FEDERAL COURT OF AUSTRALIA

Traianedes in his capacity as Deed Administrator of Mercury Brands Group Pty Ltd (Subject to Deed of Company Arrangement) v Mercury Brands Group Pty Ltd (No 2) [2010] FCA 1140

IN THE MATTER OF MERCURY BRANDS GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

THE COURT DECLARES THAT:

1.         Milfoil Pty Ltd (“Milfoil”) is entitled to $237,029.33 being the amount referred to in paragraph 35(a) of the plaintiff’s affidavit sworn 14 January 2010 plus any interest that has accrued on that amount.

2.         Milfoil is entitled to $35,499.43 being the amount referred to in paragraph 36 of the plaintiff’s affidavit sworn 14 January 2010 plus any interest that has accrued on that amount.

3.         Milfoil is entitled to $22,246.91 being the amount referred to in paragraph 39 of the plaintiff’s affidavit sworn 14 January 2010 plus any interest that has accrued on that amount.

The Court orders that:

1.         Liberty is reserved to the parties to apply by interlocutory process for further relief, whether against a party or any other person, concerning the goods identified in exhibit “ST-7” or the Sale Agreement dated 1 October 2009 exhibited as “ST-3” to the plaintiff’s affidavit sworn 14 January 2010.

2.         The plaintiff’s costs of and incidental to the proceeding to date be expenses in the administration of Mercury Brands Group Pty Ltd’s (“MBG’s”) deed of company arrangement.

3.         Milfoil’s costs of the proceeding to date be costs in the administration of MBG’s deed of company arrangement, such costs to be taxed on an indemnity basis in default of agreement and payable as follows:

(a)the amount that would have been payable if the costs were taxed on a party-party basis, as an expense incurred in the administration of MBG’s deed of company arrangement; and

(b)the balance in accordance with the priority conferred by section 556(1)(dd) of the Corporations Act 2001 (Cth).

4.         The plaintiff’s originating process filed 14 January 2010 is adjournedto a date to be fixed.

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.

IN THE MATTER OF MERCURY BRANDS GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

REASONS FOR JUDGMENT (No 2)

1                                             The deed administrator of Mercury Brands Group Pty Ltd (MBG), Mr Traianedes, sought directions under s 447D of the Corporations Act 2001 (Cth) regarding how he should deal with Milfoil Pty Ltd’s claim for payment to it of the proceeds of the sale of certain garments which had been manufactured in China and sold to MBG’s customers in Australia.  The proceeds (which total $294,775.67) are held in various accounts by the receiver of MBG (Messrs Crosbie and Carson), Australian Horizons Trading Pty Ltd (AHT) (the purchaser of the MBG business) and the deed administrator.  In reasons published on 17 June 2010 (Traianedes in his capacity as Deed Administrator of Mercury Brands Group Pty Ltd (Subject to Deed of Company Arrangement) v Mercury Brands Group Pty Ltd [2010] FCA 583), I found that Milfoil had an interest in those funds, save for any portion which represented the price of garments that had been shipped to Australia prior to 3 July 2009, being the day Milfoil had entered into the agreement under which it obtained an interest in the garments. 

2                                             During the hearing Milfoil contended that a document described as a “Reconciliation Working Paper” recorded the garments which it had acquired, and the funds in issue represented the proceeds of sale of most of those garments.  It was accepted that the reconciliation may have included some (but very few) pre-agreement garments.  I requested the parties to reach agreement on the quantum.  They indicated they would be able to do so.

3                                             On the publication of my reasons, the administrator was directed to bring in draft minutes of orders.  This resulted in another dispute, part of which had commenced when the administrator filed an affidavit the day prior to publication.  The dispute arises because the administrator has carried out further investigations into MBG’s affairs, including what he has described as a “complex reconciliation” of the proceeds of sale presently held by him, the receivers and AHT.  That reconciliation shows, so it is said, that the value of the pre-agreement garments to which Milfoil has no claim is $190,266.91 meaning that Milfoil has a claim to $104,508.76.  This has come as something of a shock to Milfoil, as it understood it would receive almost all of the money in the three accounts with the possibility, after further investigation into what has become of its other garments, of getting even more. 

4                                             The information in the administrator’s further affidavit is not what I envisaged when I asked the parties to agree which of the garments in the reconciliation were pre-agreement garments.  I treat what has happened in this case as an attempt by the administrator to file new evidence on what has become a contested issue.

5                                             In my view, notwithstanding the argument by the plaintiff to the contrary, having regard to the stage the hearing had reached, with the evidence concluded and submissions made, what the plaintiff wishes to do is reopen his case and tender further evidence.  The immediate issue that must be resolved is whether the administrator can rely upon the additional evidence he says will verify the true value of the pre-agreement garments.  If I am persuaded that I should have regard to that evidence (a matter which is hotly contested), Milfoil contends that it is not sufficiently reliable to make good the proposition for which the administrator contends.

6                                             Whether additional evidence should be admitted depends, in part, on the nature of the proceeding which the administrator has instituted.  It is, as I have said, an application for directions under s 447D.  Generally speaking, a power to give directions does not involve making orders that either bind, or affect the rights of, third parties:  Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674.  The principal purpose for giving directions to an administrator is so that he/she can obtain protection from liability in respect of what he/she does in accordance with the direction. 

7                                             It would be contrary to the purpose of such a proceeding to permit an administrator who, in good faith, puts forward all he/she knows to obtain a direction, to take advantage of that direction if, since the hearing, he/she discovers further facts which, had they been before the court, would have led to a different, or no, direction being given.  Logically it follows that if after the hearing but before any direction is given the administrator discovers new facts which may affect the judge’s decision the administrator should bring those facts to the attention of the judge.  At that point the judge could reconsider the matter.

8                                             So far I have been speaking of an ordinary application for directions.  Often, however, proceedings commenced for purposes of obtaining a direction will raise substantive issues.  In that circumstance it is common for the court, provided the necessary parties have been joined, to go on and resolve substantive rights, thus making it unnecessary for the administrator to begin a separate action:  Re G B Nathan at 680.  This is a case where proceedings for directions have been transformed into a suit inter-parties.

9                                             When an application for directions takes on the character of a suit between parties and raises for determination a dispute concerning claimed rights or the commission of alleged wrongs, the application brings with it the usual rules of civil practice and procedure.  According to those rules there are only limited circumstances in which additional evidence can be led in the hope of producing a different outcome. 

10                                          The power to reopen a case is, of course, discretionary.  But the discretion is exercised against the background that there is a public interest in maintaining the finality of litigation:  Wentworth v Woollahra Municipal Council (1982) 149 CLR 672, 684.  Once reasons have been given, the power is not usually exercised:  State Rail Authority of New South Wales v Codelfa Construction Pty Ltd (No 2) (1982) 150 CLR 29, 38-39, 45-48. 

11                                          Broadly speaking, there are four categories of case in which a court might grant leave to reopen:  when there is important fresh evidence available; when there has been some unintended error; where there has been a mistaken apprehension of the facts; and where there has been a mistaken apprehension of the law:  Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22, [24]; McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 89, [45]-[55]. 

12                                          This case falls into the first category.  Here, however, it is usually necessary to show that the new evidence:  (1) was not available at the hearing or could not be discovered with reasonable diligence; and (2) would most probably change the result:  Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435, 444; Telstra Corporation Ltd v Australian Competition and Consumer Commission (2008) 171 FCR 174, [209].

13                                          I think that the administrator fails to satisfy point (2) because even if the evidence was admitted, the administrator would be estopped from relying on it.  My reasons follow.

14                                          In my earlier reasons ([2010] FCA 583) I explained the circumstances in which the Reconciliation Working Paper was produced to identify the garments which allegedly belonged to Milfoil.  At the time, Mr Reynolds, who controls Milfoil, was concerned that the garments which had been imported from China and had been delivered to customers of Mercury Brands Limited (MBL), had not, as had been agreed, been invoiced with a requirement that payment be made to Milfoil.  On the contrary, Mr Reynolds was told that some MBL customers were making direct payment to MBL.  When this was discussed Mr Reynolds said he would go to the police.  He was dissuaded from doing so upon having been provided with the Reconciliation Working Paper and being told that it showed which garments had been purchased by Milfoil.  For this reason Milfoil refrained from taking further action to enforce its rights. 

15                                          At the mention on 10 September 2010 the issue of whether the Reconciliation Working Paper constituted an estoppel by representation was discussed.  It is useful to set out some of the authorities.

16                                          In Discount & Finance Ltd v Gehrig’s NSW Wines Ltd (1940) 40 SR (NSW) 598, 602-603 Jordan CJ described the various categories of estoppel.  One category was estoppel by representation which, he said, “prevents a person who, by a representation of fact, has led another to alter his position, from denying that the fact is as represented”.  In Thompson v Palmer (1933) 49 CLR 507, Dixon J treated estoppel by representation as a species of estoppel by “assumption” from which it would unjust to depart.  Dixon J (at 547 ) said “the object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment”.  He went on to explain the circumstances in which the first person may be required to abide by the assumption.  One was where that person “directly made representations upon which the other party founded the assumption”:  see also Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, 674-676; Legione v Hateley (1983) 152 CLR 406, 430-432; Commonwealth v Verwayen (1990) 170 CLR 394. 

17                                          The representation by MBG, that the Reconciliation Working Paper identified the garments which belonged to Milfoil and to whom those garments had been sold, caused Milfoil to act to its detriment.  It acted to its detriment by not taking further action to protect its interest in the garments it had purchased.  Indeed, this was the very purpose of presenting the Reconciliation Working Paper to Mr Reynolds.

18                                          In these circumstances it is not appropriate to permit the administrator to rely upon new evidence to show that the Reconciliation Working Paper is inaccurate.  MBG could not and cannot contradict the representations it made in that document and the administrator can be in no better position than MBG.

19                                          I will make orders accordingly on the basis that the administrator is estopped from denying the representations. 

Associate:

Dated:  21 October 2010