FEDERAL COURT OF AUSTRALIA

Huntley Management Limited v Timbercorp Securities Limited (No 2)

[2010] FCA 623

THE COURT DECLARES THAT:

1.         From the time the First Plaintiff was recorded in ASIC's record of registration under section 601FJ(1) of the Corporations Act 2001 (Act) the following agreements to which the First Defendant is a party in relation to the 2005 Timbercorp Mango Project ARSN 113 969 216 (2005 Project), have effect as if the First Plaintiff were a party in lieu of the First Defendant and the rights, obligations and liabilities of the First Defendant under those documents became the rights, obligations and liabilities of the First Plaintiff, with the exception of the First Defendant’s rights referred to in ss 601FS(2) and 601FT(2) of the Act:

1.1       each of the following licence agreements entered into by each Grower in the 2005 Project with the First Defendant and a related entity of the First Defendant, Mango Land Pty Ltd (In Liquidation) (Mango Land):

(a)        Orchard 1 Licence Agreement [Orchard 1 (Ooloo) – Term 1];

(b)        Orchard 1 Licence Agreement No. 2 [Orchard 1 (Ooloo) – Term 2];

(c)        Orchard 2 Licence Agreement [Orchard 2 (Mataranka) – Term 1];

(d)        Orchard 2 Licence Agreement [Orchard 2 (Mataranka) – Term 2];

(e)        Orchard 3 Licence Agreement [Orchard 3 (Dimbulah) – Term 1];

(f)         Orchard 3 Licence Agreement [Orchard 3 (Dimbulah) – Term 2],

referred to in Fourth Schedule of the Constitution for the 2005 Project (2005 Project Licence Agreements);

1.2       each agreement titled "Mangolot Management Agreement" (2005 Project Mangolot Management Agreement) referred to in the Third Schedule of the Constitution for the 2005 Project entered into by each Grower in the 2005 Project with the First Defendant;

1.3       each agreement titled "Grower PBR Sub-Licence & Marketing Deed" referred to in Second Schedule of the Constitution for the 2005 Project (2005 Project Grower PBR Sub-Licence & Marketing Deed) entered into by each Grower in the 2005 Project with the First Defendant and a related entity of the first Defendant, Mangocorp Management Pty Ltd ACN 111 279 004 (Mangocorp).

1.4       Lease No. 580559 between Mango Land and the First Defendant commencing 18 May 2005 of the land located in the Northern Territory and more particularly described as Volume 682 Folio 154  (Ooloo Lease);

1.5       Lease No 580561 between Mango Land and the First Defendant commencing 18 May 2005 of the land located in the Northern Territory and more particularly described as Volume 686 Folio 100 (Mataranka No. 1 Lease);

1.6       Lease No. 709469088  between Mango Land and the First Defendant commencing 8 June 2005 of the land located in Queensland and more particularly described as Lot 107 on RP 749635, title reference 21430136 and Lot 109 on HG 518, title reference 505480502 (Dimbulah Lease 1);

1.7       Lease No. 709469088 between Mango Land and the First Defendant commencing on 1 June 2006 of the land located in Queensland and more particularly described as Lot 109 on SP 171866 title reference 50591781 as amended by an Amendment No, 709983475 (Dimbulah Lease 2);

1.8       Lease No. 709469090 between Mango Land and the First Defendant commencing on 1 June 2006 of the land located in Queensland and more particularly described as Lot 193 on SP 171866 title reference 50591784 as amended by an Amendment No, 709983473 (Dimbulah Lease 3);

2.         From the time the First Plaintiff was recorded in ASIC's record of registration under section 601FJ(1) of the Act the following agreements to which the First Defendant is a party in relation to the 2006 Timbercorp Mango Project ARSN 119 526 377 (2006 Project), have effect as if the First Plaintiff was a party in lieu of the First Defendant and the rights, obligations and liabilities of the First Defendant under those documents became the rights, obligations and liabilities of the First Plaintiff, with the exception of the First Defendant’s rights referred to in ss 601FS(2) and 601FT(2) of the Act:

2.1       each of the following licence agreements entered into by each Grower in the 2006 Project with the First Defendant and a related entity of the First Defendant, Mango Land:

(a)        Orchard 1 Licence Agreement [Orchard 1 (Dimbulah) – Term 1];

(b)        Orchard 1 Licence Agreement No. 2 [Orchard 1(Dimbulah) – Term 2];

(c)        Orchard 2 Licence Agreement [Orchard 2 (Mataranka) – Term 1];

(d)        Orchard 2 Licence Agreement [Orchard 2 (Mataranka) – Term 2];

(e)        Orchard 3 Licence Agreement [Orchard 3 (Katherine) – Term 1]; and

(f)         Orchard 3 Licence Agreement [Orchard 3 (Katherine)  – Term 2],

referred to in Fourth Schedule of the Constitution for the 2006 Project (2006 Project Licence Agreements);

2.2       each agreement titled "Mangolot Management Agreement" (2006 Project Mangolot Management Agreement) referred to in the Third Schedule of the Constitution for the 2006 Project entered into by each Grower in the 2006 Project with the First Defendant;

2.3       each agreement titled "Grower PBR Sub-Licence & Marketing Deed" referred to in Second Schedule of the Constitution for the 2006  Project (2006 Project Grower PBR Sub-Licence & Marketing Deed) entered into by each Grower in the 2006 Project with the First Defendant and a related entity of the first Defendant, Mangocorp;

2.4       Lease No 617291 between Mango Land and the First Defendant of the land located in the Northern Territory and more particularly described as Volume 687 Folio 196 (Mataranka No. 2 Lease);

2.5       Lease No 611750 between Mango Land and the First Defendant of land located in the Northern Territory and more particularly described as Volume 697 Folio 512 (Katherine Lease);

2.6       the Dimbulah Lease 2; and

2.7       the Dimbulah Lease 3.

3.         The First Plaintiff was, from the time the First Plaintiff was recorded in ASIC's record of registration under section 601FJ(1) of the Act to the time that the Second Plaintiff was recorded in ASIC's record of registration under section 601FJ(1) of the Act, a party to the following agreements to which the First Defendant was a party in relation to the 2007 Timbercorp Avocado & Fruit Project ARSN 124 932 510 (2007 Avocado & Fruit Project):

3.1       each of the following licence agreements between the Growers, the First Defendant, Timbercorp and OIM#6 Pty Ltd ACN 121 948 963 (In Liquidation) as trustee for the Timbercorp Orchard Trust (OIM) in the form in Schedule 3 of the Constitution for the 2007 Avocado & Fruit Project:

(a)        Promised Land Lot Licence Agreement [Promised Land Lots – Term 1];

(b)        Promised Land Lot (Subsequent) Licence Agreement [Promised Land Lots – Term 2]; and

(c)        Promised Land Lot (Second Subsequent) Licence Agreement [Promised Land Lots – Term 3] (Promised Land Licence Agreements);

3.2       each agreement titled "Lot Management Agreement" (2007 Avocado & Fruit Project Lot Management Agreement) referred to in the Second Schedule of the First Supplemental Deed to the Constitution for the 2007 Avocado & Fruit Project entered into between the Growers and the First Defendant;

3.3       each agreement titled "Grower PBR Sub-Licence & Marketing Deed" referred to in Second Schedule of the 2007 Avocado & Fruit Project Constitution (2007 Avocado & Fruit Project Grower PBR Sub-Licence & Marketing Deed) entered into by the Growers with the First Defendant and Mangocorp.

3.4       sub-lease No. 710655991 between the First Defendant and Timbercorp Limited (In Liquidation) (Promised Land Sub-Lease);

3.5       sub-lease No. 710656072 between the First Defendant and Timbercorp Limited (In Liquidation) (Promised Land First Water Allocation Sublease); and

3.6       sub-lease No. 710854525 between the First Defendant and Timbercorp Limited (In Liquidation) (Promised Land Second Water Allocation Sublease) (2007 Avocado & Fruit Project Documents),

and that from the time the Second Plaintiff was recorded in ASIC's record of registration under section 601FJ(1) of the Act the 2007 Avocado & Fruit Project Documents to which the First Defendant had been and the First Plaintiff was a party have effect as if the Second Plaintiff was a party in lieu of each of the First Defendant and the First Plaintiff respectively, and the rights, obligations and liabilities of each of the First Defendant and the First Plaintiff respectively under the 2007 Avocado & Fruit Project Documents became the rights, obligations and liabilities of the Second Plaintiff, with the exception of each of the First Defendant’s and the First Plaintiff's respective rights referred to in ss 601FS(2) and 601FT(2) of the Act.  

4.         From the time the First Plaintiff was recorded in ASIC's record of registration under section 601FJ(1) of the Act, the First Plaintiff is entitled, pursuant to section 601FR of the Act, to all books in the First Defendant's possession or control that the Act requires to be kept in relation to the 2005 Project.

5.         From the time the First Plaintiff was recorded in ASIC's record of registration under section 601FJ(1) of the Act, the First Plaintiff is entitled, pursuant to section 601FR of the Act, to all books in the First Defendant's possession or control that the Act requires to be kept in relation to the 2006 Project.

6.         From the time the Second Plaintiff was recorded in ASIC's record of registration under section 601FJ(1) of the Act, the Second Plaintiff is entitled, pursuant to section 601FR of the Act, to all books in the First Defendant's possession or control that the Act requires to be kept in relation to the 2007 Avocado & Fruit Project.

THE COURT ORDERS THAT:

7.         The First Defendant and/or the Second Defendant on behalf of the First Defendant execute or cause to be executed all such documents necessary to effect a novation of the rights, obligations and liabilities arising under:

7.1       the 2005 Project Licence Agreements;

7.2       the 2005 Project Mangolot Management Agreements;

7.3       the 2005 Project Grower PBR Sub-Licence & Marketing Deeds;

7.4       the Ooloo Lease;

7.5       the Mataranka No. 1 Lease;

7.6       the Dimbulah Lease 1.

7.7       the Dimbulah Lease 2;

7.8       the Dimbulah Lease 3,

from the First Defendant to the First Plaintiff within 14 days of a request by the First Plaintiff to execute such documents.

8.         The First Defendant and/or the Second Defendant on behalf of the First Defendant execute or cause to be executed all such documents necessary to effect a novation of the rights, obligations and liabilities arising under:

8.1       the 2006 Project Licence Agreements;

8.2       the 2006 Project Mangolot Management Agreements;

8.3       the 2006 Project Grower PBR Sub-Licence & Marketing Deeds;

8.4       the Mataranka No. 2 Lease; and

8.5       the Katherine Lease,

from the First Defendant to the First Plaintiff within 14 days of a request by the First Plaintiff to execute such documents.

9.         The defendants pay the plaintiffs’ costs provided that the liability of the second defendants be limited to the amount of the assets of the first defendant available to indemnify them for the purpose of paying such costs.

10.       Any party has liberty to apply on 7 days notice. 

THE COURT NOTES THAT:

11.       In relation to the 2007 Avocado & Fruit Project, the Second Defendant or the Second Defendant on behalf of the First Defendant by their counsel, undertakes to the Court to execute or cause to be executed all such documents necessary to effect a novation of the rights, obligations and liabilities arising under:

11.1     the Promised Land Licence Agreements;

11.2     the 2007 Avocado & Fruit Project Lot Management Agreements;

11.3     the 2007 Avocado & Fruit Project Grower PBR Sub-Licence & Marketing Deeds;

11.4     the Promised Land Sub-Lease;

11.5     the Promised Land First Water Allocation Sublease; and

11.6     the Promised Land Second Water Allocation Sublease,

from the First Defendant to the Second Plaintiff within 14 days of a request by the Second Plaintiff to execute such documents. 

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1                     The parties have agreed on the substantive orders, except in respect of costs, to give effect to my reasons given on 8 June 2010:  Huntley Management Ltd v Timbercorp Securities Ltd [2010] FCA 576.

2                     On 17 July 2009 Arnold Bloch Liebler, the solicitors for Timbercorp and its liquidators, wrote to Piper Alderman, the solicitors for Huntley, saying that the liquidators would need to obtain a direction from the Court to enter into documents that had been drafted assigning Timbercorp’s rights under the various documents that I referred to in Huntley [2010] FCA 576 at [70].  By late November 2009, Arnold Bloch had raised with Piper Alderman the issue of the effect of Timbercorp having entered into those documents “in its personal capacity”.  They invited Huntley to apply to the Court for appropriate relief.  Later, in their letter of 13 January 2010, Arnold Bloch Liebler identified the documents in which their clients asserted Timbercorp had interests “in its personal capacity”.  The letter stated that their clients could not determine whether documents in that class had:

 “… been statutorily novated.  Our clients reasoning, as set out in previous correspondence, is primarily that whilst our client views these documents as being in relation to the Schemes, the position is not definitive and as liquidators of TSL they cannot make concessions which may adversely affect creditors without the Court’s imprimatur.”  (emphasis added)

3                     However, neither Timbercorp nor the liquidators applied to the Court for directions under the Corporations Act 2001 (Cth) as to what to do on the change of Timbercorp’s status after Huntley had become responsible entity of the three schemes in its stead.

Timbercorp’s and the Liquidators’ Submissions

4                     In their written submissions, Timbercorp and the liquidators argued that their position, both before and after Huntley commenced these proceedings, was “essentially as contradictor”.  They argued that the proceedings were in substance an application for judicial advice in relation to the administration of the schemes that were, themselves, effectively trusts.  Accordingly, they contended that the costs should be borne by the schemes’ property, as in the case of costs incurred for the benefit of a trust.  Alternatively, Timbercorp and the liquidators argued that there should be no order as to costs since they had assumed a facilitative position in the litigation.  They pointed to Huntley’s position having evolved over time as to the documents it sought be novated in its favour.  Last, they argued that only Timbercorp should be ordered to pay any costs.  Timbercorp and the liquidators argued that the principles stated by Hodgson JA in Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385 at 394 [52]-[53] were applicable and should be given effect by an order that only Timbercorp, as a company in liquidation, pay the costs.

Consideration

5                     Timbercorp and the liquidators unsuccessfully advanced a case that asserted that Timbercorp retained all entitlements that were expressed to be those “in its personal capacity” under the various documents the subject of the proceedings.  As I found, Timbercorp had contended that one way of overcoming the difficulty that this created for the operation of the schemes in relation to the leases, was for Huntley to purchase the leasehold interests from Timbercorp:  Huntley [2010] FCA576 at [65].

6                     I am of opinion that Timbercorp and the liquidator asserted a position to benefit Timbercorp’s general creditors at the expense of the three schemes of which it had been the responsible entity.  They did not seek to benefit the estates of the schemes.  Their arguments forced Huntley, and later Food and Beverage, to bring these proceedings to establish that ss 601FS and 601FT operated as I found.

7                     Timbercorp and the liquidators appreciated that their arguments were contrary to the interests of schemes.  They engaged in the litigation as adversaries of the new registered entity of the schemes.  The liquidators could, indeed should, have sought directions from the Court as to Timbercorp’s position having regard to the potential conflict in its interest that they were advancing and its fiduciary duty as the former registered entity of the three schemes.  The entitlements expressed in the various disputed documents as those of Timbercorp “in its personal capacity” clearly were arguably scheme property.

8                     The Court has a general and unfettered discretion as to costs under s 43(2) of the Federal Court of Australia Act 1976 (Cth): see Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 at 42-44 [45]-[50] where I discussed the principles under that section with the agreement of Finn J and Besanko J at 32 [1] and 51 [82].

9                     Timbercorp failed to obtain the result it contended for in the proceedings.  The plaintiffs were wholly successful against it and they are entitled to an order that their costs be paid by Timbercorp.

10                  The position of liquidators is more problematic.  They too were substantively unsuccessful.  They had invited their own joinder by the early correspondence suggesting that they would require the Court’s imprimatur if they were to give effect to the novation of rights, obligations and liabilities that I held occurred on the change of responsible entities. 

11                  Hodgson JA, with whom Ipp JA agreed at 399 [86] as did Basten JA, with a presently immaterial qualification, at 399 [87] said in Silvia 25 ACLC at 394 [51]-[54]:

“51.      The liquidator would generally be entitled to an indemnity from the assets of the company, although that may be denied if the liquidator has acted unreasonably: In Re Silver Valley Mines (1882) 21 Ch.D. 381.

52.       If proceedings brought against the liquidator are successful, generally a costs order will be made in such a way that the liquidator does not incur any personal liability. This is in accordance with the passage from Re Wilson Lovatt quoted above, and is supported by Re Bonang Gold Mining Co. Limited (1893) 14 NSWLR (Equity) 262, Re Beuna Vista Motors Pty. Limited (In Liquidation) [1971] 1 NSWLR 72, Irons v. Merchant Capital Limited (1994) 116 FLR 204 at 209–10, and Kirwan v. Cresvale Far East Limited (In Liquidation) [2002] NSWCA 395, (2002) 44 ACSR 21. I generally agree with the discussion of the authorities by White J in Mendarma Pty. Limited (In Liquidation) (No.2) [2007] NSWSC 99 at [13]–[34].

53.       The result indicated by those authorities may be achieved by ordering that the company in liquidation pay the costs (if the company is also a defendant), or by ordering that the liquidator’s liability for costs be limited to the amount of assets of the company available for that purpose.

54.       However, if the liquidator has acted unreasonably in defending the litigation, the liquidator may be made personally liable: In Re Beddoe [1893] 1 Ch. 547; Mead v. Watson; Re Network Welding Pty. Limited (In Liquidation) (No.2) [2001] NSWSC 809.”

12                  There is no suggestion that the liquidators acted unreasonably.  However, had they brought proceedings for directions they would have been liable for costs limited to the amount of Timbercorp’s assets available for that purpose and entitled to indemnify themselves to meet a costs order in that way:  Silvia 25 ACLC at 394 [54].  I am of opinion that in the circumstances of this case I should make a similar order that the liquidators pay the plaintiffs costs on that basis.

Associate:

Dated:         17 June 2010