Matthews v Ipex ITG Pty Ltd - [2007] SASC 387

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MATTHEWS v IPEX ITG PTY LTD
[2007] SASC 387
Reasons of Judge Burley a Master of the Supreme Court
8 November 2007
CORPORATIONS
Application for extension of time to bring claims relating to voidable transactions - whether plaintiff has been guilty of disqualifying delay.
Corporations Act 2001 s 588FF(3)(b), referred to.
ASIC v Karl Suleman Enterprises Pty Ltd & Ors (2004) 52 ACSR 103; Gordon v Tolcher [2006] HeA 62; BP Australia Limited v Brown (2003) 58 NSWLR 322; Taylor v Woden Constructions Pty Ltd Unreported; Green v Chiswell Furniture [1999] NSWSC 608, considered.

MATTHEWS v IPEX ITG PTY LTD
[2007] SASC 387

JUDGE BURLEY: By an originating process filed on 3 July 2007 the plaintiff, as liquidator of SAIPEX (Aust) Pty Ltd (in liquidation), has applied for orders pursuant to subs 588FF(3)(b) of the Corporations Act 2001 (“the Act”) for the following order:
That the period within which the plaintiff may make an application under s 588FF(1) of the Corporations Act 2001 with respect to any transaction on the part of SAIPEX (Aust) Pty Ltd (in liquidation) ACN 008 190 958 which may a voidable transaction to which either the defendant or any other person was a party be extended pursuant to subs 588FF(3), so as to expire at the conclusion of 31 January 2009.
At the hearing of the application on 17 September 2007 Mr P A McNamara QC appeared for the plaintiff and Mr D Howard for the defendant. The following affidavits were relied upon:
·The affidavits of the plaintiff sworn respectively on 3 July 2007 (FDN 2) and 6 September 2007 (FDN 5) tendered by the plaintiff.
·The affidavit of Ms K Kahapolaarachchi sworn on 15 August 2007 (except for paragraph 43 thereof) tendered by the defendant.
The plaintiff also tendered records of outcome dated respectively 20 June 2007 and 12 September 2007 in District Court action 645/07 between these parties. The records were admitted as exhibit “P1”. The District Court proceedings consist of the plaintiff’s claim for orders pursuant to 588FF of the Act against the defendant.
Reference was also made to the affidavit of Ms Nursan Unalan sworn on 13 September 2007. Mr Howard conceded that the content of the affidavit was largely argumentative and did not seek to tender the affidavit. He informed me that the “submissions” contained in the affidavit formed part of his submissions in opposition to the application.
Section 588FF of the Act enables a liquidator to recover moneys paid under voidable transactions. Subs (3) of the section provides that applications must be made within 3 years after the relation back day or within such longer period as the Court may order. The application for an extension of time must be made within the 3 year period after the relation back day.
The application has 2 aspects which are identified in the order sought. The application applies to any voidable transaction to which either the defendant or any other person was a party. In ASIC v Karl Suleman Enterprises Pty Ltd & Ors (2004) 52 ACSR 103, an application for an extension of time was directed to specified defendants and to unspecified persons. Barrett J held that this was permissible, but that extensions of time in cases where neither a cause of action nor a target had crystallised would only be granted in exceptional circumstances. His Honour held that in the circumstances of the case before him there were exceptional circumstances of unusual complexity which required further investigation. His Honour took into account that the liquidator’s inability to obtain a more complete picture was not due to their delay or inattention. His Honour formed the view that actual prejudice resulting from the grant of an extension was outweighed by the case for granting the extension.
The relevant 3 year time limit expired on 6 July this year. Since the originating process seeking the extension was filed on 3 July 2007, the application is within time: ASIC v Karl Suleman (supra).
The purpose behind both aspects of this application is to put the liquidator into a position where, with a little more time, he can decide whether or not to bring further proceedings against the defendant and any other proceedings against as yet unidentified persons. It was submitted by Mr McNamara relied upon ASIC v Karl Suleman (supra) and Gordon v Tolcher [2006] HCA 62, where the High Court cited with approval the remarks of Spiegelman CJ in BP Australia Limited v Brown (2003) 58 NSWLR 322.
It was common ground that there are 3 factors which the Court will take into account on an application pursuant to s 588FF(3)(b) of the Act. First, the prospects of success; second, prejudice to the defendant,; and third, the explanation for the liquidator’s need for an extension.
According to Mr McNamara’s submission, the first element did not apply where an order was sought in respect of unascertained causes of action against unascertained persons. He submitted that factor would also not apply in relation to, as in this case, unascertained causes of action against a specified defendant.
These intentions must be a correct contention because the Court permits applications to be made where the potential causes of action, at the time of the making of the application, are unascertained and/or the identity of the person against whom such proceedings may potentially be commenced is unknown.
The position taken by the defendant in resisting the application was that the plaintiff had been guilty of disqualifying delay in investigating whether or not claims relating to voidable transactions should be made. It was argued by the defendant that the extension should not be granted, at least insofar as the plaintiff wished to be in a position, in the future, to commence additional proceedings against the defendant.
It should be stated at this stage that the defendant could only be heard in opposition to the application for an extension of time to the extent that any proposed extension of time affected the defendant. This means that, so far as the second limb of the plaintiff’s application was concerned, ie in relation to as yet unascertained parties against whom proceedings might be pursued, the application must be treated as proceeding ex parte.
The affidavit evidence.
The second affidavit of Mr Matthews (FDN 5) deals with the requests by him for assistance from the former director of the company, a Mr Smith, requests by him from the defendant to provide a copy of the defendant’s debtors’ ledger and to the process of discovery in the proceedings in the District Court which were issued in April of this year. It is apparent from that affidavit that as early as 4 May 2005, but some 10 months after his appointment as liquidator, the plaintiff wrote to the defendant seeking copies of its debtors’ ledger for the six-month period leading up to the date of administration. It is common ground that the administration commenced on 6 July 2004 when the plaintiff was appointed administrator of the company. A week later he became the liquidator of the company. It is apparent from the letter in response to the liquidator’s letter of 4 May 2005 that the defendant ignored the liquidator’s request for provision of a copy of the debtors’ ledger for the relevant period. Thereafter Mr Matthews requested the former director, Mr Smith, to attempt to obtain this documentation from the defendant. No such documentation has been provided to date.
Mr Matthews’ second affidavit also refers to the provision by him on 3 August 2007 of informal discovery in the District Court proceedings. On 20 June 2007 the District Court required the parties respectively to provide informal discovery, the plaintiff within 28 days and the defendant within 6 weeks. As at 6 September, the defendant had not provided the discovery the subject of the direction given on 20 June 2007.
These facts are relevant to the plaintiff’s contention that he has acted with reasonable expedition and the defendant’s submission to the contrary.
I turn now in more detail to some of the cases referred to by counsel. Mr McNamara referred to the decision of Finn J in Taylor v Woden Constructions Pty Ltd, an unreported decision of the Federal Court delivered on 23 September 1998. That decision was followed by Austin J in Green v Chiswell Furniture [1999] NSWSC 608 who referred to Finn J’s decision as follows:
[15] The following propositions, with which I respectfully agree, emerge from that case:
(a)Ordinarily, the issues raised on an extension application are three-fold:
(i)explanation for the delay in bringing the proceedings;
(ii)a preliminary review of the merits of the foreshadowed proceedings – that is, an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit;
(iii)whether the likely actual prejudice resulting from the grant of an extension is sufficiently substantial to outweigh the case for granting the extension;
(b)Where the liquidator’s purpose in seeking the extension of time is simply to put himself into a position where he can properly decide whether or not to bring proceedings, a preliminary enquiry into the merits of any consequent proceedings may not always be necessary.
On the question of the significance of the length of time that has passed since the liquidator was appointed, Mr McNamara referred to what was said by White J in Newcap v Riasagouros. His Honour said (at [71]):
Whether there is an adequate explanation of the delay is only one factor to be taken into account in considering where the interests of justice lie. The absence of any specific prejudice to the defendant is of more weight, although I take into account that prejudice may exist without it being able to be identified because facts which were known may not be forgotten, or their significance may not now be appreciated. No evidence was led by the defendant as to its course of business, or change of personnel, or record keeping, which might bear upon the probability of their being prejudice of that kind.
(Citations omitted).
Later, His Honour said (at [75]):
In my view, it is the absence of identified prejudice which is the paramount consideration in the circumstances of the present case. If the liquidator were to seek to institute fresh proceedings on the new causes of action, the interests of justice would require that he be granted an extension of time under s 588FF(3)(b) to do so.
Finn J, in Taylor v Woden, also identified a number of factors which he said might be taken into account as an explanation of “why proceedings have not been brought within the 3 year period”. His Honour said, at page 4 of the Butterworth’s report:
If [the liquidator’s affidavit] indicates, albeit in generalities
(a)the complexity of the affairs of the companies and the gross deficiencies in records;
(b)the lack of assets in the companies and hence lack of financial resources to fund an investigation …..
(c)importantly, the need to obtain, and the time lag involved in obtaining, financial backing for the investigation;
(d)the place of this event in the web of matters in respect of which legal proceedings could be considered and on which advice was necessary;
(e)the other proceedings that have already been brought on; and
(f)the course he is now taking in having an s 596A examination of Mr Napper for the purpose of obtaining further evidence.
Not all of those factors are present in the application before me, but the listing of relevant factors by Finn J assists in identifying what may need to be established by the applicant in any given case.
In BP Australia Limited v Brown, Spiegelman CJ said (at [171]):
….. The Court, through the discretions it exercises under s 588FF(3) and (1), is in a position to control unwarranted delay by liquidators. Subject to reasonable expedition on the part of the liquidator, and to adopt the reasoning of Doyle CJ in Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 659, the creditors are entitled to :
….. the benefit of having the affairs of an insolvent company properly investigated and administered in an orderly fashion in terms of the provisions of the law.
On the question of delay, Mr McNamara submitted as follows: (transcript page 41 line 3 et seq):
In assessing the delay alleged against the liquidator and in weighing up the explanation, your Honour asks whether the liquidator was acting with appropriate diligence and with due regard for accommodation of care and despatch. Care because the liquidator, in suing, exposes himself to a personal liability, care because the liquidator should not institute proceedings on incomplete information, and despatch because delay in the institution of an action can give rise to prejudice and can be oppressive.
In my opinion, that submission accurately reflects the principles enunciated in the cases.
Mr Howard submitted that this was not a case that involved unusual complexity, nor were there attendant circumstances that gave rise to extra time being necessary to enable the plaintiff to make appropriate investigation. In short, he submitted, this was a relatively straightforward liquidation and that any liquidator, in the plaintiff’s position, acting expeditiously, would have, well before the expiry of the 3 year time limit, been in a position to decide whether or not to commence proceedings to recover moneys pursuant to s 588FF, and if so against whom. Mr Howard contended that if that submissions were accepted, the plaintiff has plainly been guilty of unnecessary delay. In such circumstances, he submitted, the Court’s finding should be that the plaintiff has not established a reasonable excuse for the delays which have occurred. This was so, he asserted, even though the defendant could only point to potential (as opposed to actual) prejudice arising from the effluxion of time.
Mr Howard addressed the question of whether or not the prospects of success were a relevant factor on this application. He submitted in his written outline:
3.1Ordinarily some regard should be had to the merits of the proposed section 588FF application.
3.2If the liquidator is not in the position to consider merits but has proper grounds for enquiry into a transaction because of the suspicion that it invites or of the explanation it requires then, provided he can satisfactorily explain his delay and enquiry into the matter, he should not be closed out from an extension of time.
Reliance was placed on the decision of Finn J in Taylor v Woden (supra). The submission refers to an “enquiry into a transaction”. It is apparent from that submission that the defendant accepts that if there are proper grounds for enquiry into a transaction in circumstances where the liquidator is not in a position to put evidence as to the possible merits of the proposed application, the application may, if the other requirements of the application are made out, be granted.
In this case the plaintiff does not maintain that he has in mind proceedings relating to specific transactions in respect of which further enquiry is warranted before such proceedings are commenced. Rather, the plaintiff’s position is that in the time that has elapsed since his appointment as liquidator, he has not been able to gain access to all necessary documentation which would enable him to make an informed decision as to whether or not additional proceedings should be contemplated against both the defendant and other persons. The question that therefore needs to be resolved is whether it is sufficient for the liquidator to demonstrate that there is a possibility that further enquiry might reveal documentation which supported the commencement of further proceedings both against the defendant and others.
One of the contentions put by Mr Howard was that any liquidator doing his or her job competently should at least be able to say towards the end of the 3 year limitation period what transactions might be challenged. Although it might be said, in general terms, that the 3 year period allowed by the legislation should be sufficient, the very fact that the section permits the Court to grant an extension of time allows for the possibility that a liquidator, who has acted with reasonable expedition, may require additional time either to commence proceedings or to arrive at a point where a decision may be made as to whether or not to commence proceedings.
On the question of whether or not the liquidator must point to a particular transaction or transactions in respect of which further enquiry is needed, the passage from the judgment of Finn J in Taylor v Woden relied upon by the defendant is as follows:
Where the liquidator is not in the position to consider the merits but has proper grounds for enquiring into the matter because of suspicion it invites (or that is cast on it) or of the explanation it requires, then provided he can satisfactorily explain his delay in enquiring sufficiently into the matter, he should not be closed out from an extension because he is unable to say he has a meritorious claim. In some instances, as here, it will be sufficient if he can say “I do not know if I do, but there is reason to enquire”.
In my opinion, Finn J was not by the above comment, doing other than dealing with the specifics of the application before him. That application involved reference to a specific transaction, hence Finn J’s reference to “the matter”. I do not take his Honour to have decided that it is only in circumstances where a specific transaction or specific transactions can be pointed to as requiring further enquiry. His Honour’s analysis, with which I respectfully agree, deals with the liquidator’s assertion in that case that he needed additional time to make further enquiries about a specific transaction, embraces also the notion that where the liquidator has otherwise acted with reasonable expedition, he is entitled to apply if, in all the circumstances, he suspects, but does not know, that there may be other transactions which should be the subject of proceedings once his enquiries were completed.
The other contention advanced by the defendant is contained in paragraph 5 of the written submission which is as follows:
5The substantial question is whether the plaintiff has in fact carried out his duties diligently and expeditiously and before being faced with particular issues of complexity.
Having referred to some of the cases, it is convenient first of all to deal with the second aspect of the plaintiff’s application, namely the concern on the part of the plaintiff that there may be claims against parties other than the defendant of which he is at present unaware. He first raised this concern in paragraph 31 of his affidavit sworn on 3 July 2007. In my opinion, this aspect of the plaintiff’s application should be refused. The affidavit of Mr Matthews of 3 July 2007 provides no substantiation of his assertion that there may be other claims against other parties of which he is at present unaware. That application therefore does not get to first base. The plaintiff has failed to establish that there may be claims available to him and that further time to investigate is called for. Such an application cannot be based on an unsubstantiated assertion. It is for that reason that I would decline to make an order on an application which is based on the second limb of the plaintiff’s application.

Turning now to the first limb of the plaintiff’s application, it was put by Mr McNamara that the failure of the defendant to provide a copy of its debtors’ ledger for the relevant period contributed to the delays which have been experienced by the plaintiff in investigating whether or not claims in respect of possible voidable transactions should be made. It was argued that the defendant could hardly be heard to complain if the material factor in relation to the delay was the failure on the part of the defendant to provide documentary material which might be relevant to the liquidator’s investigations.
In making such a submission, Mr McNamara accepted that the defendant was under no legal obligation to provide that documentation, other than by way of discovery if in fact the documentation was directly relevant to the issues in dispute between the parties in the District Court proceedings. I would add that the defendant may well have been compelled to discover and produce such documentation had an application for pre-action discovery been made by the plaintiff.
In my opinion, there is little substance to the plaintiff’s contention that failure on the part of the defendant to produce a copy of its debtors’ ledger materially contributed to the delays experienced by the plaintiff in making his investigations. The period of the delay could only best be assessed as whatever delay may have taken place between the initial request and the making of an application for pre-action discovery. If it be said that there was little likelihood of the plaintiff obtaining discovery of the debtors’ ledger by way of an application for pre-action discovery, that merely means that, upon the refusal or the failure by the defendant to provide the documentation, the plaintiff was compelled to make up his mind one way or the other as to the commencement of proceedings for recovery of sums of money pursuant to allegedly voidable transactions without the benefit of having a copy of the defendant’s debtors’ ledger. Had the plaintiff acted expeditiously and in accordance with such an approach, it would have been plain to him well before the expiry of the relevant 3 year period that he either had or did not have a sufficient basis upon which to pursue proceedings against the defendant.
It follows from such an analysis that the plaintiff has failed to provide an acceptable explanation as to why he has not at an earlier stage, and in particular within the relevant 3 year period of limitation, been in the position to determine whether or not additional proceedings should be commenced against the defendant.
For the above reasons, the application will be dismissed. I will hear the parties as to costs.