Dwyer v R-Jay Pty Ltd
[2007] SASC 115
•30 March 2007
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
In the Matter of HARRIS SCARFE LTD (RECEIVERS & MANAGERS APPOINTED) (IN LIQ)
DWYER & ANOR v R-JAY PTY LTD
[2007] SASC 115
Judgment of The Honourable Justice Debelle
30 March 2007
CORPORATIONS - WINDING UP - LIQUIDATORS
STATUTES - ACTS OF PARLIAMENT - WAIVER OF STATUTORY RIGHTS
Insolvency – judgment in action under s 588FF of Corporations Act – insolvency not in dispute – whether presumption of insolvency under s 588E(8) – whether liquidator can waive presumption in s 588E(8).
Corporations Act 2001 (Cth) s 588E, s588FF, referred to.
Brooks v Burns Philip Trustee Co Ltd (1968) 121 CLR 432; Commonwealth v Verwayen (1990) 170 CLR 432; Felton v Mulligan (1971) 124 CLR 367, applied.
Admiralty Commissioners v Valverda (Owners) [1938] AC 173; Australian Horisons (Vic) Pty Ltd v Ryan Land Co Pty Ltd [1994] 2 VR 463; Cooper v Commissioner of Taxation (2004) 139 FCR 205; Crosbie v Commissioner of Taxation (2003) 130 FCR 275; Dean-Willcocks Pty Ltd v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; Duncan v Commissioner of Taxation (2006) 58 ACSR 555; Lieberman v Morris (1944) 69 CLR 69; Park Gate Iron Co v Coates (1870) LR 5 CP 634; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; Sandringham Corporation v Rayment (1928) 40 CLR 510; Young v Commissioner of Taxation (2006) 556 ACSR 654; Hall v Commissioner of Taxation (2004) 51 ACSR 169; Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64, considered.
DWYER & ANOR v R-JAY PTY LTD
[2007] SASC 115Civil
DEBELLE J. The plaintiffs are the liquidators of Harris Scarfe Ltd (“HSL”) and of Harris Scarfe Wholesale Pty Ltd (“HSW”), two companies in the Harris Scarfe group of companies. The liquidators have instituted a number of actions pursuant to 588FF of the Corporations Act 2001(Cth) in which they seek to set aside payments made by HSL and HSW to creditors on the ground that they are voidable transactions.
A question has arisen as to the operation of s 588E of the Corporations Act and as to whether the liquidators are able to waive the presumptions which s 588E establishes. The liquidators have also applied for an order listing one of the actions for trial. It is convenient to deal first with the questions raised by the terms of s 588E.
The Presumptions in s 588E
For present purposes, the relevant provisions of s 588E are subsections (1) to (3), (4), (8) and (9) which are in these terms:
(1) [recovery proceeding] In this section:
recovery proceeding, in relation to a company, means:
(a) an application under section 588FF by the company’s liquidator; or
(b) proceedings begun under subsection 588FH(2) by the company’s liquidator; or
(c) proceedings, in so far as they relate to the question whether a charge created by the company is void to any extent, as against the company’s liquidator, because of subsection 588FJ(2); or
(d) proceedings begun under subsection 588FJ(6) by the company’s liquidator; or
(e) proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt by the company (including proceedings under section 588M in relation to the incurring of the debt but not including proceedings for an offence); or
(f) proceedings under section 588W in relation to the incurring of a debt by the company.
(2)[Effect of subss (3) to (9)] Subsections (3) to (9), inclusive, have effect for the purposes of a recovery proceeding in relation to a company.
(3)[Presumption] If:
(a)the company is being wound up; and
(b) it is proved, or because of subsection (4) or (8) it must be presumed, that the company was insolvent at a particular time during the 12 months ending on the relation-back day;
it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.
(4)[Presumption of insolvency where contravention of s 286(1), (2)] Subject to subsections (5) to (7), if it is proved that the company:
(a) has failed to keep financial records in relation to a period as required by subsection 286(1); or
(b) has failed to retain financial records in relation to a period for the 7 years required by subsection 286(2);
the company is to be presumed to have been insolvent throughout the period.
(8)[Matters proved in another recovery proceeding] If, for the purposes of another recovery proceeding in relation to the company, there has been proved:
(a) if the other proceeding is of the kind referred to in paragraph (1)(a) of this section – a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2); or
(b) if the other proceeding is of the kind referred to in paragraph (1)(b) of this section – a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2) or 588FH(1), or a defence under subsection 588FH(3); or
(c) if the other proceeding is of the kind referred to in paragraph (1)(c) or (d) of this section – a matter of the kind referred to in subsection 588FJ(3); or
(d) if the other proceeding is of the kind referred to in paragraph (1)(e) of this section – a matter of the kind referred to in a paragraph of section 588G, or a defence under section 588H; or
(e) if the other proceeding is of the kind referred to in paragraph (1)(f) of this section – a matter of the kind referred to in a paragraph of subsection 588V(1), or a defence under section 588X;
it must be presumed that that matter was the case, or that the matters constituting that defence were the case.
(9)[Operation of presumption] A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the proceeding concerned.
It is common ground that all of the actions instituted by the liquidators are recovery proceedings as defined in subsection (1).
The relevant provision in subsection (8) is paragraph (a). It refers to s 588FC of the Corporations Act which provides:
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a) any of the following happens at a time when the company is insolvent:
(i) the transaction is entered into; or
(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b) the company becomes insolvent because of, or because of matters including:
(i) entering into the transaction; or
(ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction.
One of defendants’ concerns is whether a judgment in favour of the liquidators in a District Court action in an action under s 588FF means that the liquidators have proved the insolvency of HSL and HSW so that a presumption will be created in all other actions by the terms of s 588E(9).
Concerns as to the Presumptions
The liquidators have issued and served two batches of actions in which they seek to set aside payments made by HSL and HSW as voidable transactions. I have been managing all of these actions in an attempt to ensure that they are all prosecuted in a timely and orderly manner.
The liquidators have an expert’s report proving the insolvency of HSL and HSW. It has been prepared by Mr Davies, one of the liquidators. The defendant companies have not yet instructed an expert to prepare an answering report. There are a number of reasons for that. One is that for some defendant companies, the cost of obtaining a report is not justified by the amount which the liquidator seeks to recover from them. Another reason is that a number of the actions instituted by liquidators have been compromised. A third reason is that a large number of the defendants have been awaiting the outcome of proceedings in which they have challenged an order made on 14 April 2004 extending the time within which the liquidators could commence the proceedings under s 588FF. They have not instructed an expert to avoid incurring an unnecessary cost if they should succeed on their application.
One action in the first batch of actions is an action in which the defendant is R-Jay Pty Ltd (“R-Jay”). It is an action which has been transferred to this court. It is the action 361 of 2004. In that action the liquidators seek orders pursuant to s 588FF in respect of five payments by HSL and HSW to R-Jay totalling $355,258.89. One of the issues in that action is whether HSL and HSW were insolvent at the relevant date. The liquidators have applied to set the action down for hearing. Other defendant creditors are concerned that, if the action proceeds to judgment, there will be an adjudication of the question whether HSL and HSW were insolvent at the relevant date. The liquidators have sought to allay that concern by writing to defendants to the effect that, if they obtain judgment against R-Jay and the reasons for judgment include a finding as the insolvency of HSL and HSW, they will not rely on that finding. Shortly put, the liquidators state that they will waive their entitlement to rely on paragraph (a) of s 588E(8). A number of defendants have questioned the ability of the liquidators to waive the presumptions in s 588E(8).
The defendant creditors have another concern. It stems from a decision by a judge of the District Court of South Australia finding that payments made to a creditor of HSL and HSW must be set aside as a voidable transaction pursuant to s 588FF of the Corporations Act. The decision was delivered in the action no 554 of 2004 in the District Court. In that action, the liquidators had made a claim to recover four payments made to a company called HP Launder Holdings (Aust) Pty Ltd (“HP Launder”). The liquidators alleged that the payments were preferential payments made when HSL and HSW were insolvent. Two of those payments were made by HSL and the other two were made by HSW. On 6 December 2006 His Honour Judge Lovell delivered judgment allowing the plaintiff’s claim. The action in the District Court is a recovery proceeding.
Creditors who are defendants in other actions in which the liquidators seek to recover payments pursuant to s 588FF are concerned that the decision of Judge Lovell might have created a presumption in favour of the liquidator as to the insolvency of HSL and HSW at the relevant time. They seek a determination of that question.
In order to avoid re-litigating issues common to all of the actions in which the liquidator seeks to recover the voidable transactions, the liquidators and a number of the defendants agreed that three separate questions should be determined as a test case. The questions are:
Upon the true construction of s 588E of the Corporations Act 2001 (Cth)
(1)Does a presumption under s 588E arise from the judgment of His Honour Judge Lovell in the action no 534 of 2004 in the District Court of South Australia entitled Lindsay Maxsted and Michael Dwyer and Anor v HP Launder Holdings Pty Ltd?
(2)Are the liquidators able to waive the operation of s 588E(8) and (9)?
(3)Is the court able to direct that the presumption s 588E does not apply to named actions?
I directed that notice to be given to the defendant creditors that these questions would be determined and that, if any defendant wished to be heard, it should give notice to the court. A number of the defendants have given notice that they wish to be heard. They are listed in the schedule to these reasons. Those defendants have agreed that they will be bound by the outcome of this test case, subject to any right of appeal. The liquidators are also bound in the same way. Although the orders will be made in action no 361 of 2004 (the R-Jay action), all parties including the liquidators have agreed that any party who was heard on the test case is at liberty to appeal. The alternative was to make an order in each separate action to reflect the outcome of the test case. That presents administrative difficulties. It is preferable to make an order in the action no 361 of 2004 with liberty to any party heard on this issue to appeal to the Full Court.
Question One
Section 588E(8) provides for the circumstances in which each of the specified presumptions will operate. In the case of s 588E(8)(a), a presumption as to the fact of insolvency will operate if in an earlier recovery proceeding under s 588FF it “has been proved” that the company is insolvent at the time of the relevant transaction. The verb “prove” is defined in s 9 of the Corporations Act in these terms:
Prove includes establish in any way (for example, but without limitation, through the operation of a presumption for which this Act or law of a State or Territory provides).
That is a definition which accords with usage both in ordinary and in legal parlance. In legal proceedings, a party seeking to demonstrate the existence or non-existence of a fact or proposition will adduce evidence to establish the fact or proposition in order to demonstrate to the decision-maker why he should make the decision for which that party contends. That process is the process of proof. It is to be contrasted with the situation where a party admits the existence of a fact or proposition.
I turn to the question where the liquidators have proved that HSL and HSW are insolvent in the HP Launder action.
It is necessary to note the manner in which the parties in the HP Launder action dealt with the question of the insolvency of HSL and HSW. The liquidators had pleaded in their statement of claim that HSL and HSW were insolvent at the time they made the payments which were the subject of the proceedings. HP Launder put the question of insolvency in issue. Its defence shows that it also intended to defend the action on the ground that the payments had been received in good faith and in the ordinary course of business and that HP Launder had no reasonable grounds for suspecting that HSL or HSW were insolvent at the relevant times.
After HP Launder had filed its defence and before the hearing, its solicitors sent a letter dated 1 December 2005 to the solicitors for the liquidators stating that HP Launder did not contest the issue of insolvency. The material part of the letter was in these terms:
We further refer to your email transmission dated 7 October 2005 wherein you advised that your clients considered that the action involving HP Launder Holdings (Aust) Pty Ltd should be one of the two actions which should proceed to trial on the issue of insolvency.
We hereby formally advise that HP Launder Holdings (Aust) Pty Ltd gives notice that it does not contest the issue of the insolvency and in that regard we note that in the Insolvency Report dated 1 May 2005 prepared by Samuel Davies he concludes that the relevant Harris Scarfe entities were unable to pay their debts as and when they fell due from 31 July 2000. Accordingly, HP Launder Holdings (Aust) Pty Ltd accepts that the date of insolvency is 31 July 2000.
Please advise if your clients accept the abovementioned date for the purposes of this action.
Please further confirm that your clients withdraw their proposal that HP Launder Holdings (Aust) Pty Ltd participates in a trial on insolvency.
The letter is carefully drafted. It does not admit insolvency. Although it refers to the Insolvency Report prepared by Mr Davies, the letter does not admit the accuracy of that report.
The action proceeded to trial. HP Launder relied on the other grounds of its defence. The Insolvency Report was not tendered at the trial. One of the liquidators gave evidence but his evidence did not touch on the question of insolvency. The letter dated 1 December 2005 was tendered at the trial. Judge Lovell dealt with the question of insolvency in these terms in his reasons for judgment:
Either by admissions or through the uncontested evidence of Mr Davies most issues that were not admitted on the pleadings were conceded.
Prior to the trial, by letter of 1 December 2005 from the Defendant’s solicitors to the Plaintiff’s solicitors, it was conceded by the Defendant that the “relevant Harris Scarfe entities were unable to pay their debts as and when they fell due from 31 July 2000. Accordingly, HP Launder Holdings (Aust) Pty Ltd accepts that the date of insolvency is 31 July 2000” (Ex P4).
This recitation of the events at the trial demonstrates that the liquidators did not prove the insolvency of HSL and HSW at the trial. Instead, they relied on the fact that HP Launder did not dispute that fact. The letter of 1 December 2005 enabled the liquidators to rely on the averment of insolvency in the statement of claim.
An order may be made pursuant to s 588FF only if “a court is satisfied that a transaction of the company is voidable because of s 588FE.” There is, I think, a material difference between the meaning of “proved” and “satisfied”. In Crosbie v Commissioner of Taxation (2003) 130 FCR 275 at [2] Finkelstein J held that a court cannot be satisfied “that a transaction is a voidable transaction unless it has before it the facts which will establish that conclusion.” The effect of that reasoning was to require a liquidator formally to prove, among other things, the fact of insolvency. Later decisions have criticised that conclusion: see, for example, Dean-Willcocks Pty Ltd v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; Cooper v Commissioner of Taxation (2004) 139 FCR 205; Hall v Commissioner of Taxation (2004) 51 ACSR 169; Young v Commissioner of Taxation (2006) 56 ACSR 654; and Duncan v Commissioner of Taxation (2006) 58 ACSR 555. The effect of these decisions is that a court is able to be satisfied as to the matters listed in s 588FE without the necessity of formal proof of the relevant facts. In other words, a party may admit the relevant facts or not put a particular fact in dispute. In Dean-Willcocks v Commissioner of Taxation (No 2) at [25] to [28] Austin J expressed his reasons for not following Finkelstein J in these terms:
If Finkelstein J’s approach were correct, the court would become committed to undertaking an inquiry into the facts without any guidelines as to the type of evidence that should be required, in circumstances where there is no relevant contest between the parties. Such an approach would, to say the least, be unusual in our adversary system, where it is normally up to the parties to nominate the issues for determination, and the court resolves those issues on the basis of the evidence presented by the parties.
There is a particular practical concern in cases under s 588FF. The court is required to be satisfied that a transaction of the company is voidable because of s 588FE, under which the transaction is voidable if, inter alia, it is an insolvent transaction. As senior counsel for the Commissioner pointed out, the timing of the company’s insolvency, for the purposes of a preference recovery, is frequently a difficult and complicated issue, particularly where the records of the company have not been satisfactorily kept. Where insolvency must be fully proved, it is likely that the report of an expert will be required, at significant expense. The selection, preparation and collation of documents for the expert can also be a difficult and expensive task. While the Crosbie case does not provide direct guidance as to the extent and nature of the proof that the court will require, a liquidator preparing an application for orders under s 588FF may well conclude, as a practical matter, that a report should be prepared in spite of the defendant’s consent, if the approach in Crosbie is correct. In my opinion, it would be unfortunate if the law were to have the practical result of causing very substantial expenditure to be made to procure an expert’s report, at the expense of unsecured creditors, where the report addresses a matter that was no longer in contest when it was commissioned.
In my opinion there is no general principle preventing a court from being “satisfied” of the matters that it is required by statute to address before making orders, where there is an admission between parties; nor is there any principle requiring a court in those circumstances to undertake its own factual inquiry when the parties invite it to do no more than act upon their consent. That is not to say that the court should simply act on consent orders without any independent thought. There being no jurisdictional bar to acting on admissions under s 588FF, it is up to the court to consider, in the circumstances of the instant case, whether admissions are sufficient to warrant its being “satisfied”.
This conclusion is consistent with the courts’ general approach to admissions. A court is never bound by admissions made inter parties or in the pleadings: Termijtelen v Van Arkel [1974] 1 NSWLR 525. It may decline to act on admissions if, for example, they are made so as to attract a jurisdiction that is not naturally present. However, in most cases it is appropriate to allow and even encourage parties to simplify litigation by making admissions so as to achieve the just, quick and cheap resolution of their dispute: Supreme Court Rules, Pt 1 r 3; and see Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221 at 225, per Lord Loreburn. A judgment or order by consent may determine conclusively the defendant’s liability (James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53; 159 ALR 268), and may be res judicata (K R Handley, G R Spencer Bower and Sir A K Turner, The Doctrine of Res Judicata, 3rd ed, Butterworths, London, 1996, p 21, citing Kinch v Wolcott [1929] AC 482 at 493 per Lord Blanesborough).
Lander J expressed similar reasons in Cooper v Commissioner of Taxation at [28] to [31]:
There can be no doubt that in the absence of the parties’ agreement on a matter in which the Court must be “satisfied”, the party bearing the onus of satisfying the Court must adduce relevant evidence to allow the Court to be satisfied. It does not follow, however, that the Court can only be “satisfied” after hearing evidence. The Act may still permit the Court to be satisfied if the parties agree that the Court can be satisfied.
If the action was against a party other than the Commissioner of Taxation and the defendant filed a defence admitting; that the company was insolvent when the transactions were made; that the transactions were unfair preferences; that the transactions were insolvent and voidable transactions, it is difficult to understand why the Court would not be entitled to act on those admissions and be satisfied that an order under s 588FF should be made.
There are good reasons for thinking that the proper construction of s 588FF would allow orders to be made by consent. First, it would encourage parties to settle their disputes. Second, it would mean that, where there is no dispute, a liquidator does not have to go to the cost of preparing an insolvency report and proving to the Court that the company was insolvent when nobody disputes that fact. Insolvency reports are notoriously expensive. Third, the unsecured creditors, for whom the action is brought, would be likely to recover a greater dividend (because of the avoidance of costs) and secure that dividend earlier. Fourth, it would encourage liquidators to bring appropriate actions because they are likely to be less expensive. Fifth, if a defendant puts the liquidator to proof when there was really no issue between the parties that defendant may be mulcted with costs. Sixth, it is only in cases where the Commissioner is involved that a statutory indemnity arises. The special provisions relating to the Commissioner should not dictate the construction of the section generally.
The construction given by Finkelstein J prevents any other party coming to an agreement with the liquidator to avoid costs.
I respectfully agree with both Austin J and Lander J. A court may, therefore, be satisfied that a company was insolvent without the necessity of formal proof. The court may act on an admission or on the fact that the question of insolvency is not put in issue. If the liquidator agrees to a compromise of the claim, the question of insolvency is not in any way determined. In that case, no more has occurred than that the parties have agreed to resolve their differences on terms.
Mr Ross-Smith, who appeared for the liquidators, submitted that, if an admission or concession of a fact did not constitute proof of that fact, an unreasonable burden would be put on liquidators. He instanced the terms of s 588E(4) which provide that if it is proved that company has failed to keep financial records, the company is presumed to have been insolvent throughout the relevant period. The argument is not persuasive. Should a liquidator seek to rely on a failure to keep financial records, the issue will either be contested or it will not. If contested, the facts will have to be proved in the usual way. If the company does not dispute the fact that it failed to keep financial records, there will be little difficulty for the liquidator in proving the relevant facts.
The letter of 1 December 2005 and the reasons of Judge Lovell demonstrate there was no proof of insolvency in the action against HP Launder. Judge Lovell was satisfied that HSL and HSW were insolvent at the relevant times notwithstanding that the liquidators had not proved that fact. In those circumstances, the conditions required for the operation of s 588E(8)(a) did not occur. There is, therefore, no presumption as to the insolvency of either HSL or HSW upon which the liquidators are able to rely. The answer to question one is, no.
Question 2
One of the manifest purposes of Parliament in enacting the presumptions in s 588E is to assist liquidators in the conduct and administration of liquidation. In particular, s 588E is designed to facilitate proof of facts and so avoid the time and cost expended in establishing in later actions what has already been established by facts proved at a hearing before a court which has pronounced judgment: Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64 at [39]. However, the benefits conferred by s 588E are not confined to liquidators. There is no reason why a defendant should not be able to rely on the presumptions. In addition, s 588E(8) also creates presumptions where a defence has been established.
Some statutory rights are capable of being extinguished by the person for whose benefit they have been conferred: Sandringham Corporation v Rayment (1928) 40 CLR 510; Commonwealth v Verwayen (1990) 170 CLR 394 at 404 per Mason CJ and at 496 per McHugh J. However, some rights may be conferred for reasons of public policy so as to preclude contracting out or abandonment by the individual concerned: Liebermen v Morris (1944) 69 CLR 69. Hedigan J in Australian Horisons (Vic) Pty Ltd v Ryan Land Co Pty Ltd [1994] 2 VR 463 at 498 recognised that the question whether an Act is based upon a general principle of public policy is not easy to determine. His Honour said:
Many general statutes give effect to some public policy in the sense that they deal with matters of public interest or may confer benefits or advantages upon individuals in pursuance of the general policy of the statute.
When determining whether it is reasonable to waive a statutory provision, consideration must be given to the scope and policy of the particular statute and little assistance will be derived from other statutes: Admiralty Commissioners v Valverda (Owners) [1938] AC 173 at 185 per Lord Wright. The principle was expressed by Windeyer J in Brooks v Burns Philp Trustee Co Ltd (1968) 121 CLR 432 at 456 in these terms:
When a statute creates and confers rights and imposes corresponding duties, persons for whose benefit this was done may by contract waive or renounce their rights, unless to do so would be contrary to the statute. It may be seen that it would be so, because of an express prohibition against “contracting out”, or because the provisions of the statute, read as a whole, are inconsistent with a power to forgo its benefits: or the policy and purpose of the statute may shew that the rights which it confers on individuals are given not for their benefit alone, but also in the public interest, and are therefore not capable of being renounced.
His Honour repeated this formulation of the principle in Felton v Mulligan (1971) 124 CLR 367 at 386.
Difficulties associated with the use of the term “waiver” were noted in Commonwealth v Verwayen by Mason CJ at 406 to 407, by Brennan J at 424 to 428, by Dawson J at 451 and by Toohey J at 466 to 472. However, it is a convenient term to describe the situation where one party informs another that he is not relying on a right available to him. It is commonplace to speak of a person “waiving” a right, for instance, by submitting to the jurisdiction of a court which otherwise has no jurisdiction over him, by not insisting upon arbitration where an agreement so provides, by not taking advantage of some irregularity in proceedings or by not pressing a particular argument that is available at trial: Commonwealth v Verwayen at 472 per Toohey J and the cases there cited.
Statutory provisions which deal with procedural or evidential matters rather than substantive issues of law may be the subject of waiver or permit a party to contract out: Admiralty Commissioners v Valverda (Owners) at 185. Another relevant fact is whether the statutory provisions are intended solely for the benefit of one party: Park Gate Iron Co v Coates (1870) LR 5 CP 634; Commonwealth v Verwayen at 425 per Brennan J.
Although the Corporations Act contains a number of provisions which prevent contracting out of a particular provision, it does not prohibit a party from either waiving or contracting out of s 588E. Although the presumptions in s 588E are of benefit to both liquidators and to other parties, there is no public policy ground nor any other reason why it is not possible for a liquidator or any other party to waive the presumption. Waiver of a presumption will not cause prejudice to the other party. For example, should a liquidator chose not to rely on a presumption, say a determination of insolvency after proof, it is open to a defendant to admit that fact. Section 588E also contains presumptions if certain defences are proved. It is open to a defendant to waive the presumption and that waiver would not cause prejudice to a liquidator. To the extent that there is a public benefit in that the presumptions will prevent issues from being repeatedly litigated in courts, the reality is that, once an issue has been determined by a court, it is highly unlikely that the liquidator or a defendant who has the benefit of the presumption will waive it. One of the difficulties in dealing with this question is that, in all likelihood, it will arise on relatively rare occasions. For these reasons, public policy does not preclude waiver. Section 588E is an evidentiary provision which, in my view, is capable of being waived by the party who has the benefit of that presumption.
The conclusion that a liquidator need not rely on the presumption may be reached by another route. In each action in which a liquidator in reliance on s 588FF seeks to recover a payment said to be a voidable transaction, the liquidator will plead in a statement of claim the facts on which the claim is grounded. The pleading will include an allegation of insolvency. The statement of claim will either plead the particulars of that allegation or, if available, plead the presumption in s 588E(8). If the statement of claim has been drawn before the liquidator has proved insolvency in another action, the liquidator will not be able to plead the presumption in s 588E. Should that issue be proved in a recovery proceeding, the liquidator will be at liberty to apply to amend the statement of claim to plead the presumption. In either instance, the liquidator has a choice whether or not he will rely on the presumption. If the presumption is available the liquidator is not compelled to rely on it. In other words, the determination of the question whether a transaction is voidable because of s 588FE will be determined on the issues raised in the pleadings. If the liquidator believes that the preferred course is to prove insolvency and not rely on what has been proved in an earlier action, there is no bar to the liquidator adopting that course.
That conclusion might be tested in this way. Assume that, notwithstanding the fact that insolvency had been proved in an earlier action, a liquidator does not rely on the presumption, proves insolvency, and judgment is given setting aside the transaction as voidable. It would be absurd to conclude that the judgment was capable of being held to be invalid by reason of the fact that the liquidator had chosen not to rely on the presumption. In other words, the use of the word “must” in s 588E(8) has the consequence that, if the liquidator elects to rely on a presumption where it is available, effect must be given to that election. However, if the liquidator elects not to rely on an available presumption, the proceedings are not invalidated: cf Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [93]. I do not think that this conclusion is affected by the fact that the presumptions to which s 588E(8) refers are available also for the benefit of defendants. If the liquidator elects to prove insolvency, it is open to the defendant who wishes to do so to admit that fact. So far as s 588E(8) creates a presumption in respect of defences which have been proved, there is no reason why a defendant cannot elect to rely on the presumption.
The liquidators are at liberty either to waive the benefit of s 588E(8) or to plead a claim grounded on s 588FF in such a way that they will seek to establish insolvency by proof of facts and not rely on the presumption in s 588E(8). For these reasons I would answer question two, yes.
Question Three
It was contended by Mr Ross-Smith, for the liquidators, and Mr Hoffmann QC, for the defendants he represented, that the answer to this question should be, yes. The court has the power to prevent abuse of its process. Subject to that fact, it is very doubtful whether the court has any power to make orders inconsistent with the provisions of s 588E. Given the answers to questions one and two, it is not necessary to answer the question. The issue is hypothetical and it would be more suitable to answer it in circumstances where there is a real issue to be determined. I therefore conclude that it is not necessary to answer question three.
Application to Set Down
I turn to the liquidators’ application to set down for hearing the trial of the action against R-Jay. The determination of the application requires a consideration of some of the history of the proceedings in which the liquidators have sought to recover preferential payments made by HSL and HSW pursuant to s 588FF.
The first batch of actions was served in 2005. I began managing them in February 2006. The question of the insolvency of HSL and HSW was an issue in most, if not all, of the actions. Given the presumptions in s 588E and the notoriously high cost of obtaining an expert’s report upon the question of insolvency, the liquidators and the defendants to the first batch of actions agreed that it would be desirable that one action should serve as a test case. Orders were made to give effect to that intent. A test case was listed for hearing on 31 July 2006. It did not proceed because the liquidators and the defendant reached a compromise of the action. An unsuccessful attempt was made to substitute another action as a test case. Most of the actions in the first batch have settled. The action against R-Jay and one other action are the only two actions in the first batch of actions which have not yet been resolved.
In the meantime, in March 2006, the liquidators had served the second batch of actions. Most of those actions had been issued in September 2005. There has been no satisfactory explanation for the delay in serving those proceedings. The total amount claimed in those actions very substantially exceeds the total amount claimed in the first batch of actions. In addition, some of the claims against the individual defendants in the second batch are for very substantial sums, in some cases, measured in two or three millions of dollars.
On 14 April 2004 the liquidators had obtained an order at an ex parte hearing extending the time within which they could bring the proceedings pursuant to s 588FF. Many of the defendants in the second batch of actions had not been given notice of the application. A number of those defendants applied to set aside the order made on 14 April 2004. The parties agreed that there were questions common to all applications and that those questions should be determined in one action. All parties agreed to be bound by that determination. On 8 September 2006 I answered the questions. One of those questions was whether a defendant creditor whose interests are affected by the order made on 14 April 2004 extending the limitation period prescribed by s 588FF(3) is entitled to apply as a right to set aside the order. The answer to that question was in the affirmative. Some of the defendants appealed against the orders made in consequence of my decision on 8 September 2006. On 16 March 2007 the Full Court dismissed the appeal.
I refer to these facts to explain why the prosecution of the second batch of actions has not proceeded very far. In particular, none of the defendants have yet obtained a report in answer to the liquidators’ Insolvency Report.
R-Jay has put in issue the question whether HSL and HSW were insolvent at the relevant time. R-Jay along with other defendants in the first batch of actions was seeking the determination of the question of insolvency in a test case. An order of 6 March 2006 directed that it was to be bound by the outcome of the test case. As the test case did not proceed, R-Jay does not have the benefit of a finding on the question of insolvency.
R-Jay intends to join the other defendants in the second batch of actions in sharing the cost of an expert’s report on the question of insolvency. R-Jay opposes the liquidators’ application to set the action down for hearing because it seeks to obtain that report. The action is not yet ready for trial. It cannot be set down for hearing until R-Jay has obtained its expert’s report. The question is not whether the action should be set down for the hearing but whether R-Jay should be given time within which to obtain the expert’s report, failing which the action will be listed for hearing.
An expert’s report on insolvency is notoriously very expensive. In this respect I agree with Austin J in Dean-Willcocks v Commissioner of Taxation at [26] and Lander J in Cooper v Commissioner of Taxation at [30]. There is a real question whether the amount at stake in the R-Jay action is sufficiently high to warrant R-Jay incurring that expense. It is not unreasonable that R-Jay has decided that it should seek to avoid having to incur that cost alone, particularly given the amount at issue in the action. It is reasonable for R-Jay to be given an opportunity of sharing with the other defendants in the second batch of actions the cost of obtaining an expert’s report. The fact that the claims against several of the second batch of defendants exceeded $1,000,000.00 indicates that there is every likelihood that an expert’s report will be obtained by one or more of those defendants. There is no reason why R-Jay should be prejudiced by the fact that there was no test case and that all but one of the other actions in the first batch have been compromised.
Those considerations must be weighed against the fact that the liquidators are entitled to have the action listed for trial as soon as is reasonably possible while at the same time ensuring that each party has a proper opportunity of preparing its case.
The R-Jay action is but one action of many instituted by the liquidators. The amount in issue in that action is but a small proportion of the claims made and of the amounts already recovered by the liquidators. There will be no real prejudice to the liquidators if the hearing of the R-Jay action is postponed until the defendants in the second batch of actions obtain an expert’s report on the question of insolvency. In voicing that conclusion, I do not overlook the fact that the prosecution of the second batch of actions is being delayed by the determination of the applications to set aside the order made on 14 April 2004 extending the limitation period for bringing actions pursuant to s 588FF. Any prejudice which the liquidators might assert on that ground must be weighed against the delay in serving the second batch of actions. Had they been served earlier, the prosecution of these actions would have been advanced by some six months.
After weighing all of these factors, I am satisfied that it is reasonable to delay the hearing of the R-Jay action until it and defendants in the second batch of actions obtain an expert’s report on the question of the insolvency of HSL and HSW. For these reasons, I dismiss the liquidators’ application to set the action down for hearing.
Orders
For these reasons, the questions will be answered
1 No.
2 Yes.
3 Not necessary to answer.
There will be an order dismissing the liquidators’ application to set down for hearing action 361 of 2004.
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