Davies v Chicago Boot Co Pty Ltd (No 2) - [2007] SASC 12

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
DAVIES & ANOR v CHICAGO BOOT COMPANY P/L (No 2)
[2007] SASC 12
Judgment of The Full Court
(The Honourable Justice Gray, The Honourable Justice Sulan and The Honourable Justice Anderson)
19 January 2007
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS
Appeal against decision of single Judge allowing an appeal against decision of Master with respect to the amendment of a pleading - application to amend existing pleading to add claim outside time limit - whether application permissible - whether section 588FF of the Corporations Law barred the proposed claim - whether Supreme Court Rule 53 applicable - consideration of relevant case law -- appeal allowed - decision of primary judge refusing application set aside - application remitted to Master for hearing and determination.
Corporations Law s 588FF, s 1337B(2); Supreme Court Rules 1987 r 53; Judiciary Act 1903 (Cth) s 79; Corporations Rules r 1.3, referred to.
Davies & Anor v Chicago Boot Co P/L [2006] SASC 241; Rodgers v Commissioner of Taxation (1998) 88 FCR 81; Gordon v Tolcher [2006] HCA 62; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; BP Australia Ltd v Brown (2003) 58 NSWLR 322; Harris v Western Australian Exim Corporation (1994) 56 FCR 1; Star v NAB (1999) 30 ACSR 583; Rambaldi v Dalebrook Pty Ltd (2003) 21 ACLC 1190; Newcap Reinsurance Corporation v Reaseguros Alianza (2004) 186 FLR 175; Tolcher v Capital Finance (2005) 143 FCR 300; Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17; BP Australia Ltd v Brown (2003) 58 NSWLR 322, considered.

DAVIES & ANOR v CHICAGO BOOT COMPANY P/L (No 2)
[2007] SASC 12
Full Court: Gray, Sulan and Anderson JJ
GRAY J:
Introduction

The issue for resolution on this appeal concerns the construction of section 588FF of the Corporations Law. The same provision has been re-enacted in the Corporations Act 2001 (Cth).
A Judge of this Court allowed an appeal from a Master with respect to the amendment of a pleading.[1] It is in the context of this interlocutory dispute that the question of construction arises. As the learned Judge observed, the appeal raises:[2]
… important issues as to the operation of the limitation period prescribed by s 588FF(3) of the Corporations Law, the law in force at the time of the transactions the subject of these proceedings.
[1] Davies & Anor v Chicago Boot Co P/L [2006] SASC 241.
[2] Davies & Anor v Chicago Boot Co P/L [2006] SASC 241 at [1].
It is convenient at the outset of these reasons to set out the full text of section 588FF:
Courts may make orders about voidable transactions
(1) Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2007] SASC 12
Decision Date: 19 January 2007

CaseChat Overview and Summary

The Davies v Chicago Boot Co Pty Ltd (No 2) case involved the liquidators of the Chicago Boot Co Pty Ltd who sought to amend a pleading to add a claim outside the time limit. The primary judge allowed the amendment, but this decision was appealed and subsequently set aside by a single judge. The liquidators further appealed against this decision. The central issue was whether the Supreme Court Rules could permit an amendment to a pleading to add a claim outside the time limit, particularly in light of section 588FF of the Corporations Law. The court was required to determine if the proposed claim was barred by section 588FF and whether the Supreme Court Rule 53 was applicable.

The court considered the Full Federal Court's decision in Rodgers v Commissioner of Taxation, which held that an amendment to pleadings could be permitted to raise a claim outside the statute of limitations, as long as the action had been commenced within the statutory period. The Full Federal Court reasoned that the limitation period was procedural rather than substantive, and an amendment to the pleading would operate retrospectively to the date of the original pleading, thereby satisfying the limitation requirement. This reasoning was consistent with the Supreme Court Rules, including rule 53. The court found that the primary judge's decision conflicted with the reasoning in Rodgers and the broader principles established in case law. Consequently, the appeal was allowed, and the decision of the primary judge refusing the application was set aside. The matter was remitted to the Master for hearing and determination.

The final orders of the court were to allow the liquidators' appeal, set aside the decision of the primary judge, and remit the matter to the Master for further proceedings in accordance with the court's reasons. This decision reaffirmed the principle that procedural limitations can be overcome by an amendment to pleadings, provided the action was initiated within the statutory period.

Orders

Orders of the court

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Background

Background to the litigation

It is convenient at the outset of these reasons to set out the full text of section 588FF:Courts may make orders about voidable transactions(1) Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:(a)an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;(b)an order directing a person to transfer to the company property that the company has transferred under the transaction;(c)an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;(d)an order requiring a person to transfer to the company property that, in the court’s opinion, fairly represents the application of either or both of the following:(i)money that the company has paid under the transaction;(ii)proceeds of property that the company has transferred under the transaction;(e)an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction;(f)if the transaction is an unfair loan and such a debt, security or guarantee has been assigned – an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;(g)an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;(h)an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;(i)an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time;(j)an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.(2) Nothing in subsection (1) limits the generality of anything else in it.(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 made by the liquidator within those 3 years.(4) If the transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under subsection (1) only for the purpose of recovering for the benefit of the creditors of the company the difference between:(a)the total value of the benefits provided by the company under the transaction; and(b)the value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c). Background

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Counsel for the liquidators submitted that the decision in Rodgers should not be departed from; the decision was plainly correct. Alternatively, it was submitted that Rodgers could not be said to be plainly wrong. It was further contended that Rodgers had been followed at the appellate level and in a number of first-instance decisions both in the Supreme and Federal Courts. As noted above, the primary Judge took the view that Rodgers contained reasoning that conflicted with the New South Wales Court of Appeal decision in BP Australia Ltd v Brown.[18] [18] BP Australia Ltd v Brown (2003) 58 NSWLR 322.The Rodgers Decision As the primary Judge observed, the decision of the Full Federal Court in Rodgers, addressed the construction of section 588FF(3) of the Corporations Law. The Court was there concerned with an attempt to amend an application by a liquidator seeking to set aside, as voidable, transactions alleged to be a preference. The liquidator made the application within three years of the relation-back date but, at that time, was unaware of two further payments. On becoming aware of these further payments, the liquidator applied to amend his application. The application to amend was outside the three-year limitation period to seek relief in respect of the two further payments. Relevantly Rodgers was factually “on all fours” with the present proceedings. The Full Federal Court in Rogers had regard to the terms of Order 13 of the Federal Court Rules, and noted that relevantly that rule was in the same terms as the rules of other State Supreme Courts. These other rules included rule 53 of the Supreme Court Rules of this Court. The Full Federal Court then reasoned:[19]In support of the submission that s 588FF(3) governed this case, counsel for the Commissioner referred to the High Court decision in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. That case concerned a time limitation on the making of a statutory demand. More precisely, the question was whether s 1322 of the Law authorises an extension of time for compliance to be granted in circumstances where no application had been made within time. Section s 459G(2) of the Law stipulates an application for an order setting aside a statutory demand may only be made within 21 days after the demand is served. Section 1322 of the Law empowers the Court to make an order extending the period for taking any proceeding under the Law or in relation to a corporation even where the period expired before the extension application was made. Gummow J, with whom all other members of the Court agreed, said (at 277):“The force of the term ‘may only’ is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G. An integer or element of the right created by s 459G is its exercise by application made within time specified.” (Emphasis added.)This statement establishes an application first made outside the prescribed time is ineffective; it says nothing about an application to amend.In Harris v Western Australian Exim Corporation (1994) 56 FCR 1, Hill J adverted to the operation of O 13, r 2 in its amended form. He decided the Court had power to permit an amendment to pleadings in order to raise, for the first time, a claim against a respondent based on a breach of the Fair Trading Act 1987 (NSW) (FTA). The application originally alleged only a breach of s 52 of the Trade Practices Act 1974 (Cth) (TPA). When the amendment application was made, a fresh proceeding seeking relief pursuant to the FTA would have been statute barred, although it would not have been barred when the proceeding was commenced. His Honour held the Court had power to permit the amendment pursuant to O 13, r 2. He said the limitation imposed by s 79(2) of the FTA was procedural rather than substantive in nature; an amendment to the pleading would operate retrospectively to the date of the original pleading, thereby satisfying the limitation requirement. Hill J said (at 9):“Another way of looking at the matter is to say that all s 79(2) requires is that the action … be commenced within three years of the cause of action accruing. An action has, in the present circumstances, been commenced. True, that action was based on another cause of action but an amendment to the pleading operates, as I have said, retrospectively to the date of the original pleading …”[19] Rodgers v Commissioner of Taxation (1998) 88 FCR 61 at 66-67.

Ratio Decidendi

Legal Principle Established

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