In the matter of 1st Fleet Pty Limited (in liquidation) and other companies

Case •

[2017] NSWSC 506

•

02 May 2017

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: In the matter of 1st Fleet Pty Limited (in liquidation) and other companies [2017] NSWSC 506
Hearing dates: 11 April 2017
Decision date: 02 May 2017
Jurisdiction:Equity - Corporations List
Before: Black J
Decision:

Grant leave to the Plaintiffs to file an Amended Originating Process and Amended Statement of Claim. Grant leave to the Plaintiffs to discontinue proceedings against the Second Defendant with no order as to costs. Decline to make orders sought by the parties for the determination of certain separate questions.

Catchwords:

PROCEDURE – Application for leave to file Amended Originating Process and Amended Statement of Claim – where application made after the expiry of the limitation period for commencing proceedings – whether delay adequately explained – whether Defendants would suffer prejudice

 

PROCEDURE – Applications for determination of separate questions before any trial – where separate questions would depend on the same evidence as would be led at trial – where judge may make credit findings on separate questions and thereby be prevented from hearing the balance of proceedings

  PROCEDURE – Costs – where Plaintiff discontinues proceedings against the Second Defendant – where continuance of proceedings substantially due to the Second Defendant’s failure to provide Plaintiffs with requested information – whether Second Defendant should be awarded its costs
Legislation Cited: - Civil Procedure Act 2005 (NSW), ss 56–59, 64–65
- Corporations Act 2001 (Cth), ss 588FA, 588FE–588FF
- Uniform Civil Procedure Rules 2005 (NSW), Pt 28, rr 12.1, 42.19(3)
Cases Cited: - Allandale Blue Metal Pty Ltd v Roads and Maritime Services [2013] NSWCA 103
- Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
- Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32
- Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423
- Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230
- Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215
- Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464
- Re Cardinal Group Pty Limited (in liq) [2015] NSWSC 1761; (2015) 110 ACSR 175
- Re Clarecastle Pty Ltd (in liq) [2011] NSWSC 857; (2011) 85 ACSR 260
- Re Discovery Books Pty Ltd (1973) 20 FLR 470
- Sydney Recycling Park Pty Ltd v Cardinal Group Pty Ltd (in liq) [2016] NSWCA 329; (2016) 341 ALR 313
- Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130
- Wells v Commonwealth of Australia [2014] NSWSC 148
Category:Procedural and other rulings
Parties: David Solomons and Riad Tayeh in their capacity as liquidators of the Second to Ninth Plaintiffs, 1st Fleet Pty Ltd (in liq) and others (Plaintiffs)
The Trust Company Limited (in its capacity as Bare Trustee of the Cromwell Accumulation Fund) (First Defendant)
Cromwell Property Securities Limited (Second Defendant)
Representation:

Counsel:
A P Spencer (Plaintiffs)
M Condon SC (Defendants)

  Solicitors:
Pateman Legal (Plaintiffs)
Holman Webb (Defendants)
File Number(s): 2015/120836

Judgment

  1. By Originating Process filed on 23 April 2015, now two years ago, the Plaintiffs, Messrs Solomons and Tayeh in their capacity as liquidator of several companies, and those companies, seek orders in respect of transactions between those companies and The Trust Company Limited (in its capacity as bare trustee of the Cromwell Accumulation Fund) (“TCL”) and Cromwell Property Securities Limited (“CPSL”). Counsel have advised, in the course of submissions, that the delay in the conduct of the proceedings over that period reflects several matters, including disputed applications for examinations and orders for production in the Federal Court of Australia, an unsuccessful mediation between the parties and further delays associated with this application. By their Interlocutory Process filed on 1 August 2016, the Plaintiffs seek an order that they be granted leave to file and serve an Amended Originating Process and Amended Statement of Claim in specified forms. The application for leave to file the Amended Originating Process and the Amended Statement of Claim was opposed, at least in part, by TCL. I will address the nature of the proposed amendments below.

Background facts and affidavit evidence

  1. I should set out something of the chronology of events, drawn from a helpful chronology which had been prepared by the Plaintiffs (MFI 2). The 1st Fleet Group conducted a national trucking business. 1st Fleet Pty Ltd (in liq) (“1st Fleet”) entered two leases with TCL in respect of two premises at Smithfield in January 2009, with commencement dates prior to the date of execution of the leases, and a third lease in respect of premises on that site in June 2009, commencing on 1 May 2009. 1st Fleet failed to pay rent in respect of the premises, at least from September 2010 and TCL then served a notice of breach of covenant in October 2010. Further correspondence took place between 1st Fleet and CPSL or its associated entities in respect of arrears of rent in 2012.

  2. A financier that had been providing finance to 1st Fleet announced that it would quit the Australian market in March 2011 and 1st Fleet was advised of the need to refinance, which it was unable to do. Messrs Solomons and Tayeh were appointed as administrators to 1st Fleet and other companies within the 1st Fleet Group in April 2012 and sought to sell the business before ultimately ceasing to trade it in May 2012. 1st Fleet and other companies within the 1st Fleet Group then transitioned to creditors’ voluntary liquidation in May 2012 and the liquidators thereafter engaged in a range of activities associated with the winding up of a large national trucking business. A dispute arose between the liquidators and TCL in respect of rental payments for the period 25 April 2012 until 22 June 2012, which was resolved by a deed of settlement executed in September 2012, which included a release given by the liquidators in favour of TCL. A question as to the scope of that release arises in these proceedings.

  3. The Originating Process in these proceedings was filed on 23 April 2015, within three years of the date of appointment of the voluntary administrators to 1st Fleet and the other companies within the 1st Fleet Group. On 30 April 2015, the liquidators’ solicitors wrote to CPSL seeking information as to the arrangements between TCL and CPSL in respect of the leased premises and payments in issue in the proceedings and received no response. I will return to the significance of that matter below. Subsequent steps were taken, by way of orders for production and liquidators’ examinations in the Federal Court of Australia to seek to elicit further information as to the arrangements between 1st Fleet, TCL and CPSL, although part of that process was substituted by an arrangement for the in-house Counsel for CPSL to swear an affidavit identifying all payments made by 1st Fleet to TCL, which was sworn in November 2015 and subsequently corrected, some 7 months later, by a letter sent 30 June 2016 by TCL’s and CPSL’s solicitors to the liquidators’ solicitors. The application to amend the Originating Process was filed on 1 August 2016, and further delays then occurred before it ultimately reached hearing over 8 months later, in April 2017.

  4. The Plaintiffs relied on several affidavits in support of the amendment application, and to meet an anticipated criticism, which was made by TCL, of delay on the liquidators’ part. As will emerge below, it seems to me that that criticism was of limited relevance to the nature of the amendments actually sought to be made by the Plaintiffs. By his first affidavit dated 23 April 2015, sworn prior to the amendment application, Mr Solomons set out the history of his appointment, initially as one of the two voluntary administrators and subsequently as one of the two liquidators of companies within the 1st Fleet Group. He also referred to the existence of the three leases between 1st Fleet and TCL and to the fact that another entity, CPSL, undertook the day-to-day management of the leases. He also referred to payments totalling $518,784.22 made by 1st Fleet, to TCL or CPSL in accordance with payment plans, part of which he claims related to rental arrears and part of which related to prospective payments of rent from 1 March 2012. The amount there identified was the amount originally claimed in the Originating Process.

  5. By a second affidavit dated 31 July 2015, also sworn prior to the amendment application, Mr Solomons set out the history of issues facing the liquidators in respect of the liquidation of the 1st Fleet Group and referred to a lack of information concerning particular matters and the steps taken by the liquidators to progress those matters.

  6. The Plaintiffs also relied on a third affidavit of Mr Solomons dated 14 July 2016, sworn shortly before the amendment application was made, which referred to the size and complexity of the administration and the liquidation, arising from the nature of the 1st Fleet Group’s business, to matters arising during the administration period, to the leasing arrangements of the 1st Fleet Group in respect of premises situated throughout Australia, and to the work undertaken during the period of the administration, including the conduct of a significant number of claims involving litigation against third parties. Mr Solomons also referred, in that affidavit, to the matters leading to the commencement of these proceedings, resulting from the location of further documentation relating to dealings between the 1st Fleet Group and TCL or CPSL in relation to the lease of premises at Smithfield, New South Wales, in early 2015.

  7. Mr Solomons’ evidence was that those documents were located as a result of investigations made in late 2014 and early 2015 when one of the managers involved in remaining legal issues identified a letter relating to the payment plan that is now in issue in one of the 271 archive boxes of books and records of the 1st Fleet companies. Mr Solomons’ evidence is that, as best he can determine, that documentation was in the liquidator’s possession for some time before April 2015 but had been overlooked, given the number of documents that the liquidators had to address in the course of the liquidation and the number of matters and issues that had to be dealt with up to April 2015. Mr Solomons also referred to issues involving difficulty in determining the correct defendant in the proceedings, to which I will refer below in dealing with the question of costs in respect of the discontinuance of proceedings against CPSL. Mr Solomons also referred to the further steps that had been taken in respect of examinations and orders for production in the Federal Court of Australia, and identified the amendments of the Originating Process and Statement of Claim that were sought to permit the recovery of payments received by either or both of TCL and CPSL, being additional payments of $51,188.07 received on 9 December 2011, $48,636.64 received on 24 April 2012, $39,594.74 received on 24 April 2012 and further payments referred to in paragraph 165 of his affidavit, made on 11 November 2011, 21 November 2011, 2 December 2011, 3 and 9 February 2012, and 5, 7, 14 and 21 March 2012, totalling $405,548.25.

  8. Mr Solomons was cross-examined, vigorously and at considerable length, by Mr Condon who appeared for TCL and CPSL in the application. That cross-examination sought to establish that a diligent liquidator would have identified the payments to TCL or CPSL, now sought to be included in the Amended Originating Process and Amended Statement of Claim at an earlier point, including by review of bank statements of companies within the 1st Fleet Group. It seems to me that that cross-examination was of limited assistance in determining this application. Its most fundamental deficiency was that it depended on hindsight and a single-minded focus on the position of TCL and CPSL, without any real regard to the fact that the administrators and then the liquidators of the companies within the 1st Fleet Group were never dealing only with the position in respect of TCL and CPSL, but with multiple issues in an ongoing administration and liquidation. That cross-examination also proceeded on the implicit premise that a party which failed, by error, to include claims at the point of commencement of proceedings ought to be shut out from the opportunity to include those claims by amendment at a later stage. It should be recognised, of course, that no amendment power would be required if parties were always both perfectly informed at the point that proceedings were commenced and infallible.

  9. The Plaintiffs relied on an affidavit of their solicitor, Mr Pateman, dated 14 July 2016, which referred to steps which had been taken to seek the production of documents and orders for examination in the Federal Court of Australia and to delays in that process, inter alia, as a result of an application to set aside or vary the orders for production and an application by one party summonsed for examination to set aside the examination summons. The Plaintiffs also relied on a further affidavit of Mr Pateman dated 1 August 2016 which referred to the production of documents to the liquidators in late 2015, following the orders for production, and to issues in respect of the timetable ordered by the Court.

The Plaintiffs’ application for leave to file an Amended Originating Process and Amended Statement of Claim

  1. The Plaintiffs seek leave to amend the Originating Process and the Statement of Claim under ss 64 and 65 of the Civil Procedure Act 2005 (NSW). They point out that the proceedings were commenced within the three year period from the relation-back day, being three years from 25 April 2012 when voluntary administrators were appointed. Both parties accept that the decision of the Court of Appeal in Sydney Recycling Park Pty Ltd v Cardinal Group Pty Ltd (in liq) [2016] NSWCA 329; (2016) 341 ALR 313 (“Cardinal Group”) establishes that an application under s F88FF(1) may be amended to include further claims after the three year period specified in s 588FF(3) of the Corporations Act 2001 (Cth), if those amendments are authorised by ss 64 and 65 of the Civil Procedure Act.

  2. Section 64 of the Civil Procedure Act in turn provides that, at any stage of the proceedings, the Court may order that leave be granted to a party to amend any document in the proceedings. Mr Condon refers to the High Court's decision in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 (“Aon”), where the High Court, in the context of an amendment application, recognised the significance of delay for the opposing party and the fact that a costs order should not be treated as an automatic solution to problems created by failures to conform to the objectives of case management. The joint judgment also there observed, in relation to rules of court that are similar to s 56 of the Civil Procedure Act that:

“Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and costs are taken into account. The Rule’s reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs.”

The joint judgment also referred (at [102]–[103]) to the relevance of any explanation for that delay offered by a party that seeks the exercise of discretion in its favour and to the disadvantage of the other party in respect of an amendment.

  1. The principles identified by the Court in Aon above are to be applied having regard to the statutory context established by the Civil Procedure Act and particularly the emphasis on the dictates of justice and the need for the just, quick and cheap resolution of the real issues in dispute in the proceedings: Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230 at [36]. Section 58 of the Civil Procedure Act requires the court to have regard to the dictates of justice when concerning an order for the amendment of a document and requires the court also to have regard to the provisions of ss 56 and 57. Section 56 of the Civil Procedure Act identifies the overriding purpose of the Act as the just, quick and cheap resolution of the real issues in dispute in the proceedings and s 57 of the Civil Procedure Act requires proceedings to be managed having regard, inter alia, to the just determination of the proceedings. Section 64(2) of the Civil Procedure Act in turn provides that, subject to s 58, all necessary amendments should be made for the purpose of determining the real questions raised by the proceedings. I should also have regard to whether the application to amend has been brought in good faith, in a timely manner and for a proper purpose; whether the proposed amendment would cause undue prejudice to TCL; and the nature of the amendment and its importance to the Plaintiffs: Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423 at [5]–[10]; Re Cardinal Group Pty Limited (in liq) [2015] NSWSC 1761; (2015) 110 ACSR 175 at [31].

  2. TCL did not oppose amendments to paragraphs 11, 43, 45, 49–51 and 52 of the Statement of Claim and also did not oppose an amendment to delete the claim against CPSL and any associated claim against TCL in paragraphs 94–117 of the Statement of Claim, subject to the question of costs which I will address below. TCL opposed the amendments sought by the Plaintiffs to the Originating Process and Statement of Claim that would increase the amount claimed against it by identifying further transactions said to constitute unfair preferences and also opposed amendments to paragraphs 9(a), 11(a), 13(a) and 14 of the prayers for relief stated in the Statement of Claim. It was common ground that the Plaintiffs should be ordered to pay any costs of TCL thrown away by the amendments, and I proceed on that basis.

  3. It is necessary to have regard to the particular amendments that are sought to be made in exercising the discretion under ss 64 and 65 of the Civil Procedure Act. The proposed Amended Originating Process identifies several additional payments, relevantly to TCL, for which the Plaintiffs claim relief, namely six payments made between 11 November 2011 and 9 February 2012, four payments made on 5, 7, 14 and 21 March 2012, and two payments made on 24 April 2012. In summary, the first payment to be included in the Amended Originating Process refers to an amount of $660 paid on 11 November 2011 and introduced in paragraph 42(a) of the Amended Statement of Claim as an additional component of a claim already made in respect of a transaction defined as the “First Transaction”. The second payment to be included in the Amended Originating Process refers to an amount of $45,981.22 paid on 21 November 2011 and reflects an amount already pleaded in the Statement of Claim and continued in paragraph 42(b) of the Amended Statement of Claim. The third payment to be included in the Amended Originating Process reflects an amount of $51,188.07 paid on 2 December 2011 and reflects an amount also already pleaded in the Statement of Claim and continued in paragraph 44(a) of the Amended Statement of Claim.

  4. The fourth payment to be included in the Amended Originating Process refers to an amount of $51,188.07 paid on 9 December 2011 and introduced in paragraph 44(b) of the Amended Statement of Claim as an additional component of a claim already made in respect of the “Second Transaction”. This amendment is of a similar character to the first amendment, albeit it involves a substantially larger amount.

  1. The fifth payment to be included in the Amended Originating Process refers to an amount of $100,000 paid on 3 February 2012 and reflects a transaction already pleaded in the Statement of Claim, and continued in paragraph 46 of the Amended Statement of Claim, under the heading “Third Transaction”. The sixth payment to be included in the Amended Originating Process refers to an amount of $50,000 paid on 9 February 2012 and also reflects a transaction already pleaded in the Statement of Claim, and continued in paragraph 47 of the Amended Statement of Claim, under the heading “Fourth Transaction”. These amendments are similar in character to the second and third payments to be included in the Amended Originating Process.

  2. The seventh, eighth, ninth and tenth payments of $39,594.74 to be included in the Amended Originating Process refer to payments made on 5, 7, 14 and 21 March 2012 and reflect amounts already pleaded in the Statement of Claim, and continued in paragraph 69 of the Amended Statement of Claim, with typographical corrections changing a reference to 47 cents to 74 cents. The eleventh payment to be included in the Amended Originating Process refers to an amount of $39,594.74 paid on 24 April 2012 and reflects an additional payment included in paragraph 69 of the Further Amended Statement of Claim, adding one further payment to the seven payments in the same amount already claimed in that paragraph. The twelfth payment to be included in the Amended Originating Process refers to an amount of $48,636.64 paid on 24 April 2012 and reflects an additional amount included in paragraph 62 of the Amended Statement of Claim, that amendment being opposed by TCL, which added one further payment to the five payments already identified in that paragraph.

  3. In summary, the first and fourth payments sought to be included in the Amended Originating Process and paragraphs 42(a) and 44(b) of the Amended Statement of Claim are new claims that relate to transactions already pleaded in the Statement of Claim. The second, third, and fifth–tenth payments sought to be included in the Amended Originating Process are new claims but do not introduce new factual issues, since the relevant transactions were already pleaded by the Statement of Claim. The eleventh and twelfth payments sought to be included in the Amended Originating Process reflect amendments to the Statement of Claim to include additional payments of the same kind as payments already pleaded.

  4. Mr Spencer, who appears for the Plaintiffs, seeks to explain the liquidators’ delay in raising these claims by pointing to several difficulties in respect of documentation in respect of the liquidation, including the large volume of documents held by the 1st Fleet companies; the fact that the companies’ physical books and records were spread across several sites in Australia, including the offices of an external accountant, and computer records were held at two separate sites; and the fact that the administrators and liquidators were locked out of several sites and books and records at those sites may have been destroyed. I accept that these difficulties existed, although it appears from Mr Solomons’ cross-examination that many of them had been resolved by the administrators and liquidators by early 2015. It seems to me that the liquidators’ reliance on these difficulties to explain these delays should more readily be accepted given the relatively modest amendments that are now sought to be made, which, as I have noted above, relate to including matters in the Amended Originating Process that relate to transactions that are already pleaded in their Statement of Claim or are of the same kind as the payments already pleaded.

  5. Mr Spencer also submits that, when examinations were originally conducted by the liquidators, they were not aware of any failure by the 1st Fleet Group to pay its rent in a timely fashion or of circumstances which may have caused a lessor to be suspicious of the solvency of companies within the Group and that officers of TCL were therefore not examined and documents were initially not sought from them. Mr Spencer points out that it was only in early 2015 that the liquidators identified that, in February 2012, 1st Fleet had entered into an instalment arrangement in relation to rental arrears under the relevant leases quantified by TCL, or by CPSL on its behalf, as $448,636. Mr Spencer also points to an agreement then formed by 1st Fleet to pay its monthly rental instalment going forward by four equal instalments, an arrangement not contained within the written leases. Mr Spencer also points to the liquidators’ difficulty in identifying which of TCL or CPSL was the recipient of the relevant payments, where TCL was the lessor identified on each of the leases, but all dealings in relation to the properties, including negotiations regarding rent, were between the 1st Fleet Group and CPSL and invoices and company records referred to payments to the Cromwell Accumulation Fund. Mr Spencer submits that, as a result of examinations and the further production of documents, continuing through to June 2016, the liquidators identified that all relevant financial transactions occurred between the 1st Fleet Group and TCL, or CPSL acting on behalf of TCL, that some amounts pleaded in the Statement of Claim were incorrect and that further payments were made in relation to the 1st Fleet Group’s obligations under the leases which occurred within the relevant timeframe and which the liquidators now seek to attack as preferences.

  6. Mr Condon responds that leave to amend the claim to add the additional 12 payments should not be given because the Plaintiffs have not adequately explained their delay in ascertaining the existence of the claims and the fact that those payments had been made would have been “obvious to the liquidators on a cursory reading of the company’s bank statements”. It seems to me that that submission, like much of Mr Condon’s cross-examination of Mr Solomons directed to supporting it, depends on an inappropriate application of hindsight. No doubt, a matter is obvious to a person who already knows it, or obvious to a liquidator once the documents which disclose it have been identified and their implications understood, but it does not follow that the matters on which the liquidators now rely were or should have been obvious to a liquidator appointed to several companies conducting a national trucking business, and faced with multiple issues and large volumes of documents, at the commencement of the proceedings brought by the Plaintiffs against TCL and CPSL.

  7. Mr Condon responds to the liquidators’ reference to the complexity and size of the liquidation by pointing out that the liquidators appear to have had access to funding and had retained several firms of solicitors in relation to several proceedings. It does not seem to me that the existence of funding, or the existence of legal representation in respect of other matters, provides a full answer to the complexity and difficulties that arise where a liquidator needs to manage multiple issues across a substantial liquidation within a relatively short period. Mr Condon also points to the size of the liquidator’s fees over the relevant period and the significant amount of assets recovered by the liquidators in that period. That, however, seems to me to be a matter that assists the liquidators rather than TCL, so far as it emphasises the scale and complexity of the liquidation.

  8. TCL accepts that no actual prejudice arises from the amendments, although Mr Condon referred to the possibility of “presumptive” prejudice, arising from the deterioration of memories with the passage of time. The difficulty with that submission is that the particular amendments sought to be made, as set out above, do not seem to me to raise any new issue which was not raised by the existing pleading, to which the Defendants’ minds would not already have been directed, as distinct from raising matters of the same kind as those already raised. TCL led no evidence to suggest that there was any particular issue that would be raised by the proposed amendments to which they had not already directed their minds in order to answer the existing case, or as to which the memory of any relevant witness would have deteriorated.

  9. Mr Condon points out that s 58 of the Civil Procedure Act requires the Court to take into account the degree of expedition with which the respective parties have approached the proceedings. That is plainly not a matter which assists either party. However, that section also draws attention to the degree of injustice that would be suffered by either party in respect of the proposed order. In this case, it seems to me that there would be a significant degree of injustice to the liquidators, and more substantially the creditors who would benefit from any recovery in the proceedings, if they were prevented from raising additional payments of a similar character to those already claimed, where the Defendants accept that there would be no actual prejudice to them arising from the raising of that claim, and their case for any presumptive prejudice is weak where the claims raised are of a similar kind to those already made in the present Statement of Claim.

  10. Mr Condon also submits that the considerations that should inform the exercise of discretion under ss 64 and 65 of the Civil Procedure Act should be analogous to those which would inform an application for an extension under s 588FF(3)(b) of the Corporations Act. I do not accept that submission, which seems to me to be inconsistent with the decision in Cardinal Group above, which TCL accepted was applicable. As I noted above, that decision confirms that the amendment of a claim under s 588FF of the Corporations Act, that has been commenced within the time limit specified in the section, is of a different character from the bringing of a claim outside time or an application for an extension of a time period. The Court of Appeal unanimously held that the scheme of the Corporations Act leaves the procedural conduct of an application for orders under s 588FF(1) to the rules of the relevant State or Territory (per Bathurst CJ and Payne JA at [75]–[78]; per Beazley P at [133], [136]; per Ward JA (as her Honour then was) at [163]; per Bergin CJ in Eq at [164]). The Court of Appeal also noted that an application under s 588FF(1) need not particularise each “transaction” in respect of which it is made (per Bathurst CJ and Payne JA at [79]–[86]; per Beazley P at [137]–[142]; per Ward JA at [163]; per Bergin CJ Eq at [164]). That observation is of relevance here where the amendments sought to be made by the Plaintiffs in this application, as I noted, include adding matters already pleaded in the Statement of Claim to the Originating Process and claiming additional payments of a similar kind to those already claimed. Their Honours also held that the policy considerations underlying s 588FF of the Corporations Act do not support the construction of the time limit in s 588FF(3) as applying to each transaction as to which relief is sought, and that time limit is directed to the commencement of the proceedings, and not the amendment of pleadings in proceedings commenced within time (per Bathurst CJ and Payne JA at [87]–[103]; per Beazley P at [143]–[160]); per Ward JA at [163]; per Bergin CJ in Eq at [164]).

  11. It seems to me that the necessary consequence of Cardinal Group above is that the Court should not treat an application to amend an existing proceeding under s 588FF of the Corporations Act as though it were an application to commence proceedings under that section out of time, or as undermining the policy considerations that support the time limit specified in s 588FF of the Act. Those policy considerations are not undermined by the commencement of proceedings within that time limit and a proper amendment of them. The question whether such an amendment should be allowed is to be determined by State procedural law, by reference to the matters specified in ss 56–58 and 64–65 of the Civil Procedure Act applicable to such an amendment.

  12. Mr Condon also relies on Re Clarecastle Pty Ltd (in liq) [2011] NSWSC 857; (2011) 85 ACSR 260 (“Clarecastle”), a decision which relates to the extension of the time period to bring proceedings under s 588FF(3)(b) of the Corporations Act rather than to an amendment of proceedings already brought within time. I can accept that there may be cases where an amendment application raises issues of the kind addressed in Clarecastle, possibly where an amendment would introduce a substantial new claim with little in common with the claims already brought by a liquidator within time. That is not this case, given the nature of the amendments that are here sought to be made, to which I have referred above. It also seems to me that, by contrast with the decision in Clarecastle above, this is not a case where it could be said that the delay in making the amendments had been occasioned by the liquidators’ own delays and forensic decisions, as distinct from the complexity of the liquidation and a lack of transparency in the internal arrangements of TCL and CPSL relating to the administration of the relevant leases and the receipt of payments from 1st Fleet. It also seems to me that, by contrast with Clarecastle, the case for “presumptive” prejudice is here weak, where the additional payments now sought to be challenged are of a similar kind to the payments that are already challenged.

  13. Mr Condon also points out that, not surprisingly, it appears that the liquidators had retained solicitors to prepare the Originating Process and that Queen’s Counsel had been briefed to settle the pleading. Mr Solomons accepted in cross-examination, also not surprisingly, that the Statement of Claim that was originally filed by the Plaintiffs reflected the scope of the claim that was originally intended to be brought. However, assuming without deciding that a conscious decision had initially been made by the Plaintiffs to bring a narrower claim, it seems to me that allowing the amendments now sought by the Plaintiffs is consistent with the interests of justice, where there is no suggestion of actual prejudice to TCL and the likelihood of presumptive prejudice is minimal, for the reasons noted above.

  14. Mr Condon also advances criticisms of matters such as the delay in commencement of the examinations of the lessors, which did not occur until December 2014, and which appear to have been directed to limited matters, and points to the fact that the liquidators’ draft solvency report had recognised the existence of defaults by 1st Fleet prior to those examinations. Again, however, it seems to me that this approach involves both the application of hindsight, so that the desirability of pursuing wider investigation of claims is apparent once those wider claims have been identified, and a testing of the liquidators’ conduct against a standard of perfection that has little regard to the complexities of the liquidation or the circumstances in which decisions were made, and again focuses on the position as between 1st Fleet and TCL and CPSL without regard to the fact that that was not the only issue that the liquidators were addressing at the time.

  15. Mr Condon also submits that Mr Solomons’ affidavit does not precisely explain (I interpolate, beyond the matters to which I have referred above) why the 12 transactions now sought to be added to the Amended Originating Process (several of which, as I noted above, were in fact already pleaded in the Statement of Claim) were not raised at an earlier point. It seems to me that Mr Solomons’ evidence provides sufficient explanation of that matter, where the interests of justice will be promoted by allowing all issues to be determined in these proceedings, in the absence of prejudice to the Defendants, and where the matters now raised were already raised by the Statement of Claim or are of a similar kind to those already raised by the Statement of Claim.

  16. Section 65 of the Civil Procedure Act in turn provides that, at any time after the expiration of a relevant limitation period, a plaintiff may with the Court’s leave amend an originating process so as to add or substitute a new cause of action which, in the Court’s opinion, arises from the same or substantially the same facts as those giving rise to an existing cause of action and claims for relief set out in the originating process. It is by no means clear to me, and the parties’ submissions did not address in any detail, whether a new cause of action is being added in the Amended Originating Process, where the Plaintiffs’ cause of action was and is a claim under s 588FF of the Corporations Act, albeit the amount that is the subject of that claim will be increased by the additional claims to which I referred above. Assuming, without deciding, that the amendments could be characterised as the addition of a new cause or causes of action, then it seems to me that that cause or those causes of action arises out of the same or substantially the same facts as the matters already pleaded. In particular, it or they relate to transactions in respect of the same leases, involving the same parties and the same allegations as to insolvency of 1st Fleet at the time of the relevant transactions, and the additional amounts claimed are typically added to existing claims that are already pleaded.

  17. Mr Condon also submits that the discretion contained in s 65 of the Civil Procedure Act should not be used to “outflank the reasons for having limitation periods, except for just cause”. It seems to me that the Court of Appeal’s decision in Cardinal Group above, by which I am bound, establishes that a proper amendment may be made to proceedings that were commenced within the three year period specified in s 588FF of the Corporations Act, where that is permitted by s 64 of the Civil Procedure Act. The amendments which the liquidators seek to make seem to me to involve matters of substantially the same kind that are already in issue, to involve no prejudice to the Defendants for the reasons noted above and to be amendments that are properly made to promote the just, quick and cheap resolution of the real issues in dispute in the proceedings. In those circumstances, it seems to me that no real question of “outflank[ing]” any limitation period arises.

  18. For these reasons, it seems to me that the Plaintiffs should be granted leave under s 64 of the Civil Procedure Act to file the Amended Originating Process and Amended Statement of Claim in the form sought. I am not satisfied that s 65 of the Civil Procedure Act is applicable, since it is by no means clear that a new cause or causes of action are added by the amendments. If that section were applicable, I would not otherwise order for the purposes of s 65(2) of the Civil Procedure Act, with the result that the amendments would be taken to have effect from the date on which the proceedings were commenced.

Discontinuance of the proceedings against CPSL

  1. By their Interlocutory Process filed on 1 August 2016, the Plaintiffs also seek an order under rule 12.1 of the Uniform Civil Procedure Rules 2005 that they be granted leave to file a Notice of Discontinuance in respect of the proceedings against CPSL on the basis that each party pay its own costs. There is no contest as to the fact that leave to file a Notice of Discontinuance should be granted, but there is a contest as to the question of costs. Rule 42.19(2) of the Uniform Civil Procedure Rules provides that, on discontinuance, a plaintiff must pay the defendant’s costs of the proceedings unless the court otherwise orders. I have had regard to the Court of Appeal’s observations as to the circumstances in which the court may otherwise order in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [53]ff in determining this question.

  1. It seems to me that it cannot be said that the Plaintiffs acted unreasonably in commencing the proceedings against CPSL in the circumstances, and given the imminent expiry of the limitation period under s 588FF(3) of the Corporations Act, or in continuing those proceedings until they obtained further information, where their solicitors made a straightforward inquiry of CPSL, to which it could have readily responded by indicating that TCL received the relevant monies, albeit as custodian for it, but to which it did not trouble to respond. It could not and has not been suggested that the claims were not arguable; no application was made to strike them out in the lengthy period in which they have been on foot; and, so far as the proper defendant was TCL and not CPSL, then CPSL could and, having regard to s 56 of the Civil Procedure Act, should have responded to the liquidators’ inquiry to clarify the nature of its relationship with TCL promptly after the proceedings were commenced. It seems to me that the continuance of the proceedings against CPSL was substantially the product of its failure to respond to the liquidators’ appropriate inquiry as to that matter, and that is sufficient reason to order that there be no order as to costs in favour of CPSL on discontinuance of the proceedings against it.

The Defendants’ Interlocutory Process

  1. By their Interlocutory Process filed on 19 May 2016, the Defendants seek leave to file and serve an Amended Defence, in the form sent to the Plaintiffs’ solicitors under cover of a letter dated 11 May 2016. That leave was sought prior to the amendments now sought to be made by the Plaintiffs. It is not necessary to make an order in that form, where the grant of leave to file an Amended Originating Process and Amended Statement of Claim will allow the Defendants an opportunity to file and serve a Defence to the Amended Statement of Claim, in the ordinary course.

  2. The Defendants also seek orders for the decision of two separate questions, before any trial in the proceedings. Part 28 of the Uniform Civil Procedure Rules permits the Court to make orders for the decision of any question separated from any other question, whether before or after any trial or further trial in the proceedings. In determining whether to make such an order, the Court must have regard to the matters referred to in ss 56–59 of the Civil Procedure Act. In the ordinary course, all issues arising in a hearing will be determined together and care should be taken to avoid fragmentation of proceedings, potentially causing further delay, expense and hardship: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141–142. However, the Court may need to take a more interventionist role in ordering separate questions to reflect the requirements of ss 56–59 of the Civil Procedure Act and bring about the just, quick and cheap determination of the real issues in dispute: Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 at [6].

  3. In Allandale Blue Metal Pty Ltd v Roads and Maritime Services [2013] NSWCA 103 at [87]–[92], Ward JA noted that a separate determination of an issue may be appropriate where it will resolve the entirety of the controversies or substantially narrow the field of litigious controversy, and this does not require that the determination of that question will finally dispose of the litigation or one or more issues in it. Her Honour recognised that the cases have emphasised the need for caution in exercising such a power and also recognised that such questions can delay rather than expedite the resolution of proceedings. Her Honour also noted that a decision whether to order a separate question required a balancing exercise as to the likely utility of determination of a separate question in the “expeditious and cost-effective case management of the proceedings, having regard to the interests of justice as between the parties”. Her Honour also recognised (at [90]–[91], [94]) that a separate determination of an issue may not be appropriate where there are intertwined issues of fact or law, such that the determination of a separate question would not substantially affect the width of the controversy or the prospect of settlement of the balance of the litigation or where there is a possibility that the resolution of the separate issue will not finally determine that issue. The extent of overlap between witnesses and evidence to be given in respect of a separate issue and the trial, and any issues as to credit which would arise as to the separate issue, are also relevant: Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7]; Wells v Commonwealth of Australia [2014] NSWSC 148 at [16].

  4. The first of the questions which the Defendants seek to have determined as separate questions is whether the defence pleaded at paragraphs 73(b) and 76(b) of the Defendants’ existing Defence defeats the Plaintiffs’ claim that several transactions are unfair preferences pursuant to s 588FA of the Corporations Act. Those paragraphs respectively plead that:

“73(b)   In further answer [to paragraph 73 of the claim, the Defendants] say that:

(i)   the payments which are the subject of the First Transaction, the Second Transaction, the Third Transaction and the Fourth Transaction did not result in a decrease in the net value of the assets that were available to meet the demands of other creditors;

(ii)   the payments were made to permit the relevant plaintiff to continue to use the premises, which use was calculated to produce income which would or could have increased the assets of 1st Fleet to the benefit of its creditors.

76(b)   In further answer [to paragraph 76 of the claim, the Defendants] say that:

(i)   the payments which are the subject of the Fifth Transaction, the Sixth Transaction and the Seventh Transaction did not result in a decrease in the net value of the assets that were available to meet the demands of other creditors;

(ii)   the payments were made to permit the relevant plaintiff to continue to use the premises, which use was calculated to produce income which would or could have increased the assets of 1st Fleet to the benefit of its creditors; and

(iii)   the payments constituting the Seventh Transactions are also not preferences as they were intended to be pre-payments.”

  1. Mr Condon draws attention to the availability of a so-called “landlord’s defence” in a preference claim, noted by Fox J in Re Discovery Books Pty Ltd (1973) 20 FLR 470, and submits that it is irrelevant that 1st Fleet paid rent in arrears. Mr Condon also refers to other, later authorities, which have applied that defence, or at least held that no preference is established where a payment to a creditor allows the company to obtain an asset of equal or greater value than the payment. There was no suggestion that that defence was not arguable.

  2. Nonetheless, it seems to me that a separate question should not be ordered as to that defence. The application of that defence would necessarily require an examination of the nature of the payments that are in issue, and the extent to which 1st Fleet in fact obtained an asset of equal or greater value than these payments, or conversely, TCL received a preference in respect of the reduction of the amount of any outstanding debt owed to it. There is every likelihood that TCL would need to call the same witnesses in respect of that defence as in respect of other issues in the proceedings. A separate issue would also give rise to the difficulties that are characteristic of separate issues, including the risk that the proceedings will be delayed and their costs increased rather than reduced if there is an appeal from the determination of a separate issue, and that difficulties will arise if adverse credit findings are made in respect of the separate issue, which would prevent a judge who had heard the separate issue from hearing the balance of the proceedings. I am not satisfied that an order should be made for a determination of a separate issue in that respect.

  3. Mr Condon also submitted that a separate question should be ordered in respect of TCL’s defence founded on the release to which I referred in paragraph 3 above, where, he submits, the factual matrix in which that release was given was narrowly confined and separate from the facts pertaining to 1st Fleet’s and TCL’s dealings prior to the liquidation of 1st Fleet. Mr Condon submits that all of the claims under s 588FF of the Corporations Act would be barred if that release has the effect contended for by TCL. While that proposition may be correct, it seems to me that an order for a separate question in respect of that issue is also more likely to complicate and increase the costs of, rather than simplify and reduce the costs of, the proceedings because there is a real prospect that any determination on that question could be appealed. There is also likely to be an overlap of witnesses, so far as at least Mr Solomons may well be required to give evidence in the Plaintiffs’ case as to that matter, and any credit finding as to Mr Solomons could affect the ability of a judge who heard that application to hear the balance of the proceedings. I am also not satisfied that a separate question should be ordered in that respect.

The Plaintiffs’ application for a separate question

  1. The Plaintiffs also seek, in paragraph 4 of the Interlocutory Process, an order that:

“Pursuant to rule 28.2 of the Uniform Civil Procedure Rules, the question of whether the period during which the application under section 588FF(1) of the [Corporations] Act made in these proceedings may be made against the defendants, should be extended to such date as the Court may appoint, be determined separately and before any trial in the proceedings.”

  1. It may be that separate question was initially intended to address an issue that no longer arises, following the Court of Appeal’s decision in Cardinal Group above, where no extension of time should be required in respect of claims that are properly introduced by amendment in proceedings that were commenced within the 3 year period specified in s 588FF(3) of the Corporations Act. However, no submission was made by Counsel that this issue no longer arose. This issue was described in the Plaintiffs’ written outline of submissions as directed to an order for a separate determination of the Plaintiffs’ application under s 588FF(1) of the Corporations Act, which sets out the Court’s powers where a transaction is voidable under s 588FE of the Corporations Act. It is by no means apparent how that matter is separate from, or could be divided from, any other aspect of the proceedings. I am also not satisfied that a separate question should be ordered in that respect.

Orders and costs

  1. The parties should bring in agreed orders to give effect to this judgment and as to costs within 14 days or, if there is no agreement between them, their respective draft orders and short submissions as to the differences between them. If the parties are unable to agree the question of costs, I will either determine that question on the parties’ written submissions or allocate a date to hear any question as to the basis on which a costs order should be made, including any issues as to whether such an order should be made on a lump sum basis.

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Decision last updated: 03 May 2017

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