Bishop Shipping Services Pty Ltd v The Motor Vessel 'Pedro' [1980] PGLawRp 601; [1980] PNGLR 263 (3 October 1980)

Papua New Guinea Law Reports - 1980

[1980] PNGLR 263 - Bishop Shipping Services Pty Ltd v The Motor Vessel "Pedro" 

[1980] PNGLR 263

N271(L)

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

BISHOP SHIPPING SERVICES PTY. LTD.

V

THE M.V. “PEDRO” (NO. 2)

Waigani

Pratt J

26 September 1980

3 October 1980

COMPANIES - Receivers - Rights of - Subsequent winding up - Right to maintain existing litigation - Proceedings to recover assets under security appointing receiver.

The position, authority and rights of the receiver of a company are not automatically terminated by a subsequent winding up of the company.

Gough’s Garages Ltd. v. Pugsley [1930] 1 K.B. 615 at p. 621; and

Sowman v. David Samuel Trust Ltd. [1978] 1 All E.R. 616 referred to.

Accordingly, the receiver of a company under a deed of mortgage has the right to continue in the name of the company, proceedings for recovery of debts to preserve its assets under the security, after an order for the winding up of the company has been made.

Semble

A provision in a deed appointing the receiver of a company and permitting the receiver to “exercise all the powers of the company and/or its governing body” is in the absence of a specific power, wide enough to confer a power or authority to maintain existing litigation.

Notices of Motion

This was the hearing of two notices of motion in an action in which the plaintiff claimed for goods supplied and the defendant counterclaimed for, inter alia, charter fees. The history of the matter is set out fully in the earlier proceedings infra at p. 247. In the motions determined here, the defendant sought an order that the receiver of the plaintiff company was not a person capable of continuing the action and the plaintiff company sought an order for security for costs against the defendant ship.

Editorial Note:

See infra p. 247.

Counsel

T. Glen, for the plaintiff company.

M. White, for the defendant.

Cur. adv. vult.

3 October 1980

PRATT J: On the last motion day I again heard submissions on two notices of motion, one filed by the plaintiff which I dealt with first, and the second filed by the defendant. As the outcome of the defendant’s notice of motion could have a more significant effect on the continuation of the proceedings, I will deal with that matter first.

The defendant applies, inter alia, for the following orders:

N2>1.       That the receiver of the plaintiff herein is not a person capable of conducting this action.

N2>2.       That the plaintiff’s claim be struck out.

In argument, Mr. M. White for the defendant/applicant, amended point 2 and more correctly asked for a stay unless and until the proceedings are adopted by the liquidator.

The only facts which I need add to those outlined in my earlier judgment of 10th September, 1980, is that in addition to a liquidator being appointed to the plaintiff company, the plaintiff had earlier gone into receivership but at a time subsequent to the initiation of the present writ. In support of the application, counsel referred to an affidavit by the liquidator to the effect that he had at no time given his consent “to the propagation of this action”. Annexed to that affidavit is a statement of affairs compiled by the receiver and manager, Ian John Conway, dated in June 1979 and showing an excess of nearly K1,000,000 of liabilities over assets. The receiver was appointed under a deed of mortgage dated 25th August, 1976, and exhibited to the affidavit of Brian Dennis White. By definition in the schedule to the mortgage, the term “receiver” is to include “receiver and manager” and the power to appoint any person or persons as a receiver “includes a power to appoint any person ... as a receiver and manager ...” It is important to bear in mind that the receivership relates to the property covered in the mortgage document and that it is that property only with which the receiver is concerned. The liquidator, whilst bearing an overall responsibility to the whole of the company, cannot interfere with the rights of the debenture holders, or the receiver forsake or brook interference with his duties and obligations under the debenture to such holders. To quote from another context, “it seems to me that to deprive the debenture holders of a right under the part of the debenture that I have mentioned, to realise a valuable right of the company, because the company has gone into liquidation, is to nullify one of the valuable rights given to the receiver by the debenture”. (Gough’s Garages Ltd. v. Pugsley [cdii]¹.) I adopt McPherson’s assessment of the ratio of that case at p. 177 of his Law of Company Liquidation (2nd ed., 1980); “it was held that the right to take proceedings in the name of the company to preserve its assets was part of the debenture-holder’s security which was not terminated by winding up”. The learned author does point out that the “effect of liquidation whether compulsory or voluntary is to revoke the authority of the receiver to carry on the business as agent of the company and with it his power to bind the company”.

Counsel for the defendant/applicant drew my attention to Sowman v. David Samuel Trust Ltd. [cdiii]². In that case a receiver had been appointed under a debenture and subsequently the company became the subject of a petition for winding up. The receiver continued to realize the assets of the company covered by the mortgage but as certain doubts arose as to whether or not he could validly continue to exercise those powers after the start of the winding up, application was made to the court by the receiver. During his judgment, Goulding J. cites part of the judgment of Romer L.J. in Gough’s Garages Ltd. v. Pugsley[cdiv]³ as follows:

“It is perfectly true (and it has been laid down over and over again) that where, as happened in this case, the debenture or trust deed securing the debentures contains the usual clause, that the receiver appointed under the deed shall be deemed to be the agent of the company, that the winding up of the company, or the compulsory liquidation of the company puts an end to the agency. But it does not put an end in any way to the powers of the receiver. In my opinion, when this liquidation order was made, the right of the receiver to proceed in the name of the company in the County Court was in no wise affected.”

His Honour also examines several other authorities and concludes[cdv]⁴:

“Winding up deprives the receiver, under such a debenture as that now in suit, of power to bind the company personally by acting as its agent. It does not in the least affect his powers to hold and dispose of the company’s property comprised in the debenture, including his power to use the company’s name for that purpose, for such powers are given by the disposition of the company’s property which it made (in equity) by the debenture itself. That disposition is binding on the company and those claiming through it, as well in liquidation as before liquidation ...”

I do not think that the law as stated above has been in any way affected or distinguished by Street C.J. in Re G. C. Distributors Pty. Ltd. (In Liq.) and The Companies Act[cdvi]⁵, for in that matter his Honour was dealing with problems which emerged between the liquidator and an official manager. With respect to the submissions placed before me by learned counsel for the defendant/applicant, I do not consider that the two positions can be equated. I can see no justification for equating the position of official manager with that of a receiver appointed under a deed of mortgage, and consequently the fact that the position of official manager is terminated by the appointment of a liquidator has no bearing on the problem presented before me. It is very often the case of course that where a liquidator is appointed, he is also appointed as receiver/manager of the company but this is not always so. As Yorston and Brown point out at p. 483 of their Company Law (3rd ed., 1968), the practice of appointing a receiver to be the liquidator as well, may on occasions be objected to by the unsecured creditors. In Kerr On Receivers (14th ed., 1972), p. 107, we find the following:

“A receiver who has been appointed before the commencement of the winding up of a company is not displaced by the appointment of a liquidator ... Where debenture holders have a right under their security to appoint a receiver, a winding up order coupled with the appointment of a liquidator does not interfere with this right, though it may prevent the receiver from doing various things which he was authorised to do by the debenture deed, for instance, carrying on the business or making a call ... But where, under the terms of their security, the debenture holders have a right to appoint their own receiver, and they come to the Court insisting on their right, they are entitled to an order giving their receiver liberty to take possession. In such a case the Court has no discretion.”

It seems clear to me therefore that merely because a company goes into liquidation, that does not carry with it a termination of the position or authority of a person who is acting as a receiver at the time of the liquidation order. I do not think there is anything in terms of s. 236(1)(a) or s. 245(1) of the Companies Act 1963 referred to by learned counsel which affects in any way the general state of the law. Section 236 merely sets out the powers of the liquidator but I am unable to find anything in that section which would warrant a deprivation of rights and obligations in a receiver in favour of a liquidator. The section simply does not deal with the type of situation which has arisen before me. Section 245 certainly gives a court power to order a receiver to transfer to the liquidator but as the section itself says, that is only such property etc. “to which the company is prima facie entitled”. I do not think it can be said that the company is in any way entitled to the property covered by the mortgage. It is of course that property with which the receiver is concerned.

I therefore rule against learned counsel’s submission that in this case the appointment of a liquidator has terminated the powers of the receiver.

I now turn to the first major submission by counsel, namely that whatever powers are exercised by a receiver, they must be restricted to such powers as are specified in the document appointing him. With that basic proposition of course, there can be no quarrel and I certainly do not understand Mr. Glen for the plaintiff/respondent in this notice of motion to submit to the contrary. The main disagreement arises from differing interpretations placed by both counsel on the deed of mortgage and the schedule thereto. Mr. White submitted that nowhere in the document was there a specific power given to the receiver to institute or maintain court proceedings for the purpose of getting in the assets of the company covered by the debenture. Again I do not think there was any serious contention that the subject of this particular cause of action did not amount to a book debt. The proceedings had originally been instituted to obtain a judgment against the defendant for goods and services supplied. The applicant maintained that the provisions comprising the deed and schedule permitted nothing other than merely a collecting of the assets of the company in a non-litigious way. The respondent however, drew attention to par. 1 of the deed which says inter alia: “The company hereby charges the undertaking of the company and all the assets of the company ... including present and future book debts of the company”; and pointed also to par. 8(b) of the schedule as one which furnished a broad basis for the receiver’s actions and particularly a basis for engaging in litigation. That clause says in part as follows:

“Unless otherwise directed by the mortgagee, the receiver may ... exercise all the powers and authorities vested in the mortgagee by clauses 5 etc. (and these are listed) ... and without limiting the foregoing the receiver may exercise all the powers of the company and/or its governing body including:”

Amongst the matters then listed, there is no provision for the institution of legal proceedings. However, it is the contention of the respondent/ plaintiff that as the company itself would have power to sue in order to recover debts, then likewise the receiver has a similar power.

It is perhaps rather surprising that the power or authority to maintain existing litigation or indeed to institute proceedings in order to recover debts owing to the company is not included in this particular clause, and I would be inclined to agree that such a power should be read into the general words and not be cut down by the specific matters mentioned in the remainder of the paragraph. If it were necessary for me so to decide, I would, in the absence of any authority being cited to me to the contrary, hold that such general power covered the present situation and permitted the receiver in these proceedings to continue with the litigation provided he obtained leave of the court. However, the matter seems to be adequately covered by cl. 17 of the schedule to the deed which unfortunately was not referred to by either counsel during argument. The relevant parts of that clause read as follows:

“For the consideration aforesaid, the company irrevocably appoints the mortgagee its true and lawful attorney ... and also irrevocably appoints any receiver for the time being appointed hereunder to be its true and lawful attorney ... to institute, proceed with, defend or compromise any legal proceedings in the name of or on behalf of the company and to appeal against or enforce any judgment or order therein.”

As I have stated earlier, there is no doubt that the agency functions of the company are certainly determined by the appointment of a liquidator. But that does not interfere with his right to deal with matters which stem directly from the areas covered by the deed of mortgage—in this instance book debts both present and future of the company as at the date set forth in the deed, namely 30th June, 1976. I again adopt the words of McPherson Law of Company Liquidation (2nd ed., 1980), p. 177: “and although winding up terminates any authority of the receiver to act as agent of the company, it does not affect his power to hold and dispose of property of the company that is subject to the security in favour of the debenture holders or other mortgagee”. In my view, par. 17 of the schedule concludes the matter. Although it must be read down and applied in the light of the appointment of a liquidator, it does not relieve the receiver of his duty to collect such debts as were owing to the company prior to the time of his appointment and to institute proceedings to ensure the payment of such debts where the debtor refused to pay.

I therefore hold that the receiver is a person capable of conducting the action on behalf of the plaintiff company. Consequently, as the defendant/applicant has been unsuccessful in his submissions, I dismiss the applications sought in the notice of motion dated 9th September, 1980, and award costs to the respondent/plaintiff.

By notice of motion dated 8th September, 1980, the plaintiff asked for special leave to make and proceed with the notice of motion and by that notice, asked that all proceedings against the defendant’s counterclaim be stayed until security for the plaintiff’s costs of the action in the sum of K5,000 be given. It should be noted that the wording of the notice of motion is not directed to a question of leave being granted to continue the main proceedings, but it is restricted to leave for the purpose of making the present application. It could perhaps be said that by inference, the former is intended, but in the absence of argument from either side, I am not prepared to draw such inference. Indeed, the submissions of counsel on this notice of motion were directed almost exclusively to whether or not security for costs should be granted. Despite the clear wording of s. 230(3) of the Companies Act, I am not unarguably convinced that leave of the court is required for the receiver appointed under a debenture to proceed with an action for the recovery of book debts. True it is, one finds the following by Swinfen Eady J. in Viola v. Anglo-American Cold Storage Company[cdvii]⁶:

“It is, however, well settled that in a mortgagee’s action where a receiver and manager has been appointed it is for the court to determine whether proceedings shall be taken at the expense of the mortgaged property. The receiver cannot do this of his own initiative, but would run the risk of his costs being disallowed if the did not obtain the direction of the court ... and neither mortgagor nor mortgagee has any absolute right to insist upon an action being brought or to prohibit it being brought by the receiver at the expense of the mortgaged property. The appointment of a receiver is a matter of discretion to be governed by the whole of the circumstances of the case ... It is made in the first place for the protection of the estate and for the benefit of all concerned, and in sanctioning the receiver taking proceedings, the court has regard to what it considers right and proper in the interests of all the parties.”

However, it appears that in Viola’s case, the receiver was appointed by the court and not by virtue of a floating security becoming fixed by default under a deed of mortgage. The authorities cited by his Honour do not shed any further light on this aspect. If leave is granted, it may be granted on terms, but in the absence of any legal representation on behalf of the liquidator, who is undoubtedly aware not only of the main action but of these interlocutory matters, I am unable to determine what, if any, specific terms should be imposed.

Mr. Glen for the applicant has drawn my attention to O. 33, r. 14 of the Rules of the National Court which gives power to the court to order a plaintiff ordinarily resident out of the jurisdiction to give security and places a counterclaiming defendant in the same position. Mr. Glen endeavoured to bolster his client’s position by further relying on the provisions of s. 363(1) of the Companies Act. That section says, inter alia, that where a company is plaintiff in an action (or in this instance a defendant/plaintiff by way of cross-action), a court may “if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security is given”. The plaintiff/applicant is really making a two-pronged approach, one based on the foreign residence of the defendant cross-claimant and two, that the defendant has been subject to a winding up order.

For a number of reasons, I am not prepared to allow the applicant to call to his assistance the provisions of s. 363 of the Companies Act. In the first place, the defendant is not a company but a ship, and this fact seems to have been overlooked more than once in these proceedings. Secondly, I understand that the owner of the ship is a limited liability company, but it has not been joined nor is it a party to this action. These proceedings are in rem against the vessel, no appearance has been entered by the owner, nor has any defence or counterclaim been lodged by them. Thirdly, whilst I appreciate the problems in which the plaintiff’s legal advisers may be placed arising from the great distance and possibly language difficulties which stem from the owner’s apparent place of incorporation, I am not prepared to accept as “credible testimony” for the purpose of establishing an inability in the defendant to pay costs, a mere bald assertion—“I am informed and verily believe that the company is in liquidation”. That the company is in liquidation may or may not be so. I simply do not have any worthwhile evidence to support such an allegation. Even if it is in liquidation, that does not of course necessarily mean that it will be unable to pay costs, although I note the statement in Annual Practice (1976), vol. 1, p. 389: “The fact that a company is in liquidation is prima facie evidence that it is unable to pay costs unless evidence to the contrary is given.” The crucial point here is that I do not feel I can be satisfied the company is indeed in liquidation.

Nevertheless, that still leaves for determination the fact that the vessel is certainly a defendant “resident out of the jurisdiction”. An affidavit by Captain Robert Purvis discloses that the “Pedro” is neither on the Papua New Guinea Register nor does the Department of Transport have any knowledge of the whereabouts of the vessel. Although the matter was not covered by affidavit in these interlocutory proceedings, it is common ground and part of the court record, that the vessel was originally arrested and that security has now been given to the amount of the original claim. As Mr. Glen rightly points out, at the time bail was set, no defence or counterclaim had been served and accordingly no allowance could be made in the bond to cover costs thereon.

This of course is an admiralty action in rem. Mr. M. White has kindly drawn my attention to certain paragraphs starting at par. 821 of the current British Shipping Laws, vol. 1, and from that it appears, generally speaking, that “the same principles govern the practice in admiralty as in other actions in regard to security for costs” (par. 829). I have already held that in these proceedings the defendant’s counterclaim arises out of different matters so that such claim is really in the nature of a cross-action. In such circumstances, I note from the Annual Practice (1976) vol. 1, par. 23/1-3/7, a defendant resident out of the jurisdiction may be ordered to give security but where a counterclaim arises out of the same matter “and is in fact the defence to the action”, the court will ordinarily refuse to order the defendant, resident out of the jurisdiction, to give security for costs. In Sykes v. Sacerdoti[cdviii]⁷, a refreshingly succinct and clear statement is made by the then Master of the Rolls, Lord Esher:

“I am still firmly of the opinion that, when a claim and a counter-claim arise out of different matters, the counter-claim is really a cross action, though for convenience of procedure the two are joined together, and are to be tried at the same time. In such a case the ordinary rule applies, and the Court is entitled to require the defendant, who is really an actor as regards the counter-claim, to give security, if he is out of the jurisdiction, for the costs which will be occasioned to the plaintiff by his counter-claim.”

Counsel for the defendant has referred me to Lord Denning’s judgment in Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd.[cdix]⁸ and especially to the element involving likelihood of success. I think it was conceded by both counsel that any attempt by me to determine the likely outcome of this action and counterclaim would be inviting sheer speculation. For once I have found Lord Denning to be of no great assistance to me in the circumstances of this case. I appreciate that more recent authority has made it clear that mere absence from the jurisdiction is not of itself sufficient to require security for costs but nevertheless I think the general principle stated by Lord Esher is applicable, especially in admiralty actions. If I may turn to another shipping case[cdx]⁹, the following may be found:

“It is a reasonable principle that a plaintiff whose ship cannot be seized, and against whom a cross action has been brought, shall put the defendant in the same position as if he (the defendant) were a plaintiff in an original action against a defendant whose ship could be arrested as security.”

It seems to me that where a vessel has been arrested and released on bail prior to the filing of a counterclaim, by analogy it is in a like position to a vessel which cannot be arrested at all.

Unlike the situation where a defendant delays in requiring security for costs from a plaintiff company which has gone into liquidation and thereby prejudices his right to obtain such security, it does not appear from the Annual Practice (1976), par. 23/1-3/21 that a delay is fatal to an application made in circumstances such as the present. In any case, it is apparent that the plaintiff company has now got wind of certain information which indicates that the circumstances of the defendant owners may have changed. Although I have found that there is insufficient evidence for me to determine whether or not the owners of the defendant vessel are in fact in liquidation, the plaintiff’s solicitor has sworn he believes this to be the case, and consequently he believes that circumstances have now altered since the time when the original counterclaim and defence were filed and served. It is obviously desirable that encouragement should not be given to parties to delay in making application for security. In the absence of any specific authority being cited to me that a delay in the present circumstances is fatal and in the light of the newly acquired belief of the plaintiff’s solicitor, I am not prepared to find that such delay is fatal to the present application.

Because the defendant vessel is no longer within the jurisdiction, because the vessel was released on bail prior to the present counterclaim being filed and at a time when the plaintiffs apparently had no knowledge of the existence of the counterclaim, because I believe that the defendant, in the absence of a joinder of the owners, may have some problems in successfully prosecuting the counterclaim (though this to a very minor degree only), and because this is an admiralty action brought in rem against a vessel, I have formed the view that the plaintiff/applicant should be granted security for costs. On this last aspect, I particularly refer to the words of Sir Robert Philimore in The Julia Fisher[cdxi]¹⁰:

“It may perhaps be said that to require security for the whole costs of the action is requiring the owners of the Julia Fisher, qua defendants, to give security for costs, but it must be remembered that, although in actions in personam security is not required of a defendant, in actions in rem a different practice has always prevailed. The action is brought and security is given, as a rule, in cases where the value of the “res” is sufficient in a sum to cover damages AND COSTS, and both damages and costs are constantly recovered upon the bail bond so given on behalf of a defendant.” (Emphasis mine.)

Two further questions however remain to be resolved. In the notice of motion the applicant has asked for proceedings on the counterclaim to be stayed and security for costs to be given on the whole action. Although the matter was not canvassed in argument, one might have thought that such security would be restricted to the costs on the counterclaim only. I note however that in Williams’ Supreme Court Practice, vol. 2, par. 65.6.1 that:

“A plaintiff will not generally be ordered to give security for costs to a defendant in respect of a counterclaim by the defendant to the extent by which the counterclaim exceeds the plaintiff’s claim.”

The same problem arose to some extent in the case of The Julia Fisher [cdxii]¹¹, in which the court found that it would be inequitable for security to be given only to the extent of the counterclaim. Of course in that matter the claim and counterclaim arose out of one collision. In the present case the plaintiff had the opportunity when it arranged for the release of the vessel (assuming it did not act prematurely) to secure payment of the claim and costs—that is, costs of the arrest and costs of the action. I do not see why a second opportunity should be granted now, especially as the normal rule is to cover costs only on the counterclaim. I therefore order that security for costs be given on the counterclaim only.

The remaining problem arises from the almost complete lack of information before the court concerning the likely costs to be incurred as a result of this action. If I once again refer to the Annual Practice (1976), vol. 1, par. 23/1-3/22, I find that the conventional approach is to “fix the sum at about two-thirds of the estimated party and party costs up to the stage of the proceedings for which security is ordered”. That time may be extended to the completion of trial and I do so in this case. It is further pointed out that as a matter of convenience to the court, a skeleton bill of costs usually affords a ready guide. Like Mr. Justice Lane in T. Sloyan and Sons (Builders) Ltd. and Another v. Brothers of Christian Instruction [cdxiii]¹², I too “am really in the dark”. But again borrowing a leaf from his Honour’s book, the best I can do is to fix an amount for security which would be neither “illusory nor oppressive” at K3,000.

I propose therefore to order a stay of proceedings on the counterclaim, but on the clear understanding that the plaintiff cannot move for judgment in respect of his claim unless and until the time for payment in the security has expired and such payment has not been made.

I therefore order as follows:

N2>1.       Leave is granted to the plaintiff to proceed with this application.

N2>2.       That the defendant give security for the plaintiff’s costs on the counterclaim in the sum of K3,000 either by paying the said sum into Court or executing a bond therefor to the satisfaction of the Registrar, on or before 28th November, 1981, with liberty to apply.

N2>3.       And it is further ordered that in the meantime, all further proceedings on the defendant’s counterclaim be stayed, and that the costs of the application shall be paid by the defendant.

Orders accordingly.

Solicitors for the plaintiff: Beresford Love & Co.

Solicitors for the defendant: Gadens.

R>

[cdii] [1930] 1 K.B. 615 at p. 621.

[cdiii] [1978] 1 All E.R. 616.

[1930] 1 K.B. 615 at p. 621.

[cdv] [1930] 1 K.B. at p. 623.

[cdvi] [1974] 1 N.S.W.L.R. 155.

[cdvii] [1912] UKLawRpCh 75; [1912] 2 Ch. 305 at p. 310.

[cdviii] [1885] UKLawRpKQB 130; (1885) 15 Q.B.D. 423 at p. 425.

[cdix] [1973] Q.B. 609.

[cdx] The Newbattle (1885) 10 P.D. 33.

[cdxi] [1877] UKLawRpPro 7; (1877) 2 P.D. 115 at p. 117.

[cdxii] [1877] UKLawRpPro 7; (1877) 2 P.D. 115 at p. 117.

[cdxiii] (1974) 3 All E.R. 715 at p. 721.