Gothard v Davey

Case [2010] FCA 1163

FEDERAL COURT OF AUSTRALIA

Gothard, in the matter of AFG Pty Limited (Receivers and Managers appointed) (in liq) v Davey [2010] FCA 1163

Citation: Gothard, in the matter of AFG Pty Limited (Receivers and Managers appointed) (in liq) v Davey [2010] FCA 1163
Parties: PETER JAMES GOTHARD AND STEVEN JOHN SHERMAN AS RECEIVERS AND MANAGERS OF EACH OF AFG PTY LIMITED (IN LIQ) (ACN 051 982 560), ALLCO FINANCE GROUP LIMITED  (IN LIQ) (ACN 077 721 129), ALLCO FINANCE (AUSTRALIA) LIMITED (IN LIQ) (ACN 003 315 446) v STEVEN DAVEY, MICHELLE SEGAERT, IAN GRAYBURN, CHRISTINE BOWEN, TIMOTHY RICH and EVAN GALLAGHER
File number: NSD 256 of 2009
Judge: EDMONDS J
Date of judgment: 28 October 2010
Catchwords:

PRACTICE & PROCEDURE—respondent representative proceedings—Order 6 r 13 Federal Court Rules (Cth)—whether respondent representative proceedings are appropriate in the circumstances.

CORPORATIONS— whether the respondents and the persons, if any, they represent are employees of AFG Pty Limited (Receivers and managers appointed) (in liquidation) (‘AFGPL’), Allco Finance Group Limited (Receivers and managers appointed) (in liquidation) (‘AFGL’) or Allco Finance (Australia) Limited (Receivers and managers appointed) (in liquidation) (‘AFAL’) for the purposes of s 556(1)(e) of the Corporations Act 2001 (Cth) (‘the Act’) —whether the respondents and the persons, if any, they represent, are priority creditors of AFGPL, AFGL or AFAL pursuant to s 433(3)(c) of the Act.

Held: Representative proceedings are appropriate in the circumstances; the respondents are employees of AFGL, or alternatively AFAL for the purposes of s 556(1)(e); the respondents are priority creditors of AFGL or alternatively AFAL pursuant to s 433(3)(c).

Legislation: Corporations Act 2001 (Cth) ss 433(3)(c), 556(1)(e)
Federal Court Rules (Cth) O 6 r 13
Cases cited:

Ackers v Austcorp International Ltd [2009] FCA 432
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527
Amos Removals & Storage Pty Ltd v Small [1981] 2 NSWLR 525
Attorney-General for New South Wales v The Perpetual Trustee Company (Limited) (1952) 85 CLR 237
Australian Insurance Employees Union v WP Insurance Services Pty Ltd (1982) 42 ALR 598
Bank of America National Trust and Savings Association v Taylor [1992] 1 Lloyd’s Rep 484
Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720
Bright v Femcare Ltd (1999) 166 ALR 743
BT Australasia Pty Ltd v New South Wales [1997] FCA 1553
Carnie v Esanda Finance Corp Ltd (1995) 182 CLR 398
Dalgety Farmers Ltd (t/as Grazcos) v Bruce (1995) 12 NSWCCR 36
Damevski v Giudice (2003) 133 FCR 438
Denman v Midland Employers Mutual Assurance Ltd [1955] 2 All ER 561
Duke of Bedford v Ellis [1901] AC 1
EMI Records Ltd v Kudhail [1985] FSR 36
Finance Sector Union of Australia v Commonwealth Bank of Australia [2001] FCA 1613
Geelong Wool Combing Ltd v Textile, Clothing and Footwear Union of Australia (2003) 130 FCR 447
HJ Lyons & Sando Ltd v Houlson [1963] SASR 29

Continue reading Gothard v Davey

Sign in free to access the full text

Details
AGLC
Gothard v Davey [2010] FCA 1163
Case
[2010] FCA 1163
Decision Date

CaseChat Overview and Summary

Gothard v Davey is a case in which the Federal Court was asked to determine whether the Court should allow a respondent to represent others in proceedings. The applicants in the case were receivers and managers of certain companies, and they sought to appoint one of the respondents as a representative to act on behalf of all the respondents. The legal issue the Court had to decide was whether the Court should exercise its discretion to allow one respondent to represent the others in the proceedings. The Court held that it should do so, finding that the respondents had the same interest in the proceedings, and that allowing one respondent to represent the others would facilitate the administration of justice. The Court also found that the representative proceeding would not prejudice any of the respondents, and that it would be in the interests of justice to allow the representative proceeding. The Court therefore made the orders the applicants sought.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

In Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 330D, the NSW Court of Appeal held actual subjective intention to be a factor the law takes into account in determining whether a contract exists.The Evidence Before dealing with the evidence specific to each respondent and the group of persons, if any, each represents, I propose to deal first with the evidence going to the birth and evolution of AFGPL and to then deal with the respective roles and activities of AFGPL, AFGL and AFAL in the Allco Finance Group, specifically their respective roles and activities in relation to the employment of employees within the group, by reference to business books and records, financial statements and accounting records, as well as records of reports to statutory and regulatory bodies or prepared for the administrators or the applicants as receivers and managers. There does not appear to be any substantive dispute as to the findings of primary fact this evidence supports; merely differences of view on the findings or conclusions of secondary fact that might be drawn therefrom and their significance in resolving the ultimate issues.The Birth and Evolution of AFGPL Mr Timothy Rich, the fifth respondent, gave evidence going to the incorporation of AFGPL in 1991 and to its assumption as a ‘central payroll entity’ for the Allco Finance Group in or around 1994 – 1995. Relevantly, his evidence in chief was:‘[7] … I was the Financial Controller and Company Secretary of the Allco Group. In that role, and given the structure of the Allco Group, each month we were required to prepare at least 8 to 10 sets of management accounts. These accounts were for each of the separate joint ventures and operating entities in the Group. Where necessary, each of these entities was registered with the relevant tax authority as a group tax payer. This required that the monthly forms necessary for the tax authority were completed for each such entity. This was a time consuming exercise which required considerable duplication of work.[8] Further, because the Allco Group was operating by way of partnerships, each time the partners of a partnership changed, or a new joint venture was created, we needed to register the new partnership with the relevant taxation authority (“Tax department”) as a tax payer and/or payroll entity.[9] In or around 1995, the NSW Revenue Office conducted a payroll audit of the Allco group of companies. As a result of the audit and the significant duplication of work for each company, I had discussions with Brian Holmes, whom I understood at the time was the Director – Administration, about these accounting issues and said to him words to the effect of, “it would be much easier if we have a central entity from which we could pay employees,” to which Mr Holmes agreed. It was my view that, by having one central entity as the payroll entity, it would streamline the accounting and record keeping activities, reduce unnecessary duplication of work and save a considerable amount of time.[10] I recall that I wrote a memorandum to Mr Holmes setting out how I thought the Allco Group could be structured with one central payroll entity. I have not retained a copy of this memorandum. I do however recall that the memorandum suggested that the group use a special purpose company to be the single group tax payer for the purposes of the group payroll, and as such this company would be the group tax payer on record and registered with the Tax Department. The memorandum also described how employee costs and expenses would be allocated to the different joint ventures and other operating entities to ensure that the appropriate joint ventures and entities would bear the economic costs associated with employment.[11] It was my view that AFGPL would be a company to fill the role of central payroll entity for the Allco Group. It was never intended by me or anyone else that any other activities related to employment be carried out by AFGPL, but that it would be an administrative entity, for the purposes of registering for group and payroll tax.[12] In or around 1994, I registered AFGPL with the Tax Department, as the Allco Group tax payer. I recall that this involved the completion of a number of forms to the effect that AFGPL was going to be group taxpayer and payroll entity within the Allco Group.[13] In or around 1994, a deed of cross guarantee was put in place for the companies in the Allco group. I do not recall there being formal arrangements put in place within the Allco Group pursuant to which funds would be transferred into and out of AFGPL.[14] In or about 1996, it was decided to create a central treasury for the group. To my knowledge, as Company Secretary and Financial and Management Accountant at that time, Allco Management Limited and AFAL jointly took on this role. Coupled with the cross guarantee, this allowed the cash payments in relation to salaries to be made directly from treasury and current accounted to the relevant joint ventures and operating entities. AFGPL did not charge a service fee or a management fee to any other entity in respect of acting in the central payroll capacity. Employee accruals for annual leave and long service leave continued to be accounted for in the division for which the employee provided services. After this time, I considered AFGPL to be an administrative nicety. …’

Decision

Reasons for decision

At the time of hearing the motion on notice that gave rise to these orders, I indicated that I would give my reasons for making the orders in paras 1 to 3 inclusive at the time of giving judgment on the application and these reasons are set out in [13] to [38] below.Reasons for judgment on the motion Order 6 r 13 of the Federal Court Rules (Cth) (‘the Rules’) relevantly provides:‘(1)Where numerous persons have the same interest in any proceeding the proceeding may be commenced, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them.(2)At any stage of a proceeding pursuant to this rule the Court may appoint any one or more of the respondents or other persons (as representing whom the respondents are sued) to represent all, or all except one or more, of those persons in the proceeding.’Overview This rule facilitates the administration of justice by enabling parties who have the same interest to secure a determination in one action rather than in separate proceedings. As Lehane J observed in Bright v Femcare Ltd (1999) 166 ALR 743 at 752, rules such as r 13 are ‘to be treated as being not a rigid matter of principle but a flexible tool of convenience in the administration of justice’. Before the Court can exercise its discretion to make a representative order under O 6 r 13(2), the requirements of O 6 r 13(1) must be satisfied. There are two requirements:(1)First, there must be numerous persons; and(2)second, those persons must have the ‘same interest’ in the proceedings. Only a limited number of authorities have considered the operation of O 6 r 13 of the Rules. However, the present rule is similar in its terms to r 7.4 of the Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’) (and identical to its predecessor Pt 8, r 13 of the Supreme Court Rules 1970 (NSW)), both rules being originally derived from equivalent provisions in the English Rules of Court, and, ultimately, from the former practices of the Court of Chancery: Carnie v Esanda Finance Corp Ltd (1995) 182 CLR 398 (‘Carnie’) at 415. It is well accepted that, when construing a statute, reference may be made to statutes in different jurisdictions if those statutes are sufficiently analogous. This is particularly true of statutes originating from the same source: DC Pearce and RS Geddes, Statutory Interpretation in Australia (6th ed, LexisNexis Butterworths, 2006) at [3.36].Pre-conditions to the exercise of discretion Order 6 r 13(2), unlike O 6 r 13(1), does not expressly require that, where an applicant seeks to appoint a respondent as representing other persons, the respondent and the other persons must have the ‘same interest in [the] proceedings’. Nor does it expressly require that there be ‘numerous persons’. However, as Sackville J observed in BT Australasia Pty Ltd v New South Wales [1997] FCA 1553 (‘BT Australasia’), ‘so much seems to be implicit in O 6, r 13(2), having regard to the terms of r 13(1)’. This view was also taken by Waller J on the equivalent English rule in Bank of America National Trust and Savings Association v Taylor [1992] 1 Lloyd’s Rep 484 at 494 – 495.

Ratio Decidendi

Legal Principle Established

In any event, the parties conceded that that these requirements were satisfied and that the question for the Court was primarily one of discretion.Discretionary considerations The Court’s discretion whether or not to make a representative order under O 6 r 13 is to be exercised having regard to the objective of facilitating the administration of justice by enabling parties having the same interest to receive a determination in one action, rather than separate actions: BT Australasia. There are a number of factors relevant to the determining whether a representative respondents’ proceeding is appropriate in these circumstances. I will address these factors in turn.(1) The nature of respondent representative proceedings The applicants in their written submissions made much of the distinction between the nature of applicant (or plaintiff) representative actions and respondent (or defendant) representative actions. This Court has recognised the significant distinction between the two: BT Australasia; Stacey Brothers Plumbing Pty Ltd v Waterco Ltd [2009] FCA 438 (‘Stacey Brothers’). In Stacey Brothers, Kenny J observed that ‘some care needs to be taken’ with regard to Carnie because it concerned plaintiff representative actions, not defendant representative actions. At [30], her Honour said:‘Speaking generally, it may be accepted that an important purpose of the representative procedure in O 6 r 13 of the Federal Court’s rules, whether the proceeding is an applicant representative proceeding or a respondent representative proceeding, is to avoid numerous proceedings where one proceeding could determine a common question in which numerous persons have the same interest. There are, however, differences in the purposes of applicant and respondent representative proceedings. In the present case, in contrast to an applicant representative action, the question is whether there can be a single determination of a common issue of law or fact in a way that binds those interested to justify some relief the applicant seeks against them. This must be determined by reference to the issues that the proceeding raises and the relief that is sought.’(Emphasis in original.) And at [34], her Honour said:‘As foreshadowed, I accept that there are significant differences between plaintiff (or applicant) representative actions and defendant (or respondent) representative actions: see also BT (Australasia) Pty Ltd v New South Wales [1997] FCA 1553 per Sackville J. As Sackville J noted, members of a represented group may have much to gain when represented by a plaintiff and everything to lose when represented by a defendant.’ However, their Honours’ observations should not be read out of context. Sackville J’s comments were made in light of the Law Reform Commission’s report entitled Grouped Proceedings in the Federal Court (Report No 46, 1988). The Commission acknowledged that, ‘[a]lthough defendant classes appear to mirror plaintiff classes they differ in several important respects’. These differences were identified at para 6 of the Report as follows:‘· A defendant representative does not voluntarily take on that role but is selected to represent others by the plaintiff·Although a representative plaintiff who brings proceedings on behalf of a group exposes group members to the risk of their claim being defeated, no personal liability ensues. Proceedings against a representative defendant on the other hand exposes defendant group members to the risk of liability being found against them and that they will have to pay damages·The institution of a representative claim prevents the limitation period running against a member of the plaintiff group; where a claim is brought against a representative group the limitation period will cease to run in favour of group members.’