CMA Corporation Ltd v SNL Group Pty Ltd

[2009] NSWSC 1451

CITATION:	CMA Corporation Ltd v SNL Group Pty Ltd [2009] NSWSC 1451
HEARING DATE(S):	9 December 2009
JURISDICTION:	Equity Corporations List
JUDGMENT OF:	Austin J
EX TEMPORE JUDGMENT DATE:	9 December 2009
DECISION:	Application for adjournment denied
CATCHWORDS:	PRACTICE AND PROCEDURE - application for adjournment of winding up proceedings - applicant's previous non-compliance with directions to file evidence - no satisfactory excuse - no question of general principle
CASES CITED:	AON Risk Services v Australian National University (2009) 258 ALR 14; [2009] HCA 27 The State of Queensland and Another v J L Holdings Pty Ltd (1997) 189 CLR 146
PARTIES:	CMA Corporation Ltd (Plaintiff) SNL Group Pty Ltd (Defendant)
FILE NUMBER(S):	SC 3719/09
COUNSEL:	D A McLure (Plaintiff) C P Locke (Defendant)
SOLICITORS:	Norton White (Plaintiff) Di Lizio & Associates (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

AUSTIN J

WEDNESDAY 9 DECEMBER 2009

3719/09 CMA CORPORATION LTD V SNL GROUP PTY LTD

JUDGMENT (On application for adjournment; ex tempore, revised on 18 December 2009)

1 HIS HONOUR: On 9 April 2009 the plaintiff served the defendant with a statutory demand for payment of a debt in the amount of USD525,888.38. It is common ground that the defendant did not comply with that demand or make a proper application to have it set aside within the 21 days time limit set by the Corporations Act. The plaintiff, accordingly, filed an originating process for winding up in insolvency on 16 July 2009.

2 The matter came before the Senior Deputy Registrar ("the Registrar") for directions on several occasions. The first was on 20 August 2009, when the Registrar made a direction for further lay and expert evidence to be served by 17 September 2009 and he relisted the matter for 24 September 2009. The matter came before the Registrar on 24 September 2009 and he made orders for the defendant to serve all further lay and expert evidence by 30 September, and the proceedings were listed for further directions on 12 October. Before that second directions hearing, there was some correspondence, including a facsimile from the defendant's solicitors dated 17 September 2009, in which they said they were unable to serve their client's expert evidence on that day (the due date according to the Registrar's first directions) and they anticipated that the evidence would be ready on 21 September. On 23 September the defendant's solicitors wrote another letter saying they were in the process of obtaining expert evidence, and due to delays experienced in the appointment of a valuer, the relevant reports had not been completed and were expected to be completed by 28 September 2009.

3 The Registrar's second set of directions allowed an additional two days for the serving of evidence. In fact, on 30 September 2009, the defendant served on the plaintiff a report as to solvency by an accountant, Mr Frank Lo Pilato of RSM Bird Cameron Partners. The September report noted that Mr Lo Pilato had not been provided with certain evidence, which I infer he regarded as material: for example, he said he had not sighted an up-to-date aged payables listing (at page 10 of the report). In the summary of his opinion, at page 17, he said his inquiries had been limited to the information provided to him by the directors of the defendant company, which he annexed to his report. He asserted that the financial statements for the year ended 30 June 2009 had not then been finalised and he pointed out that this had limited the level of detail of his report. He noted that the defendant was a trading entity and its financial position could be changing every day.

4 The letter of instructions provided by the defendant's solicitors and dated 26 August 2009 to Mr Lo Pilato for the preparation of the solvency report said:

"It will be essential that you verify and validate the financial records (and other relevant information) of the defendant upon which you rely, and that it be expressly acknowledged in your report that you have done so."

5 Mr Lo Pilato did not comply with that instruction in his September report. As I have said, he noted that certain items of information had not been made available to him.

6 After the delivery of the report of Mr Lo Pilato to the defendants, their solicitors served a copy of the report on the plaintiff, virtually immediately. Twelve days later (12 October 2009) the matter returned to the Registrar and he made orders for the plaintiff to serve any reply evidence by 3 October, and for the matter to be listed for directions before the Corporations Judge on 26 October 2009. Those orders suggest that the Registrar was proceeding on the basis that the report of 30 September 2009 was the report that the defendant had sought time to procure, and that as it had by then been served, the case should be referred to the Corporations Judge for, in due course, the allocation of hearing dates.

7 Twenty days after Mr Pilato's September report was provided to the defendant, the defendant's solicitors wrote a letter (20 October 2009) to Mr Lo Pilato asking him to undertake appropriate inquiries to "verify/validate" the financial records and the affidavit evidence of the defendant upon which Mr Lo Pilato had relied in his September report, and instructed him to prepare a supplementary report accordingly.

8 The explanation for the delay in issuing that further instruction to the accountant is, in my opinion, weak. I was informed from the bar table that essentially what happened was that, because the report was voluminous, the problem with lack of verification was not discovered for some time. The September report is, in fact, a report of 17 pages. The volume of the document arises because of the annexures to it. It seems to me that it would have been a straightforward matter for the defendant's directors or solicitor to look at the text of the actual report (and in particular the summary on page 17) and draw the immediate inference that the instructions given to Mr Lo Pilato to verify or validate had not been carried out, for reasons which seem to emerge in the way which I have described. Therefore, in my view, there was an unjustifiable delay of 20 days before the process of receiving a further report from Mr Lo Pilato was initiated.

9 Six days after the further letter of instruction was written to Mr Lo Pilato, the case came before Barrett J in the Monday Corporations List on 26 October 2009. His Honour made an order fixing the hearing of the winding up application before the Corporations Judge on 9 December with an estimate of two days. That is how the matter has come before me today. He gave a direction as follows: "Direct any additional evidence be filed and served by 9 November 2009". He also made the usual order for hearing in Annexure A to the Equity Practice Note. It seems to me appropriate to infer from those directions that his Honour was making provision, amongst other things, for Mr Lo Pilato to respond to the directions he had been given six days earlier by providing a supplementary report, and he was fixing a time for that to occur, namely, by 9 November 2009.

10 There is no satisfactory explanation in the evidence for the fact that Mr Lo Pilato’s supplementary report was not received in accordance with Barrett J's timetable, but instead was made available to the defendant on 17 November 2009. That has to be considered in the context of the facts that I have narrated.

11 The defendant’s solicitor had identified, in his initial instructions to Mr Lo Pilato on 26 August 2009, that it was an important matter for Mr Lo Pilato to verify and validate the financial records of the defendant company. It being an important matter, I would have expected the director of the defendant, and the solicitor, to see that that had happened when the initial September report had been received. But there does not appear to have been any issue raised immediately on receipt of that report, as I have noted above. There is no affidavit before me, by anyone, asserting that Mr Lo Pilato was hounded day and night to produce the report because it was necessary to be received by 9 November. There is just no explanation for what seems to have been a leisurely timetable initiated in the 20 day gap between 30 September and 20 October and enhanced in the gap between 20 October and 17 November, during which time no supplementary report was received.

12 The matter gets worse at the next stage. Although the supplementary report was received on 17 November, it was plain from even a cursory reading of it that Mr Lo Pilato had not complied with the instruction to verify and validate. The report was only seven pages long. On page 6 he said:

"I note that the financial statements are unaudited and without conducting a full financial statement of audit I am unable to verify or validate the accuracy or otherwise of the financial statements ."

13 There is no evidence that, upon reading that sentence, the defendant or its solicitor protested vigorously to Mr Lo Pilato. There is no evidence that they immediately instructed someone else to make good the deficiency in the expert accounting evidence, or that they took steps to address the default in Barrett J's timetable. There was no application for an extension of time. The supplementary report was not served on the plaintiff until Monday, 7 December, that is two days before the scheduled hearing was to commence. The covering letter enclosing the supplementary report simply said:

"Further to the above matter we enclose the following documents, namely, the supplementary report and an affidavit.”

It went on to say:

"Please advise whether reliance on the above additional material by the defendant at the hearing of this matter would cause any difficulties to the plaintiff".
Nothing was said about the failure of Mr Lo Pilato in that report to comply with his instructions about verification and validation.

14 When the matter came before me today, the defendant made an oral application for vacation of the hearing dates of today and tomorrow. Counsel for the defendant filed in court notice of grounds of opposing the winding up application. From that document it appears that the defendant wishes, inter alia, to prove solvency, though today it was conceded by counsel that the evidence in the two reports and the other evidence available to the defendant today is not sufficient to discharge the onus of proof of solvency.

15 Some of the matters identified in the notice of grounds for opposing the winding up application could have been raised in an application to set aside the statutory demand, and therefore under s 459S(1), they cannot be raised unless the Court grants leave. Section 459S(2) says that the Court is not to grant leave unless it is satisfied that the ground is material to proving that the company is solvent. Counsel for the defendant conceded today that the evidence available to the defendant at today's hearing would not establish materiality.

16 I have gone into some detail in setting out this chronology because in my view, once the chronology is understood, the unfairness of allowing an adjournment at this stage is manifest. I would deny the application for an adjournment even if the Court were subject to the High Court's decision in the The State of Queensland and Another v J L Holdings Pty Ltd (1997) 189 CLR 146, and even if there was no s 56ff of the Civil Procedure Act 2005 (NSW). The requirement of s 56 that the Court must strive to resolve the real dispute between the parties in a manner that is just, quick and cheap reinforces my conclusions it would be unjust to grant an adjournment and the only just course, in my view, having regard to the facts I have set out, is for the case to proceed.

17 AON Risk Services v Australian National University (2009) 258 ALR 14; [2009] HCA 27 likewise confirms my conclusion, particularly in that there, reference was made to the public interest in proceedings being held as planned and scheduled, and the prejudice suffered by other litigants if the Court's time is taken up by a single litigant seeking an adjournment on inadequate grounds.

18 The defendant submitted that it should not be allowed to suffer by virtue of the failure of its expert accounting witness to comply with express instructions. I think the matter is not as simple as that. The facts I have set out show that the defendant knew that validation and verification was an important matter, that the accountant had not done so in the September report, that the time for compliance with the pre-trial directions was marching on (particularly after the matter was before Barrett J), and that the accountant had received further instructions on 20 October yet did not produce the supplementary report for about four weeks. I, therefore, reject that argument.

19 The defendant said that in recent times, the reason for failure to progress the matter more speedily was that the director of the defendant who gives instructions does not speak English. Frankly, that is a problem for the defendant to address and overcome. It should not be used as a justification for an adjournment, to the prejudice of the plaintiff and other litigants. It must have been evident, well before the last week or two, that there would be a problem in those instructions being given because of the language difficulty, and the matter should have been addressed.

20 The directors of the defendant offered to meet the costs thrown away by virtue of the adjournment. That is a relevant consideration on the adjournment application, but in terms of balancing considerations of fairness, it does not seem to me to outweigh the matters concerning delay to which I have referred. Additionally, there is no specific evidence of the financial position of the directors personally and of their ability to meet any such costs order.

21 The application for adjournment is denied.

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