Cote v Devine [No 2]
[2013] WASC 313
•20 AUGUST 2013
COTE -v- DEVINE [No 2] [2013] WASC 313
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASC 313 | |
| 20/08/2013 | |||
| Case No: | COR:25/2013 | 7 AUGUST 2013 | |
| Coram: | MASTER SANDERSON | 7/08/13 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Amendment allowed | ||
| A | |||
| PDF Version |
| Parties: | ROBERT COTE MARIE CELINE SOLANGE CHOUINARD GEORGINA MARGARET MOORE TRENT DEVINE SULE ARNAUTOVIC RODERICK MACKAY SUTHERLAND |
Catchwords: | Corporations law Amendment of originating process Whether amendment possible where cause of action arose after issue of originating process Application of Rules of the Supreme Court 1971 (WA) to amendment to originating process issued under Corporations Act 2001 (Cth) |
Legislation: | Nil |
Case References: | Cote v Devine [2013] WASC 79 Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 Wigan v Edwards (1973) 1 ALR 497 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
Aurora Balanced Living Pty Ltd (Administrators Appointed)
- MARIE CELINE SOLANGE CHOUINARD
GEORGINA MARGARET MOORE
Plaintiffs
AND
TRENT DEVINE
SULE ARNAUTOVIC
RODERICK MACKAY SUTHERLAND
Defendants
Catchwords:
Corporations law - Amendment of originating process - Whether amendment possible where cause of action arose after issue of originating process - Application of Rules of the Supreme Court 1971 (WA) to amendment to originating process issued under Corporations Act 2001 (Cth)
Legislation:
Nil
Result:
Amendment allowed
Category: A
Representation:
Counsel:
Plaintiffs : Mr R M Garratt QC
Defendants : Mr D K J Skender
Solicitors:
Plaintiffs : Culshaw Miller
Defendants : Sparke Helmore
Case(s) referred to in judgment(s):
Cote v Devine [2013] WASC 79
Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62
Wigan v Edwards (1973) 1 ALR 497
1 MASTER SANDERSON: This was the return of two interlocutory process. The first in time was the plaintiffs' application for leave to amend the originating process in terms of a minute of further amended originating process filed 24 June 2013. The second interlocutory process was an application by the defendants seeking to strike out the plaintiffs' action in its entirety. At the conclusion of the hearing I gave leave to the plaintiffs to amend the originating process substantially in accordance with the further amended minute. I dismissed the defendants' application. I indicated I would give reasons for my decision at a later date. These are those reasons.
2 The originating process sought the follow orders:
1 An Order removing the Respondents as administrators of Aurora Balanced Living Properties Pty Ltd (Administrators Appointed) (ACN 112 765 563) ('ABLP').
2 An Order removing the Respondents as administrators of Aurora Balanced Living Pty Ltd (Administrators Appointed) (ACN 110 871 031) ('ABL').
3 An Order appointing Gary John Anderson, of Level 1, 12 Prowse Street, West Perth, Western Australia, an official liquidator, as administrator of ABLP.
4 An Order appointing Gary John Anderson, of Level 1, 12 Prowse Street, West Perth, Western Australia, an official liquidator, as administrator of ABL.
5 A Declaration that Marie Celine Solange Chouinard is a creditor of ABLP in the amount of $324,996 together with interest, and agreed premium.
6 A Declaration that Mobias Group (Australia) Pty Ltd is not a creditor of ABLP.
7 A Declaration that Verrell Pty Ltd is not a creditor of ABLP or ABL.
8 A Declaration that Navitas Business Modelling Pty Ltd is not a creditor of ABLP, alternatively is not entitled to be admitted as a creditor of ABLP in any amount.
9 A Declaration that Georgina Moore is a creditor of ABL for unpaid cleaning services in an amount not less than $27,735.00.
10 A Declaration that ABLP is a creditor of ABL for the unremitted amount, with interest, since 2005 of:
(a) all rents paid by the café and the beautician’s in respect of their occupancies at 142-144 Railway Street, Cottesloe; and
(b) the market rental for the upstairs flat at those premises.
11 Such further or other relief, including as to costs, as may be appropriate.
3 At this point it is convenient to recite the background facts. What follows is taken largely from the plaintiffs' written submissions. It should be borne in mind, neither of these two applications call for me to make any decision on the facts. And I have not purported to do so. But a recitation of the facts is necessary to put both applications in context.
4 Aurora Balanced Living Properties Pty Ltd (ABLP) and Aurora Balanced Living Pty Ltd (ABL) were placed into administration on 31 January 2013. The first-named plaintiff (Dr Cote) and Mr Colin Werner, each hold two of the four issued shares in the capital of the company. The investment was established in late 2004 so that ABLP could acquire a parcel of land 142 Railway Street, Cottesloe. There stands on the property a building which houses a café and a beautician and there is a rear space used by Dr Cote for his health services practice. There is also an upstairs flat. At the time of the acquisition, Dr Cote, a chiropractor, conducted his practice at premises in Mount Lawley. The venture was undertaken by Dr Cote and Mr Werner with the aim that Dr Cote would relocate his practice to Railway Street and that the practice would be conducted in the rear of the premises on a sessional basis. Mr Werner was to use the space for conducting business seminars and related business also on a sessional basis.
5 ABLP purchased the land for $1 million. The funds used were entirely borrowed. A loan was obtained from the National Australia Bank Singapore for $600,000. The remaining funds were lent by Mr Werner and Dr Cote and related parties. The third-named plaintiff, Ms Moore, is a party related to Dr Cote. She lent $50,000 to assist in the purchase. From time to time, Ms Moore works in Dr Cote's practice.
6 At all times ABLP has been the passive holder of the title to the land and has not conducted any other activity. ABL managed the premises and accounted to ABLP for the nett proceeds of doing so. The funds so received assisted ABLP in meeting its interest obligations. Mr Werner controlled all financial aspects including the operation of all bank accounts. The non-bank lenders advanced their loans on the basis of an investment proposal prepared by Mr Werner. A copy of the investment proposal is annexure TAD39 to the affidavit of the first-named defendant sworn 4 July 2013.
7 The investment proposal offered the non-bank lenders the choice of interest at 9.5% or at 7% with an investment premium. The lenders introduced by Dr Cote chose the latter. The investment premium was to be calculated as the percentage of the original non-bank loan debt contributed by the investor multiplied by the capital growth (difference in market value) of the land over the term of the loan. The interest due to the original non-bank lenders was to be paid out of the rental income from the café, the beauticians and the upstairs flat as well as commissions (not rent) in respect of the use of the rear space. Allowing for interest at 7%, the rent income from the café, the beautician and the upstairs flat was largely sufficient to pay the interest due on the non-bank loan debt.
8 Dr Cote and Mr Werner were to fund the payment of interest due to the National Australia Bank separately. Both men then worked in Singapore. In 2008, Mr Werner disappeared for a period of months. No interest payments were made. Dr Cote took financial control until Mr Werner's return. It is Dr Cote's position he discovered that although he had been making regular payments to cover what Mr Werner had said was Dr Cote's share of the funds needed to cover the interest obligations, Mr Werner had not been doing so. Dr Cote required Mr Werner to achieve parity with his contributions before Dr Cote would contribute further. Mr Werner then resumed financial control. To relieve the position of those lenders introduced by Dr Cote who had not received interest due to them, the second-named plaintiff (Ms Chouinard, who is married to Dr Cote) purchased their debt and half of Ms Moore's debt. This was done in 2008 and the amount paid by Ms Chouinard was $325,000. It is Dr Cote's position that Mr Werner did not make any further payments of interest on the debt purchased by Ms Chouinard but did pay some interest on the debt owed to parties introduced by him. Further, Mr Werner did not contribute funds to match the amount he had asked Dr Cote to contribute for interest coverage purposes. In July 2009, Dr Cote was removed as a director of the companies and was replaced by Mr Lee-Steere who was then a practising solicitor.
9 At the first meeting of creditors on 12 February 2013, neither Ms Chouinard, nor the initial investors whose debts she had purchased, were admitted to vote for the face value of those debts. Further, Ms Moore was not admitted to vote for the unpaid work she had performed for ABLP. The directors, and the entities associated with them, were admitted to vote as substantial creditors.
10 The plaintiffs, by interlocutory process dated 1 March 2013 and heard on 5 March 2013, sought orders vacating the proposed second meeting of creditors of both companies which were to be held concurrently on 5 March 2013. The plaintiffs sought to have the meetings held at a later date. Essentially the plaintiffs were aggrieved at the way in which the administrators appointed by the directors and funded by the directors had conducted themselves. The plaintiffs wanted the initial investigation of the companies' affairs better conducted with the benefit for example, of the directors having been required to provide a statement as to affairs before the administrators prepared their report to creditors.
11 The interlocutory application was unsuccessful: see Cote v Devine [2013] WASC 79. The second meeting of creditors proceeded on 5 March 2013 and the companies were put into liquidation. This was done after a contested vote of the creditors. On a further contested vote, the liquidators were given on the motion of Mr Werner the right to comprise debts due to the companies for amounts 'in excess of $100,000' without a resolution of the creditors.
12 The plaintiffs contend that if the debts of Ms Chouinard and Ms Moore had been correctly calculated, the motions which they opposed at the second meeting of creditors would not have succeeded. The analysis is set out in Culshaw Miller's letter of 8 March 2013 to the liquidators (annexure TAD5 to the first-named defendant's affidavit). The reply by the solicitors for the liquidators on 12 March 2013 (annexure TAD6) did not challenge the correctness of the calculations in the letter of Culshaw Miller or the proposition that the voting result would have been different. Instead the solicitors contended that there was no present entitlement to vote in respect of the capital 'return' where the asset of the company was yet to be realised. Culshaw Miller rejected this contention in their letter of reply on 13 March 2013 (annexure TAD7) pointing out that the land had been valued and the administrators had acted on that valuation in quantifying the premium amount payable to the non-bank lenders in their report to creditors of 22 February 2013. Culshaw Miller called on the liquidators to address the basis on which the amount of the non-bank debt was to be calculated in accordance with the investment proposal. It is the plaintiffs' position as at the date of the application that this had not been done.
13 The liquidators put the Railway Street land up for sale by auction on 15 June 2013. It was purchased by Redport Nominees Pty Ltd for $2.1 million. This company is associated with Dr Cote. Settlement of the transaction was due to be completed on 13 August 2013. There was no indication the transaction would not be completed.
14 There are further matters which concern the plaintiffs. In April 2013, the plaintiffs reviewed the bank statements of three accounts conducted by Mr Werner on behalf of the companies. The plaintiffs had been provided with copies of most of the bank statements by the solicitors formerly acting for the companies. On 30 April 2013, Culshaw Miller wrote to Mr Devine (annexure TAD18). The letter enclosed a schedule based on the bank statement entries in relation to withdrawals by Mr Werner from the companies' bank accounts. These totalled some $90,000. The plaintiffs alleged these had no apparent connection with the business of the companies. The letter asked for an opportunity to inspect any primary records held by the liquidators which might explain the withdrawals. The letter also inquired after any evidence of rent paid by Mr Werner for his occupancy of the upstairs flat at the premises from 2006 to 2012. The plaintiffs said the bank statements contained no evidence of rent being paid. Under the investment proposal, the rent from the upstairs flat was to fund the payment of interest due on the non-bank loans. It is the plaintiffs' position over the period of his occupancy Mr Werner should have paid rent in the order of $26,000.
15 By letter of 2 May 2013 (annexure TAD19) Sparke Helmore, the solicitors for the liquidators, replied on behalf of Mr Devine. They stated a response to the letter of 30 April 2013 would be given on or about 10 May 2013. In fact no response has been given. No access to copies of the bank statements not held by Culshaw Miller has been given. No access to primary documents that would show the character of the withdrawals made by Mr Werner has been given. No evidence of Mr Werner paying rent for his occupation of the upstairs flat has been given.
16 Mr Werner has apparently recently discussed with the liquidators a series of steps by which the liquidators might speedily proceed towards completion in the months following settlement of the Railway Street land. Mr Werner has asked the liquidators to rule on claims of 10 creditors, seven of which are related to the directors and claim to be secured. Whether or not the liquidators will take that step, is I think open to question. But it is reasonable to assume the liquidators will give notice to declare a dividend in September in favour of the unsecured creditors and declare and pay the dividend in October. It is also reasonable to assume the liquidators would give notice of intention to declare a dividend in favour of the shareholders which would be paid the following month.
17 It is the plaintiffs' position eight charges were granted by Mr Werner and Mr Lee-Steere in the days before the companies went into administration. None of the charges was registered. Culshaw Miller wrote to the liquidators on 10 June 2013 (annexure TAD47) pointing out the charges were void for want of registration. Reference was made to s 588FL of the Corporations Act 2001 (Cth). Whether or not Mr Werner has been advised by the liquidators the charges are void is unclear. Culshaw Miller have sought undertakings from the liquidators that no payment will be made of the charges once the Railway Street property has settled, without the approval of the court or without the plaintiffs' consent. As at the date of the hearing of this application, no undertakings have been given by the liquidators.
18 Against this background, the plaintiffs seek to strike out most of the orders sought in the original application and to substantially vary others. It is not difficult to understand why amendment is necessary. Events have moved on, the defendants are now liquidators of the companies and the plaintiffs accept they are properly appointed liquidators and should remain in place. Against that background, the minute of further amended originating process seeks the following orders:
1. A Declaration that:
(a) Marie Celine Solange Chouinard is a creditor of Aurora Balanced Living Properties Pty Ltd (In Liq.) (ACN 112 765 563 ('ABLP') for the amount of the principal, interest and capital appreciation premium owed in respect of the loans held by her, being loans in a total amount of $325,000 made to ABLP in 2005;
(b) That the capital appreciation premium payable in respect of the said debt is to be calculated as A - 1,000,000 x B/1,000,000 where A is the sale price or market value of the subject land, and B is the amount of the principal of the loan;
(c) Marie Celine Solange Chouinard ought to be admitted for voting purposes at any creditors' meeting of ABLP in an amount which is the sum of $325,000 and $367,500 and interest on $325,000 at 7% per annum from 1 April 2008.
2. A Declaration that Georgina Margaret Moore:
(a) is a creditor of ABLP for the amount of the principal, interest and capital appreciation premium owed in respect of the unassigned balance of the principal of the loan made by her to ABLP in 2005, that unassigned amount being $25,000;
(b) ought to be admitted to vote at any creditors' meeting of ABLP in an amount which is the sum of $25,000 and $27,500 and interest on $25,000 at 7% per annum from 1 April 2008.
3. A Declaration that Navitas Business Modelling Pty Ltd
(a) is not a creditor of ABLP in respect of the debt the subject of the proof of debt form exhibited to the affidavit of Trent Andrew Devine herein;
(b) ought not be so admitted for voting purposes at any meeting of the creditors of ABLP.
4. A Declaration that Georgina Moore:
(a) is a creditor of Aurora Balanced Living Pty Ltd (ACN 110 871 031) (In Liq) ('ABL') for unpaid cleaning services in an amount not less than $27,735 (or some other amount);
(b) ought be so admitted for voting purposes.
5. An Order, pursuant to s. 247A Corporations Act or otherwise, that the first Respondent permit the Applicants (in person or by their agent) to inspect at the Perth offices of Sparke Helmore, and take copies of:
(a) The minutes of meetings of the directors and shareholders of ABLP and ABL held by the Respondents or any of them;
(b) The bank statements for ABLP and ABL held by the Respondents or any of them;
(c) Documents held by the Respondents or any of them relating to the withdrawals from the bank accounts of ABLP and ABL queried in the schedules enclosed with the letter of 30 April 2013 from the solicitors for the Applicants to the first Respondent.
6. A Declaration that neither director of ABLP or ABL is a creditor of either company, for voting purposes, in respect of any claimed remuneration claim which has not previously been authorised in general meeting.
7. An injunction restraining the Respondents from making payment in respect of the security interests claimed in caveats M166884, M166886, M166887, M166888, M166889, M166890, M169296 and M166885 or in the absence of a curial determination of the validity of those security interests or the written consent of the Applicants.
8. A Declaration that Robert Cote is entitled to vote as a creditor of ABLP and/or ABL for the value of the chattels of his professional practice which were taken from the Railway St premises owned by ABLP in November 2011.
9. A Declaration that the subject matter of the purported Notice of Disclaimer of Onerous Property given by Trent Andrew Devine as liquidator of ABL on 10 April 2013 is not subject matter in respect of which the liquidator has a right of disclaimer under Division 7A of Part 5.6 of the Corporations Act without leave of the Court or otherwise.
10. Alternatively, an Order that the disclaimer the subject of the lastmentioned [sic] notice be set aside.
11. A Declaration that the subject matter of the purported Notice of Disclaimer of Onerous Property given by Trent Andrew Devine as liquidator of ABLP on 10 April 2013 is not subject matter in respect of which the liquidator has a right of disclaimer under Division 7A of Part 5.6 of the Corporations Act without leave of the Court or otherwise.
12. Alternatively, an Order that the disclaimer the subject of lastmentioned [sic] notice be set aside.
13. Such further or other relief, including the grant of leave as necessary, and as to costs, as may be appropriate.
19 The defendants say leave to amend ought not be given. The submission can be summarised as follows. The Supreme Court (Corporations) (WA) Rules 2004 (Corporation Rules) say other Rules of Court apply in corporation proceedings to the extent they are relevant and not inconsistent with the Corporations Rules: see r 1.3(2) Corporations Rules. As there is nothing in the Corporations Rules which deals directly with an amendment of originating process, O 20 r 19 of the Rules of the Supreme Court 1971 (WA) would apply. The defendants say the amended originating process is vexatious and an abuse of process therefore amendment ought not be allowed.
20 There is a difficulty with that argument. Under the Corporations Rules an originating process has to state the relief sought by a party. There is nothing in the Corporations Rules which requires anything in the nature of a pleading to support the relief claimed. In effect, all an originating process contains is what in the context of a writ would be the prayer for relief. On a pleading summons in proceedings commenced by writ, it is not appropriate to strike out a prayer for relief. Parts of a prayer might fall away because parts of or all of the pleading are struck out. But that is a different matter. So resort to the rules which deal with amendment to pleadings is not appropriate.
21 Further, disposing of an originating process by what is effectively a summary judgment application by a defendant, is not an option. Order 16 has no application. It was not put directly by counsel in his submissions that summary judgment was available. Rather it was said a court always has the power to control its processes so as to ensure there is no abuse of process. But all the authorities make it clear it must be a clear case indeed when that power is exercised: see Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62, 109.
22 In my view this is not a case where the position is so clear and the plaintiffs' case is so hopeless no amendment should be permitted. It is a different matter as to whether the relief claimed is properly framed and I will deal with that further below. But based upon the facts as set out above, it could not possibly be said the plaintiffs' position was hopeless. Nor is there any other impediment offered by the Rules of the Supreme Court to amending as proposed by the plaintiffs.
23 The defendants further submit many of the proposed amendments relate to matters which arose after the originating process was issued. By way of example, it was said the declarations sought in par (1) require an examination as to whether the parties therein mentioned are creditors for the purposes of the liquidation. It was submitted that this issue could only have arisen after the company went into liquidation and that was subsequent to the originating process being issued.
24 This issue as to whether an originating process can be amended to seek relief with respect to matters which have arisen after the issue of the originating process arises on a regular basis. There appears to be no definitive decision dealing with the question. It is clear in actions commenced by writ a cause of action which arose after the issue of the writ, cannot be added by subsequent amendment. That was confirmed in Wigan v Edwards (1973) 1 ALR 497, 515. The question then is whether the same principles apply to actions commenced by originating process.
25 It has been my practice over many years to allow such amendments. An originating process, as distinct from a writ, does not plead material facts which gives rise to a cause of action. It merely specifies relief a party claims against another party in relation to a corporation. The relief sought may change from time to time depending on changing circumstances. All the originating process does is engage the parties and alert a defendant what relief is being sought. It seems to me there is no practical utility in requiring the issue of a fresh originating process each time circumstances change. Accordingly, if it is the case here as put by the defendants, certain events arose after the issue of the originating process that, by itself, would not be a basis for refusing the amendments.
26 However, it seems here what the plaintiffs are doing is seeking declarations as to circumstances which arose prior to the issue of the originating process. Taking for instance the declaration sought in par (1)(a), Ms Chouinard is either entitled to the amount claimed or she is not. True it is the figure found in the further amended originating process is based upon a sale price settlement of which is yet to be effected, so it is not actually clear whether the amount sought is the actual entitlement. But the amount claimed is based upon an agreement entered into well before the issue of the originating process and a declaration in relation to the contractual position does not seem to me to be a cause of action which arose after the originating process was issued. A similar argument would apply to most of the other declarations sought in the originating process.
27 On that basis it is proper to allow the plaintiffs to amend their originating summons. However, I was not satisfied the form of the amendment was appropriate. Most of what follows reflects objections raised by the defendants to the form of the minute.
28 First, Mr Trent Devine and Mr Sule Arnautovic were appointed liquidators of the corporation. The third-named defendant Mr Roderick MacKay Sutherland was an administrator but was not appointed a liquidator. He should be removed as a party. Further there are persons who would be affected by the relief sought who are not parties to the proceeding. Mr Werner is the most obvious example. He and other parties should be added as defendants. So should both corporations. They are effectively before the court because the liquidators are parties to the proceedings. But it is proper both companies be joined. For that purpose leave to proceed insofar as the joinder is concerned would be required. I would order accordingly.
29 Those are largely procedural matters. Of more importance is the way the orders are framed. Take for example Order 1(c). This order although couched as a declaration is really a mandatory injunction directed at the liquidators. It usurps the function of the liquidators and the proof of debt process. It is one thing to say Ms Chouinard is a creditor of a company. That may or may not allow her to prove in the liquidation. But is a matter for the liquidators to determine within the statutory framework relating to proofs of debt. If after a declaration was made Ms Chouinard's proof of debt was rejected, then the appeal processes mandated by the legislation could be followed. But there is no warrant prior to such a determination being made for any orders to be made against the liquidators.
30 Paragraphs 9, 10, 11 and 12 of the further amended statement of claim deal with Dr Cote's continued occupation of the Railway Street property. Separate proceedings have been issued by the liquidator in relation to this issue. Given the property has been purchased by a company associated with Dr Cote, this issue may well fall away. But if it does not, it should properly be dealt with in the other proceedings. So leave to amend in terms of pars 9 - 12 should be refused.
31 The plaintiffs should bring in a fresh minute of further amended originating process. I will then hear submissions in relation to that process and in relation to costs.
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