McInerney v Bretair Pty Ltd

[2006] QDC 312

[2006] QDC 312

DISTRICT COURT

CIVIL JURISDICTION

JUDGE ROBIN QC

No BD3190 of 2005

JUDITH ANN McINERNEY AS THE PERSONAL REPRESENTATIVE OF THE ESTATE OF WAYNE LAWRENCE McINERNEY	Plaintiff
and
BRETAIR PTY LTD (ACN 064 636 013)	Defendant

BRISBANE

..DATE 07/08/2006

ORDER

CATCHWORDS: Uniform Civil Procedure Rules r 69 - order made for joinder as defendants of directors of an incorporated lessee defendant - assertion of accessorial liability under
s 75B of the (Cth) Trade Practices Act where the underlying claim under s 51A and S 52 was that the lessee had made representations in terms of the lease covenants, in particular to complete the full 5 year term.

HIS HONOUR:  The plaintiff's application strikes me as one that could be described as courageous, nevertheless I think it is entitled to success today.  Whether, in the ultimate, the plaintiff will gain the benefit which she seeks remains to be seen.

The application, although including a request for leave to amend under rules 375 and 377 is essentially one under rule 69 of the UCPR for joinder of Messrs Silver and Hirsch who are directors of the defendant company.

It agreed to lease service station premises at 533 Sandgate Road, Clayfield, for five years under a document signed on 8th November 2000.  The company abandoned the premises some three and a half years into the lease and it now faces this claim in which the plaintiff seeks to recover loss and damage.

The proposed new defendants (who resist being joined) were the company's sole directors and the signatories of the contract.  They, the Court hears, had provided guarantees of the company's performance capped at $50,000 - which has already been provided, leaving the plaintiff still out of pocket, it would appear.

The plaintiff is apprehensive that the defendant, which is not in liquidation, may not be able to meet a judgment.  Ms Rosengren attempted to present evidence from the Bar table to the effect that the defendant is a wholly owned subsidiary of a well-known retailer of petroleum products, albeit not one of the "majors", with a view to alleviating concerns about the defendant's ability to meet a judgment.  I am not sure that the information would necessarily do that. 

I am not entitled today to act on the basis of anything other than the evidence before the Court but it was useful to hear the assertions because they illustrate the possibility that the circumstances at a trial involving the directors may well not be nearly as straightforward as I had earlier contemplated.

One may speculate that the plaintiff has repented of accepting caps on the guarantees and has hit upon what strikes me as an inventive way of ensuring that any judgment obtained will be recoverable by bringing in two gentlemen who presumably would have the ability to satisfy it.  The claim to be brought against them is one of accessorial liability as directors under section 75B of the Trade Practices Act.  The Act is relied on as the basis for establishing the defendant company's liability under section 51A and section 52.  In what might be called a "turning the tables" scenario, which authorities show can happen, the lease covenants, in particular that requiring the company to stay for five years, are regarded as representations for purposes of the Act, to the effect that the covenantor intends to and has a reasonable basis for believing it will be able to comply with the covenants. 

Section 51A has an effect of reversing the onus if a claim is properly pleaded so that the representor has to show a reasonable basis for making the representations and the existence of an intention to ensure that they are fulfilled.  I have observed that there seem to be obvious practical difficulties for the plaintiff here, given that for three and a half years matters worked out as the plaintiff intended and desired.  It remains to be seen at trial what the evidence might reveal about the situation back in November 2000.  That reversal of the onus does not apply in respect of accessorial liability.  It is for the plaintiff to establish its case about that, to make out a section 52 case.

The latest word in this regard appears to be Australian Competition and Consumer Commission v Global Prepaid Communications Pty Ltd (In Liquidation) [2006] FCA 146. See in particular paragraph 46.

In my opinion, the most powerful consideration, indeed a determinative one, is that the limitation period for the purposes of a separate proceeding against Mr Silver and Mr Hirsch is still current.  It would be open to the plaintiff to start a new proceeding against them.  I think it is appropriate to approach the present application as if it were one by existing defendants seeking to have the claim against them struck out on the basis that it is, for practical purposes, doomed to fail.

What directors, even directors who sign a contractual document, know of the facts will always be a matter for inquiry. If this had been a conventional two-man company, other things being equal, it would seem sensible to treat the directors as knowing what the company was doing. If the more complex scenario sketched by Ms Rosengren is right, the circumstances may be vastly different. The two gentlemen may have been selected for the role of directors for purposes of the Corporations Law's requirements, holding formal meetings and the like, in circumstances where they had little knowledge of the day to day operations of their company or the implications of contracts which others negotiated for it.

There are obviously important issues for trial.  Here I think Ms Rosengren is very far from establishing that the claim desired to be advanced against the directors is so hopeless that the Court should not permit it to be commenced.  Authorities which she has collected which show directors avoiding accessorial liability appear to be in the context of claims against directors that have been fully litigated, allowing the Court to consider all the relevant circumstances.  That is what I think ought to happen here, however novel what the plaintiff is seeking to achieve may be.

There will therefore be orders in terms of paragraphs 1 and 2 of the application filed the 7th of July 2006.

...

HIS HONOUR:  Order as per initialled draft by paragraph 3, the costs to be costs in the cause as between the new defendants and the plaintiff.

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