Dwyer v La Gender Pty Ltd; Dwyer v Sharp Corporations of Australia Ltd

[2005] SASC 213

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

DWYER & ANOR v LA GENDER PTY LTD; DWYER & ANOR v SHARP CORPORATIONS OF AUSTRALIA LTD

Reasons of Judge Lunn a Master of the Supreme Court

15 June 2005

PROCEDURE

Application under R 31.02 to substitute new plaintiffs - original plaintiffs were the liquidators of a company who had resigned or been removed by order of the Court - proposed new plaintiffs were new liquidators appointed by the Court - held new liquidators had a sufficient interest under R 31.02 and that interest had devolved on them - held that not for Court in R 31.02 application to go behind the order appointing the new liquidators - order for substitution made - effect of delay in making application on the date when the substitution was to take place.

DWYER & ANOR v LA GENDER PTY LTD; DWYER & ANOR v SHARP CORPORATIONS OF AUSTRALIA LTD
[2005] SASC 213

Reasons of Judge Lunn on Applications to Substitute New Plaintiffs

1. JUDGE LUNN On 3 January 2002 the plaintiffs, Dwyer and Maxted, were appointed in a creditors’ voluntary winding up to be the joint liquidators of Harris Scarfe Ltd and associated companies (“Harris Scarfe”). On 8 December 2004 Maxted resigned as a liquidator and Dwyer then continued as the sole liquidator. On 21 January 2005 on an ex parte application in action 668/01 in this Court Judge Withers made an order under s 503 of the Corporations Act 2001 (“the Act”) that Dwyer be removed as the liquidator of Harris Scarfe and that Colin Nicol and Samuel Davies (“the new liquidators”) be appointed to be the liquidators of Harris Scarfe. S503 provides “The Court may, on cause shown, remove a liquidator and appoint another liquidator”. Neither of the defendants in these actions was aware of this application or took any part in it.

2. On 2 April 2004 Dwyer and Maxted in their own names as the liquidators of Harris Scarfe commenced action 375/04 against Sharp Corporations of Australia Ltd (“Sharp”) seeking orders under s 588FF of the Act that Sharp repay $785,084 as preferential payments paid by Harris Scarfe to it. On 5 November 2004 Sharp filed a defence denying the claim. Attached to the defence was a counterclaim seeking orders that Maxted and Dwyer pay Sharp’s costs of the proceedings on an indemnity basis. (I am not aware of any precedent in this State for a counterclaim merely claiming costs, but the plaintiffs have not sought to strike it out).

3. On 2 April 2004 Dwyer and Maxted, in their own names as the liquidators of Harris Scarfe, instituted action 363/04 in this Court against LA Gender Pty Ltd (“Gender”) seeking orders under s 588FF of the Act that Gender repay as preferential payments $187,114 paid by Harris Scarfe to it. On 25 August 2004 Gender filed a defence denying liability. It did not file any counterclaim.

4. On 22 February 2005 Sharp filed an application seeking that the proceedings be set aside or dismissed.  The supporting affidavits made it clear that the application was based on the plaintiffs no longer being the liquidators of Harris Scarfe.  On 17 March 2005 the plaintiffs took out an application for an order that Davies and Nicol “be made plaintiffs in the action in the place of Maxted and Dwyer”.

5. On 28 April 2005 Gender issued an application in its action in similar terms to the application taken out by Sharp.  On 13 May 2005 the plaintiffs took out a similar application to that which they had taken out in the Sharp action.

6. All four applications were listed for argument at the same time.  I ruled that I would hear the two applications of the plaintiffs and when I had determined those I would then, if necessary, convene a further hearing to deal with the application of each defendant.

7. In a claim to recover a preferential payment under s 588FF of the Act the proper plaintiffs are the liquidators of the company, and not the company itself: Horn v York YLA Paper Co Ltd (1999) 23 NSWLR 622: Tolcher v NAB (2003) 44 ACSR 727. If liquidators as plaintiffs lose such actions, costs orders are made against them personally, and are not restricted to any indemnity the liquidators can obtain from the company in liquidation: re Wilson Lovatt & Sons Ltd [1997] 1 All ER 274 at 275; re Buena Vista Motors Pty Ltd [1971] 1 NSWLR 72 at 75; re NGT Samorr Knitting Pty Ltd (2000) 18 ACLR 333. A liquidator is a plaintiff in such actions by reason of his office as liquidator and by virtue of the peculiar provisions of s 588FF.

8. Counsel for Gender submitted that the action was a nullity once both plaintiffs ceased to hold office as liquidators.  I do not agree.  The case he cited of National Bank Australia v Trittenheim (2001) 215 LSJS 227 is distinguishable as there the Court never had the statutory jurisdiction which was said to be necessary for the claim. Here, at the best, for Gender it is only a lack of proper parties, and under R 28.01 that does not defeat the action or cause it to abate.

9. The plaintiffs’ primary contention was that they were entitled to the order sought under R 31.02 which provides:

   31.02Where the interest or liability of any party is assigned, transmitted or devolved upon some other person, an application may be made to the Court for an order:

   (a)that the other person be substituted as a party in the place of an existing party to the action;  or

   (b)that the other person be added as an additional party and the proceedings be carried on thereafter with him as a party.

   Nothing in this Rule affects the operation of Section 60 of the Bankruptcy Act 1996 of the Parliament of the Commonwealth.

10. The plaintiffs by virtue of their office as liquidators of Harris Scarfe had an “interest” for the purpose of this Rule.  “Interest” has not been defined in this context but it is similar to its use in R 27.05(a) where it has been defined in very broad terms:  See Civil Procedure SA  para [R 27.05.10]. While it is not a chose in action it is a special right of action conferred by s 588FF of the Act and constitutes an “interest”.

11. This interest of the plaintiffs has “devolved” on the new liquidators for the purposes of R 31.02.  The leading authority on the meaning of “devolution” is O’Brien v Komesaroff (1982) 150 CLR 31, and particularly at 319 – 322 per Mason J. At p 321 Mason J said:

    The word “devolution” therefore contemplates a legal consequence flowing from an involuntary act.  The difference between a devolution and an assignment is that the latter is voluntary and operates by way of contract and the former is involuntary and takes effect by operation of law. 

    Here the devolution of the interest under s 588FF of the Act results from the order of this Court made on 21 January 2005 under s 503 of the Act. This was an involuntary act as its legal effect depended on an exercise of a discretion by the Court over which the parties had no control. While the plaintiffs and/or Nicol and Davies may have precipitated that act of the Court by making an application to the Court and requesting the Master to make the order, it was always the order of the Court. (It is clear on the authorities that the estate of a person declared bankrupt devolves on the Trustee in Bankruptcy appointed by virtue of the order of the Court, although a bankrupt may have brought it about by presenting his own petition for bankruptcy.)

12. The defendants submitted that any order under R 31.02 involved the exercise of a discretion by the Court which required a consideration of the circumstances in which the plaintiffs ceased to be the liquidators of Harris Scarfe and the new liquidators were appointed.  I do not agree.  It is not for the Court in this action to go behind the order which was made in 668/01 for the removal of Dwyer and the appointment of the new liquidators.  Issues much wider than matters pertaining to these two actions were involved in the order made on 21 January 2005.  If it was not proper for the interests of the plaintiffs in these two actions to devolve on the new liquidators, that should have been raised in opposition to the orders sought in 668/01.  The defendants now complain that they did not know of that application and have lost the opportunity to be heard on it.  I do not agree.  Anyone who is affected by an ex parte order who was not before the Court, or who had not been properly served with notice of the application, can apply to set aside the ex parte order and/or to appeal against it: SS Kalibia v Wilson (1910) 11 CLR 689; Garling v Laska (1981) 11 NTR 15. See also Civil Procedure SA para [R 67.00.1]. In their submissions to me the defendants sought to invoke the interests of the creditors at large in the liquidation of Harris Scarfe, but I need not enter into that. If and when the defendants make any application in 688/01 to challenge the order of 21 January 2005, the Court will there consider their locus standi to bring such an application, whether the applicants before the Court on 21 January 2005 had made proper disclosure to the Court and whether the order made on that day should be set aside or varied. (The defendants complained that they did not know what had been put before the Court on that application in 668/01. They can search the Court file to ascertain this. Insofar as they may need any leave under s 131(2) of the Supreme Court Act I will entertain any such application.) I do not accept the defendants’ submission that it was incumbent on the plaintiffs to proceed under s 511 of the Corporations Act if they did not elect to do so.

13. Counsel for Sharp cited Fussell v Dowding (1884) 27 Ch D 237 for the proposition that an order would be made under R 31.02 only where it was “necessary” and “desirable”. However, there the Court was dealing with the old English O 17 r 4 which expressly required that it should be “necessary or desirable that any person not already a party should be made a party”. There is no such limitation on the general discretion now conferred by R 31.02. Counsel for Sharp also relied upon the decision of Kings Quality Homes Ltd v A J Paints Ltd {1998] 1 WLR 124 where it was held that the Court in exercising a discretion to substitute a new party should have regard to the merits of the party’s claim. That case is also distinguishable in that it was not decided under an equivalent of R31.02, but under an equivalent of R 53.03(a) where different considerations apply. There is no authority under R 31.02 of which I am aware that the plaintiff must show that it has good cause of action in the subject matter of the devolution before any substitution will be ordered.

14. The plaintiffs also relied upon a document of assignment made between the old liquidators and the new liquidators.  I do not base my decision on its legal efficacy, if any.

15. Maxted had no legal standing to be a plaintiff in the actions after he resigned on 8 December 2004.  No explanation was put forward in evidence about why he has since remained as a plaintiff.  Also no explanation has been put forward in evidence about why Dwyer and/or the new liquidators did not make immediate application after 21 January 2005 for the new liquidators to be substituted as the plaintiffs.  In various other interlocutory hearings before me in February 2005 counsel for the plaintiffs indicated such an application was to be made, but there was substantial delay in doing so.  I do not consider that this delay means that it is not in the interests of justice that the substitution should be ordered, but it is relevant to how the order is to be framed.  Under R 31.02 substitution is not to be backdated to the institution of the action so that the new plaintiffs are treated as if they had always been the plaintiffs.  The practice of the Court has been to frame an order in terms that the new plaintiffs be substituted as the plaintiffs as from a specified date and thereafter the action be carried on between those plaintiffs and the defendant.  This means that the old plaintiffs remain as the plaintiffs for the period from the institution of the action until the date on which the substitution is ordered to take effect.  If the plaintiffs were to lose the actions, the usual exercise of the Court’s discretion on costs would be that the original plaintiffs would be ordered to pay the costs of the defendant incurred up until the date of the substitution and the new plaintiffs to pay the costs incurred after that date.  Any backdating of the order for substitution may have the effect of depriving the defendant, if successful, from obtaining costs from the original plaintiffs for the period of the backdating.  There is also the complication of the counterclaim in 375/04.  The order for substitution will not in itself remove the original plaintiffs as the defendants to that counterclaim.  If it is to be pursued it may be that Sharp would wish to join the new plaintiffs as further defendants to that counterclaim.  While I will hear counsel on precisely what order is to be made in consequence of these Reasons my general view is that the defendants should be entitled to elect whether to have the substitution order backdated so they will obtain their costs against the new plaintiffs for the period of the backdating if they are successful, or alternatively not to have the substitution backdated in which case they could expect to have their costs, if successful, ordered against the existing plaintiffs at least up until the application for substitution.

16. I am also mindful that the defendants’ applications still have to be argued. I have only dealt with the submission of Gender that the action was a nullity because no order could be made for substitution if that was correct. I am prepared to hear the defendants on whether the delays of the plaintiffs in obtaining substitution of the new liquidators after they ceased to have the right to pursue the relief under s 588FF entitles the defendants to any relief.

17. I adjourn this matter to 10 am on Monday 25 July 2005.