Butler Rains Menzies & Co v Devine

[1992] QCA 313

IN THE COURT OF APPEAL	[1992] QCA 313
SUPREME COURT OF QUEENSLAND	C.A. No. 76 of 1992
BETWEEN:

BUTLER RAINS MENZIES & CO. (A FIRM)

(Plaintiff) Appellant

AND:

WILLIAM DEVINE

(Defendant) Respondent

REASONS FOR JUDGMENT OF THE COURT

Delivered the 25th day of September 1992

The appellant was a plaintiff against whom a District Court judge made a conditional but self-executing order that its plaint be struck out and that thereupon there be judgment in the action for the defendant, the abovenamed respondent. The action was pursuant to s. 592 of the Corporations Law, sub-s. (1) of which provides:-

"Where:
(a) a company has incurred a debt;

(b)  immediately before the time when the debt was incurred:

(i) there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or

(ii) there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and

(c)  the company was, at the time when the debt was incurred, or becomes at a later time, a company to which this section applies;

any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred contravenes this subsection and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt."

Sub-section (2) of that section imposes an onus upon the defendant to prove that he did not have reasonable cause to expect either of the matters referred to in sub-paragraphs (b)(i) or (ii).

The phrase "a company to which this section applies" in paragraph (c) is, in effect, defined by s. 589, the relevant parts of which, for present purposes, we set out below:

"(1) Sections 590 to 593 (inclusive) apply to a
company:

(a)  that has been wound up or is in the course of being wound up;

(b)  that has been in the course of being wound up, where the winding up has been stayed or terminated by an order under section 482;

(c)  that has at any time been, or is, under official management;

(d)  affairs of which are or have been under investigation;

(e)  in respect of property of which a receiver, or a receiver and manager, has at any time been appointed, whether by the Court or under a power contained in an instrument, whether or not the appointment has been terminated;

(f)  that has ceased to carry on business or is unable to pay its debts; or

(g)  that has entered into a compromise or arrangement with its creditors.

(2) For the purposes of this Part, affairs of a company are or have been under investigation if, and only if:

(a)  the Commission is investigating, or has at any time investigated, under Division 1 of Part 4 of the ASC Law:

(i) matters being, or connected with, affairs of the company; or

(ii) matters including such matters; or

(b)  affairs of the company have at any time been under investigation under Part VII of the Companies Act 1981 or the provisions of a previous law of this or any other jurisdiction that correspond to that Part.

(3) For the purposes of this Part, a company shall be deemed to have ceased to carry on business if, and only if, the Commission has:

(a)  sent to the company by post a letter under subsection 572(1) and has not, within the next succeeding period of one month from the date of the letter, received an answer to the effect that the company is carrying on business; or

(b) published a notice under subsection 572(3).

(4) For the purposes of this Part, a company shall be deemed to be unable to pay its debts if, and only if, execution or other process issued on a judgment, decree or order of a court (whether or not an Australian court) in favour of a creditor of the company is returned unsatisfied in whole or in part.

(5) In this Part:

...

'relevant day' means the day on which:

...

(c)  in relation to a company affairs of which are or have been under investigation:

(i) if paragraph (2)(a) applies - the investigation began; or

(ii) if paragraph (2)(b) applies - a direction was given to the NCSC to arrange for the investigation;

...
(e)	in relation to a company that is unable to pay its debts - the execution or other process was returned unsatisfied in whole or in part;
(f)	in relation to a company that has ceased to carry on business - a letter was first sent to the company, or a notice was first published in relation to the company, as the case may be, under section 572;"

The plaint in the action alleged that Port Denison Marine Pty Ltd was a corporation, that it was indebted to the appellant, that the respondent was a director of that company and that, at the time when the debt was incurred there were reasonable grounds to expect that the company would not be able to pay all of its debts as and when they became due. Apparently in order to satisfy s. 592(1)(c) it also alleged that the company was insolvent and gave some particulars of this. However, it did not allege, in terms of s. 589(4), that execution or other process issued on a judgment, decree or order in favour of a creditor of that company had been returned unsatisfied in whole or in part.

Because it did not so allege his Honour made the order to which we have referred. Paragraph (1) of that order was in the following terms:-

"That, unless the plaintiff files and serves upon the defendant not later than 4 p.m. on April 30, 1992 a further amended plaint containing allegations of material facts constituting a reasonable cause of action against the defendant, the amended plaint filed on February 7, 1992 be struck out and that thereupon there be judgment in the action for the defendant against the plaintiff together with an order for costs, to be taxed, of and incidental to the action and the application filed by the defendant on March 31, 1992."

Subsequent paragraphs of the order provided for the event that the plaintiff might file and serve a further amended plaint. By a subsequent order another District Court judge extended the time referred to above for complying with the order until seven days "after the Appeal to the Court of Appeal against his Honour's order". The reference to "Appeal" seems to be a reference to the filing of a notice of appeal as appears from the following line of that order.

No further extension was granted and no formal judgment was

apparently taken out.

The first question which was argued in the appeal was whether the order made was final or interlocutory. If it was interlocutory leave to appeal is necessary pursuant to s. 92(2) of the District Courts Act of 1967 and that leave will not be granted unless some important question of law or justice is involved.

The test for determining whether an order is final or interlocutory is whether or not it finally disposes of the rights of the parties: Hall v. Nominal Defendant (1966) 117 C.L.R. 423 at 439, 443; Licul v. Corney (1976) 50 A.L.J.R. 439; Carr v. Finance Corporation of Australia Ltd. (No. 1) (1981) 147 C.L.R. 246. That question must be determined by looking only at the legal rather than the practical effect of the order: Carr at 248, 256.

The order in the present case gave the appellant the opportunity to amend to plead facts constituting a reasonable cause of action and only if it failed to do so did the order provide that there be judgment for the defendant. The practical effect of this order was final because the appellant could not amend. But that could be ascertained only after an examination of the facts; it could not be determined on the face of the order. We are therefore inclined to think that the order in the present case was interlocutory. See however Hope v. RCA Photophone of Australia Pty Ltd (1937) 59 C.L.R. 348.

However, it is unnecessary in the present appeal to determine that question, for if the order is interlocutory we would certainly grant leave to appeal. The question involved is plainly an important question of law. It is one which we think is likely to arise frequently; the answer to it is not immediately obvious and there are conflicting decisions of other intermediate appellate courts: Cooper and Dysart Pty Ltd v. Sargon (1991) 9 A.C.L.C. 1073 (Full Court of Western Australia); Macquarie Bank Ltd v. Fociri Pty Ltd (1992) 10 A.C.L.C. 785 (Court of Appeal, New South Wales).

Both are decisions upon analogous provisions of the Companies Code. See also Sunshine Management Services Pty Ltd v. Russo & anor (1991) 9 A.C.L.C. 1069. The main difference between those provisions and those which we have quoted above, for present purposes, is the presence in the latter of s. 589(2) and the accompanying definition of "relevant day" in paragraph (c) of sub-s. (5). We turn now to that question.

The question is whether the inability of a company to pay debts, referred to in s. 589(1)(f), may be proved otherwise than by proof of the facts stated in sub-s. (4). It was common ground before us that the company, Port Denison Marine Pty Ltd, was not a company in respect of which execution or other process issued on a judgment, decree or order of a court in favour of a creditor had been returned unsatisfied in whole or in part.

The scheme of Part 5.8 of the Corporations Law, of which s. 589 is the first section, like that of ss. 553 to 557 of the Companies Code, is to create offences by officers of companies defined in s. 589(1) and to make officers of such companies personally liable for debts in certain circumstances. The definition of "relevant day" in s. 589(5) is for the purpose of limiting the period within which some of the offences created by s. 590 and the offence created by s. 591 may be committed.

The argument that the inability of a company to pay its debts may be proved otherwise that by proof of the facts stated in s. 589(4) relies on the presence of the word "deemed" in that subsection. That word is also present in sub-s. (3) but absent from sub-s. (2). However, in sub-ss. (3) and (4), but not in sub-s. (2), there is a statutory fiction. The phrase "affairs of which are or have been under investigation" in sub-s. (1)(d) has no plain meaning and sub-s. (2) defines that meaning'; and the phrase "if, and only if" emphasises the exclusiveness of that definition. By contrast the phrases "has ceased to carry on business" and "is unable to pay its debts" each has a plain meaning and sub-ss. (3) and (4) state facts which would not necessarily prove, in the first case, cessation of business or, in the second, inability to pay debts. However, the word "deemed" in each creates the statutory fiction that they do. But in doing that it says nothing of whether cessation of business or inability to pay debts may be proved in some other way.

More importantly, in our view the phrase "if, and only if" in each of sub-ss. (2), (3) and (4) must be given some and the same meaning. In the first of these it means or at least emphasises that the only way in which the fact that the affairs of a company are under investigation may be proved is by proof of the facts stated in that subsection.

We think that it has a similar meaning in each of sub-ss.
(3) and (4).

Like Gleeson C.J. in Macquarie Bank Ltd we think that this construction derives support from paragraphs (e) and (f) of the definition of "relevant day" in s. 589(5) for the reasons which he gives. And it follows from what we have said that we prefer the result reached by the majority of the Court of Appeal in that case to that reached by the Full Court of Western Australia in Cooper and Dysart Pty Ltd.

Two other matters bearing on this construction may be mentioned. The first is that a common factor in paragraphs (a) to (g) of s. 589(1) is that each describes, in a way capable of formal proof, a company which is unlikely to be able to pay the debt. It would be surprising if, contrary to the construction which we prefer, paragraph (f) alone permitted a full trial of the question whether the company is unable to pay its debts. The second is that if the opposing views on the question were equally open, it might have been relevant to take into account which one gives s. 589, which has a quasi-criminal operation, a construction which favours the subject. But in the circumstances we do not need to pursue that question further.

In our view, therefore, his Honour was correct in concluding that s. 589(4), on its correct construction, requires proof of a company's inability to pay debts only by proof that execution or other process issued on a judgment, decree or order of a court in favour of a creditor of the company has been returned unsatisfied in whole or in part.

We would therefore dismiss the appeal with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND	C.A. No. 76 of 1992
The Chief Justice Mr Justice Davies Mr Justice Ambrose
BETWEEN:

BUTLER RAINS MENZIES & CO. (A FIRM)

(Plaintiff) Appellant

AND:

WILLIAM DEVINE

(Defendant) Respondent

REASONS FOR JUDGMENT OF THE COURT

Delivered the 25th day of September 1992

MINUTE OF ORDER:	Appeal dismissed with costs
CATCHWORDS:	CORPORATIONS LAW - INSOLVENCY - Appeal from self-executing order that plaint be struck out - whether order final or interlocutory - whether important question of law in any event due to conflicting decisions on s. 589 - whether inability of company to pay debts may be proved otherwise than by proof of facts in sub-s. 4 - Corporations Law s. 592, 589
DECLARATORY DECREES, JUDGMENTS AND ORDERS - FINAL OR INTERLOCUTORY - Appeal from self-executing order that plaint be struck out - whether order final or interlocutory - whether important question of law in any event due to conflicting decisions on s. 589 - whether inability of company to pay debts may be proved otherwise than by proof of facts in sub-s. 4 - Corporations Law s. 592, 589
Counsel:	M.E. Pope for the Appellant K.A. Cullinane Q.C. with him G.T. Reithmuller for the Respondent
Solicitors:	Connolly Suthers for the Appellant Boulton Cleary & Kern for the Respondent
Date(s) of Hearing:	24 August 1992
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND	C.A. No. 76 of 1992
BETWEEN:

BUTLER RAINS MENZIES & CO. (A FIRM)

(Plaintiff) Appellant

AND:

WILLIAM DEVINE

(Defendant) Respondent

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THE CHIEF JUSTICE
DAVIES JA
AMBROSE J
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Reasons for Judgment of the Court delivered the
25th day of September 1992
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"APPEAL DISMISSED WITH COSTS"

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