End date November 19, 1992 | ||
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Full case name Downsview Mominees Ltd and J.G. Russell v. First City Corporation Ltd and First City Finance Ltd Decided 19 November 1992 (1992-11-19) Citation(s) [1992] UKPC 34, [1993] AC 295 Prior action(s) Downsview Nominees Ltd v First City Corporation Ltd, [1990] NZCA 21, allowing in part an appeal from First Corporation Corporation Ltd v Downsview Nominees Ltd, [1989] NZHC 566 Judges sitting Lord Templeman, Lord Lane, Lord Goff of Chieveley, Lord Mustill, Lord Slynn of Hadley Judge sittings Sydney Templeman, Baron Templeman People also search for Medforth v Blake, Powdrill v Watson | ||
Downsview Nominees Ltd v First City Corp Ltd [1992] UKPC 34 is a New Zealand insolvency law case decided by the Judicial Committee of the Privy Council concerning the nature and extent of the liability of a mortgagee, or a receiver and manager, to a mortgagor or a subsequent debenture holder for his actions.
Contents
Facts
Glen Eden Motors Ltd was a New Zealand company with Fiat and Mazda car selling franchises. It gave a first debenture, securing $230,000 to Westpac, having priority over a second debenture issued to First City Corporation Ltd ("FCC"). Both loans were secured by a floating charge over all assets, and each contained the power to appoint a receiver and manager (i.e., an administrative receiver), who would be deemed to be an agent of the company, authorized to do any acts which the company could perform.
Glen Eden defaulted on the debenture with FCC, and the latter appointed receivers. The receivers thought the business was unprofitable and should be closed down, and removed the manager of Glen Eden. The ousted manager consulted Russell on the matter. As a result, Downsview Nominees Ltd (controlled by Russell) was assigned Westpac’s first debenture, and Russell became the receiver and manager under it. The ousted manager was reinstated, and First City’s receivers were relegated to a residual role.
Fearing a poor outcome, First City then offered Downsview Nominees all moneys owing under the first debenture (so it would be redeemed and First City could take charge), or alternatively to sell its second debenture to Downsview on similar terms, but this offer was declined. Glen Eden issued a third debenture to Downsview and Russell carried on the business, losing a further $500,000. First City claimed that Russell (as receiver) and Downsview Nominees (as prior debenture holder) had violated their duties to First City to:
The courts below
After an initial order in January 1988 to transfer the Westpac debenture on terms (which Russell contested and sought to avoid), in August 1989, the High Court of New Zealand held that Russell and Downsview acted for their own purposes, and not for proper purposes, in the matter and were thus liable in negligence to First City. Russell was also prohibited from acting as a director, promoter or manager of any company for five years, under s. 189 of the Companies Act of New Zealand.
On appeal, the Court of Appeal of New Zealand quashed the High Court's order insofar as it related to Downsview and First City Finance (to which First City had assigned the second debenture), and also quashed the disqualification order against Russell, as the court did not have such jurisdiction under the Act.
On application to the Privy Council, Russell appealed the Court of Appeal's order against him, and First City cross-appealed against Russell and Downsview to have the High Court orders reinstated.
Judgment
The Privy Council ruled that the High Court's order against Russell and Downsview should be restored, but upheld the quashing of the disqualification order against Russell.
In his ruling, Lord Templeman held that: