Re Buddies Investments Pty Ltd

[1997] QSC 4

IN THE SUPREME COURT

OF QUEENSLAND
  Application No. 5397 of 1996

Before the Hon. Mr Justice Thomas
[Re Buddies Investments Pty Ltd]

IN THE MATTER of the Corporations Law

- and -

IN THE MATTER of BUDDIES INVEST-MENTS PTY LTD (in liquidation) (ACN 065 664 2800)

REASONS FOR JUDGMENT - THOMAS J.

Judgment delivered    20 January 1997

CATCHWORDS: CORPORATIONS LAW - Australian Securities Commission company records.

Company address incorrectly entered into the records due to ASC error - Reliance by creditor on the address - Statutory demands served and company wound up without notice of demand or of winding up proceedings - Costs of Creditor and liquidator needlessly incurred - Termination of liquidation - Whether ASC liable for loss of creditor, liquidator and company - s. 246 Australian Securities Commission Act - Whether erroneous entry of the company's address is an act done in purported performance of a function conferred upon the ASC by a national law scheme.

Whether the company, or the creditor or the liquidator should pay the costs of a liquidation upon its termination in circumstances where the ASC has immunity - Sections 466(2), 482, 556 Corporations Law.

Whether liquidation proceedings invalid due to "procedural irregularity" - Sections 220, 1274B(2), 1322(2) Corporations Law.

Whether costs of application to set aside the appointment of liquidator can be awarded against the ASC as a non-party to the proceedings - Knight v. F.P. Special Assets Ltd (1992) 174 CLR 178 considered.

Counsel:Ms S. Winn  for the Applicant

Mr P. Kar for the Respondent and the Liquidator

Mr P. Applegarth for the Australian Securities Commission

Solicitors:G. McElvenny & Co for the Applicant

Dunhill Madden Butler for the Respondent and the Liquidator

Australian Securities Commission on its own behalf

Hearing date:               2 January 1997

IN THE SUPREME COURT

OF QUEENSLAND

Application No. 5397 of 1996

Before the Hon. Mr Justice Thomas

[Re Corporations Law]

IN THE MATTER of the Corporations Law

- and -

IN THE MATTER of BUDDIES INVEST-MENTS PTY LTD (in liquidation) (ACN 065 664 2800)

REASONS FOR JUDGMENT - THOMAS J

Judgment delivered 20 January 1997

This is an application for the setting aside of the appointment of a liquidator, and for an order that the Australian Securities Commission pay all costs associated with the appointment of the liquidator, the costs of the liquidator and the costs of the proceedings to set the appointment aside.
           The application is made by Ms Olsen, a director and contributory of Buddies Investments Pty Ltd (in liquidation) ("the Company").
           On 23 August 1994, not long after the formation of the Company, a form 203 was forwarded to the Australian Securities Commission specifying 22 Tambourah Drive, Benowa, as the address for the Company's registered office.  The Company was specified as the occupant of those premises.  Ms Olsen also lived at that address.  Unfortunately due to what has been described as "inadvertent error" at the office of the ASC, the information was processed so that the registered office was shown as 23 Tambourah Drive, Benowa.  Such premises exist, but they are 200-300 yards distant from the Company's premises.
           In March 1996 the Company fell behind in payments to a creditor, Tucker Seabrook.  In June 1996 the amount owing was a little over $3000.  The creditor's solicitors threatened proceedings, upon which the Company sent post-dated cheques totalling $1000 in part-payment.  Nothing further was heard by any representative of the Company on the matter until 31 July 1996 when a liquidator, Mr Rees, telephoned Ms Olsen informing her that he had been appointed by the Court as the Company's liquidator.  All persons concerned with the Company were greatly perplexed, because they had had no notice of proceedings.  It seems that in the interim the creditor had prepared a statutory demand which was sent to 23 Tambourah Drive, in reliance upon the address appearing in the ASC records.  Of course it did not reach the applicant company, but so far as the creditor was concerned it had complied with the requirements of service under the Corporations Law.  When there was no response to the demand within the prescribed time, the winding up proceedings were issued, and were similarly served at 23 Tambourah Drive, again not reaching the Company.
           The legal requirements of service of necessary documents upon the registered office of the Company having been satisfied, the Court made the winding up order on 30 July 1996.  The liquidator, upon realising the nature of the mistake that had been made, and apparently upon satisfaction that the Company appeared to be solvent very properly minimised expenses and intrusion.  In due course the ASC corrected its records, and the present proceedings were instituted to set aside the liquidation and the appointment of the liquidator.  All parties are agreed that this should be done.  The contentious issue is who should pay for the costs that have been thrown away.
Fortunately the expenses have been contained within reasonable limits. The liquidator's costs, including the costs of representation in the present proceedings total $3500. The priority costs of the creditor under s.556 of the Corporations Law, with respect to the winding up, are $2747.30.  There are also the costs of the creditor with respect to today's application, and the applicant Company's costs of today's application.  Different results are possible with respect to those different kinds of costs and expenses.
           There are three essentially innocent parties (the creditor, the Company and the liquidator) and one party that was guilty of an error which produced all this wastage (namely the ASC).  There is reason to think however that the Company is perhaps less free of fault or of responsibility for causation of the problem than the creditor and the liquidator.  One circumstance is that the Company undoubtedly owed a debt which could justify a statutory demand, and it did not obtain any confirmation from the creditor that the part-payment of the debt by post-dated cheques would be acceptable to it.  Further, the Company does not appear to have lodged annual returns as required.  These were respectively due on 31 January 1995 and 31 January 1996.  There is evidence that had they been lodged, the ASC system would have detected the discrepancy between the true address which presumably would have been in such returns and the registered office address contained in the ASC record.  This, according to material filed on behalf of the ASC, would have led to immediate inquiries which would have resulted in correction of the central record.
           It was submitted that fault or responsibility might also be found on the part of the creditor in that the company search obtained by its solicitors would have shown that the address of Ms Olsen (director and secretary of the Company) was 22 Tambourah Drive.  This it was submitted should have led any prudent searcher to suspect that there was a possible error in the address shown for the Company and to have led to further inquiry.  I reject this.  There is nothing particularly surprising in a director having an address close to but separate from that of the company.  There is no evidence that the creditor or its solicitors were given any notice that anything was amiss in their service of documents at 23 Tambourah Drive.
           Although the Company did not do everything it could have done to have prevented these consequences from occurring, I am satisfied that had it actually received a statutory demand, it would have made urgent arrangements (which it was capable of doing) to pay the debt, and that no winding up proceedings would have ensued.

Creditor's costs under s.556 and the liquidator's costs of the liquidation

Plainly the primary and principal cause of the misadventure was the error within the ASC in typing the incorrect address into the records. If I had a general discretion to order that all the expenses listed above be paid by the ASC I would exercise it against the ASC. The ASC however relies upon s.246 of the Australian Securities Commission Act.  That section provides that neither the Commission nor any person acting on its behalf, is

"liable to an action or other proceedings for damages for or in relation to an act done or omitted in good faith in performance or purported performance of any function . . or . . power . . conferred . . by . . a national scheme law."

The Australian Securities Commission Act is itself a "national scheme law" and the recording of the relevant details concerning the company seems to be a function performed under that Act.  The erroneous entry of the Company's address was in my view an act done in purported performance of a function conferred upon the Commission by a national scheme law (cf. Larkin v. Capricornia Electricity Board [1995] 1 Qd.R. 268). There is no evidence or reason to believe that the act was done other than in good faith.
The applicant has very properly given notice of the present proceedings to the ASC, and it has, also quite properly, appeared in response. However it seems to me that, leaving aside the costs of the present application, the other costs which the applicant seeks to recover from the ASC are in reality claims for damages for negligence or breach of duty. This is so whether formulated as a claim by the liquidator, by the creditor, or by the Company on the footing of the loss that it will incur if it has to make these payments to those parties. Counsel for the Company was unable to formulate the origin of any rights against the ASC other than by submitting that these costs were the consequence of a wrongful act of the ASC. The ASC was not a party to the winding up proceedings and I am not aware of any jurisdiction to hold it liable for such costs in the absence of some special cause of action recognised by the law. It would prima facie have been liable to the applicant or the Company in negligence for these costs, but it is saved from such liability by s.246. I cannot see how any other kind of liability can properly be formulated, and counsel have supplied no answer.
As I have no power to require the primary perpetrator to be answerable for the loss, the question is whether, as between the Company the creditor and the liquidator, I should discriminate so as to require one or more of these parties to pay such costs as will have to be paid before the liquidation can terminate. The jurisdiction to order payment of such costs stems from the power to terminate the liquidation under s.482 of the Corporations Law. Under that section the Court has power to terminate the winding up upon a day specified in the order, and this would permit a termination from the outset namely 30 July 1996 under s.482(4). The costs of proceedings before the Court under that section "shall, if the Court so directs, form part of the costs charges and expenses of the winding up". Section 556 provides that in a winding up priority is given to expenses of relevant authorities such as the liquidator, the costs in respect of the application for the winding up order and various other debts. Under s.466(2) the liquidator must, unless the Court orders otherwise, reimburse the applicant its taxed costs out of the property of the Company.
It is to be noted that the present proceedings do not seek release of the liquidator or dissolution of the Company, and such relief would not be appropriate in the circumstances. Nor in my view is it possible to declare the liquidation invalid under s.1322(2). That section provides -

"A proceeding under this law is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid."

The difficulty in declaring the proceeding to be invalid is that it is impossible to find any "procedural irregularity" in the proceedings.  The creditor did everything that the Corporations Law required it to do, and the winding up was valid notwithstanding the apparent injustice of winding up a company which has no notice of the proceedings, or of the statutory demand upon which they were based. Under s.1274 B(2) the creditor was prima facie entitled to rely upon the information given to it by the Commission. Under s.220 a document is properly served upon a company by leaving at or sending it by post to the registered office of the company. For the purposes of the Corporations Law, number 23 Tambourah Drive was at that time the registered office of the Company. Under s.466 the costs of the creditor should have already have been paid by the liquidator. It would not be appropriate to set the liquidation aside unless and until these costs are paid or secured. In Nationwide News Pty Ltd v. Almona Pty Ltd (1987) 6 ACLC 84, Young J considered that in normal circumstances it would not be right to stay a winding up unless the liquidator's costs were paid or payment was secured. Further in Tecma Pty Ltd v. Solah Blue Metal Pty Ltd (No. 2) (1988) 14 ACLR 539 (in somewhat different circumstances) Young J held that the onus of proving that it is proper to stay the winding up is on the contributories, and regarded the principles applicable to the grant of such a stay as analogous to those applicable to the annulment of a bankruptcy.

The present case is in my view a suitable one for exercise of the power to terminate the liquidation under s.482(1) but the rights of the parties under sections 482(4), 466 and 566 should be given full effect. Upon the exercise of such a power the Court has the ordinary discretionary power of awarding costs.
           The Company, by these proceedings, will gain the benefit of terminating the liquidation.  However as I have no jurisdiction to order the primarily responsible party, the ASC, to pay for these costs to the liquidator or the creditor the only party that can reasonably be called upon to meet them is the applicant Company.  This is the least undesirable course.  It is supported by the factors mentioned above, that is to say the actual existence of the debt, failure to ascertain the creditor's approval of delayed payment, failure to send annual returns which would have enabled the ASC to correct its error, the complete blamelessness of the creditor and the prima facie validity of the liquidation proceedings.
I shall therefore order that upon payment by the applicant or by the liquidator out of the assets of the Company of Tucker Seabrook's costs under s.556 and of the liquidator's costs of the liquidation, the winding up of Buddies Investments Pty Ltd be terminated as from 30 July 1996.

Costs of the present application

It is now clear that this Court's power to award the costs of a proceeding before it is not limited to a power to order the immediate parties to the litigation to pay costs.  (Knight v. F.P. Special Assets Ltd (1992) 174 CLR 178, 185-186, 189-190, 192, 202, 205.) The power to award costs against a non-party could easily be subjected to abuse, and the High Court has emphasised the need for adherence to principles which will ensure that it is not exercised in such a way as to give rise to abuse, and will ensure that the jurisdiction "is exercised responsibly" (pp 185, 190). Categories of case recognised in Knight's case as justifying such orders include those where the non-party is the effective litigant, standing behind an actual party, contempt of the court, and abuse of the process of the court.

While the present case does not precisely meet any of those categories, it is analogous to conduct which has resulted in an abuse of process of the court and in the incurring of unnecessary costs by innocent parties. Quite apart from this it may be noted that the ASC's appearance in the present matter is of some benefit to itself. These include the preservation of the full force and effect of s.246 of the Australian Securities Corporation Act and in ensuring that the provisions in the Corporations Law relating to reliance upon ASC records are properly interpreted.  The ASC has certain duties of a public nature including occasional intervention in proceedings.  The present proceedings were made necessary because of fault on the part of the ASC or a person for whom it was responsible, and the present circumstances are in my view sufficiently strong to justify an order that the ASC should at least pay the costs of all parties of the present application.  The application was necessary to remove the chaos that the ASC had created  The error of the ASC had led to what can only be described as an injustice which had to be remedied, and it led to a wastage of the process of the court and the incurring of costs by the necessary parties.  It is therefore ordered that the ASC pay the costs of the Company and of the costs of Tucker Seabrook and of the liquidator (who had the same representation as Tucker Seabrook) of this application to be taxed.