BP Australia Ltd v Brown - [2003] NSWCA 216

No judgment structure available for this case.

Reported Decision:
(2003) 46 ASCR 677
58 NSWLR 322
(2003) 21 ACLC 1535

Court of Appeal

CITATION: BP AUSTRALIA LIMITED v BROWN & ORS [2003] NSWCA 216

HEARING DATE(S): 23 and 24 April 2003

JUDGMENT DATE:
8 August 2003

JUDGMENT OF: Spigelman CJ at 1; Mason P at 215; Handley JA at 216

DECISION: Appeal allowed in part. Cross-appeal allowed in part. See par [214].

CATCHWORDS: CORPORATIONS LAW - Insolvency - Voidable preference payments - time limit for application to recover - whether time may be extended under Corporations Act 2001 (Cth), s 1322(4)(d) - CORPORATIONS LAW - Insolvency - Voidable preference payments - power to extend time within which to apply for recovery - whether extension may be granted in general terms - Corporations Act 2001 (Cth), s 588FF(3) - CORPORATIONS LAW - Insolvency - Voidable preference payments - power to extend time within which to apply for recovery - appropriate test for exercise of discretion to extend time - PROCEDURAL FAIRNESS - Ex parte orders - when permitted - right of affected party to have orders set aside - PRACTICE AND PROCEDURE - Joinder of parties - date of effect of joinder of defendant - whether provision of Corporations Act 2001 (Cth) governing time limit for commencing proceedings directs attention to commencement against a particular party.

LEGISLATION CITED: Acts Interpretation Act 1901 (Cth)
Bankruptcy Act 1924 (Cth)
Bankruptcy Amendment Act 1980 (Cth)
Companies Code 1981 (Vic)
Corporations Act 2001 (Cth)
Corporations Law
Supreme Court Act 1970

CASES CITED: ABB Power Plants Limited v Electricity Commission (NSW) (t/as Pacific Power) (1995) 35 NSWLR 596
Anthony Hordens & Sons Limited v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1
Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270
Beard v Baulkham Hills Shire Council (1986) 7 NSWLR 273
Brian Rochford Ltd (Administrator Appointed) v Textile Clothing & Footwear Union of NSW (1998) 47 NSWLR 47
Brisbane South Regional Health Authority v Taylor (1997) 186 CLR 541
Cameron v Cole (1944) 68 CLR 571
Dahozo Pty Ltd v Oz-US Film Productions Pty Ltd (1997) 24 ACSR 739
David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Downey v Trans Waste Pty Ltd (1991) 172 CLR 167
Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535
Emanuele v Australian Securities Commission (1996-1997) 188 CLR 114
Ferrier and Knight (as Liquidators of Compass Airlines Pty Ltd) v Civil Aviation Authority (1994) 55 FCR 28
Greig v Australian Building Industries Pty Ltd (In liq) [2002] QSC 138
Greig v Australian Building Industries Pty Ltd (In liq) (2002) 171 FLR 41; 21 ACLC 324
Greig v Australian Building Industries Pty Ltd (In Liq) [2003] QCA 298
Hall v Nominal Defendant (1966) 117 CLR 423
Haynes' case (1614) 12 Co Rep 113, 77 ER 1389
Horsburgh v Strongman & Crouch [1998] 3 VR 896
Itek Graphix Pty Ltd v Elliott (2001) 54 NSWLR 207
John v Commissioner of Taxation (Cth) (1989) 166 CLR 417
Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672
Owners of the SS Kalibia v Wilson (1910) 11 CLR 689
Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651
PMT & Partners (In liq) v Australian National Parks & Wildlife Service (1995) 184 CLR 301
R (Burkett) v Hammersmith and Fulham LBC [2002] 1 WLR 1593
R v Criminal Injuries Compensation Board, ex parte A [1998] QB 659
R v Lynn (1788) TR 733, 100 ER 394
R v Sharpe (1857) 7 Cox CC 214, 169 ER 959
R v Wallis; Ex parte Employers' Association of Wool-Selling Brokers & H V McKay Massey Harris Pty Ltd (1949) 78 CLR 529
R v Young (1999) 46 NSWLR 681
Re Aura Commercial Interiors (2002) 20 ACLC 904
Re Envirostar Energy Ltd [2002] NSWSC 1246
Re Great Eastern Cleaning Services Pty Ltd [1978] 2 NSWLR 278
Re Greg Sewell Forgings Pty Ltd (1995) 17 ACSR 602
Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 66 FCR 511
Ricon Constructions Pty Ltd (In liq); ex parte McDonald (1997) 43 NSWLR 174
Salido v Nominal Defendant (1993) 32 NSWLR 524
Saraswati v The Queen (1991) 172 CLR 1
Southern Cross Exploration NL v Fire and All Risks Insurance Company Ltd (1990) 21 NSWLR 200
Star v National Australia Bank Ltd (1999) 30 ACSR 583
Sutherland v Dexion Pty Ltd [2003] NSWSC 24; (2003) 21 ACLC 341
Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661
Tagoori Pty Ltd (In liq) v Lee [2001] 2 Qd R 98
Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298
Wright v Mansell (2001) 116 FCR 46

PARTIES :

BP Australia Limited (Appellant)
Martin Russell Brown and Timothy James Cumming (First Respondents)
DML Resources Pty Limited (In Liquidation) (Second Respondent)
DML Resources (WA) Pty Limited (In Liquidation) (Third Respondent)

FILE NUMBER(S): CA 40268/02

COUNSEL: Appellant: B Coles QC / M Ashurst
Respondents: BW Rayment QC / CRC Newlinds

SOLICITORS: Appellant: Carneys Lawyers
Respondents: Kemp Strang

LOWER COURTJURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 3830/00

LOWER COURT
JUDICIAL OFFICER : Austin J

CA 40268/02
ED 3830/00

SPIGELMAN CJ
MASON P
HANDLEY JA
Friday 8 August 2003

BP AUSTRALIA LTD v Martin Russell BROWN & Ors

FACTS

The first respondents, Martin Brown and Timothy Cuming (the liquidators) were appointed liquidators for the second and third respondents (DML and its subsidiary DML (WA)). The liquidators arranged litigation funding to enable them to bring actions under s588FF(1) of the Corporations Act 2001 (Cth) (the Act) against BP Australia Holdings Ltd and others for the recovery of alleged voidable preference payments.

By s588FF(3) of the Act, such proceedings must be brought within 3 years of the relation-back day or within such further period as specified by the Court upon an application made within 3 years of the relation-back day. The liquidators applied for an extension of time pursuant to s588FF(3)(b) of the Act in order to allow them to conduct examinations of the potential defendants prior to commencing the recovery proceedings.

The extension of time was granted ex parte by Austin J on 4 September 2000. His Honour ordered the Respondents to serve the orders and Originating Process on the five targeted creditors specified in the litigation funding agreement, reserving liberty to those creditors to apply to have the orders set aside. BP Australia Holdings Ltd and the Appellant applied to have the orders set aside. Austin J granted that application on 17 July 2001 on the basis of a denial of procedural fairness to the applicants. His Honour refused to order the extension of time under s588FF(3) sought by the liquidators. His Honour held that pursuant to Part 8 rule 11(3) of the Supreme Court Rules, the joinder of the Appellants would take effect after the expiration of the three year time limit and, accordingly, it would be a futile joinder.

HELD

(per Spigelman CJ, Mason P and Handley JA agreeing)

The Appeal

A.

Section 1322(4)(d) is not available to extend the time for making an application under s588FF(3)(b) of the Act. The text of s588FF(3) and the scope of Pt 5.7B indicate that the provision covers the field with respect to such applications. [89] This interpretation also serves the policy of the Act which balances the conflicting commercial interests involved in the recovery of voidable transactions within a reasonable time. [115]

R v Wallis; Ex parte Employers’ Association of Wool-Selling Brokers & H VMcKay Massey Harris Pty Ltd (1949) 78 CLR 529; Anthony Hordens &Sons Limited v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1; David Grant and Co Pty Ltd v Westpac BankingCorporation (1995) 184 CLR 265 applied. Star v National Australia BankLtd (1999) 30 ACSR 583; Greig v Australian Building Industries Pty Ltd (In Liq) [2002] QSC 138; Greig v Australian Building Industries Pty Ltd (In Liq) [2003] QCA 298 discussed. Emanuele v Australian SecuritiesCommission (1996-1997) 188 CLR 114; Australasian Memory Pty Ltd vBrien (2000) 200 CLR 270; Brisbane South Regional Health Authority vTaylor (1997) 186 CLR 541 referred to. Re Aura Commercial Interiors (2002) 20 ACLC 904; Sutherland v Dexion Pty Ltd [2003] NSWSC 24; (2003) 21 ACLC 341 not followed.

The Cross-Appeal

B.

The obligation of procedural fairness requires that a court should not make orders likely to adversely affect a person unless that person is first given an opportunity to make submissions to the court, other than in exceptional situations. In the present case, there was no basis for making an ex parte order affecting the Appellant. [134], [136]

Cameron v Cole (1944) 68 CLR 571 applied. Re Great Eastern CleaningServices Pty Ltd [1978] 2 NSWLR 278; Dahozo Pty Ltd v Oz-US FilmProductions Pty Ltd (1997) 24 ACSR 739 referred to.

C.

Part 8 r11(3) of the Supreme Court Rules does not render futile the joinder of a defendant to proceedings under s588FF(3)(b) after the three-year time period has expired. Section 588FF(3)(b) gives no significance to the date of commencement of proceedings against a particular party. [149]-[151]

D.

There is nothing in the words of s588FF(3)(b) or the purpose of the Act which precludes the Court’s power to make a general order extending time in respect of applications to be brought under s588FF(1). The application and order under s588FF(3)(b) were valid in form. [168]-[173]

Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 referred to.

E.

The appropriate approach to the exercise of the discretion to extend time under s588FF(3)(b) of the Act is to ask what is fair and just in all of the circumstances. Austin J correctly approached the discretion in this manner. [187] There was no error involved in giving weight to the absence of prejudice to the Appellant. [193]

Brisbane South Regional Health Authority v Taylor (1997) 186 CLR 541; Salido v Nominal Defendant (1993) 32 NSWLR 524; Itek Graphix Pty Ltd vElliott (2001) 54 NSWLR 207 applied.

ORDERS

Appeal allowed against the sixth judgment (on the issue of s1322). Appeal otherwise dismissed. Cross-appeal allowed against the third and fifth judgments (on the issue of joinder). Cross-appeal otherwise dismissed.

CA 40268/02
ED 3830/00

SPIGELMAN CJ
MASON P
HANDLEY JA

Friday 8 August 2003

BP AUSTRALIA LTD v Martin Russell BROWN & Ors

Judgment

1 SPIGELMAN CJ: The first Respondents, Martin Russell Brown and Timothy James Cuming, (“the liquidators”) are the liquidators of both the second Respondent, DML Resources Pty Ltd (in liq) (“DML”) and the third Respondent, DML Resources (WA) Pty Ltd (in liq) (“DML (WA)”). The creditors of the second and third Respondent resolved in late 1997 to put the companies into liquidation and appointed the Respondents as liquidators. The Appellant, BP Australia Limited, was the recipient of over $5.7 million in payments from both DML companies which, the liquidators allege, constitute voidable transactions under Part 5.7B of the Corporations Act 2001 (Cth) (“the Act”).

2 This appeal concerns the proper construction, and application to the facts of the case, of the time limit imposed upon liquidators seeking orders with respect to voidable transactions. Courts are empowered to make such orders by s588FF(1) of the Act. The time limit for applications under s588FF(1) is found in subs (3), and is in the following terms:

“588FF(3) An application under subsection (1) may only be made:

(a) within 3 years after the relation-back day; or

(b) within such longer period as the Court orders on an application under this paragraph by the liquidator within those 3 years.”

3 There was no application under s588FF(1) within the three years in the present case. The proceedings turn on s588F(3)(b).

4 The liquidators sought an extension of time and, over the course of seven judgments by Austin J, at first, they received the requisite extension, then they lost it and then they regained it. The Appellant appeals to set aside the final position. If necessary, the Respondents cross-appeal to set aside the intermediate position.

5 I will refer to the seven judgments as “the first judgment”, “the second judgment”, etc. They bear dates, in sequence, of 4 September 2000; 17 July 2001; 29 August 2001; 24 October 2001; 31 October 2001; 23 January 2002; 13 March 2002. The relevant judgments are identified as Brown v DML Resources No 2 to No 7 and bear the citations: [2001] NSWSC 590; [2001] NSWSC 719; [2001] NSWSC 947; [2001] NSWSC 973; [2002] NSWSC 6; [2002] NSWSC 162. Three are reported. The second at (2001) 52 NSWLR 681; the sixth at (2002) 40 ACSR 669 and the seventh at (2002) 41 ACSR 299.

6 The liquidators applied to the Equity Division of this Court on 4 September 2000 seeking, inter alia, orders extending the time within which to bring proceedings to challenge transactions of DML and DML (WA) as voidable. The Appellant was not given notice of the application. The application was heard and the extension of time granted by Austin J on an ex parte basis. This was the first judgment.

7 His Honour directed the liquidators to serve five specified large creditors, including BP Australia Holdings Limited (“BP Holdings”), with notice of the proceedings and granted leave to the named corporations to file and serve any application to set aside his orders within 28 days. BP Holdings successfully applied to have the orders for an extension of time made on 4 September set aside because they had been denied natural justice. This was the second judgment. His Honour granted leave for the Appellant to be joined to the application brought by BP Holdings.

8 After further argument about the conduct of the proceeding, Austin J held that it would be necessary to join the Appellant as a party to the proceedings before the final hearing of any application by the liquidators to extend time to bring proceedings to challenge voidable unfair preference transactions, but that it was too late to do so. This was the third judgment. Subsequent attempts to achieve the same result by invoking other provisions also failed. This occurred in the fourth and fifth judgments.

9 In response, the liquidators sought to join the Appellant as a party and to invoke s1322(4)(d) of the Act to cure the irregularities in their initial application. Austin J granted leave to join and held that s1322(4)(d) was available to support an order extending the three year period (otherwise set by s588FF(3)(b) of the Act) for an application by liquidators seeking an extension of time to make a further application challenging voidable transactions. This was the sixth judgment.

10 On what became, as a result of Austin J’s decision about the availability of s1322(4)(d), a timely application for an extension of the period to challenge the transactions, his Honour granted the extension sought. This was the seventh judgment.

11 The Appellant appeals to this Court from his Honour’s decision that s1322(4)(d) was available to extend the period within which the liquidators were able to make an application for such an extension of time and from the decision to grant an extension.

12 The Respondents cross-appeal from his Honour’s earlier judgments setting aside the effect of the relevant orders made by him on 4 September 2000, and the finding that no order could be made extending time under either the Act, the Supreme Court Act 1970 or the Supreme Court Rules, unless the cross-Respondent was joined as a party.

Background Facts

13 From 1991 DML conducted contract mining, earth moving, civil construction and quarrying operations. DML (WA) is a subsidiary of DML. The Appellant supplied DML and DML (WA) with diesel fuel and lubricants.

14 The Appellant expressed concern about the DML companies’ ability to pay debts from February 1996 onwards, and a meeting was held on 20 February 1996 between representatives of the Appellant and of the DML companies to discuss DML’s cashflow problems. Following overdue accounts issued by the Appellant in April and May 1996, the Appellant and DML entered into a Deed on 8 July 1996, under which interest was charged on the total outstanding amount. On 12 July 1996, at the request of DML, Hongkong Bank of Australia Limited issued a guarantee to the Appellant up to a limit of $2 million.

15 By December 1996 there had been several further requests for deferral of payments to the Appellant, and at a meeting convened to discuss DML’s credit position, DML representatives conceded that DML would be unable to meet its obligations to the Appellant falling due on 31 December. Hongkong Bank issued a further payment guarantee to the Appellant on 7 January 1997, expiring on 10 November 1997 and offering security for the debt. A Deed of Forbearance was signed between the Appellant and both DML and DML (WA) on 13 January 1997, specifying payments over a ten month period enabling the debt to be repaid by October.

16 In April 1997, the parent company of DML and DML (WA) commissioned the auditor of those companies to prepare a review of the DML group. This report stated: “We believe that as a stand alone entity DML is insolvent … Even if Maine was to formally subordinate its shareholder loans DML, on a stand alone basis is still insolvent in a cashflow sense”. The Appellant continued to be listed as the largest on DML’s and DML (WA)’s lists of urgent creditors throughout mid-1997.

17 On 24 October 1997, the respective boards of directors of both the DML companies resolved that the companies were likely to become insolvent in the near future and appointed the liquidators, jointly and severally, as voluntary administrators pursuant to s436A of the Corporations Law, which was then operative. It was common ground that this date became the relevant “relation back” day for purposes of the application of the statutory scheme.

18 The liquidators are partners in the accountancy firm PricewaterhouseCoopers, known in 1997 as Coopers & Lybrand.

19 On 20 November 1997 the creditors of DML (WA) resolved to place that company into liquidation. The liquidators were appointed as such.

20 In early December, the first Respondents wrote a report as administrators of DML recommending that the creditors resolve to place the company into liquidation in order to facilitate the realisation of assets, including by the recovery of a number of voidable transactions. The report recognised that more detailed investigation was required to determine the likelihood and quantum of any recovery of voidable transactions. On 11 December 1997, its creditors resolved to place DML into liquidation. The first Respondents then became the liquidators of both companies.

21 The report of the liquidators to the Committee of Inspection of DML (WA), dated 24 February 1998, noted that due to a likely shortfall of approximately $5 million in the debt owed to a secured creditor, Esanda, a distribution to unsecured creditors would be contingent upon the recovery of voidable transactions. At a meeting of the Committee of Inspection held the same day, the liquidators expressed a suspicion that numerous creditors had received preferences in the six months prior to the date of commencement of the winding up, during which period the company was likely to have been insolvent.

22 A letter of demand was sent to “BP Australia” at an address in Western Australia by Mr Brown, in his capacity as liquidator of DML (WA), on 18 April 1998. The letter referred to payments of $2,042,653.25 to BP Australia within the six-month period to 24 October 1997, when, it was asserted, DML (WA) was insolvent. The letter also stated that the liquidators had in their possession documents, including the 1996 deed referred to above, showing that BP Australia was aware of the insolvency. Repayment of the stated amount as a voidable preference was demanded within fourteen days.

23 On 12 May 1998, Mr Cuming, as liquidator of DML, sent a similar letter to the Appellant, alleging voidable preference payments in the amount of $3,762,150.14. The Appellant’s solicitors replied on 20 July 1998, denying that any payments received constituted voidable preferences and refusing to disgorge them.

24 Mr Cuming gave evidence by affidavit that neither DML nor DML (WA) had sufficient funds to enable the liquidators to pursue the unfair preference claims. The investigation and report preparation that took place as part of the liquidation process occurred “almost entirely without funding”).

25 One of the reasons for this situation was that during the first two years of the administration, DML conducted a substantial proceeding against Hunter Valley Coal Corporation Pty Ltd in the Construction List of this Court, claiming damages for breach of contract. That litigation was funded by Maine Investments Limited, a New Zealand company which had taken an assignment of the fruits of the action prior to the voluntary administration of DML and DML (WA). The matter was settled in late 1999 but, after payment of costs, the settlement sum left no money available for unsecured creditors of DML.

26 An application by the liquidators for litigation funding to Bradstock GIS was rejected in early 1999. The liquidators then sought litigation funding from another source, Litigation Lending Services, who informed them that evidence of insolvency and legal advice were required for the assessment of such a request. After some time, two documents were produced for the purposes of compliance with Litigation Lending Services’ requirements: a report as to the solvency of DML dated February 2000, and a letter of advice from the liquidator’s solicitors, Kemp Strang, dated 10 May 2000.

27 The solvency report purported to show that the company was insolvent at all times during the six month period prior to the relation-back day relevant for the purposes of the unfair preference provisions in ss588FA and 588FE of the Act. Two bases for this opinion were presented: the company’s inability to meet its debts as and when they fell due, and the fact that its liabilities exceeded its assets. The Appellant’s level of concern as to the company’s ability to meet its payments and its efforts to obtain security for the debt were recorded as an indicator of the first basis for the opinion.

28 Kemp Strang advised that, although the issue of solvency was likely to be the most contentious issue in any action for recovery of unfair preferences, there were strong grounds to believe that the relevant transactions sought to be attacked by the liquidators were insolvent transactions and that the liquidator had strong grounds for pursuing preference claims. Sufficient documentation was said to be in Kemp Strang’s possession to allow the commencement of proceedings against a number of large creditors, including the Appellant. Several notes of caution were sounded in the advice in relation to an action against the Appellant, which was said to be “the most obvious target” if finance was available, given the substantial amounts involved. It was also suggested that BP would have difficulty relying on the statutory defences in s 588FG(2) and running account arguments under s 588FA(3), because of the nature of the Deed of Forbearance entered into between BP and the DML companies. Kemp Strang noted: “It appears to us that BP took steps to protect its position by obtaining the comfort it did.” Kemp Strang recommended a “narrow” examination be conducted in respect of the BP transactions:

“… given the complex nature of the transactions involving BP and the size of the potential recovery, a public examination should be conducted in respect of the transactions involving BP. The issue relating to the “security” (bank guarantee) obtained by BP and the running account defence should be investigated in this examination. Further, it appears from correspondence from lawyers acting for BP that BP will defend any claim vigorously. It is more likely that a resolution to the claim would be reached if an examination were conducted initially.”

29 Kemp Strang’s advice highlighted the potential limitations problems such actions would face, although it did not refer specifically to s588FF(3) of the Act. The following advice was provided:

“Unless examinations are concluded by the end of July, we advise an application for the extension of time to commence preference claims should be filed to avoid a limitations problem. Application would be made in the Supreme Court … for time to be extended to enable the liquidators to conduct the examinations. In order to avoid a limitations problem, proceedings to recover preference claims must be commenced prior to the end of September 2000. If an extension of time to commence is not granted, the proceedings should be filed, even if the examinations are not concluded, but stood over until such examinations are concluded.”

30 On this basis, “any examinations will need to be conducted as soon as possible”, especially because congested court lists and the court shutdown during the Olympics would make it difficult to obtain days for the examination prior to September. The advice concluded: “We note that pursuant to the Law, the limitation period for commencement of preference claims may be extended by order of the court. If examinations cannot be concluded before August an application to extend time will be necessary.”

31 In an affidavit of 30 August 2000 Mr Cuming indicated that he understood the advice from Kemp Strang to suggest that an examination be conducted prior to commencement of preference actions “on the basis that I have been unable to obtain sufficient evidence concerning any potential defences available to creditors whom I believe received unfair preferences.”

32 Litigation Lending Services agreed to provide litigation funding on about 1 August 2000. The Committee of Inspection of DML met on 18 August 2000 and resolved, by majority, to authorise the liquidators to enter into the funding agreement for the purposes of pursuing creditors for the recovery of preferences within the meaning of s 588FA of the Act. Mr Paul Kettle, representing the Appellant, attended the meeting and voted against the resolution. Since there were insufficient funds to call a meeting of creditors of DML (WA) to approve the litigation funding agreements, and a resolution approving the agreements would not have been passed at meeting of the Committee of Inspection, because two of its three members were potential defendants to preference actions, the liquidators sought the approval of the Court under s 477(2B) of the Act to pursue the matter as part of their originating process filed on 4 September 2000.

33 Litigation funding agreements were finalised with Litigation Lending Services and executed by the first Respondents on 28 August 2000, naming BP Australia Holdings Pty Ltd, Cooks Construction Pty Ltd, Marubeni Construction & Mining Equipment Pty Ltd and CBS Drill & Blast Pty Ltd as defendants in actions to be brought by DML, and BP Australia Holdings Pty Ltd and CJD Equipment Pty Ltd as defendants in potential actions by DML (WA). “Proceedings” were defined to include both the public examination of the named defendants and, in the case in which BP Australia Holdings Pty Ltd was named as a defendant, an application to extend the period prescribed by s588FF(3)(b) for the liquidator to commence proceedings under s588FF(1).

34 Mr Cuming states in his affidavit that “in the event that the examinations reveal that there are defences available to the creditors I do not propose commencing proceedings. This would more efficiently deal with the resources available to me as liquidator of the Companies and avoid commencing proceedings which could otherwise be a waste of resources of both the Companies and creditors against whom I propose commencing proceedings.”

35 In cross-examination before Austin J, Mr Cuming agreed with the proposition put to him that “the purpose of the examinations was to try and ensure you had an absolutely certain result against BP”. The following exchange took place:

“Q: The purpose of those examinations was to determine whether you had a claim against BP?

A: Yes.

Q: You already knew you had a claim against BP?

A: The purpose was that we had it cast iron.

Q: The purpose you say was that you had a cast-iron claim?

A: Obtained whatever information we could.”

36 Mr Cuming conceded that his legal advice did not suggest that an extension of time was necessary in order to commence the proceedings against BP by the conduct of examinations. The proceedings could be commenced and stood over until the conclusion of the examinations. However, Mr Cuming said that the liquidators and the funders had “agreed a strategy on how to proceed”, and that “it was felt this [seeking an extension of time] was a way of not limiting my ability to undertake the examinations”, since “it was my understanding that to commence the proceedings might limit and make more difficult the examination process.” Mr Cuming admitted that such an opinion was not based on Kemp Strang’s letter of 10 May 2000, and that it was probably based on later discussions to the effect that it was “better to seek an extension now and move towards seeking an extension”. On the basis of these views, the liquidators instructed Kemp Strang in late August 2000 to make an application for the extension of time pursuant to s588FF(3)(b).

37 On 4 September 2000, Austin J made ex parte orders extending the period within which any application in respect of a voidable transaction of either DML or DML (WA) might be made to 24 October 2001. His Honour granted approval to the litigation funding agreement. His Honour directed service on the five corporations named in the Litigation Funding Agreements and granted liberty to those corporations to file and serve any application to set aside his orders within 28 days.

38 Pursuant to Austin J’s orders, service of the orders was effected upon Carneys Lawyers, the solicitors for the Appellant, on 11 September 2000. On that day, Mr Gino Pignone, solicitor for the liquidators, received a telephone call from Mr Arthur Carney, solicitor for the Appellant. Mr Pignone’s filenote of that conversation reads:

“He says his instructions to accept service. He wants to know if his client is to be served – I say no decision made yet. Examinations to occur.”

39 BP Australia Holdings Limited (BP Holdings) availed itself of the leave granted by Austin J within the time specified, filing an application on 4 October 2000 seeking orders that it be joined to the proceedings as a defendant, and that his Honour’s orders extending time under s588FF(3)(b) be set aside on the grounds of absence of power to make the orders, failure to provide BP Holdings and the Appellant, which was joined as an additional applicant, with the opportunity to be heard, delay, and failure to establish a prima facie case. Various interim disputes in relation to examination summonses and an alleged apprehension of bias on the part of Austin J, meant that the application by BP Holdings and the Appellant was not heard until 19 and 20 April 2001. It was this hearing that led to the delivery of the second judgment on 17 July 2001.

Availability of s1322(4)(d)

40 Austin J determined, in the sixth judgment, that it was open to the Court to act pursuant to s1322(4)(d) of the Corporations Act and extend the time in which the liquidators could make an application for an extension of time under s588FF(3)(b) of the Act. That section relevantly provides:

“1322(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

…

(d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;

and may make such consequential or ancillary orders as the court thinks fit.”

41 The contrast between the two provisions is apparent on their face. Section 588FF(3) emphasises that an application under subs (1) of the section “may only be made” within the specified periods, including that any application for an extension of time be made within the three year period. In contrast, the words in parentheses in s1322(4)(d) state that an order extending time under that section may be made even after the relevant period has expired. (A similar contrast exists with s70 of the Act, upon which no reliance was placed in the submissions).

42 The relevant principle of statutory interpretation is stated in the joint judgment of Gavan Duffy CJ and Dixon J in Anthony Hordens & Sons Limited v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1 at 7, where their Honours said:

“When the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power.”

43 This passage has been frequently applied. See e.g. John v Commissioner of Taxation (Cth) (1989) 166 CLR 417 at 434; Saraswati v The Queen (1991) 172 CLR 1 at 23-24; Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672 at 678; David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 276; Downey v Trans Waste Pty Ltd (1991) 172 CLR 167 at 171-172; Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 at [72]-[73].

44 To similar effect are the observations of Dixon J in R v Wallis; Ex parte Employers’ Association of Wool-Selling Brokers & H V McKay Massey Harris Pty Ltd (1949) 78 CLR 529 at 550 where his Honour said:

“… an enactment in affirmative words appointing a course to be followed usually may be understood as importing a negative, namely, that the same matter is not to be done according to some other course.

This applies especially when the power or duty affirmatively conferred or imposed is qualified by some condition, limitation or direction.”

45 This passage has also been frequently applied. See e.g. PMT & Partners (In liq) v Australian National Parks & Wildlife Service (1995) 184 CLR 301 at 322; Saraswati v The Queen at 24; ABB Power Plants Limited vElectricity Commission (NSW) (t/as Pacific Power) (1995) 35 NSWLR 596 at 599 and 601; Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 66 FCR 511 at 527; Switz Pty Ltd v Glowbind Pty Ltd at [69]-[70].

46 The formulation in Anthony Horderns & Sons, was applied by the High Court in David Grant v Westpac, in the context of corporations legislation. In that case the High Court held that s1322(4)(d) was not available to extend the time of 21 days within which a company that had been served with a statutory demand must apply to a court to set the demand aside, pursuant to s459G of the Act.

47 Section 459G, which was under consideration in David Grant v Westpac, states:

“(1) A company may apply to the court for an order setting aside a statutory demand served on the company.

(2) An application may only be made within 21 days after the demand is so served.

(3) An application is made in accordance with this section only if, within those 21 days:

(a) an affidavit supporting the application is filed with the court; and

(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.”

48 The use of the word “only” in s459G is comparable to the use of the word “only” in s588FF(3). This terminology was of significance in the reasoning of the High Court in David Grant v Westpac but was not, of itself, determinative of the conclusion in that case that s1322(4)(d) was not available.

49 Gummow J, who delivered the judgment of the Court, said with respect to the use of the word “may only” at 277:

The Crown v McNeil

Cavetina Pty Ltd v Synthetic Dyeworks Industries Pty Ltd

Re J & E Holdings Pty Ltd

50 In Star v National Australia Bank Ltd (1999) 30 ACSR 583 Rolfe J applied this reasoning to s588FF(3) and concluded that an order could not be made under s1322(4)(d) to extend time for purposes of s588FF(3). Williams J had come to a similar conclusion in Tagoori Pty Ltd (In liq) v Lee [2001] 2 Qd R 98, however this authority was not cited to Austin J. Subsequent to the judgment of Austin J, Mullins J has considered the issue in Greig v Australian Building Industries Pty Ltd (In liq) (2002) 171 FLR 41; 21 ACLC 324. Her Honour preferred to follow Rolfe J, rather than Austin J.

The Reasons of Austin J

51 Austin J distinguished David Grant v Westpac in the sixth judgment and refused to follow Star v National Australia Bank. The issue for this Court is whether his Honour was correct to do so.

52 His Honour distinguished David Grant v Westpac on the basis of the difference in the legislative policies underlying Pt 5.4, under consideration in that case, and Pt 5.7B, in which s588FF appears. Austin J said, correctly, that in David Grant v Westpac, the emphasis on the words “may only be made” was given in a particular statutory context which contained a number of features, set out in the judgment of the High Court in that case, which are not repeated in the legislative scheme of Pt 5.7B. Specifically:

· The time period of 21 days in s459G(2) is reinforced by the terms of s459G(3) which identify the manner in which an application will be made as “only if within those 21 days” material is filed and served.

· Section 459F(2) specifically empowers a court to extend the period for compliance with a statutory demand if a company applies “in accordance with s459G”.

· Section 459C(2) requires the Court to presume insolvency if a company has failed to comply with a demand as defined by s459F, which refers to an application to set aside “in accordance with s459G”.

53 Gummow J concluded at 278:

“These matters emphasise the importance of s 459G as an integral part of the particular scheme established by Pt 5.4.”

54 Austin J concluded:

“[36] The statutory context of s588FF(3) is notably different. The time limit does not, as I have said, form an integral part of some wider scheme, to be read in conjunction with other provisions. I can find no other indication in Part 5.7B Div 2 of a legislative intention to exclude the curative power of the court conferred by s 1322. Everything turns upon the meaning of the phrase “may only be made”, to be determined without any contextual assistance other than the sheer co-existence of ss588FF(3) and 1322, and in the absence of any policy reason for requiring exclusivity.

…

in all contexts

unless

55 As to the legislative policy underlying Pt 5.4, his Honour referred to the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (“the 1992 Act”), which was quoted by Gummow J in David Grant v Westpac, and also to the report of the Australian Law Reform Commission, General Insolvency Inquiry, Vol 1, Report No. 45, Commonwealth of Australia, 1988 (“the Harmer Report”). These materials on the origins of Pt 5.4 reveal the legislative policy to be served. Specifically, the pre-existing scheme for statutory demands permitted matters concerning the existence and quantum of debts to remain in dispute, even at the hearing of a winding up application, or in injunction proceedings. This was regarded as undesirable and the disputed debt issue should be determined pursuant to a specific statutory regime which was described as a “complete code for the resolution of disputes involving statutory demands”. (Explanatory Memorandum, par [688] quoted in David Grant v Westpac at 270.)

56 The Explanatory Memorandum for the 1992 Act expressly stated, in par 689, that the new scheme would require disputes to be raised at an early stage, rather than after winding up proceedings had commenced. (Quoted at David Grant v Westpac at 270).

57 His Honour said:

“[27] If s1322 were available to permit the court to extend the time for making an application to set aside a statutory demand, the new legislative scheme would be compromised, because there could no longer be any assurance that questions about the existence and quantum of the debt would be resolved prior to the making of the winding up application …”

58 With respect to the provisions of Pt 5.7B, his Honour made the following observations:

Conveyancing Act

[31] Further the legislative scheme with respect to voidable transactions cannot be regarded as a new statutory procedure designed to replace existing practices, and is better seen as the product of evolution of the voidable transaction provisions of earlier statutes …

[32] When the present legislative scheme was introduced by the 1992 amendments, there was no legislative purpose of setting up a special statutory application procedure to be completed before the happening of a later event such as a winding-up application. Instead, the liquidator’s statutory right to bring proceedings to challenge voidable transactions arises in the course of the administration of the company in winding up, and consideration of the exercise of that right is one of the liquidator’s duties of administration, to be completed before the winding-up comes to an end, but not as a condition precedent to any other step in the course of the administration.

[33] In this context, the fixing of the statutory time limit for the liquidator to make an application to challenge a voidable transaction is merely directed to ensuring that due and timely attention is given to this aspect of the liquidator’s duties of administration. The 3 year time limit, important though it is, is not an integral part of any wide legislative structure. That is made clear in the observations of the Harmer Committee, which were the basis for reduction of the time period to the present period of three years. The Harmer Committee’s concern (Report No 45, para 688) was expressed as follows:

‘Actions by a liquidator to recover the proceeds of a void transaction, a preference, a transaction at an undervalue or a transaction with intent to defeat creditors should be commenced within a reasonable time. The Commission proposed in DP 32 (para 454) that a liquidator should have three years to commence such an action, although the Court might extend that time. Under the existing law the time period would be six years (for example, Bankruptcy Act s 127). Many submissions to the Commission complained about the sometimes inordinate delay in commencing proceedings in respect of voidable transactions. In addition there have been recent judicial observations critical of the general delays associated with the winding up of insolvent companies. It is therefore considered desirable to place liquidators under a more rigorous but, nonetheless, reasonable time limitation for taking action under these provisions. The Commission recommends accordingly.’

[34] The legislative policy is to discourage liquidators from delaying or deferring action with respect to voidable transactions until their other tasks have been carried out. It is not a policy of setting up an inescapable time limit regardless of individual circumstances. It is not incompatible with the policy to allow the Court to extend the time for the liquidator to make an application to challenge a voidable transaction. Indeed, s 588FF(3)(b) expressly acknowledges that the Court may do so. Nor is it incompatible with the legislative policy, in cases where the prerequisites for the application of s 1322 are made out, for the Court to permit an application to be made, for an extension of the time for making an application in respect of voidable transactions, after the expiration of the time limit set out in s 588FF(3)(b).”

Further Case Law

59 In Emanuele v Australian Securities Commission (1996-1997) 188 CLR 114, the Court was concerned with s459P of the Corporations Law which, relevantly, provided that an application by certain identified persons for a company to be wound up “may only be made with the leave of the Court” and that, except as so permitted, “a person cannot apply for a company to be wound up in insolvency”. By a three to two majority, the Court held that a grant of leave was not a precondition before a valid winding up application could be made and that leave could, accordingly, be granted by a court after a winding up order.

60 Toohey J distinguished David Grant v Westpac, and the submission based thereon, that the words “only” and “cannot”, would be deprived of all effect. His Honour said that there was force in the submission that David Grant v Westpac “was decided in relation to a temporal provision which has certain consequences”, whereas the statutory provision before the Court attributed “less significance” to whether or not the leave was granted before or after a winding up order was made (at 131).

61 This reasoning is consistent with the way Austin J distinguished David Grant v Westpac.

62 In Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, the High Court considered Pt 5.3A of the Corporations Law, specifically, the power of the court to extend the period within which a meeting of creditors of a company under administration is to be convened. Pursuant to s439A(1), an administrator is to convene such a meeting “within the convening period as fixed by subsection (5) or extended under subsection (6)”. Subsection (5) provides, relevantly, for a period of weeks and subs (6) provides “the Court may extend the convening period on an application made within the period” referred to in subs (5).

63 At first instance, Santow J and, on appeal, this Court by majority, permitted the extension of the relevant period, relying on both s447A and s1322(4)(d) of the Law. In its joint judgment, the High Court dealt only with the former and dismissed the appeal.

64 Section 447A is, of course, in the same Part as s439A is to be found. The section gives the court a general power to make orders about how the Part is to operate. The High Court rejected a submission that s447A did not extend to permitting the making of an order altering times fixed by other provisions of Pt 5.3A which contained express provisions for variation of the time so fixed.

65 Their Honours referred to the principle stated in Anthony Hordern & Sons and applied in David Grant v Westpac. Their Honours explained the latter case:

only

66 Their Honours determined the case before them on the basis of the fact that s447A was an “integral part of the legislative scheme provided for by Part 5.3A” [24].

67 The reference in the joint judgment to “the consequences that would follow”, as a matter of significance in the reasoning in David Grant v Westpac, is consistent with the reasoning of Toohey J in Emanuele v ASC quoted above and adopted by Austin J. However, the reference in the joint judgment: “define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by the section”, is much closer to the structure of s588FF. Furthermore, it could not be said of s1322, as it could be said of s447A, that “it was an integral part of the legislative scheme provided for by”, relevantly, Pt 5.7B.

68 In Star v NAB, a case which Austin J refused to follow, Rolfe J referred to both David Grant v Westpac and Emanuele v ASC. His Honour came to the conclusion that there was no relevant distinction between s459G(2) and s588FF(3). His Honour concluded that “the temporal requirements impose a condition on the exercise by the Court of its jurisdiction” (598). His Honour referred to the same par 688 of the Harmer Report as did Austin J, quoted above, and concluded that it supported his construction, without identifying the particular passage in the extract upon which his Honour relied.

69 I have quoted from par [33] of the reasons of Austin J above. His Honour interpreted the legislative policy in terms of being “merely” directed to ensuring that a liquidator gives “due and timely attention” to his duties in this relevant respect. There is some support for that in the sentence from par 688 of the Harmer Report that there was “sometimes inordinate delay in commencing proceedings in respect of voidable transactions.” However, his Honour did not in this passage refer to the policy reflected in the next sentence of par 688 of the Harmer Report, namely that there had been judicial observations “critical of the general delays associated with the winding up of insolvent companies.” It may have been this aspect of par 688 that Rolfe J had in mind. (Compare Austin J’s acknowledgement of this policy in the second judgment 52 NSWLR 685 at [30].)

70 As noted above, Mullins J in Greig refused to follow Austin J’s decision in the case presently under appeal. Her Honour said:

“[105] It is a matter of construction of s 588FF(3), as to whether or not s 1322(4)(d) can be used to extend the time-limit under either paragraph. Section 588FF(3) is a distinctive provision in that it provides not only for the time-limit for a proceeding to be commenced under s 588FF(1), but also provides for the time-limit for making an application for an extension of that period. Section 588FF(3) can be characterised as a specific provision which provides for a time limit for bringing a particular application and for the time limit for bringing the application for an extension of the time limit for bringing the particular application.

Re Aura Commercial Interiors Pty Ltd

Brown v DML Resources [No 6]

[108] I have difficulty with the construction given by Austin J in s 588FF(3) which qualifies the word ‘only’ by the addition of the words ‘unless the court is satisfied that a curative order should be made under s 1322’ ([at 40 ACSR 680]). The addition of that qualification makes the word ‘only’ otiose and does not provide a reason for par (b) being included in the provision.”

71 The issue has also been considered by Barrett J in Re Aura Commercial Interiors (2002) 20 ACLC 904, and, after Greig, in Sutherland v Dexion Pty Ltd [2003] NSWSC 24; (2003) 21 ACLC 341.

72 In Aura, an application to extend the three-year period was made by a deed administrator of a Pt 5.3A administration which had been conducted for almost three years. There was no liquidator who could make an application under s588FF(1). The administrator sought to preserve the possibility, in the event the administration was succeeded by liquidation, that proceedings under that section could be taken by the liquidator. Accordingly, the deed administrator, as plaintiff, sought an extension under s588FF(3)(b).

73 In Dexion, the Pt 5.3A administration had already exceeded three years and, therefore, the period within which a liquidator could make the application under s588FF(1) had expired prior to the appointment of the liquidator.

74 His Honour made the orders in each case, but approached the matter in a different manner to that which Austin J adopted in the sixth judgment. His Honour was influenced by the policy consideration that arose on the facts of each of the cases, namely, the possible loss of the ability of a liquidator to pursue recovery for voidable transactions under s588FF(1) in the case of a lengthy Pt 5.3A administration.

75 In Dexion, his Honour expressed the policy considerations in the following way:

Star

Greig

Star

Greig,

Corporations Act

76 Barrett J approached the construction of the text of s588FF(3) in a manner different to Austin J. His Honour identified the introductory words “may only be made” as qualifying the words “within three years” in par (a) and the words “within such longer period” in par (b). His Honour concluded that the words did not qualify the second reference to the period of “three years” found within par (b) itself. His Honour said in Dexion:

“[13] … Any restriction or circumscription imported by the words ‘may only be made’ operates only in relation to the making of an application under s588FF(1). It is an application of that kind ‘that may only be made’ within the period that, in a particular case, para (a) or para (b) causes to be the applicable period. The words ‘may only be made’ do not, according to the particular verbal architecture, have any connection with or pertinence to an application to the court for an order fixing, as the period in which resort may be had to s588FF(1), a period longer than the period of three years after the relation back day. … The period of three years that para (b) allows for the making of an application of the kind with which para (b) is concerned is functionally quite distinct from and unrelated to both the ‘3 years after the relation-back day’ mentioned in para (a) and the ‘longer period’ mentioned in para (b) they being the only periods affected by the ‘may only’ specification governing the making of applications under s588FF(1), even though it happens to coincide, in a temporal sense, with the former. A liquidator’s ability to make an application under para (b) is not expressed to be subject to any ‘may only be made’ limitations. There is thus nothing to indicate an intention that the period of three years allowed by para (b) for the making of an application of the kind referred to in para (b) is in any way put beyond the reach of the general provision in s1322(4)(d).”

Conclusion on s1322(4)(d)

77 In a sense, the section that falls to be construed on the appeal is not s588FF(3) itself, but s1322(4)(d). The issue that arises is whether or not any time period specified in s588FF(3) is a “period for doing any act, manner or thing or instituting or taking any proceeding under this Act” within the meaning of s1322(4)(d). The reading down of general words is one of the most frequent tasks arising in the course of statutory interpretation. (See the authorities discussed in R v Young (1999) 46 NSWLR 681 at [25]-[31].)

78 Section 1322 confers a series of powers designed to mitigate the strict application of the various kinds of provisions found elsewhere in the legislative scheme of the Corporations Act. It constitutes a recognition by the legislature that, in the wide variety of unpredictable circumstances that arise in the conduct of the affairs of corporations, the precise rules for which the statute provides may operate unfairly or unjustly in some circumstances.

79 Nevertheless the requirements of certainty or of deterrence or of other objectives performed by particular regulatory sub-regimes within the legislative scheme, may be such that the flexibility for which s1322 makes provision is not appropriate. Such a conclusion is particularly likely where, as with respect to s588FF, the sub-regime makes its own particular provision for flexibility. The general words found in s1322 may need to be read down with respect to any section which is intended to operate to the exclusion of the general power. However, as a remedial provision, s1322 is to be construed liberally and will be read down only where the specific power is intended to cover the field with regard to the sub-regime under consideration.

80 Section 588FF(3) has three references to time:

· “within three years” in par (a).

· “within such longer period” within the introductory words of par (b), and

· “within those three years” in the concluding phrase of par (b).

81 The analysis by Barrett J in Dexion, of what his Honour called the “verbal architecture” of s588FF(3), treats separately the three time references in, respectively, the three year period identified in par (a), the “longer period” referred to in par (b) and the further reference to “within the three year period” at the end of par (b).

82 In my opinion the textual connection his Honour draws between the phrase “may only be made” and the words “within three years” in par (a) and the reference to “within such longer period” in par (b), is not such as to give the word “only” any operative effect. The second reference, i.e. to the “longer period”, deprives the first reference, i.e. “within three years” of any limiting effect. Concentrating on these two particular phrases results in there being no difference if the word “only” did not appear at all.

83 Insofar as the word “only” indicates a purpose to ensure that a particular procedure is observed, it has that effect in this context by reason of its combination with that part of par (b) that requires an application to be made within the original period of three years.

84 It is the combined effect of the word “only” and the express requirement that an application for an extension of the period must be made within the period, that gives the time limit force and indicates the significance for the legislative scheme of the three year period.

85 The time period identified in par (a) is itself subject to a specific power of extension under par (b). That is a comprehensive provision for extension of time which, in my opinion, is intended to cover the relevant field to the exclusion of s1322. This conclusion turns on the text of s588FF(3) and the scope and purpose of Pt 5.7B.

86 The relevant principle of statutory interpretation is as expressed in the two different ways I have quoted in pars [42] and [44] above from, respectively, Anthony Horderns and R v Wallis. The issue is whether the obligation to make an application for a longer period within the three years is a “condition and restriction which must be observed” (Anthony Horderns) or a “condition, limitation or direction” which has the effect of “appointing a course to be followed” (R v Wallis), in each case, to the exclusion of the general power.

87 That each test is satisfied is indicated by the terminology of “may only be made” in the introductory line of s588FF(3). Furthermore, the exclusion of s1322(4)(d) is suggested by the express provision that an application for a “longer period” ought be “made … within those three years” in par (b). This is in direct conflict with the words in parentheses in s1322(4)(d), which expressly authorise an application to be made after the relevant period sought to be extended has expired. (Where a general provision is found in the same sub-regime as another provision of this character a direct conflict would not be inferred. Cf s447A and s439A6(b) where, in any event, there is no terminology equivalent to “may only be made”. See Australian Memory v Brien at 24; Ricon Constructions Pty Ltd (In liq); ex parte McDonald (1997) 43 NSWLR 174; Re Greg Sewell Forgings Pty Ltd (1995) 17 ACSR 602; Re Envirostar Energy Ltd [2002] NSWSC 1246.)

88 The word “only” in a time limitation statutory provision can characterise the provision as a “time so emphatically prescribed”. (Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298 at 300 per Hayne J, in a case under s459G which was a precursor of David Grant v Westpac.) However, the use of the word “only” is not of itself determinative. (See e.g. Emanuele.) Its force is affected by the relevant statutory scheme considered as a whole, as the analysis in David Grant v Westpac shows.

89 Of particular significance in this respect is the scope and purpose of Pt 5.7B of the legislative scheme and its legislative history. After consideration of such matters I have concluded that s588FF(3)(b) was intended to cover the field of applications for extending the period specified as three years from the relation-back day under par (a).

90 The position is not as clear as that which was considered by the High Court in David Grant v Westpac. Austin J correctly identified the range of statutory indicators that led to the High Court to reach the conclusion in that case with respect to the legislative scheme of Pt 5.3A. A number of those indicators are missing here.

91 Without, for the first time, incorporation by reference of bankruptcy law, Part 5.7B integrated, under the single concept of a “voidable transaction”, a range of transactions each of which have their own legal history of a disparate character. It encompasses unfair preferences and uncommercial transactions (together referred to as insolvent transactions) and unfair loans. The various kinds of completed business dealings which are susceptible to subsequent avoidance are brought together in a single regime by the express statutory powers of intervention which are conferred by s588FF and the specific defences which are generally applicable (s588FG).

92 It is difficult to identify a single overriding rationale for the various kinds of transactions which are susceptible to avoidance. (See generally Andrew R Keay, Avoidance Provisions in Insolvency Law, LBC, 1997, Ch 3.) Nevertheless, there do appear to be two distinct focal points of attention. With respect to preferences, the focus of attention is upon the interrelationship of creditors inter se. With respect to uncommercial transactions and unfair loans, the focus of attention is on the relationship between the debtor company and the rights and interests of those who have had commercial dealings with it, including, but not limited to, creditors.

93 In the case of preferences and many uncommercial transactions, the longstanding principle of equality between creditors applies. (See for example the observations in Ferrier and Knight (as Liquidators of Compass Airlines Pty Ltd) v Civil Aviation Authority (1994) 55 FCR 28 at 42-43, observations not affected by the judgment of the High Court on appeal.) Equality, as the foundation principle for the law of preference recapture, was expressed in the statement of principles adopted by the Harmer Report at [33] in the following terms:

“The principle of equal sharing between creditors should be retained and in some areas reinforced.”

94 With respect to uncommercial transactions and unfair loans, other considerations arise. The relevant principle adopted by the Harmer Report at [33], which is particularly relevant in the case of such transactions, is stated as follows:

“The law should provide a convenient means of collecting or recovering property that should properly be applied towards payment of the debts and liabilities of the insolvent person.”

95 The formulation “should properly be applied” reflects a principle of considerable generality with respect to which it is difficult to identify a coherent theme.

96 Section 588FF, with its time limitation, applies to all of the disparate pre-liquidation transactions referred to in Pt 5.7B and which are susceptible to avoidance. The identification of a purpose for a time limit applicable to so disparate a range of commercial conduct can only be stated at a high level of generality. The most that can be said of all the provisions is that, in every case, by legislative judgment, there may be a party to a transaction with an insolvent company who was unfairly enriched by that transaction. The high level of generality encapsulated in the word “unfair” is inescapable.

97 In some circumstances the nature of the benefit is a preference, of any character, which accrued shortly before liquidation. The unfairness involved is the unfairness of queue jumping. In other situations the relevant unfairness arises from the acquiring of an advantage by way of a transaction which is “uncommercial”, as defined, or which is an “unfair loan”, as also defined, so as to constitute a “transaction at an under-value”. (Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 at 548.)

98 The overriding principle in Pt 5.7B is one of fairness. Fairness is determined by what is, in substance, a legislative presumption of unfairness in identified circumstances. That presumption is a rebuttable one. A person who has received the benefit of a transaction being one of those identified by the legislature to be voidable should, in appropriate circumstances, disgorge the benefit so received.

99 The centrality of the principle of fairness is indicated in the hierarchy, for which s588FE provides, of the time periods prior to the “relation back day” or the commencement of the winding up, for which such a transaction is vulnerable:

· Six months for an unfair preference (where the unfair advantage is the timing of the transaction).

· Two years for an uncommercial transaction, i.e. a transaction which a reasonable person would not have entered (where the unfair advantage has conferred any actual advantage).

· Four years for either an unfair preference or uncommercial transaction with a related person (where the lack of arm’s length dealing suggests unfairness).

· Ten years for transactions intended to defeat creditors (where an improper purpose affects the balance of fairness).

· No effective time limit for an unfair loan, where the interest or charges are “extortionate” (and accordingly where the unfair advantage can be seen to have been “extortionate”).

100 The centrality of the principle of fairness is also apparent in the defences for which s588FG provides. A person can resist an order prejudicing that person’s rights or interests, where a reasonable person would not have suspected that the company was insolvent and the person receiving the benefit did not in fact so suspect. (Note the further requirement of providing valuable consideration to mount a defence in the case of an alleged unfair loan in s588FG(2)(c).)

101 Where the underlying principle is one of fairness, it is easy to appreciate that the passage of time affects the balance of fairness. The range of pre-liquidation transactions which are subject to avoidance under the statutory regime clearly involve a process of balancing conflicting interests, relevantly, between the general body of creditors on the one hand and, on the other hand, others who have taken advantage of the company including, but not limited to, particular creditors. In some respects the legislative scheme balances these interests. In other respects it leaves the balancing, or rebalancing, of those interests to the courts.

102 The passage of time affects the fairness of a court ordering that an advantage be surrendered, including the application, relevantly for the purposes of the present case, of the principle of equality amongst creditors. The longer a person has retained a particular benefit, the more disruptive it will be to that person to be forced to surrender it. The appropriate balance between these conflicting interests is affected by delay. The passage of time may, of itself, tilt the balance of fairness. It does not necessarily do so and, accordingly, it is appropriate that there be a discretion to extend time.

103 I have noted above that the relevant pre-liquidation time periods vary from one category of voidable transaction to another. It would have been possible to provide that different periods should apply to the post-liquidation time periods which determine when an action to set aside a transaction should be brought. This is not, however, what was done. Instead a single post-liquidation time period for bringing proceedings was adopted in s588FF(3).

104 One of the matters that may have induced the adoption of a single period – for transactions of a wide range of moral obloquy – was the recognition by the Harmer Report of the criticism that had been made of the “general delays associated with the winding up of insolvent companies” (par [688]). Indeed one of the principles adopted by the authors of the Report as a guide for their recommendations was that:

“An insolvency administration should be impartial, efficient and expeditious.” (at [33])

105 At the time of the Harmer Report, and at the time of the 1992 Act which inserted Pt 5.7B (in large measure on the basis of the recommendations of the Harmer Report), the period within which actions against unfair practices had to be taken was believed to be six years. This is expressly stated in par [688] of the Harmer Report and was based on the assumed application under s565 of the Corporations Law of the time limit in s127(5) inserted into the Bankruptcy Act 1924 (Cth) by the Bankruptcy Amendment Act 1980 (Cth). Subsequently to the Harmer Report and the 1992 Act, the Victorian Court of Appeal found that s451 of the 1981 Companies Code did not render applicable the time limitation found in s127(5) of the Bankruptcy Act. (See Horsburgh v Strongman & Crouch [1998] 3 VR 896.)

106 The Harmer Report proceeded on the basis that the relevant period was six years and recommended that that period be reduced to three years. The new regime recommended by the Harmer Report expanded the range of pre-liquidation transactions which could be avoided and, significantly for present purposes, enhanced the armoury of liquidators in a number of ways, not least by enabling the court to make a wide range of rectifying orders. These were identified in s588FF(1).

107 That subsection represented a substantial change to the pre-existing scheme. Prior to Pt 5.7B, the practice was for the court to declare a disposition to be void with the consequences left to the general law, together with some statutory powers of limited scope such as s567 of the Corporations Law. Section 588FF(1) identifies a range of specific orders that can be made and which are more focused and more comprehensive than the orders that were hitherto available by way of relief under the general law or statute.

108 The extension of the ability of liquidators to act on behalf of the general body of creditors, by broadening the range of antecedent transactions that were susceptible to avoidance, curing the pre-existing uncertainty as to the applicability of provisions such as s120 of the Bankruptcy Act (see Keay at 70) and clarifying the orders that can be made, was balanced by a requirement for greater expedition in the conduct of a liquidation. The reduction of the time period for applications from six years to three years was part of a broader rebalancing of the conflicting interests involved.

109 Indeed, the Parliament went further than the recommendations of the Harmer Report, which proposed a provision in the following terms:

“AT8 An application under AT3, AT4, AT5 or AT6 shall not be made by the liquidator after the expiration of three years from the relevant date unless the court, by order, so allows.”

110 As can be seen, further consideration of the issue of timeliness led to the inclusion both of the introductory phrase “may only be made” in s588FF(3), and also to the stipulation that an application for an extension beyond the three year period should be made within the originally stipulated period. By reason of this significant strengthening of the original proposal, the consideration of the relevant issues in the Harmer Report is not as useful as may otherwise have been the case. That the Parliament went further than this comprehensive inquiry recommended does, however, indicate the weight to be afforded to the policy purpose of encouraging greater expedition in the conduct of a liquidation.

111 The policy considerations that arise in this context are not dissimilar to those which arise with respect to periods of limitation generally. These were stated by McHugh J in Brisbane South Regional Health Authority v Taylor (1997) 186 CLR 541 at 552-553, in the following terms:

“Courts and commentators have perceived four broad rationales for the enactment of limitation periods. First, as time goes by, the relevant evidence is likely to be lost. Second, it is oppressive, even ‘cruel’, to a defendant to allow an action to be brought long after the circumstances which gave rise to it have passed. Third, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them. Insurers, public institutions and businesses, particularly limited liability companies, have a significant interest in knowing that they have no liabilities beyond a definite period. As the New South Wales Law Reform Commission has pointed out:

‘The potential defendant is thus able to make the most productive use of his or her resources and the disruptive effect of unsettled claims on commercial intercourse is thereby avoided. To that extent the public interest is also served.’” [References omitted.]

112 There is, in my opinion, a broader public interest to be served by allowing persons who have had dealings with companies which become insolvent to conduct their commercial affairs with a degree of certainty about their exposure to having past transactions unravelled.

113 I note the traditional hostility of the common law to the exhumation of bodies which was once described as an “inhuman and barbarous felony”. (Haynes’ case (1614) 12 Co Rep 113, 77 ER 1389. See also R v Lynn (1788) TR 733, 100 ER 394; R v Sharpe (1857) 7 Cox CC 214, 169 ER 959.) In this respect, equity followed the common law. (P W Young “The Exclusive Right to Burial” (1965) 39 ALJ 50; Beard v Baulkham Hills Shire Council (1986) 7 NSWLR 273 esp at 280.) This policy is informed by considerations of decency and human respect. Nevertheless, in my opinion, there is also a public policy against the disinterring of corporate corpses. Commercial life must at some stage rule off the past and focus energy on the future.

114 The commercial and economic life of the community is sometimes better served by allowing the loss to lie where it falls, so that all concerned may proceed with a high degree of certainty as to their financial position. The passage of time, even the passage of three years, can be seen to legitimately alter the balance of conflicting interests in this regard.

154 His Honour held, after referring to the Harmer Report:

“[31] The underlying idea is that it is desirable, in the interests of commercial certainty, for creditors to know where they stand within a reasonable period after the commencement of the liquidation. The outcome that would be produced by the plaintiffs’ construction of subrule 11(3) would enable the liquidator to leave creditors in an uncertain state well beyond three years, because it would allow the liquidator to file a ‘shelf’ application within the three-year period and then breathe life into it by adding the targeted creditor as a defendant at any later stage, unless the proceedings were dismissed.

Corporations Act

155 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.

156 His Honour’s emphasis on commercial certainty is a matter to which considerable emphasis must be given and I have done so in coming to a different conclusion to his Honour as to the availability of relief under s1322(4)(d). However, the need for commercial certainty does not require a strained construction of Pt 8 r11(3).

157 The courts have many alternative means of controlling the abuse of their procedures through the filing of “shelf” applications. First, courts throughout Australia are now actively engaged in case management. Applications to a court for an extension of a time period, such as the determination of a “longer period” under s588FF(3)(b), are not permitted, as a rule, to be treated as inactive until the applicant for relief wishes to activate the application. If, contrary to the case management practice of most courts, delay in making such an application occurs, that would be a matter of considerable significance for the exercise of the discretion to grant the relief under s58FF(3)(b). It would also play a part in the exercise of the discretion to make orders under s588FF(1).

158 Where a liquidator has in mind a specific voidable transaction and fails to give notice of his or her intention to the party concerned, the Court may also take that failure into account in the exercise of the two discretions to which I have referred. The longer the period that elapses in each respect, the more significant a court will regard the relevant failure. There are, in my opinion, real limits to the maintenance of a “shelf” application.

159 For these reasons, the joinder of the Cross-Respondent/Appellant was not futile and the cross-appeal should be allowed in this respect.

The Validity of the Application

160 On the above analysis, the original application by the Respondents remained on foot with respect to the Appellant. The Originating Process sought the following order:

“Pursuant to s588FF(3)(b) of the Corporations Law the period prescribed by s588FF(3)(b) of the Corporations Law within which any application in respect of any voidable transaction of DML Resources Pty Ltd (in liquidation) ACN 053 771 494 under s588FF be extended to 24 October 2001.”

161 An identical order was sought with respect to DML Resources (WA) Pty Ltd (in liquidation) ACN 059 781 967.

162 On 4 September 2000, Austin J made these orders. The effect of his Honour’s second, third, fourth and fifth judgments was that each order was set aside insofar as it affected the Appellant. If, as I have decided, his Honour erred in doing so then, subject to the discretionary considerations that arise with respect to the extension of time under s588FF(3)(b), an application had been made to the Court within the three year period identified in that paragraph.

163 By way of notice of contention, if the Court upheld the cross-appeal with respect to his Honour’s finding based on a denial of procedural fairness, the Appellant/Cross-Respondent sought to support his Honour’s judgment on the basis that the Court had no power to make a general order in the form of the orders made. The Appellant/Cross-Respondent submitted that it was a condition of the validity of an order that the persons in respect of whom any extension of time is allowed must be specified. By reason of the dismissal of the cross-appeal on the issue of procedural fairness, it is not necessary to consider the notice of contention.

164 During the course of oral submissions, the Appellant/Cross-Respondent extended this submission to encompass an assertion that because the Originating Process sought a general order without such specification, there was no valid application made within the three year period referred to in s588FF(3(b).

165 Mr B Coles QC, who appeared for the Appellant/Cross-Respondent, submitted that s588FF(3) contemplates an extension of time in aid of an application which must be an application under s588FF(1) and that that application must be made with respect to a specific transaction. The specific person, who is to be the intended subject of the s588FF(1) order should, he submitted, be the subject of a s588FF(3) extension in aid of the enabling order to be made.

166 Mr B W Rayment QC, who appeared for the Respondents/Cross-Appellants supported the power to make a general or categorical order. He submitted that it was not permissible for the Appellant/Cross-Respondent to raise this issue for the first time on appeal. The submission in the form made below was directed simply to the power of the Court to make an order and there was no submission to the effect that what Austin J had before him on 4 September 2000 ex parte, was not an application of the kind authorised by s588FF(3)(b). He submitted that if such a submission had been made, the application could have been amended.

167 There is force in the submission, although the window of opportunity was a narrow one. On the assumption that the relevant relation back day was the day of the appointment of the liquidators as administrators, as has been common ground in these proceedings, the three year period within which an application had to be made expired on 24 October 2000. Pursuant to the leave reserved by Austin J in his orders of 4 September 2000, the BP company granted such leave filed an application on 4 October 2000. In that application, it sought the orders extending time under s588FF(3)(b) be set aside on the basis, relevantly, of an absence of power to make the orders. There was no reference, in terms, to the invalidity of the application.

168 In any event, I am of the view that Austin J was correct in the conclusion to which he came that an application under s588FF(3)(b) seeking a general order for an extension of time to make an application under s588FF(1) against any creditor, is a valid application and an order in those terms is a valid order. I agree with his Honour’s analysis in the second judgment as follows:

that application

under subsection (3)

[34] The construction for which the applicants contended would, in my opinion unnecessarily hamper the work of liquidators for no good reason. I accept the applicants’ submission that a purpose of the statutory reform that produced s 588FF was to prevent liquidators from relegating the recovery of voidable preferences to the end of their work programs. The investigation of voidable transactions should generally be conducted concurrently with their other liquidation work. Nevertheless, there will be some cases where, notwithstanding the most diligent of efforts, the liquidator is so far short of completing his or her investigations towards the end of the time limit that it is impossible to identify particular transactions in respect of which orders for extension of time could be made.”

169 His Honour went on to refer to the circumstance in which there has been a long administration and a limited period was left for a liquidator to make the relevant application under s588FF(3)(b). For the reasons mentioned above, this part of the analysis may be open to question. Nevertheless, I agree with his Honour’s conclusion.

170 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, subject to the assessment of the Court of all relevant circumstances, including the liquidator’s conduct. It is not difficult to envisage a circumstance in which a liquidator is still ascertaining the identity of the recipients of benefits under possible voidable transactions and cannot give the Court an indication of the creditors to be targeted. The power should be broad enough to allow, in those circumstances, for an order granting an extension of time in general terms.

171 The requirement of commercial certainty on the part of those who have had past dealings with the corporation is to be balanced against the conflicting interest of the creditors of the company. The Court, through the discretions it exercises under ss588FF(3) and 588FF(1), is in a position to control unwarranted delay by liquidators. Subject to reasonable expedition on the part of a liquidator, and to adopt the reasoning of Doyle CJ in Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 659, the creditors are entitled to:

“… the benefit of having the affairs of an insolvent company properly investigated and administered in an orderly fashion in terms of the provisions of the law.”

172 Such an orderly administration is one of the underlying purposes of the legislation. Pursuant to s5C of the Act and s15AA of the Acts Interpretation Act 1901, the Court must prefer a construction that would promote the purpose or object underlying the Act. The purpose or object of orderly liquidation is best served by recognising that diligent liquidators may not be able to identify a full list of targets for applications under s588FF(1) within the three year period specified in s588FF(3).

173 There is nothing in the words of s588FF(3)(b) which ties the character of the extension application to the specificity of what is required in an originating process for an order under s588FF(1). For the reasons I have mentioned, it is not appropriate to construe the section as if it did do so.

174 In my opinion, the application of 4 September 2000 before the Court was a valid application for determination of a “longer period” under s588FF(3)(b), because it was made by the liquidator to the Court within the three year period identified in s588FF(3)(a).

The Discretion to Extend Time

175 In the sixth judgment, Austin J, acting pursuant to s1322(4)(d), extended the period within which an application under s588FF(3)(b) could be made by the Respondents/Cross-Appellants, for an extension of the period within which they may make an application under s588FF(1) against the Appellant, with respect to transactions between that company and DML or DML (WA).

176 In the seventh judgment, his Honour ordered an extension of time under s588FF(3)(b). For the reasons I have outlined above, it was unnecessary for his Honour to make the order under s1322(4)(d) in his sixth judgment.

177 There was, therefore, a valid application for an extension of time filed within the three year period. It was unnecessary for the Originating Process seeking such an order to have formally joined the Appellant/Cross-Respondent prior to the expiration of the three year period. Although his Honour had made the original order in breach of the obligation to accord procedural fairness to the Appellant/Cross-Respondent, that error had been remedied. His Honour was, accordingly, entitled to make the order after his seventh judgment. That order was:

Corporations Act

nunc pro tunc

178 Nothing turned in the submissions before this Court on the route by which his Honour reached the seventh judgment and made this order. The Appellant challenged his Honour’s exercise of the discretionary power to determine a “longer period” under s588FF(3)(b). This Court will rarely interfere with the exercise of such a discretion.

179 His Honour made a series of factual findings with respect to the explanation for the delay in bringing the proceedings and the reasons the liquidator advanced for requiring an extension of time. The factual findings were virtually all in accordance with those urged upon Austin J by the Appellant/Cross-Respondent. To some degree, his Honour drew inferences about conduct or characterised the conduct in a manner other than that for which the Appellant/Cross-Respondent contended, but there was no challenge to his Honour’s entitlement to do so.

180 The principal issue on the appeal is whether or not his Honour approached the issue of the extension of time by adopting a wrong test. It was also submitted that his Honour erred in giving a particular matter, to which I will refer, inappropriate weight.

181 Mr Coles’ basic submission was that it was inappropriate for his Honour to approach the decision to determine a “longer period” by the application of a general test such as whether it was just and reasonable to give an extension. He submitted that the appropriate approach was to ask why it was that the applicant for an extension needs an extension. An applicant must demonstrate the need and the reason why he or she requires an extension. Then an applicant needs to establish why it was that the period, relevantly of three years, was insufficient.

182 The power in s588FF(3)(b) to determine a “longer period” confers a general discretion on the Court. Other than the stipulation that an application for such an extension must be made within the original period of three years, nothing in the section specifies any criterion to be taken into account when exercising the discretion or any other matter which governs the exercise of the discretion.

183 It can, of course, be readily accepted that the applicant must satisfy the Court positively that the extension ought be made. As McHugh J said in Brisbane South Regional Health Authority v Taylor at 553-4:

Sola Optical Australia Pty Ltd v Mills

184 His Honour went on at 554 to say:

Klein v Domus Pty Ltd

185 To similar effect is the approach of Gleeson CJ in Salido v Nominal Defendant (1993) 32 NSWLR 524. When rejecting a submission that a generally framed discretion empowering a court to give leave to bring proceedings after a specified period required the circumstances to be either “extraordinary” or “special”, his Honour said at 532:

“The question is what is fair and just. … It is true that the exercise of the discretion is to be approached on the basis that the onus is on the applicant to show why it is fair and just that in his or her case there should be a dispensation from a general rule established by the statute. Nevertheless, the statute recognises that there may be cases where it is fair and just to grant such a dispensation, and the applicant should not be required to bear some additional forensic burden of indeterminate nature and unquantified weight.”

186 These authorities were applied in this Court in Itek Graphix Pty Ltd v Elliott (2001) 54 NSWLR 207. Ipp AJA said at 224:

Workers Compensation Act

Salido

Brisbane South Regional Health Authority

[88] I have pointed out that the justice of the case is to be determined by its own individual circumstances. Often, a failure satisfactorily to explain the delay will not be decisive. Ordinarily the issue of prejudice will be of paramount importance. … Nevertheless, the justice of the case may be such that the failure to explain the delay and to prosecute the case with the requisite diligence will result in an extension of time being refused.

[89] The rule that an applicant, who applies for leave to bring proceedings after a limitation period has expired, must provide a reasonable explanation for the delay (and show that there has not been an absence of diligence on his or her part) forms part of limitation legislation throughout the country and, independently, has long been recognised by the courts. …

[90] The reason for this requirement is not hard to understand. A limitation provision is an expression of intent by Parliament that persons who wish to sue must do so within the stipulated time unless circumstances exist entitling them to obtain leave. A limitation provision is the general rule and an extension is the exception. In obtaining leave, a party is in effect obtaining an indulgence. To allow parties leave, when they have been careless of their rights and careless of the need to proceed with their disputes within the limitation period, would, ordinarily, be contrary to the justice of the case and would subvert the intent of Parliament.”

187 These authorities confirm that the general approach adopted by Austin J of asking what was fair and just in all of the circumstances was an appropriate one. The alternative approach propounded by the Appellant/Cross-Respondent seeks to take one relevant consideration and formulate it as the sole test to be applied. This approach is inconsistent with the general terms of the discretion conferred on the Court by s588FF(3)(b).

188 The general approach adopted by Austin J is reflected in the following passage from the seventh judgment:

“[33] The adequacy of the plaintiffs’ explanation for delay is not an independent criterion, but rather it is a factor to be weighed up with all other relevant factors in the exercise of the discretion. The degree of delay in the present case would not necessarily be acceptable in a case where failure to take proceedings has caused prejudice to the prospective defendants, or in a case where the insolvent administration is uncomplicated and fully funded. On the other hand, a greater degree of delay might be acceptable in a case where, for example, there is an indubitable entitlement to recover an unfair preference of a very large amount for the benefit of unsecured creditors, and no prejudice to the potential defendant other than the prejudice of repaying money which he was not entitled to receive.”

189 I can see no error in this approach. It appears to me to be consistent with the authorities to which I have referred.

190 The specific matter to which the Appellant drew attention in terms of inappropriate weight was his Honour’s reference to the absence of any prejudice to the Appellant. This appears in the paragraph immediately after the paragraph I have just quoted as follows;

“[34] I agree with the plaintiffs that there is no prejudice to BP in the present case, other than exposure to the s588FF(1) proceeding. BP did not seek to identify any prejudice in its submissions, arguing instead, unsuccessfully in my view, that the plaintiffs had failed to establish matters which needed to be established before the question of prejudice would become relevant.”

191 Mr Coles QC submitted that absence of prejudice is not of itself a circumstance which favours an applicant for an extension of time. His Honour should not have put this factor into the forefront of his analysis of the situation.

192 However, I do not believe his Honour gave this matter determinative weight. He indicated in par [33] as quoted above, that the question of prejudice was an important factor and the absence of prejudice was relevant. As Ipp AJA noted in Itek Graphix, as quoted above, at [88]:

“Ordinarily, the issue of prejudice will be of paramount importance.”

193 The absence of prejudice is a relevant factor to be taken into account in the exercise of so generally expressed a discretion. His Honour committed no error in doing so.

194 In my opinion, the appeal against the exercise of the discretion to extend time should be dismissed.

A Further Authority

195 Since writing the foregoing the Court of Appeal of the Supreme Court of Queensland has delivered a judgment in Greig v Australian Building Industries Pty Ltd (In Liq) [2003] QCA 298, an appeal from the judgments of Chesterman J and Mullins J to which I have referred above.

196 The majority appears to have accepted the reasoning of Mullins J with respect to the unavailability of s1322(4)(d) to extend time under s588FF(3). (See at [90]-[98] per Williams JA; [122]-[124] per Jerrard JA.) However Fryberg J adopted the approach advocated by Barrett J at [176]-[185].

197 The Queensland Court of Appeal unanimously upheld Chesterman J, who applied the second judgment of Austin J, on the procedural fairness issue. (See at [33]-[36] per Williams JA; [110] per Jerrard JA and [136]-[137] per Fryberg J.)

198 In the course of considering the reasoning of Austin J in the second judgment, Williams JA stated that the obligation to give procedural fairness was owed to all affected creditors [35]. Noting Austin J’s reference at [1] to provision for service on “certain specified large creditors”, Williams JA observed at [24]:

“Why the liberty to apply to set aside the order was limited to ‘certain specified large creditors’ escapes me.”

199 Nothing in Austin J’s reasons suggests that his order requiring service was determined by the size of the respective debts. The five companies to which his Honour referred were the only companies with respect to which the liquidators had a litigation funding agreement and were, accordingly, the only creditors to be pursued. Furthermore, as Austin J noted in par [1] of the third judgment:

“the five identified creditors … had been in correspondence with the liquidators in a manner suggesting they may wish to appear and make submissions.”

200 I have concluded above that the court does have power to grant an extension of time in general terms by specification of categories. 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. Some of the reasoning in Greig approaches the issue in a different way.

201 At [45] Williams JA poses the rhetorical question: “Surely any liquidator doing his or her job competently would at least be able to say towards the end of the three year limitation period what transactions might be challenged”. My reasoning in pars [166]-[171] would answer this question: “Not necessarily”.

202 Williams JA concludes at [51], whilst expressly acknowledging his remarks to be obiter, that “at least as a general rule … the court has no power to grant a blanket extension of time pursuant to s588FF(3) on an ex parte application” (emphasis added). The italicised words suggest that his Honour’s reasoning and my own may differ more in form than in substance.

203 Jerrard JA repeats the formulation “as a general rule” at [111] and “in the ordinary course” at [112] and adds that a liquidator must satisfy the court that he or she was “unable to describe the nature of a possible application … and the identity of the potential respondent”.

204 It is not necessary to decide this issue in the present case. However, the analysis supports my conclusion that the seeking of an order in general terms does not result in invalidity of the application.

205 By majority, Williams and Jerrard JJA, Fryberg J dissenting, the Court allowed the appeal from Mullins J. Her Honour had made an order under s81 of the Supreme Court of Queensland Act which permits amendment of an application even though the amendment will add a new party or a relevant period of limitation has ended. Insofar as the decision turned on the terms of that section it is not directly applicable in New South Wales. (c/f Pt 20 r4 of the Supreme Court Rules).

206 The majority in Greig rejected the basis on which Chesterman J and Mullins J proceeded, adopting that of Austin J, that the original proceedings remained in existence after the ex parte orders had been set aside against the creditors. (See at [56], [71]-[72], [79]-[82], per Williams JA and [114]-[118] per Jerrard JA; contra at [146]-[150] per Fryberg J.) The majority concluded that the ex parte orders had finally disposed of the proceedings on the original application and the subsequent order to set aside the order as against a particular creditor did not alter that position.

207 I see considerable force in the dissenting opinion of Fryberg J that the effect of the subsequent order, which is in identical terms to that of Austin J in the present proceedings, had the consequence that the original proceedings were not finally disposed of. The events in Greig differ in that the original order extending time did not, as the orders made by Austin J did, reserve liberty to persons to apply to set aside or vary the order extending time. However, this express reservation only made clear what would in any event be the legal position: a person affected by an ex parte order may always apply to have the order set aside. (See Owners of the SS Kalibia v Wilson (1910) 11 CLR 689 at 694 per Griffith CJ).

208 Furthermore, the test of finality is the determination of the rights of the parties in a “principal cause”, not the determination of the application before the Court. (See Hall v Nominal Defendant (1966) 117 CLR 423 at 443 per Windeyer J. See generally Southern Cross Exploration NL v Fire and All Risks Insurance Company Ltd (1990) 21 NSWLR 200). There may be cases where ancillary proceedings are appropriately characterised as the lis before the Court. However, an application for an extension of time is not, in my opinion, able to be so characterised. The “principal cause” is the application under s588FF(1).

209 It is, however, unnecessary to decide this issue. Although, in the course of oral submissions, Mr Coles QC did suggest that the original order was final, he did not submit that a consequence of the character identified by the majority in Greig would flow. That was not part of the case before this Court.

Orders

210 Although the Appellant has succeeded on one of the two arguments on the appeal, its failure on the cross-appeal is such that the order made by Austin J on 15 March 2002, extending time under s588FF(3)(b) of the Act, should not be disturbed.

211 The Cross-Appellants/Respondents seek an order for costs both of the appeal and of all the applications before Austin J. In the event, the Cross-Appellants/Respondents did obtain the relief they sought, however, in doing so they raised a number of issues which required separate hearings before Austin J and time in the appeal and upon which they were unsuccessful. They should not receive the whole of their costs.

212 No detailed submissions were made as to the costs of the various applications before Austin J. On one occasion his Honour reserved costs. On another occasion his Honour ordered that the Plaintiffs’ costs be costs of the liquidations. On one occasion he ordered the Respondent to pay the Appellant’s costs.

213 There were no detailed submissions to this Court as to what orders should be made with respect to the costs of the various applications before Austin J. The Court, in my opinion, should set aside the costs orders before Austin J and remit the matter of costs to his Honour, to be determined by his Honour, in the light of this judgment.

214 The orders I propose are as follows:

1. Set aside Order 2 made on 13 February 2002.

2. Appeal otherwise dismissed.

3. Affirm order made on 15 March 2002.

4. Set aside costs orders made in Order 2 of 29 August 2001; Order 2 of 10 September 2001; and Order 6 of 13 March 2002.

5. Remit the determination of the costs the subject of the orders for costs set aside by Order 4 to the Equity Division.

215 MASON P: I agree with Spigelman CJ.

216 HANDLEY JA: In these matters I have had the benefit of reading the reasons for judgment of the Chief Justice in draft. I agree with those reasons apart from paras 123-128 which deal with the situation where a winding up supervenes on an administration which has continued for more than three years. I wish to reserve that question until it is squarely raised and argued. I agree with the orders proposed by the Chief Justice.

**********

Last Modified: 08/12/2003

Citations

BP Australia Ltd v Brown [2003] NSWCA 216

Most Recent Citation

Cases Citing This Decision

209

Grant Samuel Corporate Finance Pty Ltd v Fletcher [2015] HCA 8

Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10

Onley v Commissioner of the Australian Federal Police [2019] NSWCA 101

Cases Cited

41

Statutory Material Cited

7

Greig and Anor as liquidators of Australian Building Industries Pty Ltd (in liquidation) v Australian Building Industries Pty Ltd [2002] QSC 138

Greig v Stramit Corporation Pty Ltd [2003] QCA 298

Sutherland v Dexion Pty Ltd [2003] NSWSC 24

Cited Sections

Actions

Download as PDF Download as Word Document

CITATION:	BP AUSTRALIA LIMITED v BROWN & ORS [2003] NSWCA 216
HEARING DATE(S):	23 and 24 April 2003
JUDGMENT DATE:	8 August 2003
JUDGMENT OF:	Spigelman CJ at 1; Mason P at 215; Handley JA at 216
DECISION:	Appeal allowed in part. Cross-appeal allowed in part. See par [214].
CATCHWORDS:	CORPORATIONS LAW - Insolvency - Voidable preference payments - time limit for application to recover - whether time may be extended under Corporations Act 2001 (Cth), s 1322(4)(d) - CORPORATIONS LAW - Insolvency - Voidable preference payments - power to extend time within which to apply for recovery - whether extension may be granted in general terms - Corporations Act 2001 (Cth), s 588FF(3) - CORPORATIONS LAW - Insolvency - Voidable preference payments - power to extend time within which to apply for recovery - appropriate test for exercise of discretion to extend time - PROCEDURAL FAIRNESS - Ex parte orders - when permitted - right of affected party to have orders set aside - PRACTICE AND PROCEDURE - Joinder of parties - date of effect of joinder of defendant - whether provision of Corporations Act 2001 (Cth) governing time limit for commencing proceedings directs attention to commencement against a particular party.
LEGISLATION CITED:	Acts Interpretation Act 1901 (Cth) Bankruptcy Act 1924 (Cth) Bankruptcy Amendment Act 1980 (Cth) Companies Code 1981 (Vic) Corporations Act 2001 (Cth) Corporations Law Supreme Court Act 1970
CASES CITED:	ABB Power Plants Limited v Electricity Commission (NSW) (t/as Pacific Power) (1995) 35 NSWLR 596 Anthony Hordens & Sons Limited v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1 Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Beard v Baulkham Hills Shire Council (1986) 7 NSWLR 273 Brian Rochford Ltd (Administrator Appointed) v Textile Clothing & Footwear Union of NSW (1998) 47 NSWLR 47 Brisbane South Regional Health Authority v Taylor (1997) 186 CLR 541 Cameron v Cole (1944) 68 CLR 571 Dahozo Pty Ltd v Oz-US Film Productions Pty Ltd (1997) 24 ACSR 739 David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Downey v Trans Waste Pty Ltd (1991) 172 CLR 167 Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 Emanuele v Australian Securities Commission (1996-1997) 188 CLR 114 Ferrier and Knight (as Liquidators of Compass Airlines Pty Ltd) v Civil Aviation Authority (1994) 55 FCR 28 Greig v Australian Building Industries Pty Ltd (In liq) [2002] QSC 138 Greig v Australian Building Industries Pty Ltd (In liq) (2002) 171 FLR 41; 21 ACLC 324 Greig v Australian Building Industries Pty Ltd (In Liq) [2003] QCA 298 Hall v Nominal Defendant (1966) 117 CLR 423 Haynes' case (1614) 12 Co Rep 113, 77 ER 1389 Horsburgh v Strongman & Crouch [1998] 3 VR 896 Itek Graphix Pty Ltd v Elliott (2001) 54 NSWLR 207 John v Commissioner of Taxation (Cth) (1989) 166 CLR 417 Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672 Owners of the SS Kalibia v Wilson (1910) 11 CLR 689 Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 PMT & Partners (In liq) v Australian National Parks & Wildlife Service (1995) 184 CLR 301 R (Burkett) v Hammersmith and Fulham LBC [2002] 1 WLR 1593 R v Criminal Injuries Compensation Board, ex parte A [1998] QB 659 R v Lynn (1788) TR 733, 100 ER 394 R v Sharpe (1857) 7 Cox CC 214, 169 ER 959 R v Wallis; Ex parte Employers' Association of Wool-Selling Brokers & H V McKay Massey Harris Pty Ltd (1949) 78 CLR 529 R v Young (1999) 46 NSWLR 681 Re Aura Commercial Interiors (2002) 20 ACLC 904 Re Envirostar Energy Ltd [2002] NSWSC 1246 Re Great Eastern Cleaning Services Pty Ltd [1978] 2 NSWLR 278 Re Greg Sewell Forgings Pty Ltd (1995) 17 ACSR 602 Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 66 FCR 511 Ricon Constructions Pty Ltd (In liq); ex parte McDonald (1997) 43 NSWLR 174 Salido v Nominal Defendant (1993) 32 NSWLR 524 Saraswati v The Queen (1991) 172 CLR 1 Southern Cross Exploration NL v Fire and All Risks Insurance Company Ltd (1990) 21 NSWLR 200 Star v National Australia Bank Ltd (1999) 30 ACSR 583 Sutherland v Dexion Pty Ltd [2003] NSWSC 24; (2003) 21 ACLC 341 Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 Tagoori Pty Ltd (In liq) v Lee [2001] 2 Qd R 98 Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298 Wright v Mansell (2001) 116 FCR 46
PARTIES :	BP Australia Limited (Appellant) Martin Russell Brown and Timothy James Cumming (First Respondents) DML Resources Pty Limited (In Liquidation) (Second Respondent) DML Resources (WA) Pty Limited (In Liquidation) (Third Respondent)
FILE NUMBER(S):	CA 40268/02
COUNSEL:	Appellant: B Coles QC / M Ashurst Respondents: BW Rayment QC / CRC Newlinds
SOLICITORS:	Appellant: Carneys Lawyers Respondents: Kemp Strang

LOWER COURTJURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED 3830/00
LOWER COURT JUDICIAL OFFICER :	Austin J