In the matter of LSW Group Pty Ltd; In the matter of ACN 092 138 442 Pty Limited (in liquidation)

[2015] NSWSC 1433

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of LSW Group Pty Ltd; In the matter of ACN 092 138 442 Pty Limited (in liquidation) [2015] NSWSC 1433
Hearing dates:	08 May 2015
Date of orders:	08 May 2015
Decision date:	08 May 2015
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Application for vacation of hearing granted.
Catchwords:	PROCEDURE – application to vacate hearing – balance of prejudice to parties of granting adjournment – where defendants’ case entirely unprepared – whether defendants authors of own prejudice – reasons explaining unpreparedness.
Legislation Cited:	(Cth) Corporations Act 2001, s 536
Category:	Procedural and other rulings
Parties:	In Proceedings 2010/245866: Ozem Kassem and Bruno Secatore as Liquidators of ACN 092 138 442 Pty Limited (in liquidation) (first plaintiff/first respondent) ACN 092 138 442 Pty Limited (in liquidation) (second plaintiff/second respondent) The LSW Group Pty Ltd ACN 116 130 593 (first defendant/second applicant) Geoffrey Ronald Buckfield (second defendant/third applicant)   In Proceedings 2010/245867: Ozem Kassem and Bruno Secatore as Liquidators of ACN 092 138 442 Pty Limited (in liquidation) (first plaintiff/first respondent) ACN 092 138 442 Pty Limited (in liquidation) (second plaintiff/second respondent) Bristrol Custodians Limited ARBN 119 748 702 (first defendant/first applicant) The LSW Group Pty Ltd ACN 116 130 593 (second defendant/second applicant) Geoffrey Ronald Buckfield (third defendant/third applicant) Bristrol Custodians (Australia) Pty Limited ACN 160 638 728 (fourth defendant/fourth applicant) Custodial Services (Aust) Pty Limited ACN 129 671 683 (fifth defendant/fifth applicant) Giovanni Holdings Pty Limited ACN 143 185 246 (sixth defendant/sixth applicant)
Representation:	Counsel: M Condon SC w N Mirzai (plaintiffs/respondents) B Nolan (defendants/applicants)   Solicitors: Sage Solicitors (plaintiffs/respondents) Knightsbridge North Lawyers (defendants/applicants)
File Number(s):	2010/245866; 2010/245867

Judgment (ex tempore)

1. HIS HONOUR: By interlocutory process filed on 7 May 2015, the defendants apply to have the hearing of the substantive proceedings, set down to commence on 12 May for six days, vacated. They also seek a direction that their application pursuant to (Cth) Corporations Act 2001, s 536, filed on 2 September 2011, be set down for hearing.

2. The substantive proceedings were commenced in 2010. Essentially, in proceedings 2010/845867, the plaintiffs, being the liquidators of the company now known as ACN 092 138 442 Pty Ltd, seek orders setting aside as voidable transactions a transfer of property that had belonged to that company. In proceedings 2010/245866, the same liquidators seek to have set aside as a voidable transaction the transfer of the business of that company.

3. On 13 December 2010, an order was made that evidence in the one proceeding be evidence in the other, and since then the proceedings have been managed together. After some interlocutory proceedings, the plaintiffs' further amended points of claim were filed on 6 November 2013. By 10 March 2014, the defendants had served the final iteration of their defence to that pleading, albeit unverified. On 10 March, the Court directed that the second to sixth defendants file and serve their points of defence by 17 March, the plaintiff to serve any further lay evidence by 10 April and any expert evidence also by 10 April, the defendants to serve any lay and expert evidence by 10 May, and the plaintiff to serve any evidence in reply by 24 May 2014. Some interlocutory proceedings instituted on both sides were dismissed, and the proceedings were adjourned to 26 May 2014 in the Corporations Judge’s directions list. It is worth observing that one of the interlocutory applications then dismissed was the plaintiffs' motion for default judgment, leave to bring which had been granted on account of the defendants' earlier failure to comply with directions for filing a defence.

4. On 26 May 2014, the Court by consent directed that the defendants serve their evidence, including expert evidence, by 25 July, the plaintiff serve any evidence in reply by 8 August and the proceedings be adjourned to 11 August.

5. On 11 August 2014, the Court by consent ordered that time for the defendants to serve their evidence, including expert evidence, be extended to 9 September 2014, and that the defendants not be entitled to rely on any affidavit evidence not filed and served by that date without the leave of the Court. Time for the plaintiffs to serve evidence in reply was extended to 3 October, and the proceedings were adjourned to 13 October. The defendants were ordered to pay the plaintiffs' costs of the day.

6. On 13 October, the matter came before Justice Black in the list that day. His Honour fixed the proceedings for hearing for six days on 12 to 15 and 19 to 20 May 2015, and made the usual order for hearing. His Honour did so in circumstances where the defendant had not served evidence in compliance with the directions earlier made, and frankly accepted that it had not done so and that it was not in a position to resist the fixture of a date for hearing, but indicated that it was encountering some difficulties in obtaining files from solicitors who had earlier acted for the defendant and that the hearing should be set down at a time which would enable those steps to be taken. So far as I can tell, this was a relatively new excuse on that occasion, different excuses having been offered on previous occasions for earlier non-compliance with the directions, including, for example, that Mr Buckfield was overseas for a period of four to six weeks.

7. The solicitor who presently acts for the defendants has been acting for them in these proceedings since February 2013. There were two previous firms of solicitors, the second of which was Leonard Legal. Not long after commencing to act, the present solicitor obtained a copy of the court file and of course has been able to access the court file and ascertain what was on it from time to time. She had not obtained the previous solicitor's files from Leonard Legal, and it was this that was referred to when the matter was set down on 13 October.

8. Having made some further attempts by correspondence to obtain production of those files, the present defendants commenced other proceedings to compel Leonard Legal or their successor firm to produce the files on 1 December 2014. Those proceedings were settled by consent orders on 9 December 2014, when the Court by consent ordered that within five working days the applicant Mr Buckfield pay $39,874 by way of solicitor's trust account cheque for the plaintiffs' fees as assessed under certain cost assessments; that upon such payment the plaintiffs in those proceedings – being the solicitors – provide to the second defendant – being Mr Buckfield – by his solicitors, a withdrawal in registrable form of certain caveats, and give to the second defendant an itemised bill of costs in respect of legal services; and that within five working days of the payment being made, the solicitors deliver to Mr Buckfield's new solicitors their file or files with respect to the subject proceedings.

9. The payment was made as stipulated. Despite correspondence requesting it, nothing was delivered in respect of the requirement to deliver files until 23 December 2014. What was then delivered was incomplete, and appears to have comprised documents such as the pleadings and affidavits in the proceedings, but not the solicitor's file of correspondence, memoranda and so on.

10. The defendants' present solicitor pressed for production of the remainder of the documents in correspondence, and foreshadowed that contempt proceedings would be brought if those documents were not produced. They were not, and ultimately a notice of motion to have Mr Leonard dealt with for contempt was filed on 26 March 2015. That produced a response, and he appears to have produced the correspondence file on or about 1 April 2015.

11. The defendants say that it has only been since then that they have really been able to gain a sufficient understanding of the case in context. As a result, they say that they have learnt that there remains on foot an application under Corporations Act, s 536, for an inquiry into the liquidators' conduct, which they wish to pursue before the hearing of the substantive proceedings. They say that three draft affidavits were prepared and sent to counsel for settling in about the second week of April, but that the resources available to them have not enabled that to be attended to and completed in sufficient time for the hearing that commences next week. They also point to difficulties in obtaining instructions from Mr Buckfield on the basis that he is in poor mental health, there being some evidence that he suffers from major depression.

12. On an application of this kind, made, as it is, effectively on the eve of the trial, where there is a significant risk of jeopardising valuable court time that has been set aside for the purpose, the Court is nonetheless primarily concerned with the balance of prejudice – that is to say what prejudice would be occasioned to the plaintiff by granting the adjournment sought, and what prejudice would be occasioned to the defendant by not doing so. That said, it is not a simple question of balancing prejudice in that way, because where a party is the author of its own prejudice, it cannot be allowed, by creating such prejudice, to avoid the proceedings against it from coming to trial.

13. In this case, on the question of mere balance of prejudice, the issue is clear. The plaintiffs frankly concede that there is no practical prejudice to them from an adjournment. The assets in question are the subject of asset preservation orders. The Court will be able to find time to hear the matter within three to six months. There is nothing to which the plaintiff points as being prejudicial, other than the wasted costs in preparation for hearing. Moreover, it is not a case in which there is a substantial personal emotional investment on the plaintiffs' part of the type that is no doubt prejudicial in the non-financial sense for a plaintiff to lose a hearing date: the plaintiffs are liquidators, and the only substantial creditor behind them is the Commissioner for Taxation.

14. On the other hand, there will plainly be at least the potential for serious substantive prejudice to the defendants. Their evidentiary case is, it seems, entirely unprepared, and it is likely that if the matter goes to trial next week they will have practically no evidence to offer and be in a position of being constrained to cross-examine the plaintiffs' witnesses and make submissions. That is potentially a situation of considerable disadvantage and prejudice to the defendants.

15. The real question is whether the defendants should be regarded as the authors of their own prejudice in that respect, or whether the situation in which they are is sufficiently or adequately explained. This is the much more difficult question on the application.

16. A number of matters were put forward as justifying or explaining the defendants’ position. Some of them, I think, can be fairly peremptorily disposed of. I do not think that there is any merit at all in the desire to use the s 536 application as a reason for deferring the hearing of the substantive proceedings. The s 536 application has been on foot since September 2011. It appears to have lapsed from consciousness in about May 2012, because it is not referred to in any subsequent directions. No one appears to have been alert to it nor conscious of its pendency since then. If there was going to be an application to have an inquiry into the liquidators' conduct, that could have been made or renewed at any time in the course of the proceedings, and indeed something like it was contemplated 12 or 15 months ago. There seems to me absolutely no merit in the contention that the sudden discovery that it might be still on foot coupled with a desire to prosecute it is any reason why the substantive proceedings should not come to trial in the ordinary course.

17. Secondly, it has been put that the Australian Taxation Office is the only remaining non-related creditor with an interest in the winding up and that it seems likely that Mr Buckfield may be able to reach a settlement with the Tax Office, which would result in it releasing its claim. For reasons which are not apparent, the Tax Office insists that the liquidator be involved in any settlement. It is entirely unapparent why that is so, and it is equally unapparent why the liquidator would have any reservation about or opposition to Mr Buckfield personally negotiating a settlement with the Taxation Office. One would have thought it was in the liquidators' interest that any claim against the company be settled by someone other than the company so that it ceased to be a claim against the company and ceased to be a matter for proof in the liquidation.

18. However, the negotiations with the Tax Office took place in October of last year. There has been an offer, which might well prove acceptable to the Tax Office, on foot since about 27 October. The pendency of that circumstance and the fact that nothing appears to have been done about it since provide no reason for deferring the present claim by the liquidators from going to trial. It is essentially an extraneous and irrelevant matter in the context of the substantive proceedings, which are brought by the liquidator for the benefit of creditors generally against persons to whom voidable dispositions have allegedly been made.

19. Thirdly, it was put that Mr Buckfield's poor health is a reason for adjourning the proceedings. The evidence indicates that Mr Buckfield has suffered from major depression for at least four years, if not longer, and that he had an exacerbation in late September/early October of last year. However, being engaged in litigation, particularly on the receiving end as a defendant, is likely to be a depressive factor for very many people. Losing litigation is likely to have an adverse effect on the mental health of those involved, at least where they are not well-resourced corporations which can tolerate such calamities. That cannot be allowed to be a significant consideration in a court deciding whether litigation should or should not come to trial. Moreover, in this case, Mr Buckfield has plainly been able to consider and give instructions in respect of negotiations with the Tax Office in October of last year. He has been able to give instructions for, although not necessarily swear an affidavit in support of, the recent contempt proceedings. He has been able to give instructions for other steps which have taken place in the course of these proceedings over the last four years or so. The evidence does not begin to establish that his mental health is such as to make him incapable of giving instructions. If it did, then the proper course would be to apply for the appointment of a tutor and I am not faced, at least at this stage, with such an application. The consequence is that I should proceed on the basis that he is able to give instructions, and none of the medical evidence that has been put before me suggests that he is not. Indeed, one often sees in connection with applications for expedition of proceedings evidence of psychologists and psychiatrists to the effect that it is in the interests of the depressed person that the matter be expedited, so that it ceases to be a depressive factor.

20. So those matters, I think, can be put to one side, save that the status of the Tax Office as the only relevant creditor bears to an extent, as I have said, on the question of absence of prejudice from granting an adjournment, and a concern on the part of the defendants' lawyers to obtain full and detailed instructions from Mr Buckfield bears slightly on an explanation for the delay since January of this year.

21. That leaves as the more significant points in the application the belated delivery of files by Leonard Legal; the necessity for enforcement proceedings and, to an extent, the necessary diversion of limited resources that that has involved to secure the delivery of the files; and the limited resources that have been available to the defendants.

22. The evidence indicates that the late delivery of the files on 23 December, when delivery ought to have taken place – if the orders were made on 9 December and the payment was made within five working days after that – five days after that. It cannot really be said that 23 December was late, because five working days is seven calendar days. 9 and 7 is 16 and 7 is 23. So it cannot realistically be said that the delivery on 23 December was particularly late. The non-delivery of the correspondence files is another matter and, while it is for another judge hearing another application to decide, appears unexplained and has no doubt contributed to the delay in preparing the matter for hearing.

23. It is not really clear, however, why it was not until the second week of April that the defendants' solicitor was able, as she says in her affidavit of 7 May, to prepare three affidavits with two bundles of documents, on the material that has so far become available. It is certainly not clear from the evidence that that only became possible as a result of the material delivered after the contempt application was filed; rather, the inference is to the contrary.

24. Accordingly, while the necessity to bring proceedings for production of the file, the necessity to bring proceedings for contempt and the limited resources available to the defendants provides some explanation for their present state of unpreparedness, I am far from convinced that the defendants could not have been in a far better position had their resources been better prioritised, and had an effort been made to prepare affidavits in response even as late as receipt of the pleadings and affidavits from Leonard Legal in December, rather than leaving it until early April. That said, there is some explanation for the position in which they presently are.

25. The ultimate position seems to me to be that a trial next week will be a farce, albeit of the solemn variety; that there is no prejudice or risk of prejudice to the plaintiffs from an adjournment; and that there is some, though less than compelling, explanation for the defendants being in the position in which they are – in particular the necessity to take more extensive steps than had been anticipated to obtain production of documents from the former solicitors. Less injustice will be risked by acceding to the application than by declining it.

26. As I have said, it does not follow that the s 536 application is entitled to any priority whatsoever.

27. The Court therefore orders that:

1. The hearing set down for 12-15 and 19 and 21 May 2015 in these proceedings be vacated.

2. The defendants pay the plaintiffs' costs of this application and occasioned by the vacation of the hearing on the indemnity basis.

3. The proceedings be fixed for hearing on 8 September 2015.

4. There be liberty to apply by arrangement with my associate on three days' notice, any such notice to specify the relief to be sought and the issues to be raised.

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Decision last updated: 29 September 2015