McQuinn v JCEE Pty Ltd
[2019] SASC 119
•10 July 2019
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
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.
Merit and Coulter’s position is that their intervention is permitted, either under the Corporations Rules, or under the Civil Rules. They say, firstly, that their legal interests would be directly affected by the order of reinstatement of JCEE. This is because the trustee has deposed to his intention to seek the joinder of JCEE as plaintiff, in the proceedings already commenced against them. Thus, there is nothing contingent or indirect about the effect to their interests; the application is made by the trustee with the direct intention of affecting their legal rights.
Secondly, Merit and Coulter say that they would be denied procedural fairness, should they not be permitted to intervene. They must be given a reasonable opportunity to be heard, given that the order, if made, would affect their interests.
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.
Consideration
Will 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].
On the question of intervention generally, the High Court, in Roadshow Films Pty Ltd v iiNet Ltd,[5] said:
In determining whether to allow a non-party intervention the following considerations, reflected in the observations of Brennan CJ in Levy v Victoria,1 are relevant. A non-party whose interests would be directly affected by a decision in the proceeding, that is one who would be bound by the decision, is entitled to intervene to protect the interest likely to be affected. A non-party whose legal interest, for example, in other pending litigation is likely to be affected substantially by the outcome of the proceedings in this court will satisfy a precondition for leave to intervene. Intervention will not ordinarily be supported by an indirect or contingent affection of legal interests following from the extra-curial operation of the principles enunciated in the decision of the court or their effect upon future litigation.
Where a person having the necessary legal interest can show that the parties to the particular proceedings may not present fully the submissions on a particular issue, being submissions which the court should have to assist it to reach a correct determination, the court may exercise its jurisdiction by granting leave to intervene, albeit subject to such limitations and conditions as to costs as between all parties as it sees fit to impose.[6]
[5] [2011] HCA 54.
[6] [2011] HCA 54 at [2]-[3].
These authorities make it very clear that a party in the position of Merit and Coulter, whose interests are likely to be affected by the outcome of the trustee’s application, should be allowed to intervene.
Is there room for the application of Rule 89 of the Civil Rules in an application brought pursuant to the Corporations Act (Cth) 2001?
I have already set out the terms of Rule 2.13 of the Corporations Rules. For completeness, I set out the terms of Rule 89 of the Civil Rules:
89—Non-party intervention
(1)The Court may, on application by a person who seeks to intervene in an action, permit intervention on conditions determined by the Court.
(2)An application for permission to intervene must be supported by an affidavit stating—
(a) the nature of the applicant's interest in the action (which need not be a legal or equitable interest); and
(b) the applicant's object in seeking permission for intervention; and
(c) the extent of the proposed intervention.
(3)A copy of the application and the supporting affidavit must be served on all parties to the action.
(4) The Court may permit intervention on conditions it considers appropriate.
(5)The Court may, on application or on its own initiative, vary or revoke an order allowing non-party intervention under this rule.
It is also important to bear in mind Rule 1.3 of the Corporations Rules, which provides (as relevant):
1.3 Application of these Rules and other rules of the Court
(1) Unless the Court otherwise orders:
(a)these Rules apply to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the commencement of these Rules; and
…
(2) The other rules of the Court apply, to the extent that they are relevant and not inconsistent with these Rules:
(a)to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the commencement of these rules;
…
The plaintiff put to me that the Corporations Rules and the Civil Rules are inconsistent, because the Corporations Rules are much narrower in determining who may apply to intervene, limiting that right to creditors, contributories or officers of the corporation to be reinstated. In effect, the plaintiff put an argument based on the maxim expressio unius est exclusio alterius.
I am of the view that there is no inconsistency between Rule 2.13 and Rule 49, and that the principle of expressio unius has no application. Given that I have found that the rights of Merit and Coulter will be directly affected by the reinstatement application, it would be a denial of procedural fairness if they were not allowed to intervene.
In Twist v Randwick Municipal Council[7] at 109-110, Barwick CJ said:
The common law rule that a statutory authority having power to affect the rights of a person is bound to hear him before exercising the power is both fundamental and universal…But the legislature may displace the rule and provide for the exercise of such a power without any opportunity being afforded the affected person to oppose its exercise. However, if that is the legislative intention it must be made unambiguously clear. In the event that the legislation does not clearly preclude such a course, the court will, as it were, itself supplement the legislation by insisting that the statutory powers are to be exercised only after an appropriate opportunity has been afforded the subject whose person or property is the subject of the exercise of the statutory power.[8]
[7] (1976) 136 CLR 106.
[8] (1976) 136 CLR 106 at 109-110.
In Annetts v McCann[9] at 598, Mason CJ, Deane and McHugh JJ said:
It can now be taken as settled that, when a statute confers power upon a public official to destroy, defeat or prejudice a person's rights, interests or legitimate expectations, the rules of natural justice regulate the exercise of that power unless they are excluded by plain words of necessary intendment: The Commissioner of Police v Tanos (1958) 98 CLR 383, at 395-396; Twist v Randwick Municipal Council (1976) 136 CLR 106, at 109-110; Heatley v Tasmanian Racing and Gaming Commission (1977) 137 CLR 487, at 496, 500; J v Lieschke (1987) 162 CLR 447, at 456; Haoucher v Minister for Immigration and Ethnic Affairs (1990) 64 ALJR 357, at 371; 93 ALR 51, at 73. In Tanos, Dixon CJ and Webb J said (at 396) that an intention on the part of the legislature to exclude the rules of natural justice was not to be assumed nor spelled out from "indirect references, uncertain inferences or equivocal considerations". Nor is such an intention to be inferred from the presence in the statute of rights which are commensurate with some of the rules of natural justice: Baba v Parole Board of New South Wales (1986) 5 NSWLR 338, at 344-345, 347, 349.
[9] (1990) 170 CLR 596.
This statement from Annetts v McCann was approved by the Supreme Court of South Australia, in Deans v Anangu Pitjantjatjara Yankunytjatjara (No 2)[10] at [18].
[10] [2015] SASC 57.
It having been established in Miltonbrook, that a person in the position of Merit and Coulter is entitled to be heard on such an application, to deny them that right would be a breach of procedural fairness. The right to procedural fairness, including the right to natural justice, can only be excluded by the most unequivocal words.
The words in the Corporations Rules are not such words. They make it clear that certain classes of persons may apply to intervene in proceedings brought under the Corporations Act. They further make it clear that the provisions of the other, applicable rules of court apply in so far as they are not inconsistent with the Corporations Rules. They do not prohibit or otherwise limit the class of persons who may apply to intervene. Thus, where the Corporations Rules are silent on a class of persons who may wish to intervene, and who may be denied natural justice should they refused the ability to do so, the Civil Rules will fill the gap.
Will Merit and Coulter bring something to the hearing of this application that has not already been address by the trustee?
I do not accept that there is nothing that Merit and Coulter can bring to this application that would not otherwise be brought to the attention of the Court. Questions of funding, likely prospects of success of the proposed litigation, as well as the reasons for the deregistration are all relevant. It is not fanciful to suggest that Merit and Coulter may not have something useful to add that would assist the Court.
There are authorities which make it clear that there are a number of issues which should be addressed in an application for reinstatement. On the material currently before me, they appear not to have been addressed by the trustee, and in my view, Merit and Coulter may provide assistance to the Court. For example, in Newham v Australian Securities and Investments Commission[11] at [47] and Palasty v Sims[12] at [49], the Court made it clear that a reinstatement application should not be granted to allow litigation to be pursued, unless there are reasonable prospects of success of that litigation. In In the Matter of Likehart Pty Ltd (deregistered),[13] Black J made it clear that the existence of funding to pursue proposed litigation is also relevant. He said, at [10]:
It seems to me that that course has two fundamental difficulties…
[11] [2000] ACTSC 77.
[12] [2010] NSWSC 72.
[13] [2017] NSWSC 906.
There are other authorities where it is apparent that the mere presence of a contradictor may be of assistance to the Court in applications such as this: see for example Chalker v Clark[14] at [51], where the Court concluded that it was in the public interest to have a contradictor in an application for reinstatement, and Simitzis v Australian Securities and Investments Commission[15] at [7], where the Court reached a similar conclusion.
[14] [2008] VSCA 92.
[15] [2017] VSC 614.
On the strength of these authorities, I have no hesitation in concluding that Merit and Coulter should be given leave to intervene, particularly given that the affidavit material filed by the trustee and the proposed liquidator provides no insight into how the litigation against Merit and Coulter is to be funded, or its likely prospects of success.
For completeness, I raise one further issue. Many of the authorities on which I have relied are based on the Corporations Rules in place in New South Wales, Victoria, or the Federal Court of Australia. While these rules are predominantly in the same terms as Rule 2.13 of the Corporations Rules (and they are all in the same terms as each other), they have one important difference. This is that they include “any other interested person” within the class persons who may apply to court for leave to intervene. Thus, in these jurisdictions, the answer to the question before me is clearer cut. Nonetheless, on the basis of the reasons set out above, I conclude that Rule 89 of the Civil Rules applies, thus broadening the category of those who may apply to intervene in proceedings under the Corporations Act.
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