Lean v Tumut River Orchard Management Ltd - [2002] FCA 1419

FEDERAL COURT OF AUSTRALIA
Lean v Tumut River Orchard Management Ltd
[2002] FCA 1419
CORPORATIONS LAW – application under s 500(2) of the Corporations Act for leave to commence proceedings against a company in liquidation – whether a serious or substantial question to be tried – whether applicant has satisfied onus of showing that it is more appropriate for the claims to proceed by action rather than by proof of debt procedure – part of relief sought by applicant in proposed proceedings only obtainable by litigation – whether the balance of convenience lies in granting leave – leave granted subject to conditions aimed to minimise interference with the orderly winding up of the company and the interests of unsecured creditors.
Corporations Act 2001 (Cth), s 500(2)
Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd (Federal Court of Australia, unreported, 6 November 1997) applied
Vagrand Pty Ltd (In Liquidation) v Fielding (1993) 11 ACLC 411 applied
Ogilvie-Grant v East (1983) 1 ACLC 742 applied
GRAEME TREVOR LEAN v TUMUT RIVER ORCHARD
MANAGEMENT LIMITED (LIQUIDATORS APPOINTED)
W3017 of 2002
CARR J
20 NOVEMBER 2002
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W3017 OF 2002

BETWEEN:

GRAEME TREVOR LEAN
Applicant

AND:

TUMUT RIVER ORCHARD MANAGEMENT LIMITED
(LIQUIDATORS APPOINTED) (ACN 003 501 611)
Respondent

JUDGE:

CARR J

DATE OF ORDER:

20 NOVEMBER 2002

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.The applicant be granted leave, pursuant to s 500(2) of the Corporations Act 2001 (Cth), to commence proceedings against the respondent in respect of the claims described in the draft application and statement of claim annexed to the applicant’s affidavit sworn and filed on 16 September 2002, subject to the following conditions:
(a)such leave does not extend to taking any steps to enforce any monetary judgment which may be obtained in the proposed proceedings against the property of the respondent, without the further leave of the Court;
(b)such leave is confined to commencement of the proposed proceedings by filing an application and statement of claim and prosecuting all claims other than the breach of contract claims in those proceedings to the point at which the issues of liability and relief other than damages have been decided. Should the docket judge, or any other judge responsible for the conduct of the proposed proceedings, consider that the issues in respect of those claims as between liability and relief other than damages on the one hand and damages on the other hand should not be split, the applicant may apply for further leave;
(c)in relation to the proposed breach of contract claims, leave is confined to the commencement of proceedings (in the manner referred to above) which include those claims with liberty also to apply further in the event that any directions by the docket judge or other judge responsible for the conduct of those proceedings require the applicant to take further steps;
(d)the applicant undertaking, in the form of a written undertaking to…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2002] FCA 1419
Decision Date: 20 NOVEMBER 2002

CaseChat Overview and Summary

In the matter of Lean v Tumut River Orchard Management Ltd, the applicant, a certified practising accountant and a partner in a firm of business and insolvency consultants, applied for leave under section 500(2) of the Corporations Act 2001 (Cth) to commence proceedings against the respondent, Tumut River Orchard Management Ltd. The applicant sought to initiate a representative proceeding on behalf of approximately 100 group members against the respondent and two other respondents, alleging misleading or deceptive conduct, unconscionability, and breach of contract. The respondent, which had been wound up, opposed the application. The legal issues before the court were whether the applicant should be granted leave to proceed with the proposed claims and, if so, what conditions should be imposed on such leave.

The court considered the nature of the proposed proceedings and the interests of the parties, particularly the respondent, which was in the process of being wound up. It found that while the applicant had a legitimate interest in pursuing the claims, the court needed to balance this with the respondent’s interests and the potential costs associated with the proposed proceedings. The court determined that granting leave to the applicant was appropriate but with certain conditions to ensure fairness and to manage the potential costs and burden on the respondent. The applicant was granted leave to commence the proceedings subject to specific conditions, including a requirement to pay half of the costs incurred by the Liquidators in complying with discovery obligations.

The court's decision also included provisions for the respondent to be excused from filing pleadings in the proposed application and allowed either party to apply to the court for further orders, including seeking a release from the cost-sharing undertaking. The costs of the application were ordered to be costs in the cause in the proposed application between the applicant and the respondent.

Orders

Orders of the court

1. The applicant be granted leave, pursuant to s 500(2) of the Corporations Act 2001 (Cth), to commence proceedings against the respondent in respect of the claims described in the draft application and statement of claim annexed to the applicant’s affidavit sworn and filed on 16 September 2002, subject to the following conditions:

(a) such leave does not extend to taking any steps to enforce any monetary judgment which may be obtained in the proposed proceedings against the property of the respondent, without the further leave of the Court;

(b) such leave is confined to commencement of the proposed proceedings by filing an application and statement of claim and prosecuting all claims other than the breach of contract claims in those proceedings to the point at which the issues of liability and relief other than damages have been decided. Should the docket judge, or any other judge responsible for the conduct of the proposed proceedings, consider that the issues in respect of those claims as between liability and relief other than damages on the one hand and damages on the other hand should not be split, the applicant may apply for further leave;

(c) in relation to the proposed breach of contract claims, leave is confined to the commencement of proceedings (in the manner referred to above) which include those claims with liberty also to apply further in the event that any directions by the docket judge or other judge responsible for the conduct of those proceedings require the applicant to take further steps;

(d) the applicant undertaking, in the form of a written undertaking to the Court to be filed with the proposed application, to pay one half of the costs which the Liquidators may incur in complying with their discovery obligations (if any) to the applicant in the proposed application, such costs to be agreed or taxed in default of agreement and paid at such time as the docket judge or other responsible judge considers appropriate.

2. Subject to any contrary order by the docket judge or other responsible judge in the proposed proceedings, the respondent be excused from filing any pleadings in that application (subject to obtaining legal advice that such a course is appropriate).

3. There be liberty to either party to apply in relation to these orders [including to seek a release from the undertaking referred to in paragraph 1(d) above], and also generally, on giving seven days written notice to the other.

4. The costs of the application be costs in the cause in the proposed application as between the applicant and the respondent.

Background

Background to the litigation

This is an application under s 500(2) of the Corporations Act 2001 (Cth) (“the Act”) for leave to commence proceedings against the respondent. The respondent opposes the application. THE FACTS The respondent was incorporated on 20 July 1998. At the material times it was the registered proprietor of land at Coonabarabran in New South Wales and Mundubbera in Queensland (it is still the proprietor of some land in Queensland) on which it carried on and managed orchards of peaches and nectarines for the purposes of investment schemes. Those activities were conducted pursuant to the terms of two investment deeds (“the Investment Deeds”) and two prospectuses (“the Prospectuses”) which had been issued under the terms of the Investment Deeds. On 20 July 1998, Messrs Maxwell William Prentice and Vince Christopher Barilla were appointed as administrators of the respondent under Part 5.3A of the Corporations Law. On 20 October 1998, the respondent and Messrs Prentice and Barilla executed a Deed of Company Arrangement in accordance with s 444B of the Corporations Law. They became the administrators of that Deed. On 28 April 1999, the respondent’s creditors, at a meeting convened under s 445F of the Corporations Law, passed a resolution terminating the Deed of Company Arrangement and also resolved that the respondent be wound up. In those circumstances, the respondent was taken to have passed a special resolution under s 491 of the Corporations Law that it be wound up voluntarily and to have done so without a declaration of solvency having been made and lodged under s 494 – see s 446A(2). The respondent was also thereby taken to have nominated Messrs Prentice and Barilla to be the liquidators for the purposes of the winding up – see s 446A(4)(a)(ii). From now on I shall refer to Messrs Prentice and Barilla as “the Liquidators”. Section 500(2) of the Act provides that: “After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.” The applicant, who is a certified practising accountant and a partner in a firm of business and insolvency consultants, has sworn an affidavit in support of the application. In it the applicant says that he intends to commence a representative proceeding in this Court under Part IVA of the Federal Court of Australia Act 1976 (Cth) against the respondent (as first respondent) and two other respondents on behalf of approximately 100 group members (“the proposed Group Members”). The proposed claims are in respect of conduct engaged in by the respondent which is alleged to have been misleading or deceptive and unconscionable contrary to the Trade Practices Act 1974 (Cth) and discrete but related claims of breach of contract on its part. There are further claims of misleading or deceptive conduct against an incorporated financial planner and investment adviser (the proposed third respondent), who is said to have acted on behalf of the respondent. The claims against the proposed second respondent are principally (but not exclusively) for declaratory relief. The applicant has annexed to his affidavit a copy of the proposed originating application and draft statement of claim.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

CARR J

All in all, I consider that it would be equitable for a condition to be imposed to the effect that the applicant undertakes to pay one half of any costs which the Liquidators may incur in complying with their discovery obligations to the applicant in the proposed application, such costs to be agreed or taxed in default of agreement and paid at such time as the docket judge considers appropriate. I think that such an undertaking will have the result of focussing the applicant’s discovery demands and thus limit discovery costs. It will be for the trial judge to decide whether those costs can be recovered by the applicant from any other respondent. CONCLUSION For the foregoing reasons there will be orders in terms of those foreshadowed above.

Ratio Decidendi

Legal Principle Established

Established by: CARR J

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W3017 OF 2002

BETWEEN:	GRAEME TREVOR LEAN Applicant
AND:	TUMUT RIVER ORCHARD MANAGEMENT LIMITED (LIQUIDATORS APPOINTED) (ACN 003 501 611) Respondent
JUDGE:	CARR J
DATE OF ORDER:	20 NOVEMBER 2002
WHERE MADE:	PERTH