Kimberley Stuart Wallman as Liquidator of Graffiti Holdings Pty Ltd (in Liq) v Milestone Enterprises Pty Ltd

[2006] WASC 260

KIMBERLEY STUART WALLMAN AS LIQUIDATOR OF GRAFFITI HOLDINGS PTY LTD (IN LIQ) -v- MILESTONE ENTERPRISES PTY LTD [2006] WASC 260

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2006] WASC 260
Case No:	COR:126/2006	Heard:	6 OCTOBER 2006
Coram:	MASTER NEWNES	Delivered:	24/11/06
No of pages:	16	Judgment Part:	1 of 1
Result:	Application to extend time allowed
Category:	B
PDF Version

Parties:	KIMBERLEY STUART WALLMAN AS LIQUIDATOR OF GRAFFITI HOLDINGS PTY LTD (IN LIQ) (ACN 009 195 117) MILESTONE ENTERPRISES PTY LTD (ACN 092 901 427)
Catchwords:	Corporations Application to extend time under s 588FF Ex parte order Whether order should be set aside Whether application fully disposed of if ex parte order set aside or whether it remains on foot Considerations on application to extend time
Legislation:	Corporations Act 2001 (Cth), s 436A, s 588FE(3), s 588FF(1), s 588FF(3)
Case References:	Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 BP Australia Ltd v Brown [2003] NSWCA 216 Brown v DML Resources Pty Ltd (No 3) (In Liq) (2001) 188 ALR 469 Green v Chiswell Furniture Pty Ltd (In Liq) [1999] NSWSC 608 Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17 McGrath v National Indemnity Co [2004] NSWSC 391 Taylor v Woden Constructions Pty Ltd [1998] FCA 1228 Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (In Liq) [2004] NSWSC 1244

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : KIMBERLEY STUART WALLMAN AS LIQUIDATOR OF GRAFFITI HOLDINGS PTY LTD (IN LIQ) -v- MILESTONE ENTERPRISES PTY LTD [2006] WASC 260 CORAM : MASTER NEWNES HEARD : 6 OCTOBER 2006 DELIVERED : 24 NOVEMBER 2006 FILE NO/S : COR 126 of 2006 BETWEEN : KIMBERLEY STUART WALLMAN AS LIQUIDATOR OF GRAFFITI HOLDINGS PTY LTD (IN LIQ) (ACN 009 195 117)

Plaintiff

AND

MILESTONE ENTERPRISES PTY LTD (ACN 092 901 427)
Defendant

Catchwords:

Corporations - Application to extend time under s 588FF - Ex parte order - Whether order should be set aside - Whether application fully disposed of if ex parte order set aside or whether it remains on foot - Considerations on application to extend time

Legislation:

Corporations Act 2001 (Cth), s 436A, s 588FE(3), s 588FF(1), s 588FF(3)

(Page 2)

Result:

Application to extend time allowed

Category: B

Representation:

Counsel:

Plaintiff : Mr C C K Ko
Defendant : Mr A Atkinson

Solicitors:

Plaintiff : Brickhills
Defendant : Solomon Brothers

Case(s) referred to in judgment(s):

Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485
BP Australia Ltd v Brown [2003] NSWCA 216
Brown v DML Resources Pty Ltd (No 3) (In Liq) (2001) 188 ALR 469
Green v Chiswell Furniture Pty Ltd (In Liq) [1999] NSWSC 608
Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17
McGrath v National Indemnity Co [2004] NSWSC 391
Taylor v Woden Constructions Pty Ltd [1998] FCA 1228

Case(s) also cited:

Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (In Liq) [2004] NSWSC 1244

(Page 3)

1 MASTER NEWNES: This is an application by the defendant to set aside an order made ex parte on 4 August 2006 extending the time within which the plaintiff may make an application under s 588FF(1) of the Corporations Act 2001 (Cth) ("the Act").

The ex parte application

2 On 4 August 2006 the plaintiff applied on an urgent basis for an order extending for a period of 12 months the time within which he may make an application under s 588FF(1). The application came before me that afternoon, a Friday. I was told by the plaintiff's counsel that the application had been brought on urgently because it was arguable that the time within which the application must not only be made but also determined under s 588FF(3) would expire on 6 August 2006.

3 At the time I expressed doubt that the application had to be determined, as opposed to be made, within the three-year period prescribed by s 588FF(3), and I also drew to counsel's attention the decision of the Court of Appeal of New South Wales in BP Australia Ltd v Brown [2003] NSWCA 216 in relation to ex parte applications. Counsel for the plaintiff nevertheless sought to have the application dealt with immediately on the basis that if the plaintiff's concern turned out to be well founded his opportunity to obtain an extension of time would be irretrievably lost.

4 When the order extending time was made, leave was expressly reserved to the defendant to apply to vary or set aside the order and I ordered that the originating application, supporting affidavit and the order be served on the defendant on or before 9 August. I adjourned the application for further hearing on 11 August 2006. I made it clear to counsel for the plaintiff that on any such application by the defendant the onus would be on the plaintiff to establish that it was entitled to the order, rather than on the defendant to show why the order should be varied or set aside; that is, it would be, in effect, a hearing de novo of the plaintiff's application. When the matter came onfor further hearing on 11 August 2006, counsel for the defendant moved orally for the ex parte order to be set aside. The matter was then adjourned to a further date for argument.

5 The defendant seeks to set aside the order on essentially two bases, first, that as it was made on an ex parte basis, the defendant is entitled to have it set aside as of right and, secondly, that the plaintiff's application is without substantive merit.

(Page 4)

The evidence as to the relevant transaction

6 The plaintiff is the liquidator of Graffiti Holdings Pty Ltd (In Liq) ("Graffiti Holdings"). He was appointed administrator on 7 August 2003 by a resolution under s 436A of the Act. At a meeting of creditors on 29 August 2003 it was resolved that Graffiti Holdings be wound up and the plaintiff was appointed liquidator.

7 The plaintiff says that Graffiti Holdings' records indicate that it traded in partnership with Mystical Holdings Pty Ltd under the partnership name "Broadwater Consolidated". By a building contract dated 16 September 2001 made between Graffiti Holdings and the defendant, Graffiti Holdings agreed to construct seven units in a development of 27 units at Port Bouvard for the sum of $191,420. It appears from Sch 10 to the building contract that the contract price was the difference between the total cost of construction of the 27 units, an amount of $3,103,419, and the construction costs attributed to 20 units in the development, an amount of $2,911,999. The average cost to the defendant of the seven units was therefore $27,345.71. The average cost of each of the other 20 units was therefore $145,599.95.

8 The plaintiff refers to correspondence from Broadwater Consolidated to the defendant from which it appears that in a partially completed state the cost of construction of the seven units had reached some $354,310.

9 The plaintiff says that according to the books and records of Graffiti Holdings the seven units were completed in or about April 2003, some four months before the plaintiff's appointment. He says that in his view the company was insolvent for a considerable period of time prior to his appointment as administrator and possibly at the time of entering into the building contract and during construction of the seven units.

10 The plaintiff says that, in the circumstances, the contract price under the building contract was grossly inadequate and Graffiti Holdings did not obtain a proper and reasonable benefit from entering into the transaction. He says there is reason to believe that the building contract is a voidable transaction under s 588FE(3) of the Act, in which case the plaintiff would be entitled to obtain orders under s 588FF(1) of the Act.

11 The plaintiff refers in his affidavit in support of the application to a letter he wrote to Mr Moore of the defendant requesting details of invoices received by the defendant from Graffiti Holdings or the partnership. The following day, 29 November 2005, the plaintiff wrote to the defendant's solicitors enclosing a copy of that letter. That request was

(Page 5)

reiterated by an email to the defendant's solicitors of 13 December 2005. It appears there was then a telephone conversation between the plaintiff and the defendant's solicitor in which the plaintiff requested that information for the period October 2000 to August 2003. The plaintiff gave notice that if the information was not provided, he would refer the matter to his legal advisers.

12 It seems that no response, or at least no satisfactory response, was received by the plaintiff and, on 10 March 2006, the plaintiff's solicitors wrote to the defendant's solicitors enquiring whether the contract document the plaintiff had in respect of the seven units was the entire contract between the parties and whether the defendant had made payment of the sum of $199,420. If the payment had been made, the plaintiff's solicitors requested all documentation confirming the payments together with copies of the invoice or progress claims relating to the construction costs. A reply was requested within seven days. The plaintiff says that no response has been received.

13 According to the plaintiff, it has taken until the present time to investigate the issues relating to the defendant as he required funding to pursue any potential claims, and he is now likely to obtain that funding. The plaintiff says that upon obtaining the necessary funding he intends either to make an application for pre-action discovery or alternatively file an application against the defendant pursuant to s 588FF(1) of the Act.

14 The defendant has responded to this application by an affidavit of its sole director, Keith Moore, sworn on 16 August 2006. Mr Moore says that the defendant acquired the land in question in 2001 and developed it by subdividing it into 27 strata lots plus common property. In February 2001 he requested Mr Winning of Graffiti Holdings to provide a quote for the construction of a unit on each of the 27 strata lots, once those lots had been created. By letter dated 15 February 2001, Graffiti Holdings quoted an amount of $2,844,802 plus GST of $258,617, a total of $3,103,419, for the construction of the 27 units.

15 Mr Moore says that some weeks later he told Mr Winning that the defendant intended to proceed with the construction of the units and received a quote by letter of 16 March 2001 of a total cost of $2,844,802 excluding GST. There were then discussions between Mr Moore and Mr Winning in which Mr Winning said that for the purpose of spreading risk, he would prefer that Graffiti Holdings entered into building contracts with the purchasers of the strata lots as well as with the defendant. Mr Winning said that the overall contract price would remain the same

(Page 6)

irrespective of the price paid for the units by the purchasers of the strata lots. He was not concerned about how much the purchasers and the defendant respectively paid for the construction of their units, so long as the total amount received by Graffiti Holdings was $3,103,419 inclusive of GST.

16 According to Mr Moore, in the period to September 2001, the defendant entered into contracts to sell 20 strata lots. Each of the purchasers also entered into a building contract with Graffiti Holdings in relation to the construction of a unit on their strata lot. The total amount of the construction contracts between Graffiti Holdings and the 20 purchasers was $2,911,999. Pursuant to the agreement between the defendant and Graffiti Holdings, the cost of construction of units on the remaining seven lots was the difference between the contract price of $3,103,419 and the sum of $2,911,999 to be paid by the 20 purchasers, an amount of $191,420. Accordingly, a contract was entered into between Graffiti Holdings and the defendant on 16 September 2001 for the construction of seven units for the sum of $191,420.

The defendant's submissions

17 It was submitted on behalf of the defendant that there was no reason for the application to be heard and determined on an ex parte basis. Section 588FF(3) required only that the application for the extension of time be filed within the three-year time limit, not that it also be determined within that time.

18 The fact that the matter was heard and determined on an ex parte basis has deprived the defendant of procedural fairness and the order must be set aside. It was submitted that the decision of the New South Wales Court of Appeal in BP Australia Ltd v Brown (supra) is authority for the proposition that an ex parte order made pursuant to s 588FF(3) must be set aside, even if, as here, leave was granted to the defendant to apply to set aside or vary the ex parte order. Once the ex parte order is set aside, the original proceedings no longer remain in existence; the application is spent and cannot be re-heard. A new application would need to be brought on behalf of the liquidator, but that would now be out of time. Counsel referred to Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17.

19 It was submitted, in the alternative, that the application for an extension of time was without merit. On an application under s 588FF(3) some regard must be had to the merits of the application. In the present case, there was the uncontested evidence of Mr Moore that Graffiti

(Page 7)

Holdings agreed to construct 27 units for $3,103,419 and the defendant was able to raise $2,911,999 through contracts entered into with 20 purchasers of units in the development. The defendant paid the balance of the construction cost and acquired the balance of the units. There was no basis upon which the transaction could be impugned as an uncommercial transaction.

20 In addition, the explanation that funding had not previously been in place was not a satisfactory explanation for the delay in commencing proceedings and the application ought to have been refused on that basis alone: Greig v Stramit Corporation Pty Ltd (supra) per Williams JA at [100].

21 It was also submitted that, if the order extending time was not set aside, there was no basis upon which the plaintiff was entitled to a blanket order which did not identify the transactions sought to be impugned. While there are exceptions to the general rule that blanket orders should not be made, the exceptions had no application in the present circumstances. Accordingly, if the plaintiff's application was otherwise successful, the extension of time should be limited to the transaction referred to by the plaintiff.

The plaintiff's submissions

22 It was submitted on behalf of the plaintiff that the defendant has not been deprived of procedural fairness as it was at liberty to apply to set aside the order and the hearing was adjourned to a specific date to allow the defendant to do that. It was also the case that the hearing of such an application was to be treated as a de novo hearing of the plaintiff's application, so the defendant was not disadvantaged but was in the same position as it would have been in had it appeared on 4 August 2006.

23 It was submitted that the extension was sought as a matter of urgency on 4 August 2006 to avoid any ambiguity as to whether it was only the application that had to be made within the three-year period, or whether the application had to be both made and determined within that time. In that respect, counsel referred to McGrath v National Indemnity Co [2004] NSWSC 391, where Barrett J referred to the ambiguity in that respect in s 588FF(3), albeit his Honour concluded that the former was the correct view.

24 It was submitted that, in any event, if the order was set aside, the application would remain in existence and on a re-hearing of the matter on the merits the extension of time should be granted. It was not the case

(Page 8)

that in the present circumstances, where the order is set aside on procedural grounds, the application was spent on the making of the original ex parte orders. Counsel referred to obiter of Spigelman CJ in BP Australia Ltd v Brown (supra).

25 It was submitted that it was evident from the correspondence that the construction costs of the units which the defendant had acquired far exceeded the price that the defendant had paid for the units. Numerous requests for information from the defendant to assist the plaintiff's investigation were not responded to and it was only when this application was brought that the defendant had, belatedly, responded in any substantive way. The liquidator had not yet had an opportunity to investigate the merits of the explanation now put forward, but has proper grounds for enquiring into the matter and should not be precluded from doing so.

Must the ex parte order be set aside?

26 As I have mentioned, the defendant relied upon the decision in BP Australia Ltd v Brown (supra) for the proposition that the present order must be set aside because it was made ex parte and it was not to the point that leave had been granted to the defendant to apply to set it aside.

27 In that case, Spigelman CJ (with whom Mason P and Handley JA agreed) said (at [134] - [136]):

"The obligation to comply with procedural fairness imports a higher level of content when imposed on a court than in decision-making processes conducted by administrators or tribunals. It requires, in my opinion, that a person likely to be adversely affected by the order of the court is given an opportunity of making submissions to the court before any such order is made or if, exceptionally, an order is made without such an opportunity being given that, upon application, the person must be put in the same position as he or she would have been prior to the order being made. It is the inherent difficulty of achieving the latter that makes an ex parte order a course to be followed only in the case of necessity or other strong reason.

The creation of a situation in which a person must apply to vacate or vary an order after the order has been made is an exceptional situation. Nothing on the facts of the present case, as at the time of the first judgment, was such as to justify the exceptional course.

(Page 9)

Perhaps there will be circumstances in which it is not appropriate to give all who may be affected by an order under s 588FF(3)(b) an opportunity to make submissions prior to the order being made. It is not necessary to determine this question. Here there was a clearly identified party with a substantial interest in the question to be determined. Nothing appeared by way of urgency or otherwise to require an ex parte order to be made. The Appellant was unnecessarily placed in the position of applying to the Court, pursuant to leave reserved by order of the Court, to have the order discharged.

…

There was no relevant fact or circumstance which justified putting the Appellant/Cross-Respondent in the position of having to move the Court to set aside an order."

28 It follows that the Court accepted that in cases of "necessity or other strong reason" an ex parte order is an appropriate course and that one such reason is urgency.

29 The first question, it seems to me, is whether there existed in this case grounds of urgency which justified the order being made ex parte.

30 As I mentioned, the application was brought as a matter of urgency on a Friday afternoon. It is not apparent from the affidavit in support of the application why it had been left so late. It is the case that the defendant had not responded to the plaintiff's enquiries in relation to the transaction, but the last letter from the plaintiff's solicitors is dated 10 March 2006. There is no explanation as to why this application was left for a further period of almost five months, to the point where it was brought on urgently on the afternoon of what was thought by the plaintiff and his advisers might be the last available day.

31 It is, I think, fairly to be inferred that the perceived urgency was wholly of the plaintiff's making. The perceived urgency also proceeded on the basis of a misunderstanding of the effect of the time limit in s 588FF(3), based upon a concern about the possible ambiguity of that section following certain comments (but not the finding) of Barrett J in McGrath v National Indemnity Co (supra). Counsel accepted on 4 August 2006 that the better view might be that the application had to be made, but not determined, within the three-year period, but out of an excess of caution sought to have the order to be made.

(Page 10)

32 I do not consider that the hearing of the application ex parte on 4 August 2006 can be sustained on the basis of urgency. But, in my view, that is not the end of the matter. There remains the question of whether the order should be set aside solely on the basis that it was made on an ex parte basis. That, in my view, is to be determined on the basis of considerations of practical justice; it is not a question of punishing the plaintiff for making the application on an ex parte basis when adequate grounds for doing so did not exist.

33 In the circumstances, I would not set aside the order on the ground that it was made ex parte. The order not only reserved to the defendant the right to apply to set it aside, but it was also made on the basis that on such an application the hearing would be conducted, in effect, as a hearing de novo of the plaintiff's application. The application was adjourned for further hearing seven days later to allow the defendant to be heard, following service of the papers. It was not therefore a question of "sidestepping the question [of the affected party's right to be heard] by making the order in the absence of the affected party on the implicit basis that that party may later apply to have it set aside either under [O 58 r 23] of the Supreme Court Rules or by way of exercise of the inherent jurisdiction reflected in that rule": cf McGrath v National Indemnity Co (supra) at [12].

34 The defendant's present application to set it aside was, as foreshadowed on 4 August 2006, conducted on the basis of a hearing de novo of the plaintiff's original application and, in my view, the defendant is therefore, for all relevant purposes, in the same position as it would have been in had it been present to make submissions on 4 August 2006. It was always envisaged that that course would be followed. There is no suggestion that in the interim any steps were taken by the plaintiff, or consequences occurred, adverse to the defendant. Although, in my view, the plaintiff's concern as to time limits was misconceived, the plaintiff's purpose in obtaining the order was simply to preserve his position until the defendant could be heard, if it wished to be heard.

35 Even if I am wrong on this point, I do not consider that the effect of setting aside the order would be that the plaintiff's application is now spent, so that a fresh application (which would now be out of time) would be necessary to enable the plaintiff to seek the leave which he wishes to obtain.

(Page 11)

36 It was common ground on the hearing of the application that the relevant authorities are not easily reconciled. In Greig v Stramit Corporation Pty Ltd(supra), relevantly for present purposes, the liquidators of Australian Building Industries Pty Ltd ("ABI") obtained an ex parte order extending the time within which they might bring applications under s 588FF. No parties or transactions were referred to in the order and the order did not reserve liberty to any affected party to apply to vary or set it aside. Stramit had been a substantial supplier to ABI. Subsequently the liquidators commenced s 588FF proceedings against Stramit. After the proceedings had been commenced, Stramit applied to set aside the ex parte order. Chesterman J set aside the order "in so far as it applies to Stramit". The liquidators appealed against that decision. One of the questions on the appeal was whether, following the order of Chesterman J, the order extending time was still extant and undisposed of in respect of Stramit.

37 The Queensland Court of Appeal was divided on this point. Williams JA and Gerrard JA held that the ex parte order had finally disposed of the proceeding on the original application and the subsequent order to set aside the ex parte order in relation to Stramit did not alter that. The proceedings for an extension of time were therefore spent.

38 Fryberg J (at [146] - [149]) was of a contrary view. His Honour accepted that, following the order of Chesterman J, what remained of the ex parte order was a final order of the Court. But Fryberg J considered that where a court makes an order granting less relief than was sought by the applicant, the question of whether the application has been finally disposed of can be resolved only by examining what occurred at the hearing. It may be that the Court did not intend to refuse the balance of the relief but only intended to deal with the application in part and left part of it to be resolved at a later hearing. Often this will be reflected in an order adjourning the further hearing of the application. Where a court does not decide part of an application on the merits, the application has not been fully disposed of. In this case it was apparent from his reasons for decision that Chesterman J did not set aside the order with the intention that the original application should fail against Stramit but to enable a hearing to take place, as clearly appeared from his reasons for judgment. Fryberg J concluded that the application had not been fully disposed of and remained on foot.

39 The conclusion of the majority of the Court of Appeal in Greig v Stramit Corporation Pty Ltd (supra) was contrary to the earlier decision of Austin J in Brown v DML Resources Pty Ltd (No 3) (In Liq) (2001)

(Page 12)

188 ALR 469 at [29] - [30], which decision the majority expressly declined to follow.

40 In Brown v DML Resources Pty Ltd (No 3) (In Liq) (supra), save that at the time the ex parte order was made certain creditors were ordered to be served and were expressly given liberty to apply to set aside or vary the order granting leave, the essential facts were in all material respects the same as the facts in Greig v Stramit Corporation Pty Ltd (supra). Austin J held that as the ex parte order obtained by the liquidator was set aside on the procedural ground that a creditor, BP Australia Ltd, should have been given an opportunity to be heard before the order was made, and not a ground relating to the substance or merits of the application, it provided no basis for an order dismissing the proceedings automatically and consequently the proceedings would remain in existence after the ex parte order had been set aside.

41 In the decision of the New South Wales Court of Appeal in BP Australia Ltd v Brown (supra), the conclusion of the majority in Greig v Stramit Corporation Pty Ltd (supra) on this point was considered by Spigelman CJ (with whose judgment Mason P and Handley JA agreed). It was unnecessary for his Honour to decide the point but, by way of obiter, Spigelman CJ expressed the view that there was "considerable force" in the dissenting opinion of Fryberg J in Greig v Stramit Corporation Pty Ltd (supra).

42 Uniformity of decision in the interpretation of uniform national legislation such as the Act is a sufficiently important consideration to require that an intermediate appellate court - and all the more so a single Judge - should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485. In the present case, however, I do not think that the views expressed by the majority in the Queensland Court of Appeal and by the New South Wales Court of Appeal, to which I have referred, can be reconciled, albeit the view expressed in the New South Wales Court of Appeal is obiter. In the circumstances, I consider the matter is properly to be approached on the basis that there are conflicting decisions of intermediate appellate courts on the point.

43 In my respectful opinion, the dissenting view of Fryberg Jin Greig v Stramit Corporation Pty Ltd (supra), in effect endorsed by the New

(Page 13)

South Wales Court of Appeal in BP Australia Ltd v Brown (supra), is to be preferred.

44 The facts in Greig v Stramit Corporation Pty Ltd (supra) were somewhat different to this case but the reasoning of Fryberg J is, in my view, relevant to the determination of the issue in this case. In determining the effect of the ex parte order it is necessary to examine what occurred at the hearing. At the hearing on 4 August 2006, when the ex parte order was made, the plaintiff was ordered to serve a copy of the order, the application and the documents filed in support of the application on the defendant on or before 9 August 2006, and the defendant was given liberty to apply to vary or set aside the order granting an extension of time. It was ordered that the application be adjourned to 11 August at 9.15 am. The order was therefore, in effect, expressly made subject to the defendant's right to apply to set it aside. As I have mentioned, at that time I made it clear, and the plaintiff's counsel accepted, that any application to set aside the order would be treated as a hearing de novo of the plaintiff's application. In my view, in the circumstances the ex parte order did not, and manifestly was not intended to, finally dispose of the application for an extension of time.

45 It follows that if the order were set aside on the ground that the defendant had not been given an opportunity to be heard, the plaintiff's application would remain on foot and it would be necessary to deal with the substance of the application. It is to the substance that I now turn.

Should an extension of time be granted?

46 In Green v Chiswell Furniture Pty Ltd (In Liq) [1999] NSWSC 608, Austin J said (at [15]) in relation to an application for an extension of time under s 588FF:

"(a) ordinarily, the issues raised on an extension application are threefold:

(i) the explanation for the delay in bringing proceedings;

(ii) a preliminary review of merits of the foreshadowed proceedings - that is, an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit;

(Page 14)

(iii) whether the likely actual prejudice resulting from the grant of an extension is sufficiently substantial to outweigh the case for granting an extension;

(b) where the liquidator's purpose in seeking the extension of time is simply to put himself into a position where he can properly decide whether or not to bring proceedings, a preliminary inquiry into the merits of any consequent proceedings may not always be necessary."

47 I do not, however, understand his Honour to be saying that that is necessarily an exhaustive list of the matters to be considered on such an application.

48 In that case, his Honour went on to observe (at [16] - [17]):

"In my opinion, there is a risk that in some cases a preliminary inquiry into the merits may impose an unnecessary burden on both the liquidator and the Court, especially in a case where the circumstances appear to give rise to complex or disputed questions of fact and law and the evidence before the Court is manifestly incomplete.

It is significant that s 588FF(3) requires that the application for an extension of time be made prior to expiry of the limitation period, in circumstances where it is unlikely that the Court, if it grants the application, will be able to proceed immediately to a hearing of the permitted proceedings on the merits. This suggests that a preliminary inquiry into the merits may often be of limited utility."

49 In Taylor v Woden Constructions Pty Ltd [1998] FCA 1228, Finn J said in relation to an application for an extension of time under s 588FF:

"In a case of the present variety it would ordinarily be appropriate for the court in exercising its discretion to have some regard to the merits of the application to be made. … But a merits inquiry, even of a preliminary character, may not always be necessary. Where the liquidator is not in the position to consider the merits but has proper grounds for inquiring into the matter because of suspicion it invites (or that is cast on it) or of the explanation it requires, then provided he can satisfactorily explain his delay in inquiring sufficiently into the matter, he

(Page 15)

should not be closed out from an extension because he is unable to say he has a meritorious claim. In some instances, as here, it will be sufficient if he can say 'I do not know if I do, but there is reason to inquire'."

50 It was submitted on behalf of the defendant that, on the basis of Mr Moore's affidavit, it was clear that the transaction sought to be impugned could not amount to an uncommercial transaction. In addition, the reason given for the plaintiff's delay in commencing proceedings was not a satisfactory explanation. If the plaintiff did not have the necessary funds he could have commenced the proceedings and left them in abeyance until funding became available.

51 It is the case that the defendant has now offered an explanation of the transaction, but it is equally the case that it is a belated explanation. No reason has been provided for the lack of response to the plaintiff's earlier enquiries and Mr Moore's affidavit is also notable for the absence of any documents supporting his explanation. It would appear from Mr Moore's affidavit that a substantial portion of the overall transaction is said to have been oral, although the amount in question was in the order of the sum of $3,000,000. As the explanation has only recently been proffered, the plaintiff has not had any real opportunity to investigate or test it.

52 In the circumstances, I do not consider that Mr Moore's affidavit is necessarily decisive of the question of the merits of the application.

53 In the present case, while the evidence is incomplete and in some ways unsatisfactory, so far as the merits are concerned it is I think fairly contended by the plaintiff that there are matters which warrant further investigation and at this stage I do not consider that the contemplated proceeding could be regarded as so devoid of prospects that it would be unfair, by granting the extension, to expose the defendant to the continuing prospect of suit.

54 On the question of delay, it was not suggested that the defendant, or any other person, would suffer prejudice by reason of the plaintiff's delay in making the application. It was, however, submitted on behalf of the defendant that the plaintiff's explanation was unsatisfactory in that the plaintiff could have filed proceedings under s 588FF(1) earlier and simply not pursued them unless and until funding was available. I do not agree. Such a course would have been of no practical utility and I accept that, until funding was available, it was not unreasonable that the plaintiff held off commencing proceedings.

(Page 16)

55 Finally, the terms of any order that might be made on this application was in issue. The plaintiff sought to justify the unrestricted terms of the original ex parte order on the basis that, until the plaintiff had had an opportunity to investigate the transaction, it would not be apparent whether it led on to other transactions which may be impugned by the liquidator. A similar contention was advanced on 4 August 2006 and I was prepared to accede to it at that point given that it was, in its practical effect, an interim order. The issue has now been argued and, in my view, it is clear that the basis for an order in such wide terms has not been made out. The only transaction to which the plaintiff has referred as a possible basis for proceedings under s 588 is the sale of the seven units and I consider that any order should be restricted to that.

56 Having regard to all of the circumstances, on balance I consider that, in respect of the contract with the defendant for the construction of the seven units, it is an appropriate case to extend the time within which an application may be made under s 588FF(1) for a period of 12 months.

57 I will hear the parties on the precise form of orders and on the question of costs.