Merhi v Moonprom Pty Ltd

[2006] NSWLC 42

Local Court of New South Wales

CITATION:	Merhi v Moonprom Pty Ltd [2006] NSWLC 42
JURISDICTION:	Civil
PARTIES:	Simon Merhi Betty Merhi Moonprom Pty Ltd Martin Green
FILE NUMBER:	12432/05
PLACE OF HEARING:	Downing Centre Local Court
DATE OF DECISION:	10/31/2006
MAGISTRATE:	Magsitrate B A Lulham
CATCHWORDS:	Corporations - Leave required to commence proceedings against liquidator - Whether Local Court has power to grant leave
LEGISLATION CITED:
CASES CITED:	Siromath Pty Ltd (1991) 9ACLC 1580 Bolton v Nathan Nominees Pty Ltd & Anor (1992) NSWSC McClelland J Sydlow Pty Ltd v TG Koselas Pty Ltd (1966) 65 FCR 234
REPRESENTATION:	Mr J G Azzi - Counsel John B Hajje & Assoc. - Solicitors Mr Golledge - Counsel Colin Biggers & Paisley - Solicitors
ORDERS:	The plaintiff's claim is struck out. The plaintiff's are ordered to pay the defendant's costs and disbursements of the action as agreed on an ordinary basis.

BACKGROUND TO DISPUTE

1    Mr & Mrs Merhi owned premises at 4 and 5, 65 Jersey Street, Hornsby. The premises were leased to Moonprom Pty Ltd (hereinafter referred to as ‘Moonprom). Mr Martin John Green was appointed Liquidator of that company by the Supreme Court on 3 May 2005. Mr Green as Liquidator arranged for the auction sale of certain plant and equipment owned by the Moonprom Pty Ltd. The plaintiffs alleged that damage was occasioned to their premises by the removal of the plant and equipment and claimed $11,860.00 as the cost of the repairs to their property. The Statement of Claim named Moonprom Pty Ltd as the first defendant and Martin Green as the second defendant.

2    The defendants solicitors on 5 December 2005 wrote to the plaintiffs solicitors advising that as Moonprom was being wound up a claim against Moonprom could not be commenced except with the leave of the Supreme Court. The solicitors referred to s471B of the Corporation Act.

3    The solicitors pointed out that the Court was defined to mean the Federal Court or the Supreme Court of the State or Territory or the Family Court of Australia. The plaintiffs had not sought leave of the Supreme Court. On 20 April 2006 on a Motion filed by the defendant an order was made by consent that the plaintiffs’ actions against Moonprom be dismissed.

4    The proceedings against Mr Green were set down for hearing on 27 July. The hearing was vacated with the plaintiff ordered to pay the defendants costs thrown away as a result of the vacation. The matter was adjourned to 5 September 2006 at 9.30am.

The hearing of the Motion before me

5    The defendant filed a further Motion seeking the following orders;

1. An order that the Amended Statement of Claim against the defendant (Martin Green) be struck out.
2. An order that the plaintiffs and the plaintiffs legal practitioners John B Hajje & Associates (pursuant to s437 and 438 of the Legal Profession Act) pay the defendant’s costs of the proceedings and this Motion on an indemnity basis.
3. Such further orders as the court deems fit.

6    I was informed that the defendant no longer sought an order for costs against the plaintiffs’ solicitors. The defendant relied on the affidavit of Peter John Harkin sworn 16 August 2006. That was a very long affidavit of some 51 paragraphs. It set out the whole history of the matter. The Motion was argued before me on one basis only, an argument based on the general law and certain authorities that a party intending to issue proceedings against an Official Liquidator, must first obtain the leave of the court before pursuing the proceedings. Mr Harkins’s affidavit annexed (N) his firm’s letter to the plaintiffs solicitors dated 15 May 2006 setting out that proposition and the cases in support of the proposition. The plaintiffs solicitors were informed that if the plaintiffs did not withdraw the proceedings, then the defendant would file a further Motion.

7    Mr Azzi appeared for the plaintiff and Mr Golledge for the defendant.

8    The plaintiffs’ Motion did not specify the rule under which the defendant sought to strike out the plaintiffs’ claim. Mr Golledge advised me it was R4.28 which provides as follows;

‘The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading;
(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of proceedings, or
(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or
(c) is otherwise an abuse of the process of the court.


THE DEFENDANT/APPLICANT SUBMISSIONS

9    Mr Golledge submitted that the Statement of Claim should be struck out as the defendant had not obtained the leave of the Supreme Court to bring this action against Mr Green in his capacity as Liquidator of Moonprom Pty Ltd. Mr Golledge referred me to two decisions.

10    In Siromath Pty Ltd (1991) 9ACLC 1580 Minitab a Pennsylvania corporation brought proceedings against Y&B, the provisional Liquidator and Liquidator respectively of Siromath Pty Ltd alleging that company had misapplied monies said to be held by it on constructive trust for Minitab. Minitab commenced proceedings in Pennsylvania against the Liquidators claiming relief against them.

11    The Liquidators applied to the Supreme Court of New South Wales (which had made the winding up order) for orders restraining Minitab from taking any further action in the Pennsylvania proceedings and from executing or attempting to enforce any judgment obtained. The Notice of Motion had been served on Minitab in Pennsylvania. Minitab did not submit to the jurisdiction of the court. The matter was heard by His Honour McClelland J. His Honour granted the injunction and stated;

“It is well established that, at least unless the Court’s leave has been obtained, the Court ‘will not allow its officer to be subject to an action in another Court with reference to his conduct in the discharge of the duties of his office, whether right or wrong’. The proper remedy for anyone aggrieved by his conduct is to apply to the Court in the action in which he was appointed (see Re Maidstone Place of Varieties (1909) 2Ch 283 at 286 applying Aston v Herron (1834) 2 MY&K 390.”

12    In Bolton v Nathan Nominees Pty Ltd & Anor. (Supreme Court of New South Wales McCelland J, 15 June 1992) the plaintiff sought a declaration to the effect that a charge given to it by Bolton Factors NSW Pty Ltd ranked pari passu with a charge given to the first defendant by Bolton Factors and consequential relief. Bolton Factors was in the course of being wound up pursuant to an order of the Court. The plaintiff did not in the proceedings join Bolton Factors as a defendant, but instead joined its Liquidator personally and sought an order directing the Liquidator in effect to make provision for the plaintiff’s claim asserted in the proceedings. His Honour Judge McClelland stated;

“Proceedings cannot properly be brought against a Court appointed Liquidator personally except by application in the winding up proceedings themselves or pursuant to leave of the Court granted in an application made in the winding up proceedings.”

He relied on Re Siromath Pty Ltd.

13    Those cases appear clear and straightforward.

14    Mr Golledge stated that he understood Mr Azzi for the plaintiff would rely upon the decision of His Honour Tamberlin J in Sydlow Pty Ltd v TG Koselas Pty Ltd (1966) 65 FCR234 to seek that the matter not be struck out, but that this Court grant leave for the proceedings to continue. Mr Golledge submitted that this Court does not have jurisdiction or power to do so, and that I should follow the authorities of Bolton Nathan Nominees and particularly Siromath.

15    Mr Golledge pointed out that the word ‘court’ is defined in s9 of the Act as having the meaning prescribed by s58A of the Act.

16    S58AA provides;

court means any court.

Court means the following Courts:

(a) The Federal Court
(b) The Supreme Court of a State or Territory, or
(c) The Family Court of Australia

17    There is therefore a distinction between a court and a Capital C Court. The Local Court is not a Capital C Court.

18    Mr Golledge then referred various sections of the Corporations Act setting out various obligations, duties and rights of Liquidators. His point was that the Act made it clear that all of the important powers, sanctions and supervision of Liquidators was to be carried out by a Capital C Court.

19    The most important was s471B of the Act relied upon previously in this matter to have the claim against Moonprom dismissed. It provides that while a company is being wound up, proceedings cannot be brought against the company except with leave of a Capital C Court.

20    Mr Golledge then referred to s473 of the Act dealing with general provisions regarding Liquidators. The section makes clear that Liquidator are appointed, their remuneration is determined and their general supervision is under the control of a Capital C Court. S477 dealing with the Liquidator’s powers provides that certain things can only be done with the approval of a Capital C Court. S479 provides that if the Liquidator requires directions, then he applies to a Capital C Court. S1321 of the Act provides that any person aggrieved by an action, omission or decision of a Liquidator may appeal to a Capital C Court.

21    I am satisfied that all of the important powers relating to the appointment, supervision, regulation, payment, dismissal and regulation of Liquidators are within the jurisdiction of a Capital C Court. That is, either the Federal Court, the Supreme Court or the Family Court of Australia.

22    Mr Golledge submitted I was bound by the clear statement of His Honour McClelland J in Siromath that the application for leave was to be made ‘to the Court in the action which the officer was appointed’. In this matter that would be the Supreme Court.

23    Mr Azzi submitted strongly that I was not bound by the decisions of McClelland J but that I should adopt the reasoning and decision of His Honour Tamberlin J in the Federal Court in Sydlow Pty Ltd v TG Kotselas Pty Ltd & Ors. (1996) 14 ACLC 848.

24    In Sydlow the Liquidator of the Sydlow commenced a negligence action against the company’s accountant in the Federal Court. The Liquidator alleged a breach of duty in so far as the accountant had failed to warn Sydlow that a transfer of assets might be voidable and their transfer might be a voidable preference. The accountant cross claimed against the Liquidator alleging that the Liquidator had been negligent in not acting faster to preserve and protect Sydlow’s assets from being transferred. In the Federal Court (for the purpose of this proceeding) the following issues were raised;

1. Was leave required to make the Cross Claim against the Liquidator?


2. If leave was required, could that leave be granted by the Federal Court or only by the Supreme Court of New South Wales which had appointed the Liquidator?

The headnote in the decision states as follows;

‘1. Leave was necessary in order to begin proceedings against an Official Liquidator. Ordinarily that could only be granted by the Court which appointed the Liquidator. However, that was not the case under the Corporations Law Scheme; under that scheme it was not necessary that the application for leave be made to the court that had appointed the Liquidator. Accordingly the Federal Court had jurisdiction and power to grant leave in this case.


2 (b) The following observations were relevant in deciding whether to grant leave to file a Cross Claim against a Liquidator in a court other than that which appointed him.

. The desirability of having the company’s claim and Cross Claim heard at the same time and by the same court.
. The fact that the Liquidator had chosen to begin proceedings in a court other than that which had appointed him.
. The objects of the cross vesting provisions in the National Corporations Law Scheme.

25    His Honour Judge Tamberlin referred to the statement made by His Honour McClelland J in Siromath set at para 10 hereof and then set out his reasons as to why the court requires leave to be obtained before proceedings are commenced against a Liquidator. He said as follows (p851);

“The court, when administering the Law, is concerned to ensure that the winding up is implemented in a timely and efficient manner, so as to produce optimum results for all persons interested in the winding up. In order to achieve this result, the Court must protect the integrity of the winding up under its supervision and control, by taking appropriate steps to prevent any proceedings or conduct which will wrongfully impede that process. One way in which this can be carried out is to require the grant of leave by the Court in respect of an action against an official liquidator, so that the Court can satisfy itself that there is no wrongful interference with the process. Such interference may arise where, for example, proceedings are initiated or continued without any legal basis or prospect of success or for an improper or collateral purpose. This appears to be the principle which underlies the established requirement that leave is necessary in order to sanction proceedings against an official liquidator.”

26    However, Judge Tamberlin then went on to consider the National Legislative Scheme for the Regulation and Control of Corporations and stated as follows;

“However, under the national legislative scheme for the regulation and control of corporations, it is not necessary that the application for leave to file such a cross-claim should be made to the same court which made the winding up order. It may be that the same court is the most convenient and appropriate forum. However, it is not essential that the application for leave to proceed is heard by the court which made the winding up order.
In the Action Engineering case (supra) the Full Federal Court held that any court having jurisdiction under the Law, which includes the Federal Court, could grant leave to commence or continue proceedings against a company in liquidation, pursuant to s 471(2) of the Law, although the court granting leave had not made the winding up order against the company in question.
In my opinion, it is equally appropriate for this Court, to exercise the power to grant leave for an action against a liquidator personally, particularly in circumstances where a liquidator acting in that capacity, has instituted proceedings in this Court and the cross-claim is sought to be set up in this Court in response to the application.”

27    His Honour then went on to grant leave in the case before him for the Cross Claim to be brought against the Liquidator, even though the Liquidator had been appointed by the Supreme Court.

28    Mr Azzi submitted that using the same rationale and the same line of reasoning, I should hold that this court has jurisdiction to grant leave for the proceedings to continue against the Liquidator in this court..

29    I propose to decide that question not withstanding that there is no such application before this court.

30    I do not accept Mr Azzi’s submission.

31    Implicit in the reasoning of Tamberlin J was the fact that as legislation changes and new schemes are introduced, the jurisdiction and ability of courts to deal with certain matters will change.

32    His Honour Judge Lockhart came to a similar view in Action Engineering.

33    However, the essential difference between those two findings and this matter, is that the Federal Court is a Capital C Court (see para 15 hereof). Both the Supreme Court and the Federal Court can exercise all of the powers of a Capital C Court relating to Liquidators and regularly do so. Their Honours Lockhart and Tamberlain relied very strongly on that fact in their decisions. It would however in my view, be a quantum leap for me to find that the jurisdiction should be extended to other than a Capital C Court. The Local Court plays no role in the appointment, supervision, control or dismissal of Liquidators. I am not satisfied it has the experience or expertise to do so. I can find no authority that the legislation has intended that this court should have such powers. I am not satisfied that this court is vested with the jurisdiction to grant leave.

34    I am therefore satisfied that leave is required from the Supreme Court, being the court which appointed the defendant as Liquidator. It may be that leave could also be granted by the Federal Court, although Tamberlain J placed considerable importance on the fact when granting leave in Sydlow Pty Ltd that the Liquidator had commenced the proceedings in the Federal Court and the defendant wished to bring a cross action in the same proceedings against the Liquidator.

35    I hold that this Court does not have power to grant leave if an application for leave was made to this Court in this matter.

36    I note from the correspondence attached to Mr Harkins affidavit that proceedings have been adjourned on two occasions to allow the defendant to make an application to the Supreme Court. Indeed the plaintiffs’ solicitors advised the defendant’s solicitors on 9 August that an application would be made to the Supreme Court for leave to proceed against the Liquidator. Despite that advice, the application was not made. In those circumstances I am not satisfied the defendant should be given further time to make such application.

37    I am satisfied that the present proceedings are an abuse of the process of this Court, because the appropriate leave was not sought from the Supreme Court. I will set out my proposed orders in this matter. I shall hear from the parties in relation to the proposed orders and particularly in relation to whether costs should be awarded on an indemnity basis as sought by the defendant. In regard to that application, it appears unfortunate that the orders sought in this Motion were not sought in the first Motion which the defendant lodged seeking to have the proceedings struck out against the company. The present application should have been included in that application.

38    I would propose to make the following orders:

1. The plaintiffs’ claim is struck out.
2. The plaintiffs are ordered to pay the defendant’s costs and disbursements of the action as agreed on an ordinary basis. In default of agreement within 28 days the costs are to be assessed under the Legal Profession Act.

39    I shall hear from the parties regarding the proposed orders.

B.A. LULHAM