Williams v Kim Management Pty Ltd
[2012] QSC 143
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- Unreported Judgment
- Williams v Kim Management Pty Ltd[2012] QSC 143
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Williams v Kim Management Pty Ltd[2012] QSC 143
Reported at [2013] 1 Qd R 387
Williams v Kim Management Pty Ltd[2012] QSC 143
Reported at [2013] 1 Qd R 387
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Trial | |
PROCEEDING: | Application |
ORIGINATING COURT: | |
DELIVERED ON: | 19 June 2012 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 12 April 2012 |
JUDGE: | Dalton J |
ORDER: | The order of 26 August 2011 in proceedings BS 8088/08 is set aside, so far as it affects the defendant in this proceeding. |
CATCHWORDS: | CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – LIQUIDATORS – where an application was made to set aside an order made pursuant to s 588FF(3)(b) of the Corporations Act – whether an order should be set aside as of right because a party affected by the order made was not given an opportunity to be heard on the s 588FF(3)(b) application – circumstances in which a shelf order can be made on an ex parte basis – where the plaintiff liquidator did not know that the defendant was a potential target of an application under s 588FF(1) – whether the plaintiff liquidator ought to have known that the defendant was a potential target of an application under s 588FF(1) and served the defendant – the standard expected of a party and its lawyers on an ex parte application – the duty to make proper inquiries before making an ex parte application Corporations Act 2001 (Cth) s 588FF(1), (3) Ansell v Davies [2008] HCATrans 373 Ansell v Davies [2008] SASC 203 ASIC v Karl Suleman Enterprizes Pty Ltd (in liq) [2004] NSWSC 1244 BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322 Brink’s Mat Ltd v Elcombe and Others [1988] 1 WLR 1350 Brown v DML Resources Pty Ltd (in liq) (2001) 52 NSWLR 685 Cameron v Cole (1944) 68 CLR 571 Clarecastle Pty Ltd (in liq) [2011] NSWSC 857 Commercial Banking Company of Sydney Ltd v George Hudson Pty Ltd (in liq) (1973) 131 605 Commissioner of Police v Tanos (1958) 98 CLR 383 Dahozo Pty Ltd & Anor v Oz-Us Film Productions Pty Ltd [1997] NSWSC 373 Director of Public Prosecutions (WA) v Mansfield (No 10) [1991] 2 Qd R 29 Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17 Konamanemi v Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269 Marron v City of Nedlands [2009] WASC 242 McGrath and Macintosh (as joint liquidators of the HIH Companies) [2004] NSWSC 165 Minter Ellison (a firm) v Raneberg [2011] SASC 159 New Cap Reinsurance Corporation v Reaseguros Alianza SA [2004] NSWSC 787 Queensland Police Credit Union Limited v Criminal Justice Commission [2000] 1 Qd R 626 Re Harris Scarfe Ltd (in liq) [2006] SASC 277 Siporex Trade SA v Comdel Commodities Ltd [1986] 2 Lloyd’s Rep 428 Tolcher v Capital Finance Australia Limited [2005] FCA 108 |
COUNSEL: | Mr J Sweeney for the applicant/defendant Mr C Johnstone for the respondent/plaintiff |
SOLICITORS: | Anderssen Lawyers for the applicant/defendant Minter Ellison for the respondent/plaintiff |
[1] This is an application to set aside an order made pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth). Section 588FF provides:
“(1)Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
…
(3)An application under subsection (1) may only be made:
(a)during the period beginning on the relation-back day and ending:
(i)3 years after the relation-back day; or
(ii)12 months after the first appointment of a liquidator in relation to the winding up of the company;
whichever is the later; or
(b)within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.
…”
[2] Pursuant to an order of this Court made on 24 September 2008, a liquidator was appointed to Willahra Pty Ltd. The relation-back day was 20 August 2008, consequently any application to extend time under s 588FF(3)(b) had to be made before 20 August 2011.[1] The application to extend time was filed on 22 July 2011, and the main affidavit in support was filed that day.
[3] On 26 August 2011 an order in the liquidation proceeding (BS 8088/08) was made in these terms:
“Pursuant to s 588FF(3)(b) of the Corporations Act 2011 [sic] (Cth) (Act), the time for the making of any application in respect of Willahra Pty Ltd (in liquidation) under s 588FF(1) of the Act be extended for a period of 12 (twelve) months from the date of this order.”
[4] That order was in terms of the relief sought in the application and a draft order provided to the Court. Apparently, the intention was to extend the time in which the liquidator of Willahra might bring an application under s 588FF(1). It is a shelf or blanket order, ie., it does not extend time for an application against any particular person, but generally.
[5] This proceeding was commenced in the time so extended. The defendant applies in the inherent jurisdiction of the Court, or alternatively under r 667, for the order of 26 August 2011 to be set aside, insofar as it affects the defendant, on alternative bases: (1) ex debito, because the order adversely affects the defendant’s rights, but the defendant was not given the opportunity to be heard on the application on which the order was made (a) simpliciter, or (b) in circumstances where a diligent liquidator ought to have known of the applicant as a potential target of a s 588FF(1) application; (2) for the reason that the applicant before the Judge who made the s 588FF(3)(b) order did not comply with obligations of candour on an ex parte application.
[6] On the application to extend time the liquidator swore that Willahra owned an inner-city building called M on Mary. On 15 September 2008 receivers were appointed to Willahra and did not cease acting until 12 August 2010. A second set of receivers was appointed on 7 October 2009 and did not cease acting until 11 April 2011. Until July 2011 the liquidator was in dispute with both sets of receivers, as to their paying funds to the liquidator after their clients’ debts had been satisfied. These disputes were of sufficient magnitude to lead to two sets of court proceedings. The liquidator swore that, due to these circumstances, she had been unable to conduct the necessary inquiries and investigations in order to decide whether proceedings ought to be initiated in respect of voidable transactions. She estimated that it would take “at least several months” to obtain the relevant records, analyse them and seek legal advice on whether she should institute proceedings in respect of voidable transactions.
[7] On 9 August 2011 the liquidator swore a further affidavit on the application to extend time, saying she had identified one entity (not relevant to this application) which may have received a voidable preference. Service was proved on that entity. Otherwise, the order to extend time was obtained on an ex parte hearing.
Shelf Orders Made Ex Parte
[8] The applicant accepts, for the purpose of the application before me, that there is an ability in a court to make an order pursuant to s 588FF(3)(b) in terms which do not identify any particular person who is to be the target of the proposed application under s 588FF(1). The authorities show that conclusion has not been reached easily. The difficulty is that in such a circumstance the application for the order is of necessity ex parte, and the order may affect the rights of many creditors who are not given an opportunity to be heard. It appears that special leave was granted to determine the question of whether or not a shelf application can be made ex parte in a matter of Ansell Ltd v Davies.[2]However the point does not seem to have been decided by the High Court. The matter has twice been considered at length, albeit obiter, at intermediate appellate level: Greig v Stramit Corporation Pty Ltd[3] and BP Australia Ltd v Brown.[4] In both cases, creditors against whom s 588FF(1) applications were commenced applied to set aside previous orders extending time pursuant to s 588FF(3)(b). In both cases the ground relied upon to set aside the orders was that the creditors had been known by the liquidators at the time of the exparte applications to be possible targets of s 588FF(1) applications, but had not been given an opportunity to be heard on the s 588FF(3)(b) applications. In both cases the s 588FF(3)(b) orders were set aside ex debito justitiae, so far as they affected the applicant creditors.
[9] In this case, there was a dispute as to whether or not, at the time she made the application under s 588FF(3)(b), the liquidator knew the defendant would be adversely affected by the making of the order. After cross‑examination, counsel for the defendant accepted the liquidator did not in fact realise that the defendant was a potential target of an application under s 588FF(1), before the s 588FF(3)(b) application. Nonetheless, he contended that she ought to have so realised. To that extent this case is outside the two Court of Appeal cases.
[10] In Greig v Stramit Williams JA said:
“With respect to the ‘known creditors’ the audi alteram partem rule of natural justice applied and they in consequence had a right to be heard. … I cannot see how such a conclusion can be reached without acknowledging that justice would require the same opportunity to be given to all creditors affected by the order extending time. …” – [32]-[34].
[11] Later he said:
“The argument on behalf of the liquidators also relies on the artificial distinction between recipients of payments who have been sufficiently identified and those who have not been so. The argument recognises that it is inequitable to distinguish between recipients of payments in that way, and in consequence it is said that there should be no requirement to serve anyone. The approach [below] was submitted to be unsatisfactory from the liquidator’s point of view, because a liquidator might have to serve a large body of creditors with the application or face the prospect that any subsequent proceedings initiated to seek recovery of an undue preference might be challenged on the basis that the order extending time was made without hearing from the creditor.
… The answer, in my respectful view, is not to say that no creditor need be served with the application for an extension of time, but rather that any creditor sued outside the three year limitation period must have been made a party to the application for an order extending time. …” – [43]-[44].
[12] He concluded:
“Strictly it is not necessary for this court to go beyond the limited basis on which Chesterman J. arrived at his conclusion, namely that as the liquidators knew Stramit was substantially affected by the order they ought to have served Stramit with notice of the application. But as is obvious from previous remarks in these reasons I am of the view, at least as a general rule, that the court has no power to grant a blanket extension of time pursuant to s.588FF(3) on an ex parte application.” – [50] (my underlining).
[13] Jerrard JA said:
“While the terms of [s 588FF(3)] do not mandate the construction that an application under that paragraph specify the application under [s 588FF(1)] for which the relevant extension of time is sought, requiring that that be done in the ordinary course will go a long way towards avoidance of the problems which have arisen for liquidators and the courts, in matters such as this one. … It should only be where a liquidator can satisfy the court that the date of the liquidator’s appointment, or the state of affairs of the relevant company, have resulted in the liquidator being unable to describe the nature of a possible application or applications to be brought and the identity of the potential respondent or respondents, that those circumstances take the case out of the general rule.” – [111] (my underlining).
[14] The third member of the Court, Fryberg J, said this:
“I agree with Williams J.A. that it is not possible to distinguish in this context between identified and unidentified parties to voidable transactions. Like his Honour, I think the cases will be rare indeed in which a liquidator is unable within the statutory three-year period to identify the persons against whom proceedings might be brought under s.588FF. The numbers of such persons and transactions are unlikely to be so large as to render it impracticable to bring applications for an extension of time against them as respondents or to effect service of those applications. In an appropriate case an order for substituted service might be made or, unusually, an application against a representative party might be possible. The possibility of rare hard cases does not induce me to discern in the Corporations Act any intention to abolish the audi alteram partem rule in respect of applications under s.588FF(3).” – [141].
[15] In BP Australia Spigelman CJ delivered a judgment with which the other members of the Court agreed. He said:
“The obligation to comply with procedural fairness … requires, in my opinion, that a person likely to be adversely affected by the order of the court is given an opportunity of making submissions to the court before any such order is made or if, exceptionally, an order is made without such an opportunity being given that, upon application, the person must be put in the same position as he or she would have been prior to the order being made. It is the inherent difficulty of achieving the latter that makes an ex parte order a course to be followed only in the case of necessity or other strong reason.
The creation of a situation in which a person must apply to vacate or vary an order after the order has been made is an exceptional situation. Nothing on the facts of the present case, as at the time of the first judgment, was such as to justify the exceptional course.
Perhaps there will be circumstances in which it is not appropriate to give all who may be affected by an order under s 588FF(3)(b) an opportunity to make submissions prior to the order being made. It is not necessary to determine this question. Here there was a clearly identified party with a substantial interest in the question to be determined. Nothing appeared by way of urgency or otherwise to require an ex parte order to be made. The appellant was unnecessarily placed in the position of applying to the court, pursuant to leave reserved by order of the court, to have the order discharged.” … – [134]-[136] (my underlining).
[16] Spigelman CJ considered that s 588FF(3)(b) allowed an application and order in general or shelf terms – [168]. His reasoning was:
“The power to extend the time limit for commencing proceedings is intended to provide for the circumstance in which a liquidator is not in a position to commence proceedings within three years of the relation-back day, for whatever reason. … The power should be broad enough to allow, in those circumstances, for an order granting an extension of time in general terms.” – [170].
[17] Spigelman CJ said this about the position of a creditor who was not known to be a possible target of a s 588FF(1) application and was not given an opportunity to be heard on the s 588FF(3)(b) application:
“I would wish to reserve for another day the determination of what recourse, if any, a creditor, who became targeted only after an application to extend time had been granted, would have to approach the court to challenge the extension as it affected that creditor.” – [155] (my underlining).
And later:
“I have concluded above that the court does have power to grant an extension of time in general terms … I have left open the issue of the right of persons, who are not targeted or even identified at the time of the application, to move the court to set aside the order extending time.” – [200].
[18] In BP Australia the Court of Appeal in New South Wales allowed that an ex parte application for a shelf order could be made, but only in exceptional circumstances which would justify proceeding ex parte. The underlined parts of Spigelman CJ’s judgment show how cautious he was as to when circumstances would be sufficiently exceptional. In Greig v Stramit the majority of the Queensland Court of Appeal took the view that an exparte order would not be made as a general rule. That is, the majority decision is consistent with that in BP Australia, although, some of the reasoning is perhaps not. The third member of the Court, Fryberg J, thought that an ex parte application ought not be allowed. His judgment, and that of Williams JA, show a great concern that an ex parte order has the potential to affect rights of persons not heard.
[19] The availability of a shelf order has also been considered by Doyle CJ who delivered the leading judgment in Ansell v Davies in the Full Court of South Australia.[5] Doyle CJ accepted he should act conformably with the decision in BP Australia and he did not consider the decision of Greig v Stramit was to the contrary.
[20] There are several single judge decisions subsequent to BP Australia and Greig v Stramit which proceed on the basis that a single judge should accept that there is power to make a shelf order.[6]
[21] Accepting that there is power to make a shelf order, it is clear that it should only be made in extraordinary circumstances, the same type of extraordinary circumstances which might motivate a court to act ex parte on, for example, an application for an interim injunction. Concomitant with that, is the notion that on such an ex parte application the applicant has a duty to make full and proper disclosure to the Court of any fact which might tend against granting the application. Also consistent with the nature of the application, in my view, is a necessity to grant orders which create the minimum interference with the rights of persons who are not heard. Care should be taken so that only the minimum extension of time necessary is granted. Consideration ought to be given to conditioning the order extending time so that, for example, leave is necessary before any application made under s 588FF(1) in the extended time period, is filed, or perhaps served. Such a condition would have the advantage of ensuring that before a s 588FF(1) application was brought, the respondent was heard by the Court. However, even an order conditioned in this way would adversely affect the rights of a person against whom a s 588FF(1) application was subsequently brought: they would be deprived of a valid and complete defence to the s 588FF(1) claim.[7] To make an order extending time ex parte is a serious matter, for, however the order is conditioned, the time limitation defence is lost; the order has a final effect in this regard, unlike many interim orders.
The Rights of Creditors who are not Heard
[22] Where a person is identified by a liquidator as someone who might be the target of a s 588FF(1) application, but is not given the opportunity to be heard on the s 588FF(3)(b) application, that person is entitled ex debito justitiae to have the order set aside.[8] It is not necessary to show anything more than that the applicant is affected by the order and was not given an opportunity to be heard before it was made.[9]
[23] As extracted above, in BP Australia, Spigelman CJ expressly reserved the position of a person who had not been identified as a possible target of a s 588FF(1) application at the time of the application to extend time. That decision was an appeal from a judgment of Austin J in Brown v DML Resources Pty Ltd (in liq).[10] Austin J set aside his own order extending time under s 588FF(3)(b) so far as it applied to a creditor (BP Australia) who had not been served with the application under s 588FF(3)(b). He drew a distinction between creditors a liquidator knew might be adversely affected by an order sought, and other creditors. He concluded that where a liquidator knew a particular creditor might be adversely affected, and did not give that creditor notice, the order would be set aside ex debito, as against that creditor. It is that approach which Williams JA criticised in the extract above from Greig v Stramit saying, “I cannot see how such a conclusion can be reached without acknowledging that justice would require the same opportunity to be given to all creditors affected by the order extending time.” – ie., whether they were known to the liquidator or not, see [34]. Fryberg J agreed in this criticism – “… it is not possible to distinguish in this context between identified and unidentified parties…” – [141].
[24] In Re Harris Scarfe Ltd (in liq),[11] Debelle J heard an application to set aside a shelf order. The application pursuant to s 588FF(3)(b) had been made: (1) against creditors who had been identified and served, and (2) otherwise for a shelf order in circumstances where the liquidator identified 1,500 creditors who had received payments during the relation-back period and swore that he did not know whether any of those payments was a voidable preference. None of the 1,500 creditors was given notice of the application. A shelf order was made. Debelle J set it aside ex debito justitiae on the grounds that the order deprived affected creditors of a right and had been made without notice to them.
[25] It was argued before Debelle J that, “the question whether the order will be set aside will depend on the state of the liquidator’s knowledge as to whether a creditor will become a defendant in a proceeding to set aside a voidable transaction. [Counsel for the liquidator] contended that it will not be set aside as a right where an ex parte order is obtained because the liquidator is still making enquiries as to particular creditors. So, he said, the order in respect of the [1,500] creditors … should not be set aside.” – [51].
[26] Debelle J rejected this argument saying, “The argument misconceives the effect of the rules of procedural fairness. Those rules clearly provide that a person whose rights are affected by an order of the court is entitled as of right to have that order set aside if he has not been heard in answer to the case against him. The rule applies universally to all who answer that description.” – [51].
[27] The decision in Ansell v Davies (above) was an appeal from other determinations in this decision of Debelle J. Doyle CJ notes at [20] that there was no appeal from the determination I have just outlined.
[28] The result reached by Debelle J addresses the unfairness identified by Williams JA and Fryberg J in Greig v Stramit – ie., that unidentified targets of a s 588FF(1) application have their rights affected when time is extended, but do not have an opportunity to be heard. Nonetheless, I do not read the judgments of Williams JA and Fryberg J as being to the effect that unidentified targets ought to have a right to set aside an order made pursuant to s 588FF(3)(b) ex debito justitiae, rather that the lack of such a right in an unidentified target is a strong reason militating against the making of a shelf order.[12]
[29] It is not true, with respect to Debelle J, to say that every person whose rights are affected by an order made in their absence has a right, ex debito justitiae, to have the order set aside. In exceptional circumstances – interim injunctions, Mareva injunctions, Anton Piller orders, for example – courts do act ex parte to make orders designed to affect the rights of persons who are not heard. This is the exceptional jurisdiction to which Spigelman CJ was referring in that part of his judgment extracted at [15] above. The person against whom such orders are made has no right, ex debito justitiae, to have the orders set aside. That person has a right to have the orders discharged for reason, including non-compliance with the onerous obligations of disclosure on ex parte applications.
[30] There could be little utility in properly making a shelf order if every person affected by it had a right, ex debito justitiae, to set the order aside. The consequence of making such an order, if that were so, would be that only those persons who lacked the means to come to Court to have it set aside would be adversely affected.
[31] The decision that circumstances exist sufficient to justify the Court acting ex parte pursuant to s 588FF(3)(b), carries with it acceptance that there will be rights affected by the order made, although the holder of those rights is not heard, just as that burden is accepted when, for example, an Anton Piller order is made. This is why exceptional circumstances must exist before an ex parte order pursuant to s 588FF(3)(b) is made. If ex parte orders pursuant to s 588FF(3)(b) are made only exceptionally, some liquidators will not recover some voidable payments because of the operation of a time limitation. By their very nature, limitations on rights of action sometimes produce hard cases.
[32] My conclusion is that the defendant is not entitled to set aside the order of 26 August 2011 as of right simply because it is affected by the order made and was not given an opportunity to be heard on the ex parte application. In my view the defendant must show that it was a person who ought to have been served with the s 588FF(3)(b) application. That deals with the point I have called 1(a) at paragraph [5] above.
[33] The defendant submits it was a person who ought to have been given notice of the s 588FF(3)(b) application because it would have been identified by the liquidator as a potential s 588FF(1) target had the liquidator acted with reasonable diligence in all the circumstances. It argues that is sufficient ground to set the order aside ex debito justitiae. This is the point I have called 1(b) at paragraph [5] above. I accept this submission. To explain why, it is first necessary to look at the facts showing that the liquidator ought to have identified the defendant as a s 588FF(1) target at the time of the s 588FF(3)(b) application.
Liquidator’s understanding of Commercial Transactions between Willahra and Kim Management
[34] In 2007 and 2008 Kim Management signed contracts to purchase several units in the building M on Mary. These contracts fell due to complete on 2 May 2008. On 13 November 2007 a Ms Lee received the transfer of 50 shares in Kim Management. It is asserted that these shares were held by Ms Lee for Willahra. When the time came to complete the sale of units, an amount of nearly $3 million less than the purchase price shown on the contracts was paid.
[35] In May 2010 the liquidator called on the solicitors who had acted for Kim Management on the purchase of the units to explain this almost $3 million difference. On 16 September 2010 those solicitors provided an explanation by letter. They said there were three components giving rise to the reduction in purchase price: outstanding consideration of $1.2 million in relation to the transfer of shares to Ms Lee; outstanding consideration on the sale of a debt, and a discount offered to Kim Management at the time of the original contracts which was not recorded in the contracts themselves. Copies of correspondence between the solicitors acting on the sale and purchase were enclosed with this 16 September 2010 letter. From them, it was clear that the discount was agreed between vendor and purchaser at the time of completion. However, there was no mention of the three components. To the contrary, there was a suggestion that there was a loan from Willahra to Kim Management which accounted for the difference. In the 16 September letter, the solicitor acting for Kim Management said (in answer to an assertion by the liquidator) that if the books of Willahra were to the contrary of the three component explanation, the books were unreliable.
[36] Solicitors for the liquidator responded to the letter of 16 September 2010 first by email dated 7 October 2010 (exhibit 1, see below) and again, substantively, almost a year later, on 11 August 2011. They said the three component explanation “beggars belief” and asserted that the difference between the face value of the contracts, and the price actually paid, was vendor finance. This letter threatened action to recover the difference. Attention was drawn to the fact that no documentation was produced (by Kim Management) to support the three component explanation.
[37] The liquidator said in cross-examination that, at the time, she understood the three component explanation, but did not find it credible. She had an unsigned loan agreement which made her believe that the almost $3 million was an amount of vendor finance.[13] Because she did not find the explanation credible, she did not investigate it.
[38] It will be remembered that the application pursuant to s 588FF(3)(b) was heard on 26 August 2011, some two weeks after the 11 August 2011 letter, and that the supplementary affidavit of the liquidator as to the one identifiable target of a possible s 588FF(1) application was filed on 9 August 2011.
[39] On 11 August 2011 the liquidator issued a statutory demand against Kim Management for the nearly $3 million. On 7 September 2011 the liquidator filed a winding up application based on non-compliance with the demand. On 12 October 2011 the liquidator discontinued the winding up application, having given notice to Kim Management of her change of heart by letter dated 29 September 2011. The application to wind up was not, apparently, discontinued because the liquidator accepted the three component explanation, but because the liquidator accepted that Kim Management was not insolvent.
[40] The current proceedings were filed on 18 January 2012. In them the liquidator pleads facts which were asserted in the 16 September 2010 (three component) letter, and claims the amount of $1.2 million, now said by the liquidator to be payment for Ms Lee’s shares, was a voidable preference. The history is that solicitors for the liquidator told her on 21 November 2011 that the three component explanation was apparently correct and that, as a result, there was a preference of $1.2 million. It appears the solicitors’ conclusion was reached after reviewing records in the possession of the solicitors who acted for Willahra on the sale of the units, Blake Dawson. The review of Blake Dawson’s records did not begin until November 2011 because the documents were not requested by the liquidator before then. Exhibit 1 on the application before me is an email of 7 October 2010 (over one year earlier), sent as the first response to the letter of 16 September 2010, saying that the solicitors for the liquidator intended to write to Blake Dawson “to confirm the position.”
[41] The liquidator’s first report to creditors dated 8 April 2010 contains the following:
“Unfair Preferences – Sections 588FA & 588FC
…
I have identified a number of transactions that may be regarded as unfair preferences from an investigation of the electronic accounting records maintained by the company. My investigations into the commerciality of pursuing these matters will be undertaken once the file is handed over from the Receivers.” – 6.1.
“Uncommercial Transactions – Sections 588FB & 588FC
…
It appears from my preliminary investigations that a number of contracts for purchase of units within the M on Mary complex omit material details of the contract themselves, namely proper details of parties and/or other details. The omission of these details appears curious and leads to the suspicion that the contracts possibly may not be bona-fide. Further contracts reviewed appear manifestly overvalued when reconciled against valuations obtained.
I am advised by the Receivers that their investigations indicate that the director ‘appears to have engaged in numerous cash and off balance sheet transactions which have not necessarily been reflected in the financial statements of the company’. As such, the books and records maintained by the company require extensive investigation. This will be undertaken on hand over of the books and records from the Receivers.” – 6.2. (italics in the original).
“Unfair Loans – Section 588FD
…
Based on the available books and records of the company there appear to be a number of unfair loans. These will be reviewed and recoveries considered on hand over of the books and records from the Receivers.” – 6.3.
“Unreasonable Director-Related Transactions – Section 588FDA
…
Based on the available books and records of the company there are a number of transactions that appear, prima facie, to be unreasonable director related transactions. From my preliminary investigations it appears that the parties to these transactions are the Directors and/or parties related to the Directors. I have engaged Minter Ellison Lawyers in respect of this file. They have affiliated offices internationally and in due course I anticipate recovery actions in respect of various loan accounts.” – 6.4.
[42] The report goes on to say that the liquidator has identified possible contraventions of the Corporations Act including of s 180, failure to exercise due care and diligence and s 286, obligation to keep financial records.
[43] From the foregoing it can be seen that, well before the s 588FF(3)(b) application, the defendant told the liquidator, in response to her enquiries, the facts that she now relies upon as constituting a preference. Well before that, the liquidator viewed the books of Willahra as unreliable. She had reason to believe there were numerous off‑balance‑sheet transactions and particularly was alert that contracts for the purchase of units in M on Mary might not contain all material details of the bargain they purported to record. That ought to have tempered her incredulity about the three component explanation.
[44] The liquidator had legal advice, or access to it, in relation to the three component explanation. Exhibit 1 shows that her solicitors’ immediate response was that Blake Dawson would be a source of information against which to check that explanation. There is no reason given as to why they did not check. Blake Dawson was a source of information not affected by the receiver’s failure to hand over books and records. It could be expected to be a reliable source of information. There was ample time. In fact, Blake Dawson had information which substantiated the three component explanation, in the liquidator’s view, revealing a preference. The receivers had not put the liquidator in funds, but there is no material before me showing that the liquidator could not afford to make these enquiries. To the contrary, the material shows that before the receivers put the liquidator in funds there were two sets of Court proceedings against the receivers begun; preliminary accounting investigations made, and a statutory demand issued against the defendant.
[45] From April 2010 the liquidator was alert to the fact that there were potentially numerous applications to be made under s 588FF(1) based on voidable transactions within the meaning of s 588FE. It may be assumed she was aware of the time limit in relation to bringing such proceedings. If the three component explanation was correct, it revealed the basis for the current preference action.
[46] Because of the coincidence in timing between the making of the s 588FF(3)(b) application; the 11 August 2011 letter, and the issue of the statutory demand, the three component explanation was considered by the liquidators and her solicitors at the same time as consideration ought to have been given to the matters which would need to be put before the Court on an ex parte application to obtain a shelf order pursuant to s 588FF(3)(b). There was no urgency surrounding the making of the s 588FF(3)(b) application. The order sought would have the effect of removing a complete defence to s 588FF(1) claims against any affected creditors. Had proper consideration and enquiry occurred before the s 588FF(3)(b) application was made, the defendant ought to have been given notice of it. The standard against which the liquidator should be judged is in my view found in the cases dealing with the duties of a party making an ex parte application.
The Duty of Candour on an Ex Parte Application
[47] In England the case of Brink’s Mat Ltd v Elcombe and Others[14] provides a helpful summary of principles relating to the duty of disclosure, including, relevantly to this matter:
“In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following.
(1)The duty of the applicant is to make ‘a full and fair disclosure of all the material facts:’ see Rex v Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 KB 486, 514, per Scrutton LJ.
(2)The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v Kensington Income Tax Commissioners, per Lord Cozens-Hardy MR, at p 504, citing Dalglish v Jarvie (1850) 2 Mac & G 231, 238, and Browne-Wilkinson J in Thermax Ltd v Schott Industrial Glass Ltd [1981] FSR 289, 295.
(3)The applicant must make proper inquiries before making the application: see Bank Mellat v Nikpour [1985] FSR 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.
(4)The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J of the possible effect of an Anton Piller order in Columbia Picture Industries Inc v Robinson [1987] Ch 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade LJ in Bank Mellat v Nikpour [1985] FSR 87, 92-93.
…” (my underlining).
[48] Further, in the case of Siporex Trade SA v Comdel Commodities Ltd[15] Bingham J said:
“Such an applicant must show the utmost good faith and disclose his case fully and fairly. He must, for the protection and information of the defendant, summarise his case and the evidence in support of it by an affidavit or affidavits sworn before or immediately after the application. He must identify the crucial points for and against the application, and not rely on general statements and the mere exhibiting of numerous documents. He must investigate the nature of the cause of action asserted and the facts relied on before applying and identify any likely defences. He must disclose all facts which reasonably could or would be taken into account by the Judge in deciding whether to grant the application. It is no excuse for an applicant to say that he was not aware of the importance of matters he has omitted to state. If the duty of full and fair disclosure is not observed the Court may discharge the injunction even if after full inquiry the view is taken that the order made was just and convenient and would probably have been made even if there had been full disclosure.” (my underlining).
[49] These principles have been followed many times in Australia. In Minter Ellison (a firm) v Raneberg[16] Gray J said:
“The freezing order could be discharged if the plaintiffs did not make full disclosure of all relevant matters, including those of which it ought to have known. The obligation to make full disclosure on an ex parte application is a heavy responsibility. … The seriousness of the responsibility of full and frank disclosure on the part of the moving party is demonstrated by the fact that the consequences of a failure to make such disclosure apply whether the failure was deliberate or unintentional.” (my underlining).
[50] “The duty of disclosure applies not only to material facts known to the applicant but also to any additional facts which could be discovered on making proper enquiries.”[17] In Marron v City of Nedlands[18] Johnson J said at [160], “The extent of the enquiries which would be held to be proper, and therefore necessary, must depend on all of the circumstances of the case, including the probable effect of the order on the defendant, the degree of legitimate urgency and the timing available for the making of enquiries.”
[51] In this case, the liquidator was asking for an order which would have a final effect on the rights of persons who were not given a chance to be heard on the s 588FF(3)(b) application. There were no circumstances of urgency. She was obliged to give proper consideration to identify persons who might be targets of a s 588FF(1) application. She was obliged to make proper enquiries as to this. Had she done so, those enquires would have revealed that the defendant was a potential target. That was not a matter for disclosure to the Court, the defendant ought to have been given notice of the s 588FF(3)(b) application. In those circumstances my view is that the defendant is entitled to have the order made on the s 588FF(3)(b) application set aside ex debito justitiae, and I so order. While I have had reference to the cases concerning the duty of candour in reaching this conclusion, I am not deciding that matters were not disclosed, which ought to have been. My decision is that, applying the standard expected of a party and its lawyers on an ex parte application, this defendant ought to have been given the opportunity to be heard on the s 588FF(3)(b) application. The rights of a party denied a hearing cannot depend upon the vagaries of appreciation of the applicant for ex parte relief; a person bringing such an application must be held to an ascertained standard.
Breach of Duty on ex parte Application
[52] Having regard to the above, it is not strictly necessary for me to decide the point I have labelled (2) at paragraph [5] above, ie., whether the applicant breached her obligations to disclose matters before the Judge who made the s 588FF(3) order. However, I will go on to give my decision on this point because my decision as to setting the order aside ex debito is beyond the decided cases.
[53] Unlike a failure to give notice to a party who ought to have the opportunity to be heard, a failure to make full disclosure on an ex parte application does not, without more, justify setting aside the ex parte order. There is a discretion. The remaining numbered points from Brink’s Mat Ltd, see [47] above, are as follows:
“(5)If material non-disclosure is established the court will be ‘astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure … is deprived of any advantage he may have derived by that breach of duty:’ see per Donaldson LJ in Bank Mellat v Nikpour, at p 91, citing Warrington LJ in the Kensington Income Tax Commissioners’ case… .
(6)Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.
(7)Finally, it ‘is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded:’ per Lord Denning MR in Bank Mellat v Nikpour … . The court has a discretion, notwithstanding proof of material non‑disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms. …”
[54] The defendant relies upon three matters of non-disclosure by the applicant liquidator on the s 588FF(3)(b) application. First, it is said that the liquidator did not tell the s 588FF(3)(b) Court that she had in mind from April 2010 a number of transactions which might be regarded as unfair preferences – see the April 2010 report to creditors above. Secondly, it is said that the written outline of submissions given to the s 588FF(3)(b) Court did not properly put the law as to the making of shelf orders. Lastly, the failure of the applicant liquidator to make any mention of her dealings with the applicant is relied on as a matter of non-disclosure in circumstances where, by the exercise of reasonable diligence, the liquidator would have been aware that a preference claim was available, or potentially available to her, against the defendant.
[55] As to the first point, the material in the April 2010 report to creditors is set out above. In the February 2012 report to creditors the liquidator says that she has in mind four creditors who have received preferential payments (one is the current defendant). The material before me is somewhat uncertain as to the liquidator’s state of mind in relation to whether voidable transaction proceedings were contemplated at the time of the s 588FF(3)(b) application. There is certainly no mention of any contemplated action in the affidavit material before the s 588FF(3)(b) Court. The liquidator does, to the extent that her affidavit on the s 588FF(3)(b) application addresses such things, say that she is not in a position to decide whether proceedings should be instituted in respect of voidable transactions. Of course what ought to have been at the forefront of her mind on such an application is whether or not there was the potential for such applications and who might be the potential targets. Perhaps because the evidence was that the liquidator did not subjectively see the defendant as such a potential target, her consideration of other potential targets did not assume great prominence on the application before me. Had there been potential targets in the liquidator’s mind at the time of the s 588FF(3)(b) application, she ought to have made that clear in her affidavit material.
[56] As to the second criticism made by the defendant, the written submissions, which are court document 19 in BS 8088/08, filed by solicitors on behalf of the liquidator, do not, in my view, represent a fair statement of the law as to obtaining shelf orders ex parte, and are certainly not adequate on an ex parte application.That part of Spigelman CJ’s judgment in BP Australia, which is extracted at paragraph [16] above is extracted in those submissions, but none of the dicta which showed his Honour’s caution about shelf orders being made is brought to the attention of the Court. It is nowhere, for example, said in the written submissions that Spigelman CJ regarded the making of a shelf order as exceptional and extraordinary. The submissions present Greig v Stramit as reaching a contrary result to BP Australia and being “not followed” in later cases. The submission is made that making the shelf order “would not have the effect of unfairly prejudicing those entities who may subsequently be the subject of a voidable transaction claim.” That submission is plainly incorrect. Those parties would lose a complete defence to such a claim. It is hard to understand what could honestly be meant by such a submission, particularly in the context where no potential s 588FF(1) targets had been identified by the liquidator (other than the one served).
[57] There was no submission made on behalf of the respondent liquidator that the matters I criticise in the written outline for the liquidator on the s 588FF(3)(b) application were corrected orally.
[58] As to the third topic of non-disclosure raised by the defendant, it follows from my reasoning above that I do not regard the disclosure made as to the liquidator’s dealings with, and enquiries as to, the defendant as being proper on an ex parte application, having regard to the standard set in the authorities above.
[59] In my view, the non-disclosure as to the second and third points raised by the defendant before me is sufficient that I would set aside the order of 26 August 2011.
[60] I will hear the parties as to costs.
Footnotes
[1] See the definition of “relation-back day” and s 513A of the Corporations Act. Mistakenly the liquidator swore, and her solicitors told the s 588FF(3)(b) Court, that the relation-back day was 24 September 2008 and the last day to apply was 23 September 2011.
[2] [2008] HCATrans 373.
[3] [2004] 2 Qd R 17.
[4] [2003] NSWCA 216; (2003) 58 NSWLR 322.
[5] [2008] SASC 203 [53]-[54].
[6] McGrath and Macintosh (as joint liquidators of the HIH Companies) [2004] NSWSC 165; Clarecastle Pty Ltd (in liq) [2011] NSWSC 857; New Cap Reinsurance Corporation v Reaseguros Alianza SA [2004] NSWSC 787; Tolcher v Capital Finance Australia Limited [2005] FCA 108; Re Harris Scarfe Ltd (in liq) [2006] SASC 277; ASIC v Karl Suleman Enterprizes Pty Ltd (in liq) [2004] NSWSC 1244.
[7] Ansell v Davies (above) [58].
[8]Greig v Stramit (above) and BP Australia (above).
[9] Cameron v Cole (1944) 68 CLR 571; Commissioner of Police v Tanos (1958) 98 CLR 383; There is no enquiry as to merits, Commercial Banking Company of Sydney Ltd v George Hudson Pty Ltd (in liq) (1973) 131 CLR 605, cited in Queensland Police Credit Union Limited v Criminal Justice Commission [2000] 1 Qd R 626, 632; Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17, [140].
[10] (2001) 52 NSWLR 685.
[11] [2006] SASC 277.
[12] See also on this point the decision of Chesterman J at first instance in Greig v Stramit [2002] QSC 138 [22]-[23], Barrett J in ASIC v Karl Suleman Enterprizes Pty Ltd (in liq) [2004] NSWSC 1244, [6]-[7], and Bryson J in Dahozo Pty Ltd & Anor v Oz-Us Film Productions Pty Ltd [1997] NSWSC 373, page 4 of 6.
[13] tt 14-15.
[14] [1988] 1 WLR 1350, 1356-7. Points 3 and 4 in this list were adopted by Lawrence Collins J in Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269, [180].
[15] [1986] 2 Lloyd’s Rep 428, 437.
[16] [2011] SASC 159, [23].
[17] Hong Kong International Credit Ltd v Registrar of Titles [2012] WASC 17 (5); Commonwealth Bank of Australia v Oswal [2011] WASC 84, [7]. Comments to the same effect were made in Main-Road Property Group Pty Ltd v Pelligra and Sons Pty Ltd [2009] VSC 435, [14]; Hall v Hall [2007] WASC 198, [33]; Citi Nominees Pty Ltd v Skipworth [2007] WASC 145, [26]; Surefire Holdings Pty Ltd v Oxley Sportsdrome Pty Ltd [2001] QSC 85, [14]; Re Griffiths [1991] 2 Qd R 29, 36.
[18] [2009] WASC 242. See also Director of Public Prosecutions (WA) v Mansfield (No 10) [1991] 2 Qd R 29, 36.