Harris Scarfe Ltd (in Liq) & Harris Scarfe Wholesale Pty Ltd (in Liq) (No 3)
[2008] SASC 74
•14 March 2008
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
Re: HARRIS SCARFE LTD (IN LIQ) & HARRIS SCARFE WHOLESALE PTY LTD (IN LIQ) (No 3)
[2008] SASC 74
Judgment of The Honourable Justice Debelle
14 March 2008
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS
Voidable transactions – application by liquidators to extend limitation period in s 588FF(3) of Corporations Act – application not served and order extending time made ex parte against “unidentified creditors” – order set aside against those “unidentified creditors” who applied to have it set aside – whether liquidators entitled to re-hearing of the application as against those “unidentified creditors” – whether “unidentified creditors” need to be joined.
Corporations Act 2001 (Cth) s 588FF(1), s 588FF(3), referred to.
Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; BP Australia Ltd v Brown (2003) 58 NSWLR 322, applied.
Greig v Stramit Corporation Ltd [2004] 2 Qd R 17, not followed.
Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (2004) 52 ACSR 103; Brown v DML Resources Pty Ltd (in liq) (No 3) (2001) 164 FLR 337; Davies v Elsby Bros Ltd [1960] 3 All ER 672; Gazal Apparel Pty Ltd v Davies [2007] SASC 91; 247 LSJS 391; Ketteman v Hansel Properties Ltd [1987] AC 189; Liff v Peasley [1980] 1 WLR 781; McGrath v National Indemnity Co (2004) 182 FLR 309; re Harris Scarfe Ltd (in liq) and Harris Scarfe Wholesale Pty Ltd (in liq) [2006] SASC 277; 203 FLR 46; Re HIH Insurance Ltd (in liq) (2004) 48 ACSR 723; Stout v R A Wenham Builders Pty Ltd [1980] 1 NSWLR 426; Tolcher v Capital Finance Australia Ltd (2005) 52 ACSR 328; Wallman v Milestone Enterprises Pty Ltd (2006) 24 ACLC 1541, considered.
RE: HARRIS SCARFE LTD (IN LIQ) & HARRIS SCARFE WHOLESALE PTY LTD (IN LIQ) (No 3)
[2008] SASC 74Civil
DEBELLE J: The events leading to this application have already been recounted at some length in my reasons for judgment on an earlier application in these proceedings: re Harris Scarfe Ltd (in liq) and Harris Scarfe Wholesale Pty Ltd (in liq) [2006] SASC 277; 203 FLR 46. It is, therefore, sufficient for present purposes briefly to note the essential events.
On 3 April 2001 Michael Joseph Dwyer and Lindsay Philip Maxsted were appointed administrators of Harris Scarfe Ltd (Receivers & Managers Appointed) (“HSL”) and Harris Scarfe Wholesale Pty Ltd (Receivers & Managers Appointed) (“HSW”) as well as of other companies in the Harris Scarfe group.
On 3 January 2002 a resolution for the voluntary winding up of HSL and of HSW (as well as other companies in the Harris Scarfe group) was carried at a meeting of creditors. The creditors also resolved to appoint Messrs Dwyer and Maxsted joint and several liquidators of HSL and HSW. For convenience, I will call Messrs Dwyer and Maxsted “the original liquidators”.
As the original liquidators had been appointed joint and several administrators of the two companies on 3 April 2001, the relation-back day for the purposes of s 588FF of the Corporations Act is 3 April 2001: s 9 of the Corporations Act.
On 2 April 2004 the original liquidators commenced a number of actions in this court and in the District Court of South Australia on behalf of both HSL and HSW. In those actions they sought orders pursuant to s 588FF of the Corporations Act in respect of transactions which they alleged were voidable.
On 31 March 2004 the original liquidators issued proceedings in this court applying for an order extending the limitation period prescribed by s 588FF(3) by a period of 18 months within which to institute applications pursuant to s 588FF(1) against other creditors of the two companies. Those proceedings are the action number 351 of 2004.
The application was made against two sets of creditors. The first set comprised thirteen companies listed in Schedule 1 to the application. Those creditors were called “the ascertained creditors”. The second set comprised creditors who could not be identified at the date of the application but who were called in the application and in the affidavit supporting the application “the unidentified creditors”. They were called “unidentified creditors” because the original liquidators had not completed their investigations and so were not in a position to determine the creditors against whom claims would be made. The application was made in the following terms:
1.An extension of time of eighteen months from the date of the order, for the Liquidators to bring applications pursuant to s 588FF(1) of the Act against:
1.1 Those creditors identified at the date of filing this application and listed in Schedule 1 to this application (“the ascertained creditors”); and
1.2 Those creditors not identified at the date of filing this application but generally described in the supporting affidavit(s) (“the unidentified creditors”).
2.That the costs of this application be paid out of the assets of the companies in equal proportions.
The proceedings were not served on the creditors described as “the unidentified creditors”. On 14 April 2004, Master Kelly made an order on the application made by the original liquidators. For present purposes, it is necessary to note only the order in respect of the unidentified creditors. The effect of the order as against them was to extend the time within which applications could be made pursuant to s 588FF(1) to 2 October 2005.
On 11 November 2004 Mr Maxsted resigned as liquidator of both HSL and HSW. Mr Dwyer continued as liquidator of both companies.
On 4 January 2005 Mr Dwyer applied to be removed as liquidator of both HSL and HSW and for an order that Colin McIntosh Nicol and Samuel Charles Davies be appointed joint and several liquidators of both companies in his stead. On 21 January 2005 Master Withers made an order removing Mr Dwyer as liquidator of both HSL and HSW and appointing Messrs Nicol and Davies joint and several liquidators of both companies. For convenience, I will call Messrs Nicol and Davies “the current liquidators”.
Relying on the order of 14 April 2004 in respect of unidentified creditors, the current liquidators instituted actions against a number of creditors pursuant to s 588FF(1) seeking orders for specified payments for voidable transactions and seeking the recovery of an amount equal to the payment. Almost all of the actions against these 19 creditors were not issued until 30 September 2005, a day or two before the extended time limit was to expire. In each action the current liquidators have filed a statement of claim. Some of the creditors who had been served then instituted proceedings which, among other things, sought to set aside the order made by Master Kelly on 14 April 2004 as against them. There were a number of those applications. The parties agreed that certain questions common to all of the applications should be heard and determined together. For present purposes it is necessary to note only two of those questions.
One question was whether the current liquidators are entitled to rely on the order of Master Kelly made on 14 April 2004 extending the limitation period under s 588FF(3) of the Corporations Act. I answered that question in the affirmative: re Harris Scarfe Ltd (in liq) and Harris Scarfe Wholesale Pty Ltd (in liq) (supra). There was an appeal against that answer. The appeal was dismissed by the Full Court on 16 March 2007: Gazal Apparel Pty Ltd v Davies [2007] SASC 91; 247 LSJS 391.
A second question was whether these creditors were entitled to apply as of right to set aside the order made by Master Kelly on 14 April 2004. I held that, because the application of 31 March 2004 had not been served upon them and because that application had been heard and determined in their absence, they were entitled to an order setting aside the order made on 14 April 2004. I further ordered that the application for an extension of time should be heard inter partes. Shortly stated, my reasons were that the order made on 14 April 2004 against the unidentified creditors had been made in breach of the rules of procedural fairness. In consequence of that ruling orders were made setting aside the order made on 14 April 2004 as against those creditors who had applied to have it set aside. The order stands against other unidentified creditors.
On 6 December 2007 the current liquidators issued an application to join 19 creditors as parties to these proceedings. The intention is that these 19 creditors be joined as defendants and, once joined, the question whether an order pursuant to s 588FF(3)(b) should be made as against each of those 19 creditors will then be heard and determined. The current liquidators contend that the question whether the court has power to join these creditors should first be determined and the question whether the liquidators were entitled to an extension of the three year period prescribed by s 588FF(3) should be the subject of a later determination.
The 19 creditors are:
Adidas Australia Pty Ltd Fast Lane Australia Pty Ltd Ansell Ltd Gordon Smith Marketing Pty Ltd Ativ Pac Pty Ltd Rapee Pty Ltd Australian Weaving Mills Pty Ltd Samsung Electronics Australia Pty Ltd Bohemia Crystal Pty Ltd Sheridan Australia Pty Ltd Bonds Industries Pty Ltd Sleepcraft Distributors Pty Ltd Charles Parsons & Co Pty Ltd Sony Australia Ltd Charles Parsons (Vic) Pty ltd Sony Computer Entertainment Australia Pty Ltd Clark Shoes Pty Ltd Union Knitting Mills Pty Ltd Dexboy International Pty Ltd
All but Sleepcraft Distributors Pty Ltd oppose the application. Sleepcraft Distributors Pty Ltd neither consents to nor opposes the application. The 18 opposing creditors contend that, as the three year period prescribed by s 588FF(3) expired on 3 April 2004, it is not possible now to join any of these 19 creditors as parties to these proceedings.
Obviously, the question whether it is appropriate to order an extension of time as against each of these creditors will depend on the facts and circumstances pertaining to each. However, one question which is common to each application is whether the court has power to make an order joining these 19 creditors. I therefore ordered that the question whether the current liquidators are able to obtain an order for joinder be heard as a preliminary question leaving to another occasion the question whether an order granting an extension should be made as against each creditor.
The Court has Power to Join
For the reasons which follow, I have decided that, notwithstanding that the time limit prescribed in s 588FF(3) has expired, the current liquidators are at liberty to have the application made on 28 March 2004 for an extension of time pursuant to s 588FF(3)(b) set down for hearing against each of these 19 creditors. The question whether an order should be made extending the time as against any one creditor will depend on all the relevant facts and circumstances including the facts and circumstances pertaining to each creditor and any prejudice to that creditor occasioned by the delay in making the application. There are, I think, two routes by which it is possible to reach that conclusion. Before examining them, I comment briefly on the validity of the order.
The Validity of the Order
In my view, serious questions exist whether the order made on 14 April 2004 is valid. As a general rule, orders are made against identified and named persons. This order was made in respect of creditors who were not named or identified. It was capable of applying to any creditor of HSL or HSW other than those against whom proceedings under s 588FF had already been issued and the creditors who were listed in Schedule 1 of the application and were described in the order as “the ascertained creditors”. It is doubtful whether Parliament intended that s 588FF(3)(b) should authorise an order against unidentified creditors. Orders of that kind have a real capacity to defeat the intention expressed in the Harmer report that there should be commercial certainty in the sense that creditors know where they stand after the period of three years prescribed by s 588FF has elapsed: see Brown v DML Resources Pty Ltd (in liq) (No 3) (2001) 164 FLR 337 quoted in BP Australia Ltd v Brown (2003) 58 NSWLR 322 at [54] to [58]. That question aside, there are real questions whether an order can be made against a class of unidentified persons in circumstances such as these. An order extending the time limit has the capacity to cause prejudice to certain creditors. Individual issues affecting each creditor may exist. As the events of these proceedings demonstrate, the order will not bind those creditors who obtain orders setting it aside on the ground of a want of procedural fairness. The decisions in BP Australia Ltd and in Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17 are further examples of the difficulties. However, the validity of a general order granting an extension of time has been upheld by two Full Courts in BP Australia Ltd and in Greig, albeit in the latter decision the validity of shelf or blanket orders was questioned.
In this case the order extended the period within which an application pursuant to s 588FF(1) might be made as against unidentified creditors to 2 October 2005. In Brown v DML Resources Pty Ltd (in liq), Austin J made an order to the effect that the period prescribed by s 588FF(3)(b) of the Corporations Law within which any application in respect of any voidable transaction of DML Resources Pty Ltd (in liq) under s 588FF be extended to a specified date. An order in like terms had been made on 7 September 2000 by Mullins J in Greig: see that decision at [13]. Orders of that kind are not materially different from the order made in this case.
Uniformity of decisions in the interpretation of the Corporations Law and the Corporations Act is desirable and a single judge should not depart from the interpretation placed on that legislation by an intermediate appellate court unless convinced that that interpretation is plainly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492. While I have real concerns to the validity of the order in this case, I am not prepared to say that the decisions in BP Australia Ltd and in Greig are plainly wrong. Furthermore, the reasoning in those decisions has been applied on a number of occasions since: see, for example, Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (2004) 52 ACSR 103; Tolcher v Capital Finance Australia Ltd (2005) 52 ACSR 328; McGrath v National Indemnity Co (2004) 182 FLR 309; Re HIH Insurance Ltd (in liq) (2004) 48 ACSR 723; Wallman v Milestone Enterprises Pty Ltd (2006) 24 ACLC 1541. It is not for me to play the role of judicial iconoclast. I apply the reasoning in BP Australia Ltd and Greig holding that a court has power under s 588FF(3)(b) generally to extend the time limit against all creditors. Furthermore, none of the creditors sought to be joined has sought to invalidate the order on this ground. Mr Hoffmann QC, who appeared for 16 creditors, referred to the remarks of Spigelman CJ in BP Australia Ltd at [135] and of Williams JA in Grieg at [50]. He submitted that blanket orders of this kind should only be made in exceptional circumstances. He submitted that the circumstances of this case were not sufficiently exceptional to justify the order. In my view, that is a matter to be considered later on the hearing of the application against each creditor. It is inappropriate to determine it at this stage.
Is Joinder Necessary?
A consequence of the fact that the order against the unidentified creditors was made ex parte and without notice to any of the unidentified creditors is that the order is valid as against all unidentified creditors except those who have applied to have it set aside as against them on the ground of a lack of procedural fairness. Expressed another way, the order of 14 April 2004 binds all unidentified creditors except those who have applied to have it set aside as against them. The order has been set aside against 19 creditors that the liquidator now seeks to join.
When an order is set aside for a breach of the rules of procedural fairness, the decision-maker is required to consider the matter afresh. If necessary, the hearing may be held by a court constituted differently from the court which made the initial order.
Notwithstanding that none of the 19 creditors is a named party to the application made on 28 March 2004 for an extension of time, the current liquidators are, nevertheless, at liberty to have that application for an extension of time reconsidered against each of those creditors. The fact that the extension order was set aside as against certain creditors has no consequence other than that the application made on 28 March 2004 must be considered afresh as against each of those creditors and on the facts that pertain to the liquidators and to each creditor. The application made on 28 March 2004 was a valid application. The current liquidators are not making a fresh application but are seeking a re-hearing of the application made on 28 March 2004. It is being re-heard for the reason only that the order as against those 19 creditors has been set aside. The fact that the 19 creditors did not get notice of the application until well after the limitation period in s 588FF(3) had expired does not of itself assist the 19 creditors as s 588FF(3)(b) requires only that the application has been instituted before the expiry of that time limit. The liquidators had intended that these 19 creditors would be bound by the order made on 14 April 2004. They are not bound because they had no notice of the application and they were not given an opportunity to be heard. The re-hearing will determine whether the liquidators are to be granted an extension of time against each of those 19 creditors. It is as if these 19 creditors had been named in the summons and the application against each is now being heard for the first time. In other words, the application remains on foot and has to be reconsidered in the light of the evidence then adduced. At the hearing of the application each party will be at liberty to adduce evidence and make submissions. The liquidators will be at liberty to show why they should be permitted to institute proceedings after the expiry of the three year period and each creditor will be at liberty to contend why the order should not be made, adducing such evidence of prejudice and other facts on which each creditor relies. That is the procedure I had in mind when I said in my reasons on 8 September 2006:
50The next question is whether the order should be set aside as of right. As none of the creditors listed in the HS Payment Schedule was served with the application to extend the limitation period and as none of those creditors was heard on the hearing of the application, the order was made in breach of the rules of procedural fairness. The orders affect the rights of each creditor in the sense that it denies the creditor the opportunity to plead that the proceedings are barred by the operation of s 588FF(3). A creditor against whom application pursuant to s 588FF(1) has been instituted within the extended limitation period is, therefore, entitled as of right to have the order of 14 April 2004 set aside so far as it applies to that creditor. The application will then be heard afresh and the current liquidators will have the burden of establishing that an order should be made extending the limitation period in respect of the creditors then before the court. In other words, the parties will be restored to their respective positions as at the date of the application so that the issues arising on the application to extend the limitation period are considered afresh.
That reasoning is, I believe, consistent with that of Chesterman J and Fryberg J in Greig set out at [147] to [149], reasoning favoured by Spigelman CJ in BP Australia Ltd at [207].
For these reasons, I do not think that it is necessary for the current liquidators to obtain an order joining these 19 creditors. The current liquidators are able to have the application dated 28 March 2004 listed for hearing as against each of the 19 creditors. As the issues will differ in respect of each creditor, it will be necessary for the application as against each creditor to be separately heard and determined.
Joinder Also Possible
In this case, the period prescribed by s 588FF(3) expired on 3 April 2004. The liquidators are not able, therefore, to institute a fresh application for an extension of time against any of these 19 creditors. The next question is whether the application to join these 19 creditors is also defeated by s 588FF(3). The power of the court to add a party is subject to the same limitations as to time as operate in the case of a fresh proceeding against a party. The court has no power to add a party against whom the relevant limitation period has expired: Davies v Elsby Bros Ltd [1960] 3 All ER 672; Stout v R A Wenham Builders Pty Ltd [1980] 1 NSWLR 426. Expressed another way, an amendment will not be allowed to join an additional defendant where the relevant period of limitation has already expired in respect of the cause of action against that defendant: Ketteman v Hansel Properties Ltd [1987] AC 189 at 199-200. When expressing that view Lord Keith approved the principle expressed in Liff v Peasley [1980] 1 WLR 781 which he expressed in these terms:
[T]he true basis of the rule of practice [is] that no useful purpose would be served by joining an additional defendant at a time when limitation had run in his favour, because he was not to be deemed to have become a party at an earlier date than the actual date of joinder, and therefore would have an unanswerable defence.
For these reasons, a fresh application by the current liquidators to join additional creditors made after 3 April 2004 will be defeated by s 588FF(3). The question is whether this application to join these 19 creditors is a fresh application made after 3 April 2004. I do not think it is.
I respectfully agree with and apply the reasoning of Spigelman CJ in BP Australia Ltd. In that case, the Court of Appeal in New South Wales was considering Pt 8 Rule 11(3) of the Rules of the Supreme Court of New South Wales. That rule provides:
(3)Where in any proceedings a party is added otherwise than pursuant to an order under rule 10 or Part 20 rule 4(3), the date of commencement of the proceedings so far as concerns him shall be –
(a) where he is added as a defendant – the date on which the amendment adding him as a defendant is made or the date of entry of his appearance or the date of filing his defence, whichever is earliest;
(b) otherwise – the date on which the amendment adding him as a party is made.
Spigelman CJ delivered the reasons of the court. In his view, there was nothing in that Rule which prevented joinder in the particular circumstances obtaining in BP Australia Ltd. In that case, Austin J had made a blanket order pursuant to s 588FF(3) extending the time “within which any application in respect of any voidable transaction of DML Resources Pty Ltd (in liquidation)…under s 588FF” may be made to 24 October 2001. Later, Austin J set aside the order as against BP Australia Ltd. The question for determination was whether the liquidator was prevented from joining BP Australia Ltd as a party for the purpose of deciding whether the liquidator was entitled to an extension of time pursuant to s 588FF(3)(b). Austin J held that the application was out of time. The Court of Appeal disagreed. Spigelman CJ said:
149I respectfully come to a different conclusion to that of his Honour with respect to this submission. The operative phrase in Pt 8, r 11(3) is not, as suggested in the immediately preceding extract from his Honour’s reasons, the words “the date of commencement of the proceedings”. The operative phrase is “the date of commencement of the proceedings so far as concerns him”. It may have been reasonable to identify the former attenuated form to which his Honour referred, that is, “the date of commencement of the proceedings” with the particular terminology of s 588FF(3)(b), that is, “the making of an application” for the determination of a “longer period” for the making of an application under s 588FF(1). However, in my opinion, the additional words, that is, “so far as concerns him”, are crucial.
150Nothing suggests that the time limit, that is, the original period of three years for the making of an application to determine a “longer period”, is a limit which applies to a particular person…
151Nothing in s 588FF(3)(b) directs attention expressly to a period of this character. The relevant date is the date on which an application for a “longer period” is made to the court. Such an application must be made within the original period of three years after the relation back day. Nothing under s 588FF(3)(b) turns, directly or indirectly, on the date on which proceedings are commenced against a particular person. Accordingly, Pt 8, r 11(3) does not impinge upon an application made to the court under s 588FF(3)(b).
It is apparent that Spigelman CJ is relying on the fact that s 588FF(3) does not require an order to be made against a specified person. As I understand it, the reasoning proceeds on the footing that, because a court may make a general order under s 588FF(3) against all creditors extending the time limit, an application to join a creditor against whom the general order has been set aside is a re-hearing of the application made within the time prescribed by s 588FF(3).
There is a practical reason for this conclusion. If a liquidator has been granted a general order pursuant to s 588FF(3)(b) extending the time limit as against creditors of the company and that order was made on the day before the limitation period has expired, the order would be entirely futile as against those creditors who later make successful applications to set aside the order on the ground of a want of procedural fairness. The order would be futile because the liquidator would not be able to join those creditors for the purpose of seeking an order as against them extending the time limit in s 588FF(3). This conclusion might serve to illustrate the difficulties and possible invalidity of a blanket order against all creditors but I am bound to apply the reasoning in BP Australia Ltd and in Greig.
Mr Hoffmann QC submitted that I should follow and apply the reasoning of the majority in Greig instead of that of Spigelman CJ in BP Australia Ltd. In Greig the facts were as follows. On 7 September 2000, Mullins J had made an order on an ex parte application extending the time within which the liquidators might institute proceedings pursuant to s 588FF(1). On 16 May 2002, the order was set aside by Chesterman J insofar as it applied to Stramit Corporation Pty Ltd (“Stramit’). Thereafter, on 5 June 2002, the liquidators applied for an order joining Stramit in the proceedings and a consequential order extending the time for bringing proceedings until 30 June 2002. By an order made on 1 October 2002 Mullins J added Stramit as a party and extended the time pursuant to s 588FF(3)(b). The order was made on the original application filed on 31 August 2000. Stramit appealed against that order and sought an order setting aside the order of 1 October 2002. By a majority (Williams and Jerrard JJA, Fryberg J dissenting), the Full Court held that the effect of the order of Chesterman J was that Stramit was not a creditor affected by the order made on 7 September 2000. In consequence, it was necessary for the liquidators to commence a fresh proceeding seeking an extension of time. As the time limit had expired, the application could not be made, nor was it possible to amend the original proceedings to add a defendant out of time.
The reasoning of the majority in Greig depends on the proposition that the effect of an order setting aside an ex parte order against a creditor is that the application has been determined and is no longer extant so that it is necessary for the liquidator to institute a fresh application under s 588FF(3) against that creditor: see Williams JA (with whom Jerrard JA agreed) at [81] and [82]. Such an application will be doomed to failure because it is a fresh application made outside the three year period prescribed by s 588FF(3). The conclusion that the effect of an order setting aside an ex parte order has the consequence that the application has been determined and is no longer extant is, in my view, wrong for the reasons already expressed. For that reason, I prefer the reasoning of Spigelman CJ in BP Australia Ltd.
For these reasons, there are two answers to the liquidator’s application. The first is that the current liquidators are entitled to a re-hearing of the application as against these 19 creditors so that it is not necessary for the liquidator to join them as defendants. The second is that, even if it is necessary to apply to join them, the application has been made within time. It is sufficient if I make an order in the nature of a declaration that the liquidators are at liberty to have the application against these 19 creditors re-heard. If I have erred in reaching that conclusion, the current liquidators would be entitled to an order joining the 19 creditors as defendants
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