Supreme Court New South Wales

• Medium Neutral Citation: THC Holding Pty Ltd v CMA Recycling Pty Ltd [2014] NSWSC 1136
• Hearing dates: 28-30 July 2014; written submissions 6 & 12 August 2014
• Decision date: 21 August 2014
• Jurisdiction: Equity Division - Commercial List
• Before: Stevenson J

Decision

Title in goods passed to plaintiff; plaintiff entitled to relief following disposition of goods by administrators

• Catchwords: CONTRACT - proper law of the contract - whether the proper law of the contract is New South Wales or Western Australia; SALE OF GOODS - contract for sale of unascertained goods - whether goods ascertained - whether title to property had passed from defendant to plaintiff - whether commingling affects ascertainment - whether property acquired through share in bulk pursuant to s 25A Sale of Goods Act 1923 (NSW); SECURITIES - personal property securities - Personal Property Securities Act 2009 (Cth) - whether property a "security interest" pursuant to s 12; CORPORATIONS - Corporations Act 2001 (Cth) ss 442C, 447E and 1324(10) - whether administrators' disposition of property was in contravention of s 442C - whether private law claim for damages available for contravention of s 442C - whether plaintiff has right to damages under s 1324(10) for contravention of s 442C - whether plaintiff should be permitted to rely on remedy under s 447E sought only in final submissions; EQUITY - fiduciary duties - whether vendor bailee owed a fiduciary duty to purchaser bailor - whether administrators knowingly assisted company in breach of fiduciary duty
• Legislation Cited: Corporations Act 2001 (Cth); Personal Property Securities Act 2009 (Cth); Sale of Goods Act 1923; Sales of Goods Act 1895 (WA); Sale of Goods Act 1979 (UK); Sale of Goods and Warehousemen's Liens Amendment (Bulk Goods) Bill 2006
• Cases Cited: Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16; Bank Voor Handel En Scheepvaart N.V. v Slatford [1953] 1 QB 248; Barnes v Addy (1874) LR9ChApp 244; Barrymores Pty Ltd v Harris Scarfe Ltd (Administrators Appointed) (Receivers & Managers Appointed) [2001] WASC 210; 25 WAR 187; Bonython v Commonwealth of Australia (1950) 81 CLR 486; AC 201; Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306; Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180; 90 ACSR 62; Elders Trustee and Executor Co Pty Ltd v E G Reeves Pty Ltd (1987) 78 ALR; Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7; 88 ALJR 447; Executor Trustee Australia Ltd v Deloitte Haskins & Sells [1996] SASC 5874; 135 FLR 314; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89; Florgale Uniforms Pty Ltd (Receiver and Manager Appointed) (in liq) v Orders [2004] VSC 65; 11 VR 54; GE Capital Australia v Davis [2002] NSWSC 1146; 180 FLR 250; Gillogly v Iama Agribusiness Pty Ltd [2002] NSWCA 251; Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6; In the matter of Colorado Products Pty Limited (in prov liq) [2013] NSWSC 1613; In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; In the matter of Hallett's Estate (1880) 13 Ch D 696; Hill v Reglon Pty Ltd [2007] NSWCA 295; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Jovanovic v Commonwealth Bank of Australia [2004] SASC 61; 87 SASR 570; Karlshamns Oljefabriker v Eastport Navigation Corp; The Elafi [1981] 2 Lloyd's Rep. 679; [1982] 1 All ER 208; McCracken v Phoenix Constructions (QLD) Pty Ltd [2012] QCA 129; [2013] 2 Qd R 27; Osborne Computer Corporation Pty Ltd v Riddell (1995) 17 ACSR 606; Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722; Phoenix Constructions (Queensland) Pty Ltd v Coastline Constructions (Aust) Pty Ltd [2011] QSC 167; 84 ACSR; Re Bradford Roofing Industries Pty Ltd (in liq) & Companies Act [1966] 1 NSWR 674; Sandeman & Sons v Tyzack & Branfoot Steamship Co Ltd [1913] AC 680; Sovar v Henry Lane Pty Ltd (1967) 116 CLR 397; Tisand Pty Ltd v The Owners of the Ship MV "Cape Moreton" (ex "Freya") [2005] FCAFC 68; 143 FCR 43; Ultimate Property Group Pty Ltd v Lord [2004] NSWSC 114; 60 NSWLR 646; United States Surgical Corp v Hospital Products International Pty Ltd [1983] 2 NSWLR 157; Waterhouse v Waterhouse (1999) 46 NSWLR 449
• Texts Cited: Harpum, The Stranger as Constructive Trustee, (1986) 102 LQR 114; M Davies, A S Bell and P L G Brereton, Nygh's Conflict of Laws in Australia, (9th ed, 2014); N Palmer, Palmer on Bailment, (3rd ed, 2009)
• Category: Principal judgment
• Parties: THC Holding Pty Ltd (Plaintiff); CMA Recycling Pty Ltd (Administrators Appointed) (First Defendant); Stemcor Australia Pty Ltd (Third Defendant); Stemcor Trade Finance Pty Ltd (Fourth Defendant); Philip Patrick Carter (Fifth Defendant); Nicholas John Martin (Sixth Defendant); Marcus William Ayres (Seventh Defendant)
• Representation: Counsel: G J Nell SC with (on 28 July 2014) J S Emmett (Plaintiff); D J A Mackay (First, Fifth, Sixth and Seventh Defendants); Solicitors: Norton White (Plaintiff); Minter Ellison (First, Fifth, Sixth and Seventh Defendants)
• File Number(s): SC 2013/283787

Judgment

Introduction

1 The plaintiff, THC Holding Pty Ltd, carries on business as a purchaser of scrap metal in Australia for shipment in bulk to customers throughout the Asia-Pacific region for processing and recycling.

2 These proceedings arise out of a contract made between THC and the first defendant, CMA Recycling Pty Ltd, on 26 April 2013 (the "Purchase Agreement") pursuant to which CMA agreed to sell THC 5,800 metric tonnes (MT) of scrap metal for delivery free on wharf at Port Hedland, in Western Australia, for shipment to Vietnam.

3 In the circumstances described below, CMA informed THC, prior to the time due for shipment, that it would not be able to supply all of the scrap metal referred to in the Purchase Agreement. In fact, the amount of scrap metal that CMA supplied in time for shipment was 1,367 MT less than the amount called for by the Purchase Agreement. THC sourced the shortfall from SIMS Group Australia Holdings Pty Ltd in the circumstances described below.

4 The dispute between THC and CMA concerns the circumstances in which CMA later made available to THC the 1,367 MT shortfall.

5 The matter is complicated by the appointment of administrators to CMA on 2 August 2013. On 11 September 2013, the administrators sold all of CMA's plant, equipment and stock to a third party, Sell & Parker Metal Recycling Services (WA) Pty Ltd. Included in the sale was a pile of scrap in CMA's Port Hedland yard that included the 1,367 MT which, THC contends, belonged to it. That part of the proceeds of the sale as relates to the 1,367 MT ($371,824) has been retained by the administrators in a separate account, pending the outcome of this litigation.

6 Issues which arise include:

(a) whether the proper law of the Purchase Agreement is that of New South Wales or Western Australia;

(b) whether the 1,367 MT was ascertained or ascertainable as at 22 July 2013, or any other time, for the purposes of the relevant Sale of Goods Act ("SGA") provision (s 21 in the Sale of Goods Act 1923 (NSW) and s 16 in the Sale of Goods Act 1895 (WA)) so that property passed to THC prior to the appointment of the administrators;

(c) whether THC acquired a "security interest" in the goods for the purpose of the Personal Property Securities Act 2009 (Cth);

(d) whether, by selling the 1,367 MT to Sell & Parker, the administrators contravened s 442C of the Corporations Act 2001 (Cth);

(e) whether s 442C of the Act creates a private law claim for damages;

(f) whether THC is entitled to damages pursuant to s 1324(10) of the Act in respect of any contravention of s 442C;

(g) whether CMA held the 1,367 MT for THC as a fiduciary;

(h) if so, whether CMA acted in breach of its fiduciary obligations and whether the administrators knowingly assisted that breach;

(i) whether THC had an equitable lien over the proceeds of $371,824;

(j) whether the terms of the Purchase Agreement created a trust; and

(k) what, if any, remedies are available to THC.

7 I have been greatly assisted by the oral and written submissions of Mr Nell SC, who appeared (initially with Mr Emmett) for THC, and Mr Mackay who appeared for CMA and the administrators.

8 Much of what follows is drawn, with gratitude, from those submissions.

9 Nine parties are named as defendants to the proceedings. The only active defendants are CMA and the administrators. THC has either settled with, or seeks no relief against the other defendants, none of whose interests will be affected by these reasons. If any orders are to be made which might affect those parties they will, of course, be given an opportunity to be heard.

Decision

10 In my opinion:

(1) the Purchase Agreement is governed by the law of Western Australia;

(2) the 1,367 MT was "ascertained" for the purposes of s 16 of the WA SGA on 22 July 2013 and title in the 1,367 MT passed to THC on that date;

(3) by selling the 1,367 MT to Sell & Parker, the administrators contravened s 442C of the Act;

(4) there is no private right of action arising from a breach of s 442C of the Act;

(5) THC is, however, entitled to damages under s 1324(10) of the Act;

(6) after title in the 1,367 MT passed from CMA to THC, CMA held the 1,367 MT as a fiduciary; and

(7) by selling the 1,367 MT to Sell & Parker (as part of its plant, equipment and stock), CMA acted in breach of its fiduciary obligations and the administrators knowingly assisted that breach.

The Purchase Agreement

11 Pursuant to the Purchase Agreement, CMA agreed to sell to THC:

• 5,000 MT of "Heavy Melting Steel Scrap 1 & 2 80/20 including 200 MT max clean steel in bales"; and
• 800 MT of "No. 3 bales (Car body bales no rubber tyres). Bale size max 800 mm x 850 mm x 1300 mm".

12 This case only concerns the sale of Heavy Melting Scrap, or "HMS". There is no dispute between the parties as to the "bales" or car bodies, and I shall make no further reference to them.

13 There are two grades of HMS. The HMS to be provided under the Purchase Agreement was to be 80 per cent of HMS Grade 1 and 20 per cent of HMS Grade 2 (hence "1 & 2 80/20"). Although, in his submissions, Mr Mackay drew a distinction between the two grades of HMS, and described them as "two types of Scrap Metal Cargo", the parties at the time drew no such distinction. THC called evidence from Mr Colin Harvey and Mr Heath Brenssell who, at the relevant time, were CMA's Northern Territory/Western Australia Regional Manager and Western Australia Site Manager at Port Hedland, respectively. Neither drew any distinction, for any relevant purpose, between Grade 1 and Grade 2 HMS. Nor shall I.

14 The Purchase Agreement:

• Stated a total purchase price of $1,489,600;
• Showed an address in Sydney for both THC and CMA;
• Provided for delivery at "FOW Port Hedland";
• Provided for "Shipment Date & Loading Terms" of "Aiming 30th June 2013, LSD [Last Date of Shipment] 15th July 2013";
• Provided for the "origin" of the scrap to be Port Hedland;
• Allowed a tolerance for quantity and value amount of plus/minus five per cent;
• Provided for all payments to be made to CMA's bank account with the Commonwealth Bank of Australia in Sydney;
• Obliged THC to pay a deposit of 50 per cent ($744,800) on signing the agreement; and
• provided that, "[o]nce the deposit money is paid, the scrap becomes property of [THC] and that [CMA] will hold in good faith in the yard until shipment is completed".

15 It was common ground that the latter provision (which I shall call "the Title Provision") must be read subject to the need for the relevant goods to be "ascertained" for the purposes of the SGA. Thus, it was common ground that, notwithstanding the parties' agreement that title would pass on payment of the deposit, because the Purchase Agreement was a contract for the sale of unascertained or future goods, title would not pass until the goods were "ascertained" for the purpose of either s 21 of the NSW SGA or s 16 of the WA SGA (as the case may be). A central issue in this case is whether the 1,367 MT was ever "ascertained".

Proper Construction of the Title Provision

16 In that context, an issue arose in the course of final submissions as to the proper construction of the Title Provision.

17 Mr Mackay submitted that, on its proper construction, the effect of the Title Provision was that CMA's promise to hold the goods "in good faith" in its yard only arose if and when title passed from CMA to THC. Ultimately, Mr Nell did not contest this proposition and accepted that "that might be the better view of the words".

18 In my opinion, Mr Mackay's submission is correct.

19 The natural reading of the words of the Title Provision is that only when title passed (that is, only when the deposit was paid and, it is now accepted, the goods were "ascertained" for the purposes of the SGA) would CMA hold the scrap "in good faith". Evidently, the parties contemplated that CMA might retain possession of the scrap for some time after title passed and agreed that during that time (but not otherwise) CMA would hold the goods "in good faith").

20 A reasonable businessperson would understand from the language used in and the commercial object sought to by the Purchase Agreement that only in that circumstance would CMA hold the scrap "in good faith"; and then only until "shipment was completed": see Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7; 88 ALJR 447 at [35] per French CJ and Hayne, Crennan and Kiefel JJ.

The shortfall

21 On 6 May 2013, THC paid CMA the 50 per cent deposit of $744,800.

22 On 18 June 2013, THC entered into a voyage charter for the MV "Rio de Janeiro" ("the Vessel") to carry the scrap from Australia to Vietnam.

23 In early June 2013, Mr Harvey telephoned Mr Johnny Chung, a director of THC. The following conversation took place:

Mr Harvey: "Due to a shortage of the HMS 80/20 1&2 at the yard, we expect that we will only be able to provide about 4000mt of the HMS 80/20 1&2, being a shortfall of about 1000mt.

Mr Chung: That's ok. I'll try and do a cargo swap with SIMS to make up the shortfall and you can give that back to SIMS when you get more HMS in."

24 In late June, THC collected the available HMS 1&2 80/20 in CMA's yard at Port Hedland and loaded it on board the Vessel. The amount collected was 1,367 MT short of the amount called for by the Purchase Agreement.

25 THC required a full cargo for the Vessel. Otherwise it would be liable for dead freight under its voyage charter. To avoid being liable for dead freight, and also to mitigate any loss it might suffer as a result of CMA's inability to honour its obligations under the Purchase Agreement, THC sourced the shortfall from SIMS.

26 This was done by way of the "cargo swap" to which Mr Chung referred in his conversation with Mr Harvey. Pursuant to that arrangement, SIMS agreed to provide THC with sufficient scrap to meet the shortfall and thus enable THC to load a full cargo on board the Vessel. In turn, THC promised SIMS to make available a corresponding amount of scrap, to be sourced from CMA, as soon as CMA had accumulated that tonnage at its Port Hedland yard. The arrangement between THC and SIMS was that, once CMA had accumulated sufficient scrap to fulfil its obligations under the Purchase Agreement, THC would arrange (with CMA's cooperation) for SIMS to collect the amount due from CMA's yard. This was a sensible, practical arrangement between experienced business people in the industry and which was, I would infer, intended to spare CMA from the consequences of its inability to honour its obligations under the Purchase Agreement.

27 Pursuant to this arrangement, SIMS delivered 1,367 MT of HMS 1&2 80/20 from its yard at Port Hedland to the port where it was loaded on board the Vessel along with the scrap sourced from CMA.

28 CMA invoiced THC for the whole of the cost of the scrap referred to in the Purchase Agreement, including the cost of the 1,367 MT it had not provided.

29 THC and CMA agreed, however, that THC would:

(a) only remit $445,047 of the invoiced amount, being the amount due for the scrap that CMA had then supplied; and

(b) withhold the balance ($371,824) pending accumulation by CMA in its yard at Port Hedland of an amount of HMS 1&2 80/20 equal to the 1,367 MT shortfall.

30 THC paid CMA for the former by two payments, the first for $200,000 on 28 June 2013 and the second for $230,202 on 2 July 2013.

31 After the scrap that CMA was able to supply had been collected from CMA's yard and loaded on the Vessel, there was no remaining HMS 1&2 80/20 at that yard. The area in which the scrap had previously been stored was "swept clean".

CMA accumulates 1,367 MT

32 On 29 June 2013, Mr Harvey sent an email to Mr David Burrows, a Manager at SIMS:

"We'll commence bringing scrap in today, ready for you to collect for your next shipment. Please feel free to inspect the quality periodically prior to accepting to ensure it meets your requirements. I have no doubt that it will be at least equal to the scrap you provided."

33 Several weeks later, on 12 July 2013, Mr Harvey sent a further email to Mr Eugene Chung, the son of Mr Johnny Chung and another director of THC:

"We are past halfway with the tonnage but Heath [Brenssell] is offsite for a few days. He will advise exact tonnages when he returns. We will advise when we have the tonnage, and at this stage would prefer to settle promptly as soon [as] this is achieved and SIMS have verified the quality...I am of the understanding that SIMS want to collect from our yard when they do the next ship...".

34 A short time after that email Mr Harvey telephoned Mr Johnny Chung and said "it is ready".

35 Mr Johnny Chung gave this evidence:

Q. "You said a moment ago [Mr Harvey] told you it was ready, do you recall exactly what it was he said to you or words to the effect?

A. He said 'Johnny, we have enough cargo there for you to collect or get SIMS to pick it up'.

Q. And do you recall when he had this conversation with you?

A. I think around second half of July.

Q. Did you say anything in response to what Mr Harvey had said to you?

A. I said to him, 'I have got to get SIMS's site manager to look at quality and quantity'.

Q. Did he say anything in response to you?

A. He said 'No problem. It is ready for them to inspect'." (emphasis added)

36 Thus, Mr Harvey told Mr Chung that CMA had accumulated at its Port Hedland yard an amount of scrap sufficient to meet the shortfall of 1,367 MT, and that this was available for collection by THC ("for you to collect"), or by SIMS ("or get SIMS to pick it up").

37 CMA accumulated this in one pile. It was separate from all other scrap in the yard and was not commingled with any other types of scrap.

The inspection of 22 July 2013

38 As arranged in Mr Chung's telephone conversation with Mr Harvey, Mr Mark Murtha, who was SIMS's Port Hedland Yard Manager, attended the CMA yard to inspect the pile. Mr Murtha said:

"I was met by Heath Brenssell of CMA. Mr Brenssell led me to a pile in the CMA yard that I recognised as containing HMS 80/20 1&2. The pile was not commingled with any other types of cargo.

Mr Brenssell said to me words to the effect:

'Here is the THC cargo. Its about 1,400 MT.'

Based on my own observations, I estimate that the pile of HMS 80/20 1&2 would have been slightly more than 1,367 MT and about 1,400 MT or even 1,500 MT."

39 In his oral evidence, Mr Murtha agreed that the pile contained "about around 1,400 give or take". Mr Murtha then gave this evidence, initially in response to questions from me:

Q. "Did you say anything in reply when Mr Brenssell said what you just said?

A. I just said it was in or around that, yes.

Q. You agreed with his assessment?

A. It was like I was saying. I said to him:

'It will be fine. I'll just ring Perth and let them know its good to go'.

Q. You were satisfied there was at least as much as SIMS needed from that pile?

A. That and more, yeah.

MACKAY:

Q. There might have been 1,650 tonnes before you weighed it, would you agree with that?

A. Yes.

Q. It could have?

A. Yes, could be yeah. You can only estimate. As soon as you put it across the bridge is when you get the true weight. But it was with, actually when he'd said by the time we'd taken out, it will be well above what we need.

HIS HONOUR:

Q. So your judgment was there was no less than 1,367 metric tonnes there?

A. Yeah, definitely."

40 In his statement Mr Brenssell gave this evidence:

"On or about 22 July 2013, Mark Murtha of SIMS inspected the pile of HMS 80/20 at the Port Hedland yard. I was not present at the time of the inspection. I understood at the time that the purpose of the inspection was to ascertain the quantity and quality of the cargo in the CMA Port Hedland yard knowing that the pile of HMS was a cargo which was to be supplied by CMA to SIMS in replacement of the cargo that SIMS had swapped with THC.

Following the inspection, Mark Murtha telephoned me in relation to the HMS 80/20 and said to me words to the effect of 'all good'.

When the inspection took place, I estimate that the pile of HMS 80/20 1&2 would have been slightly more than 1,367 MT, but within 5% (as is the usual practice)."

On 22 July 2013, the pile of HMS 80/20 1&2 at the CMA Port Hedland yard was in one distinct pile. So far as I was concerned the cargo was [THC's].

There are records of cargo coming into the yard and there are records when cargo is taken out of the yard to be loaded on board a ship."

41 In cross-examination Mr Brenssell gave this evidence:

Q. "When you say there would have been slightly more than 1,367 tonnes in the yard on 22 July, I want to suggest to you it might have been 1,400, would you agree with that?

A. I'd agree it was in that vicinity, absolutely.

Q. It might have 1,500?

A. Possibly...

Q. It might have been 1,350 in the yard on 22 July, you just don't know because you had not weighed it?

A. No. It had been weighed, yes, as we purchased that scrap, so at the time that I got the scrap, inspected it, SIMS Metals, I was 100% confident that the absolute minimum had been met. I would disagree [that there was] less scrap there than what [CMA's] obligation was.

HIS HONOUR

Q. Is that because you had seen the weights recorded on scrap as it had come in and been accumulated on that pile?

A. Yes, correct."

42 Mr Harvey, who was in Darwin at the time of the inspection, gave evidence that he was able to monitor CMA's Port Hedland yard using the security cameras on site.

43 Mr Harvey said:

"When the inspection took place, I estimate that the pile of HMS 80/20 1&2 would have been slightly more than 1,367 MT. My estimate is based on my having looked at the stock reports from the CMA computer system at the time to verify how much scrap had been purchased since the shipment in June 2013, and a visual on the security camera at Port Hedland."

44 Based on this evidence, my conclusion is that, at the time of the inspection on 22 July 2013, there was no less than 1,367 MT of HMS 80/20 1&2 in the pile.

45 There was probably more than 1,367 MT of scrap in the pile. Indeed, Mr Murtha said there "could have" been 1,650 MT in the pile, although the impression I gained was that Mr Murtha was acknowledging this only as a theoretical possibility.

46 Messrs Harvey and Brenssell said that the scrap which found its way on to the pile was weighed by CMA as it came into the yard. CMA knew the shortfall was 1,367 MT. In those circumstances it is likely that its employees, including Mr Brenssell, were aiming to create a pile of scrap which contained no less than, but not very much more than this weight.

47 Mr Brenssell said that by the time of the 22 July 2013 inspection, he was certain that "the absolute minimum had been met"; that is that CMA had set aside in the pile at least as much as was needed for CMA to make up the 1,367 MT shortfall.

Events following the inspection

48 On 25 July 2013, Mr Brenssell sent an email to Messrs Chung:

"I had Mark [Murtha] from SIMS metals inspect our current HMS stock on Monday he was happy with both the quality and quantity could you please touch bases with him to confirm that our obligation has been met look forward to hearing from you". (emphasis added)

49 Later on 25 July 2013, Mr Eugene Chung sent an email to Mr Murtha:

"Once again we appreciate you lending us the swap tonnes in Port Hedland. Today CMA have advised that they have the required 1,367 tonnes of HMS stock to return. Can you confirm that the quality they have is acceptable to you?" (emphasis added)

50 Later that day Mr Eugene Chung replied to Mr Brenssell's email at [48]:

"I have asked the guys at SIMS to confirm by email that the return swap tonnes are acceptable (which I'm sure is ok but best to get in writing). In the meantime you can raise an invoice and email to us, we will prepare payment for [29 or 30 July] latest, by that time I should have received an email from SIMS."

51 On 29 July 2013, THC paid CMA the balance due under the Purchase Agreement ($371,824) being the amount it had earlier withheld because of the shortfall of 1,367 MT.

52 On 2 August 2013, Mr David Mathers, the Operations Manager at SIMS, sent an email to Mr Johnny Chung:

"Our boys have inspected the tonnes currently in the CMA Port Hedland yard and have deemed them acceptable for the 1,367 t return, when we next ship.

Looks to be no problem with the quality currently.

We will not be shipping until next month, so long as the quality remains the same, we can pick up the 1,367 t then."

53 The arrangements in the conversations and emails to which I have referred were relatively informal and, evidently, based on a common understanding of industry practicalities.

54 I read the exchange of emails between 25 July and 2 August 2013, when viewed in light of Mr Chung's conversation with Mr Harvey referred to as [35], as establishing that:

(1) CMA believed that, by creating the pile in the state it was when Mr Murtha inspected it on 22 July 2013, it had met the 1,367 MT shortfall and was content for THC to take all of the scrap then in the pile, or pass it on to SIMS (even if there was more than 1,367 MT in the pile);

(2) CMA nonetheless wished THC to confirm that it accepted its position (hence Mr Brenssell's request to Messrs Chung "to confirm that our obligation has been met" - see [48] above);

(3) THC was content to proceed on that basis, and pay CMA for the balance due, but wanted confirmation ("best to get in writing") from SIMS "that the return swap tonnes are acceptable" (see [50] above);

(4) Ultimately, THC paid CMA for the balance due before receiving written confirmation from SIMS, and thus implicitly accepted that, so far as it was concerned, CMA's "obligations [had] been met";

(5) SIMS was content that the pile, as inspected by Mr Murtha on 22 July 2013, contained scrap of the quality and quantity it required to finalise the "cargo swap" with THC but, as between itself and THC, wished first, to reserve to itself the right to ensure that the quality of scrap it actually picked up from CMA's yard was the same as the pile it inspected and, second, to weigh the 1,367 MT of scrap "when we next ship" (see Mr Murtha's evidence at [39] and Mr Mathers' email at [52]).

55 So far as concerned the question of whether the scrap yet to be provided by CMA to THC was "ascertained", the critical matter is that set out at (1) in the preceding paragraph. CMA's position, as evidenced by Mr Harvey's conversation with Mr Chung referred to at [35], and Mr Brenssell's email at [48], was that by the 22 July 2013, CMA had set aside sufficient scrap (that is, no less than 1,367 MT) to satisfy its outstanding obligations under the Purchase Agreement. CMA was content for THC to "collect" or to have SIMS "pick up" the whole of the scrap in the pile; even if, as seems probable, there was somewhat more than 1,367 MT in the pile. There is no suggestion in the evidence that as at 22 July 2013, or thereafter, either CMA or THC expected that, as a condition precedent to completion of their contractual relations, the material in the pile would be weighed to ensure that the shortfall of 1,367 MT had been met. CMA was happy for THC to take the whole of the pile and regarded the 1,367 MT as satisfying its outstanding obligations under the Purchase Agreement. THC was of the same mind: thus it paid CMA for the shortfall without further demur and, despite its emails at [49] and [50], without obtaining confirmation from SIMS.

56 As between THC and SIMS, the position was different. The arrangement between THC and SIMS was that once SIMS was ready to collect the scrap, it would check the quality and weight of the scrap to be collected by it. But that was a matter between THC and SIMS, and casts no light, in my view, on the contractual position between THC and CMA.

Administrators appointed to CMA

57 As I have mentioned, administrators were appointed to CMA on 2 August 2013; the same day as the final SIMS email (see [52] above).

58 On that day, Mr Brenssell told the administrators' representatives that his view was that the scrap in the pile belonged to THC, and not to CMA.

59 On 13 August 2013, and again on 29 August 2013, THC by its solicitors wrote to the administrators stating that it was the owner of "1,367 tonnes of HMS 80/20 grade 1&2 scrap metal as detailed" in the Purchase Agreement. On both occasions, THC's solicitors attached a copy of the Purchase Agreement.

60 The administrators replied on 30 August 2013 stating that:

"Until such time as the Administrators have considered the claim your client is not permitted to attend Port Hedland site and will not be allowed to remove any stock. As present the Administrators are not in a position to determine the validity of your client's claim. In order to properly assess the claim please forward a copy of the registered security interest that specifically attached to the stock and any further documents that may support the claim".

61 THC's solicitors wrote a further letter on 3 September 2013, again asserting THC's title in the 1,367 MT. The administrators' solicitors responded on 5 September 2013, disputing that property in the 1,367 MT had passed to THC, and raising arguments to the effect of those advanced by the administrators in these proceedings.

62 On 12 September 2013, and without further notice to THC, the administrators announced to the ASX that they had sold all of CMA's plant equipment and stock to Sell & Parker, including the 1,367 MT.

The proper law of the Purchase Agreement

63 The first issue for consideration is whether the Purchase Agreement is governed by the NSW or WA SGA. This point is significant as the WA SGA has no equivalent to s 25A of the NSW SGA (to which I return below).

64 The Purchase Agreement does not contain a choice of law or consent to jurisdiction clause.

65 It is common ground that, generally, when the intention of the parties to a contract as to the choice of law is not expressed and cannot be inferred from the circumstances, the contract is governed by the system of law to which the transaction has its closest and most real connection: Bonython v Commonwealth of Australia (1950) 81 CLR 486 at 498; AC 201 at 219; United States Surgical Corp v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 189F -190B.

66 Further "the law governing the transfer of property rights is generally taken to be the lex situs" (per Ryan and Allsop JJ in Tisand Pty Ltd v The Owners of the Ship MV "Cape Moreton" (ex "Freya") [2005] FCAFC 68; 143 FCR 43 at [130]).

67 In Bank Voor Handel En Scheepvaart N.V. v Slatford [1953] 1 QB 248 at 257 Devlin J observed:

"There is little doubt that it is the lex situs which as a general rule governs the transfer of movables when effected contractually."

And see M Davies, A S Bell and P L G Brereton, Nygh's Conflict of Laws in Australia, (9th ed, 2014) at [33.21] ff.

68 In my opinion, the Purchase Agreement is regulated by the law of WA and thus the WA SGA.

69 It is true that the Purchase Agreement nominates a NSW address for both THC and CMA and that, so far as THC is concerned, it was obliged to perform its obligations in NSW by paying CMA into its bank account with the CBA in Sydney.

70 However, the relevant goods were located at all material times in WA. Western Australia is thus the lex situs.

71 Further, I regard the law of WA as having the closest and most real connection to the Purchase Agreement. CMA sourced the scrap metal from WA. Once the scrap had been collected and sorted, it was piled and stored at CMA's Port Hedland yard in WA. The individual at CMA responsible for the mechanics of the performance of the contract, Mr Brenssell, was located in WA. Mr Eugene Chung travelled to WA to supervise the loading and sorting of scrap metal, and thereby the performance of the Purchase Agreement. Mr Chung agreed that it was important for him to go to see the stock before the contract was carried out. He also said he wanted to check the quality and quantity of stock before it was loaded.

72 The Purchase Agreement was a contract concerning the sale of scrap metal which was at all times located in WA. The sale was in substance effected or performed by persons based in WA.

73 In those circumstances, my opinion is that the law of WA governs the Purchase Agreement.

Were the goods "ascertained" for the purposes of s 16 of the WA SGA?

74 It is common ground that, at the date of the Purchase Agreement, the scrap metal the subject of the Purchase Agreement comprised "unascertained goods".

75 That being so, s 16 of the WA SGA (which, is in the same terms as s 21 of the NSW SGA) was engaged. That section provides:

"Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained".

76 Accordingly, as I have said, despite the Title Provision (see [15] above) no property in the scrap metal could pass from CMA to THC "unless and until" the goods were "ascertained".

77 Because THC paid the deposit on 6 May 2013 (see [21] above), and on the proper construction of the Title Provision, once the relevant scrap metal was "ascertained", property would then pass from CMA to THC.

78 Once the scrap available at the end of June 2013 was loaded on board the Vessel (see [24] above), that scrap was no doubt "ascertained". The critical question before me is whether the balance of the scrap called for by the Purchase Agreement, the 1,367 MT, was by reason of the creation of the pile, and in the events that happened, "ascertained".

79 Mr Mackay placed great emphasis on the findings of Beazley JA in Gillogly v Iama Agribusiness Pty Ltd [2002] NSWCA 251. In that case, the issue was whether property in grain passed to the purchaser at the time it was placed by the seller in a Graincorp silo (where it was intermingled with other grain not necessarily owned by either party), or when the grain was subsequently collected by the purchaser from the silo. That turned on the question of whether the grain the subject of the contract was "ascertained" at the earlier or the later time. The Court of Appeal found it was the later time; that is when the grain was collected by the purchaser.

80 Beazley JA said (at [100] to [103]):

"...I am of the opinion that the goods did not become ascertained goods when they were acquired from the grower. At that time, although a quantity and a price had been agreed as between the [purchaser] and the [vendor], there was no intention that the [purchaser] was to receive those specific goods... . Rather, the grain so acquired by the [purchaser] was to become mixed with other grain, not necessarily owned by either of the parties. As the goods were not ascertained, property could not pass: s 21. ...

When, therefore, did property pass in the grain sold by the [vendor] to the [purchaser]?

In my opinion, the contract was a severable contract for the delivery of grain from time to time as and when taken by the [purchaser] from the Graincorp facility, up to the agreed quantity. I consider that the grain became ascertained each time a quantity of grain was allocated to the contract and loaded onto the [purchaser's] truck. At that point, there was specific grain, of a specific quantity, quality and price subject to the terms of the Confirmation of Sale document relating to that load. There was nothing in the agreement or dealings between the parties to evince a contrary intention, so that property passed [at that time]."

81 Mr Mackay submitted that in order for the balance of the scrap due under the Purchase Agreement to be "ascertained", THC would have to show that on 22 July 2013 the parties "identified and agreed on the very 1,367 MT that CMA was to be supplying to THC". Mr Mackay submitted that even if there was "just one additional tonne in the pile...it would not be possible to determine precisely which of the scrap in the pile comprised the 1,367 MT owned by CMA and which comprised the 1 MT owned by THC" and that, accordingly, the goods called by the Purchase Agreement could not be "ascertained".

82 I do not accept that submission. Nor do I see anything in Beazley JA's reasoning to support such a conclusion. The facts before the Court of Appeal in Gillogly were very different from those before me.

83 Unlike the seller in Gillogly (which placed the grain it had sourced to meet its obligations to the purchaser in a Graincorp silo where it was mixed with grain belonging to others, and without any intention that that particular grain would be that destined to the purchaser), CMA placed the scrap metal in a separate pile, distinct from all other scrap in its yard, for the specific purpose of satisfying its remaining obligations under the Purchase Agreement. By doing so, CMA intended that the whole of the pile, as it existed at the time of Mr Harvey's telephone call to Mr Chung referred to at [35] above and at the time of the inspection by Mr Murtha on 22 July 2013 was available for collection by THC or, at its option, by SIMS (see [32] above); whether or not (as seems likely to be the case) there was more than 1,367 MT in the pile (see [55] above).

84 In Karlshamns Oljefabriker v Eastport Navigation Corp; The Elafi [1981] 2 Lloyd's Rep. 679; [1982] 1 All ER 208 at 216, Mustill J said:

"What is needed for ascertainment is that the buyer should be able to say, 'Those are my goods.' This requirement is satisfied if he can say, 'All those are my goods'." (emphasis in original)

85 I accept Mr Nell's submission that this is exactly what THC could say following Mr Chung's conversation with Mr Harvey and following Mr Murtha's inspection of the goods on 22 July 2013. To adopt Beazley JA's language in Gillogly, at this point there was "specific scrap, of a specific quantity" to satisfy CMA's remaining obligations under the Purchase Agreement; namely the scrap in the pile as inspected by Mr Murtha.

86 I do not think that it matters that no-one from THC was present during the inspection. Mr Harvey told Mr Chung that the goods were available for THC to collect or for SIMS to pick up. CMA knew of, and was no doubt very grateful for the arrangements which THC had, very sensibly, made with SIMS to make up for the shortfall for which CMA would have otherwise been liable. By 22 July 2013, CMA's position was that the whole of the 1,367 MT was available to THC to either collect itself, or to dispose of as it wished.

87 By then, in my opinion, the remaining goods that CMA was obliged to supply to THC pursuant to the Purchase Agreement were "ascertained". Accordingly, title in the goods passed from CMA to THC at that moment, that is on 22 July 2013.

88 It probably follows that, by reason of the same matters, the goods were also "appropriated" to the Purchase Agreement for the purpose of Rule 5 of the "rules for ascertaining intention" set out in s 18 of the WA SGA, which applies "unless a different intention appears", and provides:

"Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made."

89 It is, however, unnecessary to express any opinion on this question.

Additions to the pile

90 After 22 July 2013, CMA added scrap to the pile. Mr Brenssell said scrap was added "on a daily basis" with product "of the same if not better quality".

91 In my opinion, this does not affect my conclusion concerning ascertainment of the goods. The goods were "ascertained" on 22 July 2013. The goods were not "unascertained" thereafter by reason of addition of scrap to the pile.

92 So far as concerns the agreement between CMA and SIMS, the addition of scrap to the pile made no difference. That is because the arrangement between CMA and SIMS was that, provided that there was at least 1,367 MT of scrap available for SIMS to collect from CMA of the same quality that was present on 22 July 2013, SIMS would regard THC's obligations under the "cargo swap" as being satisfied. I do not see this as having any implications for the contractual relations between THC and CMA.

93 The result of the commingling of the 1,367 MT (the property of which had passed to THC) after 22 July 2013 with other scrap belonging to CMA was that each of THC and CMA owned the scrap in the resultant pile as tenants in common in the proportions to which each had contributed, with THC's contribution being the "ascertained" 1,367 MT: Hill v Reglon Pty Ltd [2007] NSWCA 295 at [87] and [93] per Beazley JA, with whom Spigelman CJ and Ipp JA agreed; citing Sandeman & Sons v Tyzack & Branfoot Steamship Co Ltd [1913] AC 680 at 694; see also N Palmer, Palmer on Bailment, (3rd ed 2009) at [8-013].

94 For convenience, and despite this commingling, I shall continue to refer, simply, to the "1,367 MT".

Was there a sale of "bulk stock"?

95 Alternatively Mr Nell submitted that THC acquired property in an undivided share in the bulk of scrap metal comprised in the 1,367 MT pursuant to s 25A of the NSW SGA.

96 There is no equivalent to s 25A in the WA SGA. As I have found that the Purchase Agreement is governed by the law of WA, I do not think this argument is open to THC.

97 Nonetheless, as both counsel addressed detailed submissions on the question, I shall consider it on the assumption, contrary to my conclusion, that the Purchase Agreement is governed by the law of NSW.

98 Section 25A of the NSW SGA provides, relevantly:

"(1) This section applies to a contract of sale for a specified quantity of unascertained goods of which some or all form part of a single bulk quantity of goods of the same kind ("the bulk") if:

(a) the bulk is identified, either in the contract or by subsequent agreement between the parties, and

(b) the buyer has paid for some or all of the goods that form part of the bulk.

(2) Unless the parties agree otherwise:

(a) property in an undivided share in the bulk is transferred to the buyer, and

(b) the buyer becomes an owner in common of the bulk,

as soon as both of the conditions referred to in subsection (1) have been met."

99 My attention was not drawn to any authority dealing with the section.

100 Section 25A is based on, but is not in precisely the same terms as, s 20B of the United Kingdom Sale of Goods Act 1979 and was introduced into the NSW SGA by the Sale of Goods and Warehousemen's Liens Amendment (Bulk Goods) Bill 2006.

101 In the explanatory note to the relevant Bill it was said:

"In relation to warehousing, the goods of one person, commonly become intermingled with those of another, rendering it impossible for the same goods to be returned to the person by whom they were deposited. Storage contracts in this situation can therefore only oblige the warehousemen to return an equivalent quantity of the same kind of goods. The High Court in, Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306, decided that, in these circumstances, property in the goods passes to the warehousemen when the goods are deposited.

The objects of this Bill are:

(a) to amend the Sale of Goods Act 1923 so as to provide that a purchaser of goods to be delivered from bulk storage can, by paying for them, obtain a proprietary right to those goods before they are separated out from the bulk...

The effect of the proposed section (25A) is that, as soon as the bulk from which the goods are purchased is identified and the goods paid for, the purchase becomes an owner in common of the whole of the bulk with an undivided share equivalent to the quantity of goods that have been paid for and are due for delivering." (emphasis added)

102 In the second reading speech accompanying the Bill it was said:

"The Bill will clarify ownership of bulk goods, such as grain, wine or other goods, that are produced by individuals but are stored in a communal facility. Bulk goods are goods that have been deposited by their owners into storage with goods of the same kind that are owned by others. As such, the goods of one owner become intermingled with the goods of another - for example, with grain or wine...

Under s 21 of the Sale of Goods Act 1923, where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. Currently the storage of goods in bulk facilities is considered unascertained. The goods become ascertained only once they have been separated from the bulk. In the case of grain, this is when they are loaded on a truck for delivery...

My bill amends the Sale of Goods Act 1923 to ensure that a purchaser of goods to be delivered from a bulk storage can, by paying for them, obtain a proprietary right to the goods before they are separated out from the bulk." (emphasis added)

103 This material reveals that s 25A is intended to be directed to a circumstance where a purchaser buys goods from a "bulk storage", or a "communal facility".

104 In my opinion, upon its proper construction:

(1) section 25A only applies if the contract in question is one for the sale of unascertained goods of which some or all of the goods formed, at the date of the contract, "part of a single bulk quantity of goods of the same kind"; and

(2) it is only if that matter is established that consideration is given to the fulfilment of the conditions specified in s 25A(1)(a) and (b) (namely, identification of the bulk either in the contract itself or in a later agreement, and payment of some of all of the goods forming part of the bulk).

105 In my opinion, what the section requires is that, at the date of the contract, the unascertained goods referred to in the contract formed, that is actually constituted, a part of a "single bulk quantity of goods of the same kind" available for sale by the vendor to the purchaser.

106 That conclusion follows from the language of the section. It is also consistent with the evident legislative object, as revealed in the extrinsic material to which I have referred.

107 By the Purchase Agreement, CMA was contracting to supply the requisite quantity of scrap by no later than 15 July 2013 (the "last Date of Shipment" - see [14] above). As Mr Mackay submitted, how CMA was to achieve or perform its obligation was a matter for it.

108 There is no evidence that, as at the date of the Purchase Agreement, CMA held a "single bulk quantity" of scrap from which the scrap identified in the Purchase Agreement was to be drawn. The fact that, after the Vessel was loaded, the area where the scrap had been was "swept clean" and that CMA was unable to provide the 1,367 MT suggests that it did not.

109 It follows, in my opinion, that assuming NSW law governs the Purchase Agreement, s 25A would not be engaged by the facts of this case.

Personal Property Securities Act 2009 (Cth)

110 Evidently for reasons of abundant caution, THC lodged a verification statement pursuant to s 156 of the Personal Property Securities Act 2009 (Cth) (the "PPS Act") on 2 August 2013 in the Personal Properties Securities Register (on which occasion it did not assert that it had a "Purchase Money Security Interest") and again on 5 December 2013 (on which occasion it did assert that it had a "Purchase Money Security Interest").

111 Nonetheless, it was common ground before me that THC's interest in the 1,367 MT was not a "security interest" of the kind referred to in s 12 of the PPS Act and that, accordingly, the PPS Act did not apply.

112 I agree. The PPS Act only applies to a "security interest" which is defined in s 12 of that Act as:

"...an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property)."

113 THC's interest in the 1,367 MT was the interest of a purchaser under a contract in respect of which payment had been made and, as I have found, property passed. While CMA retained possession of the scrap metal, it cannot be said that THC's interest in the 1,367 MT as owner "in substance" secured payment or performance of any obligation of CMA. The only "obligation" that CMA had was that of a bailee to deliver the goods to THC, or at its direction. I accept THC's submission that it cannot be said that the interest of an owner/bailor in the owner's bailed goods is an interest that "in substance" secures the bailee's obligation to deliver the goods to the owner or make them available for collection.

114 For those reasons I do not propose to give any further consideration to the PPS Act.

Administrators' disposition of the 1,367 MT was in contravention of s 442C of the Corporations Act 2001 (Cth)

115 Section 442C(1) of the Corporations Act 2001 (Cth) ("the Act") provides that, relevantly, an administrator of a company "must not" dispose of property in the possession of the company of which someone other than the company is the owner.

116 Section 442C(2) provides that s 442C(1) does not prevent a disposal "in the ordinary course of the company's business", with the written consent of the owner or with leave of the Court.

117 The Court may only give such leave if satisfied that "arrangements have been made to protect adequately the interests of...the owner" (s 442C(3)).

118 It is common ground that the sale by the administrators of the 1,367 MT, as part of the sale of the entirety of CMA's plant equipment and stock, was not a sale "in the ordinary course" of CMA's business: for example per Street J in Re Bradford Roofing Industries Pty Ltd (in liq) & Companies Act [1966] 1 NSWR 674 at 680; and per Cohen J in Osborne Computer Corporation Pty Ltd v Riddell (1995) 17 ACSR 606 at 611.

119 I have concluded that on 22 July 2013 the 1,367 MT was "ascertained" and that property in the 1,367 MT passed from CMA to THC.

120 It follows that when the administrators sold all of CMA's plant, equipment and stock (including the 1,367 MT) to Sell & Parker on 11 September 2013, it sold THC's property and thus acted in contravention of s 442C of the Act.

121 I discuss the significance of this finding below.

Once property passed, and the purchase price paid, did CMA owe a fiduciary duty to THC?

122 Once title in the 1,367 MT passed from CMA to THC, and once THC paid for that scrap, CMA held the 1,367 MT for THC as a bailee for reward.

123 At common law, a bailee is under a duty to take reasonable care of the bailor's goods (see N Palmer, Palmer on Bailment, (3rd ed, 2009) at [14-010]).

124 Although a bailee does not necessarily, or even usually, owe a bailor a duty to act in good faith, in this case the parties agreed that once the scrap became THC's property, then CMA would hold it "in good faith in the yard until shipment is completed" (the Title Provision: see [19] above).

125 As Mr Nell submitted, the words "in good faith" are words of fidelity and confidence and bespeak an intention by the parties that if, as happened, CMA remained in possession of the goods after title passed, its duty would rise beyond taking reasonable care.

126 In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Mason J said at 101:

"Its been well recognised, at least since the judgment of Jessel MR in In re Hallett's Estate (1880) 13 Ch D 696 at 708 and 709, that a bailee stands in a fiduciary relationship with his bailor when the bailor entrusts to the bailee goods to be held or dealt with for the benefit of the bailor or for certain limited purposes stipulated by the bailor."

127 Mason J also said, at 97:

"That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them."

128 CMA's promise to hold THC's 1,367 MT "in good faith" after title passed demonstrates that the parties intended that CMA would only deal with those goods "for the benefit of" THC and would thus hold the goods for THC as a fiduciary.

129 It follows in my opinion that once, on ascertainment, title in the 1,367 MT passed to THC, CMA was, vis-à-vis THC a fiduciary and was bound not to act in a manner that preferred its interests over those of THC.

THC's alternative claim to an equitable proprietary interest

130 Mr Nell submitted that if property in the 1,367 MT did not pass to THC because it was not "ascertained", and if s 25A of the NSW SGA did not apply, then in the alternative, THC had an equitable interest in the 1,367 MT (or the proceeds of its sale) or in the purchase money paid by THC to CMA on the basis of either an equitable lien or an express trust.

131 As I have held that property in the 1,367 MT did pass to THC, these issues do not arise for consideration. Indeed, in his written submission, Mr Nell accepted that an equitable lien could only arise in circumstances where property had not passed and that, if property had passed, there would be no utility in the imposition of a trust of the kind for which THC contended.

Remedies - declaratory relief

132 THC sought a declaration to the effect that it was at all times from 22 July 2013 the owner of the 1,367 MT.

133 It follows from my conclusions, that THC is entitled to a declaration to this effect.

Claims against the administrators

134 THC seeks damages from the administrators on an number of bases:

(a) damages pursuant to s 1324(10) of the Act;

(b) damages for breach of s 442C of the Act;

(c) compensation under s 447E of the Act;

(d) equitable compensation for knowingly assisting a breach of fiduciary duty by CMA.

Damages for conversion

135 THC also initially made a claim against the administrators for damages in conversion.

136 However, s 440B of the Act provides, relevantly, that during the administration of the company an owner of property in the possession of the company, cannot take possession of the property without the administrators' consent or the leave of the Court.

137 Thus, in the course of submissions, Mr Nell accepted that THC could not establish that it was entitled to immediate possession of the 1,367 MT and thus had no standing to sue for its conversion: see Barrymores Pty Ltd v Harris Scarfe Ltd (Administrators Appointed) (Receivers & Managers Appointed) [2001] WASC 210; 25 WAR 187 per Roberts-Smith J at [95] ff.

138 Accordingly, THC's claim for damages in conversion was not pressed.

Section 1324(10) of the Act

139 THC seeks damages under s 1324(10) of the Act for the loss it has suffered by reason of the administrators' sale of the 1,367 MT in breach of s 442C of the Act (see [120] above).

140 An issue arises as to whether s 1324(10) is available to THC for this purpose.

141 Section 1324(1) of the Act provides, relevantly, that where a person engages in conduct in contravention of the Act, the Court may on the application of a person whose interests had been affected by the conduct, grant an injunction restraining the conduct.

142 Section 1324(10) provides:

"Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person."

143 These proceedings were commenced on 19 September 2013 when THC made an ex parte application for injunctive relief to McDougall J. The precise relief sought, and granted, was an injunction restraining CMA "through itself, its servants or its agents (including the administrators appointed to it), from disposing or dealing with" the 1,367 MT. At that stage, THC did not allege a breach by the administrators of s 442C of the Act or identify s 1324(1) of the Act as the source of the Court's jurisdiction to grant an injunction.

144 McDougall J granted an order up to 24 September 2013, restraining CMA and the administrators from dealing with the 1,367 MT.

145 Unbeknown to THC, the administrators had, eight days earlier, sold all of CMA's plant, equipment and stock (including the 1,367 MT) to Sell & Parker.

146 At the return date of the summons on 24 September 2013, and presumably on revelation by the administrators to THC of the sale to Sell & Parker, the injunction granted on 19 September 2013 was dissolved by consent. However, McDougall J's ex tempore judgment on 24 September 2013 reveals that there was argument before his Honour concerning "the proceeds of sale of the scrap metal in question". The administrators, without prejudice and without admissions, offered an undertaking to not "dispose (from the proceeds)...a sum which is the amount [THC] says it paid for the scrap metal in question" (at [10] of the ex tempore judgment). THC sought wider relief. Ultimately McDougall J concluded "that the restraint in respect of the proceeds of sale should go no further than the undertaking offered by the administrators" (at [12] of the ex tempore judgment). Accordingly, McDougall J noted the administrators' undertaking to not dispose of or deal with $371,824 from the Sell & Parker proceeds. That undertaking was in due course continued and, as I have mentioned, $371,824 remains set aside pending the outcome of these proceedings.

147 In these circumstances, Mr Nell submitted that, by reason of s 1324(10), I have power to award THC damages against the administrators for the loss it has incurred as a result of the contravention of s 442C.

148 It is well established that a claim for damages under s 1324(10) cannot arise if there is "no prospect" that the Court would grant an injunction pursuant to s 1324(1) (GE Capital Australia v Davis [2002] NSWSC 1146; 180 FLR 250 per Byrson J at [60] and Jovanovic v Commonwealth Bank of Australia [2004] SASC 61; 87 SASR 570 at [115] per Besanko J, with whom Mullighan J agreed).

149 Mr Mackay submitted that THC had no standing to seek an injunction restraining the administrators from selling its property in breach of s 442C because, at the time proceedings were commenced, the property had already been sold (and thus that THC had "no prospect" of obtaining injunctive relief) and because s 442C(7) of the Act provides that once an administrator disposes of property the subject of a security interest, the disposal extinguishes the security interest.

150 In my opinion s 442C(7) is not relevant to this question. THC does not assert a "security interest" in the property. It sought injunctive relief upon the basis that it was the owner of the property.

151 It is true that when proceedings were commenced, the sale by the administrators to Sell & Parker had been concluded. It does not follow, however, that THC had "no prospect" of obtaining injunctive relief. When the proceedings were commenced, the administrators retained the relevant proceeds of sale. Those proceeds were, as I have discussed, the subject of argument before, and injunctive adjudication by, McDougall J on 24 September 2013.

152 So far as concerns the scope of s 1324(10), Black J observed in In the matter of Colorado Products Pty Limited (in prov liq) [2013] NSWSC 1613 at [41]:

"The scope of [s 1324(10)] and its predecessors has been a matter of considerable controversy in the case law; a wider construction was given to predecessors of s 1324(10) in early case law, before the narrower construction came to prevail...".

153 Thus Bathurst CJ recently said in Dungowan Manly Pty Limited v McLaughlin [2012] NSWCA 180:

"...although Cohen J in Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722 at 728 held that damages could be awarded even where no injunction is sought under the predecessor to s 1324(10) (s 574(8) of the Companies (NSW) Code, which is in identical terms to s 1324(10)), the predominant view in subsequent cases has been that damages can only be awarded in proceedings where an injunction is actually sought: Executor Trustee Australia Ltd v Deloitte Haskins & Sells [1996] SASC 5874; 135 FLR 314 at 317-318 per Perry J; Waterhouse v Waterhouse (1999) 46 NSWLR 449 at 490-491 per Windeyer J (in which his Honour accepted the remarks of Perry J over those of Cohen J); Artistic Builders Pty Limited v Elliot & Tuthill (Mortgages) Pty Limited [2002] NSWSC 16; 10 BPR 19565 per Campbell J (as his Honour then was)."

154 The question has now been the subject of detailed consideration by the Court of Appeal of the Supreme Court of Queensland in McCracken v Phoenix Constructions (QLD) Pty Ltd [2012] QCA 129; [2013] 2 Qd R 27 (handed down several weeks before the hearing in Dungowan).

155 In that case, Fraser JA, with whom White and Applegarth JJA agreed, drew attention to the observations of Perry J in Executor Trustee Australia Ltd v Deloitte Haskins & Sells (to which Bathurst CJ referred in Dungowan), that "the focus of the section is upon the power to grant injunctions and its exercise, rather than the creation of rights to damages" (at [24]).

156 Fraser JA gave detailed consideration to the question of when the Court's power under s 1324(10) is enlivened. At [30] his Honour said:

"There is no necessary correlation between the liberality of the test in s 1324(1) for standing to apply for an injunction and the entitlement to recover damages under s 1324(10). Although the latter subsection empowers the court to award damages 'to any other person' and does not define the nature of those 'damages', it does not follow that the court might award any measure of damages to any person for any effect upon that person's interests. The very unlikely results of [this construction] may be avoided by taking into account the statutory context, including the conventional function of 'damages' and the expression in s 1324(10) 'either in addition to or in substitution for the grant of the injunction'. In the case of a contravention of the Act, the subsection may be seen as conferring power to award damages only as a substitute remedy, or supplementary remedy, for an injunction to remedy, or partly remedy, to adverse effect upon interests which are protected by the provision of the Act which has been contravened." (emphasis added)

157 These are recent, considered, observations of an intermediate appellate court which I consider are binding on me, and "likely to be followed by the Court of Appeal in this State by reason of the importance given to uniformity of decision making in respect of the Act" (per Black J in In the Matter of Colorado Products Pty Ltd (in prov Liq) [2014] NSWSC 789 at [397] to [400] citing his Honour's earlier judgment in In the Matter of Colorado Products Pty Limited (in prov liq) [2013] NSWSC 1613).

158 However, I see the facts in this case as being very different from those before the Queensland Court of Appeal in McCracken.

159 In McCracken the respondent to the appeal, Phoenix Constructions Pty Ltd, was a builder. It had commenced proceedings against a developer, Coastline Constructions Pty Ltd, of which Mr McCracken was a director. Phoenix had a valid contractual claim against Coastline for damages, evidently arising out of a contract pursuant to which Phoenix agreed to construct a development on a property owned by Mr McCracken's wife. Mr McCracken caused Coastline to, in effect, abandon its contractual interest in the property. Phoenix joined Mr and Mrs McCracken as defendants and sought injunctive relief to compel Mrs McCracken to transfer the property to Coastline.

160 Phoenix then sought to bring an action in damages against Mr McCracken alleging a breach by him of his duties to Coastline pursuant to s 182(1) of the Act and claiming that it, Phoenix, had suffered damage as a result of such breach.

161 In that context, following his observations set out at [156] above, Fraser JA said:

"In this case, for example, the claimed injunction required Mr McCracken to cause Mrs McCracken to transfer to [Coastline] the real property which was alleged to have been diverted from [Coastline] by Mr McCracken's contravention of the duty he owed [to Coastline] under s 182(1). Such an injunction, if it were effective, would appropriately have remedied the adverse effect upon [Coastline's] interests which are protected by s 182(1)...If the injunction could not be granted, a substitute remedy would be to award damages in favour of [Coastline] by way of compensation for the irretrievably lost property; if only part of the property could be returned to [Coastline] pursuant to an injunction, a supplementary remedy (damages 'in addition' to the injunction) might provide compensation [to Coastline] for the value of that part of the property irretrievably lost as a result of the contravention. An award of damages in favour of [Phoenix] would not be a substitute or supplementary remedy for the claimed injunction in that way."

162 For those reasons, amongst others, the Queensland Court of Appeal rejected the trial judge's conclusion that the mere inclusion by Phoenix of a claim for injunctive relief was "sufficient for the purposes of maintaining the claim for damages" by Phoenix against Mr McCracken (see Phoenix Constructions (Queensland) Pty Ltd v Coastline Constructions (Aust) Pty Ltd [2011] QSC 167; 84 ACSR 562 at [56] per Cullinane J).

163 On the facts, Fraser JA concluded that the claim for damages made by Phoenix against Mr McCracken could not be regarded as a "substitute or supplementary remedy" for its claim for injunctive relief against Mrs McCracken. That was because there was no direct relationship between the injunctive relief sought and the damages claimed.

164 In this case, however, there is a direct relationship between the injunctive relief sought by THC at the outset of these proceedings and the damages now sought. Now that a breach by the administrators of s 442C of the Act can be recognised, THC's application for injunctive relief at the outset of these proceedings can be seen to have had, as one of its bases, s 1324(1) of the Act. As THC did not know that the administrators had sold its 1,367 MT, THC originally sought to restrain disposition of its property. Thereafter, in substance, the administrators offered to preserve the status quo by retaining and segregating the proceeds ($371,824). THC sought wider injunctive relief, albeit without success.

165 The claim for damages now made against the administrators by THC under s 1324(10) for breach of s 442C of the Act is in substitution for, or supplementary to, that claim for injunctive relief. In effect, THC seeks compensation from the administrators for the damage it has suffered by reason of the sale of its property (in contravention of s 442C), which it sought to, but was unable to, restrain. In my opinion, I have jurisdiction to make such an award.

166 THC has suffered damage by reason of the administrators' contravention of s 442C. Its property has been sold to Sell & Parker. On the face of it, THC is entitled to damages to compensate it for that loss.

Free standing remedy for breach of s 442C?

167 Alternatively to his submissions concerning s 1324(10) of the Act, Mr Nell submitted that I should hold that a breach of s 442C by administrators gives a private law claim for damages at the suit of the owner of the property which has been sold.

168 Whether or not such a private law claim arises is, as Mr Nell accepted, a matter of statutory interpretation.

169 In Sovar v Henry Lane Pty Ltd (1967) 116 CLR 397 Kitto J said at 405:

"The intention that a such private right shall exist is not...conjured up by judges to give effect to their own ideas of policy and then 'imputed' to the legislature. The legitimate endeavour of the courts is to determine what inference really arises, on a balance of considerations, from the nature, scope and terms of the statute, including the nature of the evil against which it is directed, the nature of the conduct prescribed, the pre-existing state of the law, and, generally, the whole range of circumstances relevant upon a question of statutory interpretation...It is not a question of the actual intention of the legislators, but of the proper inference to be perceived upon a consideration of the document in the light of all its surrounding circumstances." (citations omitted)

170 Mr Nell drew attention to the observations of Young CJ in Eq (as his Honour then was) in Ultimate Property Group Pty Ltd v Lord [2004] NSWSC 114; 60 NSWLR 646 to the effect that the legislature intended that s 420A of the Act give rise to a private action against "controllers" who do not achieve market value when exercising sale powers. Mr Nell submitted that I should come to the same conclusion concerning s 442C.

171 However, a contrary view was expressed by Bryson J in GE Capital at [53ff] and Young CJ in Eq's view has been doubted in later cases (for example, Florgale Uniforms Pty Ltd (Receiver and Manager Appointed) (in liq) v Orders [2004] VSC 65; (2004) 11 VR 54 at [383]-[388] per Dodds-Streeton J).

172 In those circumstances, I consider it more productive to consider the precise statutory context of s 442C itself.

173 Mr Nell submitted that the following factors supported a conclusion that contravention of the statutory requirement in s 442C was actionable at the suit of, in this case, THC as owner of the goods.

174 First, Mr Nell pointed out that, by reason of s 440B of the Act, an owner of property in the possession of a company under administration is not able to take possession of the property or otherwise recover it. As I have discussed (see [137] above) the consequence of this is that such a party cannot establish it is entitled to immediate possession of the goods and thus is not in a position to bring an action for damages in conversion against an administrator who disposes of them. Mr Nell submitted that it would be a "remarkable conclusion" that, in those circumstances, an owner of property in the possession of a company under administration should be left without a remedy against administrators who have disposed of the property contrary to the proscription in s 442C.

175 Second, Mr Nell submitted that s 442C is for the specific protection of, relevantly, the owners of property in the possession of a company in administration. Those owners are the persons who would naturally suffer any loss where their property has been sold contrary to the proscription in s 442C.

176 Third, Mr Nell submitted, administrators themselves are protected by other features of the statutory regime. If they are in doubt about whether or not they should sell particular property, they can seek the consent of the property owner (s 442C(2)(b)), or the leave of the Court (s 442C(2)(c)) or directions from the Court under s 447D of the Act.

177 There is weight in each of these submissions. They do not, however, persuade me that the legislature intended to confer a freestanding or private cause of action in the event of the breach by an administrator of s 442C.

178 Section 442C is contained in Part 5.3A of Div 8 of the Act. Part 5.3A contains a number of provisions to which a party in the position of THC might have resort in order to seek relief in relation to an alleged contravention of s 442C.

179 Each of s 447A (which provides that the Court "may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company"), s 447B(2) (which provides that, on the application of a creditor of a company "the Court may make such order as it thinks necessary to protect the creditor's interest while the company is under administration"), or s 447E (which provides that the Court "may make such order as it thinks just" if it is satisfied that an administrator has managed the company's business in a way that is "prejudicial to the interests of some or all of the company's creditors or members") is potentially available.

180 Whether or not, in the particular circumstances of this case, any of those sections is actually available, their evident broad scope, and potential availability point, in my opinion, to the conclusion that the legislature did not intend that aggrieved parties would have wider, implicit remedies available.

181 For those reasons, I am not prepared to infer that the legislature intended a private right of the kind contended for by THC.

Section 447E

182 In his reply submissions, delivered after the conclusion of oral argument, Mr Nell submitted, as a "final alternative" that I should make an order pursuant to s 447E that the administrators pay THC the loss which it sustained by reason of the breach of s 442C.

183 A claim under s 447E is not pleaded, and, despite the belated submission, no application has been made on behalf of THC to amend its pleadings to include such a claim.

184 No explanation has been put forward as to the delay in raising this argument.

185 Further, Mr Mackay has informed me, and I accept, that he may have conducted his case differently (for example by adducing evidence concerning the circumstances of the 11 September 2013 sale) had THC brought an application under s 447E in a timely manner.

186 In those circumstances, I am not prepared to entertain this submission.

Knowing assistance in a breach of fiduciary duty

187 I have held that, by promising to hold the 1,367 MT "in good faith" CMA undertook a fiduciary obligation in respect of those goods.

188 On 11 September 2013, CMA, by the administrators, sold the goods to Sell & Parker and thus clearly preferred its interests in the goods to those of THC as owner.

189 CMA thus acted in breach of its fiduciary duty to THC.

190 THC alleges that as it was the administrators that caused the sale they have "knowingly assisted" CMA in that breach of duty and are thus liable to make equitable compensation to THC.

191 Although the matter was not developed by Mr Nell in his written or oral submissions, I did not understand his submission to be confined to the second limb of Barnes v Addy (1874) LR 9 Ch App 244 (which would have necessitated a finding of dishonest and fraudulent design on the part of CMA, and knowledge of that design by the administrators: Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; 230 CLR 89 at [160]).

192 Barnes v Addy is not an exhaustive statement of the circumstances in which accessorial liability will render a party accountable in equity.

193 Thus, in Farah, the High Court observed (at [161]):

"[The second limb] not expressed by Lord Selborne LC as an exhaustive statement of the circumstances in which a third party who has not received trust property and who has not acted as a trustee de son tort nevertheless may be accountable as a constructive trustee. Before Barnes v Addy, there was a line of cases in which it was accepted that a third party might be treated as a participant in a breach of trust where the third party had knowingly induced or immediately procured breaches of duty by a trustee where the trustee had acted with no improper purpose; these were not cases of a third party assisting the trustee in any dishonest and fraudulent design on the part of the trustee." (citations omitted)

194 In Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6; 700 FCR 296, the Full Court of the Federal Court (Finn, Stone and Perram JJ) said at [245] that one circumstance where "a third party's participation in another's breach of fiduciary duty or breach of trust could render that person accountable as 'contractive trustee'" was:

" ...where the third party knowingly induces or procures a breach of trust or breach of fiduciary duty whether for his or her own, or for another person's, benefit [in which case] it is not necessary to show any dishonest or fraudulent design here: see Elders Trustee and Executor Co Pty Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 238-239; Farah Constructions, at [161]; and see generally Harpum, 'The Stranger as Constructive Trustee' (1986) 102 LQR 114 at 141-144"(at 242] and [245])."

195 The Full Court said that that there is no "inflexible formulae" governing the imposition of accessorial liability, and that relevant factors included whether the participant induced or procured the breach of duty, and "the extent of the participant's knowledge or, assumption of the risk of, or indifference to, actual, apprehended or suspected wrongdoing by the fiduciary" (at [247]).

196 Here, the administrators actually "procured" the breach of fiduciary duty. They caused the 1,367 MT to be sold to Sell & Parker as part of the sale of CMA's plant, equipment and stock. It seems to me to be most unlikely that CMA would have disposed of the 1,367 MT (other than to SIMS), had the administrators not been appointed. Prior to the appointment of the administrators, it seems clear that CMA accepted that THC had title to the 1,367 MT and expected that, in due course, SIMS would collect from its yard such scrap to which it was entitled pursuant to its arrangements with THC. Indeed, as I have said, on 2 August 2013, Mr Brenssell told the administrators' representatives that his view was that the 1,367 MT belonged to THC.

197 THC, through its solicitors, made quite clear to the administrators that it asserted ownership of the 1,367 MT. It was not until the administrators' solicitors' letter of 5 September 2013 (see [61] above) that CMA (by its administrators) disputed this. One week later, on 12 September 2013, the administrators announced the sale to Sell & Parker.

198 The administrators chose to sell the 1,367 MT knowing that there was a dispute about CMA's title to those goods, and without notification to THC. That was robust conduct. No doubt the administrators were confident of the correctness of the advice they received (assuming it was to the same effect as their solicitors' letter of 5 September 2013). But they could not be sure (as this case shows). By selling, they assumed the risk that, contrary to the position advanced on their behalf (and as I have found), THC and not CMA had title to the 1,367 MT. That conduct is, in my opinion, sufficient to attract accessorial liability and to impose on the administrators an obligation in equity to account for their conduct.

Conclusion

199 Having expressed these conclusions, I will list the matter at a time convenient to counsel to consider what further steps must be taken before final orders can me made.

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Decision last updated: 21 August 2014