Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liq)
[2011] VSCA 62
•11 February 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2011 0004
| PERTH FREIGHT LINES PTY LTD | Applicant |
| v | |
| BM2008 PTY LTD (IN LIQUIDATION) | Respondent |
and
S APCI 2011 0005
| VFS GROUP PTY LTD | Applicant |
| v | |
| BM2008 PTY LTD (IN LIQUIDATION) | Respondent |
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| JUDGES | MAXWELL P and KYROU AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 11 February 2011 |
| DATE OF JUDGMENT | 11 February 2011 |
| MEDIUM NEUTRAL CITATION | [2011] VSCA 62 |
| JUDGMENT APPEALED FROM | Re VFS Group Pty Ltd (No 2) [2010] VSC 593 (Davies J) |
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CORPORATIONS – Statutory demand – Application to set aside – Whether ‘offsetting claim’ – Whether ‘some other reason’ – ‘Offsetting claim’ arising from alleged entitlement to proportionate share of distributable surplus of creditor company upon completion of voluntary winding up – Alleged entitlement said to arise from transfer of equitable interest in shares of creditor company – No transfer of equitable interest in shares where transfer void by operation of s 493A(1) of the Corporations Act 2001 (Cth) – Decision below not shown to be attended with any doubt – Corporations Act 2001 (Cth) ss 459G, 459H, 459J, 493A.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr D H Denton SC with Ms P Djohan | Belleli King & Associates |
| For the Respondents | Mr G T Bigmore QC with Mr D C Harrison | Cooper Mills Lawyers |
MAXWELL P:
I invite Kyrou AJA to deliver the first judgment.
KYROU AJA:
Introduction and summary
There are two applications before this Court for leave to appeal from an interlocutory decision made by Davies J. Her Honour dismissed an appeal from a decision of Efthim AsJ refusing to set aside two statutory demands and set aside an order of Efthim AsJ reducing the amount of the statutory demands.[1]
[1]Re VFS Group Pty Ltd [No 2] [2010] VSC 593 (16 December 2010) (‘Reasons’).
The decision below related to two separate proceedings that were brought by the recipients of the statutory demands, namely, Perth Freight Lines Pty Ltd (‘PFL’) and VFS Group Pty Ltd (‘VFS’). I will refer to PFL and VFS collectively as the ‘applicants’. Each of the applicants applies for leave to appeal in its respective proceeding. The applications have been heard together because they arise out of the same facts and involve the same issues.
In the event that leave is granted, the applicants seek an extension of time for compliance with the statutory demands until the hearing and determination of the appeal.
In order to succeed, the applicants must show that the decision below is attended with sufficient doubt and that substantial injustice would result if the decision were to stand.[2] For the reasons that follow, I am not satisfied that the decision below is attended with any doubt and would dismiss the applications.
[2]Niemann v Electronic Industries Ltd [1978] VR 431, 433, 441.
Facts
The applications are the latest steps in multiple interrelated proceedings between the parties. It is necessary to refer to the background facts and the history of litigation between the parties in some detail in order to place the issues that are raised by the applications in their proper context.
On 25 June 2008, the respondent (‘BM’) sold its freight business to PFL pursuant to a business acquisition agreement. PFL’s performance of the agreement was guaranteed by VFS and by PFL’s director, Steve Iliopoulos (‘SI’).
Although the sale of the business settled on 8 August 2008, PFL disputed its obligation to pay some of the moneys due under the business acquisition agreement. The dispute was referred to arbitration. The arbitrator made an award in favour of BM in the amount of $2,320,485.20 plus interest. On 18 November 2009, Hargrave J refused an application made by PFL, VFS and SI under s 38(4)(b) of the Commercial Arbitration Act 1984 (Vic) for leave to appeal to the Supreme Court against the arbitrator’s award and gave leave to BM to enforce the award as a judgment debt.[3] A formal order was made on 19 November 2009 requiring PFL, VFS and SI to pay to BM the amount of $2,577,072.49.
[3]Perth Freightlines Pty Ltd v BM2008 Pty Ltd [2009] VSC 542 (18 November 2009).
On 16 December 2008, a shareholder in BM, Garry Sartori, commenced a proceeding in the Western Australia District Registry of the Federal Court against BM and other parties (‘Sartori proceeding’). As amended, the statement of claim in the Sartori proceeding alleges that previous issues of shares by BM, which had the effect of diluting Mr Sartori’s shareholding in the company, were invalid. Mr Sartori seeks relief that, if granted, would increase his shareholding in BM from 2.7 per cent to 25 per cent.[4]
[4]See Sartori v BM2008 Pty Ltd [No 2] [2010] FCA 1160 (27 October 2010) [28] (‘Sartori’).
On 28 November 2009, Mr Sartori sold his shares in BM to PFL, VFS and SI pursuant to a share sale agreement. The consideration for the sale was $2,500. On the same date, Mr Sartori entered into a deed of assignment with PFL, VFS and SI ‘as joint proprietors’ of all Mr Sartori’s ‘right, title and interest’ in all causes of action that he had against BM, its directors or former directors, and other entities.
The causes of action which Mr Sartori assigned to PFL, VFS and SI include:
(a)Mr Sartori’s claims in the Sartori proceeding; and
(b)causes of action that were described in the deed of assignment as ‘derivative actions’ that Mr Sartori was entitled to bring in the absence of those claims being brought by BM. Those causes of action were:
(i)a claim for $1 million, representing a redundancy payment that a former director of BM, Ms Cox, allegedly received from BM in contravention of s 200B of the Corporations Act 2001 (Cth) (‘Act’) (‘Cox claim’);
(ii)a claim for $1,398,000, being the estimated ‘profit’ that a company, Ataquil Pty Ltd, as trustee for the HI Investments Unit Trust, was paid by BM under an alleged sham factoring scheme conducted by BM’s directors (‘Ataquil claim’); and
(iii)a claim for the recovery of a loan of $750,000 owed by PFL Properties Pty Ltd to BM (‘PFL Properties claim’).[5]
[5]The PFL Properties claim was not expressly mentioned in the deed of assignment.
On 22 December 2009, BM went into voluntary liquidation on a members’ winding up. The company has substantial net assets, which are estimated to be in excess of $8 million. Shareholders will receive a distribution of the surplus assets when the liquidation is completed.
On 3 December 2009, the solicitors for PFL, VFS and SI wrote to the liquidators of BM seeking their consent to the transfer of shares from Mr Sartori to PFL, VFS and SI. Such consent was necessary because s 493A(1) of the Act provides that a transfer of shares in a company that is made after the passing of a resolution of members for the voluntary winding up of the company is void unless the liquidator consents to the transfer unconditionally, or any conditions imposed by the liquidator are satisfied, or a court makes an order authorising the transfer. On 16 December 2009, the liquidators consented to the transfer on the condition that PFL, VFS and SI pay to BM the judgment debt as ordered by Hargrave J (‘liquidators’ condition’).
PFL, VFS and SI commenced a proceeding in the Supreme Court of Victoria seeking an order under s 493A(5) of the Act setting aside the liquidators’ condition. Section 493A(6) of the Act provides that the Court may set aside a condition of consent if it is satisfied that the condition is ‘not in the best interests of the company’s creditors as a whole’. On 11 August 2010, Davies J held that, by virtue of their legal right to a proportionate share of BM’s surplus assets, the shareholders of BM were creditors of the company for the purposes of s 493A(6); that the liquidators’ condition was in the best interests of the company’s creditors as a whole because payment of the judgment debt would augment the assets to be distributed by the liquidators among the shareholders; and that the liquidators’ condition should not be set aside.[6] Her Honour’s decision is the subject of an appeal which is scheduled to be heard by this Court on 16 May 2011.
[6]Re BM2008 Pty Ltd (in liq) [2010] VSC 337 (11 August 2010) [11], [14], [16], [19].
No part of the judgment debt has been paid. Accordingly, the liquidators’ condition has not been satisfied and Mr Sartori remains on BM’s share register as the proprietor of his shares in BM.
On 22 December 2009, BM served separate statutory demands on the applicants and a bankruptcy notice on SI in respect of the judgment debt. The statutory demands and the bankruptcy notice claimed the amount of the judgment debt, namely, $2,577,072.49.
SI applied to the Federal Magistrates’ Court under s 41(7) of the Bankruptcy Act 1966 (Cth) for an order setting aside the bankruptcy notice on the basis that he had a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt. SI’s application was dismissed and he appealed to the Victoria District Registry of the Federal Court (‘Iliopoulos proceeding’). On 27 July 2010, Finn J dismissed the appeal.[7]
[7]Iliopoulos v BM2008 Pty Ltd (in liq) [2010] FCA 787 (27 July 2010) (‘Iliopoulos’).
Finn J noted ‘in passing’ that ‘despite the terms of the share sale and of the assignment, [SI] has been treated by the parties both before [the Federal Magistrates’ Court] and on this appeal as being the full beneficial owner both of the share for liquidation purposes, and of the choses in action.’[8] Having assumed that SI was entitled, jointly with PFL and VFS, to a 25 per cent share in BM’s distributable surplus, his Honour considered whether the amount of this entitlement was equal to or exceeded the amount of the judgment debt. His Honour concluded that the amount of the entitlement was not equal to and did not exceed the amount of the judgment debt.[9]
[8]Ibid [10].
[9]Ibid [42].
In the meantime, on 8 January 2010, the applicants commenced separate proceedings in the trial division of this Court applying to set aside the statutory demands under s 459G of the Act. The applications were made on the following bases: that the applicants have, within the meaning of s 459H of the Act, an ‘offsetting claim’ against BM that exceeds the amount of the judgment debt; and that there is, under s 459J(1)(b) of the Act, ‘some other reason’ that the demands should be set aside. The applicants contended that it was arguable that they have a proportionate share of BM’s distributable surplus and that, in calculating that surplus, the choses in action constituted by the Cox claim, the Ataquil claim and the PFL Properties claim (collectively, ‘the three claims’) had to be included. According to the applicants, BM has assets totalling $11,178,657 and their 25 per cent entitlement (which is held jointly with SI) amounts to $2,794,664, which exceeds the amount in the statutory demands.
On 12 July 2010, Efthim AsJ held that the applicants had an offsetting claim to the value of $628,555.95 based on a proportionate share of the distributable surplus of BM’s net assets when the liquidation is completed. Efthim AsJ varied the statutory demands by reducing the amount claimed to $1,948,516.54, but his Honour otherwise dismissed the applications. On 31 August 2010, the applicants appealed against Efthim AsJ’s decision. The appeal was heard by Davies J. Her Honour’s decision is considered below.
On 27 October 2010, McKerracher J made an order in the Sartori proceeding adding PFL, VFS and SI as applicants because it was ‘arguable’ that, by virtue of the share sale agreement and deed of assignment dated 28 November 2009, they were equitable proprietors of Mr Sartori’s shares in BM and equitable assignees of various causes of action that Mr Sartori had against BM and others.[10]
[10]Sartori [2010] FCA 1160 (27 October 2010) [56], [57].
On 26 November 2010, pursuant to reg 5.6.72 of the Corporations Regulations 2001 (Cth) (‘Regulations’), Mr Sartori executed a Form 553, which authorised and requested the liquidators to pay to PFL, VFS and SI the proportionate share of the distributable surplus of BM payable to him.
On 29 November 2010, pursuant to reg 5.6.70 of the Regulations, Mr Sartori executed a Form 550, which authorised and requested the liquidators to pay to PFL, VFS and SI any dividends of BM payable to him.
Decision below
Davies J held that, as the applicants have not complied with the liquidators’ condition, s 493A(1) of the Act renders void the transfer of Mr Sartori’s shares to them. Although her Honour was prepared to accept that s 493A(1) did not affect any personal rights that arose under the share sale agreement, she held that the section prevented the transfer of any proprietary rights, whether legal or equitable, in the shares.[11] In addition, her Honour held that the assignment of Mr Sartori’s causes of action against BM was not effective to transfer to the applicants the incidences that attached to Mr Sartori’s rights as a shareholder.
[11]Reasons, [16]-[18].
It followed, according to Davies J, that the applicants had not established that they had an entitlement to any share of BM’s distributable surplus. Given that the alleged offsetting claim was predicated upon the existence of such an entitlement, her Honour held that there was no basis to set aside the statutory demands or to vary the amounts claimed in them.[12]
[12]Reasons, [17], [18].
Her Honour rejected a submission by the applicants that the existence of a pending appeal in respect of her decision in Re BM2008 Pty Ltd (in liq)[13] to refuse to set aside the liquidators’ condition constitutes ‘some other reason’ for setting aside the statutory demands. Her Honour said that the pending appeal does not stay the liquidators’ condition or affect the conclusion that the transfer of shares is void by operation of s 493A(1) of the Act as a result of the applicants’ failure to comply with the liquidators’ condition.[14]
[13][2010] VSC 337 (11 August 2010).
[14]Reasons, [19].
Her Honour also held that, in so far as there was any discrepancy between the arbitrator’s award and Hargrave J’s order of 19 November 2009, that discrepancy would not constitute ‘some other reason’ for setting aside the statutory demands because the court order was binding on the applicants and the judgment debt was enforceable.[15]
[15]Reasons, [3].
Although Davies J was of the view that her findings based on s 493A of the Act were sufficient to dispose of the appeals from the orders of Efthim AsJ, her Honour went on to make some further observations on the assumption that, contrary to her findings, the applicants had an equitable interest in Mr Sartori’s shareholding that entitled them to receive a proportionate share of the net distributable assets of BM.[16] Those observations may be summarised as follows:
[16]Reasons, [20].
(a)The applicants have demonstrated an arguable case that Mr Sartori is entitled to a 25 per cent share in the distributable surplus of BM and that, accordingly, they have a similar entitlement claiming through him.[17] The applicants have not, however, demonstrated an arguable case that there are other assets to be brought to account in determining the amount of distributable surplus available for distribution.[18]
(b)It may be assumed that BM has an arguable case in respect of the three claims. The three claims, however, belong to BM. The evidence before the Court was that the liquidators did not intend to commence proceedings in respect of the three claims because they considered that the claims had little or no merit.[19]
(c)The applicants’ submission that the value of the choses in action accruing to BM should nonetheless be taken into account in the computation of the distributable surplus that the applicants are entitled to receive was flawed. Her Honour gave the following reasons for this conclusion:
First, if the liquidators do not take action, the claims can only be enforced if commenced by way of a derivative action. Secondly, the plaintiffs would have to persuade a court that the ordinary rule that derivative proceedings cannot be brought when a company is in liquidation should not apply. Senior counsel for the plaintiffs sought to support a case as to why leave may be granted. He was highly critical in a number of respects about the liquidators’ conduct. However it is purely speculative at this stage as to what a court would do on an application for leave to commence a derivative action. Thirdly, as it is purely speculative, the plaintiffs have not made out that there is an arguable case that these ‘assets’ should be taken into account in valuing the plaintiffs’ ‘offsetting claim’: viz their share of the distributable assets.[20]
(d)The conduct of the liquidators in refusing to pursue the three claims did not constitute ‘some other reason’ for setting aside the statutory demands, as it could not be concluded on the evidence that the liquidators were acting improperly or in breach of their statutory duties.[21]
(e)The execution of the Form 550 by Mr Sartori did not create an offsetting claim or some other reason for setting aside the statutory demands. Although reg 5.6.70 of the Regulations obliges the liquidators to comply with the authority in the Form 550 to pay to PFL, VFS and SI any dividend of BM payable to Mr Sartori that obligation arises only at the stage that a dividend is to be paid so that there is no present obligation to make any payment to the applicants pursuant to the authority.[22]
[17]Reasons, [21].
[18]Reasons, [22].
[19]Reasons, [26].
[20]Reasons, [27].
[21]Reasons, [28].
[22]Reasons, [29]. Her Honour did not refer to the Form 553 executed by Mr Sartori on 26 November 2010.
Her Honour ordered that the appeals from the orders of Efthim AsJ be dismissed; that the order of Efthim AsJ varying the statutory demands by reducing the amount claimed to $1,948,516.54 be set aside; that the period for compliance with the statutory demands be extended to 5.00pm on 12 February 2011; and that the applicants pay BM’s costs of the appeals.
Proposed notice of appeal
The applicants’ proposed notices of appeal set out 10 overlapping grounds of appeal. It is convenient to consider some of them collectively.
Grounds 1, 2, 4 and 5
Under cover of ground 1, the applicants submitted that Davies J failed to apply the principles set out in Powerhouse Australasia Pty Ltd v Viarc Pty Ltd[23] and TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd[24] in determining whether the applicants had demonstrated an offsetting claim for the purposes of s 459H of the Act. They contended that her Honour erroneously undertook a preliminary trial of their offsetting claim and, in so doing, made it incumbent on them to show that their offsetting claim was presently able to be enforced by action. They also submitted that her Honour failed to give sufficient weight to the fact that, as a result of the decision of McKerracher J in Sartori v BM2008 Pty Ltd [No 2],[25] the applicants have causes of action arguably constituting an offsetting claim against BM.
[23][2006] VSC 508 (23 November 2006).
[24][2008] VSCA 70 (5 May 2008) (‘TR’).
[25][2010] FCA 1160 (27 October 2010).
Under cover of ground 2, the applicants submitted that Davies J should have made certain findings based on Sartori.
Under cover of grounds 4 and 5, the applicants submitted that Davies J erred in construing s 493A of the Act by failing to distinguish between a transfer of the legal title to Mr Sartori’s shares and a transfer of Mr Sartori’s ‘personal equitable interest’ in the shares; by failing to determine that the personal rights as between the parties to the share sale agreement were not affected by s 493A of the Act; and by failing to consider evidence that written notice of the deed of assignment had been provided to BM pursuant to s 134 of the Property Law Act 1958 (Vic).
In TR, Dodds-Streeton JA, with whom Neave and Kellam JJA agreed, held that in satisfying s 459G(1) of the Act
the company is required … only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. … [I]t is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice.[26]
[26][2008] VSCA 70 (5 May 2008), [71].
Davies J did not refer to TR and did not discuss the standard of proof that the applicants had to meet to persuade her that they had an offsetting claim. Instead, her Honour decided the question of whether the applicants had an offsetting claim on the basis of the legal effect of s 493A of the Act. Her Honour decided that, where s 493A renders a transfer of shares void, the transferee cannot acquire an equitable interest in the shares pursuant to a share transfer agreement. This conclusion was not dependent on an assessment of any of the disputed evidence before her Honour.
In my opinion, her Honour’s conclusion that, in the circumstances of this case, s 493A of the Act had the effect of precluding the share sale agreement from transferring to PFL, VFS and SI an equitable interest in Mr Sartori’s shares is not attended with any doubt.
A share is a chose in action. As with other types of property, it is possible to have both a legal and an equitable interest in a share and for those interests to be owned separately and to be transferred separately. A legal interest in a share is transferred to a person upon his or her name being entered on the company’s share register as the proprietor of the share. Although an equitable interest can arise in various ways, it cannot arise pursuant to a transfer that is legally void. Nor can it arise pursuant to a contractual obligation to transfer a share where any transfer that is executed would be legally void.
Section 493A(1) of the Act unambiguously states that a transfer of shares that is made after the passing of a resolution for a member’s winding up is void unless the requirements of the section are satisfied. A transfer of shares that is void is without any legal effect. It follows that a transfer of shares that is void cannot effect a change in the equitable title to the shares.
It may be accepted that s 493A(1) does not render void any personal rights that the parties to a contract for the sale of shares may have as between themselves.[27] For example, a transferee could enforce a contractual obligation owed by the transferor to pay to him or her any amounts that the transferor receives from the company in respect of the shares. Such a personal right, however, does not constitute a proprietary interest in the shares.
[27]Cf Jordanlane Pty Ltd v Kitching (2008) 222 FLR 14, 19 [14].
In this case, it is not in dispute that the liquidators’ condition has not been satisfied. Accordingly, the transfer of Mr Sartori’s shares in BM to PFL, VFS and SI is void. It follows that, as a matter of law, the applicants do not have an offsetting claim based on ownership of an equitable interest in Mr Sartori’s shares in BM. Although Davies J did not apply the test in TR, had her Honour applied that test or any other test, she would have been compelled to reach the conclusion that she in fact reached.
The question of whether s 493A(1) precluded PFL, VFS and SI from acquiring a proprietary interest in Mr Sartori’s shares unless and until they satisfied the liquidators’ condition was not considered either by McKerracher J in Sartori[28] or by Finn J in Iliopoulos v BM2008 Pty Ltd (in liq).[29] Davies J did not err in failing to find, on the basis of those decisions, that the applicants had established an offsetting claim.
[28][2010] FCA 1160 (27 October 2010).
[29][2010] FCA 787 (27 July 2010).
Further, her Honour did not err in not considering s 134 of the Property Law Act 1958 (Vic). Nothing in that section can alter the legal effect of s 493A(1) of the Act.
It follows that grounds 1, 2, 4 and 5 are misconceived.
Grounds 3, 7 and 10
Under cover of ground 3, the applicants submitted that Davies J failed to give sufficient weight to the causes of action that they were pursuing in the Sartori proceeding, made contradictory findings and applied the wrong test in determining whether the applicants had an arguable right to apply to bring a derivative action under Part 2F.1A of the Act in respect of the three claims.
Under cover of ground 7, the applicants submitted that Davies J ‘erred in placing undue weight in holding that the evidence established that the liquidators did not intend to commence a proceeding in respect of [the three claims] because they consider[ed] that there [was] no or little merit in them’.[30]
[30]Citation omitted.
Under cover of ground 10, the applicants submitted that Davies J erred in failing to calculate the value of the offsetting claim at a particular minimum amount.
Grounds 3, 7 and 10 fall away as a result of my conclusion that the applicants did not have an equitable interest in Mr Sartori’s shares.
It is not necessary for me to discuss the difference between the approach of the New South Wales Court of Appeal in Chahwan v Euphoric Pty Ltd[31] and the approach of this Court in Malhotra v Tiwari[32] as to the circumstances, if any, in which a shareholder of a company in voluntary liquidation will be authorised to commence a derivative action under Part 2F.1A of the Act. This is because, even if Mr Sartori, as a shareholder, were authorised to commence derivative actions in respect of the three claims, those actions would be in the name of BM;[33] any amounts recovered in those actions would be payable to BM; and, as a result of s 493A(1) of the Act, the applicants would not have any entitlement to a proportionate share of BM’s distributable surplus.
[31](2008) 227 FLR 43, 79-82 [124], [125].
[32][2007] VSCA 101 (23 May 2007) [77].
[33]See Corporations Act2001 (Cth) s 236(2).
Ground 6
Under cover of ground 6, the applicants submitted that Davies J erred in holding that the obligation imposed on the liquidators by Mr Sartori’s execution of the Form 550 pursuant to reg 5.6.70 of the Regulations arises only at the stage that a dividend is to be paid so that the liquidators are not presently obliged to make any such payment to the applicants. In reliance on Maniotis v Valimi Pty Ltd,[34] the applicants contended that the Form 550 authority was effective for the purposes of s 459H of the Act, notwithstanding that the claim may presently be unenforceable.
[34](2002) 4 VR 386.
Ground 6 cannot be sustained in the light of my conclusion about the effect of s 493A(1) of the Act. Mr Sartori, rather than the applicants, is entitled to a proportionate share of BM’s distributable surplus. Mr Sartori’s execution of the Form 550 authority has not altered that position. The authority simply compels the liquidators to pay to the applicants money which will become due to Mr Sartori.
The right to give an authority pursuant to reg 5.6.70 of the Regulations is one of the incidences of ownership of shares. The exercise of the right does not mean that the beneficiary of the authority acquires any proprietary rights in the shares. Nor does the authority constitute an assignment. Regulation 5.6.70 requires an authority to be in accordance with Form 550 and that form contemplates that the authority is revocable. The effect of an authority which subsists at the time that a dividend becomes payable is that the liquidator is bound by reg 5.6.70 to make the payment in accordance with the authority. The authority does not confer on the beneficiary of the authority any rights against the company itself so as to give rise to an offsetting claim against the company.
Ground 8
Under cover of ground 8, the applicants submitted that Davies J erred in holding that the material upon which the applicants relied for the purposes of demonstrating an offsetting claim could not also be used to support an application to set aside the statutory demands for some other reason under s 459J(1)(b) of the Act.
This submission misunderstands her Honour’s finding. Her Honour considered the evidence as it stood at the time of the hearing before her. Having concluded on the evidence that the applicants had failed to demonstrate an offsetting claim, her Honour found that the evidence did not support any alternative basis for holding that there was some other reason to set aside the statutory demands under s 459J(1)(b) of the Act. She was justified in doing so.
Ground 9
Under cover of ground 9, the applicants submitted that Davies J erred in failing to hold that the apparent discrepancy between the terms of the arbitrator’s award and Hargrave J’s order of 19 November 2009 constituted some other reason under s 459J(1)(b) of the Act for setting aside the statutory demands.
Ground 9 is devoid of substance. As Hargrave J’s order has not been the subject of any application or appeal, it is enforceable according to its terms notwithstanding any discrepancy between the order and the arbitrator’s award.
Conclusion
For the above reasons, the decision below was not attended with any doubt. Accordingly, I would dismiss the applications for leave to appeal.
MAXWELL P:
I agree with Kyrou AJA. In my opinion each application should be refused for the reasons which his Honour has given. I add the following for myself.
Notwithstanding the complexities of company law and of the arrangements put in place in relation to the shares in BM, the resolution of the issue raised by these applications has, as his Honour has demonstrated, an elegant simplicity about it. In short, the applicants are not shareholders in BM and, so long as the purported transfer to them is void, they will not be shareholders and will have no interest as shareholders in the company.
In National Acceptance Corporation Pty Ltd v Benson,[35] Kirby P said this about the meaning of the word ‘void’:
Although that word may, in particular contexts, invite a more limited construction, normally (as it seems to me) it should receive the meaning which ordinarily attaches to it in everyday speech, viz, having no legal effect for any purpose as against the world so that it is as if the transaction which is ‘void’ has not occurred, at least so far as the eye of the law is concerned: see Mercredits Finance Ltd v Ramsey [1979] 1 NSWLR 354, at 362; cf Brady v Stapleton (1952) 88 CLR 322. This is the starting point. Other considerations may require a more limited meaning to be given to the word. But because Parliament from time to time uses ‘voidable’ in statutes or expressions such as ‘void as against the liquidator’ (see, eg, s 451 of the Code), it should be presumed, at least to begin with, that where Parliament refers to ‘void’ it intends a more radical consequence, both in terms of effect and in respect of the parties affected.
[35](1988) 12 NSWLR213, 214‑215.
As Kyrou AJA has carefully explained, the applicants have personal claims against Mr Sartori but no claim in their own right against the creditor company which could be characterised as an offsetting claim, that is, a claim which could be offset against the company's respective claims against them. There is simply no mutuality. Senior counsel for the applicants conceded that, if that were the proper characterisation, these applications would fail.
The nature of the claims said to constitute offsetting claims was explored at some length in argument. Senior counsel for the applicants was unable to point to any legal principle or any authority which would justify, let alone require, the Court to treat personal claims against a person who has claims against a company as constituting claims against the company itself. The proposition that there were offsetting claims was, for the reasons given, untenable and her Honour was right to reject it.
In conclusion I would say this. The Court’s ability to deal on the spot with a matter of this character is attributable to the clarity of the reasons given by the judge below and the clarity and thoroughness of the submissions filed on both sides. The parties are to be commended for their preparation for the application which has enabled us in advance to give careful consideration to the matters raised and then, on the basis of that consideration, to deal with the arguments in court.
Wherever possible, the Court will strive to give prompt decisions in circumstances such as these, particularly where commercial interests favour expedition.
The order of the Court will be in relation to each application for leave to appeal, application refused.
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