Duncan v Vinidex Tubemakers Pty Ltd No. Scgrg-97-969 Judgment No. S157

[1999] SASC 157

PIPELINES INDUCTION HEAT (AUSTRALIA) PTY LTD & DUNCAN v VINIDEX TUBEMAKERS PTY LTD

[1999] SASC      157

Full Court: Prior, Mullighan & Williams JJ

1 PRIOR J:  I agree.  Neither ground of appeal is made out.  The Master did not err in allowing the amendment on the eve of the trial.  The amendment did not introduce a ground of defence that was not reasonably arguable.  The issue is arguable having regard to things said in Gye v McIntyre and in re Parker.
2 MULLIGHAN J:  The principle issue on this appeal is whether the point raised by the amendment is not reasonably arguable.  I agree that the appellant has not established that such is the case.
3 Furthermore, it has not been shown that the Master erred in the exercise of his discretion to allow the amendment.  It follows that the appeal should be dismissed.
4 WILLIAMS J: This is an appeal by the plaintiff, as liquidator of the Pipeline Company as I will call it, against the decision of a Master to allow an amendment to the defence after an order to proceed to trial.  The appeal, originally brought before a single judge, has been referred to the Full Court. 
5 Supreme Court Rule 67.01 provide that after a procedural order as abovementioned has been made, no further interlocutory order shall be made "unless special circumstances shall be shown to exist which require such order to be made in the interests of justice." 
6 The grounds of appeal are that special circumstances (within SCR67.01) were not demonstrated so as to justify the exercise of the Master's discretion to allow the particular amendment which, according to the plaintiff, expresses a defence which, in law, is not reasonably arguable. 
7 The plaintiff contends that the point raised by the amendment to the defence is insupportable in law by virtue of long established principle. It would be fair to say that if the defendant's contention be accepted, then some well-known authorities cited by the plaintiff will have to be taken as overtaken by changes in the law. However, the defendant contends that a recent Federal Court decision - ex parte Parker (1997) 25 ACSR 560 - has opened the way for a new approach.
8 This submission is made in the light of the remarks of the High Court in Gye v McIntyre (1991) 171 CLR 609, especially at 629.
9 The question at issue is whether the defendant, who has received a preference for the purpose of a bankruptcy administration or a company liquidation, may set off against the liability so arising any net preference in the defendant's favour, which is to be found upon the taking of accounts of mutual dealings. The question requires consideration of the application of s86 of the Bankruptcy Act 1966 in the light of s122 of that Act.
10 The plaintiff's claim in the action is for a declaration pursuant to s565 of the Corporations Law 1989, that payments made to the defendant by the Pipeline Co during a period of six months before the commencement of winding up are void as preferences.  The total amount involved is $339,489.09, and the plaintiff seeks payment of this amount. 
11 The Master's order dated 16 November 1998 gave leave to the defendant to amend its defence so as to plead that it is entitled to set off against any such liability the net balance arising from dealings between the Pipeline Co and the defendant Vinidex for a period of about nine months prior to commencement of the winding up of the Pipeline Co. 
12 Vinidex alleges that it sold goods to the Pipeline Co during this period for a total price of $345,885, but was, itself, indebted to the Pipeline Co, upon other transactions, in the sum of $74,061, so as to leave a net debt due to Vinidex of $271,824, arising from mutual credit, mutual debts and mutual dealings between the two companies. 
13 A proof of debt submitted on behalf of the defendant has been admitted by letter for this net amount by the plaintiff in the liquidation. 
14 In terms of the amendment to its defence now in question, the defendant now purports to treat this amount as a set off against the plaintiff's preference claim of $339,489.09, so as to leave only a balance of $67,665.09 on the 'mutual account' between the Pipeline Co and Vinidex. 
15 The plaintiff contends that the law does not permit a set off in the circumstances abovementioned. The Corporations Law, as now relevant, picks up and applies (mutatis mutandis) the provisions of s86 (set off) and s122 (recovery of preferences) of the Bankruptcy Act. The relevant principles are well-established says the plaintiff.
16 The plaintiff now contends that to allow such a set off would be contrary to the policy of the bankruptcy law. To recognise such a set off would be to subvert the operation of s122. Moreover, as the benefits arising from s122 enure as necessary to the benefit of the general body of creditors, the right of recovery is not to be regarded as the right of the company in liquidation so there is no room for any mutual dealing under s86 between the liquidator in respect of his claim and the transactions which the defendant relies upon to establish the set off.
17 The defendant answers this argument by pointing to the decision of Mansfield J in ex parte Parker, which I've referred, where his Honour examined the provision of s553C of the Corporations Law in circumstances where a liquidator sought to set off a statutory debt in his own favour (founded upon s588V and W of the Corporations Law) when admitting to proof a debt upon a loan account due to the holding company of the company which is in liquidation.
18 Despite the very different origin of the claim on the loan account, and the statutory debt arising under s588V and W of the Corporations Law, Mansfield J nevertheless treated the respective claims as mutual dealings under s553C of the Corporations Law (which is in similar terms to s86 of the Bankruptcy Act).
19 His Honour, at p568, applied the reasoning in Gye v McIntyre (1991) 171 CLR 609 at 623, so as to give "the widest possible scope" to s553C and so as to hold that the element of mutuality required for set off involved a "notion of recipocrity rather than of correspondence". Mansfield J was thus able to allow a statutory debt arising since liquidation to be set off against the loan account debt arising before liquidation.
20 Although the defendant seeks to extend the principle of ex parte Parker to the present case, the plaintiff submits that it is distinguishable upon a number of grounds including the following:

1. Section 588W treats the statutory debt thereby arising as a "debt due to the Company"; in the context of preferences the Courts have emphasised that the claim made by the liquidator is not to be regarded as the property of the company in liquidation.   Accordingly there is, in this case, a lack of mutuality, says the plaintiff.

1. The decision in Gye v McIntyre emphasises that "substantial justice" requires the operation of set off in bankruptcy be confined within the limits which would keep the creditors of the bankrupt from being disadvantaged by a set off allowed in circumstances where debts, credits or other dealings have not been genuinely mutual as a matter of substance; the case law reflects public policy that the efficacy of preference recovery should not be subverted by reliance upon set off, says the plaintiff. 

21 The plaintiff also contended in the alternative that ex parte Parker is wrongly decided. 
22 In the light of these submissions it seems to me that the Master was entitled to exercise his discretion, as he did, so as to permit amendment of the defence after the procedural order for trial made on 8 September 1998.  The defendant, on 12 November 1998 sought leave to take advantage of developments which it perceived in the case law.  The point at issue is one of law where according to the affidavit filed by the defendant the amendment "does not involve any new matters of fact, but simply pleads a matter of law based on the existing facts". 
23 The amendment will have a minimum impact upon the orderly preparation for trial, and the Master's order provides appropriate compensation in costs to the plaintiff occasioned by the allowance of the amendment. The Master's decision is consistent with the approach to the amendment of pleadings which found favour in the High Court in JL Holdings v Queensland (1996) 189 CLR 146. The defendant, upon my assessment, is faced with a difficult task in seeking to apply the decision in ex parte Parker, but I do not consider the defendant's argument is so lacking in merit that it should be denied the opportunity to advance the point at trial.
24 In re Norman (1886) 16 QBD, at 673, the Court Of Appeal was dealing with a statute which provided that a stale bill of costs was not to be taxed "except under special circumstances....."  At p677 Lopes LJ said: 
"The statute uses the words special circumstances.  Those are wide, comprehensive, and flexible words, and I think that the legislature intended them to be so, and no Court can or ought to lay down any exhaustive definition of them."

25 In my view the approach taken by Lopes LJ should be applied to SCR67.01(6).  I consider that the Master's order was a proper exercise of his discretion and that the Master was entitled to allow the amendment to the defence upon terms. 
26 The plaintiff upon this appeal carries the responsibility of demonstrating that the point sought to be argued is unarguable but in my view the plaintiff has been unable to do this. 
27 In my opinion this appeal should be dismissed.
28  28 PRIOR J:  The order of the Court therefore is that the appeal be dismissed, the appellant to pay the respondent’s costs of this appeal.