K M & a Chadwick Pty Ltd v Yeung, E.T.M

[1995] FCA 281

IN THE FEDERAL COURT OF AUSTRALIA    )
NEW SOUTH WALES REGISTRY            )   No NG 3187
GENERAL DIVISION  )

BETWEEN:

K M and A CHADWICK PTY LIMITED
  Applicant

AND:

ERIC TSUN MAN YEUNG and OTHERS
  Respondents

CORAM:    SACKVILLE J.
PLACE:    SYDNEY
DATE:     1 MARCH 1995

REASONS FOR JUDGMENT

HIS HONOUR: In this matter, on 21 February 1995, I dealt with a notice of motion on behalf of the applicant, for orders that the defence filed by the respondents be struck out and the judgment be entered in the sum of $81,583.48, together with interest and costs. The applicant's claim against the respondents in the principal proceedings was based on s.592(1) of the Corporations Law, to which I shall refer shortly.  In the reasons for judgment on the notice of motion, delivered on 21 February 1995, I concluded that this was an appropriate case for making orders pursuant to Order 10, r.7(2) of the Federal Court Rules, by reason of the failure of the respondents to comply with orders of the Court.  At the hearing on 21 February 1995 there was no appearance on behalf of the respondents, despite the fact
that their solicitors had been served with the notice of motion and supporting affidavit.

When delivering judgment on the applicant's notice of motion, I indicated that I would deal separately with the question of interest.  I invited Mr Brabazon, who appeared for the applicant, to make written submissions on that question.  I set the matter down for today in order to consider Mr Brabazon's submissions, and to include in the judgment an award of interest, if appropriate.  Mr De Buse has appeared on behalf of the respondents today and, prior to today's hearing, filed written submissions on the question of interest.  The matter has been argued before me this  morning.

I should indicate that, at the outset of today's hearing, I granted leave to Mr De Buse to file in court a notice of motion, in which the respondents seek to set aside the orders that I have made - or that I have indicated I will make - on the applicant's notice of motion.  The respondents, as I understand it, intend to argue that the hearing on 21 February 1995 took place in their absence (although, as I have said, it is common ground that they were duly served before the hearing), and that there was a satisfactory explanation for their absence.

I now return to the question of interest. Mr Brabazon submits that interest should be awarded on the sum for which the respondents are indebted to the applicant, pursuant to the power conferred by s.51A(1) of the Federal Court of Australia Act 1976. That section reads as follows:

"51A(1)  In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either -

(a)order that there be included in the sum for which judgment is given interest at such rates as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or

(b)without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest."

Mr Brabazon argues that the claim by the applicant is accurately described as "proceedings for the recovery of any money (including any debt...) in respect of a cause of action". Accordingly, he submits that, unless there is good reason to the contrary, the Court ought to include interest in any judgment in the proceedings. Mr Brabazon submits that, in accordance with s.51A(1), the interest should be awarded in respect of the period between the date when the relevant cause of action arose and the date of judgment.

In his written submissions, Mr Brabazon contends that the date from which interest should be awarded should be 31 May 1990.  That date was selected because the debts for which the respondents have been held personally liable had been incurred by the company, and were due for payment, no later than the end of May 1990.  Mr De Buse, on the other hand, submits that the earliest date from which interest should be payable is 25 February 1992.   It was on that date that a receiver was appointed to the company. 

Mr De Buse's argument is that s.592(1) of the Corporations Law creates a cause of action comprising three components, each of which must be satisfied. Section 592(1) provides as follows:

"592(1)  Where:

(a)a company has incurred a debt before the commencement of Part 5.7B;

(b)immediately before the time when the debt was incurred;

(i)there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or

(ii)there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and

(c)the company was, at the time when the debt was incurred, or becomes at a later time, a company to which this section applies;

any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred  contravenes this subsection and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt."

The elements of the statutory cause of action include proof that the company was, at the time the debt was incurred, or becomes at a later time, a company to which this section applies.

The phrase "a company to which the section applies" is a reference to s.589(1) of the Corporations Law. The only relevant provision in the present case is s.589(1)(e), which provides that s.592 applies to a company in respect of the property of which a receiver has at any time been appointed. Mr De Buse relies on Bush v Wright (1984) 3 ACLC 311 (S Ct NSW) in which Rogers J. held that proceedings under the equivalent of s.592(1) of the Corporations Law could not be instituted until the statutory requirements of what is now s.592(1)(c) have been satisfied. Until then the cause of action has not accrued. Bush v Wright was approved by the NSW Court of Appeal in Macquarie Bank Ltd v Fociri Pty Ltd (1992) 27 NSWLR 203.

Mr De Buse argues that an applicant's cause of action under s.592(1) does not accrue at the time the company incurs the debt, even if it does so in circumstances where there are reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due. Rather, he says, the cause of action accrues only when the company becomes one to which s.592(1) applies, in this case by reason of the appointment of a receiver. It follows that s.51A(1) provides no warrant for an award of interest prior to the date on which the requirements of s.592(1)(c) of the Corporations Law are satisfied.

Mr Brabazon answers this argument by contending that the liability created by s.592(1) is imposed, as it were, retrospectively upon the persons mentioned in the sub-section. As I understand it, he argues that the sub-section imposes a joint and several liability for the company's debt and that liability is created as from the time the company incurred the debt, at least in the circumstances specified in s.592(1)(b). However, I do not think that this contention accurately describes how s.592(1) operates. The liability arises only when all the conditions specified in s.592(1) are satisfied. If Mr Brabazon's submissions were correct, the decision in Bush v Wright would have been different. In any event, s.51A(1) of the Federal Court of Australia Act 1976 is the source of authority for the award of interest to a successful applicant. That sub-section specifies that interest should be awarded in respect of a period commencing on the date the relevant cause of action arose. There is no warrant in the sub-section for choosing an earlier date from which interest should run. The date the cause of action arose in the present case was no earlier than 25 February 1992.

Mr De Buse then argues that interest should be awarded pursuant to s.51A(1) only from the date the first demand was made upon the respondents to these proceedings. That demand is said by Mr De Buse to have been made in January 1994, although neither counsel pointed to evidence establishing whether or not that date is accurate. Be that as it may, Mr De Buse puts this proposition on two bases. The first, as I understand it, is that s.592(1) is part of a code, which has penal consequences and should be read narrowly. With this in mind, he contends that it is unlikely that Parliament intended that interest should be included in the debt recoverable under s.592(1) from directors or other persons taking part in the management of the company.
I think this argument overlooks the fact that the source of authority to award interest is s.51A(1) of the Federal Court of Australia Act 1976. That sub-section applies, relevantly, where there are proceedings for the recovery of money in respect of a cause of action. That criterion is clearly satisfied in the present case and the Court has power to award interest as from the date the cause of action accrued. It is not to the point that s.592(1) of the Corporations Law, in addition to creating a civil cause of action, also can operate to expose directors or other persons concerned in the management of the company criminal liability. That a Court has power to award interest from the date the cause of action accrued in cases brought under s.592(1) has been recognised, at least implicitly, in authorities to which Mr Brabazon referred. These include Taylor v Darke (1992) 10 ACLC 1516 and Taylor v Powell (1993) 10 ACSR 174.

The second basis upon which Mr De Buse puts his argument was that, as a matter of discretion, interest should not be awarded from a date prior to the date of the first demand upon the respondents.  He points out that, in general, people do not pay debts unless they are asked to do so and the respondents could not be expected to make a payment until a demand was made by or on behalf of an applicant.  Mr De Buse also points out that there might be circumstances in which the directors of a company will not be aware as to which debts should be paid by them personally and which should or can be paid out of the assets of the company.

I think this argument overlooks the proposition that the purpose of an award of interest is to compensate an applicant for being kept out of its money from the time a cause of action accrued.  As was said by Spender J. in Smallacombe v Lockyer Investment Co Pty Ltd (1993) 114 ALR 568 (FCA), at 575, interest under s.51A(1)

"is part of the loss or damage suffered by the applicants representing the compensation for being out of pocket to the extent of the [principal] amount."

I do not think that the fact (if it is the case) that a demand was made some time after the cause of action accrued provides, of itself, a basis for denying the applicant interest as from the date the cause of action accrued.  There may be particular circumstances where the delay provides the justification for the withholding of interest, but it would require an evidentiary foundation going beyond what is present in this case.

The second point overlooked by Mr De Buse's submission is the language of s.51A(1) itself. The sub-section requires that the Court shall, unless good cause is shown to the contrary, order that interest be included in the sum for which judgment is given. It is true that s.51A(1)(a) refers to "the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered". However, in my view, in the absence of good cause to the contrary being shown, it is ordinarily to be expected that the applicant will obtain interest in respect of the whole of the period from the date at which the cause of action arose and the date as of which the judgment is entered. By that observation I do not mean to restrict the
circumstances in which it might be held, in a particular case, that "good cause...to the contrary" has been shown.  In this case, however, I do not think any such cause has been established.

Accordingly, for these reasons, I propose to order that judgment be entered for an amount that equals $81,583.48, together with interest on that sum calculated from 25 February 1992.  Mr Brabazon advises that the amount of interest, calculated in accordance with the rates of interest applicable in the Supreme Court of New South Wales, is $27,359.63.  Mr De Buse is not in a position to agree with that.  I shall adopt that figure, unless by 5 p.m. tomorrow Mr De Buse contacts my associate and indicates that the matter should be relisted for the purpose of the calculation of interest.  Accordingly, subject to that matter, I direct that judgment be entered for the applicant in the sum of $108,923.11.  I also order the respondents to pay the costs of the applicant.

That brings me to the final matter.  I think it is preferable for the notice of motion that has been filed in Court on behalf of the respondents to be dealt with by another judge of this Court.  I have had occasion to comment on the conduct of the matter by the respondents over the course of the proceedings.  In these circumstances, I think it would be preferable for another judge to consider whether sufficient reasons have been shown to justify setting aside the orders that I have made in this matter.

Accordingly, I direct that the respondent's notice of motion be placed in the list at 9.30 am on Friday 17 March 1995 for directions.  At that time, appropriate directions can be given for the orderly disposition of the matter.  I also direct that service of the notice of motion and the supporting affidavit be effected on the applicant's solicitors by 5 p.m. on Monday 6 March 1995.

I certify that this and the preceding 9 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.

Associate:

Dated:1 March, 1995

Heard:1 March 1995

Place:            Sydney

Decision:1 March 1995

Appearances:      Mr M. Brabazon instructed by Wilkinson Throsby and Edwards, Solicitors, appeared for the applicant.

Mr B. De Buse instructed by Bouzanis, Solicitors, appeared for the respondents.