The attempt by the administrators of Mossgreen Pty Ltd, a high-profile auction house whose central business was to sell items at auction on a consignment, to recover over $1 million in costs from consignors has suffered another setback.
In order to facilitate the return of items to consignors, and overcome shortcomings in Mossgreen’s inventory management systems, the administrators undertook a stocktake of all items in Mossgreen’s possession (irrespective of their value and whether they had been abandoned) at a cost of over $1 million. The administrators subsequently sought directions from the Federal Court of Australia that they held an equitable lien over the consigned items and were justified in recovering their costs from consignors by imposing a levy of $353.20 per lot as the condition for releasing the items. In some cases, the levy exceeded the estimated value of the items and the items were and could be carefully described.
At first instance, Perram J dismissed the directions sought because the stocktake, however noble in sentiment, did not relate to Mossgreen’s property and did not fall within the administration of Mossgreen’s affairs. Perram J distinguished other cases which recognised an equitable lien in circumstances where there is comingled company property or disputes as to ownership. Perram J held that the administrators were ‘intermeddling’ in other people’s goods in circumstances where they had not been invited to do so. The administrators appealed.
In disagreement with the primary judge, Allsop CJ and Banks-Smith and Colvin J held that it was within the administrators’ statutory functions to continue to perform the function of holding the consigned items and to take steps for their management and return. Accordingly, the Court held there is potentially an entitlement to an equitable lien for work properly done and expenses properly incurred that benefit a consignor by securing and protecting their property held at the company’s premises until it is returned under an efficient process proportional to the nature of the goods in question.
Nevertheless, the Court was not satisfied that the administrators were entitled to an equitable lien of the kind and in the amount contended for because:
- much of the administrators’ costs related to consignors who were in a position to demonstrate their claim without the need for a stocktake or the associated delay in doing so;
- even if there was a need to undertake a stocktake, then that need arose from a breach of Mossgreen’s obligations as bailee to maintain an adequate inventory system and, as such, those costs should not fall on the consignors ahead of the general creditors; and
- much of the administrators’ costs has been incurred for the benefit of the general body of creditors who had an interest in preserving the engagement of employees, exploring the possibility of a DOCA and undertaking a stocktake to demonstrate the extent of consigned items that a purchaser of the business might take on for sale by auction.
The Court was critical of the administrators’ decision to not seek directions at an early stage. The Court found it difficult to provide judicial advice on whether the administrators’ conduct was justified in circumstances where they offered no evidence of a consideration of the alternatives that were available to them to arrange a prompt and orderly return of consigned items or of any difficulty that Mossgreen’s records posed for identifying particular items to be returned to many of the owners.