Re Hall Autotorium Pty Limited (In Liquidation); and Re An Application By the Corporate Affairs Commission Pursuant To Section 542 of the Companies Act 1981 [1986] ACTSC 41 (29 May 1986)

SUPREME COURT OF THE ACT

IN THE MATTER OF HALL AUTOTORIUM PTY. LIMITED (IN LIQUIDATION); AND IN THE
MATTER OF AN APPLICATION BY THE CORPORATE AFFAIRS COMMISSION PURSUANT TO
SECTION 542 OF THE COMPANIES ACT 1981
S.C. No. 1681 of 1983
Company Law

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Gallop J.(1)

CATCHWORDS

Company Law - proceedings against director for breach of duty - order that director pay for loss or damage.

Companies Act 1981, ss.541 and 542.

Re Claridge House Ltd (In Liquidation); Mount v. Tomlinson (1981) 28 SASR 481

HEARING

CANBERRA
29:5:1986

DECISION

By notice of motion dated 1 April 1986 the Corporate Affairs Commission applied to this court pursuant to s.542 of the Companies Act 1981 for certain orders against Mr Peter Wolseley Garrisson, a director of Hall Autotorium Pty Ltd (in liquidation) ("the company") in the following terms:

"1. That Peter Wolseley Garrisson pay to the

liquidator of Hall Autotorium Pty Limited the
following sums of money:-

(a) $21,680.03, being the amount of the judgment
debt obtained by ESSO Australia Ltd against
Hall Autotorium Pty Limited in the Supreme
Court of the Australian Capital Territory;

(b) $3,758.80, being the estimated legal costs of
ESSO Australia Ltd incurred in respect of the
Supreme Court proceedings referred to in (a)
hereof;

(c) $1,802.00, being the amount of unpaid costs
incurred by the liquidator of Hall Autotorium
Pty Limited in and about the liquidation of
the said company.

2. That the said Peter Wolseley Garrisson pay
interest upon each of the amounts ordered to be
paid pursuant to paragraph one hereof at such rate
as the Court thinks fit.

3. That the said Peter Wolseley Garrison pay the
costs of the Corporate Affairs Commission in
respect of his examination pursuant to section 541
of the Companies Act and the costs of the
proceedings pursuant to section 542 of the
Companies Act.

4. Such further or other orders as the Court thinks
fit."

2. By a previous order of this court made on 6 July 1984 it was ordered that Mr Arthur John Dean Garrisson and Mr Peter Wolseley Garrisson be examined pursuant to s.541 of the Companies Act 1981. Their examination commenced on 16 September 1985. Following the examination of Mr Arthur John Dean Garrisson, counsel for the Corporate Affairs Commission informed this court that the Commission would not be seeking any orders against him.

3. Mr Peter Wolseley Garrisson was examined pursuant to s.541 of the Act on 16 and 17 September 1985 and 29 May 1986. The hearing of the motion for orders against Mr Peter Wolseley Garrisson under s.542 of the Act was heard on 29 May 1986 and the transcript of the examinations under s.541 were tendered and admitted in evidence on the hearing of the motion. At the conclusion of the hearing on 29 May 1986 I found that Mr Peter Wolseley Garrisson had been guilty of a breach of trust or breach of duty in relation to the company in the respects alleged in points of claim by the Commission against him and that the company had suffered or was likely to suffer loss or damage as a result of that breach of trust or breach of duty. Accordingly I made an order that he pay to the Liquidator of the company:

(a) an unsatisfied judgment debt in favour of Esso
Australia Limited (Esso) against the company in
the sum of $21,680.03;

(b) the sum of $3,000.00, being a proportion of the
costs of Esso in obtaining the said judgment and
in proceedings to stay and set aside the said
judgement;

(c) the Liquidator's costs in the sum of $1,802.00;
and

(d) a lump sum of $5,000.00 by way of interest
pursuant to s.53A of the Australian Capital
Territory Supreme Court Act 1933.

4. The total amount ordered to be paid was $31,482.03. I also ordered that he pay the Commission's costs of his examination pursuant to s.541 of the Act and the costs of the application for the orders made.

5. At the time of making the orders I gave some short ex tempore reasons and intimated that if either party wanted fuller reasons I would furnish them if required. Counsel for Mr Garrisson thereupon applied for fuller reasons and these are those reasons. In the meantime, Mr Garrisson has appealed against the orders made by notice of appeal dated 18 June 1986. The appeal has not yet come on for hearing.

6. Section 542 of the Companies Act reads:

"542. (1) In this section, a reference to a
prescribed person, in relation to a corporation, shall
be construed as a reference to an official manager,
liquidator or provisional liquidator of the corporation
or to any other person authorized by the Commission to
make applications under this section or to make an
application under this section in relation to that
corporation.

(2) Subject to sub-section (3), where, on
application by the Commission or a prescribed person,
the Court is satisfied that -

(a) a person is guilty of fraud, negligence, default,
breach of trust or breach of duty in relation to a
corporation; and

(b) the corporation has suffered, or is likely to
suffer, loss or damage as a result of the fraud,
negligence, default, breach of trust or breach of
duty,

the Court may make such order or orders as it thinks
appropriate against or in relation to the person
(including either or both of the orders specified in
sub-section (4)) and may so make an order against or in
relation to a person notwithstanding that the person
may have committed an offence in respect of the matter
to which the order relates.

(3) The Court shall not make an order against a
person under sub-section (2) unless the Court has given
the person the opportunity -

(a) to give evidence himself;

(b) to call witnesses to give evidence;

(c) to adduce other evidence in relation to the
matters to which the application relates; and

(d) to employ, at his own expense, a solicitor, or a
solicitor and counsel, to put to him, or to any
other witness, such questions as the Court
considers just for the purpose of enabling him to
explain or qualify any answers or evidence given
by him.

(4) The orders that may be made under sub-section
(2) against a person include -

(a) an order directing the person to pay money or
transfer property to the corporation; and

(b) an order directing the person to pay to the
corporation the amount of the loss or damage.

(5) Nothing in this section prevents any person
from instituting any other proceedings in relation to
matters in respect of which an application may be made
under this section."

7. The company was incorporated in the Australian Capital Territory on 29 April 1968 and Certificate of Incorporation was in evidence (Exhibit 20). The principal business of the company was the operation of a service station at Hall, a small village on the Barton Highway in the Australian Capital Territory.

8. On 16 July 1973 Mr Arthur John Dean Garrisson and Mr Peter Wolseley Garrisson were appointed directors of the company. The appointments are recorded in the minutes of a meeting of directors of the company on 16 July 1973 (Exhibit 3). A return of particulars in the Register of Directors etc. under the A.C.T. Companies Ordinance, s.134(6), evidencing their appointments as directors and a certificate dated 29 May 1986 to that effect under s.238 of the Act in relation to Mr Peter Wolseley Garrisson were in evidence (Exhibits 21 and 27). There was also evidence from Mr Arthur John Dean Garrisson and Mr Peter Wolseley Garrisson of the latter's appointment as a director (pp.20 and 91 of the transcript of 16 September 1985).

9. In 1968 the company became the registered lessee under Crown Lease of premises known as Block 5, Section 2, Hall, in the Australian Capital Territory, upon which a service station and licensed supermarket had been erected. At a meeting of directors on 22 January 1976 the company granted a sub-lease of the premises to Hall Cellars Pty Limited for a period of 10 years to commence on 1 July 1975 at a yearly rental of $15,000.

10. On 16 June 1977 it was resolved that the company would sell its leasehold land and building at Hall to the Estate of the Late Johann Garrisson for the sum of $180,000. That resolution is recorded in the minutes of the meeting of directors held on 16 June 1977 (part of Exhibit 3). By an undated Memorandum of Transfer, the company assigned the premises to Hall Cellars Pty Limited for an expressed consideration of $180,000. The transfer was registered on 27 October 1977. The Memorandum of Transfer of Crown Lease was in evidence (Exhibit 4).

11. As at 30 June 1977 the current assets of the company included an unsecured loan to the Estate of Johann Garrisson, being the Estate of the deceased father of Mr Arthur John Dean Garrisson and Mr Peter Wolseley Garrisson, of $172,945. The balance sheet for the year ended 30 June 1977 lists that unsecured loan as one of the current assets of the company (Exhibit 23). The balance sheet for 30 June 1978 still shows the unsecured loan to the Estate as a current asset but accords no value to the loan. The balance sheet for the year ended 30 June 1978 was in evidence (Exhibit 24).

12. By undated Deed of Release executed by both Messrs Garrisson on behalf of the company and also on behalf of the Estate, the company released the Estate from all liability to repay any amounts owing by the Estate to the company as at 14 June 1978. The Deed of Release which was in evidence (Exhibit 6) is undated and incomplete. It was alleged on behalf of the Commission that Mr Peter Wolseley Garrisson, as a director, owed to the company -

(a) a duty to act honestly and use reasonable
diligence in the discharge of the duties of his
office under s.124(1) of the A.C.T. Companies
Ordinance 1962;

(b) a duty to protect and preserve all the assets of
the company; and

(c) a fiduciary duty.

It was alleged that he was in breach of those duties, particulars whereof were that:

(a) he signed an undated and incomplete Deed of
Release to forgive the debt of $172,945 owing by
the Estate of Johann Garrisson to the company at a
time when he knew or ought to have known that the
company had an outstanding claim or judgment debt
against it in the Supreme Court of the Australian
Capital Territory;

(b) on 13 February 1979 he signed a declaration of
solvency in relation to the company when he knew
or ought to have known that the company had an
outstanding claim or judgment against it in the
Supreme Court of the Australian Capital Territory;
and

(c) since 13 February 1979 the said judgment debt of
$21,680.03 owed to Esso has remained outstanding.

13. I now turn to the set of circumstances giving rise to the judgment debt of $21,680.03 plus costs in favour of Esso against the company.

14. On 9 July 1975 the company entered into a "Retailer's Agreement" with Esso for the sale and delivery by Esso to the company of motor fuels, oils and greases. Pursuant to that agreement Esso supplied those products for the next 12 months or so. On 6 June 1978 Esso, in Action No. SC 704 of 1978 in this court, obtained judgment against the company for an outstanding balance for goods sold and delivered in the sum of $21,680.03 plus costs of $90.

15. On 8 September 1978 this court made an order staying execution on the judgment. On 22 December 1978 Esso instituted further proceedings, by Action No. SC 1831 of 1978, against the company for breach of an agreement made in relation to the previous proceedings. Both actions, Nos. SC 704 of 1978 and 1831 of 1978, were later consolidated by order of this court and on 30 March 1979 it was ordered that the stay of execution in respect of the previous proceedings be terminated. The judgment debt and costs remain unsatisfied.

16. On 13 February 1979 and before the stay of execution on the judgment had been terminated on 30 March 1979, the directors of the company both signed a declaration of solvency under s.257 of the A.C.T. Companies Ordinance declaring that the company had no assets and no liabilities. On 23 March 1979 an extraordinary meeting of the company was purportedly held and the minutes record a resolution that the company be wound up voluntarily and that Mr T. Harding, chartered accountant, be appointed Liquidator for such purpose.

17. By letter dated 13 November 1979 the firm of Messrs Hardwicke, Whigham and Harding reported to the Minister for Corporate Affairs pursuant to s.306(2) of the Companies Ordinance that certain past officers of the company may have been guilty of an offence in relation to the affairs of the company and invited the Minister to investigate the matter. That report initiated the examination of the directors under s.541 of the Act.

18. In his evidence in the s. 541 proceedings Mr Peter Wolseley Garrisson claimed that the company was not indebted to Esso and that any moneys owing to Esso for fuel and other products delivered to the Hall service station were the debts of Hall Cellars Pty Limited. He denied that he had ever acknowledged that the company was in debt to Esso, that it had ever ordered any supplies or received any supplies from Esso. That assertion was inconsistent with the contents of his affidavit of 2 August 1978 filed in Action No. SC 704 of 1978 in respect of the application to this court to set aside the default judgment obtained by Esso against the company on 6 June 1978. Paragraph 4 thereof reads:

"4. DURING the period from July 1975 to August 1976 the
Defendant purchased products from the Plaintiff to the
approximate value of $225,000.00. In or about August
1976 the Defendant ceased purchasing products from the
Plaintiff, and at that time the Plaintiff claimed there
was a balance owing to it by the Defendant of
$23,680.03. The Defendant claims to be entitled to
rebates and credits amounting to $3,840.45 as follows:

(1) Rebate unpaid for July 1975 1,227.26

(2) Credit for short deliveries by the
Plaintiff 1,232.64

(3) Items incorrectly debited to the
Defendant (presumably accounting
errors by the Plaintiff) 1,020.55

(4) Rebate on 09326 on August 1976
statement (debit in error) 360.00

$3,840.45

Making due allowance for the credits and rebates to
which the Defendant claims to be entitled, the
Defendant admitted at that time an indebtedness to the
Plaintiff in the sum of $19,839.58."

The defendant referred to therein is the company.

19. He also claimed in his evidence that he had paid an amount of $20,000 to Esso "in full satisfaction of the debt owed by the defendant". He claimed that payment had been made in the manner deposed to in the same affidavit in paragraphs 5 and 6, which were in the following terms:

"5. ON the 30th day of June 1977, on behalf of the
Defendant, I agreed with Mr. Geoffrey Ronald Wilson,
the Southern Area Manager of the Plaintiff, that the
Defendant would pay the sum of $20,000.00 in full
satisfaction of the debt owed by the Defendant to the
Plaintiff. Payment of the said sum of $20,000.00 was
to be made by an immediate payment of $2,000.00 by a
bank cheque drawn by the C.B.C. Bank at 16 Petrie
Street, Canberra and 45 promissory notes each for the
sum of $400.00 to be presented at monthly intervals. I
arranged for the said Geoffrey Ronald Wilson to meet me
at the C.B.C. Bank at 16 Petrie Street, at 12 noon on
that day, and at that time delivered to the said
Geoffrey Ronald Wilson a bank cheque for the sum of
$2,000.00 and the 45 promissory notes which were
accepted by the said Geoffrey Ronald Wilson on behalf
of the Plaintiff.

6. SUBSEQUENT to this agreement, although the
Plaintiff retained the said bank cheque for $2,000.00
paid to it on the 30th day of June 1977, I received a
letter dated the 6th of July 1977 from the said
Geoffrey Ronald Wilson which purported to repudiate the
agreement reached on the 30th day of June 1977."

It is clear on the evidence, however, that the promissory notes referred to were never presented by Esso and paid. On 8 September 1978 Mr Garrisson executed a deed on behalf of the company to settle the Esso debt.

20. I was also satisfied on the evidence that not only was the original retailer's agreement one between Esso and the company but all invoices and statements of account were sent by Esso to the company and not to Hall Cellars Pty Limited. However, Hall Cellars Pty Limited paid the accounts. On those facts I concluded that Mr Garrisson at all relevant times knew that Esso was claiming that the company was indebted to it in the sum of $21,680.03 and that by signing an undated and incomplete Deed of Release forgiving the debt of $172,945 owing to the company by the Estate of Johann Garrisson, he deprived the company of its only asset and placed the company in a position whereby the judgment debt entered against it could not be satisfied by the company, because it had no assets. I was satisfied that whether he believed that the judgment debt was owing by the company or not, he was in breach of his obligations to the company in releasing a debt owing to the company when the judgment in favour of Esso remained outstanding. Of course, the evidence does not clearly establish precisely when the debt was allegedly forgiven, but in my view the evidence was sufficiently clear to establish that at least Esso was claiming a sizeable debt from the company when the release was granted to the Estate.

21. At the conclusion of the hearing of the application under s. 542, counsel for Mr Garrisson did not choose to address on the facts proved in evidence. He conceded that Mr Garrisson had been given the opportunity to give evidence himself, to call witnesses to give evidence and to adduce other evidence in relation to the matters to which the application related. In other words, he conceded that the terms of s. 542(3) had been complied with.

22. He raised certain technical matters; first, that upon termination of the s. 541 proceedings new proceedings needed to be instituted by summons in order to initiate s. 542 proceedings. Counsel for the Commission responded to that submission to the effect that it was not necessary to start an application under s. 542 afresh and that the submission was really procedural. Admittedly the application under s. 542 was made by way of notice of motion and should have been by way of summons (0.75A, r.5(1)).

23. I took the view that it was appropriate to waive any non-compliance with the Rules under 0.69 as no prejudice to Mr Garrisson had been shown.

24. It was next contended by counsel on behalf of Mr Garrisson that an application pursuant to s. 542(2) is an action on a cause of action within the meaning of s. 11(1) of the Limitations Ordinance 1983 (A.C.T.). It was submitted that as most of the matters in issue occurred at a time more than 6 years prior to the filing of the notice of motion on 1 April 1986, the proceedings by the Commission were statute barred.

25. A submission in similar terms was rejected by the Full Court of the Supreme Court of South Australia in Re Claridge House Ltd (In Liquidation); Mount v. Tomlinson (1981) 28 SASR 481. In addressing the question whether the plaintiff's application pursuant to s. 367 of the Companies Act 1962-80, which is in similar terms to s. 542 of the Companies Act 1981 (Cth), would be barred because of s. 37 of Limitations of Actions Act 1936 (S.A.), Williams J. held (at p 484) that:

". . . the plaintiff's application would be barred if
s. 367b in its present form deals with substantive law
and creates the right to take action for penalties,
damages or sums of money. Therefore the first question
to be decided is whether s. 367b in its present form is
procedural or lays down substantive law. There is no
doubt, in my opinion, that s. 367b in its 1972 form was
procedural: see par.1196 of vol.7 of the 4th edition
of Halsbury's Laws of England, where it is said of a
s. 333 of English Companies Act, 1948 which was in
similar terms: 'The foregoing provision does not
create any new liability or new right; it only provides
a summary mode of enforcing rights, including rights
created by the winding up, which must otherwise have
been enforced by the Court's ordinary jurisdiction'."

26. Williams J. held (at p 488) that as s. 367b did not create new remedies, the Limitation of Actions Act did not apply to the plaintiff's application. I respectfully adopt the conclusion of his Honour. Accordingly I held that the Limitations Ordinance did not apply to bar the Corporate Affairs Commission's application pursuant to s. 542.