In the matter of Australian Managed Print Services (VIC) Pty Limited (in liq)

[2020] NSWSC 1694

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Australian Managed Print Services (VIC) Pty Limited (in liq) [2020] NSWSC 1694

Hearing dates:

23 November 2020

Date of orders:

27 November 2020

Decision date:

27 November 2020

Jurisdiction:

Equity - Corporations List

Before:

Gleeson J

Decision:

Leave is granted to the plaintiffs pursuant to s 471B of the Corporations Act 2001 (Cth) to commence and proceed with the proposed further amended cross-claim against the Australian Managed Print Services (VIC) Pty Ltd (in liq) (the company) in District Court proceedings 2018/19194, substantially in the form of the pleading in Ex MK-2 to the affidavit of Michael Jonathan Kenny sworn 16 November 2020, except for the par [5] of the claims for relief and par [49] of the proposed cross-claim, on the condition that the plaintiffs do not seek to enforce any judgment against the company without further leave of the Court.

Catchwords:

CORPORATIONS – practice and procedure –company in liquidation plaintiff in District Court proceedings – application for leave to commence and proceed with further amended cross-claim – claims for relief under Fair Trading Act 1987 (NSW) and for mistake at common law and in equity – Corporations Act 2001 (Cth) s 471B

COURTS AND JUDGES – where limited jurisdiction to determine equitable claims –claim for rescission of agreement based on mistake in equity – issue of construction – District Court Act 1973 (NSW) s 134(1)(d) – no jurisdiction to determine equitable claim for rescission – leave to commence and proceed with cross-claim granted, except in relation to equitable claim for rescission

Legislation Cited:

Australian Consumer Law, ss 237, 241, Sch 2

Competition and Consumer Act 2010 (Cth)

Corporations Act 2001 (Cth), s 471, 471B

District Court Act 1973 (NSW) s 134(1)(d)

Fair Trading Act 1987 (NSW), Pt 3

Cases Cited:

Alexander v Ajax Insurance Co Ltd [1956] VLR 436

Attard v James Legal Pty Ltd (2010) 80 ACSR 585; [2010] NSWCA 311

Australian Financial Services Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14

Capita Financial Group Ltd v Rothwells Ltd (1989) 15 ACLR 348

Deputy Commissioner of Taxation v Kedwell [2019] NSWDC 610

Elegant Australia Pty Ltd v Chen [2020] NSWDC

JF Keir Pty Ltd v Priority Management Systems Pty Ltd (Administrators Appointed) [2007] NSWSC 748

Kelly v Mina [2014] NSWCA 9

McDonough v Owners Strata Plan No 57504 [2014] NSWSC 1708; 17 BPR [98682]

Ogilvie-Grant v East (1983) 7 ACLR

Re AJ Benjamin Ltd (1969) 2 NSWLR 374

Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; [2001] HCA 68

Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5

Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373

Category:

Principal judgment

Parties:

Kay & Burton Pty Ltd (First plaintiff)
Michael David Gibson (Second plaintiff)
Kay & Burton (Flinders) Pty Ltd (Third plaintiff)
Kay & Burton (Brighton) Pty Ltd (Fourth plaintiff)
Kay & Burton (Hawthorn) Pty Ltd (Fifth plaintiff)
Australian Managed Print Services (VIC) Pty Limited c/- its liquidator Mr Mark Damian Charles Roufeil of PKF Australia (Defendant)

Representation:

Counsel:
Mr A Herskope (Plaintiffs)
No appearance (Defendant)

Solicitors:
Kalus Kenny Intelex (Plaintiffs)

File Number(s):

2020/303231

Judgment

1. GLEESON J: Application is made by Kay & Burton Pty Ltd and four related plaintiffs (the Kay & Burton parties) for leave under s 471B of the Corporations Act 2001 (Cth) to commence and proceed with a cross-claim against Australian Managed Print Services (VIC) Pty Ltd (in liq) (AMPS) in the District Court of New South Wales in proceeding number 2018/19194.

2. The liquidator of AMPS neither consents to nor opposes the grant of leave.

Background

3. Kay & Burton Pty Ltd (Kay and Burton) and Michael Gibson are defendants in District Court proceedings brought by Flexirent Capital Pty Ltd (Flexirent) and AMPS. Kay & Burton and Mr Gibson are also cross-claimants against Flexirent. The District Court proceedings relate to a dispute arising out of an equipment rental agreement entered into in November 2013 between AMPS and Kay & Burton, whose obligations were guaranteed by Mr Gibson. Flexirent alleges that it is the undisclosed principal of AMPS and makes a claim on that basis. It seeks to recover an amount of $583,516.46. Kay & Burton and Mr Gibson disputed the standing of Flexirent to make the claim against them.

4. AMPS went into liquidation in March 2016 and Mr Mark Roufeil was appointed liquidator. In August 2020 the liquidator consented to the joinder of AMPS as second plaintiff in the District Court proceedings, in which APMS makes two claims. The first is a claim for unpaid rent of $807,853.20 on the basis that the rental agreement remains on foot, together with a claim against Mr Gibson as guarantor. The second is a claim for unjust enrichment founded on Kay & Burton having obtained the benefit of the use of the equipment from April 2016 to date.

5. The proposed cross-claim by the Kay & Burton parties against AMPS arises out of alleged conduct by Mr Yong, the sole director of AMPS, at or around the time of entering into the rental agreement in November 2013. There are also claims for damages for alleged breach of a services agreement between AMPS and various Kay & Burton parties in or around October 2015.

6. The substantive relief claimed against AMPS in pars [1]-[6] of the proposed further amended cross-claim is as follows:

1. damages under s 236(1) of the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth), as applied by Pt 3 of the Fair Trading Act 1987 (NSW) (the NSW ACL);

2. an order under s 237 of the NSW ACL directing AMPS to pay to the Kay & Burton companies the amount of its loss and damage;

3. an order under s 243 of the NSW ACL declaring the whole of the rental agreement, including the guarantee and indemnity contained within it, void and to have been void ab initio;

4. an order under s 243(c) of the NSW ACL refusing to enforce any or all provisions of the rental agreement, including the guarantee and indemnity contained within it;

5. rescission of the rental agreement, including the guarantee and indemnity contained within it;

6. a declaration that the rental agreement, including the guarantee and indemnity contained within it, is void ab initio;

7. damages for breach of contract and / or repudiation of contract by AMPS.

Relevant principles: leave to proceed under s 471B

7. The Corporations Act, s 471B provides:

471B Stay of proceedings and suspension of enforcement process

While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:

(a)   a proceeding in a court against the company or in relation to property of the company; or

(b)   enforcement process in relation to such property;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

8. The approach to applications for leave under s 471B is well-established. The onus lies upon the Kay & Burton parties as the applicants for leave to establish that the ordinary procedure of lodging a proof of debt in the liquidation should be displaced with the consequence that their claim be determined in the proceeding, rather than by the proof of debt procedure in relation to which an appeal lies to the Court.

9. This question is reduced largely to one of choosing between alternative forms of procedure. A claimant is required to adopt the course of lodging a proof of debt unless the claimant can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute.

10. McPherson J acknowledged in Ogilvie-Grant v East (1983) 7 ACLR 669 at 672 that it is not possible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate, but noted that the following factors were relevant: the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed.

11. Leave is likely also to be granted where it is clear that the liquidator will reject the claim so that, if the claimant wishes to press it, an appeal to the Court is inevitable: Capita Financial Group Ltd v RothwellsLtd (1989) 15 ACLR 348 at 352.

12. Other factors identified in the authorities which have relevance to the present case include: whether, if leave is granted, the liquidator would be unreasonably distracted from the performance of his statutory duties or obliged unnecessarily to incur substantial legal costs; and, whether, in the circumstances, there are good reasons for allowing the plaintiffs to continue the proceedings even if the liquidator does not provide consent.

Decision

13. As to the relief sought under the provisions of the New South Wales Australian Consumer Law, I am satisfied that the proposed cross-claim gives rise to a serious question to be tried in the sense referred to in the authorities: Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373 at 380.

14. Given the allegations of misleading or deceptive conduct, the claim is not one which can easily be dealt with under the proof of debt procedure in the liquidation. Even if the liquidator rejected a proof of debt lodged by the Kay & Burton parties, any appeal therefrom would raise the same issues as sought to be raised in the proposed cross-claim against AMPS. Further, the proposed cross-claim has a degree of factual and /or legal complexity, which is also a compelling factor in favour of a grant of leave: Ogilvie-Grant v East at 672. This is not a case in which the proof of debt procedure and any appeal therefrom would be more convenient and involve less delay and expense.

15. There is also a substantial overlap between the proposed cross-claim against AMPS, and the cross-claim against Flexirent, which are pleaded in the alternative. It is preferable that all related issues be dealt with in the one proceeding, rather than there be separate proceedings, one relating to any decision or omission by the liquidator to make a decision with respect to a proof of debt by the Kay & Burton parties, and the other being the District Court proceedings.

16. Further, given that AMPS is now the second plaintiff in the District Court proceedings, the proposed cross-claim will not prolong the liquidation or distract the liquidator from his statutory duties.

Whether the District Court has jurisdiction to grant equitable relief?

17. After the hearing, the Court invited further written submissions from the Kay & Burton parties as to whether the claims for relief in pars 5 and 6 of the proposed cross-claim (see [6(5) and (6)] above) are within the jurisdiction of the District Court. This issue had been raised in earlier correspondence between the solicitors for Flexirent and the solicitors for Kay & Burton and Mr Gibson, but had not been drawn to the Court’s attention at the hearing.

18. Those submissions have now been received. The Kay & Burton parties contend that the claims for the relief sought in par [5] (rescission) and par [6] (declaration) are based on the claim for mistake pleaded in pars 46-49 of the proposed cross-claim, and are within the jurisdiction of the District Court under s 134(1)(d) of the District Court Act 1973 (NSW) which is in these terms:

The Court shall have the same jurisdiction as the Supreme Court, and may exercise all the powers and authority of the Supreme Court, in proceedings for:

. . .

(d) relief against fraud or mistake where the damage sustained or the estate or fund in respect of which relief is sought does not exceed $20,000 in amount or value, as determined by the Court.

19. In McDonough v Owners Strata Plan No 57504 [2014] NSWSC 1708; 17 BPR [98682] Brereton J said at [9], with reference to s 134(1)(d) of the District Court Act, that “it is plainly contemplated that the relief for fraud or mistake may be or include equitable damages” so long as it does not exceed the monetary limit of $20,000.

20. The Kay & Burton parties say that the District Court has jurisdiction with respect to their claims for relief based on mistake because they are not seeking any (equitable) damages. That is to misread s 134 of the District Court Act which gives the District Court limited equitable jurisdiction.

21. The starting point is to identify the nature of the claims the subject of the proposed cross-claim. An initial difficulty is that the proposed cross-claim does not seek, in any explicit way, to characterise the alleged mistake as common, mutual or unilateral. However, it would seem from par [48(b)] of the proposed cross-claim that the alleged mistake is said to be unilateral.

22. Insofar as it is pleaded in par [48] that the consequence of the alleged mistake is that the relevant contract should be rescinded, the remarks of Barrett JA in Kelly v Mina [2014] NSWCA 9 at [38] are apposite:

On the other hand, counsel for the appellant, in the course of submissions on the amendment application, referred explicitly to the power of a court to set aside or rectify a contract in consequence of a mistake made by both parties or by one party with the knowledge of the other. This suggested that the basal proposition was not that the contract was void but rather that there were grounds for the grant of equitable relief. That was confirmed by discussion between counsel and the judge as to the scope and meaning of s 134(1)(d) of the District Court Act 1973 which confers "the same jurisdiction as the Supreme Court" in proceedings for "relief against fraud or mistake" subject, however, to limits. It was submitted on behalf of the appellant that s 134(1)(d) enabled the District Court to deal with the issues of mistake sought to be agitated.

23. Insofar as it is pleaded, in the alternative, that the consequence of the alleged mistake is that any contract was "void ab initio", the remarks of Barrett JA in Kelly v Mina at [38] are again apposite:

… this tends to suggest that the foreshadowed case was that the alleged mistake negatived contractual assent, so that there was never any contract. Viewed in that way, the defence drew on purely common law principles.

24. Barrett JA continued in Kelly v Mina at [60]:

… If, as may be the case, the appellant's contention is that the alleged mistake negatived contractual assent, so that there was never any contract, what is put forward is simply a common law defence to a common law claim. If, on the other hand, the contention is that the contract is liable to be set aside because of mistake operative at the time of its formation, the contention is one that goes beyond mere defence and implies an application for equitable relief by way of rescission. Such an application would normally be made by way of cross-claim rather than defence as such, since it entails the making of a positive determination and order by the court.

25. Ordinarily, a claim that a contract is void ab initio on the ground of unilateral mistake is a matter that would be pleaded by way of defence to a claim on the contract. Why a declaration is sought in the proposed cross-claim and whether such relief is necessary or appropriate was not explained in submissions. I refrain from expressing my view in that regard.

26. Claims of unilateral mistake at common law as to the identity of the parties or the terms of the contract leading to the consequence that the contract is void ab initio are likely to be rare. Nonetheless, the District Court has jurisdiction to deal with such as a common law claim, the proposed claim that the rental agreement is void ab initio based on unilateral mistake at law. Thus the grant of leave to proceed should extend to par [6] of the claims for relief and pars [44]–[48] of the proposed cross-claim.

27. By contrast par [5] of the claims for relief (rescission) and par [49] of the proposed cross-claim which asserts an entitlement to rescission on the ground of unconscionability, is an equitable claim involving "relief against … mistake". This is a claim that a contact is voidable in equity for unilateral mistake: Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5. The limited equitable jurisdiction of the District Court under s 134(1)(d) directs attention to the relevant amount of “the damage sustained” in respect of which relief is sought, here, by way of rescission. It is not to the point that the Kay & Burton parties do not seek relief by way of equitable damages for mistake.

28. Since the amount of the claim by AMPS against Kay and Burton under the rental agreement is in the order of $807,000, the relevant amount of “the damage sustained … in respect of which relief is sought” by way of rescission, exceeds the monetary limit of $20,000, and a transfer of the proposed claim to the Supreme Court would be necessary. The Kay & Burton parties did not indicate any intention to seek to transfer the proceedings to the Supreme Court.

29. The cases cited by the Kay & Burton parties do not assist their argument that the District Court has jurisdiction in relation to their equitable claim based on mistake. In Deputy Commissioner of Taxation v Kedwell [2019] NSWDC 610, the issue of mistake was referred to at [57-[60] but ultimately did not arise.

30. In Elegant Australia Pty Ltd v Chen [2020] NSWDC, the claim was for recovery of money paid under a mistake of fact. That is a common law claim “for which an indebitatus (or ‘common’) count would lie”: Alexander v Ajax Insurance Co Ltd [1956] VLR 436 at 445 (Sholl J). As observed in the joint judgment in Australian Financial Services Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14 at [69], referring to the remarks of Gummow J in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; [2001] HCA 68 at [100], the “equitable notions” of which Lord Mansfield wrote have been absorbed into the “fabric of the common law” right of action for money had and received. The claim in Elegant based on the principles of unjust enrichment was a common law claim.

Conclusion and Orders

31. I am satisfied that this is an appropriate case for the grant of leave under s 471B of the Corporations Act, except in relation to the proposed claim for equitable relief by way of rescission as to which the District Court does not have jurisdiction.

32. Accordingly, the Court makes the following order:

1. Leave is granted to the plaintiffs pursuant to s 471B of the Corporations Act 2001 (Cth) to commence and proceed with the proposed further amended cross-claim against the Australian Managed Print Services (VIC) Pty Ltd (in liq) (the company) in District Court proceedings 2018/19194, substantially in the form of the pleading in Ex MK-2 to the affidavit of Michael Jonathan Kenny sworn 16 November 2020, except for the par [5] of the claims for relief and par [49] of the proposed cross-claim, on the condition that the plaintiffs do not seek to enforce any judgment against the company without further leave of the Court.

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Decision last updated: 27 November 2020