Joyce Rural Pty Ltd (Formerly Allnet Corp Pty Ltd) v Harris
[2001] WASC 14
•23 JANUARY 2001
JOYCE RURAL PTY LTD (FORMERLY ALLNET CORP PTY LTD) -v- HARRIS & ORS [2001] WASC 14
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 14 | |
| 23/01/2001 | |||
| Case No: | COR:350/2000 | 18 JANUARY 20001 | |
| Coram: | MASTER BREDMEYER | 22/01/01 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Applications allowed | ||
| PDF Version |
| Parties: | JOYCE RURAL PTY LTD (FORMERLY ALLNET CORP PTY LTD) (ACN 076 886 710) JAMES HARRIS RAE CAMPBELL DAVISON CORRALYN MAY DAVISON GARRY RAE DAVISON KEVIN BOND |
Catchwords: | Application to reinstate a deregistered company Application by creditor |
Legislation: | Corporations Law, s 601AH Trade Practices Act, s 52, s 82(2) |
Case References: | ACCC v ASIC (2000) 174 ALR 688 Pagnon v Workcover Queensland [2000] QCA 421 Ellul v Active Home Improvements Pty Ltd & Anor (1993) 112 FLR 4 Gausten v Outokumpo Australia Pty Ltd [1988] WASC 355 Harry Goudias Pty Ltd v Port Adelaide Freezers Pty Ltd (1992) 7 ACSR 303 Harule Pty Ltd; Ex parte Olita Super Readymixed Concrete Pty Ltd (in liq) (1994) 13 ACSR 500 Newham v Australian Securities and Investments Commission & Anor (2000) 35 ACSR 147 Re Formcrete Services Pty Ltd (1976) 2 ACLR 46 Re Immunosearch Pty Ltd (1990) 8 ACLC 1,031 Re Steelmaster Pty Ltd (in liq); Kenney v McCann (as Liquidator of Steelmaster Pty Ltd) (1992) 6 ACSR 494 Solla v Scott & Ors [1982] 2 NSWLR 832 Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- COR 351 of 2000
and
DAVGEM PTY LTD (formerly Davison Industries Pty Ltd) ACN 009 159 406
DAVREEF PTY LTD (formerly Davison Oils Pty Ltd) ACN 009 160 445
BETWEEN : JOYCE RURAL PTY LTD (FORMERLY ALLNET CORP PTY LTD) (ACN 076 886 710)
- Plaintiff
AND
JAMES HARRIS
RAE CAMPBELL DAVISON
CORRALYN MAY DAVISON
GARRY RAE DAVISON
KEVIN BOND
Defendants
(Page 2)
Catchwords:
Application to reinstate a deregistered company - Application by creditor
Legislation:
Corporations Law, s 601AH
Trade Practices Act, s 52, s 82(2)
Result:
Applications allowed
Representation:
Counsel:
Plaintiff : Mr K J Mony de Kerloy
Defendants : Mr D M Stone
Australian Securities and
Investments Commission : Ms F B E Ng
Solicitors:
Plaintiff : Freehills
Defendants : Williams & Hughes
- Australian Securities and : Australian Securities and
Investments Commission : Investments Commission
ACCC v ASIC (2000) 174 ALR 688
Pagnon v Workcover Queensland [2000] QCA 421
(Page 3)
Case(s) also cited:
Ellul v Active Home Improvements Pty Ltd & Anor (1993) 112 FLR 4
Gausten v Outokumpo Australia Pty Ltd [1988] WASC 355
Harry Goudias Pty Ltd v Port Adelaide Freezers Pty Ltd (1992) 7 ACSR 303
Harule Pty Ltd; Ex parte Olita Super Readymixed Concrete Pty Ltd (in liq) (1994) 13 ACSR 500
Newham v Australian Securities and Investments Commission & Anor (2000) 35 ACSR 147
Re Formcrete Services Pty Ltd (1976) 2 ACLR 46
Re Immunosearch Pty Ltd (1990) 8 ACLC 1,031
Re Steelmaster Pty Ltd (in liq); Kenney v McCann (as Liquidator of Steelmaster Pty Ltd) (1992) 6 ACSR 494
Solla v Scott & Ors [1982] 2 NSWLR 832
Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514
(Page 4)
1 MASTER BREDMEYER : The plaintiff has applied to the court for an order reinstating Davgem Pty Ltd ("Davgem") and in another application for the reinstatement of Davreef Pty Ltd ("Davreef"). The applications are made under s 601AH(2) of the Corporations Law. Davgem and Davreef are related companies. Davgem is the parent company of Davreef. Davgem underwent voluntary liquidation. The Liquidator, Mr Glen Montague, was appointed on 22 September 1999. On 20 November 1999 a meeting of creditors was held and it approved a distribution in specie to the shareholders of $457,906. Mr Montague resigned on 20 November 1999. Davgem was deregistered on 25 February 2000.
2 Davreef was not placed in liquidation. It was deregistered on 11 September 1998. It was solvent. In its accounts to 30 June 1997 it paid a dividend of $490,777, I presume, to its shareholder and parent company, Davgem.
3 Davgem and Davreef ran a chemical business which they sold to the plaintiff in January 1997 for $23.5 million.
4 The plaintiff has applied to reinstate these companies because it wants to sue them for damages. Indeed, it has sued them in CIV 1091 of 2000 commenced on 27 January 2000. The directors, as individuals, have also been sued in that action. Davgem was then in existence, but the writ was not served promptly and the company was deregistered before the writ was served. Davreef is named in the writ as a defendant, but unknown to the plaintiff, the company was already deregistered when the writ was issued. The plaintiff has sued the companies for breach of warranty, misleading and deceptive conduct and negligent misrepresentations in connection with the sale of the business. The ex directors, who are the defendants in these applications, have also been sued in that action. It is alleged in the statement of claim that the defendants in that action misrepresented to the plaintiff that the land, the subject of the purchase, was not contaminated by noxious chemicals. It is said in an affidavit that in September 1999 the plaintiff discovered chemical contamination on the land and engaged experts to analyse it.
5 The application is opposed by the ex directors of the companies.
6 There are two key elements in s 601AH(2), namely that the plaintiff must be a person aggrieved by the deregistration and the court must be satisfied that it is just that the company's registration be reinstated.
(Page 5)
7 I am satisfied that the plaintiff is a person aggrieved by the deregistration of these two companies. It is a potential creditor of the two companies by virtue of the matters set out in the statement of claim and in the plaintiff's affidavits. It has gone to the trouble and expense of getting expert reports from at least two men as to the extent, nature and likely timing of events which led to the contamination. The reports of one of those experts have been supplied to the ex directors. The plaintiff has engaged a leading firm of solicitors to act for it and has had a Queen's Counsel prepare a 29 page statement of claim. The plaintiff is a prospective creditor and clearly a person aggrieved.
8 Is it just to reinstate these companies? In ACCC v ASIC (2000) 174 ALR 688 at [27] Austin J, of the New South Wales Supreme Court, in a similar application to this, said:
"The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement ... "
- Those factors are not exhaustive. In considering whether it is just to reinstate these companies, I take into account the following matters.
9 Firstly, there is nothing suspicious in the circumstances in which these companies came to be dissolved. There is no suggestion that the directors acted dishonestly in dissolving these companies. Prima facie, the companies had sold their business, their major reason for existence, and, if no other business was proposed, it was appropriate to distribute the assets to the shareholders and dissolve the companies. The companies were not dissolved in order to defeat the plaintiff's claims arising out of the sale of the business. The plaintiff's claims of misrepresentation etc were not made known to the companies prior to their deregistration.
10 Secondly, if reinstatement is granted, I do not consider that the plaintiff's claims against the companies will be time-barred. The period of limitations for contract and tort is six years and that period has not elapsed. The period of limitations for an action under s 52 of the Trade Practices Act and the equivalent section of the Fair Trading Act is three years from the time the damage occurred. I think it could be strongly argued that this cause of action did not accrue until the damage was discovered in September 1999.
(Page 6)
11 It was argued on behalf of the defendants that no good point would be served by reinstatement because these two companies, if reinstated, will have no assets. Davgem was in liquidation at the time of deregistration and Davreef also had no assets at that time. The plaintiff is willing to take its chances on that. It seeks reinstatement so that it can sue these companies whether they have assets or not. As stated, Davgem is in liquidation and on reinstatement will remain in liquidation. Davreef has no assets and could readily be put in liquidation if faced with a large judgment debt in favour of the plaintiff. I consider the plaintiff's argument is correct. If the plaintiff succeeded in obtaining a judgment for damages against these companies, the liquidator has a duty to see if he can bring any claims against the directors or against third parties to meet the judgment debt. If the trial of the action established that a director knew of the contamination on site, and that, despite that knowledge, he gave the warranties to the plaintiff, or made the representations alleged of no contamination, he would arguably be in breach of his director's duties, eg of due care and diligence and of good faith, and could be sued by the company for breach of those duties.
12 Even with no assets, by joining the companies in the action, the plaintiff will get the benefit of discovery against these companies which would otherwise have to be obtained in a more roundabout way by discovery from a non-party, presumably whoever has possession of the companies' records.
13 Is anyone likely to be prejudiced by the reinstatement of these companies? Arguably the ex-directors, who are opposing these applications, are likely to be prejudiced. It was put to me that it may be incumbent upon them to fund the liquidator in his defence of the action and that he would need to be represented separately. I am not convinced on those two points. The ex directors may well decide not to fund the liquidator in his defence of the action if they consider that they have done nothing wrong and that the liquidator of the companies would have no right of action against them. Without funding, the liquidator would probably submit to the jurisdiction of the court and abide by any orders it makes; or the ex directors could decide to fund the liquidator of the companies only on the condition that they engage a common solicitor and counsel so that if the liquidator considered that he needed separate representation he would need to look for his own funding to pay for that. That decision would not put the ex directors to much extra expense.
14 The ex directors of the companies perceive reinstatement to be prejudicial to them and that is the reason why they oppose the application.
(Page 7)
- It is prejudicial to them as individuals, because the plaintiff may have causes of action against the companies in contract, which it does not have against them as individuals. If the plaintiff is successful against the companies in these causes, the liquidator of the companies may be able to sue them. But in considering the justice of making orders for reinstatement, the court has to balance competing interests. It is advantageous to the plaintiff that these companies be reinstated. It may be prejudicial to the defendants, the ex directors, for an order to be made. This is not a case where an insurer will bear the burden of any judgment obtained in the action. In weighing up these competing interests, I consider I should come down heavily on the side of the plaintiff. I consider that for the purposes of this application I should take the statement of claim at face value. I do not consider it is frivolous or that it fails to disclose a reasonable cause of action. The statement of claim asserts very serious allegations against the companies and their then directors. As a result of their misrepresentations the companies received $23.5 million for the sale of the business. The contamination and the falsity of the representations were not discovered by the plaintiff until September 1999. The plaintiff should be allowed to sue for the companies' misconduct which occurred when they were in business and which netted them great commercial gain. The plaintiff has not slept on its rights, at least not between the date of the purchase in January 1997 and September 1999 when the contamination and misconduct was discovered. By then, Davreef had been deregistered and Davgem was in the process of being wound up and deregistered. On 30 June 1999 two directors of Davgem declared that the company had no liabilities, which was a true statement at that time. I consider that those factors are so powerful that they outweigh any prejudice to the ex directors and I consider it just that these companies be reinstated.
15 I therefore propose to reinstate these two companies.
16 If Davgem is reinstated it will be reinstated as a company in liquidation. The applicant says that the old Liquidator, Mr Glen Montague, resigned on 20 November 1999, so he will not automatically take over the management of the company on reinstatement. The plaintiff would like fresh administrators, Mr Vincent Smith and Mr Bryan Hughes, to be appointed jointly as liquidators and has filed a consent in relation to each of them. Presumably, the plaintiff has come to an arrangement with them as to their funding. The respondents oppose the appointment of those two men, as indicating potential for bias. Their appointment has been arranged by the creditor who has sued the companies. The defendants would like the former liquidator,
(Page 8)
- Mr Montague, or some other person chosen by the court to be reappointed. Their counsel says that Mr Montague's resignation was not effective and has referred me to ACCC v ASIC, above, at [50]. I do not agree with that submission. I consider the liquidator has resigned and therefore would not automatically be reappointed on reinstatement. He should not be appointed without his consent and his re-appointment has not been discussed with him. On the question of apparent bias, I consider that it is in order to appoint Messrs Smith and Hughes jointly as liquidators of Davgem. It is true that their appointment has been arranged by the plaintiff, who may well be funding them, but once appointed I consider they have a duty to obtain independent legal advice on all matters and they should not take any instructions from the applicant. This will preserve their independence and impartiality.
17 As previously stated, Davgem was in existence when the writ was issued; but Davreef was not, having been deregistered on 11 September 1998. The applicant says that the writ is void as against Davreef , as the company was deregistered and hence not in existence when the writ was issued. The applicant says it cannot simply issue a new writ against Davreef as it may be out of time under the three year limitation period imposed by s 82(2) of the Trade Practices Act. The applicant requests me to make an order under s 601AH(3) which enables the court to make an order validating anything done between the deregistration of the company and its reinstatement and to make any other order it considers appropriate.
18 In Pagnon v Workcover Queensland [2000] QCA 421 at [15], McPherson JA, with whom Thomas JA and Muir J agreed, after discussing the problem and the legislation in England and in Australia, concluded that it would be just to make an order under s 601AH(3)(b) that the time between the dissolution of the company and the expiration of the limitation period under s 11 of the Limitation of Actions Act 1974 should not be counted against the plaintiff.
19 I am willing to follow that authority and make a similar order here. I do so with some reservation, however, because I do not consider the order is strictly necessary. I do not consider that the limitation period under the Trade Practices Act and the Fair Trading Act has expired for reasons given earlier. Secondly, I am not sure if the limitation period of three years imposed by s 82(2) of the Trade Practices Act is capable of being stayed. It may well differ from a limitation period imposed by the Limitations Act which was the limitation provision under consideration in Pagnon, above.
(Page 9)
20 I will hear the parties on the precise form of the orders and on costs. I should add that the ASIC does not oppose the reinstatement of these companies.
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