Couve v J Pierre Couve Ltd (In Liq) [1933] HCA 44; (1933) 49 CLR 486 (21 September 1933)

Couve Respondent, Appellant; and J. Pierre Couve Limited (In Liquidation) and Another Applicants, Respondents.

Upon the hearing of this appeal the appellant complained of so much of the order appealed from as declared that he is accountable for or liable to contribute to the assets of the liquidating Company a sum of £569 12s. 9d. which represents the price or value of goods taken over by him from the Company after the petition was presented and before the winding up order was made.

The appellant was managing director of the Company, of which he and his wife were the only substantial shareholders. He took a first debenture or other security over the assets of the Company, apparently to secure advances in some form or other. Subject thereto, the Company gave a floating charge in favour of a firm called Gutermann & Co. of Baden, Germany, who supplied the Company with goods. The Company's articles of association provided that, while the appellant held the office of managing director, he should be remunerated at the rate of £1,000 per annum. In fact he drew a salary of only £10 or £12 a week. Although the residue of his salary was not credited to him in the books of the Company, nor included among the liabilities in its balance-sheets, a note did appear in the latter stating that against an amount owing by the appellant to the Company there was a contingent liability for balance of salary due which would more than cover his indebtedness. The appellant carried on business in Melbourne and the indebtedness referred to was incurred mainly for supplies of goods to this business. He also had a place of business of some sort in Park Street, Sydney. For some time before April 1931 he was absent in Europe, and upon his return in that month, he appears to have found the Company in difficulties. At any rate, in June 1931 he went into possession of its assets under his first debenture. At the end of the same month he opened business on his own account at a new address in Sydney, in Castlereagh Street. At some time, not exactly fixed, he gave instructions that the balance of his salary should be credited in the books of the Company against his existing liability and against any further supplies of goods. On 7th July 1932, the petition was presented upon which the winding up order was afterwards made and on that date, by virtue of sec. 91 of the Companies Act 1899 of New South Wales, the winding up commenced. Notwithstanding the presentation of the petition, the appellant caused large supplies of the Company's goods to be made to his Sydney and his Melbourne businesses. The goods were charged to him in the Company's books at prices obtained by adding five or ten per cent to the landed cost of the goods. The last of these entries was made under the date 1st September 1932. At the same time probably as this entry was made, the debits were carried over to a salary account and to this account was credited the difference between the amount of salary drawn up to 30th June 1932, and the amount payable under the article of association. The difference was distributed in two amounts between the account for the period before 30th June 1932, which does not concern this appeal, and the account for the period commencing 1st July 1932, which includes the supplies of goods in respect of which the order appealed from was made. A further sum was also credited for his salary to 31st August 1932. A redemption suit was instituted by the liquidator and Gutermann & Co., the second debenture holders, which resulted in the appellant receiving £40 with interest and costs and going out of possession of the assets of the Company, apparently in favour of Gutermann & Co. for whom the respondent Breydon, although official liquidator, seems also to have acted. The assets of the Company will not suffice to meet the sum owing to Gutermann & Co. and secured over the assets by their debenture. There is, therefore, no prospect of any surplus distributable among unsecured creditors.

After an examination of the appellant had been held before the Master in Equity, the official liquidator by a notice of motion framed as a misfeasance proceeding applied for an order for payment by the appellant of various sums including the amount of £569 12s. 9d., which is the subject of this appeal. It was upon this proceeding that the order appealed from was made. The sum of £569 12s. 9d. is the amount debited to the appellant for goods supplied between 7th July, the date when the petition was presented, and 2nd September, the date of the winding up order. Sec. 152 of the Companies Act 1899, so far as material, provides that where a company is being wound up by the Court all dispositions of the property effects and choses in action of such company made between the commencement of the winding up and the order for winding up shall, unless the Court otherwise orders, be void.

It could not be denied that this provision rendered futile the attempt to transfer property in the goods in question to the appellant at a price to be satisfied by setting off the arrears of salary. But the objection was raised that misfeasance proceedings were not a proper remedy. Sec. 162 of the New South Wales Act, which is taken from sec. 165 of the English Act of 1862, authorizes this summary remedy against a director only when it appears that he has misapplied or retained in his own hands or become liable or accountable for any moneys of the Company or been guilty of any misfeasance or breach of trust in relation to the Company. The case is not one of misapplication or retention of moneys or of liability or accountability for moneys of the Company. If the attempted set-off be alone considered void under sec. 152 and the transaction be treated as a sale to the appellant, no doubt he is under a pecuniary liability for the price. But this is a simple contract debt for goods sold and delivered and not "a liability for moneys of the Company." But, in any event, sec. 152 operates to avoid the disposition of the goods and it is not possible to consider the transaction in such a manner. The case is one in which goods have been taken under a title which has been avoided. Accordingly, if the appellant is amenable to misfeasance proceedings in respect of the transactions, it must be under the words "guilty of any misfeasance or breach of trust in relation to the Company." But it is contended on his behalf that these words describe conduct of a character to which the facts of this case do not belong. For this contention reliance is placed upon the considerations, first, that if the petition for winding up had been refused the transaction impeached would have been valid, and, second, that even now it is only invalid under sec. 152 "unless the Court otherwise orders." Lord Macnaghten's description of the nature of misfeasance proceedings is cited from Cavendish Bentinck v. Fenn[1]: "It has also been settled that the misfeasance spoken of in that section is not misfeasance in the abstract, but misfeasance in the nature of a breach of trust resulting in a loss to the company." It must be remembered, however, that this statement is but an allusion to what was laid down by James L.J. in In re Canadian Land Reclaiming and Colonizing Co.; Coventry and Dixon's Case[2] who said:—"I am of opinion also that the word misfeasance in that section means misfeasance in the nature of a breach of trust, that is to say, it refers to something which the officer of such company has done wrongly by misapplying or retaining in his own hands any moneys of the company, or by which the company's property has been wasted, or the company's credit improperly pledged." Here the important qualification is contained in the words introduced by "that is to say." They cover an improper dealing with assets for the director's own advantage. The authorities upon the scope of misfeasance proceedings have recently been collected and examined by Maugham J. in In re Etic, Ltd.[3]. His conclusion is expressed at p. 875 as follows:—"The conclusion at which I have arrived is that sec. 215 (i.e. sec. 162 of the New South Wales Act) is not applicable to all cases in which the company has a right of action against an officer of the company. It is limited to cases where there has been something in the nature of a breach of duty by an officer of the company as such which has caused pecuniary loss to the company. Breach of duty of course would include a misfeasance or a breach of trust in the stricter sense, and the section will apply to a true case of misapplication of money or property of the company, or a case where there has been retention of money or property which the officer was bound to have paid or returned to the company."

The appellant's conduct in the present case appears to come fairly within this language. It must be remembered that the transaction which he conducted was intended to operate to give him an advantage in the event of the winding up order being made. In directing that his undrawn salary should be credited and that goods should be applied against it, he was not providing for the contingency of the petition being dismissed, but for the event of the winding up order being made. He acted with full knowledge that the petition had been presented and that, except under the shelter of the Moratorium, the Company could not carry on. In virtue of his de facto power as director he sought an advantage which the law would not permit and he endeavoured to obtain it by taking over property of the Company which otherwise would be assets for the payments of debts, whether secured, or unsecured, is immaterial. No difficulty was felt in In re Washington Diamond Mining Co.[4] in treating a fraudulent preference as a misfeasance: see per Kay L.J., at p. 115. The conduct of the appellant appears to merit the same description. In the event it amounts to an active breach of duty committed for the director's own benefit in administering the assets of the Company. The fact that at the time it was committed its wrongful character was contingent upon the success of the petition does not seem material inasmuch as it was done to protect the doer against that very event.

A second contention relied upon in support of the appeal is that, as the recovery by the liquidator of the value of the goods can advantage no creditor except Gutermann & Co., who will be entitled to it under their debenture, the liquidator cannot maintain the proceedings in the interest of that secured creditor alone. This does not appear to be an answer which can properly be made on the part of the appellant. His liability to the Company is direct. He has not shown that under the debenture the legal property in the goods in question had vested in Gutermann & Co. so that they, and they alone, were entitled directly to recover them or their value. It was suggested that this was the result of the redemption proceedings, but in the Supreme Court these proceedings were not proved or referred to and in this Court new evidence is not admitted. Counsel were not agreed as to the effect of that suit upon the chattels in dispute, but, if there is any inconsistency between, or duplication in, the rights established in the two proceedings, it will be for the Supreme Court to relieve against the consequences. The argument that, merely because the general body of creditors would get no advantage and the liquidator was actuated by a desire to benefit the secured creditor, the misfeasance proceedings must fail, appears to confound the liabilities of the delinquent to the liquidating Company with the relation between its liquidator and its creditors. The contention is not supported by Ex parte Cooper; In re Zucco[5], which deals only with the latter relation. That case merely held that the liquidator ought not to lend his name to the secured creditor to bring proceedings for his sole advantage. If proceedings had in fact been brought in the name of or by the liquidator, there is nothing in Ex parte Cooper; In re Zucco to suggest that the party proceeded against could raise, as a defence, the question whether the liquidator acted properly in instituting them. In Albert Gregory Ltd. v. C. Niccol Ltd.[6], the opinion that he could not do so was expressed by the Full Court of New South Wales.

The last ground relied upon in support of the appeal is that an error was made in the order appealed from in requiring the appellant to pay the full price of the goods debited to him in the Company's books. The remedy authorized by sec. 162 in such a case as the present is confined to ordering the delinquent to contribute such sums of money to the assets of the Company by way of compensation in respect of the misfeasance as the Court thinks just. It is said that the price so debited affords no true measure of the loss suffered by the Company: non constat that a director obtaining goods against a salary would not take them over at a nominal price greatly in excess of their true value. In the affidavits some evidence appears to the effect that goods similar to some of those in question have been sold by the liquidator at a very much lower price. On the other hand, the depositions of the appellant contain his answers given in a cross-examination directed to show that he had taken over the goods at an undervalue and these answers lend support to the conclusion that the price was unfair to neither party. The question whether an enquiry should be directed as to the proper amount of compensation does not appear to have been distinctly raised in the Supreme Court, and in his judgment Harvey C.J. in Eq. takes it for granted that the correct amount is that entered in the books. The measure of the loss is the value of the goods at the time at latest when the liquidation order was made and I think that the materials before the Supreme Court contain ample evidence that the prices debited were not then excessive. On the whole, the appellant has not established that the order is erroneous in this respect. It is, perhaps, desirable to add that the respondent's counsel assured us that the order appealed from and that made in the redemption suit would not be given an application which would result in the appellant's accounting twice for the goods in question.

I also agree that the appeal should be dismissed with costs for the reasons contained in the judgment of my brother Dixon.

[1] (1887) 12 App. Cas., at p. 669.

[2] (1880) L.R. 14 Ch. D. 660, at p. 670.

[3] (1928) Ch. 861.

[4] (1893) 3 Ch. 95.

[5] (1875) L.R. 10 Ch. 510.

[6] (1916) 16 S.R. (N.S.W.) 214.

High Court of Australia

Couve v J Pierre Couve Ltd (In Liq) [1933] HCA 44; (1933) 49 CLR 486 (21 September 1933)

HIGH COURT OF AUSTRALIA