JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : BOASE -v- AXIS INTERNATIONAL MANAGEMENT PTY LTD [No 2] [2012] WASC 334 CORAM : BEECH J HEARD : ON THE PAPERS DELIVERED : 14 SEPTEMBER 2012 FILE NO/S : CIV 1709 of 2008 BETWEEN : T BOASE & J L BOASE ATF THE BOASE SUPER FUND First Plaintiffs
T BOASE & J L BOASE ATF THE BOASE FAMILY TRUST
Second Plaintiffs
AND
AXIS INTERNATIONAL MANAGEMENT PTY LTD
First Defendant
SAGECORP SECURITIES PTY LTD (in liq)
Second Defendant
QUENTIN PHILLIP O'DOHERTY WARD
Third Defendant
ANGELO DEL BORELLO
Proposed Fourth Defendant
GAVIN HAWKINS
Proposed Fifth Defendant
(Page 2) DAVID MORTIMER
Proposed Sixth Defendant
MORGAN ALTERUTHEMEYER COMMERCIAL LAWYERS & MIGRATION AGENTS
Seventh Defendant
ASPEN GROUP LTD
Proposed Eighth Defendant
Catchwords:
Corporations - Application for leave to proceed against company being wound up - Company with no assets or other means to meet any judgment - Whether leave should be granted - Turns on own facts
Practice and procedure - Application to amend writ to add parties and to amend statement of claim - Whether any arguable claim - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 500(2)
Result:
Applications dismissed
Category: B
Representation:
Counsel:
First Plaintiffs : No appearance
Second Plaintiffs : No appearance
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Proposed Fourth Defendant : No appearance
(Page 3)Proposed Fifth Defendant : No appearance
Proposed Sixth Defendant : No appearance
Seventh Defendant : No appearance
Proposed Eighth Defendant : No appearance
Solicitors:
First Plaintiffs : In person
Second Plaintiffs : In person
First Defendant : No appearance
Second Defendant : Gadens Lawyers
Third Defendant : No appearance
Proposed Fourth Defendant : Hotchkin Hanly
Proposed Fifth Defendant : Hotchkin Hanly
Proposed Sixth Defendant : Hotchkin Hanly
Seventh Defendant : No appearance
Proposed Eighth Defendant : Hotchkin Hanly
Case(s) referred to in judgment(s):
ASIC v Managed Investments Ltd (No 2) [2012] QSC 72
Baldry v Jackson [1976] 2 NSWLR 415
BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [No 2] [2008] WASC 117
Boase v Axis International Management Pty Ltd [2009] WASC 331
Duke v Rain Bow Pty Ltd [2011] VSC 599
Glew v Frank Jasper Pty Ltd [2010] WASCA 87
Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318
Katingal Pty Ltd v Amor [1999] FCA 317; (1999) 162 ALR 287
Lawless v Mackendrick [No 2] [2008] WASC 15
Maher v Taylor [1984] 1 NSWLR 231
Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123
Neil v Nott [1994] HCA 23; (1994) 121 ALR 148
Re AJ Benjamin Ltd (in liq) [1969] 2 NSWR 374
Re Gordon Grant and Grant Pty Ltd (in liq) (1982) 6 ACLR 727
Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314
Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646
Tobin v Dodd [2004] WASCA 288
Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 440
(Page 4)
Viscariello v Bernsteen Pty Ltd (in liq) [2004] SASC 266
Wentworth v Rogers (No 5) (1986) 6 NSWLR 534
Wigan v Edwards (1973) 47 ALJR 586
(Page 5)
Introduction 1 In this action, the plaintiffs seek redress for their failed investment in the Firepower group of companies. These reasons concern two applications by the plaintiffs. First, they seek leave to proceed against a company in liquidation, the second defendant, Sagecorp Securities Pty Ltd (in liq) (Sagecorp). Secondly, they seek leave to amend the writ of summons to add four new defendants, as fourth to sixth and eighth defendants.
2 The parties exchanged written submissions and the applications are to be determined on the papers.
3 I will deal with the applications in turn. I begin by outlining the principles relevant to an application for leave to proceed against a company in liquidation.
Application for leave to proceed: principles
4 Section 500(2) of the Corporations Act 2001 (Cth) provides that after the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court imposes.
5 Like provision in respect of companies being wound up in insolvency or by the court is made in s 471B. The same principles govern the grant of leave under these sections.
6 Part of the purpose of the requirement of leave is to avoid a company in liquidation being subject to a multiplicity of time consuming and expensive actions: Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314, 315 - 317; Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550, 555; Viscariello v Bernsteen Pty Ltd (in liq) [2004] SASC 266 [21].
7 The question whether a claimant should be permitted to proceed by action, or be required to submit a proof of debt and, if unsatisfied appeal to a judge, is essentially one of choosing between alternative forms of procedure: Re Gordon Grant; Vagrand Pty Ltd v Fielding; Viscariello.
8 The discretion to grant or refuse leave is broad. It is not possible or appropriate to attempt to state exhaustively the relevant considerations. Among the relevant considerations are the amount, seriousness and nature
(Page 6) of the claim; the degree of complexity and legal factual issues, and the stage the proceedings have reached: Re Gordon Grant (317); Viscariello [21]; Lawless v Mackendrick [No 2] [2008] WASC 15 [35]; Duke v Rain Bow Pty Ltd [2011] VSC 599 [19].
9 It has often been said that there must be no prejudice to the creditors, or to the orderly winding up of the company, before the action is allowed to proceed: Re Gordon Grant and Grant Pty Ltd (in liq) (1982) 6 ACLR 727, 730; Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646, 649 - 650; ReAJ Benjamin Ltd (in liq) [1969] 2 NSWR 374, 376; Duke v Rain Bow Pty Ltd [20]. In Lawless v Mackendrick [No 2], Master Newnes described whether there was prejudice to the creditors or to the orderly winding up of the company as a factor to be taken into account. 10 In Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318, 319 Needham J stated that the court should not grant leave to proceed or to commence proceedings against a company in liquidation if it appears there is no possibility that the company will be able to meet any part of damages awarded against it. That was said to be based on the principle that the court should not give its imprimatur to fruitless proceedings which would involve a waste of time and money. That statement of principle has been cited in a number of cases since. See, for example, Maher v Taylor [1984] 1 NSWLR 231, 233; ASIC v Managed Investments Ltd (No 2) [2012] QSC 72 (pages 2 - 3). As those cases make clear, it is necessary to give attention to the character of the relief sought by the claimant against the company in liquidation. In Viscariello [21], Besanko J (with whom Doyle CJ and White J agreed) said that the fact that the company would be unable to satisfy the judgment was a factor against the grant of leave, because the court would not give its imprimatur to fruitless proceedings, referring to Haviland v Joslow.
11 In Re AJ Benjamin (376), Street J stated that there would be a good reason to refuse leave when there is no prospect of surplus assets in the company and no question of insurance. That statement was cited with approval in Maher v Taylor (234).
12 The position would be different if there is an insurer standing behind the company in liquidation that will pay the amount of any judgment awarded. In those circumstances, the grant of leave will generally not prejudice creditors: Lawless v Mackendrick [No 2] [37], and cases there cited.
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13 The position would also be different in respect of a claimant who had an arguable proprietary claim. That is not the case here.
14 A claimant seeking leave need only to demonstrate a serious question to be tried: Vagrand Pty Ltd v Fielding (556).
15 Where the costs of defending the action to trial would substantially deplete the limited assets available for creditors, that is a major factor against the grant of leave; Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123, 128; Katingal Pty Ltd v Amor [1999] FCA 317; (1999) 162 ALR 287 [4].
16 It is convenient to mention some of the history of the action, before outlining the claims which the plaintiffs seek to make against Sagecorp.
History of the proceedings
17 For the purposes of these applications it is not necessary to comprehensively outline the long history of this action. I will refer to those parts of the history which seem to me to have some relevance to the present applications.
18 The action commenced in June 2008.
19 Liquidators were appointed to Sagecorp in December 2008.
20 In 2009, the action was entered in the CMC List. Amendments were made to the statement of claim. Some defendants objected to the statement of claim. Further amendments were made to the statement of claim.
21 On 31 July 2009, the plaintiffs applied for leave to join QBE Insurance (Australia) Ltd, said to be the insurer of Sagecorp, as a defendant. On 10 August 2009, at the plaintiffs' request, the application was adjourned sine die.
22 On 29 September 2009, the then fourth to sixth defendants, directors of Sagecorp (who are now the proposed fourth to sixth defendants), filed an application to strike out paragraphs of the statement of claim. That application was determined in favour of those defendants, with written reasons: Boase v Axis International Management Pty Ltd [2009] WASC 331. Leave to re-plead was granted.
23 The plaintiffs did not invoke the leave to re-plead the case against the fourth to sixth defendants.
(Page 8)
24 On 4 March 2010, with the plaintiffs' consent, orders were made that the proceedings against the fourth, fifth and sixth defendant be dismissed (ts 135).
25 On 13 October 2009, the plaintiffs filed an application for leave to proceed against Sagecorp, which was by then in liquidation.
26 On 14 January 2010, Kenneth Martin J dismissed the application to lift the stay of proceedings against Sagecorp. His Honour delivered oral reasons for that decision. In essence, the ground of the decision was that the financial position of Sagecorp meant that there was no utility in pursuing the proceedings against Sagecorp. His Honour made clear that it would be open to the plaintiffs to bring a further application for leave, based upon different material, if they so chose.
27 In July 2010, orders were made for the matter to be referred to mediation.
28 In late 2010 mediation occurred. The matter was not resolved.
29 In March 2011, the plaintiffs applied for an order that Sagecorp permit inspection of certain books and records. Orders were made on that topic on 23 March 2011.
30 These applications were foreshadowed in May 2012 and made in June 2012.
The plaintiffs' proposed claim against Sagecorp
31 The plaintiffs' proposed claims are set out in their minute of proposed further amended statement of claim dated 25 June 2012. Relevantly, the pleading includes the following:
(a) Sagecorp held an Australian financial services licence [4]; (b) the third defendant, Mr Ward, was an authorised representative of Sagecorp and the holder of a proper authority [5];
(c) a claim is made against the third defendant, Mr Ward. It is not necessary to outline their claim in any detail. In essence, the plaintiffs say that Mr Ward made false and misleading statements to Mr Boase, in reliance on which the plaintiffs invested approximately $365,000 for the purchase of shares in Firepower Holdings Group Ltd (FHG);
(Page 9) (d) the plaintiffs plead a claim against the seventh defendant, a firm of solicitors into whose trust account they say they paid the investment funds. Again, it is not necessary to detail the claim against the seventh defendant. In broad summary, the plaintiffs claim that in transferring the plaintiffs' monies, the seventh defendant acted contrary to the plaintiffs' authority, in breach of trust, breach of fiduciary duty, negligently, or otherwise wrongfully; (e) the plaintiffs claim that Sagecorp owed a duty of care to the plaintiffs, and that Sagecorp breached that duty [45] - [50]. In essence, Sagecorp's alleged breach is in allowing Mr Ward to continue as an authorised representative in circumstances where Sagecorp knew or should have known that he was selling shares in FHG, when that was not on Sagecorp's approved list. More detailed particulars of negligence are set out under [47] in the proposed statement of claim;
(f) as a result, the plaintiffs have suffered loss and damage in the form of their investment, and ongoing management administration fees, all of which total about $386,000;
(g) the directors of Sagecorp decided to liquidate Sagecorp and start another company with the same representative and the same business as Sagecorp, namely a company I will refer to as Peak [49]; and
(h) it is pleaded that 'it is an inescapable conclusion, that in an attempt to avoid the fruit of its own lack of proper corporate governance of the third defendant and its own corporate responsibilities [Sagecorp] decides to escape and hide in liquidation' [56].
32 The plaintiffs have filed three sets of written submissions in support of this application. Each set of submissions is supported by an affidavit which includes substantial annexures. I have, of course, considered all the material which the plaintiffs have put before me. Given its volume, and given that the relevance of some parts of the material to the determination of the present application is not apparent to me, I do not propose to outline all of the material that has been provided by the plaintiffs. 33 For ease of exposition, it is convenient to outline the essential reasons why I consider that leave should not be granted, before turning to submissions made by the plaintiffs and my response to those submissions.
(Page 10) Taken together, the next two sections of these reasons explain why I have decided that leave to proceed against Sagecorp should not be granted.
Sagecorp's inability to meet any judgment 34 As I have explained, the plaintiffs' claim against Sagecorp is for damages, not for any other form of relief.
35 The evidence is that there is no prospect of Sagecorp paying any funds to any creditor. That does not appear to be in dispute. From a very early stage in the liquidation, the liquidator's fees exceeded the assets of the company. The material before the court reveals that, consequently, the liquidators of Sagecorp have not taken the step of calling for and dealing with proofs of debt.
36 On the face of it, there would seem to be nothing to be achieved by the action proceeding against Sagecorp. A judgment for damages against Sagecorp will inevitably be worthless. The plaintiffs have not pointed to any non-financial benefit of a judgment against Sagecorp and, in circumstances where the claim is one for damages, none is apparent.
37 It appears to be common ground that by the time of the liquidator's report to creditors of 23 February 2011, a number of people had made claims, of a general character similar to the plaintiffs, totalling something over $4 million. The plaintiffs submit that it is likely or plausible that significantly more claims of a similar kind might be made.
38 The liquidator has proposed that the company be wound up and deregistered. The evidence of the progress of such a proposal, in recent times, is scant. There is no evidence that any other claimant resists the orderly winding up and deregistration of Sagecorp. However, given how little evidence there is on this topic, that is not a matter to which I give any weight.
39 There is evidence that Sagecorp was insured. However, there is no evidence that the insurer will or is likely to stand in Sagecorp's shoes to meet any judgment, or to defend the action. The evidence is to the contrary. The liquidator's report to creditors states that the insurer has denied liability, that the liquidators have no funds to challenge the insurer's position, and that the preliminary advice given to the liquidators is that a challenge is unlikely to succeed.
40 In the circumstances I have outlined, like Kenneth Martin J when the previous application was made, I am not persuaded that there is any
(Page 11) sufficient utility in the grant of leave to proceed against Sagecorp. To my mind, the principles outlined in [10] - [11] are engaged by the circumstances of this case.
The plaintiffs' submissions 41 As I have said, I do not propose to outline everything raised by the plaintiffs in their submissions and supporting material. Rather, I will mention those matters which appear to me to be more relevant to this application.
42 The plaintiffs' submissions of 6 June 2012 appear to proceed on the basis that the question is whether Sagecorp is a necessary or proper party in the sense required for joinder in O 18 r 4 or O 18 r 6. For present purposes, that is not the question. There is no doubt that, for the purposes of O 18 r 4, the claim against Sagecorp was properly joined to the claims against some of the other defendants. However, that is by no means sufficient to warrant the grant of leave. To the contrary, an application for leave under s 500(2) engages different considerations.
43 The plaintiffs' submissions contain many assertions of complaints or claims against parties other than Sagecorp. For example, in the submissions of 6 June 2012 the plaintiffs complain of:
44 Further, the plaintiffs' submissions of 12 July 2012 refer to matters or transactions that might be voidable by the company. It appears from the plaintiffs' submissions that the plaintiffs (mistakenly) consider that these matters found claims by the plaintiffs against the company. I will say more about this when I consider the plaintiffs' application to add defendants.