McQuinn v JCEE Pty Ltd

Case [2019] SASC 119

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

MCQUINN v JCEE PTY LTD

[2019] SASC 119

Judgment of Judge Bochner a Master of the Supreme Court

10 July 2019

PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA

Leave to intervene in application to seek reinstatement of company.

Held: Leave granted to intervene.

Corporations Act 2001 (Cth), referred to.
Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd [2008] NSWCA 38; Callagher v Australian Securities and Investments Commission [2007] FCA 482; Roadshow Films Pty Ltd v iiNet Ltd [2011] HCA 54; Twist v Randwick Municipal Council (1976) 136 CLR 106; Annetts v McCann (1990) 170 CLR 596; Deans v Anangu Pitjanjatjara Yankunytjatjara (No 2) [2015] SASC 57; Newham v Australian Securities and Investments Commission [2000] ACTSC 77; Palasty v Sims [2010] NSWSC 72; In the Matter of Likehart Pty Ltd (deregistered) [2017] NSWSC 906; Chalker v Clark [2008] VSCA 92; Simitzis v Australian Securities and Invements Commission [2017] VSC 614, considered.

MCQUINN v JCEE PTY LTD
[2019] SASC 119

  1. On 4 June 2019, I granted leave to Merit Partners and Simon Coulter (herein after referred to as “Merit and Coulter”) to intervene in the plaintiff’s application for reinstatement of a company pursuant to s 601AH of the Corporations Act 2001 (Cth) (the Corporations Act). At the time, I indicated that I would provide written reasons in due course. These are my reasons.

    Background

  2. The plaintiff in this matter is the trustee of the bankrupt estate of Justin Thomas McQuinn (hereinafter referred to as “the trustee”). The Trustee has issued proceedings in the Federal Circuit Court against Merit and Coulter (“the Federal Circuit Court action”), in relation to professional advice that they gave to Mr McQuinn, when he was the director of a company, JCEE Pty Ltd (“JCEE”). JCEE was deregistered in 2014. The trustee has filed this application seeking reinstatement of JCEE, so that he can seek its joinder in the Federal Circuit action as a plaintiff. The trustee’s position is that the actions of Merit and Coulter caused loss, not only to Mr McQuinn, but also to JCEE. The trustee has attested to his intention to take out the necessary application in the Federal Circuit Court, should reinstatement be granted.

  3. The trustee objects to the intervention of Merit and Coulter in the reinstatement application, on the basis that neither of them falls within the category of those who may seek intervention in a proceeding, pursuant to the Corporations Rules (SA) 2003 (the Corporations Rules). The relevant rule is Rule 2.13, which provides:

    2.13   Leave to creditor, contributory or officer to be heard

    (1)     The Court may grant leave to any person who is, or who claims to be:

    (a)     a creditor, contributory or officer of a corporation; or

    (b)     an officer of a creditor, or contributory, of a corporation;

    to be heard in a proceeding without becoming a party to the proceeding.

    (2)     If the Court considers that the attendance of…

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McQuinn v JCEE Pty Ltd [2019] SASC 119
Case
[2019] SASC 119
Decision Date

CaseChat Overview and Summary

In the matter of McQuinn v JCEE Pty Ltd, the trustee of the bankrupt estate of Justin Thomas McQuinn sought the reinstatement of the company JCEE Pty Ltd, which had been deregistered in 2014. The purpose of the reinstatement was to enable JCEE to join the Federal Circuit Court action as a plaintiff, where the trustee aimed to pursue claims against Merit Partners and Simon Coulter for professional advice rendered to Mr McQuinn during his tenure as JCEE's director. The trustee opposed the intervention of Merit and Coulter in the reinstatement application, contending that they did not qualify as creditors, contributors, or officers of JCEE under the relevant Corporations Rules, and hence lacked standing to intervene.

The central legal issues revolved around whether Merit and Coulter had standing to intervene in the reinstatement application and whether their intervention would be in the interest of procedural fairness. The trustee argued that Merit and Coulter's interests would be indirectly affected and that their intervention would unnecessarily extend the hearing and increase costs. Merit and Coulter, however, claimed that their direct interests would be significantly impacted if JCEE were reinstated, as it would allow the trustee to join JCEE as a plaintiff in the Federal Circuit Court action against them.

The court found that the interests of Merit and Coulter would indeed be directly affected by the reinstatement application. The intended joinder of JCEE as a plaintiff in the existing proceedings against Merit and Coulter was the sole purpose of the application. The court considered that denying Merit and Coulter the right to be heard would breach procedural fairness and natural justice principles, as their rights would be directly impacted. The court referred to the authority in Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd, which underscored the importance of procedural fairness in such applications. Additionally, the court referenced Callegher v Australian Securities and Investments Commission, where it was held that parties with vital interests in the outcome of the reinstatement application had the right to be heard.

The final orders of the court granted Merit and Coulter leave to intervene in the trustee's application for the reinstatement of JCEE Pty Ltd. This decision was based on the finding that Merit and Coulter's interests would be directly affected by the outcome of the reinstatement application, thereby necessitating their right to be heard for the sake of procedural fairness.

Orders

Orders of the court

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Background

Background to the litigation

On 4 June 2019, I granted leave to Merit Partners and Simon Coulter (herein after referred to as “Merit and Coulter”) to intervene in the plaintiff’s application for reinstatement of a company pursuant to s 601AH of the Corporations Act 2001 (Cth) (the Corporations Act). At the time, I indicated that I would provide written reasons in due course. These are my reasons.Background The plaintiff in this matter is the trustee of the bankrupt estate of Justin Thomas McQuinn (hereinafter referred to as “the trustee”). The Trustee has issued proceedings in the Federal Circuit Court against Merit and Coulter (“the Federal Circuit Court action”), in relation to professional advice that they gave to Mr McQuinn, when he was the director of a company, JCEE Pty Ltd (“JCEE”). JCEE was deregistered in 2014. The trustee has filed this application seeking reinstatement of JCEE, so that he can seek its joinder in the Federal Circuit action as a plaintiff. The trustee’s position is that the actions of Merit and Coulter caused loss, not only to Mr McQuinn, but also to JCEE. The trustee has attested to his intention to take out the necessary application in the Federal Circuit Court, should reinstatement be granted. The trustee objects to the intervention of Merit and Coulter in the reinstatement application, on the basis that neither of them falls within the category of those who may seek intervention in a proceeding, pursuant to the Corporations Rules (SA) 2003 (the Corporations Rules). The relevant rule is Rule 2.13, which provides:2.13 Leave to creditor, contributory or officer to be heard(1) The Court may grant leave to any person who is, or who claims to be:(a) a creditor, contributory or officer of a corporation; or(b) an officer of a creditor, or contributory, of a corporation;to be heard in a proceeding without becoming a party to the proceeding.(2) If the Court considers that the attendance of a person to whom leave has been granted under subrule (1) has resulted in additional costs for any party, or the corporation, which should be borne by the person to whom leave was granted, the Court may:(a)direct that the person pay the costs; and(b)order that the person not be heard further in the proceeding until the costs are paid or secured to the Court’s satisfaction.(3) The Court may order that a person who is, or who claims to be, a creditor, contributory or office of a corporation be added as a defendant to the proceeding.(4) The Court may grant leave to a person under subrule (1), or order that a person be added as a defendant to a proceeding under subrule (3):(a)on application by the person or a party to the proceeding; or(b)on the Court’s own initiative.(5) The Court may:(a)appoint a creditor or contributory to represent all or any class of the creditors or contributories on any question, or in relation to any proceeding, before the Court, at the expense of the corporation; and(b)remove any person so appointed. As Merit and Coulter are not creditors, contributories or officers of JCEE, or officers of one of its creditors or contributories, he says that they have no standing to intervene. The trustee says that, because the Corporations Rules deal with who has standing to seek intervention, the more general rules in relation to intervention, set out in the Supreme Court (Civil) Rules 2006 (the Civil Rules) do not apply. In any event, says the trustee, even if the Civil Rules were to apply, the relevant rule, Rule 89, does not give Merit and Coulter the right to intervene, because they do not have an identified legal interest that would be directly affected by the outcome of the intervention application. This is because they say that the subsequent issue of proceedings by JCEE would only affect the legal interests of Merit and Coulter in a contingent or indirect way. The trustee also says that the intervention of Merit and Coulter would significantly increase the length of the hearing and add to the costs to be incurred. Finally, he says that their intervention would not assist the Court in determining the reinstatement application.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Thirdly, Merit and Coulter say that the affidavit material filed by the trustee in support of the reinstatement application does not disclose fully all of the matters that are relevant to be taken into consideration in dealing with the reinstatement application, including public policy considerations related to the reinstatement of companies that have been deregistered voluntarily, the likely prospects of success of the proposed action against Merit and Coulter by JCEE, various factual matters raised by another former director of JCEE, which is contrary to some of the factual matters deposed to by Mr McQuinn, and whether (and how) the proposed litigation is to be funded.ConsiderationWill the interests of Merit and Coulter be affected directly or indirectly by the reinstatement application? During the course of argument, the parties referred me to many authorities. I will not canvass them all in full. I will say, at the outset, however, that I do not consider that the interests of Merit and Coulter in this application are merely contingent or indirect. Given the clear and stated intention of the trustee and the proposed liquidator, there can be no question that the interests of Merit and Coulter would be directly affected by reinstatement. The joinder of JCEE as a plaintiff in existing proceedings against Merit and Coulter would not merely be a byproduct of this application; it is in fact the sole purpose of this application. I consider that to refuse Merit and Coulter the right to be heard would be a denial of procedural fairness. Given that their rights would be so clearly affected for JCEE’s reinstatement, it would be a breach of natural justice to prevent their being heard on the application. In Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd[1] (Miltonbrook), an applicant sought to have a reinstatement order set aside, on the basis that the party seeking reinstatement had not disclosed all relevant issues, and on the basis that it had been denied the opportunity to be heard on the application. A solicitor for the applicant had, coincidentally, been in court when the application had been dealt with. It was the stated intention of the party seeking reinstatement to cause the company, if reinstated, to issue proceedings against the applicant. The Court of Appeal said:It is axiomatic that when a statutory power like s 601AH(2) is conferred on a court, the legislature intends that procedural fairness will be accorded to all who may be affected by the order, unless there is a clear statement to the contrary. The denial of procedural fairness by a court is a “fundamental irregularity” which would entitle a person aggrieved to set aside an order as a matter of unconditional right: see Cameron v Cole (above) at 591; Taylor v Taylor (1979) 143 CLR 1 at 16 ; 25 ALR 418 at 430–1 ; 5 Fam LR 289 at 299–300 . The exercise of the discretion under r 36.15 must be similarly clear cut.[2][1] [2008] NSWCA 38.[2] [2008] NSWCA 38 at [85]. In Callegher v Australian Securities and Investments Commission,[3] the plaintiff sought the reinstatement of a company of which he was a former director, on the basis that the company had been deregistered following the failure by the plaintiff to pay outstanding fees. This had occurred through oversight. The company was in fact involved in litigation as a plaintiff, and therefore required reregistration so that the action could be progressed. As to the standing of the defendant in that litigation to be heard on the reinstatement application, Lander J said:The first question to be determined is whether the applicant is a person entitled to be heard in opposition to the order sought for reinstatement. The applicant is being presently sued for $290,000. He has a vital interest in the question and he is entitled to be heard: r 2.13 of the Federal Court (Corporations) Rules; Re Peter Conyers Holdings Pty Ltd (in liq) (1996) 14 ACLC 1835 at 1849 ; Payne v Wizard Industries Pty Ltd (1997) 15 ACLC 1012 ; 24 ACSR 277 . He need not be or become a party: r 2.13 of the Federal Court (Corporations) Rules.[4][3] [2007] FCA 482.[4] [2007] FCA 482 at [49].