Matthews v Nielson

[1997] QSC 139

IN THE SUPREME COURT
OF QUEENSLAND

Brisbane  No. 4041 of 1996

Before the Hon. Mr Justice Shepherdson

[Matthews v. Nielson & Ors]

BETWEEN:
  HARRY IAN MATTHEWS
  Plaintiff
AND:
  ROSS NIELSON INVESTMENTS PTY LTD
  First Defendant
AND:
  REEVE STREET INVESTMENTS PTY LTD
  Second Defendant
AND:
  MITCHELL OGILVIE MENSWEAR PTY LTD
  Third Defendant
AND:
  HUGH BRISTOW
  Fourth Defendant
AND:
  ROSS ANDREW NIELSON
  Fifth Defendant
AND:
  JAMES BERESFORD LOEL
  Sixth Defendant
AND:
  MITCHELL GERARD OGILVIE
  Seventh Defendant
  REASONS FOR JUDGMENT - SHEPHERDSON J.

Judgment Delivered 15/08/1997

CATCHWORDS: CORPORATIONS LAW - Corporations (Queensland) Act 1990 s.85(1)(a) - "matters arising before the commencement of this section" -whether s.556 of the Companies (Queensland) Code is taken to have been repealed on and ceased to have effect from 1 January 1991.

Counsel:Mr Dunning for the applicant.

Mr Stewart for the respondent.

Solicitors:O'Mara, Patterson & Perrier

Clarke & Kann

Date of Hearing:          25 July 1997

IN THE SUPREME COURT
OF QUEENSLAND

Brisbane  No. 4041 of 1996

Before the Hon. Mr Justice Shepherdson

[Matthews v. Nielson & Ors]

BETWEEN:
  HARRY IAN MATTHEWS
  Plaintiff

AND:
  ROSS NIELSON INVESTMENTS PTY LTD
  First Defendant

AND:
  REEVE STRRET INVESTMENTS PTY LTD
  Second Defendant

AND:
  MITCHELL OGILVIE MENSWEAR PTY LTD
  Third Defendant

AND:
  HUGH BRISTOW
  Fourth Defendant

AND:
  ROSS ANDREW NIELSON
  Fifth Defendant

AND:
  JAMES BERESFORD LOEL
  Sixth Defendant

AND:
  MITCHELL GERARD OGILVIE
  Seventh Defendant

REASONS FOR JUDGMENT - SHEPHERDSON J.

Judgment Delivered 15 August 1997

This is an application by the plaintiff, brought by way of summons, to have two questions of law answered pursuant to RSC O 38 r 2 and, if appropriate, to have paragraphs 20 and 21 of the Defence struck out pursuant to RSC O 22 r 31.
           The questions of law raised for the opinion of the Court are set out in paragraph 3 of the summons:

(a) Whether by virtue of s 87(1) of the Corporations (Queensland) Act 1990, s 556 of the Companies (Queensland) Code is taken to have been repealed on and ceased to have effect from January 1, 1991.

(b)Whether by reason of the answer to question (a) the cause of action pleaded in the statement of claim of the plaintiff, delivered 29 May 1996, based on s 556 of the Companies (Queensland) Code is not maintainable by the plaintiff.

The only claim against the fifth, sixth and seventh defendants is pursuant to s 556 of the Companies (Queensland) Code 1981 ("the Code") for insolvent trading.  In their defence, the fifth, sixth and seventh defendants admit that at all material times they were directors of Australian Billboards Pty Ltd.   The Statement of Claim (paragraphs 20-23) pleads:

1. that by entering into a lease of the billboard with the first second and third defendants on 19 November 1990 Australian Billboards Pty Ltd incurred a debt;

2. that immediately before the time that the debt was incurred there were reasonable grounds to expect that, if Australian Billboards incurred the debt, it would not be able to pay all its debts as and when they became due;

3. that Australia Billboards was wound up on or about 28 August 1993 and has ceased to carry on business.

   Section 556 of the Code relevantly provides:

   "556(1) If -

   (a)a company incurs a debt, whether within or outside the State;

   (b)immediately before the time when the debt is incurred -

   (i)...

   (ii)there are reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and

   (c)the company is, at the time when the debt is incurred, or becomes at a later time, a company to which this section applies,

   any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred is guilty of an offence and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt ... "

In order to come within the scope of s 556, a company must, at the time when the debt is incurred or at any time thereafter, be a company to which s 553(1) applies. Section 553(1) relevantly provides:

"553(1) Sections 554 to 557 (inclusive) apply to a company -

(a)that has been wound up or is in the course of being wound up;

(b)...

Australian Billboards Pty Ltd "was wound up on or about 28 August 1993". Between the incurring of the debt the subject of the claim pursuant to s 556 and the occurrence of the element required by s 553 of the Code, viz the winding up on or about 28 August 1993, the Corporations (Queensland) Act 1990 commenced on 1 January 1991.
Paragraphs 20 and 21 of the Defence plead (a) that by virtue of s 87(1) of the Corporations (Queensland) Act s 556 of the Code was taken to have been repealed on and ceased to have effect on 1 January 1991 and (b) the cause of action based on s.556 is not maintainable.
Section 87 of the Corporations (Queensland) Act 1990 provides:

87(1) To the extent that a cooperative scheme law ceases to operate because of ss 85 or 86, the law is taken for the purposes of the Acts Interpretation Act 1954 to have been repealed by this Act.

Section 85 relevantly reads:-

85(1)   This section provides for the national scheme laws of this jurisdiction to supersede the cooperative scheme laws, which are to continue to operate of their own force only in relation to -

(a)matters arising before the commencement of this section; and

(b)       matters arising, directly or indirectly out of such matters;

insofar as the national scheme laws do not deal with those matters.

The Companies (Queensland) Code is one of "the co-operative scheme laws" defined in s.84 of the Corporations (Queensland) Act. The Corporations (Queensland) Act 1990 is within the meaning of "national scheme law of this jurisdiction" (see definition s.3).
           In Permanent Trustee Australia Ltd & Anor v Dowd (1993) 11 ACLC 792; 11 ACSR68 McLelland Chief Judge in Equity considered the operation of ss 85(1) and 87(1) of the relevant New South Wales Act, equivalent to the Queensland 1990 Act in relation to whether ss 540 and 574 of the Companies (New South Wales) Code had continuing operation.  Section 540 of the Code empowered the Australian Securities Commission to "intervene in any legal proceeding relating to a matter arising under this Code" s.574 of the Code empowered the Court to grant injunctions both restraining and mandatory concerning conduct under the Code.   His Honour had this to say (at p. 796; 73):

Section 574 of the Code continues to operate of its own force in relation to matters arising before 1 January 1991 (including questions of contravention of the Code prior to that date), and s 540 of the Code continues to operate of its own force in relation to matters (including proceedings) arising directly or indirectly out of such matters arising before 1 January 1991.

The result of the application before me turns then upon the issue of the proper construction of the expression "matters arising" as used in s 85(1) of the Corporations (Queensland) Act.
           In Enterprise Sheet Metal Pty Ltd (in liq) v Queensland Steel and Sheet Pty Ltd (!995) 1 Qd R 511, the Court of Appeal of the Supreme Court of Queensland considered the meaning of the expression “with respect to civil matters arising under the Corporations Law of Queensland” in s 42(1) of the Corporations (Queensland) Act.  McPherson JA and Derrington J (at p. 514) found in conformity with the pronouncements of the High Court in Fencott v Muller (1983) 152 CLR 570, saying;

The language of s 42(1) has evidently been modelled on s 76(ii) of the Constitution or on statutory provisions enacted under the powers conferred there. In that context, it has been said of the word “matter” that it “does not mean a legal proceeding, but rather the subject matter for determination in a legal proceeding”: Fencott v Muller (1983) 152 CLR at 590 ... With respect to the expression “arising under” a law, it has been said that “a matter may properly be said to arise under a federal law if the right or duty in question in the matter owes its existence to federal law or depends upon federal law for its enforcement, whether or not the determination of the controversy involves the interpretation (or validity) of the law”. In adopting this statement, which was made by Latham CJ in R v Commonwealth Court of Conciliation; Ex parte Barrett (1945) 70 CLR 141 at 154, the High Court in LNC Industries Ltd v BMW (Australia) Ltd (1983) 49 ALR 599 at 602; 151 CLR 575 at 581, added:

“When it is said that a matter will arise under a law of the Parliament only if the right or duty in question in the matter owes its existence to a law of the Parliament, that does not mean that the question depends on the form of the relief sought and on whether that relief depends on federal law.  A claim for damages for breach or for specific performance of a contract, or a claim for relief for breach of trust, is a claim for relief of a kind which is available under State law, but if the contract or trust is in respect of a right or property which is the creation of federal law, the claim arises under federal law.  The subject matter of the contract or trust in such a case exists as a result of the federal law.”

A conclusion to the same effect has been reached by the Court of Appeal of the Supreme Court of Victoria: Avamure Pty Ltd (in liq) v Fletcher Jones and Staff Pty Ltd (1996) 22 ACSR 256.
           In Fencott v Muller, the High Court considered the expression “any matter arising under any laws made by the Parliament” within the meaning of s 76(ii) of the Constitution. Mason, Murphy, Brennan and Deane JJ also considered the concept of "matter" and found that the expression comprehended the “justiciable controversy, identifiable independently of the proceedings which are brought for its determination and encompassing all claims made within the scope of the controversy” (see p.603). In light of the above authorities there is no need for me to investigate separately the meaning of the word “matter” in the context of s 85 of the Corporations (Queensland) Act.  I would however respectfully adopt the statement made by McPherson JA and Derrington J at 514 of the Enterprise Sheet Metal case as follows:

Language borrowed, especially from a constitutional context, for use elsewhere does not necessarily carry with it every nuance of meaning.

If a creditor finds himself in circumstances where s 556 applies and the company was not wound up before 1 January 1991, the creditor may fall between two stools. With respect, I consider that it absurd to imagine that the 1990 Act by repealing laws deprived creditors of their remedies under the earlier Act.
In the circumstances, s 556 of the Code is a substantive provision which in situations where the provisions of s.556 are met, creates a statutory claim against the directors in that they become personally liable for a debt incurred by the company. Absent that provision the plaintiff would have no claim against the fifth, sixth and seventh defendants.
In my view the company may become a company to which s 553 of the Code applies at a time later than the incurring of the debt, but this must occur prior to the commencement of proceedings under s 556(1): Bush v Wright & Ors (1985) 3 ACLC 311).
           In Bush v. Wright Rogers J. held that the "later time" in s.556(1)(c) cannot be a point of time later than that at which the proceedings are commenced. I reject the contention of Mr Stewart, counsel for the respondents, that there was no justiciable controversy between the parties in existence before 1 January 1991 and therefore there was no "matter arising before the commencement of" s.85(1).
The result is that in my view the plaintiff's claims against each of the fifth, sixth and seventh defendants are “matters arising before the commencement of this section” within the meaning of s 85(1) of the Corporations (Queensland) Act by force of which liability under the Code remains.
In addition, s 20(2)(c) of the Acts Interpretation Act 1954 supports the proposition that s 85(1) intended to allow rights that existed under the Code to continue to exist notwithstanding the enactment of the Corporations Law. Section 20(2)(c) provides:

"The repeal . . . . of an Act does not -

. . . .

(c) affect a right ... accrued ... under the Act"

In Esber v Commonwealth of Australia (1992) 174 CLR 430; Mason CJ, Deane, Toohey and Gaudron JJ said (at p. 440):-

Once the appellant lodged an application to the Tribunal to review the delegate’s decision, he had a right to have the decision of the delegate reconsidered and determined by the Tribunal. It was not merely “a power to take advantage of an enactment”. Nor was it a mere matter of procedure; it was a substantive right. Section 8 of the Acts Interpretation Act protects anything that may  truly be described as a right, “although that right might fairly be called inchoate or contingent”. [Footnotes omitted]

Although Esber concerned equivelent Commonwealth legislation the provisions of s.20(2)(c) of the Queensland Act and s.8(c) of the Commonwealth Act are essentially the same.
The result is that by virtue of s 85 of the Corporations (Queensland) Act of 1990 s 556 of the Code continues to operate of its own force in relation to the matters pleaded in the Statement of Claim. Questions (a) and (b) posed by the summons are each answered "No".
           I order that paragraphs 20 and 21 of the Defence of the first, second, third, fifth, sixth and seventh defendants delivered 11 November 1996 be struck out.  I order the respondents to pay the applicants costs of and incidental to the application to be taxed.