Knights Quest Pty Ltd v Daiwa Can Company (No 2)

[2018] VSC 551

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI  2016 060

BETWEEN:

KNIGHTS QUEST PTY LTD (ACN 116 122 939)	First Plaintiff
SMS MANAGEMENT PTY LTD (ACN 101 453 865)	Second Plaintiff
and
BAROKES PTY LTD (ACN 079 714 579)	First Defendant
DAIWA CAN COMPANY	Second Defendant
S ECI 2015 307
IN THE MATTER of BAROKES PTY LTD (ACN 079 714 579)
BETWEEN:
DAIWA CAN COMPANY	Plaintiff
and
BAROKES PTY LTD (ACN 079 714 579) & ORS (according to the schedule attached)	Defendants
S ECI 2015 309
IN THE MATTER of BAROKES PTY LTD (ACN 079 714 579)
BETWEEN:
KNIGHTS QUEST PTY LTD (ACN 116 122 939)	First Plaintiff
SMS MANAGEMENT PTY LTD (ACN 101 453 865)	Second Plaintiff
and
DAIWA CAN COMPANY	First Defendant
BAROKES PTY LTD (ACN 079 714 579)	Second Defendant

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JUDGE:	SIFRIS J
WHERE HELD:	Melbourne
DATE OF HEARING:	20 September 2018
DATE OF JUDGMENT:	21 September 2018
CASE MAY BE CITED AS:	Knights Quest Pty Ltd v Daiwa Can Company (No 2)
MEDIUM NEUTRAL CITATION:	[2018] VSC 551

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CORPORATIONS – Winding up order on just and equitable ground – Liquidator appointed – Application for a stay of the winding up order refused – Suitable costs order where multiple proceedings.

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APPEARANCES:	Counsel	Solicitors
For Daiwa Can Company	AM Hochroth	Yeldham Price O’Brien Lusk
For the Knights Quest Parties	RET Wodak	Foster Nicholson Lawyers

HIS HONOUR:

Introduction

1. On 3 August 2018 I published reasons for dismissing all of the claims of the Minority Shareholders (‘the Judgment’).[1]  I will assume familiarity with the Judgment.  Defined terms bear the same meaning.  The Judgment deals with each of the Derivative Proceeding, the Winding Up Proceeding and the Oppression Proceedings.[2]  In the Judgment I indicated that I proposed to wind up Barokes Pty Ltd (‘Barokes’) under s 461(1)(k) of the Corporations Act 2001 (Cth) (‘the Act’). 

   [1]Knights Quest Pty Ltd v Daiwa Can Company [2018] VSC 426 (Judgment).

   [2]See paragraphs [5]–[8] of the Judgment.

1. There are a number of matters that require consideration before finally disposing of this acrimonious litigation, subject of course to any application for leave to appeal.

1. The remaining issues are dealt with hereunder.

1. At the conclusion of the hearing on 20 September 2018, I informed the parties of the orders that I proposed to make.  Given the urgency of the matter, I indicated that reasons would follow.  These are the reasons[3] for the orders that have been made in the three proceedings.

   [3]The reasons are short because I am going on leave today and only returning on 9 October 2018 and the Minority Shareholders have indicated that they will see leave to appeal against the winding up order. I have only granted a limited stay of the orders made (see below) until 4PM on 5 October 2018.

Winding up

1. Following the Judgment I understood that there was no dispute that a winding up order should be made on the just and equitable ground set out in s 461(1)(k) of the Act. I intended to make such an order and dispense with the usual advertising requirements. However, by submissions filed on 19 September 2018, that is a day before the hearing, the Minority Shareholders filed submissions opposing any dispensation and seeking, as a consequence, the dismissal of the winding up application.[4]  The submissions are fundamentally misconceived and are accordingly  rejected.

   [4]Alternatively, it was submitted, albeit faintly and not really pressed, that a further opportunity be given to those that intend to appear and make submissions against the making of any such order.

1. I propose to and have dispensed with the requirement to publish the relevant notice as requested.  I consider such dispensation to be a formality and entirely appropriate in the circumstances of this case.  I do not accept that there is any prejudice to any party.  Dispensation-type orders (from advertising and in other respects) are made all the time in insolvency matters.  Not surprisingly most of the cases relate to winding up in insolvency where creditors need to be informed of any forthcoming winding up application.  Having been notified, a creditor may wish to support the application or seek to be substituted as petitioning creditor if the applicant no longer wishes to proceed with its application for whatever reason.  In In the matter of The Skippy Film Company Pty Limited[5] Gleeson JA said:

   [5][2017] NSWSC 646.

[21] Notice of the application has not been lodged with the Australian Securities and Investments Commission (ASIC) as required by s 465A(a) of the Corporations Act, nor served on the Company as required by s 465A(b), nor has the application been advertised as required by s 465A(c) and Supreme Court (Corporations) Rules (Corporations Rules) r 5.6(1). The plaintiffs seek an order pursuant to s 467(3)(b) of the Corporations Act dispensing with those requirements. Section 467(3)(b) empowers the Court to “dispense with any notices being given or steps being taken that are required by this Act, or by the Rules, or by any prior order of the Court”. Reference was made in written submissions by the plaintiffs’ counsel to the observations of Austin J in Carter v New Tel (2003) 44 ACSR 661; [2003] NSWSC 128 at [23]; White J, in Kozlowski v JSB Developments Pty Ltd [2010] NSWSC 1022; and Black J in Re Aspirion Group Pty Ltd [2014] NSWSC 39. In Kozlowski v JSB Developments, White J said at [15]:

The purpose of advertising would primarily be to bring notice of the application to any other creditors of the defendant, particularly if creditors wish to support the application and be substituted as creditor if for any reason the applicant did not wish to proceed. But it might also be open to a creditor to oppose the application if the winding up, and the costs incidental thereto, might prejudice its ability to recover a debt or the amount that could be recovered.

[22] The evidence establishes that the Company no longer trades and the only liabilities of the Company are the shareholder loans and script writing fees payable to Mr Lowe. Mr Lowe is the sole director and secretary of Harbourside and has sworn an affidavit in support of the application for the winding up of the Company. There is no realistic prospect of any creditor of the Company opposing the application. As indicated, each of the shareholders is a party to the proceeding and each has consented to the winding up of the Company and to an order appointing an independent liquidator.

[23] I will dispense with the requirements of lodging notice of the application with ASIC, serving the application on the Company and advertising or publishing the application. No substantive purpose would be achieved by compliance with those requirements and they would involve unnecessary costs and delay.

1. A winding up on the just and equitable ground is self-evidently different and it is not surprising that Counsel have been unable to find any cases that deal with the issue of dispensation in this context.  In the circumstances of this case where the winding up order arises directly and inevitably out of the findings of the Court and is the most appropriate, and indeed the only, remedy, there is no, or perhaps very little, scope for permitting a stranger to the proceeding to be heard.  They simply lack standing and a relevant interest, particularly if they are not creditors. 

1. The identified parties[6] that have indicated that they would have opposed a winding up order will need to engage in discussions with the liquidators.  It is obvious enough that a winding up order may affect many people.  This is the consequence of any such order.  However, this does not mean that an affected party may, by this fact alone, oppose a winding up order, particularly in the circumstances of this case.  Much more is required.  In the context of this case I would not have given such parties leave to appear.  Any potential hardship (as a contracting party) has no effect whatsoever on the basis upon which a winding up order is made on the just and equitable ground.[7] 

   [6]Bevpac NZ Ltd and BEMCO Australia Pty Ltd. (See affidavit of Leath John Nicholson sworn 19 September 2018).

   [7]The law relating to the winding up of a company on the just and equitable ground does not require a consideration of the contracts of the company with third parties.

1. In any event, there has been some media coverage of the matter (including reference to a possible winding up) both before and after the trial and it is more likely than not that those wishing to appear would have appeared.[8] 

   [8]See [25] and [26] of the affidavit of Timothy Randolph Price sworn 6 September 2018.

1. Given my findings, s 467(4) of the Act requires me (‘must’) to make a winding up order unless I am ‘of the opinion that some other remedy is available to the applicants and they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.’ As the Judgment makes clear, there is no other remedy. There is nothing unreasonable in Daiwa not wishing to buy out the Minority Shareholders and the Minority Shareholders are not buyers. A winding up order must be made.

1. The preceding section (s 467(3)(b)) permits the Court to ‘dispense with any notices being given … that are required by this Act, or by the rules …’ The next section (s  467A) provides that an application ‘must not be dismissed merely because of … a defect or irregularity in connection with the application’, unless, ‘the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied …’

1. As I am satisfied that there is no substantial injustice, for the reasons given, I am unable (‘must not’) to dismiss the winding up application. If it is not to be dismissed and I am required to make such an order under s 467(4) I find no difficulty at all in providing the necessary dispensation. Such an order is logical and entirely justified. The simple fact is that the failure to advertise was inadvertent and no one is prejudiced in the relevant sense. I do not consider the inability (by the identified parties) to appear and make submissions constitutes prejudice in circumstances where the submissions have no relevance whatsoever to the issues and matters that inform the winding up on the just and equitable ground.

1. The parties disagree on the identity of the liquidator.  Daiwa has suggested James Koutsoukos (‘Koutsoukos’) and David John Coyle (‘Coyle’) of BRI Ferrier.  Daiwa referred to authorities that suggest that the usual practice is to appoint the plaintiff’s choice of liquidator unless there is reason not to do so.[9]

   [9]Reference was made to Glenwood Village Pty Ltd v Glen Alpine Constructions Pty Ltd [2009] NSWSC 516 (Brereton J) and Boyd v Feeney [2017] NSWSC 1595 at [56] (Black J).

1. The Minority Shareholders have suggested Craig Crosbie (‘Crosbie’) of Price Waterhouse Coopers (‘PWC’).  It was submitted that Crosbie was preferable because ‘the firm of which he is a partner conducts its practice globally and given PWC’s expertise in the food and beverage industry’.  It was preferable, it was submitted, that the liquidator ‘draw on international expertise and assistance’ particularly because ‘Barokes’ principal market is in Japan.  It conducts business throughout the world and has a patent portfolio extending across many countries’.  Finally, it was submitted that there was no reason to reject Crosbie and none had been submitted. 

1. I propose to and have appointed Koutsoukos & Coyle.  They are, as the evidence suggests, experienced liquidators based in Melbourne with extensive international connections.  There is no reason why they should not be appointed.

Costs

1. As the successful party, Daiwa seeks its costs of the proceeding (the Winding Up Proceeding) against the defendants other than the first defendant, Barokes.  The Minority Shareholders contend that costs should be ordered against all defendants, that is including Barokes, but excluding Mr Stokes.  In relation to Mr Stokes it is submitted that he should have his costs of the proceeding essentially because Daiwa did not pursue the relief sought against Mr Stokes.[10] 

   [10]Although Mr Stokes was a defendant in the Winding Up Proceeding, the counterclaim – alleging that he engaged in misleading or deceptive conduct - was filed in the Oppression Proceeding.

1. I will not order costs against Barokes.  Although Barokes was a necessary party, the critical dispute was between the shareholders.  In such cases it is most unusual to include the company in any costs orders.  Further, in the exercise of my discretion, I do not propose to make any order for costs either against or in favour of Mr Stokes in any of the Proceedings.  No separate case or relief was sought against Mr Stokes, although, as events transpired, this was not necessary.  There is no adequate basis upon which Mr Stokes should pay costs.  By the same token, there is no adequate basis upon which he should have his costs given the issues in the proceedings and the common representation.  Finally, I do not propose to disallow Daiwa’s costs (or order costs against it) in relation to its witness statements, which were not relied on.

Stay

1. The Minority Shareholders seek a stay of the winding up order on the grounds that they propose to appeal the decision.  They are concerned that any appeal not be rendered nugatory.  Daiwa opposes any stay but contends that if a stay is granted a provisional liquidator should, in the circumstances, be appointed to Barokes.

1. I do not propose to grant a stay, other than a limited stay until 4 pm on 5 October 2018 to enable the Minority Shareholders to make any application, as they may be advised, to the Court of Appeal.  There is, and has been, a deadlock for so long (and continuing)[11] and a winding up order is long overdue.  Further, Daiwa does not wish to continue operating the business of the company.  Nor do the Minority Shareholders.  Rather, they seek a buyout.  In either case the survival or continued operation of the company is neither necessary nor desirable.  If the Minority Shareholders succeed in any appeal – the grounds of which have not been articulated – suitable orders can be made that do not depend on the company not being wound up.  So much was properly conceded by Daiwa.  Finally, I consider, with respect, that in the peculiar circumstances of this case any appeal against the winding up order would be hopeless.  No grounds have been articulated. However, the Minority Shareholders are entitled to apply for leave to appeal, and given the drastic nature of a winding up order, I have provided for a limited stay as noted. 

   [11]The Minority Shareholders continue (through their directors) to manage and operate Barokes without recourse to Daiwa, the majority shareholder. Salaries to staff, including themselves, and other substantial debts have been incurred and paid. (See affidavit of Timothy Randolph Price sworn 6 September 2018 at [15] to [18] and further affidavit sworn 19 September 2018 at [5] to [7]).

Derivative Proceeding

1. I do not propose to revoke the original grant of leave to the Minority Shareholders in the Derivative Proceeding to proceed in the name of Barokes.  All future decisions in relation to the proceedings in respect of which leave was given will properly be matters for the liquidator, as properly conceded by the Minority Shareholders.  The liquidator of course does not need any leave and it is unnecessary to revoke the leave originally granted.  The proceeding in respect of which leave was granted has not been successful and accordingly I do not propose to make any order as to costs.  The proceeding will be dismissed and I will provide for liberty to apply. 

Oppression Proceeding

1. As all proceedings were heard together, I do not propose to make a different order for costs in relation to this proceeding.  The order will be the same as the winding up proceedings.  All issues were dealt with together and the Minority Shareholders, having lost, must pay Daiwa’s costs on the standard basis.  Although Daiwa decided not to proceed with its counterclaim, I do not consider that in the circumstances that it should pay the costs thereof.  Many of the factual matters were in any event relevant and it would not be productive or proportional to engage in a minute analysis of the counterclaim to determine which factual matters were not relevant, or in the context of the case how much time was taken with such matters.  In an effort to curtail the proceedings Daiwa made a forensic decision not to pursue the counterclaim.  As events transpired it should not be criticised for this decision.  There will be no order for costs on the counterclaim. 

Disposition

1. In the Winding Up Proceeding I made orders as follows:

(a) Barokes be wound up pursuant to s 461(1)(k) of the Act.

(b) James Koutsoukos and David John Coyne be appointed joint and several liquidators of Barokes pursuant to s 472(1) of the Act.

(c) The requirement for publication of notice of the application under s 465A(1)(c) of the Act is dispensed with pursuant to s 467(3)(b) of the Act.

(d)  The second and third defendants pay the plaintiff’s costs of the proceedings on the standard basis, such costs to be taxed in the absence of agreement.

1. In the Oppression Proceeding I dismissed the proceeding and the counterclaim and ordered the plaintiffs to pay the first defendant’s costs on the standard basis, such costs to be taxed in the absence of agreement.

1. In the Derivative Proceeding I dismissed the proceeding with no order as to costs.  I also provided for liberty to apply should any further order be necessary.