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Re Cape Tribulation Reef Experiences Pty Ltd[2007] QSC 115

Re Cape Tribulation Reef Experiences Pty Ltd[2007] QSC 115

 

SUPREME COURT OF QUEENSLAND 

 

CITATION:

Re Cape Tribulation Reef Experiences Pty Ltd [2007] QSC 115

PARTIES:

BRUCE POUNTNEY MILNER & TONY JONSSON
(receivers and managers)
and
DAVID BROWN
(director)
and
PETER DAMIAN FARRELL
(director)

FILE NO/S:

S54 of 2001 (Cairns)

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

18 May 2007

DELIVERED AT:

Supreme Court, Cairns

HEARING DATE:

10 May 2007

JUDGE:

Wilson J

ORDER:

  1. It is declared that:
  1. no account has been taken by the Special Referee;
  2. no certificate of account has been filed by the Special Referee as required pursuant to r 540(1) of the Uniform Civil Procedure Rules.
  1. That Bruce Pountney Milner be removed as Receiver and Manager of the Company with immediate effect.
  2. That the costs of the Receivers and Managers, and of each of Messrs Brown and Farrell, of and incidental to this proceeding be paid out of the assets of the Company on the indemnity basis as agreed or assessed.
  3. That the Receiver and Manager, or any other interested person, have liberty to apply on the giving of four days written notice to all interested persons.
  4. That costs otherwise be reserved.

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – OTHER MATTERS – the directors of a company in receivership consented to the court ordering that a special referee be appointed to take an account as to monies owed between the company and the directors – the account was to be taken in accordance with the provisions of the Uniform Civil Procedure Rules (UCPR) – the special referee did not produce a certificate of account, or identify which items in dispute were allowed or disallowed – whether an account was taken in accordance with the UCPR

CORPORATIONS – RECEIVERS, CONTROLLERS AND MANAGERS – OTHER MATTERS – the receivers and managers seek a declaration regarding the commercial wisdom of a proposed agreement – whether the court should make the declaration

Uniform Civil Procedure Rules 1999 (Qld) r 537, r 539, r 540

COUNSEL:

M A Jonsson for the receivers and managers

M R Hodge for David Brown (director)

H A Mellick (solicitor) for Peter Damian Farrell (director)

SOLICITORS:

Farrellys for the receivers and managers

Williams Graham Carman for David Brown (director)

Mellick Smith & Associates for Peter Damian Farrell (director)

  1. Wilson J: By order of the Court made on 21 May 2001 Bruce Pountney Milner and Tony Jonsson were appointed as joint and several receivers and managers of the assets of Cape Tribulation Reef Experiences Pty Ltd. As I shall explain, an impasse was reached in the receivership, which led to the Court appointing David Davies-Griffith as a special referee to take an account of certain moneys.
  1. One of the directors, David Brown, alleges that the special referee has not taken the account as ordered, and seeks declaratory relief to that effect.
  1. The receivers and managers seek –
  1. the release of Mr Milner as a receiver and manager;
  2. a direction from the Court that the remaining receiver and manager be permitted to rely upon balances calculated by Mr Davies-Griffith for purposes associated with the completion of the receivership; and
  3. a direction in relation to a proposal that has been put before them.

The order of 21 May 2001

  1. The originating application which sought the appointment of receivers and managers was filed by Mr Brown, and served on his co-director Peter Farrell.
  1. By the terms of the order the receivers and managers were directed (inter alia) –
  1. to take all proper accounts and inquiries in respect of dealings by the company, including all debts and liabilities of the company, and all receipts and payments, dealings and transactions between shareholders and directors concerning the company, its assets and business; and
  2. to take an account as to any moneys due by each director to the company, and vice versa.[1]

The impasse

  1. Mr Brown and Mr Farrell each claim to be owed money by the company. According to the receivers, the accounts and records delivered up to them after their appointment were not up to date and did not sufficiently explain the company’s transactions, financial position and performance prior to their appointment to enable true and fair financial statements to be prepared and audited in compliance with the Corporations Act 2001 (Cth).[2] More specifically, they identified an apparent imbalance in the directors’ loan accounts which they considered to be primarily the result of inadequate accounting records having been maintained and questionable accounting practices having been adopted.[3] They attempted to reconcile the directors’ loan accounts by reference to known and substantiated transactions, but were unable to do so to the satisfaction of the directors.[4]

Appointment of special referee

  1. To break the impasse, the directors consented to an order made on 6 September 2004 appointing Mr Davies-Griffith as special referee to take an account. Paragraphs 1 – 4 of that order were in these terms –

“1. The Receivers and Managers file and serve upon each of the directors of the company (by their solicitors) an account as to the monies (if any) due by either director of the company to the company, or by the company to either director of the company, as the case may be, within twenty-one days of the date of this order.

  1. The account so filed and served:
  1. will be verified by affidavit in accordance with r 530(2) of the Uniform Civil Procedure Rules;
  2. need not be verified by receipts as otherwise required by r 530(4) of the Uniform Civil Procedure Rules.
  1.               Any statement challenging the accuracy of the account so filed and served be filed and served within twenty-eight days of service of the account upon the party concerned and otherwise in compliance with r 532 of the Uniform Civil Procedure Rules.
  1.               An account thereafter be taken by Mr David Davies-Griffith of David Davies-Griffith Chartered Accountants, as a Special Referee, as to the monies (if any) due by either director of the company to the company, or by the company to either director of the company, as the case may be, subject to any reference as might be made pursuant to r 539 of the Uniform Civil Procedure Rules.”

Receivers’ compliance with order 6 September 2004

  1. In compliance with paragraphs 1 and 2 of the order of 6 September 2004, the receivers and managers filed and served an account verified by affidavit on 20 January 2005.[5] The account consisted of itemised schedules of loan accounts with the following balances:
  1. David Brown’s Loan Accounts: $106,764.19 due from the company to Mr Brown;
  2. Peter Farrell’s Loan Account: $145,096.29 due from the company to Mr Farrell;
  3. H20 Cape Tribulation Pty Ltd (“H2O”), a related company controlled by Mr Brown: $140,805.18 due from H2O to the company.
  1. By affidavit filed on 10 March 2005 Mr Brown raised a number of challenges to the accuracy of the accounts filed by the receivers.

Mr Davies-Griffith’s first affidavit

  1. By affidavit filed on 16 September 2005 Mr Davies-Griffith provided his “accounts” of the moneys due by the company to Mr Brown, the moneys due by the company to Mr Farrell and the loan account between the company and H2O.[6]

Mr Davies-Griffith’s second affidavit

  1. Mr Brown (by his solicitors) continued to raise complaints about the information the receivers had (or had not) made available to Mr Davies-Griffith and about Mr Davies-Griffith’s approach to his task.
  1. Further information was supplied to Mr Davies-Griffith from various sources, and eventually he filed a further affidavit on 10 August 2006. He recounted the steps he had taken since his appointment and the information he had received, and concluded with his assessments of the loan balances – which were precisely the same as those arrived at by the receivers.

Books of account

  1. The various statements of account exhibited to the affidavits of Mr Jonsson and those of Mr Davies-Griffith refer to different sets of accounts, and the identification of the true accounting records of the company has been contentious and difficult.
  1. The receivers based their analysis on financial statements prepared by Cockrell Reese for the 1994 and 1995 financial years and subsequently by Intac Financial Services. Mr Brown has consistently disputed that Intac Financial Services were retained by the company rather than by the co-director Mr Farrell. Mr Brown has consistently maintained that the proper basis for determining the state of the loan accounts in the company’s books of account is contained in the Quickbook format and those accounts formed the basis of his objection to the receivers’ accounts. Nevertheless, it was not until 15 February 2006 that the Quickbook accounts were forwarded to Mr Davies-Griffith.

Taking an account

  1. Counsel for Mr Brown submitted that Mr Davies-Griffith ought to have gone about his task in the following manner. In relation to each loan account provided by the receivers,[7] he ought to have identified those items which were disputed, evaluated each of them and either “allowed” or “disallowed” each. He ought then to have prepared a certificate under r 540 of the UCPR which provides –

“540 Certificate as to account

  1. The result of the taking of an account must be stated in a certificate that must be filed immediately after it is settled.
  2. A person who is interested in the account may apply to the court for it to be set aside or varied within 7 days after the day the certificate was filed.
  3. If a person applies for a certificate to be set aside or varied--
  1. the items objected to must be specified and the grounds of the objection must be concisely stated; and
  2. the application must be decided on the same evidence as was presented at the taking of the account, unless the court gives leave for further evidence to be presented.
  1. A certificate becomes final and is binding on the parties at the end of 7 days after the day it is filed unless a person applies under subrule (2) for the certificate to be set aside or varied.
  2. In special circumstances the court may set aside or vary a certificate after it has become final and binding.
  3. The certificate may not set out the judgment or order, the documents, evidence or reasons, but it must refer to the judgment or order or the documents or evidence so the basis of the result of the account is stated in the certificate.
  4. The certificate must specify the items allowed and disallowed.
  5. The party who is responsible for the prosecution of the judgment or order must prepare a draft certificate for settling by the court or the person who took the account on at least 7 days notice to all persons who appeared at the taking of the account.”

To comply with r 540, he should have produced a certificate dealing with the items seriatim – specifying whether they were allowed or disallowed and referring to the materials upon which the result was based.

  1. The account which was ordered in the present case was akin to an order for the taking of accounts in common form. The receivers were to provide an account of moneys due by or to the company, and then there was to be an opportunity for the directors to challenge the accuracy of the account filed by the receivers.[8]
  1. Counsel for Mr Brown submitted insofar as Mr Brown alleged certain items which were not taken into account should have been, the onus lay on him, whereas insofar as he asserted other items should not have been taken into account, the onus lay on the receivers to establish that they should have been.[9]
  1. Counsel for the receivers submitted that the order of 6 September 2004 provided in effect for the review of the accounts prepared by the receivers (who were independent, non-partisan Court appointees) by another independent Court appointee, and that in that context –
  1. there could be no threshold assumption that there was something in the hands of the accounting party for which that party would be answerable to another, and thus the onus did not necessarily fall on the accounting party to show that property held or received by that party had been dealt with according to law;
  2. it would not have been inappropriate for Mr Davies-Griffith to have imposed an evidentiary and persuasive onus (to identify error requiring correction) on such of the personally interested parties (ie Mr Brown and Mr Farrell) as were minded to challenge the receivers’ independent assessment.
  1. I do not accept that Mr Davies-Griffith was appointed to review what the receivers had done. Perhaps some other form of order could have been made directed to that end. But what was ordered here was the taking of an account in accordance with the provisions of the UCPR. There was no warrant for departing from the rules and procedures which accompany that form of relief, and in principle I accept the submissions of counsel for Mr Brown.

Procedural fairness

  1. It was common ground that Mr Davies-Griffith was obliged to accord an interested party such as Mr Brown procedural fairness – in particular a fair opportunity to be heard. There was dispute about whether he did so.

The procedure adopted by Mr Davies-Griffith

  1. (a) Mr Davies-Brown approached his task as the preparation of a report rather than the allowance/disallowance of specified items.

  1. Exhibits DDG 8, DDG 9 and DDG 10 to his first affidavit were, as counsel for Mr Brown submitted, at best narratives of his consideration of objections made by Mr Brown in an affidavit sworn in March 2005.
  2. He was then provided with considerable more material including an Excel spreadsheet prepared by Mr Brown for comparative purposes and information supplied by Mr Brown at a face-to-face meeting.
  3. With the benefit of that information he identified to Mr Brown’s solicitors certain specific areas where his draft calculations might benefit from confirmation or clarification.[10]
  4. In his second affidavit, in relation to the Brown loan account, he performed a “Reconciliation of Intac loan balances to Brown loan balances and Jonsson loan balances”[11] – but instead of determining whether to allow or disallow each item (or at least each disputed item) in those balances, and so determining which balance was correct, he seems merely to have adopted balancing items in the Intac accounts.[12]
  5. Again he provided his observations on objections taken by Mr Brown rather than an item by item evaluation.
  6. He concluded –

“38. In accordance with paragraph 4 of the Court Order dated 6 September 2004, based on the information presented to me and referred to me in this Affidavit and the exhibits to this Affidavit, in my opinion  the Company loan balances are:

  1. At 17 June 2000 the Company owed Director David Brown $106,764.19; and
  2. At 6 December 2000 the Company owed Director Peter Farrell $145,096.29; and
  3. At 13 June 2000 the Company was owed $140,805.18 by H2O Cape Tribulation Pty Ltd.”[13]
  1. In my view, Mr Davies-Griffith failed to appreciate what was required of him in taking an account under the UCPR. If it were the case that he felt hampered by inadequate accounting records or disputes of fact, he could have exercised any of his powers under r 537 of the UCPR or sought guidance from the Court under r 539 to resolve his dilemma. Those rules provide –

“537 Powers exercisable on taking account

  1. On the taking of an account, advertisements may be published, witnesses subpoenaed, oaths administered, the production of documents and records ordered and oral examinations conducted.
  2. An order under subrule (1) may be made by the court or person taking the account.”

“539 Reference to court

  1. If an account is taken by the registrar or a special referee, the registrar or special referee must, if asked by a person interested in the account, or on his or her own initiative may, refer to the court a question arising and the account must be taken in accordance with a direction the court gives on the reference.
  2. A direction given by the court under subrule (1) may be varied at any time until a certificate is filed embodying the results of the account.”

He did none of these things, and his second affidavit, or “report” as it was referred to in submissions, was no substitute for a certificate under r 540.[14]

  1. Mr Davies-Griffith’s approach was fundamentally flawed. In the circumstances I do not feel it necessary to rule upon the submissions made by counsel for Mr Brown that he misapplied the onus of proof and did not accord Mr Brown procedural fairness.
  1. I am prepared to make a declaration that there has been no account taken as required by the order of 6 September 2004. I will hear counsel on the form of the order in due course. Needless to say, I am not prepared to direct that the receivers and managers (or either of them) be permitted to rely upon balances calculated by Mr Davies-Griffith for purposes associated with the completion of the receivership
  1. I reach this conclusion with some concern at the resources which have been wasted in what I am prepared to accept was an innocent misunderstanding of what was required, and a genuine attempt to arrive at a commercially sensible solution. I note that the other director Mr Farrell supported the position taken by the receivers, and in order to minimise costs, his solicitor was excused from attendance at the commencement of the hearing.

Release of Mr Milner

  1. Mr Milner has retired from private practice, and seeks to be released from his appointment as a receiver and manager. Mr Brown has no objection in principle to this. I am prepared to release Mr Milner, and will hear counsel on the form of order that it appropriate.

Proposed indemnity and funding agreement

  1. Jungle Diver Pty Ltd (in liq) (“Jungle Diver”) is a related company formerly controlled by Mr Farrell. Jungle Diver is indebted to Cape Tribulation Reef Experiences Pty Ltd, estimates of the amount of the indebtedness varying between approximately $144,000 and over $300,000.[15] The liquidator of Jungle Diver wishes to bring proceedings against that company’s directors for compensation of at least $118,000 for loss sustained as a result of insolvent trading, and the liquidator has approached Mr Jonsson (one of the receivers of Cape Tribulation Reef Experiences Pty Ltd) with a request that he enter into an indemnity arrangement and contribute to the funding of the proposed claim against the directors of Jungle Diver. Mr Brown supports the liquidator.[16]
  1. Mr Jonsson considers that it would not be in the company’s best commercial interest to accede to the request, having regard to –
  1. the relative magnitude of the sums involved;
  2. the possibility that the respondents to the proposed claim may have defences open to them under the Corporations Act (bearing in mind that the company is the only creditor of Jungle Diver, and that the commercial relationship between the two involved a complicated vessel hire arrangement);
  3. the lack of source records and documents available to both the company and Jungle Diver;
  4. the fact that one of the directors of Jungle Diver (Raffi Shlomi) is now overseas and unlikely to return;
  5. the risks that would be inherent in the proposed litigation.[17]

He seeks a direction that the receivers and managers be at liberty to decline to enter into the proposed arrangement.

  1. It seems clear that a Court appointed receiver may seek directions from the Court with respect to the discharge of the functions for which the appointment was made.[18]
  1. Here the real issue is not the legality or propriety of entering into the proposed arrangement, but its commercial wisdom.[19] It seems to me that one of the rationales for appointing chartered accountants as receivers and managers is that they can bring commercial experience and judgment to the task at hand, and, as counsel for Mr Brown has submitted, there is insufficient information before the Court for it to evaluate the commercial wisdom of the proposal. I note also that there have been discussions about alternative funding proposals, although these seem to have stalled some months ago.[20]
  1. In all the circumstances I decline to give the direction sought.

Orders

  1. Having received my reasons for judgment, the parties agreed on the following orders –
  1. It is declared that:
  1. no account has been taken by the Special Referee;
  2. no certificate of account has been filed by the Special Referee as required pursuant to r 540(1) of the Uniform Civil Procedure Rules.
  1. That Bruce Pountney Milner be removed as Receiver and Manager of the Company with immediate effect.
  2. That the costs of the Receivers and Managers, and of each of Messrs Brown and Farrell, of and incidental to this proceeding be paid out of the assets of the Company on the indemnity basis as agreed or assessed.
  3. That the Receiver and Manager, or any other interested person, have liberty to apply on the giving of four days written notice to all interested persons.
  4. That costs otherwise be reserved.

Footnotes

[1] Order, 21 May 2001, [6] and [7].

[2] Affidavit of Anthony James Jonsson, filed 28 July 2004, [8].

[3] Affidavit of Anthony James Jonsson, filed 28 July 2004, [9] and [11].

[4] Affidavit of Anthony James Jonsson, filed 28 July 2004, [10], [13] and [14].

[5] Affidavit of Anthony James Jonsson, filed 20 January 2005.

[6] Affidavit of David Leslie Davies-Griffith, filed 16 September 2005, [8], [9], [10], Exhibits DDG7, DDG8 and DDG9.

[7] Affidavit of Anthony James Jonsson, filed 20 January 2005.

[8] See Meehan v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146, 149. 

[9] Transcript of the application, pp 57-58; Butterworths, Court Forms, Precedents and Pleadings, New South Wales [10,040] (“Accounts”).

[10] Affidavit of Gregory Clive Parr, filed 23 April 2007, page 218 of exhibits (letter dated 12 June 2006).

[11] Affidavit of David Leslie Davies-Griffith, filed 10 August 2006, Exhibit DDG38.

[12] See submissions of counsel for Mr Brown, [21]-[24].

[13] Affidavit of David Leslie Davies-Griffith, filed 10 August 2006, [38].

[14] For the form of such a certificate, see Butterworths, Court Forms, Precedents and Pleadings, New South Wales Form 100.55 (“Accounts”).

[15] Affidavit of Anthony James Jonsson, filed 10 November 2006, [8].

[16] Affidavit of Anthony James Jonsson, filed 10 November 2006, [9]-[11].

[17] Affidavit of Anthony James Jonsson, filed 10 November 2006, [12].

[18] Glazier Holdings Pty Ltd v Australian Men’s Health Pty Ltd [1998] NSWSC 144 (Young J); Mariconte v Batiste (2000) 48 NSWLR 724, 737 (Austin J).

[19] See Re IOOF Australia Trustees Ltd [1999] SASC 461 (Debelle J) in the context of a trustee seeking a direction from the Court.

[20] Affidavit of Gregory Clive Parr, filed 23 April 2007, Exhibit GCP-1, pp 232-233.

Close

Editorial Notes

  • Published Case Name:

    Re Cape Tribulation Reef Experiences Pty Ltd

  • Shortened Case Name:

    Re Cape Tribulation Reef Experiences Pty Ltd

  • MNC:

    [2007] QSC 115

  • Court:

    QSC

  • Judge(s):

    Wilson J

  • Date:

    18 May 2007

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd [1998] NSWSC 144
1 citation
Jump To
Cite 1 - [1998] NSWSC 144
IOOF Australia Trustees Ltd [1999] SASC 461
1 citation
Jump To
Cite 1 - [1999] SASC 461
Mariconte v Batiste (2000) 48 NSWLR 724
1 citation
Jump To
Cite 1 - (2000) 48 NSWLR 724
Meehan v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146
1 citation
Jump To
Cite 1 - (2002) 54 NSWLR 146

Cases Citing

Case NameFull CitationFrequency
The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland(2021) 7 QR 794; [2021] QSC 1365 citations
1

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