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NEPV Solar Pty Ltd (in liq) v White

 

[2014] QSC 215

 

 

SUPREME COURT OF QUEENSLAND

PARTIES:

FILE NO:

Trial

PROCEEDING:

Trial

DELIVERED ON:

2 September 2014

DELIVERED AT:

Brisbane 

HEARING DATE:

26 May 2014

JUDGE:

Jackson J

ORDERS:

The order of the Court is that:

1.It is declared that the order of the Registrar made on 23 January 2012 in proceeding BS557/12 (“the challenged order”) was obtained by fraud.

2.The challenged order is set aside.

CATCHWORDS:

PROCEDURE – JUDGMENTS AND ORDERS – AMENDING, VARYING AND SETTING ASIDE – ACTIONS TO REVIEW OR SET ASIDE JUDGMENT – WHERE FRAUD, MISREPRESENTATION OR SUPPRESSION OF MATERIAL FACTS – where the first defendant entered a loan agreement with the plaintiff company – where, the first defendant obtained an order pursuant to s 266 of the Corporations Act 2001 (Cth) to extend the time to lodge a notice of charge – where at the time of the order the company was insolvent and likely to enter external administration in a short time – whether the order was obtained by fraud

Corporations Act 2001 (Cth), s 266

Uniform Civil Procedure Rules 1999 (Qld), r 667

Cabassi v Vila (1940) 64 CLR 130, applied

Commonwealth Bank of Australia v Quade (1991) 178 CLR 134, cited

Emmanuel Management Pty Ltd (in liq) & Ors v Fosters Brewing Group Ltd & Ors [2000] QSC 430, referred to

Hewlett-Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206, referred to

IVI Pty Ltd v Baycrown Pty Ltd (2007) 1 Qd R 428, cited

McDonald v McDonald (1965) 113 CLR 529, cited

Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234, referred to

Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456, cited

Toubia v Schwenke (2002) 54 NSWLR 46, referred to

Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, referred to

COUNSEL:

BA Hall for the plaintiff

No appearance for the first defendant

SJ Forrest for the second defendant

SOLICITORS:

Creevey Russell Lawyers for the plaintiff

No appearance for the first defendant

Gadens for the second defendant

[1] Jackson J: On 23 January 2012, the Registrar made an order (“the challenged order”) under the power conferred by s 266(4) of the Corporations Act 2001 (Cth) (“CA”) extending the time to lodge a notice of a charge alleged to have been created by the plaintiff as chargor in favour of the first defendant as chargee.  On 30 January 2012, the plaintiff’s director or directors resolve to wind up the plaintiff. The winding up is a creditors voluntary winding up. Mr Combis was appointed as the liquidator.  The winding up commenced on 30 January 2012.  The plaintiff now applies for a declaration that the challenged order was obtained by fraud and for an order that the challenged order is set aside.

[2] There is a question whether there was, in fact, any charge.  But if there was, it was associated with a loan agreement made between the plaintiff as borrower and the first defendant as lender, in about December 2010. 

[3] At the time of the challenged order was made, Ch 2K of the CA had not yet been repealed.[1] Notwithstanding the repeal, there may be a nice question whether the provisions of Ch 2K would continue to apply, if the challenged order is void.[2]

[4] In most cases, s 263(1) of the CA required that where a company created a charge the company must ensure that a notice in the prescribed form and either the instrument or instruments creating the charge, or verified copies thereof together with verification of the execution, must be lodged within 45 days after the creation of the charge.

[5] Under s 266(1) of the CA, where an order was made for the winding up of a company, a registrable charge on the property of the company was void as a security on that property, as against the liquidator, unless a notice in respect of the charge was lodged under s 263 within the relevant period, if that was required.  In this case the period was 45 days, under s 263(1).

[6] However, the period under s 263(1) could be extended by an order made under s 266(4). If the period as extended had not ended at the start of the “critical day”, and the notice is lodged before the expiration of the extended period, the charge will not be void under s 266(1).  In this day the critical day, as defined under s 266(8), was the day when the winding up commenced. 

[7] The Court’s power to extend the relevant period under s 266(4) was engaged, if “it [was] satisfied that the failure to lodge a notice in respect of a charge … was accidental or due to inadvertence or some other sufficient cause or [was] not of a nature to prejudice the position of creditors or shareholders or that on other grounds it [was] just and equitable to grant relief…”.  In such a case, on the application of any person interested, the Court could “on such terms and conditions as seem to the Court just and expedient, by order, extend the period for such further period as is specified in the order”.

[8] The ground of the plaintiff’s application to set is aside the challenged order is that the order was obtained by fraud.  That is, the plaintiff alleges that the first defendant applied for and obtained the order fraudulently because it relied on facts contained in affidavit material or correspondence that it knew were false namely that:

(a)the plaintiff was solvent, that is able to pay its debts as and when they fell due; and

(b)the plaintiff was not likely to be placed into external administration in the near future  (collectively, “the false facts”).

[9] The plaintiff alleges that the first defendant was assisted in fraudulently propounding those facts by the plaintiff’s former director and chief executive officer at the time, Sean Kelly. 

[10] The constitution of the parties to this proceeding is a little unusual.  As might be expected, the plaintiff is managed by its liquidator.  It is the liquidator who propounds the first defendant’s fraud and Mr Kelly’s collusion with the first defendant.  The first defendant, however, does not appear in order to uphold the challenged order (or the charge). He has no ongoing interest in defending the plaintiff’s claim.  The second defendant stands, in effect, in his place, based on its interest as assignee or chargee of the first defendant’s property.

[11] The consequence was that none of the actors in the events resulting in the challenged order gave evidence at the trial of the proceeding.  Instead, the evidence was largely documentary.  The plaintiff relied, in particular, on emails passing between the first defendant, Mr Kelly and the plaintiff’s financial controller, Martin MacAnnally, at the end of 2011 and early 2012, as well as the lawyers who acted for the first defendant in connection with the application to obtain the challenged order.

Relevance of the false facts

[12] The plaintiff alleges that the Court would not have made the challenged order if the first defendant had not propounded the false facts and the Court had been advised of the true state of affairs. 

[13] The second defendant admits that the Court would not have made the challenged order if the false facts not been propounded.  However, it submits that insolvency or likely external administration of the plaintiff may not, of itself, have prevented the Court from making the challenged order.  It submits that is because an order extending time can be made under s 266(4) if special circumstances exist, even if the company is already in liquidation.  Further, it submits that if, on the hearing of the application for the challenged order, the evidence had not established the solvency of the plaintiff, an order may still have been made on a condition providing for liberty to any liquidator to apply or discharge or vary the order if a winding up commenced within six months of the time of the lodgement of the notices. 

[14] It is appropriate to briefly mention some of the relevant considerations in the exercise of the discretionary power to order that the period for lodgement of the notice of charge be extended.  By way of background, s 266(4) has statutory progenitors extending back to s 14 of the Companies Act 1900 (UK). Such provisions have been imported into Australian company law and updated from time to time.  The full history is set out in the reasons of Allsop J in Hewlett-Packard Australia Pty Ltd v GE Capital Finance Pty Ltd.[3]  Secondly, there are many cases considering the relevant statutory provisions from time to time.  They too are essayed in some detail in Allsop J’s reasons.[4]

[15] That case law shows that it has been the practice in New South Wales, in particular, that if an order extending the period is made in circumstances where the solvency of the company is not clearly established, express provision will be made for liberty to a liquidator to apply to set aside the order if winding up commences within six months. 

[16] Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq)[5] establishes that even if a company is in liquidation there may be circumstances where it is appropriate to make an order extending the period, if there are appropriate or “special” circumstances. 

[17] It may be accepted, however, that the structure of ss 263 and 266, as summarised above, is such that, in accordance with the decided cases, an order extending the period will not usually be made to the prejudice of unsecured creditors, where the company is insolvent and winding up is imminent.  In the present case, there was no basis advanced why an order extending the time might have been made on the true facts as they appear from the evidence on the hearing before me. 

Application to set aside for fraud

[18] The claim for an order to set aside the challenged order is made on two legal bases.   First, it is made in the equitable jurisdiction of the court to set aside an order obtained by fraud. Second, it is made under Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”), r 667.  That rule provides:

667Setting aside

(1) The court may vary or set aside an order before the earlier of the following—

(a)the filing of the order;

(b)the end of 7 days after the making of the order.

(2) The court may set aside an order at any time if—

(a) the order was made in the absence of a party; or

(b) the order was obtained by fraud; or

(c) the order is for an injunction or the appointment of a receiver; or

(d) the order does not reflect the court’s intention at the time the order was made; or

(e) the party who has the benefit of the order consents; or

(f) for a judgment for specific performance, the court considers it appropriate for reasons that have arisen since the order was made.

(3) This rule does not apply to a default judgment.

Note— For a default judgment, see rule 290.” (emphasis added)

[19] Applications to set aside a judgment or order obtained by fraud, either in the equitable jurisdiction or under r 667, are relatively rare.  One possible reason for that is the high hurdle of “strict proof” that a plaintiff or applicant who alleges fraud must be able to clear.[6]  Another is that where the basis of the order is that facts known to a party were improperly suppressed, such as by a failure to give proper disclosure, and later become known to the defrauded party, the appropriate remedy will often be by way of appeal rather than a proceeding to set aside the judgment in the original jurisdiction of the Court.[7] 

[20] The leading case, perhaps, is Cabassi v Vila.[8]  At least, that is how it was described in Emanuel Management Pty Ltd (in liq) & Ors v Fosters Brewing Group Ltd & Ors.[9]  A passage of principle from Cabassi, taken from the reasons of Williams J at 147, is as follows:

“A judgment which is procured by fraud is tainted and vitiated throughout.  If the fraud is clearly proved the party defrauded is entitled to have the judgment set aside in an action … In some of the older cases in the House of Lords it has been stated that where a judgment has been so obtained it may be treated as a nullity … In the last-mentioned case [R v Saddlers’ Co] Willes J said: ‘A judgment or decree obtained by a fraud upon a court binds not such court, nor any other; and its nullity upon this ground, though it has not been set aside or reversed, may be alleged in a collateral proceeding …’

In all these cases the judgment had been procured by collusion, and in Boswell v Coaks (No 2) … the Earl of Selborne said that the whole proceeding in such a case may be described as ‘fabula non judicium’”.

[21] There are additional cases which confirm and elucidate the principles.[10]  In the present case, the factors of particular relevance are whether the plaintiff has established that the challenged order was obtained by fraud in the sense that it is proved, to the requisite degree, that there was fraud by the first defendant and that the first defendant’s fraud was material. 

True facts

[22] Although the second defendant sought to challenge Mr Combis’s report as to whether the plaintiff was insolvent at 23 January 2012, there can be no real basis for doubting that it was. 

[23] Equally, there can be no doubt that the first defendant, the plaintiff’s chief executive officer, Sean Kelly, and the plaintiff’s financial controller, Mr MacAnnally, knew that.  It is unnecessary to do more than set out some of the communications that passed between them between mid-November 2011 and 23 January 2012, the date of the challenged order.

[24] On 15 November 2011, Mr MacAnnally advised Sean Kelly and the first defendant that the plaintiff could not meet all its debts owing to creditors and may be heading towards a stop trading position. 

[25] On 18 January 2012, by email from Sean Kelly to McLaughlin Solicitors, for the first defendant, Sean Kelly stated that after speaking with the first defendant he understood the strategy was to secure “charge number 1” against the plaintiff before looking at any potential further action. 

[26] On 18 January 2012, by an email from Sean Kelly to the first defendant, Mr Kelly said to the first defendant to “put the acid on [McLaughlin Solicitors] to complete affidavits and get the matter set for hearing, the whole office has gone into meltdown as someone has leaked info.  I need this set yesterday!” 

[27] On 18 January 2012, by an email from the first defendant to McLaughlin Solicitors, the first defendant asked if the affidavits in support of the application to extend the period could be signed that day and to “push the thing” as the plaintiff’s offices “are going into meltdown as somebody has let the cat out of the bag, and the rumours are rife”.

[28] On 18 January 2012, by email from the first defendant to Sean Kelly, the first defendant said “Who the hell knows except Martin [Mr MacAnnally] and us? I have emailed [McLaughlin Solicitors] and asked him as you see; can’t push any harder than that”. 

[29] On 19 January 2012, by email from McLaughlin Solicitors to the first defendant and Sean Kelly, McLaughlin Solicitors requested that the first defendant and Mr Kelly provide the plaintiff’s accountant’s details, with a view to the accountant providing an affidavit and to “put a positive spin on the issue raised in [Sean Kelly’s] affidavit …”. 

[30] On 19 January 2012, by email from Sean Kelly to McLaughlin Solicitors, Mr Kelly provided McLaughlin Solicitors with Mr MacAnnally’s details. 

[31] On 19 January 2012, by email from McLaughlin Solicitors to the first defendant and Sean Kelly, McLaughlin Solicitors advised the first defendant and Sean Kelly that evidence of solvency of the plaintiff would need to be obtained from someone other than Mr MacAnnally. 

[32] The inference is that on 19 January 2012 Mr MacAnnally was not able to swear to the solvency of the plaintiff.  That is consistent with the 15 November 2011 email he sent to Sean Kelly. It is also consistent with the fact of insolvency at the time as Mr Combis’s subsequent analysis of the plaintiff’s financial position demonstrates.

[33] On 19 January 2012, by email from Sean Kelly to the first defendant, Mr Kelly informed the first defendant that “I’m sweating bullets in relation to the charge”. 

[34] On 19 January 2012, by email from the first defendant to Sean Kelly, the first defendant said: “I understand that you are sweating bullets, and will ring you as soon as I know”. 

[35] On 20 January 2012, by email from McLaughlin Solicitors to the first defendant and Sean Kelly, McLaughlin Solicitors sent a draft of a document to Mr Kelly, intended to be addressed to the Registrar of the Supreme Court, which stated, inter alia, “… NEPV supports the Application by the [first defendant] for the Charge to be registered and for the ASIC Register to be updated to record the Charge as at the date that the Charge was created which was to be registered but was not done so for reasons only omission or mistake [sic]”.

[36] On 20 January 2012, by email from Sean Kelly to McLaughlin Solicitors, Mr Kelly enquired if it was possible for McLaughlin Solicitors to arrange another firm of solicitors to cut and paste the letter prepared by McLaughlin Solicitors onto their letterhead for Mr Kelly to present to the court. 

[37] On 20 January 2012, by email from McLaughlin Solicitors to the first defendant and Sean Kelly, McLaughlin Solicitors advised the first defendant and Sean Kelly that they were trying to facilitate representation for the plaintiff at the hearing of the application, but they were having difficulty finding a solicitor to provide the draft letter or to appear in court. 

[38] On 20 January 2012, by email from McLaughlin Solicitors to the first defendant and Mr Kelly, McLaughlin Solicitors advised the first defendant and Mr Kelly that they had located a solicitor who would provide the letter drafted by McLaughlin Solicitors for the plaintiff in support of the application. 

[39] On 20 January 2012, by email from McLaughlin Solicitors to the first defendant and Mr Kelly, McLaughlin Solicitors advised the first defendant and Mr Kelly that a solicitor would meet both the first defendant and Mr Kelly at a barrister’s chambers before court and request an update.

[40] On 20 January 2012, by email from the first defendant to Sean Kelly, the first defendant said that he was confident the application would go through without challenge because the plaintiff consented to the application, and that Mr MacAnnally showed his true colours by refusing to sign the affidavit of solvency.

[41] On 20 January 2012, by email from Sean Kelly to the first defendant, Mr Kelly informed the first defendant that:

“I am meeting simon [sic] this afternoon at 2.00pm to draw up an agreement to transfer the jobs to another company…

Media will start to stiff around next week I would assume, therefore I am going to grab another number so I don’t have to listen to their crap…

My goal is to mop up whatever coin I can and move to the new company.”

[42] On 20 January 2012, by email from the first defendant to Sean Kelly, the first defendant informed Mr Kelly “watch what and how you sell stuff, as the liquidators may try claw backs”. 

[43] Clearer evidence that on 20 January 2012 both the first defendant and Sean Kelly were well aware that the plaintiff was about to shut its doors and go into liquidation (and that Mr Kelly was planning to take any of the plaintiff’s money that he could in the process, - “mop up whatever coin I can”), could not be required.

[44] In my view, the plaintiff has established that the first defendant knew before 23 January 2012 that the plaintiff was insolvent, that Mr MacAnnally was unwilling to certify that the plaintiff was solvent because it was not, that Mr Kelly was in the process of transferring employees and assets or funds away from the plaintiff and that the plaintiff was likely to go into liquidation in the very near future. 

[45] As it turned out, the liquidation commenced a week after the challenged order.  That was because the plaintiff went into a creditors’ voluntary liquidation by resolution of its director or directors.

[46] The second defendant admits that the first defendant had the Court rely upon the information contained within the supporting material for the application for the challenged order which the first defendant knew was false, including that the plaintiff was solvent and was able to pay its debts as and when they fell due and that the plaintiff was not likely to be placed into external administration in the near future.

[47] However, the second defendant denies that the first defendant consciously and dishonestly sought to mislead the Court for his own benefit by causing those factual contentions to be put before the Court with the knowledge that they were untrue.  In my view, the first defendant’s actions in propounding those factual contentions were conscious, dishonest and constituted fraud and collusion within the meaning of the cases relating to obtaining a judgment by fraud. 

[48] Further, in my view, had proper disclosure of the true facts been made, particularly of the plaintiff’s insolvency (most likely for some months) and Sean Kelly’s intention to appropriate the plaintiff’s employees, “mop up whatever coin” he could, shut the doors and move to a new company, leaving the plaintiff to go into liquidation within a week, there was no prospect that the challenged order would have been made.

Conclusions

[49] It follows, in my view, that in the equitable jurisdiction of the Court the plaintiff has made out an entitlement to an order to set aside the challenged order. As the passage set out from Williams J reasons in Cabassi indicates, on that order being made the challenged order may be regarded as a nullity. 

[50] In the circumstances, it is unnecessary to decide whether, in any event, the plaintiff had in fact granted a charge to the first plaintiff.

[51] I will hear the parties on costs.

Footnotes

[1] See the repealing Act, Personal Property Securities (Corporations and other Amendments) Act 2010 (Cth), Schedule 1, s 18.

[2] See Personal Property Securities (Corporations and other Amendments) Act 2010 (Cth), ss 2(1), item 4 as to the registration commencement time and Schedule 1, s 187, inserting s 1504 Corporations Act 2001 (Cth). In effect, s 266(1) avoided a registrable charge on 30 January 2012, on the commencement of the winding up, so that s 1504(2) continues the application of s 266 in relation to the charge subject to s 1504(3).

[3] (2003) 135 FCR 206, 224-229 [63]-[75].

[4] Ibid, 229-248 [76]-[126].

[5] [1991] 2 Qd R 456.

[6] Cabassi v Vila (1940) 64 CLR 130, 147.

[7] Commonwealth Bank of Australia v Quade (1991) 178 CLR 134; IVI Pty Ltd v Baycrown Pty Ltd (2007) 1 Qd R 428.

[8] (1940) 64 CLR 130.

[9] [2000] QSC 430, [23].

[10] Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234; Wentworth v Rogers (No 5) (1986) 6 NSWLR 534; McDonald v McDonald (1965) 113 CLR 529; Toubia v Schwenke (2002) 54 NSWLR 46.

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Editorial Notes

  • Published Case Name:

    NEPV Solar Pty Ltd (in liq) v White & Anor

  • Shortened Case Name:

    NEPV Solar Pty Ltd (in liq) v White

  • MNC:

    [2014] QSC 215

  • Court:

    QSC

  • Judge(s):

    Jackson J

  • Date:

    02 Sep 2014

Litigation History

No Litigation History

Appeal Status

No Status