted by any of Mr Dickerson's affidavit evidence. The evidence is consistent only with a finding that payment was not made by 7 December as required, and when it was made on 9 December it was not made in the manner required by para 5 of the letter of 6 November. There was therefore a breach of the requirements of the letter of 6 November in that respect.

64 Secondly, Mr Barclay says that the payments for October and November Group tax, due on 7 November and 7 December 1996 respectively, and the payments for October and November PPS tax, due respectively on 14 November and 14 December 1996, were not paid on time. In his affidavit of 20 December 1996 Mr Dickerson says that he forwarded the October payments to Mr Barclay under cover of a letter dated 7 November 1996, a copy of which he annexes. But the annexed letter only supplies information about PPS and group tax and does not purport to enclose cheques. Mr Dickerson's affidavit annexes remittance advices which, he says, are the only evidence of drawing cheques for payment of the October taxes. He says the remittance advices were generated by printing from computer records. But Mr Barclay says that there are no records held by the Australian Taxation Office which indicate that the cheques were in fact received. Paragraph 3 of the letter of 6 November 1996 requires that monthly Group and PPS tax be paid on time, and para 5 (which, in my view, applies to para 3) says that payment is to be made by bank cheque to the stated address of the Australian Taxation Office, marked to Mr Barclay's attention. Mr Dickerson's evidence indicates that the payments were not by bank cheque. Additionally, there is no receipt or covering letter in evidence, nor any basis for disbelieving Mr Barclay's assertion that the cheques were not received. The only available conclusion is that, whether or not the cheques were drawn by Cadima, they were not received by the Commissioner prior to 19 December 1996.

65 Mr Dickerson's affidavit annexes remittance advices with respect to the November Group and PPS tax, but no other evidence of payment. Mr Barclay says that there are no records held by the Australian Taxation Office which indicate that the cheques referred to in the remittance advices were received. Again, the only available conclusion, on the evidence, is that whether or not the cheques were drawn, they were not received by the Commissioner prior to 19 December 1996. Further, it appears from Mr Dickerson's evidence that the cheques, if drawn, were not bank cheques, and according to the remittance advices, the cheques were drawn on 17 December 1996, after the due date for payment. Once again, therefore, the only available conclusion is that the terms of the letter of 6 November were not complied with as regards the November Group and PPS tax. The evidence indicates that payment was made only after replacement cheques were drawn pursuant to Bennett AJ's orders, to which I have referred.

66 The applicant contends that the Commissioner accepted Cadima's cheques for the October and November Group and PPS tax as constituting performance by Cadima of para 3 of the letter of 6 November. Mr Barclay's evidence, however, implies that the cheques were not received by the Commissioner. In the draft second cross-claim the applicant asserts, in support of his contention that the cheques were accepted by the Commissioner, that at the hearing before Bennett AJ on 20 December 1996 orders were made on the basis that the cheques had been misplaced within the Parramatta office of the Commissioner. But that assertion is not supported by the report by Mr Dickerson's counsel to his instructing solicitors on 20 December 1996, and it appears to me highly unlikely that the Commissioner would have acknowledged receipt and misplacement of the cheques in light of Mr Barclay's affidavit evidence of 12 May 1997. In my view the contention that the Commissioner accepted cheques for the October and November payments prior to 19 December 1996 cannot plausibly be maintained.

67 The replacement cheques were drawn on 23 December 1996, pursuant to an undertaking given by Mr Dickerson to Bennett AJ, and their receipt and payment cannot be relied upon as an act of acceptance of performance or waiver of a kind which would render the Commissioner's conduct at an earlier point in time, namely 19 December 1996, a breach of contract.

68 Mr Barclay's affidavit asserts that as at 19 December 1996, the company had not provided the details of Group and PPS tax liabilities for the months of May to September 1996 as required by para 4 of the letter of 6 November 1996, but Mr Dickerson's affidavit of 20 December 1996 annexes a copy of a letter of 7 November 1996 which purports to supply such particulars. On the evidence before me in the present application, I cannot conclude that a breach of para 4 of the letter of 6 September 1996 has been established beyond challenge.

69 My conclusion is that on 19 December 1996 Cadima was in breach of paras 2, 3 and 5 of the letter of 6 November 1996, and was therefore in breach of its obligations under its contract with the Commissioner in respect of matters which the contract treated as essential. It had, in my view, repudiated the contract between it and the Commissioner by breach, and the Commissioner was entitled to repudiate the contract and regard himself as no longer bound by it. Therefore, even if (as a matter of construction, contrary to my view), the Commissioner's obligation under the contract would have prevented him from seeking a winding up order on 19 December 1996, Cadima's repudiation freed him of any such obligation.

70 As at 19 December 1996, the day upon which the Commissioner applied for and obtained a winding up order, it must have appeared to Mr Barclay that Cadima had completely repudiated the agreement. Further, there was no appearance on Cadima's behalf at the hearing. In my opinion it was clear beyond argument that in those circumstances, the Commissioner was entitled to seek a winding up order on 19 December 1996 without breach of the agreement recorded in the letter of 6 November.

71 The applicant's alternative submission is that if, contrary to its contentions, Cadima is found to have repudiated the contract by breach, nevertheless the contract remained on foot because the Commissioner made an unequivocal election to affirm it prior to 19 December 1996. The Commissioner's affirmation is said to have arisen in consequence of 4 matters. First, it is said that the Commissioner did not assert any repudiation by Cadima, or acceptance of repudiation by him, on or before 19 December 1996. The evidence suggests that the Commissioner did not immediately rely on Cadima's breaches, but in my opinion that conduct (if it be established) would not support the alleged affirmation. The Commissioner's conduct is consistent with my construction of the contract, according to which he was under no continuing obligation not to seek Cadima's winding up at the adjourned hearing date of the winding up summons. Further, mere failure to assert the termination of the contract on or before 19 December 1996 could not in the circumstances constitute affirmation, since the full facts with respect to Cadima's payments did not emerge until after the hearing on that date.

72 Secondly, the applicant says that the Commissioner's conduct in seeking the adjournment of the winding up summons on 7 November 1996 was an affirmation of the contract notwithstanding non-receipt of the October Group and PPS tax payments. Since the PPS tax payment was not due until 14 November and the Group tax payment was due only on 7 November, the applicant's contention cannot be entertained.

73 Thirdly, the applicant says that the Commissioner did not assert a breach of the contract at the hearing on 19 December 1996 or at any earlier time. In my opinion the submission that a person who has rights which flow from a breach of contract must assert the breach before exercising those rights is unsustainable.

74 Fourthly, the applicant contends that the Commissioner affirmed the contract by seeking replacement cheques at the hearing before Bennett AJ. But that hearing was on 20 December 1996, the day after the making of the winding up order, and cannot be evidence of an election to affirm prior to the making of the winding-up order on 19 December 1996.

75 The applicant also contends that between 20 December 1996 and 7 July 1997 the Commissioner affirmed the continued operation of the agreement set out in the letter of 6 November 1996 on several occasions. As I have said, the conduct of the Commissioner after the termination of the contract, which occurred no later than 19 December 1996, cannot constitute any election to affirm it. Further, the conduct which the applicant relies upon shows only that the Commissioner made various payment arrangements in exchange for agreeing not to oppose applications to set aside, terminate or stay the orders of 19 December 1996. Thus, in his letter to Mr Beilby of 15 January 1997, the Commissioner confirmed a repayment arrangement which he set out, and said that if the arrangement was adhered to his office would not oppose an application to have the orders appointing the liquidator set aside at the hearing on 10 February 1997. On 28 January 1997 the Commissioner's solicitor wrote to Mr Beilby saying that if his client strictly complied with the arrangement which had been agreed to (presumably, the arrangement set out in the Commissioner's letter of 15 January 1997), the Commissioner would not oppose an application that the winding up order be set aside. On 24 March 1997 the Commissioner appeared at a hearing of the application to set aside the winding up order and indicated that he would neither consent to nor oppose an application for an adjournment, with a stay of the winding up in the meantime. The Commissioner did not oppose subsequent adjournments of those proceedings. But the Commissioner's conduct cannot be regarded as reviving or affirming the arrangements of 6 November 1996, since it was directed to a different issue, namely the staying and termination of the winding up order.

76 Next, the applicant contends that by his conduct in adjourning the winding up summons for 6 weeks at the hearing on 7 November 1996, the Commissioner created an assumption on the part of Cadima and its solicitors, to the effect that as long as Cadima continued to perform its obligations under the agreement set out in the letter of 6 November 1996, the Commissioner would continue to seek adjournments of the winding-up summons and would not seek to have the summons heard and determined. However, in my opinion the Commissioner's conduct in obtaining an adjournment at the hearing on 7 November 1996 was conduct in performance of his obligation under the contract and created no basis for any assumption beyond the terms of the contract. Consequently the estoppel argument must fail. Since Cadima's conduct amounted to repudiation of the contract set out in the letter of 6 November 1996, and the Commissioner accepted the repudiation and terminated the contract, the applicant's contention that in applying to wind up Cadima on 19 December 1996 the Commissioner repudiated the agreement must also fail.

77 In summary, my opinion is that the applicant has not demonstrated any plausible factual basis for the assertions contained in the draft second cross-claim, and I therefore conclude that there is no arguable case or solid foundation for the relief which the draft second cross-claim seeks. In my opinion, therefore, the application for appointment of a receiver to commence and prosecute such proceedings must be denied.

78 If, contrary to my view, there had been an arguable case to support the allegation of breach of contract, there would still be a question whether Cadima's loss or damage was caused by the Commissioner's conduct in applying for the winding up order, or by the applicant's own failure to have the winding up terminated in light of the facts alleged in the proposed second cross-claim.

79 If, contrary to my view, there was an arguable case or solid foundation to support the proposed proceedings, the question would arise whether it is appropriate in a procedural and practical sense that a receiver be appointed in the present circumstances. Given my conclusion on the "arguable case" issue, it is unnecessary for me to express a final view on this point, but I doubt very much that I would be satisfied that the case for the appointment of a receiver had been made out, even if the proposed proceedings had identified an arguable case for relief. Here the liquidator has considered the matter and has decided not to risk the company's assets by taking proceedings. Mr Dickerson has offered a detailed undertaking to be personally liable for the cost of the proposed proceedings to the exclusion of the company, and that he will personally give security to the Commissioner for costs by granting an equitable charge over a property, to be secured by a caveat. But I am not convinced that these arrangements would protect the company and the Commissioner completely, since they depend on the court fixing the amount of the security for costs and they assume that the value of the applicant's equity in the property will always exceed that amount, although there is no undertaking not to create prior ranking encumbrances over the property. I note that Mrs Dickerson, who is evidently a co-owner of the property offered as the subject of the equitable charge, has not offered to give an undertaking to the court.

80 Even if the arrangements proposed by the applicant were adequate to ensure that the company and the Commissioner were protected, and there were an arguable case to support the proceedings, it would not necessarily follow that the application should succeed. The court should not overrule the liquidator's judgment unless a good reason for doing so is established. In the Butler Pollnow cases a winding up order had not been made and it was likely that Mr Pollnow would have set up by way of defence in the winding up proceedings the very matters which he wished the company to assert in the other proceedings. The provisional liquidator could not conduct a defence to the winding up proceedings, and ought not to assert the same matters in proceedings brought on behalf of the company, and therefore it was appropriate to appoint a receiver to assert the company's cause of action. In Christianos v Aloridge the court declined to appoint a receiver in order that the decision to pursue the alleged course of action could be taken by the liquidator, once appointed. In the present case there is nothing comparable with the special circumstances of the Butler Pollnow cases, and Christianos v Aloridge shows that the court should normally give weight to the liquidator's decision.

Conclusions

81 Mr Dickerson's application for orders for the appointment of a receiver, and other orders, should be denied on the ground that he has not shown that there is an arguable case or solid foundation for the proposed proceedings. Even if he had done so, I would be inclined not to make the orders which he seeks in light of the attitude of the liquidator to the proposed proceedings, and my uncertainty as to whether the undertakings and security which he offers would be adequate protection for the assets of the company and for the Commissioner, assuming that the liquidator's position could be effectively protected.

82 I shall hear submissions as to costs, although my inclination is to order that the applicant pay the costs of both respondents to the notice of motion.