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Aitke, Lee --- "'Squeezing the Lemon Dry' - The Receiver, The Administrator, and the Specific Performance of the Company's Contract" [2007] MqJlBLaw 1; (2007) 4 Macquarie Journal of Business Law 1

‘Squeezing the Lemon Dry’ – The Receiver, The Administrator, and the Specific Performance of the Company’s Contract

LEE AITKEN^[*]

In the apt metaphor of McPherson J (as he then was), a receiver of a company appointed under a debenture charge is usually in the happy position of being able to ‘squeeze the lemon dry’^[1] in relation to the fulfilment by him of contractual obligations owed by the company to other parties prior to its receivership. The receiver stands in the shoes of the company as its agent,^[2] so that if the receiver fails to perform an existing contract, ‘the consequences of rendering the company liable in damages are in practice felt only by the company and through it its unsecured creditors not by the holder of the charge’.^[3] In so acting, it would appear that a receiver (even if invalidly appointed) is not guilty of any tortious interference with the contractual rights of the third party so as to give it, or the company, a claim in damages.^[4] But does interference with the existing contract represent some ‘conversion’ of it, odd as that concept first appears?^[5]

However, this possibility conceals a number of very difficult questions of contract law. First, and foremost, to what extent will the company be compelled to perform the contract? To what extent is specific performance available? If the counterparty is unlikely to be able to obtain a verdict against any exigible assets of the company, should this affect the Court’s approach? Modern contract law (explored briefly below) has seemingly extended the range of cases in which equity will intervene to enforce a promised performance – to what extent does this remedial change alter the existing position of the receiver? Is the administrator of the company in a different position? Assuming that the receiver, or administrator, is liable for the ongoing contracts of the company, to what extent if at all may he look to the assets of the company to indemnify him?^[6]

This article analyses all but the last of these important questions in the light of recent decisions in England in Land Rover Group Ltd v. UPF (UK) Ltd (in administrative receivership)^[7] and OBG Ltd v. Allan^[8].

I Characterisation of the Receiver’s Position^[9]

It is true that the receiver lacks the power to ‘annul any contract’ as Lopes LJ noted in Re Marriage, Neave and Co.^[10] Furthermore, the receiver does not relevantly ‘repudiate’^[11]any existing contract. Rather, as Master White observed in Cater-King Pty Ltd v. Westpac Banking Corporation.^.[12]

To refer to a receiver being ‘entitled’ to repudiate certain contracts but not others is, I consider, a misnomer. The true position … is that a receiver is not ‘entitled’ to repudiate any contract. The real distinction between the two kinds of contract referred to is as to the nature of the relief available to the plaintiff and not as to any ‘entitlement’ on the part of the receiver. In the case of a contract in respect of which equitable relief is given, the ‘repudiation’ by the receiver is of no avail and cannot prevent the grant of the appropriate relief by the court. In the case of contracts which do not attract equitable relief, the result of the ‘repudiation’ is to give rise to a common law claim for damages against the company’.

Thus where the company has promised to perform a particular contract it may be the subject of an order for specific performance, or an injunction to restrain breach of an implied negative stipulation in it.^[13] The classical Australian authority on the topic is the decision of Helsham CJ in Eq in Schering Pty Ltd v. Forrest Pharmaceutical Co Pty Ltd^.[14] The grant of a writ of specific performance has the largest contractual consequences. In effect, by requiring the company to perform its obligations, the beneficiary seeking the order is advanced in priority over other unsecured creditors. In a receivership, of course, the beneficiary is advanced in priority over the secured creditor since the contract will have to be completed using assets over which the security has been granted.

The position is complicated by the fact that there is no easy test at common law to determine precisely when a contract will be enforced against a counterparty.

II Interplay with the Doctrine of Efficient Breach

The doctrine of ‘efficient breach’ in English and Australian contract law ordains that the usual remedy for a breach of contract is damages – it is more economically efficient for a party denied proper performance of her contract to go into the market and replace the promised performance by acquiring the goods or services from someone else using the damages awarded against the promisor for his breach, than to require the contract to be performed specifically.^[15] As a result of this unarticulated major premise with respect to contractual relief, it is only in rare cases that a court will specifically enforce a contract.

Exceptions to the basic rule do, however, exist. Indeed, the courts seem to be increasingly willing to grant relief by way of specific performance of the promised contract, or to restrain by negative injunction the contract breaker from using the material or service to be supplied in any other way than that originally promised. Of course, a court will not order the specific performance of a contract of personal service, but it may without infringing that rule grant a negative injunction which has the same potential effect by restraining the party injuncted from carrying out any other work, or gainful activity, than that promised to the original employer. However, since every contractual covenant is capable of being construed both ‘positively’ and ‘negatively’ it has never been possible to lay down a simple metwand as to when specific performance is available for breach of a ‘negative stipulation’.^[16]

The most recent detailed analysis of the ‘rule’ may be found in the decision of the English Court of Appeal in Lauritzencool AB v. Lady Navigation Inc^[17] the English Court of Appeal has recently considered the situations in which the courts will grant such a negative order, which has the effect of requiring specific performance of the contract which is being breached. In his principal judgment, Mance LJ analysed in considerable detail the conflicting cases on the question of the availability of a particular remedy.

The facts were complex and involved an arbitration concerning the provision of two vessels pursuant to time charters under a ‘pool’ arrangement managed by the plaintiff. The defendant corporation threatened to remove their vessels from the ‘pool’ and an interim injunction was granted preventing them from employing the vessels in any manner inconsistent with the charter until the matter was finally resolved. On what basis should such an order be granted? The effect of the order, as a matter of commercial necessity, was to require the defendant to continue to provide the vessels under the charter pending the final hearing.

It was said for the defendant that the order made by the first instance judge was ‘pregnant with an affirmative obligation to perform the charterparty which is tantamount to specific performance and it is trite law that specific performance of a charterparty is not an available remedy’.^[18] However, as the trial judge pointed out, the form of the order did not in fact compel performance of the contract. Rather, it only provided ‘a financial incentive to do so in the absence of any other legitimate available employment’.^[19]

As Mance LJ noted,^[20] The Scaptrade was concerned with a rather limited question of jurisdiction which ultimately turned upon relief against forfeiture in equity where the shipowner had properly withdrawn its ship from the charter because of failure to pay the necessary payment, and the charterer sought to have that withdrawal overturned.

III The Earlier Contract Cases

Furthermore, there is a long and undisputed line of cases stemming from Lumley v. Wagner^[21] in which following Lord St Leonard’s judgment the courts have granted a negative order^[22] to prevent a contumelious breach of contract, even if personal services are involved. In Lumley, Miss Johanna Wagner had committed herself to sing at a particular theatre (twice a week for three months) and not elsewhere. Mr Gye, a rival theatre owner, then attempted to lure her away with the promise of a larger payment. As Lord St Leonards said^[23]

It is true that I have not the means of compelling her to sing, but she has no cause of complaint if I compel her to abstain from the commission of an act which she has bound herself not to do, and thus possibly cause her to fulfil her engagement (emphasis supplied).

Later cases, not involving purely personal service, confirm the availability of a negative order. Chief among these are De Mattos v. Gibson^[24] and The Lord Strathcona^[25] in which the court prevented the use of a profit-earning chattel contrary to a contractual obligation which had been undertaken in relation to it by its former owner, and of which the acquirer was aware at the time of acquisition. That is to say, it was not possible by a simple transfer of title to cut off the contractual obligation and thus leave the disappointed contracting party to its remedy in damages alone.^[26]

IV The ‘Problem’ of Supervision

It has been frequently said in the past that a major problem with the grant of any order which effectively requires parties to remain contractually obligated when their mutual trust has broken down is that it requires continual supervision by the court. The High Court in Patrick Stevedores Operations No 2 Pty Ltd v. Maritime Union of Australia (No 3)^[27] has made it clear that, whatever the old law, the availability of liberty to apply to the court at any time to work out how an order already in effect should be applied removes any problem of ‘supervision’ which might otherwise arise if an attempt were made to craft an order once and for all. If, however, the case concerns merely ‘commercial arrangements made between independent companies involving the employment of no name individuals, where the services are not ‘personal’ in nature, notwithstanding the fiduciary obligations owed by one commercial entity to another’^[28] there is no reason the court should not order that the parties remain contractually bound. The English Court of Appeal concluded that the relationship was ‘between business concerns who … can be expected to continue to make them work in their own interests, and to sort of any complaints in arbitration if necessary hereafter’.^[29]

While this decision indicates the general trend towards specific performance of an agreement as a potential remedy, it is important to note that in Co-operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd^[30] Lord Hoffmann indicated that although specific performance may be available as a remedy the Court would not usually make an order which forced a party to continue to operate an ‘unprofitable’ business.^[31] This approach raises interesting questions with respect to a receivership since it is not immediately clear into which category a receiver’s wish not to perform an existing contract should fall. Is it a case of the receiver continuing an ‘unprofitable’ business generally, or rather a case of disavowing a contract on the basis that it is more profitable to the lender not to complete it? If, as appear to be the case, the question of the irrecoverability of any damages for the breach of the contract is a factor in the grant of specific performance against the counterparty, then it would seem to follow that an order should be made against a receiver more readily, since it is inevitable that a damages claim will be unsatifisfied.

V Land Rover Group Ltd v. UPF (UK) Ltd (in administrative receivership)

It is against that contractual background that the decision in Land Rover Group Ltd must be examined. The claimant, Land Rover, had an arrangement with UPF by which the latter was to act as the sole supplier of the chassis for a particular Land Rover product. Land Rover provided the tooling to UPF to produce the chassis. In addition, Land Rover paid for the capital depreciation suffered by UPF on its investment in the plant dedicated to the manufacture of the chassis. On this basis, Land Rover ordered chassis for a particular price from UPF. Receivers were appointed to UPF who wished to sell the business as a going concern. The receivers demanded that Land Rover pay a large amount of money to secure the production of the chassis for the next twelve months.

Land Rover’s riposte was to seek an order for specific performance of the contract to supply for a period of seven months. This would give it sufficient time if it wished to find an alternative supplier. Judge Norris QC (sitting as a Deputy Judge of the High Court) held that in the circumstances a mandatory injunction would issue to prevent UPF from terminating its supply contract.

A number of separate arguments^[32] were put in favour of making such orders. His Honour rejected an argument that the receivers were relying on their own wrong and some notion of ex turpi causa applied.^[33] However, since the only possible ‘wrong’ was the intended breach of contract this ‘bootstrap’ argument was not accepted. His Honour also rejected any suggestion that the mere fact that the defendant company was in receivership necessarily prevented an order being made. His reasoning here was, with respect, not entirely clear. He drew the following distinction:

I accept that receivers are in a sense in a privileged position in relation to breaches of contract. They can cause the company to commit repudiatory breaches of contract, leaving the other contracting party to a remedy in damages against the company without any recourse personally against the receiver. The receiver is then in a position to choose whether or not to continue the contractual arrangements. That is not, however, a correct description of the position before me. This is a contract which is capable of enforcement by an order for specific performance in the form of a mandatory injunction to continue to supply.^[34]

It is, however, a fruitless distinction to point out that the contract is one which is capable of specific enforcement since that remedy is, theoretically, available to every party who wishes to enforce a contract. Of course, if there is no contract on foot which ‘secures’ the supply, then the receiver is in a position to bargain with the counterparty;^[35] if there is such a contract, then the key question is whether it can be specifically performed. His Honour did accept that the contract was one ‘for which specific performance is a suitable remedy, given that the goods to be produced under the contract are not generic good but are specific goods’.^[36] Furthermore, an argument based on a version of De Mattos v Gibson^[37] which had been extended by Browne-Wilkinson J^[38] in Swiss Bank Corp v Lloyds Bank^[39] appealed to him. Under this doctrine, if a party takes a chattel with knowledge that it is already subject to some pre-existing contractual obligation then the purchaser is bound by the contract. So, here, it was said that the debenture under which the receivers were appointed had been granted after the entry into the fixed supply contracts so that it would unjust to allow the receivers to disavow them.^[40] The interesting extension to the usual principle with respect to a chattel is the notion that ‘a plaintiff is entitled to an injunction even if he has no propriety interest in the property, because his right to have the contract performed was a sufficient interest’.^[41] Thus, on an interlocutory level, his Honour held that there was a sufficient basis for the grant of an interlocutory order compelling the further continuation of the supply contract, and that any interest of the receivers could be protected by an undertaking as to damages.^[42]

This decision is an important one because it illustrates that in certain circumstances the receiver will be required to perform the contract which is already on foot and thus be deprived of the ‘bargaining’ chip which would otherwise be available to renegotiate the terms and conditions of the existing arrangement. The overlapping contractual doctrines relied upon demonstrates the complexity of the legal position (and perhaps its inherent imprecision).

VI The Receiver and Conversion – Can a Chose in Action be ‘Converted’?

Since a receiver undoubtedly interferes with an existing contract by disavowing it, may it be plausibly contended that such interference represents a ‘conversion’ of the counterparty’s interest? One would have thought not, since conversion has hitherto been confined to an interference with the rights of an owner of a chattel to enjoy its possession.^[43] There has been no suggestion that it is possible, even theoretically, to ‘convert’ a chose in action represented by a party’s contractual entitlement to have something done.

In OBG Ltd v. Allan^[44] the House of Lords has confirmed the orthodox view in relation to a receiver who disavows an existing contract. In that case, on the basis of incorrect legal advice, an unsecured lender had purported to ‘tack’ part of its debt onto a security which, so it was said, permitted it to appoint receivers.^[45] The receivers went into possession of the company’s premises and chattels and terminated various contracts then on foot.

One of the claims which was brought against the receivers was for conversion of the existing choses in action represented by the on-going contracts which the company had had prior to their appointment. The case was also argued on the more conventional basis of interference with contractual relations.^[46] In giving the main judgment^[47] in the House of Lords, Lord Hoffmann held that it was not possible to extend the traditional remedy of conversion which has as its focus protection of an owner’s possessory rights to a chattel as a means of protecting ‘rights’ which might exist in relation to intangibles including contractual rights, notwithstanding that the latter are species of property. His Lordship held that if such an extension of the protection were to occur, then it would be a matter for the Parliament to introduce it by means of appropriate legislation.^[48]

Thus, the position seems clear in the United Kingdom at least that it is not possible to make any claim against a receiver who disclaims a contract whether that claim be based on some alleged interference with contractual relations, or on some notional application of the tort of conversion.

VII The Position with Respect to the Administrator

What is the position with respect to an administrator appointed under the Corporations Act? In The Airtourer Co-operative Limited v. Humphris and ors^[49] Beaumont J considered whether or not the administrator of a deed of company arrangement (‘DOCA’) was bound by any requirement as to specific performance. The agreement sought to be enforced involved the resale to the original vendor certain intellectual property rights involving the manufacture of aircraft which had been sold by the vendor to the company which entered administration. The terms of the contract of sale provided that certain use was to be made of the rights transferred within a specified time, failing which the purchasing company was bound to reconvey them to the vendor and forfeit the whole of the purchase price. No such use was made and the vendor sought specific performance of the promise to reconvey. The administrators demurred to the claim on the basis that the vendor was bound by the DOCA.

Intimately bound up with any such question was the related issue: to what extent could the administrator ‘cram down’ the liabilities of the company under the DOCA with respect any obligation to transfer property? This latter possibility is of particular importance in administrations since by means of the DOCA the majority creditors, provided that they do not act unfairly, can alter the agreed contractual bases upon which other groups of creditors are to be paid, to the notional general benefit of all.

A DOCA must specify the ‘property’ of the company that is available to pay creditor’s claims.^[50] A DOCA binds all creditors of the company so far as concerns claims arising on or before the day specified therein.^[51] However, a secured creditor may continue to deal with his or her property^[52]. However,

until a deed terminates … a person bound cannot (a) begin or proceed with a proceeding against the company or in relation to any of its property; or (b) begin or proceed with enforcement process in relation to the property of the company; except (c) with the Court’s leave; and (d) in accordance with such terms (if any) as the Court imposes.^[53]

To what extent then, if at all, is a party who has a contract capable of specific enforcement against the company prior to the administration, bound by the DOCA. Arguably, all creditors are bound by the DOCA, not just those who voted in favour of it.^[54] If specific performance is required, is that necessarily something which requires the Court’s assistance in terms of enforcement? The DOCA is directed at parties which have, on the day specified in the deed, a future or contingent debt or claim against the company.^[55] Beaumont J considered the crucial question to be whether or not the applicant was a contingent creditor of the company or not. If it was, then it was bound by the DOCA. In a bankruptcy case, Re Reis; Ex parte Clough^[56] Cozens-Hardy LJ held that a covenant to transfer after-acquired property pursuant to a marriage settlement was not a provable debt and was not released by the bankruptcy of the covenantor.^[57] His Honour noted that although the matter was not covered by any existing authority the claim for specific performance was based on the usual equitable rule which supports the efficacy of an assignment for consideration of property once it comes into existence. Thus, the claim was not one which was capable of being characterised as made by a ‘creditor’ and it fell outside the scope of the DOCA – ‘the character of the claim is quite different, since the proceeding for specific performance has no connection with any debt, liquidated or unliquidated’.^[58]His Honour noted that this reasoning was in accordance with that which applied with respect to a receiver’s liability under a contract capable of specific enforcement,^[59] and the position of a liquidator^[60], or trustee in bankruptcy who takes subject to all equitable claims affecting the bankrupt’s property^[61]. Thus, while recognising that the grant of relief was discretionary, Beaumont J nevertheless struck out the defence which relied on the terms of the DOCA.^[62]

VIII A Related Issue: to What Extent is Discrimination Permitted under a DOCA by way of ‘Cramming Down’?

The procedure contemplated by Part 5.3 of the Corporations Act, under which the creditors of a company which is, or may become, insolvent in the opinion of its directors, enter into a deed of company arrangement by way of a composition of the company’s debts, has proved most effective in permitting the resuscitation of a large number of companies which would otherwise have gone into liquidation to the detriment of all the creditors. The object of the Part is to maximise the chances of the company’s continuing in existence, or to provide a better return for creditors and members than an immediate winding up.^[63] A question which arises in almost every deed is the extent to which the debts of a particular creditor, or group of creditors, may be ‘discriminated against’ either by being ‘crammed down’ by having their debt less favourably treated than others, or because certain aspects of the deed may prevent a potential recovery for insolvent trading or the like against former company insiders. It is this important question which has been recently addressed by Master Newnes in Fleet Broadband Holdings Pty Ltd v. Paradox Digital Pty Ltd (subject to a deed of company arrangement).^[64]

IX The Statutory Background

In approaching its task, the court is essentially performing a balancing act between a number of competing objectives. First, it will wish to carry out the purposes contemplated by Part 5.3: Lam Soon Australia Pty Ltd v. Molit (No 55) Pty Ltd.^[65] Thus, the fact that a creditor may be prejudiced by the terms of the deed is not of itself decisive against its validity or enforcement. ‘The mere existence of the deed procedure usually means that some creditors will gain something and some creditors will lose something out of the arrangement’.^[66]

Section 445D(1) of the Act provides the grounds upon which a deed of company arrangement may be terminated. One such ground is that the deed proposes an act or omission which would be ‘oppressive or unfairly prejudicial to, or unfairly discriminatory against’ a creditor.^[67] In addition, a deed may be terminated if it is going to cause injustice.^[68] However, the court must in coming to a conclusion on the deed look to its effect, and not to its purpose. Thus, even if the purpose is to dilute an existing shareholding in the company under the deed, that is no reason not to give effect to it: Cresvale Far East v. Cresvale Securities.^[69] If it is said that the deed is unfair, then the whole of the circumstances must be examined.^[70]

In balancing the interests of creditors as a whole against those of a minority of disadvantaged creditors, the court needs to consider whether the deed is ‘unfairly discriminatory’. This will be judged ‘on standards which reasonable commercial persons acting bona fide would think to be fair’.^[71] Thus mere discrimination between creditors will not suffice; it must be ‘unfair discrimination’ or ‘unfair prejudice’. So, a deed may prescribe a differential dividend between creditors: Hamilton v. National Australia Bank Limited.^[72] There is thus no need for a pari passu distribution. The key determinant is the ‘better return’ to the creditors which is obtained under the deed as opposed to an immediate winding up. ‘That object is met if some creditors are better off than in a winding up and none are worse off under the DOCA than they would be under a winding up’.^[73].

X Impugned Arrangements

It would still be possible to terminate a deed if it has some fraudulent or wrongful purpose, or by its terms it offers an ‘unconscionable premium’ contrary to public policy by way of a ‘bribe’ to creditors to forestall any subsequent investigation of the directors’ prior conduct: Young v. Sherman.^[74] In assessing this last point, the fact that the deed succeeds by virtue of the votes of those parties whose prior conduct might otherwise be scrutinised reduces the weight to be given to the affirmative vote for the deed.^[75] In any event, the decision whether or not to terminate the deed is at all times the subject of a wide discretion, and may involve consideration of the public interest.

XI The Decision in Fleet Broadband

In Fleet Broadband it was clear that the creditors under the deed would receive a return of a little more than 15c in the dollar as opposed to nothing at all in an immediate winding up. It was contended that one effect of the deed might be to stymie possible insolvent trading claims but the administrator could not conclude either that the claims would be successful, or that any possible defendants would have funds available to meet any judgment^[76]. Furthermore, such an action would not necessarily redound to the benefit of either the employees as priority creditors, or other unsecured creditors. Thus, ‘in a situation where the choice for creditors is between a DOCA, where the funds for distribution are limited but certain and will be readily available, and a winding up, where a possibly larger distribution is dependent upon the successful prosecution of potentially complicated, time-consuming and expensive claims against former directors and creditors of possibly uncertain financial capacity, the creditors will be faced with difficult, and possibly finely balanced, commercial judgment. They are judgments with which, in normal circumstances, a Court should be slow to interfere’^[77]. This uncertainty was increased by the possible unavailability of funds to prosecute any litigation to recover the payments.

Furthermore, as Newnes M noted^[78] there were alternative courses open to the disaffected parties to the deed which would have preserved their position while also providing for those who stood to benefit under the deed. They could have proposed their own deed which would have permitted the payments to be made while also permitting a liquidator to be appointed in due course to pursue the claims which they felt were available yet they did not do so.

The time within which a meeting of creditors must be convened, a deed drafted, and then either accepted or rejected, is very short. In that time, a large number of competing interests will be in play – secured, priority, and unsecured creditors will each have a large interest in the outcome. Since it is assumed in the legislative scheme that in this case ‘equality is not necessarily equity’ there can be no reason for not permitting certain classes of creditor to achieve a better result than others so long as no-one is worse off than they would otherwise be upon an immediate liquidation. As Fleet Broadband illustrates, it will be difficult in the absence of compelling evidence to convince the court that a deed otherwise in place should be terminated on the ground that some speculative claim may, at an indeterminate point in the future, result in a possibly unenforceable judgment against former company insiders.

XII Conclusion

The question of whether or not a contract may be enforced specifically against a receiver, or against an administrator outside the apparently binding terms of a DOCA, provokes difficult contract questions. As a matter of public policy there is much to be said for the enforcement of a promise to transfer property which has been freely given for consideration by the company which then becomes insolvent. Why, however, should that party be in the happy position of achieving a ‘priority’ over all the other unsecured creditors who either receive nothing from the receivership, and a proof which will probably worthless when the company goes into liquidation? A ritualistic invocation of that old nostrum that ‘Equity treats as done that which ought to be done’ does not provide a completely fulfilling rationale! No doubt this is because the common law has not developed a sound basis for distinguishing between those creditors who pay the company for something in advance without obtaining any proprietary entitlement, and others who can enforce against the assets. It is a seductive but dangerous path to begin to reason ‘backwards’ to impose a proprietary remedy (by finding that specific enforcement is available) in a situation where the creditor is otherwise unsecured. No doubt for this sound practical reason the question will continue to exercise the Courts.

Perhaps the paradigm example of the difficult case is one which has arisen twice over twenty years in the author’s working life. A large hotel is physically owned by company X but has a very valuable ‘management contract’ under which company Y is entitled to ‘manage’ it for a considerable period. X goes into receivership. Can the receivers simply disregard the contract with Y and ‘squeeze the lemon dry’ by on-selling the right to manage (which is usually the most valuable asset of X) or can Y enforce that contract specifically? On both occasions the case has settled^[79] – it is not too much to expect with the return of a ‘business cycle’ that Time with her passages will present a suitable occasion for the definitive resolution of these issues.

^[*] Associate Professor, Faculty of Law, University of Sydney

^[1] Re Diesels and Components Pty Ltd [1985] 2 Qd R 456, 459.

^[2] The agency is of an unusual kind as many commentators have noted. While it is a ‘real’ agency (Ratford v Northavon District Council [1987] 1 QB 357, 372) it has peculiar features. It is the only example of a non-fiduciary agency and, in particular, the mortgagor cannot give the receiver directions as to how he is to carry out his functions. Similarly, a sale by the receiver to a party related to the mortgagee will not infringe the usual rule in equity in relation to a mortgagee’s self-dealing: Re Actwane Pty Ltd (2002) 42 ACSR 307; [2002] NSWSC 572; White v Huxtable; Re Lake Federation Pty Ltd (ACN 099 611 453) (recs and mgrs appt) (2007) ALR 388, 395 per Young J at [36]-[37].

^[3] Per McPherson J in Re Diesels and Components Pty Ltd at 459.

^[4] See, generally, OBG Ltd v Allan and ors [2005] EWCA Civ 106; [2005] 1 BCLC 711. The receiver may, of course, be guilty of trespass to the company’s land or goods, or conversion of its property since he has no right to immediate possession.

^[5] OBG Ltd v Allan [2005] EWCA Civ 106; [2005] 1 BCLC 711 (Court of Appeal); [2007] UKHL 21; [2007] 2 WLR 920 (House of Lords) (discussed below at text to notes).

^[6] This last matter is an important issue but will not be discussed in the article: see generally Dean-Willcocks v Nothintoohard Pty Ltd [2006] NSWCA 311; (2007) 25 ACSR 109; (first instance at [2005] NSWSC 357; (2005) 53 ACSR 587); and Hamilton v Donovan Oates Hannaford Mortgage Corp Ltd (20-7) 25 ACLC 95; [2007] NSWSC 10; Capewell v Revenue and Customs Commissioners [2007] 1 WLR 387. See, generally, Bennetts, ‘The Administrator’s Priority and the Statutory Lien’ (1994) 12(6) Company and Securities LJ 382; Walter, ‘The Voluntary Administrator’s Equitable Lien: Nature, Scope and Priority’ (2004) 12(3) Insolvency LJ 153.

^[7] [2003] 2 BCLC 222.

^[8] [2007] UKHL 21; [2007] 2 WLR 920.

^[9] The best overview is to be found in O’Donovan, Company Receiver and Administrator vol 1, 8.2130.

^[10] [1896] 2 Ch 663 cited by McPherson JA in Lake Eerie Pty Ltd (receiver and manager appointed) v Flair Realty Pty Ltd (unreported BC9202405).

^[11] Note the broader language of McPherson J in Re Diesels & Components Pty Ltd [1985] 2 Qd R 46, 459 where he discusses the matter thus: ‘what is meant by saying that a receiver has power to “adopt” a receivership contract is that he may refrain from repudiating it’.

^[12] (1989) 7 ACLC 993.

^[13] The theory which underpins the issue of an injunction to restrain a breach of a negative stipulation also applies with respect to the enforcement of restrictive covenants; see, generally, the High Court’s analysis of the whole area in Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd [1998] HCA 15, especially at paras [14] to [21].

^[14] [1982] 1 NSWLR 286.

^[15] See, generally? ‘The Case for Specific Performance as the Primary Remedy for Breach of Contract in New Zealand’ (2004) 35 UVic WLR 657; Aitken, ‘When are Damages an Adequate Remedy?’ (2004) 77 ALJ 544. For a full discussion of the possible rationales for requiring the contract to be performed, see Hammond J in ‘Butler v Countrywide Finance’ [1993] 3 NZLR 623. On the economic theory underlying the grant of specific relief, see Kronman, ‘Specific Performance’ (1978) 45 University of Chicago LR 351; Varadarajan, ‘Tortious Interference and the Law of Contract: The Case for Specific Performance Revisited’ (2001) 111 Yale LJ 739.

^[16] Doherty v Allman (1878) 3 App Cas 709, 719-720 per Lord Cairns. As Professor O’Donovan notes (op cit at 8-6053) ‘Negative stipulations are perhaps the most controversial of the prior equities to which receivers are subject’.

^[17] [2005] 1 WLR 3686; [2005] EWCA 579.

^[18] Per Mance LJ, 3690. This result was said to flow from the judgment of Lord Diplock in Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (‘The Scaptrade’) [1983] 2 AC 694, 700-701 where his Lordship held that a charterparty could not be specifically enforced and that the remedy for any breach of it was damages.

^[19] Per Mance LJ, 3692.

^[20] Per Mance LJ, 3693.

^[21] [1852] EngR 602; (1852) 1 De GM & G 604.

^[22] The classical Australian authorities confirming this position are Ampol Petroleum Ltd v Mutton (1952) 53 SR (NSW) 1; and Sanderson Motors (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513; see for full discussion, Liristis Holdings Pty Ltd v Q-Corp Marine Pty Ltd [2001] NSWSC 418 at [6] per Hamilton J.

^[23] Ibid 619-620.

^[24] 4 De G & J 276.

^[25] [1926] AC 108.

^[26] As a matter of procedure it would seem that injunctive relief to prevent the breach of the contract would need to be taken before title has passed in the chattel: see the discussion by Cussen J in King v Greig [1931] VLR 413

^[27] [1998] HCA 30; (1998) 195 CLR 1.

^[28] Per Mance LJ, 3703 quoting the trial judge.

^[29] Per Mance LJ, 3705.

^[30] [1997] UKHL 17; [1998] AC 1, 11-16.

^[31] For a recent application, see Miere J in Leisure Co Pty Ltd v City of Bunbury and anor [2006] WASC 209. And see the general discussion by Commissioner McKerracher QC in Soiland Pty Ltd v Ridgepoint Corp Pty Ltd [2005] WASC 124; Award Holding Pty Ltd FL v Fairmont Nominees Pty Ltd [2001] WASC 179, para [31]; Cooper v Griffiths [2003] WASC 55, para [17].

^[32] Some need not detain us; in particular, it was alleged that the receivers were misusing market power contrary to the United Kingdom monopoly regime, and some fiduciary obligation existed between the parties.

^[33] See, generally, Acrow (Automation) Ltd v Rex Chainbelt [1971] 3 All ER 1175; [1971] 1 WLR 1676.

^[34] [2003] 2 BCLC 236 discussing Airlines Airspares Ltd v Handley Page Ltd [1970] Ch 193.

^[35] [2003] 2 BCLC 237, para [57] discussing TransTec Automotive (Campsie) Ltd [2001] BCC 403.

^[36] [2003] 2 BCLC at 235.

^[37] (1858) 4 De G & J 276; [1843-60] All ER Rep 803.

^[38] As he then was.

^[39] [1979] Ch 548 at 569 and following.

^[40] [2003] 2 BCLC 237, para [58].

^[41] [2003] 2 BCLC 238, para [58].

^[42] The mere fact that it might be difficult ultimately to calculate the damages to be protected by the undertaking was not a reason not to grant the order: [2003] 2 BCLC 239, para [63] citing Allied Maples Group Ltd v Simmonds & Simmonds (a firm) [1995] EWCA Civ 17; [1995] 4 All ER 907.

^[43] Per White J in Hoath v Connect Internet Services [2006] NSWSC 158, [122]-[125].

^[44] [2005] EWCA Civ 106; [2005] QB 762; [2005] 1 BCLC 711 (Court of Appeal); [2007] UKHL 21; [2007] 2 WLR 920 (House of Lords).

^[45] [207] 2 WLR 920, 948, [76] per Lord Hoffmann.

^[46] There was no liability on the basis of a tort based on Lumley v Gye, or for causing loss by unlawful means because ‘there was no breach or non-performance of any contract and therefore no wrong to which accessory liability could attach. And the receiver neither employed unlawful means nor intended to cause [the company] any loss’: per Lord Hoffmann at [2007] 2 WLR at 950, [86].

^[47] Lord Nicholls of Birkenhead and Baroness Hale of Richmond dissented on this point and would have permitted an extension of the law of conversion to include claims for the ‘conversion’ of intangibles: see per Lord Nicholls 977 and following; Baroness Hale 996 and following.

^[48] [2007] 2 WLR at 950-952, [94]-[107].

^[49] [2004] FCA 393.

^[50] Section 444A(4)(b) of the Corporations Act. See, generally, on the obligations MYT Engineering Pty Ltd v Mulcon Pty Ltd [1999] HCA 24; (1999) 195 CLR 636, 649 cited by Beaumont J in The Airtourer Co-operative para [10].

^[51] Corporations Act (2001 s 444D(1).

^[52] Except in so far as the so provides in relation to a secured creditor who voted in favour of the creditor’s resolutions: Corporations Act (2001 s 444D(2)(a). If the secured creditor can exercise ‘self-help’ without curial assistance then it may do so (J & B Records Ltd v Brashs Pty Ltd (voluntary administrator appointed) (1995) 36 NSWLR 172, 181) but leave of the Court will be necessary if assistance is required: Corporations Act 2001 s 444E (see Hamilton v National Australia Bank Ltd (1996) 66 FCR 12).

^[53] Per Beaumont J in The Airtourer Co-operative para [10].

^[54] Corporations Act 2001 s 444D(1) and MYT Engineering Pty Ltd 649.

^[55] Per Beaumont J in The Airtourer Co-operative para [27] citing Brash Holdings Ltd v Katile Pty Ltd [1994] 1 VR 24; and Lam Soon, 40. Pursuant to s 553 of the Act, ‘… all debts payable by, and all claims against the company (present or future, certain or contingent, ascertained or sounding only in damages) being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof …’.

^[56] [1904] 2 KB 769, 777.

^[57] Stirling and Vaughn Williams LJJ agreed 781 and 787 respectively.

^[58] Per Beaumont J in Airtourer Co-operative para [40].

^[59] Freevale Ltd v Metrostore (Holdings) Ltd [1984] 1 Ch 199.

^[60] In re Kayford Ltd (in liquidation) [1975] 1 WLR 279.

^[61] Sonenco (No 77) Pty Ltd v Silvia [1989] FCA 462; (1989) 89 ALR 437, 445-446; 457.

^[62] Per Beaumont J in Airtourer Co-operative paras [44]-[45].

^[63] Corporations Act 2001 s 435A.

^[64] [2005] WASC 261 (hereafter Fleet Broadband).

^[65] (1996) 70 FCR 34, 48.

^[66] Per Newnes M in Fleet Broadband [58] citing Molit and Khoury v Zambena (1997) 15 ACLC 620.

^[67] Corporations Act 2001 s 445D(1)(f)(i).

^[68] Corporations Act 2001 s 445D(e).

^[69] [2001] NSWSC 89; (2001) 37 ACSR 394 at para [189].

^[70] Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707, 710 and per Newnes M in Fleet Broadband [60].

^[71] Per Newnes M [61] in Fleet Broadband citing Jenkins v Enterprise Goldmines NL (1992) 6 ACSR 539, 550.

^[72] (1996) 66 FCR 12, 38.

^[73] Per Newnes M [62] in Fleet Broadband.

^[74] (2002) 170 FLR 86 [67].

^[75] See Bathurst City Council v Event Management Specialist Pty Ltd [2001] NSWSC 34, [9].

^[76] Fleet Broadband [90].

^[77] Fleet Broadband [92].

^[78] Fleet Broadband [122].

^[79] On the second occasion one of the most senior Equity Division judges had reputedly finished a long and detailed judgment for delivery on the Monday only to be told by the parties that the case had settled!