In the matter of Cortaus Ltd (in liquidation) Sheahan, John v Joye, Ian Edward (No 3)
[1996] FCA 445
•7 JUNE 1996
CATCHWORDS
CORPORATIONS - application to restrain liquidator from taking any further steps in relation to the examination of the respondent pending the full Federal Court's final determination of certain "constitutional issues" - whether examination of the respondent should be allowed to proceed pending the final determination of the "constitutional issues" - the respective prejudices to be suffered by the liquidator if the application to further adjourn the examination and by the respondent if such application is not granted to be weighed up - evaluation of the overall balance of convenience.
Corporations Law s 596B
Judiciary Act 1903 (Cth) s 78B
No SG 3137 of 1994
IN THE MATTER OF CORTAUS LIMITED (IN LIQUIDATION)
(ACN 008 965 124)
JOHN SHEAHAN v IAN EDWARD JOYE
[No.3]
Branson J
Adelaide
7 June 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No SG 3137 of 1994
)
GENERAL DIVISION
IN THE MATTER OF CORTAUS LIMITED (IN LIQUIDATION)
(ACN 008 965 124)
BETWEEN:
JOHN SHEAHAN
Applicant
- and -
IAN EDWARD JOYE
Respondent
[No.3]
MINUTES OF ORDER
CORAM: Branson J
PLACE: Adelaide
DATE: 7 June 1996
THE COURT ORDERS THAT:-
The examination about the examinable affairs of Cortaus Ltd (in Liquidation) of Ian Edward Joye pursuant to the order of the Registrar dated 25 November 1994 and the summons dated 6 December 1994 is further adjourned to a date to be fixed being a date not earlier than the determination by the Full Court of this Court of questions reserved for determination by the Full Court of this Court in the matter VG 3304 of 1992 Amann Aviation Pty Ltd (in Liquidation) v The Application of Martin
Russell-Brown.
Consideration of paragraphs 1-6 and further consideration of paragraphs 7-9 of the notice of motion dated 2 May 1996 are stood over to a date to be fixed.
Each party has liberty to apply on 48 hours written notice to the other.
Costs be reserved.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No SG 3137 of 1994
)
GENERAL DIVISION
IN THE MATTER OF CORTAUS LIMITED (IN LIQUIDATION)
(ACN 008 965 124)
BETWEEN:
JOHN SHEAHAN
Applicant
- and -
IAN EDWARD JOYE
Respondent
[No.3]
REASONS FOR DECISION
CORAM: Branson J
PLACE: Adelaide
DATE: 7 June 1996
By notice of motion dated 2 May 1996 Ian Edward Joye ("Mr Joye") moved the Court for the following orders:-
"1.Setting aside the orders of the Federal Court made 7 June 1994 purporting to wind up Cortaus Limited and appoint Mr John Sheahan as liquidator of Cortaus Limited ("the Winding up Orders").
2.Declaring that section 42(3) of the Corporations Act 1990 of the various States and section 56(2) of the Corporations Act 1989 (Cth) did not operate validly to confer jurisdiction upon the Federal Court to make the Winding Up Orders.
3.Declaring that section 42(3) of the Corporations Act 1990 of the various States and section 9(2) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) did not operate validly to confer jurisdiction upon the Federal Court to make the Winding Up
Orders.
4.Setting aside the orders of the Federal Court dated 25 November 1994 and the Summons issued on 6 December 1994 purportedly made pursuant to section 596B of the Corporations Law summoning Mr Joye to attend an examination ("the Examination Orders").
5.Declaring that section 42(3) of the Corporations Act 1990 of the various States and section 56(2) of the Corporations Act 1989 (Cth) did not operate validly to confer jurisdiction upon the Federal Court to make the Examination Orders.
6.Declaring that section 42(3) of the Corporations Act 1990 of the various States and section 9(2) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) did not operate validly to confer jurisdiction upon the Federal Court to make the Examination Orders.
7.In the alternative to orders 1 to 6 above, order that the liquidator be restrained from taking any further steps in relation to the winding up of Cortaus Limited, including taking any steps in relation to the Examination Orders, pending the final determination of the questions reserved for determination by the Full Court of the Federal Court in the matter VG 3304 of 1992 Amann Aviation Pty Ltd (In Liquidation) v The Application of Martin Russell-Brown.
8.Such further or other orders as the Court thinks fit.
9.Costs."
It was common ground before me that it would not be desirable for me to proceed to a hearing with respect to the issues raised by paragraphs 1-6 of the notice of motion as such issues are presently the subject of reserved judgments of the Full Court of this Court in the matters of Cortaus v Larken (SG 111 of 1993), Amann Aviation Pty Ltd (in Liquidation) v The Application of Martin Russell-Brown (VG 3304 of 1992) and Southern Steel Supplies Pty Ltd & Anor v Favelle Favco Holdings Ltd (SG 3239 of 1995). Such issues
were for convenience referred to before me as "the constitutional issues". I shall so refer to them in these reasons.
Argument before me was restricted to the issue of whether the examination of Mr Joye pursuant to an order of this Court dated 25 November 1994 and a summons to Mr Joye dated 6 December 1994 should be allowed to proceed pending the final determination of the constitutional issues. It was accepted by both parties that such final determination was most likely to be made by the High Court of Australia - either following an appeal to that court or upon a refusal by that court of a grant of special leave to appeal. The order of this Court dated 25 November 1994 was made in purported reliance on s596B of the Corporations Law, and the summons dated 6 December 1994 was issued in purported reliance on the same section. Such order and summons are hereafter referred to as "the order and summons".
The factual background to the present application up to 15 April 1996 is set out in my reasons for decision of 23 April 1996 in this matter. I shall not repeat such background here.
On 15 April 1996 an application made by Mr Joye for the further adjournment of his examination pursuant to the order and summons until 7 days after his application for special leave to appeal to the High Court of Australia from the orders of the Full Court of this Court made on 28 March 1996 is heard and determined was argued before me. During the course of that argument I raised with the counsel who then appeared for Mr Joye (who was not the counsel who appeared before me on the present application) whether reliance was placed on the constitutional issues. I was informed, in effect, that reliance was not placed on such issues as they were not seen to have any reliance to the intended examination of Mr Joye pursuant to s596B of the Corporations Law. I refused to make the order sought by Mr Joye by that application. My decision to refuse to make such orders is now the subject of a reserved decision of the Full Court of this Court.
On 2 May 1996 the present notice of motion was filed and served. It does, of course, raise the very issues disavowed on Mr Joye's behalf on 15 April 1996. The issues sought to be raised by such notice of motion ought, in my view, to have been raised on Mr Joye's behalf, at the latest, promptly after the dismissal on 28 March 1996 of Mr Joye's appeal to the Full Court on the issue of the validity of the order of the Registrar authorising substituted service upon him of the order and summons. The making by Mr Joye of two separate applications for orders preventing his prompt examination has resulted in the incurring by the parties of unnecessary legal costs and in inefficient use of the time of this Court.
In a partial endeavour to redress the above factors, Mr Joye, through his counsel, gave an undertaking before me to pay to Mr Sheahan "those additional costs incurred in these proceedings since 11 April 1996 as a result of [his - i.e. Mr Joye's] not raising the constitutional issue prior to 2 May 1996."
It was not sought to be contended before me that the constitutional issues argued before the Full Court of this Court in the three matters referred to above are other than serious and genuinely arguable. The Full Court heard argument in the three matters in November 1995. The date upon which the decision of the Full Court will be handed down is not known.
In Sheahan v Joye & Ors (SG 3037 of 1996) (unreported, Federal Court, Branson J, 30 June 1996) I ordered that the respective examinations pursuant to s596B of the Corporations Law of a number of persons (not including Mr Joye) about the examinable affairs of Cortaus Ltd (in Liquidation) ("Cortaus") should be adjourned until the final determination of the constitutional issues. In respect of each such person, the orders for his or her examination had been made as recently as 18 April 1996 and the relevant summonses had been served in mid-May 1996. That is, the relevant orders and summonses were obtained by Mr Sheahan after the argument before the Full Court of the constitutional issues, and service of such summonses was effected after the service upon him of the notice of motion upon which the present application is made. A further factor which distinguishes the circumstances of the person whose respective examinations I have adjourned from the circumstances of Mr Joye is that none of them is or was a director of Cortaus. Mr Joye was, at all times relevant for the purpose of Mr Sheahan's inquiries concerning Cortaus, a director of Cortaus. The position of a director of a company carries with it significant duties and obligations under the Corporations Law to such company, its shareholders and creditors to which citizens who do not assume such a position are not subject.
The weighing up of the respective prejudices to be suffered by Mr Sheahan in his capacity as liquidator of Cortaus Ltd (in Liquidation) if the application to further adjourn the examination of Mr Joye is granted and by Mr Joye if such application is not granted, and the evaluation of the overall balance of convenience, is a more difficult task than that which I faced in Sheahan v Joye & Ors (SG 3037 of 1996).
Mr Hoile, who appeared with Mr Mills for Mr Sheahan, placed reliance on the public nature of Mr Sheahan's duties and responsibilities as the Court-appointed liquidator of Cortaus. He stressed that the order and summons are valid orders of this Court unless and until set aside, and that the examination proceedings against Mr Joye have now been on foot for 18 months. He argued that even if the constitutional issues are ultimately determined adversely to Mr Sheahan, an order to wind-up Cortaus will almost certainly be obtained from the Supreme Court of South Australia and a fresh application made pursuant to s596B of the Corporations Law to examine Mr Joye. That is, he submitted, a determination of the constitutional issues adversely to Mr Sheahan can not be assumed to have the consequence that Mr Joye will never be examined pursuant to s596B of the Corporations Law.
Mr Sheahan's affidavit evidence is that he believes that Cortaus will suffer substantial and possibly irredeemable prejudice if Mr Joye's examination is delayed for a further substantial period. He gave as the grounds of his belief factors including the resultant availability of further time to Mr Joye to divest himself of assets or otherwise make arrangements with respect to those assets so as to frustrate a possible judgment against him in the Cortaus v Larken proceedings. He also called in aid the possibility that the passage of further time might make it more difficult to set aside transactions entered into by Mr Joye to divest himself of assets, and might result in as yet unidentified causes of action available to Cortaus becoming out of time.
I accept the sincerity of Mr Sheahan's belief as to the above matters. I note, however, that Mr Joye, through his solicitors, has given Mr Sheahan information as to his assets within Australia and an undertaking not to "dispose of, encumber or deal with his assets in any manner whatsoever, other than payment of reasonable and proper legal expenses in respect of these or any other legal proceedings and the payment of existing bona fide debts without a minimum of 7 clear business days notice" to Mr Sheahan. It may be understandable in all of the circumstances that Mr Sheahan doubts the completeness of the information provided to him by Mr Joye, and does not place great weight on Mr Joye's undertaking. Nonetheless, it is the case that no evidence of additional assets and no incontrovertible evidence of any breach of the undertaking was placed before me. There is a dispute between the parties as to whether the sale by Mr Joye of a single share in Neny No2 Pty Ltd and of the 100 issued redeemable preference shares in Neny Investments Pty Ltd amounted to a breach of the undertaking. If such sales were, or either of them was, a breach of such undertaking, its effect on the value of Mr Joye's assets has not been shown to be significant. It may also be noted that if Mr Joye were minded to dispose of his assets in breach of his undertaking he has already had considerable time in which to do so.
Mr Sheahan by his affidavit evidence asserts that delay in the recovery and distribution of proceeds of the Cortaus v Larken proceedings will delay the conduct of other related company administration and may severely prejudice the interests of creditors and shareholders of those companies. In this regard it may be noted that the Cortaus v Larken proceedings are currently adjourned pending the determination by the Full Court of this Court of the constitutional issues. At least while that adjournment order remains operative, any order which I might make as to the adjournment of the examination of Mr Joye will affect only indirectly the future progress of the Cortaus v Larken proceedings.
Finally Mr Hoile submitted that the delay which has occurred in the bringing of the present application is such as to disentitle Mr Joye to the relief which he seeks. As I have mentioned above, in my view the present application ought to have been brought promptly after the dismissal on 28 March 1996 of Mr Joye's appeal to the Full Court on the issue of the validity of the order of the Registrar authorising substituted service on him. Mr Morcombe QC, who appeared with Mr Dal Cin for Mr Joye, contended that it was only upon Mr Sheahan's moving to have a date fixed for Mr Joye's examination, that Mr Joye could reasonably have been expected to have made the present application. I do not accept this contention. However, as it was on 11 April 1996 that Mr Sheahan moved to have a date fixed for Mr Joye's examination, these two approaches involve little time difference. The present application was made by notice of motion dated 2 May 1996. In view of the undertaking of Mr Joye set out above, I am not satisfied that such delay as was involved in the filing and serving of that notice of motion is such as to disentitle Mr Joye to the relief which he seeks.
On behalf of Mr Joye, it was contended that a determination of the constitutional issues in a way adverse to Mr Sheahan will have the consequence that this Court will lack jurisdiction to hear and determine the Cortaus v Larken proceedings, and that it will, at the least, be arguable that the order winding-up Cortaus and the examination summons to Mr Joye will be set aside. In such circumstances it was argued that Mr Joye ought not be required to attend for examination ahead of the determination of the constitutional issues.
Mr Morcombe informed the Court that if the examination of Mr Joye is not further adjourned, his client may well be advised to seek a hearing of paragraphs 1-6 of his notice of motion dated 2 May 1996. This would necessitate Mr Joye giving notice to the Attorneys-General of the Commonwealth and of the States as required by s78B of the Judiciary Act 1903 (Cth) ("the Judiciary Act"). Mr Morcombe speculated, with reasonable cause as it seems to me, that the giving of such notices is likely to result in an application on behalf of one or more of the Attorneys-General for an adjournment of the matter pending the final determination of the constitutional issues. I am unable to speculate as to the likely result of any such application. It would have to be considered on its merits in the light of the circumstances then prevailing. However, the fact that notices under s78B of the Judiciary Act may have to be given and a reasonable time thereafter allowed to elapse before argument on paragraphs 1-6 of the notice of motion dated 2 May 1996 could be heard, is a factor which it is appropriate for me to take into account on this application. Similarly, in my view, the waste of court time involved in a member of this Court sitting as a single judge for the purpose of determining issues awaiting the determination of the Full Court is a factor appropriate for me to take into account on this application.
It is also, in my view, appropriate for me to take into account that there is at present no judicial determination of the constitutional issues. The application presently made by Mr Joye would have less strength were it made after a determination by the Full Court of this Court of the constitutional issues in a manner favourable to Mr Sheahan - notwithstanding that an application for special leave to the High Court had been filed or served, or, indeed, even if special leave to appeal to the High Court had been granted. Conversely, Mr Joye's application would be strengthened if it were made in the circumstance that the Full Court of this Court had determined the constitutional issues in a manner adverse to Mr Sheahan.
Having sought to balance the various matters of prejudice raised by each of the parties, and having considered the balance of convenience, I consider that the appropriate order in this case is an order further adjourning the examination of Mr Joye to a date to be fixed being a date not earlier than the determination by the Full Court of this Court of the constitutional issues.
I certify that this and the preceding pages are a true copy of the Reasons for Decision of the Honourable Justice Branson.
Associate:
Dated:
Counsel for the Applicant : Mr M E Hoile
with him
Mr R J Mills
Solicitors for the Applicant : Piper Alderman
Counsel for the Respondent : Mr N W Morcombe QC
with him
Mr A L Dal Cin
Solicitors for the Respondent : Cowell Clarke
Hearing Date : 4 June 1996
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