Labraga v Pomfret

[2005] NSWSC 654

CITATION:	Labraga v Pomfret & Ors [2005] NSWSC 654
HEARING DATE(S):	10/06/2005
JUDGMENT DATE :	7 July 2005
JURISDICTION:	Equity
JUDGMENT OF:	McDougall J at 1
DECISION:	See para [73] of judgment.

CATCHWORDS:	PRACTICE AND PROCEDURE - discretion to set aside or vary orders made in absence of party - where provisional liquidator appointed - where orders made one week later to wind up and appointing provisional liquidator as liquidator - whether notice of application for winding up order given - whether defendant's failure to appear deliberate - whether circumstances had changed between appointment provisional liquidator and application for winding up order - whether company insolvent so that setting aside winding up order futile - whether winding up order ought to be set aside - nature of discretion to vary or set aside winding up order - whether discretion ought to be exercised.
LEGISLATION CITED:	Corporations Act 2001 Income Tax Assessment Act 1936
CASES CITED:	Cameron v Cole (1944) 68 CLR 571 George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 Jones v Dunkel (1959) 101 CLR 298 Labraga v Pomfret [2005] NSWSC 490 Lane Cove Council v Geebung Polo Club Pty Ltd [No 2] (2002) 41 ACSR 15 Re Rick Wilson and Co Pty Ltd (1982) 7 ACLR 354 Registrar of Aboriginal Corporations v Murnkurni Women's Aboriginal Corporation (1995) 58 FCR 125
PARTIES:	Julio Cesar Labraga & Ors (Plaintiffs) Phillip Edward Pomfret & Ors (Defendants)
FILE NUMBER(S):	SC 2063/2005
COUNSEL:	A Rogers (for the Plaintiffs) G K Burton SC (for the 1st Defendant)
SOLICITORS:	Cordato Partners (for the Plaintiff) Dibbs Barker Gosling (for the Defendant)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

McDOUGALL J

THURSDAY, 7 JULY 2005

2063/05 LABRAGA v POMFRET & ORS

JUDGMENT

1 HIS HONOUR: The plaintiff (Mr Labraga) and the first defendant (Mr Pomfret) are the surviving directors of the second defendant (the company). They, through entities or trusts associated with them, control each one third of the issued shares in the company. The remaining one third is controlled by the estate of the late Mr Highland, who died in March 2003. Messrs Labraga and Pomfret are the executors named in Mr Highland’s will. They have fallen out in relation to the affairs of the company. Mr Labraga procured the appointment of a provisional liquidator to the company. Subsequently, he procured an order that the company be wound up, and that the provisional liquidator be appointed liquidator. Mr Pomfret seeks the setting aside of those orders, but not of the order appointing the liquidator provisionally.

Background

2 The background is set out in the reasons for judgment of Barrett J given on 19 May 2005 on the application for appointment of a provisional liquidator: Labraga v Pomfret [2005] NSWSC 490.

3 On 26 May 2005, Mr Labraga moved in the duty list for orders that the company be wound up, and that the provisional liquidator (Mr Ryan) be appointed its liquidator. Nicholas J made those orders. The nature and extent of the attempts made by Mr Labraga’s solicitors to notify Mr Pomfret’s solicitors, and the attitude taken by Mr Pomfret and his solicitors, were disputed. I shall return to those matters. For the present, it is sufficient to state that the orders that are now challenged were made in the absence of Mr Pomfret.

The issues

4 Mr Burton SC, who appeared for Mr Pomfret, relied on SCR Pt 40 r 9(3)(b). For the reasons that I have just given, there is no doubt that the discretion conferred thereby has been enlivened. The question is, should that discretion be exercised in favour of Mr Pomfret?

5 The issues as they emerged in the course of the hearing appear to be:

(1) Whether Mr Labraga’s solicitors gave Mr Pomfret’s solicitors any (or any adequate) notice of Mr Labraga’s intention to move on 26 May 2005.

(2) Whether Mr Pomfret, having been notified of Mr Labraga’s intention to move, deliberately refrained from appearing.

(3) Whether the relevant circumstances had changed from 19 May 2005 (when Barrett J appointed Mr Ryan as provisional liquidator) to 26 May 2005 (the application was heard by his Honour on 16 May and decided three days later).

(4) Specifically, whether action threatened by the Commissioner of Taxation (the Commissioner) under s 222AOE of the Income Tax Assessment Act 1936 (to recover from Messrs Labraga and Pomfret, as directors of the company, by way of penalty an amount equal to unpaid tax obligations of the company) in any event justified the making of the winding up order, and provide a sufficient basis for refusing to set it aside.

(5) Whether the company is in any event insolvent, so that no point is to be served by setting aside the winding-up order and appointment of Mr Ryan as liquidator?

The relevant facts

6 Mr Labraga’s solicitors are Cordato Partners and Mr Pomfret’s solicitors are Dibbs Barker Gosling. For Mr Labraga, the matter has been handled by Mr Cordato (a principal of the firm) and Ms Cook (an employed solicitor). For Mr Pomfret, the matter has been handled by Mr Breen (a partner of the firm) and Mr Williams (an employed solicitor). Mr Cordato, Ms Cook and Mr Williams gave evidence; Mr Breen did not. Mr Rogers of counsel, who appeared for Mr Labraga, submitted that I should draw a Jones v Dunkel inference from the failure of Mr Breen to give evidence, in circumstances where it had not been shown that he was unavailable. For the reasons that I shall give, I decline to draw that inference.

7 The company has incurred a substantial debt for unpaid tax. As at 22 February 2005, the amount exceeded $167,000. Mr Pomfret says that he sought to negotiate a payment arrangement with the Australian Taxation Office (ATO), and that he took steps to make payments pursuant to that proposed arrangement. However, Mr Pomfret says, Mr Labraga refused to approve payments pursuant to that proposed arrangement, and thereby effectively scuttled it. Mr Pomfret’s case is that Mr Labraga thereby precipitated the winding-up proceedings brought by the Commissioner, and the action threatened under s 222AOE.

8 The Commissioner has made demand on the company pursuant to s 459H of the Corporations Act 2001 for payment of tax arrears. The company has not complied with, or sought to set aside, that notice of demand. There is accordingly a presumption of insolvency. Mr Pomfret says that all this has occurred as a result of Mr Labraga’s actions (or more correctly inactions) in relation to the proposed arrangement for payment.

9 On 9 May 2005, the Commissioner gave to Mr Pomfret and Labraga notices under s 222AOE of the Income Tax Assessment Act. The essence of the legislative scheme of which that section forms part is that, where a company makes default in respect of its taxation obligations, the Commissioner may, upon giving notice, recover the amount of the obligation by way of penalty from the directors of the company.

10 It is clear that the s 222AOE notices were before Barrett J, and formed part of the material considered by his Honour, on the application for appointment of a provisional liquidator.

11 Mr Labraga says that there has been a significant change in relation to the s 222AOE notices. He says that he understood, from his discussions with officers of the ATO, that the time for compliance was 14 days from the date of receipt. By his reckoning, that would have taken the time for compliance to about 1 June 2005. However, he says, he was told by an officer of the ATO on about 24 May 2005 that in fact he had only until 26 May 2005 to comply with the notice.

12 The effect of s 222AOE is that the penalty will be remitted in a number of circumstances. They include: that the liability has been discharged; that an agreement under s 222ALA relating to it is in force; that the company is in administration; or that the company is being wound up: in each case “at the end of 14 days after the notice is given”. Thus, Mr Labraga says, if he and Mr Pomfret were to escape liability under the penalty notices, it was necessary that one of those steps (in reality, the third or the fourth – administration or winding-up) were taken within the statutory time limit.

The events of 24 to 26 May

13 There was a conversation between Ms Cook and Mr Williams on 24 May 2005. Each has sworn an affidavit giving evidence of the contents of that conversation, and each has been cross-examined. I prefer the account given by Mr Williams. My reasons for doing so are as follows:

(1) Mr Williams was the more straightforward and confident witness. He seemed to me to have a substantially better recollection of the actual words of the conversation than did Ms Cook.

(2) Ms Cook denied the substance of the conversation as set out by Mr Williams in his affidavit. However, in cross-examination, she conceded that all but two of the passages that she had denied were in substance said. Thus, with those exceptions, she confirmed in substance the account of the conversation given by Mr Williams. This corroborates Mr Williams’ evidence. Further, it leads me to question the credibility of Ms Cook’s denial; something that she was unable to explain in any unsatisfactory way (T 24.33-.51).

(3) Further, as to one of the two exceptions to her acknowledgment of the substantial accuracy of Mr Williams’ account, Ms Cook agreed that the words attributed to her represented her state of mind at the time; and in the context of the conversation, I think it more likely than not that she did use those words, referring to the current coincidence of interest between Messrs Labraga and Pomfret.

(4) As to the only part that Ms Cook continued to deny (relating to Mr Williams’ evidence of his indication of Mr Pomfret’s attitude): there is no doubt that the words in question accurately reflected Mr Pomfret’s attitude at the time, and Mr Williams’ understanding of that attitude; and again, in the context of the conversation, I think it more likely than not that words to the effect of those in question were said.

(5) Each of Ms Cook and Mr Williams kept a file note of the conversation. Mr Williams’ note was produced pursuant to a call by Mr Rogers, and it was not put to Mr Williams that the words in his affidavit were inconsistent with the words in his note. Ms Cook’s note was produced and tendered. However, although it was produced as a note of the conversation, it became apparent that the bulk of it was in effect an aide memoire prepared by Ms Cook before the conversation, to assist her in raising what she perceived to be the relevant issues with Mr Williams; and that only a relatively small portion of the note actually recorded words used (and it recorded words that both Ms Cook and Mr Williams agreed were in substance used). Although Ms Cook said that she did discuss with Mr Williams the matters covered by the “aide memoire” portion of the note, it remains the fact that the note is not in substance (as it was originally represented to be) a contemporaneous record of the conversation. Ms Cook ultimately did not suggest that it recorded the whole of the conversation; and any such conversation would be inconsistent with her concessions referred to in sub para (2) above.

14 I therefore find, in substance, that in the conversation at about 5.10 pm on 24 May 2005:

(1) Ms Cook referred to the penalty notices and to the options available being appointment of administrator, a liquidator, a receiver, or payment, and asked Mr Williams whether Mr Pomfret would consent to the appointment of Mr Ryan as administrator or liquidator.

(2) Mr Williams said, more than once and in different words, that he did not think that Mr Promfet would agree to that.

(3) Mr Williams reiterated Mr Pomfret’s view that Mr Labraga had “manufactured” the ATO debt.

(4) Mr Williams said that, although he would take instructions from Mr Pomfret, he thought that Mr Pomfret would not agree to the appointment of Mr Ryan (presumably, as either administrator or liquidator).

(5) Mr Williams said that Mr Pomfret had a particular problem with Mr Ryan, whom in substance he believed to be unduly close to Mr Labraga’s wife.

(6) Mr Williams undertook to e-mail Ms Cook if his instructions changed from what he had told her he expected they would be.

15 I do not accept Ms Cook’s evidence that Mr Williams said that he would get instructions to appoint an administrator, but that because there would be a problem with Mr Ryan, Mr Pomfret would want someone else appointed and “I’ll come back to you”.

16 In case I have not made it clear, I find that, at the conclusion of the conversation between Ms Cook and Mr Williams on 24 May 2005, Ms Cook should have understood that it was likely that Mr Pomfret would oppose the appointment of Mr Ryan as administrator or liquidator, and that Mr Williams would contact her only if that proved not to be the position.

17 There was a flurry of correspondence, and some conversations, between Cordato Partners and Dibbs Barker Gosling on 25 and 26 May. On 25 May, at about 4.21 pm, Cordato Partners sent a fax to Dibbs Barker Gosling referring to the background that I have summarised above, pointing out that an order for winding up should be made to prevent the ATO from taking action against Messrs Labraga and Pomfret pursuant to the penalty notices, and asking for advice “by 3.30 pm today” that Mr Pomfret consented.

18 Later on 25 May, Ms Neill of Dibbs Barker Gosling (who appears to have been Mr Breen’s administrative assistant), after apparently having had a telephone discussion with Ms Cook, sent a fax to Cordato Partners confirming “that both Mr Breen and Mr Williams are not in the office this afternoon” and that “they will not be able to respond to your facsimile until tomorrow.”

19 At 10.56 am on 26 May 2005, Cordato Partners sent another fax to Dibbs Barker Gosling. It stated that the matter had become “very urgent” and that “it is imperative that you indicate to us whether your client consents to the appointment of Mr Ryan as the liquidator of the company”. (I note in passing that the terms of that letter are consistent with Mr Williams’ account of the conversation that took place between him and Ms Cook on 24 May).

20 The fax further stated that it was still intended “to approach the Court today for an order for the winding up of” the company. It sought an indication of Mr Pomfret’s consent “by 11 am today”.

21 Later on 26 May, Dibbs Barker Gosling replied by fax. The fax said, among other things, that Mr Pomfret “requires to be put on notice of any application your client intends to make together with supporting documentation”; and asked for advice of “the basis of the proposed application and ground”.

22 The time at which the fax referred to in the last paragraph was sent is not apparent, but it must have been before 11.54 am because at that time Cordato Partners responded, referring to their fax of 25 May as “setting out the reasons why our client is seeking order for the appointment of a liquidator for the company.” They required a response by 12.30 pm that day.

23 At 3.10 pm, Cordato Partners wrote again to Dibbs Barker Gosling, noting that there had been no response to the fax referred to in the last paragraph, and enclosing “by way of service” the (unfiled) interlocutory application (pursuant to which Nicholas J appointed Mr Ryan as liquidator) and the affidavit in support. The fax said:

“We will approach the Duty Judge at 3 pm today to apply for orders 1, 2 and 3 of the Interlocutory Application to be made.
Would you kindly advise us before that time of your client’s attitude to the application.”

24 Mr Breen was out of the office from 2.30 to 3.45 pm on 26 May, and Mr Williams was absent. At 4.09 pm on 26 May, Mr Breen replied to the fax of 3.10 pm, explaining his absence and confirming that “our client does not consent to the appointment of Mr Ryan as liquidator in the proceedings.” In case it were not clear, the letter stated that Mr Pomfret “opposes 2, 3 and 4 [sic] of your client’s application and requires that this matter be heard in the normal course after Mr Ryan has completed a financial report … and [Mr Pomfret is] given the opportunity to put on evidence in reply …” . The fax asked that, if there were no consent to the course proposed, it be “placed before the Duty Judge hearing the application.” That was not done.

25 The court record suggests that Nicholas J was hearing the application at about 3.35pm. It records, among other things the following:

“I am informed by Mr Ashhurst, Counsel for the plaintiff, that as at this time 3.35pm, 26.05.05 no response has been forthcoming from the 1D in respect to notice given of the plaintiff’s intention to apply to the court this afternoon for the orders sought. …”

26 On that basis, some twenty-five minutes had elapsed since notice of the application (and a copy of the supporting affidavit) were given by fax at 3.10pm. The simple truth is that Mr Pomfret was given no opportunity to intervene; the notice given to him was at best illusory.

27 Mr Cordato said that he spoke to Mr Breen “after 4 pm” on 26 May. Mr Cordato said that the application “is proceeding now”. Mr Breen confirmed that Mr Pomfret opposed it. I infer that this conversation occurred after the fax referred to in para [24] above was sent.

28 It was agreed before me that, having regard to the time at which this conversation took place, there was nothing that Mr Breen could have done in relation to the application. As I understand it, the agreement was in substance that it was by then too late for Mr Breen to appear (or arrange an appearance) and inform the Court of Mr Pomfret’s attitude to the application.

29 There is no evidence that Nicholas J was informed of Mr Pomfret’s attitude to the application, except insofar as his Honour’s attention may have been drawn to the correspondence referred to in paras [17] to [19] above. In this regard, I repeat that (as the correspondence in any event makes clear) Ms Cook must have understood and I would infer, from the terms of the correspondence, Mr Cordato also understood that Mr Pomfret opposed the application.

The hearing before Nicholas J

30 The evidence before Nicholas J included an affidavit of Mr Labraga sworn 26 May 2005. That affidavit proved the reasons of Barrett J of 19 May 2005; the statutory demand dated 9 May 2005; the penalty notice (to Mr Labraga) dated 9 May 2005; and correspondence including the letters referred to in paras [17] to [19] above. It also proved that Mr Ryan neither consented to nor opposed the winding up order, that he had not completed his investigations, but that he believed, based on his preliminary investigations, that “it appears that the Company may be insolvent … ”.

31 Mr Labraga’s affidavit also proved discussions that he had had with an officer of the ATO and others, confirming the shortened (as he understood it) time for compliance with the penalty notices. It did not refer to the discussions between Ms Cook and Mr Williams in which Mr Pomfret’s position was stated.

32 Nicholas J gave reasons referring to Mr Labraga’s affidavit and to the judgment of Barrett J. He was satisfied “that the evidence demonstrates that it is appropriate that the orders sought on behalf of the plaintiff be made”. Accordingly, he made them. He stood the matter over to the Corporations List on the following Monday, 30 May 2005.

33 On 30 May 2005, Barrett J observed that, by oversight, Nicholas J had not in terms made an order for the winding up of the company. However, he observed, it was clear that Nicholas J had intended so to do. Accordingly, Barrett J made that order under the slip rule. Mr Pomfret was represented on that day and his counsel informed Barrett J that an application would be made to set aside the orders.

34 In the application to me, Mr Rogers accepted that if I were minded to set aside the orders of Nicholas J (which, in terms is all that is sought by the interlocutory process filed for Mr Pomfret) it would be appropriate to set aside also the slip rule order made by Barrett J to perfect the orders of Nicholas J.

George Ward Steel Pty Ltd v Kizkot Pty Ltd

35 Before I turn to the issues set out in para [5] above, I will deal with an argument raised in relation to the decision of Hodgson J in George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464. In that case, a winding up order was made in the absence of the company and was thereafter entered. Application was made to set it aside under Pt 40 r 9(3)(b). Hodgson J held that the order could be set aside under that subrule (even after the order had been entered) where it had been made in the absence of a party. He set out the basis upon which, “normally”, an order setting aside a winding up order could be made under Pt 40 r 9:

“In my view, if an order winding up a company is made in the absence of the defendant company, and an application is brought promptly by the company, with notice being given to the liquidator, to the plaintiff and to any creditor who appeared at the hearing; and if the evidence shows an explanation for the non appearance at the hearing and indicates solvency of the company; and if there is consent to setting aside, or at least non opposition; and if the liquidator indicates that nothing in his investigations to date shows a reason for the company to be stopped from trading, then the Court will normally set aside the order.
The procuring of the consent or non-opposition of the liquidator, and perhaps of the original plaintiff, may involve making some provision for their costs.”

36 The decision of Hodgson J in George Ward Steel was considered by R D Nicholson J in Registrar of Aboriginal Corporations v Murnkurni Women’s Aboriginal Corporation (1995) 58 FCR 125. That application was made under FCR O 35, r 7(2) – the equivalent to SCR Pt 40 r 9(3). For the applicant (the Corporation), it was contended that what needed to be shown was an explanation for delay (and, presumably implicit in this, for the original non appearance); prejudice (including whether it could be cured by costs); and whether there was an arguable defence. The Registrar relied on the decision of Hodgson J in George Ward Steel to argue that there should be shown as well that the corporation is solvent.

37 R D Nicholson J at 128 considered that Hodgson J had not required proof of solvency, but evidence “indicating” solvency: ie, showing an arguable case of solvency. He said:

“It may not be that the dicta of Hodgson J in Kizkot, … and the principles relied upon for Murnkurni are necessarily in conflict. All that Hodgson J required was evidence which “indicates” solvency. He did not say that solvency was to be established as a fact. Certainly he must have accepted there should be evidence which indicates solvency in the sense of showing it to be arguable that the company was solvent. In my opinion the effect of the authorities is to require this Court to consider whether there is an arguable defence which in turn requires the Court to consider whether solvency is arguable.”

38 A somewhat similar approach was taken by Barrett J in Lane Cove Council v Geebung Polo Club Pty Ltd [No 2] (2002) 41 ACSR 15.

39 Barrett J did not refer to the decision of Hodgson J in George Ward Steel. However, at 19-20 [19], Barrett J expressed not dissimilar views. He referred to the usual need for the absent party to show some defence on the merits:

“Turning to Part 40 rule 9(3), it is clear that the aspect upon which the applicant would seek to rely is that empowering the Court to set aside an order made in the absence of a party. Generally speaking, this power will be exercised only where the absent party makes some case of viable defence on the merits. Where, as here, it is said that the statutory demand and application for winding up were not effectively served, those matters alone, if sufficiently shown, will constitute such a defence. It will be otherwise if the asserted defence is based on some defect in the statutory demand or is to the effect that the debt claimed in the demand is disputed or subject to an offsetting claim . …. [S]uch matters may in general not be asserted in defence to an application for a winding up order.”

40 His Honour then considered the decision of McLelland J in Re Rick Wilson and Co Pty Ltd (1982) 7 ACLR 354. That decision had also been considered by Hodgson J in George Ward Steel. In that case, after some adjournments, a winding up order had been made by the Master ex parte. A director and contributory sought orders setting aside the winding up order and dismissing the petition. There was apparently some doubt as to the basis of the application: specifically, as McLelland J said at 355, whether it “amounted to an appeal from the Master’s orders or some other form of proceeding”. Those considerations were relevant to the onus of proof, to the standing of the applicant, and to other matters. McLelland J expressed the view at 356-357 that it would be preferable for such proceedings to be brought by way of application under Pt 40 r 9(3), rather than by way of appeal. However, his Honour said nothing as to the matters that should be considered on an application so based.

41 It is a fundamental principle that those who may be adversely affected by the making of court orders have a right to be heard: Cameron v Cole (1944) 68 CLR 571. That is why, in the ordinary course, the courts require parties to be served, and evidence of proof of service, before proceeding to hear an application. However, the fundamental principle must yield to the exigencies of particular cases: for example, where the urgency of the situation is such that it is not practicable to give prior notice; or where a person, having been served or notified, chooses not to attend; or where notification may thwart the very purpose for which the orders are sought (as in the case of “Mareva” or “Anton Piller” orders).

42 Nonetheless, the fundamental principle exists; and Pt 40 r 9(3)(b) seeks to give effect to that principle.

43 I do not think that it is practicable, or perhaps even possible, to seek to formulate in some exhaustive way the considerations that attend the exercise of the discretion conferred by the rule. Certainly, I do not think that it is possible to say that, in any given case, certain things “must” be shown. Moving from the general to the particular, it is apparent that in George Ward Steel, Hodgson J was not purporting to lay down any rule of general application. That is apparent from his Honour’s statement (at 465), following the list of relevant considerations, that if those matters are shown “then the Court will normally set aside the order”.

44 The relevant considerations will depend on the facts of the particular case. In the cases to which I have referred (George Ward Steel, Murnkurni and Geebung), the effect of the application, if successful, would have been to restore the company to the control of its directors, free to carry on its ordinary (or indeed any other permitted) activities without the constraint of external administration. Thus, given the importance of protecting existing or potential creditors, it is understandable why in each case the Court considered that it was relevant to look at the solvency of the company. Equally, if the evidence as to (for example) solvency at the hearing of the application under Pt 40 r 9 (or its equivalent) showed that on any view the company was hopelessly insolvent, so that it was inevitable that even after the affected parties were given a chance to be heard, the order would be made, then it might be thought to be a pointless exercise of discretion to postpone the inevitable by setting aside the existing winding up order.

45 In the present case, there is a significant factual distinction. If the order is set aside, the company will not be returned to the control of its directors, and will not be relaunched into corporate and commercial life. It will remain under the control of Mr Ryan as provisional liquidator. He will be able to continue his investigations into solvency, and such other tasks as seem to him to be appropriate in his capacity as provisional liquidator.

46 In the particular circumstances of this case, and without intending to express, or wishing to be understood as expressing, some principle of general application, I do not think that it is necessary, before the discretion under Pt 40 r 9 can be exercised, that I be satisfied that there is at least an arguable case that the company is solvent.

47 There is a presumption of insolvency, flowing from non compliance with the Commissioner’s statutory demand. There is evidence of Mr Ryan’s opinion that the company may be insolvent. It may be that Mr Pomfret will face an uphill battle in proving (as, if he opposes the order for winding up, he must prove in view of the statutory presumption) that the company is solvent. But the effect of the events of 26 May was to deprive him of that opportunity. In circumstances where creditors are protected by the continuance of Mr Ryan’s appointment as provisional liquidator, I do not think that the absence of evidence of solvency or the presumption of insolvency, are of themselves reasons for declining to exercise the discretion in Mr Pomfret’s favour.

48 I therefore turn to the issues as I have stated them in para [5] above.

First issue: notice of intention to move

49 I do not think that adequate notice was given. In terms, the notice was given at 3.10 pm on 26 May of an intention to move the court at 3.00 pm that day; and in terms, such a notice must have been inadequate. But even if the notice were to be read as signifying an intention to move at 3.00 pm or so soon thereafter as the court might hear the application, it was insufficient. There was no time given to Mr Pomfret to consider or analyse, let alone respond to, the evidence; or adequately to instruct legal representatives.

50 I have not overlooked that the alleged reason for urgency – the ATO’s indication that 26 May was the last day for taking action to avert the s 222 AOE threat – had been flagged earlier in the correspondence. However, that material (although not the apparently shortened time for compliance) had been before Barrett J, and his Honour had not been asked to do anything other than appoint a liquidator provisionally. Further, the real dispute was as to solvency. If Mr Pomfret makes good his case that the company is not insolvent then, by definition, it will be able to pay or provide for the outstanding tax obligations. This must have been seen to be a real issue; and it was that real issue that Mr Pomfret was prevented from putting to the court. The notice given was manifestly inadequate to allow him to prepare a case for, and instruct legal representatives as to, that issue.

51 Nor have I overlooked that Mr Breen was out of the office at the time the fax was received at 3.10 pm, and that Mr Williams was absent. Again, that does not affect my conclusion. Busy practitioners may reasonably be expected to have more than one matter pressing for their attention at any given time. In a well organised office, and in the best of worlds, a fax such as that sent at 3.10 pm on 26 May might be expected to be brought urgently to the attention of the relevant person in the recipient firm. However, there are many reasons – including absence from the office – why this may not happen. In any event, my conclusion as to inadequacy is based upon the time at which the notice was given and the time allowed for action, and not on the actual unavailability of Mr Breen (or Mr Williams) to act. The fact that some twenty or so minutes elapsed between the giving of notice and the commencement of the hearing is the significant matter of fact on this point.

Second issue: did Mr Pomfret deliberately refrain from appearing?

52 It was in this context in particular that the Jones v Dunkel submission to which I referred in para [6] above was pressed.

53 An affidavit sworn by Mr Pomfret was read (subject to objection as to relevance). Mr Pomfret was cross-examined on that affidavit. It was not put to him that, with knowledge that the application was to be made, he instructed Dibbs Barker Gosling not to appear; or that he deliberately refrained from appearing. In those circumstances, I would not (in the absence of compelling direct evidence) conclude that, as Mr Rogers submitted, such instructions were given or such a decision was made.

54 Further, Mr Pomfret’s evidence was he did not consent to the appointment of Mr Ryan as liquidator; that he so instructed Dibbs Barker Gosling; and that he did not know at all on 26 May that Nicholas J had made the orders that are now sought to be set aside. It was not put to him that he was even aware that of the application made that day.

55 Mr Pomfret acknowledged that in discussions between 24 and 26 May with Messrs Breen and Williams, he was advised that Mr Labraga sought to have Mr Ryan appointed as liquidator. It was in this context that he gave instructions that he did not consent. This, he said, was on 25 May. I think that the better view of his evidence is that he was not aware on 26 May of the application threatened to be made (and in fact made) that day to appoint Mr Ryan as liquidator.

56 Mr Williams, who swore two affidavits, was cross-examined. Much of the cross-examination was directed to the supposed differences between his account and Ms Cook’s. (For the reasons that I have given, relating to Ms Cook’s concessions, much of that cross-examination was misdirected.) It was not put to Mr Williams that Mr Pomfret had instructed him to refrain from appearing. However, given that Mr Williams was not in the office on 26 May, this may not be of great significance.

57 That leaves Mr Breen. Such discussions as Mr Pomfret had on 26 May with Dibbs Barker Gosling were with Mr Breen, because Mr Williams was absent from the office. Mr Breen did not give evidence of those discussions (or of his discussions with Mr Cordato). However, given that Mr Pomfret appears not to have been aware of the application before it was made, it does not seem to me that Mr Breen’s evidence could throw any useful light on this topic. Further, given that it was not put to Mr Pomfret that he decided to refrain from appearing on the hearing of the application, let alone that he conveyed such instructions to Mr Breen, and that there is no other evidence that Mr Pomfret gave such instructions, there was no relevant point on which Mr Breen might have been expected to give evidence. (Of course, if, as I have found is likely, Mr Pomfret was unaware before the application was made that it was to be made, he could not have conveyed such instructions to Mr Breen. Equally, if Mr Breen was unaware, until 3.45 pm that the application was to be made, it is a little difficult to see how he could have sought and received instructions to refrain from appearing. But the case, on this point, paid scant regard to reality.)

58 Put shortly, where the relevant accusation was not put to the person directly involved, and where the circumstantial evidence does not support the conclusion on which (it is said) Mr Breen’s evidence might have been relevant, I do not see any basis for drawing a Jones v Dunkel inference from the unexplained failure to call Mr Breen. That is because, in substance, I do not think that there was a real issue on which Mr Breen’s evidence might have been relevant.

59 The circumstances to which I have referred in paras [25] and [26] above indicate, in my view, that the submissions to the effect that Mr Pomfret had made a conscious decision not to appear were, at their highest, sterile and arid; and the same may said, based on the same material, to the submission that I should draw a Jones v Dunkel inference from the unexplained failure of Mr Breen to give evidence.

Third and fourth issues: change in circumstances

60 On Mr Labraga’s case, there had been a relevant change in circumstances, in the sense that the time for him to act (so as to stave off the consequences of non-compliance with the s 222AOE notice) might be averted. The time, on his evidence, had been shortened by about five days: from 1 June to 26 May. It seems to be clear that it was this circumstance that motivated Nicholas J to make the orders that he did.

61 It follows that after Mr Labraga put on his evidence that was considered by Barrett J on 16 May, there was a relevant change in circumstances. That change was that the time for action was (by about five days) shorter than had been thought.

Fifth issue: insolvency

62 There is a presumption of insolvency. There is no evidence that rebuts the presumption. On the material before me, the only available view is that the company is insolvent.

Analysis

63 Mr Labraga’s case is that the setting aside of the orders will expose him to very real detriment, namely the likelihood of being required to pay by way of penalty the amount of the company’s tax obligations. Whether or not that is a meritorious position (having regard to the evident policy underlying the scheme of which s 222AOE forms part) is not a matter for me to consider, in circumstances where the dispute between Messrs Labraga and Pomfret, and the rights and wrongs of their respective claims (including, for example, Mr Pomfret’s claim that Mr Labraga “scuttled” the proposed arrangement with the ATO) have not been examined.

64 It might be open to infer that the relationship between Messrs Labraga and Pomfret is such that Mr Pomfret is prepared to accept the equal detriment to him (because he too has been served with a s 222AOE notice) as the price of preventing Mr Labraga avoiding the detriment to which I have referred. Equally, it may be that Mr Pomfret’s personal circumstances are such that the detriment is not as real to him as it is to Mr Labraga. Again, because those issues were not explored, I do not propose to consider them.

65 The competing claims are, therefore, between the right of a party to be heard, and the right (if that is what it is) of Mr Labraga to bring about a state of affairs that will avoid liability following service of the s 222AOE notice. It is a little difficult to know why the question was not debated before Barrett J on 16 May. On that day, on Mr Labraga’s case, it must have been apparent that the dire consequences on which he now relies would have crystallised within about a fortnight. It may have been thought that Mr Ryan’s investigations might clarify the question of solvency (more accurately, the question of actual as opposed to presumed insolvency).

66 It is clear that Mr Labraga’s solicitors gave Mr Pomfret notice on 24 May of his desire to take action urgently. It is clear that Mr Pomfret was unlikely to consent to the proposed causes of action. It is clear that a significant underlying issue was that of solvency. Weighing the various factors, I conclude that Mr Pomfret should have been given more adequate notice of the application (including the supporting affidavit) that was made to Nicholas J on 26 May. It was then clear to Mr Labraga, through his solicitors, that Mr Pomfret would oppose the application. Nicholas J may well have made the orders that he did even after hearing Mr Pomfret (or his legal representatives). But Mr Pomfret was denied the opportunity to put his case. I think that it was inappropriate for Mr Labraga, through his solicitors, to give notice at 3.10pm on 26 May of an application to be made at 3.00pm that day, knowing Mr Pomfret would want to oppose the application.

67 As I have noted in para [29] above, it does not appear that Nicholas J was informed of Mr Pomfret’s attitude. In saying this, I recognise that it would have been apparent from the correspondence that was put before his Honour that Mr Pomfret (at least the day before) did not consent. It certainly does not appear that Nicholas J was told that Mr Pomfret was given notice of the application ten minutes after the time when it was supposed to be made. I regard it as inappropriate for the application to have been pressed in those circumstances and before Mr Cordato had had any response to the fax sent at 3.10pm. In saying this, I have not overlooked the conversation referred to in para [27] above. However, as noted in para [28], that conversation occurred too late in the event for any action to be taken on Mr Pomfret’s behalf.

68 These circumstances suggest that Mr Pomfret should have the relief that he seeks. It was through no fault of his that he did not appear on 26 May. He had (through his solicitors) done what was reasonably open to him to make his attitude clear to Mr Labraga. To the extent that the submission was pressed, I find that Mr Pomfret made no decision to refrain from appearing at the hearing of the application, and that he gave no instructions to Dibbs Barker Gosling that they should refrain from appearing at the hearing of the application. Indeed, as I have said more than once, I think that the better view of the evidence is that Mr Pomfret was not aware on 26 May, before the application was made, that it was to be made that day.

69 Weighing against the considerations to which I have referred are, as I have said, the detriment to Mr Labraga and the alleged lack of utility. As to the former: Mr Rogers submitted, if I were otherwise minded to grant relief, I should stay the operation of the orders for 28 days, to give his client time to seek leave to appeal (and a further stay). Whilst that would dispose of the immediate prejudice, it does not dispose of the question of principle underlying it.

70 The problem arises because Mr Labraga (through his solicitors) gave what I have concluded was inadequate notice of his intention to move, and thereby deprived Mr Pomfret of the opportunity to appear and put his case to Nicholas J. As I have said, it may be that Nicholas J, having heard from Mr Pomfret, would have made the orders that he did. However, where it was Mr Labraga’s act (or default) that has precipitated the situation, I do not think that I should infer in his favour that Nicholas J would not have been moved by the case to be put for Mr Pomfret. Further, in that situation, I think that Mr Labraga has to accept the responsibility for the consequences of his act. In other words, if the consequence of setting aside the order is that Mr Labraga is exposed to the detriment to which I have referred, I think that that is in reality a consequence of his own act in creating the circumstances that enliven the operation of Pt 40 r 9(3)(b). I therefore do not regard the question of detriment to Mr Labraga as requiring that the discretion be not exercised in Mr Pomfret’s favour.

71 As to the second point – insolvency – there are two answers. The first is that Mr Pomfret has been denied the opportunity to mount his case that in fact (as opposed to any presumption) the company is not insolvent. The second is that, if I grant the relief sought, it will not relaunch the company into commercial life. It will remain in provisional liquidation, under the control of Mr Ryan. The interests of creditors will be protected by that state of affairs, with no detriment to the community at large. The presumption of insolvency therefore does not require the discretion to be exercised adversely to Mr Pomfret.

72 Having considered those matters separately, I need add only that they do not, considered together, lead to any different conclusion. They are conceptually distinct reasons, and it cannot be said that one in effect adds force to the other. If each reason by itself is not dispositive of the exercise of discretion, there is no reason to think that any different conclusion should follow from considering them together.

73 I therefore conclude that Mr Pomfret should have the relief that he seeks. I do however think that it is appropriate for that relief to be stayed, to enable Mr Labraga to seek leave to appeal.

Orders

(1) Order that the orders made by Nicholas J on 26 May 2005 in accordance with paragraphs 1, 2 and 3 of the Interlocutory Application filed for the plaintiff on 26 May 2005 be set aside.
(2) Order that the order made by Barrett J on 30 May 2005 for the winding up of the second defendant be set aside.
(3) Stand the proceedings over to the Corporations List on 11 July 2005.
(4) Order that orders 1 and 2 stayed until and up to 5.00pm on 4 August 2005.

74 Reserve costs of the application..

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