LCM Recoveries Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia - [2023] WASC 181

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   LCM RECOVERIES PTY LTD -v- COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA [2023] WASC 181
CORAM:   STRK J
HEARD:   22 MAY 2023
DELIVERED          :   22 MAY 2023
PUBLISHED           :   31 MAY 2023
FILE NO/S:   COR 153 of 2017
MATTER:   IN THE MATTER OF CONSTRUCTION INDUSTRIES AUSTRALIA LTD ACN 137 079 095 (IN LIQUIDATION)

:LCM RECOVERIES PTY LTD (ACN 636 546 999)
Plaintiff
AND
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Defendant

Catchwords:

Practice and procedure - Corporations - Appropriate case management directions - Expert evidence - Pleadings - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)

Result:

Case management directions made

Category: B

Representation:

Counsel:

Plaintiff	:	WCJ Zappia
Defendant	:	S Rosewarne SC and JM Healy

Solicitors:

Plaintiff	:	HWL Ebsworth Lawyers
Defendant	:	K&L Gates

Cases referred to in decision:

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Ashala Model Agency Pty Ltd (in liq) v Featherstone [2016] QSC 121; [2017] 2 Qd R 1
Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83
Hightime Investments Pty Ltd v Lungan [No 2] [2010] WASC 296
Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1
Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191;(2007) 63 ASCR 557
Lopez (in his Capacity as Liquidator of Swan Concrete Products Pty Ltd (in Liq)) v Harvey [2015] WASC 292
Matthew David Woods as joint and several liquidator of Brierty Ltd (In Liq) v B&J Catalano Pty Ltd [2021] WASC 90
Re BBY Ltd (Recs and Mgrs Apptd) (In Liq) and BBY Holdings Pty Ltd (Recs and Mgrs Apptd) (In Liq) (No 2) (2022) 160 ACSR 465
Re Harris Scarfe Ltd (recs and mgrs apptd) (in liq); Dwyer v R-Jay Pty Ltd (2007) 97 SASR 377
Samsung C & T Corporation v Loots [2016] WASC 330
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2014] WASC 406
Westgem Investments Pty Ltd in its Own Right Trustee for Hossean Pourzand and Jenny Maria Pourzand Atf The Helen Trust v Commonwealth Bank of Australia Ltd [No 3] [2018] WASC 73

STRK J:

(This judgment was delivered extemporaneously on 22 May 2023 and has been edited from the transcript.)

Introduction

The proceeding comes before the court for case management directions. Before the court are two competing minutes of proposed orders.
The plaintiff, LCM Recoveries Pty Ltd, seeks orders in terms of its minute filed on 19 May 2023. In support of the same, counsel reads the affidavit of Anna Maria Jones, a solicitor employed by HWL Ebsworth Lawyers, filed on 18 May 2023. Counsel also relies upon a written outline of submissions filed on 19 May 2023.
The defendant, the Commissioner of Taxation of the Commonwealth of Australia, seeks orders in terms of its minute filed on 19 May 2023. In support of the same, counsel reads the affidavit of Selin Hasip, a solicitor employed by K&L Gates, filed on 18 May 2023. Counsel also relies upon a written outline of submissions filed on 19 May 2023.

Overview of procedural history

Before dealing with the controversies before the court, it is necessary to provide a short overview of the history of this proceeding (which is not intended to be a comprehensive chronology).
The proceeding was commenced in 2017 by Kimberley Andrew Strickland and David Ashley Norman Hurt, in their capacity as the liquidators of Construction Industries Australia Ltd (in liquidation) against the Commissioner. Pursuant to s 588FE and s 588FF of the Corporations Act 2001 (Cth), the liquidators sought orders voiding payments of a total sum of $7,112,759.59, made to the Commissioner by Construction Industries Australia as insolvent transactions, each said to provide an unfair preference, priority or advantage over other creditors.[1] The originating process was supported by an affidavit sworn by Mr Strickland on 28 June 2017.
[1] Originating process filed 29 June 2017 par 2.
On 23 May 2018, a second affidavit deposed by Mr Strickland was filed, to which he attached a report as to the solvency of Construction Industries Australia dated 23 May 2018.
A further report concerning the solvency of Construction Industries Australia was required to be filed and served pursuant to the orders of Registrar Whitby (as her Honour then was) on 23 March 2020. A further solvency report prepared by Mr Strickland was filed on 15 May 2020.
On 10 August 2020, the parties (as they then were) attended a mediation conference, which was not successful and was adjourned.
Among other things, on 14 June 2021 orders were made requiring the Commissioner to file and serve on or before 21 July 2021 an expert report as to the solvency of Construction Industries Australia, and to provide the liquidators with discovery of all documents relied upon in preparation of the report. The time for compliance with the order made on 14 June 2021 was extended to 16 August 2021, and on that date the solvency report prepared by Michael John Hill (a partner of McGrathNicol, who was instructed to prepare the report by the solicitors for the Commissioner) was filed.
By chamber summons filed on 25 March 2022, orders were sought pursuant to O 18 r 7(2) of the Rules of the Supreme Court 1971 (WA) (RSC), substituting LCM Recoveries as the plaintiff in the proceeding in place of the liquidators, which application was opposed by the Commissioner.
The application was made in circumstances where on 17 January 2022, by a deed of assignment as varied on 31 January 2022 and 23 March 2022, Mr Strickland and Mr Hurt in their capacity as the liquidators of Construction Industries Australia purported to assign the claims the subject of this proceeding to LCM Recoveries.[2]
[2] Amended originating process filed 2 June 2022 par 3; affidavit of JM Ward affirmed 25 March 2022 par 5.
By order of Master Sanderson made on 12 May 2022, LCM Recoveries was substituted as the plaintiff in this proceeding. A notice of appearance for LCM Recoveries was filed on 20 May 2022, and an amended originating process was filed on 2 June 2022.
By an order made on 25 August 2022, the parties were granted leave to adduce expert evidence at the trial in respect to the solvency of Construction Industries Australia by calling one expert, each of whom is a registered liquidator. The order contemplated that the evidence to be adduced by LCM Recoveries was to be in substitution of the expert reports of Mr Strickland dated 23 May 2018 and 15 May 2020. The order was made on the basis that LCM Recoveries would pay the Commissioner's costs thrown away as a consequence of the order.
Orders were also made on 25 August 2022 for LCM Recoveries to provide the Commissioner with its proposed expert evidence schedule, which was to identify:
(a) the nature of the proposed expert evidence;
(b) the specific questions on which the proposed expert will be asked to opine and the particular issue or issues which the proposed expert evidence is directed;
(c) the assumptions that the proposed expert will be asked to make in providing their opinion on each question; and
(d) whether the brief to be given to the expert will include materials in addition to those that had been provided to, or were available to, Mr Strickland in the preparation of his expert reports dated 23 May 2018 and 15 May 2020.
On 25 August 2022, orders were also made for the provision of supplementary discovery by both parties.
On 25 October 2022, LCM Recoveries was granted leave to issue a subpoena to produce addressed to Neil Cussen and Michael Hird in their capacities as the joint and several liquidators of Allmine Group Limited (in liquidation) (the parent company of Construction Industries Australia) in the form attached to orders made on that date.
On 27 October 2022, orders programming the filing of expert evidence were made in the following terms:
Expert evidence
4.By 13 January 2023, the plaintiff provide the defendant with a copy of the report of its expert witness whose evidence is to be adduced by them in relation to the solvency of Construction Industries Australia Ltd (ACN 137 079 095) (in liquidation) during the relation back period 22 December 2012 to 21 June 2013.
5.By 3 March 2023, the defendant provide the plaintiff with a copy of the report of his expert witness whose evidence is to be adduced by the defendant in relation to solvency of Construction Industries Australia Ltd (ACN 137 079 095) (in liquidation) during the relation back period 22 December 2012 to 21 June 2013.
6.By 17 March 2023, the plaintiff and defendant provide each other with a copy of the report of any expert witnesses whose evidence is to be adduced by the plaintiff or defendant in response to the report of any expert witness filed under orders 1 and 2 above.
7.A copy of the report of any expert witness shall include the name of the witness, the facts and matters relied upon to qualify them to give expert evidence and shall identify the facts and other material upon which they base their opinion.
8.The expert witness must include in their expert report a statement to the effect that the witness has made all inquiries which the witness believes are desirable and appropriate and that no matters of significance which the witness regards as relevant have, to the knowledge of the witness, been withheld from the Court.
Further orders were made for the experts to participate in a joint expert conclave and for the parties to attend mediation.
The expert evidence schedule was the subject of disagreement and extensive conferral, and various versions of the expert evidence schedule were filed. Six versions were filed between 10 October 2022 and 23 November 2022. As to the facts to be assumed by the proposed experts, they were set out in the schedule (at paragraphs 34 to 161) and were said to include all facts and circumstances recorded in the documents listed in annexure A to the schedule (numbered 1 to 317).
The time for LCM Recoveries and the Commissioner to file their respective expert evidence and any responsive report was extended by orders made by consent on 28 December 2022 (to 28 February 2023, 14 April 2023 and 28 April 2023, respectively); and on 16 February 2023 (to 17 March 2023, 28 April 2023 and 12 May 2023, respectively).
On 9 March 2023, among other things, it was ordered that the parties provide the combined available dates of the experts to participate in a two day conclave to occur between 22 May 2023 and 26 May 2023 in Perth, and to produce a joint expert report (JER) in the timeframe prescribed by the orders, for the purpose of narrowing or removing any differences between the experts; and that the conclave be facilitated by a registrar of the court appointed by the Principal Registrar. The conclave was fixed to take place in Perth on 24 and 25 May 2023, and a registrar was appointed by the Principal Registrar to facilitate the same.
On 20 March 2023, an updated expert evidence schedule was filed on behalf of LCM Recoveries,[3] and on 22 March 2023, an expert report prepared by Vaughan Neil Strawbridge on behalf of LCM Recoveries was filed in this proceeding, attached to Mr Strawbridge's affidavit affirmed on 21 March 2023.
[3] The document updated the schedule filed on 8 November 2022 on behalf of LCM Recoveries.
The Commissioner did not file the expert evidence by 28 April 2023 or at all.
In the circumstances, the listing before a registrar on 24 and 25 May 2023 to facilitate expert conferral could not proceed.
A mediation presently remains listed before a mediation registrar on 7 June 2023, by which time it had been anticipated that the parties would have the benefit of all expert reports, including the JER.

Evidence

Affidavit of AM Jones

On 18 May 2023, Anna Maria Jones affirmed an affidavit in support of LCM Recoveries' minute of proposed orders. Among other things, Ms Jones deposed to the solicitors for the Commissioner having uplifted the documents produced by the liquidators of Allmine Group Limited (in liquidation); to service of Mr Strawbridge's expert report on the Commissioner; and to service of an updated expert evidence schedule on the Commissioner's solicitors identifying 36 additional documents which were provided to Mr Strawbridge but were not listed in annexure A to the expert evidence schedule filed on 23 November 2022. Ms Jones deposed to receipt of a request made by the Commissioner's solicitors for the additional documents on 28 April 2023 and the provision of those documents by LCM Recoveries' solicitors on 18 May 2023 (which totalled approximately 3693 pages).
Ms Jones attached to her affidavit documents marked AMJ‑1 to AMJ‑8 which included the transcript of the hearing of LCM Recoveries' application to be substituted as a plaintiff on 12 May 2022; the transcript of the strategic conference held on 24 August 2022; a copy of the consolidated strategic conference memorandum; and various correspondence as between the parties and the court.

Affidavit of S Hasip

On 18 May 2023, Selin Hasip affirmed an affidavit in support of the Commissioner's proposed minute. Among other things, Ms Hasip deposed to the basis of her knowledge that the documents produced to the court by the liquidators of Allmine Group Ltd (in liquidation) had been provided by HWL Ebsworth Lawyers to Mr Strawbridge without specific instructions to the expert as to the use which may be made of those documents; to the Commissioner's application for access to the subpoenaed documents and the uplifting of the documents on behalf of the Commissioner on 17 January 2023; to the basis of her knowledge that the documents produced on subpoena comprised 5,906 documents, and a total of 38,273 pages; and to Ms Hasip having conducted the review of the documents which she estimated had taken approximately 75 hours at a rate of 500 documents per 7.5 hour day (being approximately 10 days), and which she deposed to having undertaken over a five week period commencing on 6 March 2023.
Ms Hasip further deposed that on 17 March 2023, the Commissioner had been served with a copy of Mr Strawbridge's expert report, which Ms Hasip estimated comprised 198 pages exclusive of annexures and approximately 6,553 pages when the annexures were included. She also deposed that from her preliminary review of the report, she understood that Mr Strawbridge's report appeared substantially different from the previous expert reports prepared by Mr Strickland and Mr Hill.
Ms Hasip also deposed that on 21 April 2023, she had a telephone call with Mr Hill, who informed her that given the length of time that had elapsed since the preparation of his previous expert reports, his understanding of the volume of Mr Strawbridge's report and his other current work commitments, it would take him approximately two months to complete a further expert report which would be responsive to Mr Strawbridge's report and would include his updated opinion as to the solvency of Construction Industries Australia.
Ms Hasip further deposed that in an email exchange on 15 March 2023 between herself, and Ms Desiree Pavey and Ms Alison Robertson of HWL Ebsworth Lawyers, Ms Robertson informed her that 'copies of all documents provided to the plaintiff's expert would be provided as part of the expert report'. Ms Hasip further deposed that while the documents with which Mr Strawbridge appeared to have been briefed were identified in annexure D of Mr Strawbridge's report, an additional subset of documents with which Mr Strawbridge was briefed were not provided to the Commissioner until 18 May 2023.
Ms Hasip attached to her affidavit documents marked SH‑1 to SH‑3 which included a copy of the subpoena to produce documents issued to the liquidators of Allmine Group Ltd (in liquidation) on 7 November 2022; and various correspondence.
I also note that parts of Ms Hasip's affidavit was inadmissible and when objection was taken, counsel for LCM Recoveries indicated the plaintiff's preparedness for those inadmissible parts to be taken into account only as submissions made on behalf of the Commissioner. I proceeded on the basis proposed.[4] That is, I understood that it was submitted on behalf of the Commissioner that:
(a)a view had been taken that it was necessary for the Commissioner's legal representatives to complete a review of the documents produced by subpoena to determine their relevance prior to briefing Mr Hill, so as to ensure that he was provided with a copy of all documents upon which he may need to rely to express his opinion on the solvency of Construction Industries Australia Ltd;[5]
(b)it would be appropriate for Mr Hill to take into account the expert report of Mr Strawbridge when preparing his own report, which would truncate the time need to prepare his expert evidence;[6] and
(c)before briefing Mr Hill, a view had been taken that it was necessary for the Commissioner's solicitors to review Mr Strawbridge's report so as to identify whether the factual matters in the report were accurate by reference to the underlying source documents referenced, and to identify what additional documents had been provided to Mr Strawbridge.[7]
[4] ts 112 - 113 (22 May 2023).
[5] Affidavit of S Hasip affirmed 18 May 2023 par 20.
[6] Affidavit of S Hasip affirmed 18 May 2023 par 19.
[7] Affidavit of S Hasip affirmed 18 May 2023 par 20.

The Commissioner's expert evidence

The first controversy concerns the preparation and filing of the Commissioner's expert report and associated case management orders.
On 28 April 2023, through his legal representatives, the Commissioner notified LCM Recoveries that he was not able to file his expert report as to solvency as had been ordered on 16 February 2023 (which order had been made with the consent of the Commissioner).[8]
[8] Affidavit of AM Jones affirmed 18 May 2023 pars 13 - 14; plaintiff's submissions par 15.
LCM Recoveries now complains about the Commissioner's delay in briefing Mr Hill, which it says is not sufficiently explained, and says that the Commissioner ought file the expert evidence he seeks to adduce by 21 June 2023.[9] The Commissioner says that he ought be allowed until 21 July 2023 to do so.[10]
[9] Plaintiff's submissions par 16.
[10] Defendant's minute of proposed orders filed 19 May 2023 order 1.
The Commissioner says that Mr Hill requires additional time in which to prepare his report as to solvency. Various grounds are cited in support of the extension of time. In summary, the Commissioner says that additional time is required because:[11]
(a) when the existing orders were agreed, it was not anticipated that the volume of material produced under the subpoena would require such an extensive review by the defendant and its solicitors;
(b) the analysis contained in the expert report of Mr Vaughan Neil Strawbridge dated 20 March 2023 (the Strawbridge Report) is extensive and has taken the defendant and its solicitors a significant amount of time to review and check the factual matters stated within that report; and
(c) the Commissioner has proceeded on the basis that he has an obligation to ensure that the Commissioner's expert, Mr Michael John Hill, is only briefed with material which is relevant to the preparation of his report as to solvency and that the factual assumptions on which his report is based are properly and clearly identified in his letter of engagement; and
(d) Mr Hill has stated that he needs 2 months to prepare his report.
[11]Defendant's submissions par 3.
Further, when considering the extra time that is now sought by the Commissioner to prepare expert evidence, counsel for the Commissioner suggests that it is important to keep in mind the history of this proceeding and the changing approach to the expert evidence on the part of LCM Recoveries (and previously the liquidators).[12]

Disposition

[12] Defendant's submissions par 4.

What (if any) additional time is to be afforded to the Commissioner to prepare and file expert evidence calls for the exercise of discretion, and the exercise of the court's discretion is to be exercised having regard to the objects of the RSC O 1 r 4B, that is:
(a) promoting the just determination of litigation; and
(b) disposing efficiently of the business of the Court; and
(c) maximising the efficient use of available judicial and administrative resources; and
(d) facilitating the timely disposal of business; and
(e) ensuring the procedure applicable, and the costs of the procedure to the parties and the State, are proportionate to their value, importance and complexity of the subject matter in dispute; and
(f) that the procedure applicable, and the costs of the procedure to the parties, are proportionate to the financial position of each party.
In determining whether to allow the Commissioner additional time, that is, an additional one month, alternatively two months to prepare and file an expert report, I also have regard to the considerations identified in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175, which inform the exercise of the court's discretionary power (in that case, to allow or refuse an amendment to a pleading). The relevant principles in Aon include those described by Tottle J in Westgem Investments Pty Ltd in its Own Right Trustee for Hossean Pourzand and Jenny Maria Pourzand Atf The Helen Trust v Commonwealth Bank of Australia Ltd [No 3].[13] In the disposition of this matter, I take into account the effect of the requested extension of time on LCM Recoveries; the inevitable strains of litigation when weighing the adverse consequences of delay; the nature and importance of the evidence sought to be adduced by the Commissioner for which additional time is sought; the extent of the delay, and the costs associated with it, the prejudice which might reasonably be assumed to follow from it and any prejudice shown; the point in the litigation relative to the trial; and as the Commissioner seeks that discretion to extend time be exercised in his favour, the explanation proffered on his behalf.
[13] Westgem Investments Pty Ltd in its Own Right Trustee for Hossean Pourzand and Jenny Maria Pourzand Atf The Helen Trust v Commonwealth Bank of Australia Ltd [No 3] [2018] WASC 73 [47] (Tottle J), citing Hightime Investments Pty Ltd v Lungan [No 2] [2010] WASC 296[52]; and Sino Iron Pty Ltd v Mineralogy Pty Ltd [2014] WASC 406 [31]; Samsung C & T Corporation v Loots [2016] WASC 330 [63].
I also accept and proceed on the basis that the goal of the practice, procedure and interlocutory processes of the court as stated in the RSC O 1 r 4A is:
the elimination of any lapse of time from the date of initiation of proceedings to their final determination beyond that reasonably required for interlocutory activities essential to the fair and just determination of the issues bona fide in contention between the parties and the preparation of the case for trial.
The circumstances before me are not such that warrant refusing the Commissioner additional time and in the end, the difference as between the parties is four weeks.
While the approach adopted by the Commissioner in instructing his expert differed from the approach that had been foreshadowed on behalf of the Commissioner,[14] and while I accept that the Commissioner might have engaged Mr Hill earlier, in light of the history of this proceeding, the extent of the delay (which will in the end be 12 weeks, by reference to what had been the due date, that is 28 April 2023), the point in the litigation relative to the trial (which has not yet been entered or listed), and the limited prejudice to LCM Recoveries if an additional four weeks is allowed, I consider it appropriate to accede to the Commissioner's request to extend the time by which the Commissioner is to file its expert evidence to 21 July 2023.
[14] ts 137 ‑ 139 (22 May 2023).
Order 2 of the parties' competing minutes are in identical terms, and I will make that order.
I will make an order in terms of order 3 of the minute promoted by the Commissioner, so that it will be ordered that LCM Recoveries provide the Commissioner with a copy of the report of any expert witness whose evidence is to be adduced by LCM Recoveries in response to the report of any expert witness filed by the Commissioner by 25 August 2023.
In the Commissioner's minute, an order is also sought in the following terms concerning expert evidence:
The plaintiff waive any and all rights to object to the expert evidence of Mr Michael Hill on the grounds of independence, in circumstances where he will have reviewed the expert evidence of Mr Vaughan Strawbridge prior to the preparation of his further expert report as to the solvency of Construction Industries Australia Pty Ltd (in liquidation) ACN 137 079 095.
In the course of the hearing, counsel for the Commissioner explained that the order is sought in the context where Mr Hill will in the same report opine as to solvency and respond to the solvency report of Mr Strawbridge, in circumstances where Mr Hill has already substantially examined the information that has been examined by Mr Strawbridge.[15]
[15] ts 137 - 138 (22 May 2023).
While I understand the Commissioner's proposed approach with respect to briefing Mr Hill is to further efficiency and to truncate the timetable for the exchange of expert evidence, as I informed the parties, I am not prepared to make an order in the terms proposed on behalf of the Commissioner over the objection of LCM Recoveries (who I understand not to consent to the same). Whether objection might properly be taken to Mr Hill's evidence on grounds of independence or otherwise is a matter for trial. Further, it is not clear to me how the Commissioner's objective (that is, comfort through expressed waiver of a right) might be afforded by a case management direction in favour of the Commissioner over the objection of LCM Recoveries.
While I am not prepared to make an order in the terms promoted on behalf of the Commissioner, I am prepared to make a notation on the court record that the following waiver was given (the form of which is agreed by counsel on behalf of LCM Recoveries):[16]
The plaintiff waives the right to object to the expert evidence of Michael Hill on the grounds of independence on the basis that he had reviewed the expert evidence of Vaughan Strawbridge prior to his preparation of his further expert report as to the solvency of Construction Industries Australia Ltd (in liquidation) ACN 137 079 095.
[16] ts 139 (22 May 2023).

Proposed introduction of pleadings

The second controversy concerns the proposed introduction of pleadings by the Commissioner. The Commissioner seeks that the proceeding continue by way of pleadings, and seeks orders programming the same.
The Commissioner submits that unfair preference claims are generally accepted to be proceedings of a type where pleadings are necessary and appropriate;[17] and notes that this is particularly so where the amounts sought to be recovered in a preference claim are significant. On behalf of the Commissioner, counsel submits that there are at least six reasons why pleadings should now be ordered in the proceeding:[18]
8.First, …, these proceedings were commenced in 2017 by way of an originating process and the Strickland Affidavit (which is only 24 paragraphs long). Since that time, the liquidator of Construction Industries Australia Ltd has prepared several solvency reports and Mr Hill has prepared an expert report on behalf of the defendant dated 16 August 2021 and a responsive expert report to Mr Strickland's reports dated 21 March 2022. Substantial additional documentation has also been obtained by the current plaintiff since it was substituted as the plaintiff in these proceedings and the Strawbridge Report has now been filed. In these circumstances, it is not possible (or realistic) for a $7 million plus claim to be progressed to trial without a full and proper articulation of the plaintiff's case. This will be best achieved through the filing of pleadings.
9.Secondly, the factual basis on which the plaintiff advances its claim ought to be clearly identified so that the defendant can properly understand the case that it must meet at trial. As explained by the New South Wales Court of Appeal in Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557, when making a voidable transaction claim it is critical that a liquidator identify the 'transaction' with precision. Doing so is necessary in order to answer the tests proposed by ss 588FA and 588FE of the Corporations Act and to allow for the tailoring of appropriate relief under s 588FF of the Corporations Act. It is only once the relevant transaction has been identified that it can be decided whether there has been an unfair preference within the meaning of the Corporations Act. The Strickland Affidavit fails to do this. The need for clarity on this issue has only heightened since the handing down of the decision of the Victorian Court of Appeal in Cant (in his capacity as liquidator of Eliana Construction and Developing Group (in liq)) v Mad Brothers Earthmoving Pty Ltd (2020) 63 VR 222 and its clarification in relation to what must be shown by a plaintiff in an unfair preference claim in order to meet the 'from the company' requirements of s 588FA. Given these issues which apply to all preference claims, the substitution of the original plaintiff by a litigation funder (which may well give rise to difficult questions at trial surrounding the assignment of the s 588FF statutory cause of action pursuant to the terms of the deed of assignment dated 17 January 2022) and the quantum of the plaintiff's claim, pleadings are both necessary and appropriate in this case.
10.Thirdly, the expert report of Mr Strawbridge is hundreds of pages long and the defendant should not be left to guess as to which factual propositions the plaintiff intends to rely upon at trial to support its claim that Construction Industries Australia Ltd was insolvent during the relation back period.
11.Fourthly, the filing of pleadings in this matter will not delay the timetable to progress towards a mediation in October 2023 because the defendant's proposed orders have pleadings being prepared simultaneously with the finalisation of expert evidence.
12.Fifthly, the filing of pleadings will define and limit the issues for decision and will provide the basis for determining the admissibility of evidence for trial. The pleadings will also ensure a fair trial by putting each party on notice of the case it must meet (it being observed that this applies equally to the defendant, given that the Commissioner will be raising a good faith defence).
13.Sixthly, the clear delineation of the factual matters in dispute between the parties will likely result in overall savings in terms of time and cost in preparation of the matter for mediation and trial because it will enable the parties to focus their efforts in preparation on the substantive matters on which they differ.
[17] Defendant's submissions par 6, citing Re Harris Scarfe Ltd (recs and mgrs apptd) (in liq); Dwyer v R-Jay Pty Ltd [2007] SASC 115; (2007) 97 SASR 377 [24] (Debelle J); Lopez (in his Capacity as Liquidator of Swan Concrete Products Pty Ltd (in Liq)) v Harvey [2015] WASC 292; Matthew David Woods as joint and several liquidator of Brierty Ltd (In Liq) v B&J Catalano Pty Ltd [2021] WASC 90; Re BBY Ltd (Recs and Mgrs Apptd) (In Liq) and BBY Holdings Pty Ltd (Recs and Mgrs Apptd) (In Liq) (No 2) [2022] NSWSC 30; (2022) 160 ACSR 465.
[18] Defendant's submissions pars 7 ‑ 13 (footnotes omitted).
LCM Recoveries opposes the Commissioner's proposed directions. On behalf of LCM Recoveries, counsel notes that it has always been the Commissioner's position (including at the strategic conference) that the substantive legal issues for determination at trial are:[19]
(a)the solvency of Construction Industries Australia during the relation-back period and whether Construction Industries Australia was insolvent at the time it paid the alleged unfair preference payments to the Commissioner; and
(b)whether the Commissioner can rely on the good faith defence under s 588FG of the Corporations Act.
[19] Plaintiff's submissions par 28, referring to AM Jones affidavit affirmed 18 May 2023, AMJ-3 pages 55 ‑ 56.
Further, counsel for LCM Recoveries submits that the Commissioner:
(a)has always been represented by experienced commercial litigators throughout the course of this proceeding (including independent counsel);
(b)has had a significant period to progress the matter by way of pleadings if he considered it was necessary (noting that this proceeding has been on foot for six years); and
(c)through his counsel informed the court at the strategic conference that his preferred approach to identifying the issues in dispute was a 'statement of agreed issues'.[20]
[20] Plaintiff's submissions par 29, referring to AM Jones affidavit affirmed 18 May 2023, AMJ-3 pages 55 ‑ 56; ts 15 (24 August 2022).
Counsel for LCM Recoveries submits that the parties have had more than an ample opportunity to elect whether to proceed by way of pleadings, and they agreed that pleadings were unnecessary.[21]
[21] ts 119 ‑ 123 (22 May 2023).
Further, counsel submits that this is not a case where pleadings have now become necessary as a result of new information or issues coming to light. As far as LCM Recoveries' cause of action is concerned, counsel says that the only element of the cause of action in which there can be said to be any real factual controversy is:[22]
(a)the issue of solvency, which the parties have agreed, is a matter for expert evidence; and
(b)factual controversy on the Commissioner's good faith defence.
[22] Plaintiff's submissions pars 32 and 41.
As to the factual controversy on the Commissioner's good faith defence, LCM Recoveries says that it does not require pleadings to be fairly put on notice of the Commissioner's defence.[23]
[23] Plaintiff's submissions par 41(b)(ii).
It is the position of LCM Recoveries that the Commissioner's conduct (that is, his late change of position regarding pleadings) is incompatible with his common law obligations to act as a model litigant;[24] and is also incompatible with the RSC O 1 r 4A and the objects of O 1 r 4B.
[24] Plaintiff's submissions par 36, citing Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151; (1997) 146 ALR 1, 40 - 42.
LCM Recoveries further says that pleadings are not required for a fair and just determination of the issues bona fide in contention between the parties and the preparation of the case for trial. It submits that there is no benefit to be gained by the introduction of pleadings at this late stage in the proceeding (given that the proceeding has been on foot for six years) as:[25]
[25] Plaintiff's submissions par 41.
(a)these proceedings concern an application under the Corporations Act and pleadings are not usually ordered as of course in applications of this kind;
(b) the parties have already agreed that there are two primary issues in dispute:
(i) the issue of solvency, which is a matter for expert evidence; and
(ii) factual controversy on the Commissioner's good faith defence (and the plaintiff submits it does not require pleadings to, be fairly put on notice of the Commissioners defence);
(a)pleadings would do nothing to clarify the issues in dispute, which have clearly been known to the parties since before the Strategic Conference;
(b)the factual and legal issues relevant to the determination of the question of solvency, were further delineated and largely agreed, by the parties during the process of conferral over the Expert Evidence Schedule. To the extent such issues have not been agreed, then each party is aware of the other's respective position, and to the extent they are not, those issues can (and probably will) be identified in a statement of facts and issues (preferably by an agreed statement and absent an agreement by the exchange of competing statements);
(e) the parties have already agreed that the most appropriate way for the matter to proceed was by the filing of an agreed statement of facts and issues;
(f) pleadings would unnecessarily increase the costs and further delay the resolution of the proceedings by delaying mediation and the listing for trial (which was intended to be before the end of this year); and
(g) the Commissioner has given no explanation as to why, in light of the above, pleadings are necessary (which is necessary for the Court to consider exercising its discretion).

Disposition

I accept that while proceedings commenced by originating process in this court under the Corporations Act ordinarily do not proceed by way of pleadings, there is power under the RSC O 1 r 4B to order that pleadings be filed where the court considers that proceeding in that way will promote the timely and efficient determination of the dispute. That is, the decision to order pleadings is discretionary, and the exercise of the court's discretion is to be exercised having regard to the objects of the RSC O 1 r 4B (reproduced at [39] above).
In determining whether to order that the proceeding proceed by way of pleadings, I again had regard to those considerations identified in Aon, which inform the exercise of the court's discretionary power. I also accept that the goal of the practice, procedure and interlocutory processes of the court is as stated in the RSC O 1 r 4A (reproduced at [41] above).
I have weighed in the balance the submissions made on behalf of the parties.
I note the value of the claim made against the Commissioner, which concerns transactions of a total value in excess of $7.1 million. I accept that pleadings would increase the costs of the proceeding. However, this is not a case where the cost of pleadings is disproportionate to the value of the claim against the Commissioner, nor disproportionate to the financial position of each party.
When the parties were informed that a strategic conference had been listed in August 2022, they were informed that the legal representatives should be prepared to present their proposals for the future management of the case at the strategic conference. In advance of the strategic conference, both parties were asked to identify their suggested method for identifying issues (for example, by pleadings, a statement of issues, facts and contentions, or by statement of agreed issues), and in response to that enquiry, the court was informed that the Commissioner's suggested method was a statement of agreed issues.
I therefore proceed on the basis the promotion of pleadings is a change of position on the part of the Commissioner. It is not consistent with the position advanced at the strategic conference on 25 August 2022, nor do I understand pleadings to have been promoted on behalf of the Commissioner previously. The only explanation proffered for the late change of position on the part of the Commissioner was that Senior Counsel had been recently briefed and had provided a fresh pair of eyes. The Commissioner's delay weighs heavily against making directions that the action proceed by pleadings.
However, while the Commissioner's change of position has come late in the day, on balance, I am not satisfied that pleadings will necessarily delay trial or the re-listing of this matter for mediation.
In the disposition of this controversy, I particularly focussed upon whether pleadings will better promote the just determination of litigation; and dispose more efficiently of the business of the court.

I accept that it is incumbent upon LCM Recoveries to identify the 'transaction' which grounds its voidable transaction claim with precision.[26] In this regard, I note that in the amended originating process filed on 2 June 2022, LCM Recoveries provided in the form of a table the payment date and payment amount of 86 payments made to the Commissioner in respect of which LCM Recoveries seeks an order that they be deemed voidable transactions as against Construction Industries Australia under s 588FE of the Corporations Act as insolvent transactions each constituting an unfair preference.
[26] Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191;(2007) 63 ASCR 557 [97] (Giles JA), [212] (Ipp JA), [237] (Basten JA); Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83 [93], [116] (Gordon JA); Ashala Model Agency Pty Ltd (in liq) v Featherstone [2016] QSC 121; [2017] 2 Qd R 1 [120] (Jackson J).
I understand that at trial, of the 86 payments, there will be a contest as to whether about 20 of them were 'from the company'.[27] I accept that this issue may be found in the expert report, or articulated in a statement of facts, issues and contentions, but would certainly be made plain in pleadings.
[27] ts 131 ‑ 132 (22 May 2023).
I also accept that the factual basis on which LCM Recoveries advances its claim ought to be clearly identified so that the Commissioner can properly understand the case that it must meet at trial. I give weight to the Commissioner's submission that he ought not be left to guess as to which factual propositions LCM Recoveries intends to rely upon at trial to support its claim that Construction Industries Australia was insolvent during the relation back period. Again, I accept that this may be made plain in the expert report, or in a statement of facts, issues and contentions, and would certainly be made plain in pleadings.
Further, any issue concerning the assignment of the claims the subject of this proceeding by Mr Strickland and Mr Hurt in their capacity as the liquidators of Construction Industries Australia to LCM Recoveries (alluded to at par 9 of the Commissioner's submissions), may be made plain in a statement of facts, issues and contentions, and would certainly be made plain in pleadings.
I consider the question of whether the proceeding ought now proceed by pleadings to be finely balanced. While the Commissioner's delay weighs heavily against acceding to his request, on balance, I consider that pleadings would best promote the just determination of litigation by ensuring that all parties properly understand the case to be met at trial. What is required to properly plead a claim and a defence is well understood, and in contrast, if the parties were to proceed to file statements of facts, issues and contentions, there is a real prospect for disagreement later as to the adequacy of the same and further interlocutory applications.
After hearing from counsel as to appropriate timeframes, I consider it appropriate to make orders in the following terms:
7. This proceeding continue by way of pleadings.
8. By 31 July 2023, the plaintiff shall file and serve a statement of claim.
9. By 1 September 2023, the defendant shall file and serve any defence to the plaintiff's statement of claim.
10. By 15 September 2023, the plaintiff shall file and serve any reply.

Orders for supplementary discovery

The third controversy concerns supplementary discovery. In its minute of proposed orders, LCM Recoveries seeks an order in the following terms:
By 2 June 2023, the Commissioner give supplementary discovery by filing and serving a supplementary affidavit of discovery of any documents (including but not limited to correspondence between the Commissioner and any employees and officers of the Australian Taxation Office) relating to the Siebel Notes maintained by the …Commissioner in relation to the Company.
On behalf of LCM Recoveries, counsel submits that a serious evidentiary issue for the Commissioner is the production of two different versions of the Siebel Notes maintained by the Commissioner in relation to Construction Industries Australia. LCM Recoveries says that it has asked the Commissioner on numerous occasions to explain the discrepancies between the two different versions of the Siebel Notes, being first, the copy of the Siebel Notes produced by the Commissioner under Freedom of Information to Kimberley Strickland as liquidator of the Construction Industries Australia; and secondly, the version of the Siebel Notes which was relied on in the earlier expert report of Mr Hill. In support of the same, Ms Jones attached to her affidavit and marked AMJ‑7 and AMJ‑8 correspondence sent by HWL Ebsworth on behalf of LCM Recoveries to K&L Gates on behalf of the Commissioner, dated 10 January 2023 and 16 May 2023, respectively.
LCM Resources complains that the Commissioner has made no comment as to the existence of two versions of Siebel Notes despite numerous requests that he explain:
(a) the existence and production of what appears to be two versions of the Siebel Notes; and
(b) the differences between the two versions of the Siebel Notes.
Given the Commissioner's seeming unwillingness to explain or even acknowledge the differences and discrepancies, LCM Recoveries seeks an order that the Commissioner give supplementary discovery by filing and serving a supplementary affidavit of discovery of any documents (including but not limited to correspondence between the Commissioner and any employees and officers of the Australian Taxation Office) relating to the Siebel Notes maintained by the Commissioner in relation to Construction Industries Australia.
By the letter dated 16 May 2023 (attached to Ms Jones' affidavit and marked AMJ‑8), noting that the issue had been outstanding for a significant period, the Commissioner's explanation was sought by close of business on 19 May 2023. On behalf of LCM Recoveries, HWL Ebsworth foreshadowed bringing the issue to the court's attention and seeking orders for supplementary discovery.[28]
[28] Affidavit of AM Jones, AMJ-8 pars 5 - 7.
The application for supplementary discovery is opposed by the Commissioner, but no affidavit was filed in opposition to the application. Submissions were made on behalf of the Commissioner as to the appropriateness of lay evidence rather than discovery to explain and respond to the discrepancies. Counsel also alludes to difficulties that the Commissioner has encountered in relation to the operation of Siebel Notes over time.
Rather than determine the application in the absence of affidavit evidence and adequate conferral, I consider it appropriate to adjourn the application part heard to Thursday, 27 July 2023, on the basis that the costs of the application will be reserved, so as to allow further conferral as between the parties on this issue.

Conclusion and orders

For these reasons, orders will be made extending time for the Commissioner to file expert evidence; and for the proceeding to continue by way of pleadings. As to costs, I considered it appropriate, and the parties agree, that costs of today ought be in the cause.
The orders made on 22 May 2023 are reproduced at sch A to these reasons.

SCHEDULE A

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RW
Associate to the Honourable Justice Strk
31 MAY 2023