Rodgers v CJS Panels Pty Ltd

[2001] VSC 470

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

No. 7756 of 2001

RODGERS	Plaintiff
v
CJS PANELS PTY LTD	Defendant
No. 7757 of 2001
AUSTRALIAN ASSOCIATED MOTOR INSURERS LTD	Plaintiff
v
CAPRICE BODY WORKS PTY LTD	Defendant

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JUDGE:	Warren J
WHERE HELD:	Melbourne
DATE OF HEARING:	23 November 2001
DATE OF JUDGMENT:	23 November 2001
CASE MAY BE CITED AS:	Rodgers v CJS Panels Pty Ltd
MEDIUM NEUTRAL CITATION:	[2001] VSC 470

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Corporations – appeal against winding up order – standing to bring appeal.

Corporations Act 2001 – ss.471A, 482.

Costs – application hopeless and high-handed – costs sought against both solicitor and client – indemnity costs against client.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr D. Denton with Ms D. Harding	Freehills
For the Appellant	Mr S.P. Hardy	Barry Fried & Associates
For the Supporting Creditor	Ms H. Reid	Wilmoth, Warne & Field
For the Liquidator of CJS Panels	Ms D. McCreddon
For the Liquidator	Mr P. Macnish	Cornwall Stodardt

HER HONOUR:

1. The court has before it two appeals against the orders for the winding-up of companies.  First, a winding-up order with respect to Caprice Body Works Pty Ltd, hereafter called Caprice.  Secondly, a winding-up order with respect to CJS Panels Pty Ltd, hereafter referred to as CJS.  Both companies were ordered to be wound-up by order of the Senior Master made on 31 October 2001. 

1. The company extracts for each company filed in support of the winding-up applications disclose that at the time of the winding-up order with respect to each company, important circumstances prevailed. 

1. With respect to Caprice, it did not have a current director or secretary; its last director, one Connie Cassar, resigned on 7 August 2001; its last annual return was lodged on 31 May 2000; its current shares and interests reveal that it has 51 fully paid A class shares, of those, 50 fully paid A class shares are held beneficially by one Francis Michael Cassar, a former director of the company, and one fully paid such share is held beneficially by one Michael Cassar.

1. With respect to CJS, it does not have a current director; its last director, again Connie Cassar, resigned on 7 August 2001; its last annual return was lodged 31 May 2000; its current shares and interests disclose that it has two fully paid A class shares, one held beneficially by Connie Cassar, the other held beneficially by one Sandra Cassar.

1. The appeals were filed on 5 November 2001, purportedly by the companies - by the former director Francis Cassar.  Each of the matters came before the court today and Mr Denton, with Ms Harding, appeared for the plaintiff in each proceeding, being Australian Associated Motor Insurers Ltd with respect to Caprice, and Adam Rodgers with respect to CJS.  In each of these matters, Mr S. Hardy appeared for the appellants.  It should be noted that in the CJS matter Ms D. McCredden appeared on behalf of the liquidator.  In the Caprice matter, Mr P. Macnish appeared for the liquidator, and Ms M. Reid appeared for a supporting creditor.

1. Initially when the matter came before the court this day, an application was made to adjourn both appeals for a period of 14 days to enable the preparation of material as to solvency of each of the companies to be put before the court.  An affidavit of Francis Cassar, sworn 22 November 2001, was filed at the commencement of the hearing.  I was informed by the parties that it was served on the other parties immediately before the hearing commenced.  Understandably, therefore, the opposing parties did not have an opportunity to file any answering affidavit to that of Mr Cassar.

1. Mr Cassar deposed to a number of matters.  He deposed that he was a previous director of both Caprice and CJS and also that he currently managed the businesses run by those companies.  He deposed that, at the hearing of the winding-up applications before the Senior Master on 31 October 2001, he attended and applied to have each of the hearings adjourned so as to enable notices of appointment of directors with respect to the two companies to be filed at the Australian Securities and Investments Commission.  He deposed that the Senior Master refused to hear him on the basis, it seems, that Mr Cassar had no standing.  Mr Cassar deposed further that the Senior Master refused to adjourn the hearings and proceeded to make the subject winding-up orders with respect to each company.

1. In his affidavit, Mr Cassar deposed as to his belief that each of the companies was solvent and able to pay its debts.  He deposed that he himself paid the debts owed to the plaintiff in the Caprice proceeding, that is, Australian Associated Motor Insurers Ltd.  He deposed that he had funds to pay the supporting creditor.  I was subsequently informed, by way of submission from the Bar table by Mr Hardy, that the supporting creditor had been paid.  Of course, it is entirely unsatisfactory for such an assertion to be made from the Bar table in the circumstances of this matter.  Properly, such fact, if it is to be asserted ought be done in the usual way by affidavit.

1. In any event, in his affidavit, Mr Cassar went on to depose as to his belief that each of the companies had sufficient assets to pay all other creditors.  He deposed that he had not been able to obtain a report from his accountant or the appointed liquidators as to the solvency or otherwise of the companies.  He asserted that the companies operated profitable businesses with respect to tow truck operations and had considerable assets.

1. In essence, the balance of his affidavit was directed to seeking an indulgence of an adjournment of 14 days, with respect to each appeal, to allow the liquidators to investigate the books of account, produce a report as to solvency and other matters with respect to the winding up of the companies.  It should be observed that the court was informed by way of affidavits on behalf of the liquidators that there had been a lack of cooperation with respect to the companies so far as the liquidators were concerned as to the usual steps that a liquidator must embark upon when commencing the winding up of a company.

1. Before determining the question of whether or not to grant the indulgence to the appellants of an adjournment, it is necessary in the circumstances of these matters to consider whether or not the appeals are futile. In my view, it is necessary to consider this aspect because of important threshold issues that arise. The principal or primary threshold issue is the question of the standing of the appellants in each case. Section 471A of the Corporations Act 2001 provides, among other matters, that while the company is being wound up in insolvency or by the court, a person cannot perform or exercise a function or power as an officer of the company except if such function is exercised by the liquidator and administrator with the liquidator's written approval or with the approval of the court.

1. It follows necessarily that an appeal against the winding up of a company is a matter that is subject to the provisions of s.471A of the Corporations Act. So much was considered by the Court of Appeal of Queensland in Rockbottom Fashion Market Pty Ltd v H.R. & C.E. Griffiths Pty Ltd (1997) 25 ACSR 467. There, the Queensland Court of Appeal considered the fact of the relatively recent introduction of s.471A to the Corporations provisions. The court also considered the rule at common law known as the Diamond Fuel rule.  Ultimately the Court of Appeal concluded that where an appeal was made against an order for the winding up of a company, it was necessary for such appellant to make application to the court at the outset by way of a threshold step under s.471 to allow such appeal to be brought.  No such application has been made in this case.

1. My attention has been drawn to an earlier judgment of mine in Victorian WorkCover Authority v Burroghan Pty Ltd, unreported judgment, 2001 VSC 413, delivered on 19 October 2001. In that case I exercised my discretion with respect to an appeal for the winding up of a company ordered by the Master by way of granting leave under s.471A. The application was brought by the sole director of the company. Furthermore, in that case, the application was made at the time of the appeal as a preliminary application by way of interlocutory process. Thirdly, in that matter, there were serious matters giving rise to a finding of the court of abuse of process such as to justify the granting of the leave.

1. More recently, in Walker v Midlink Nominees Pty Ltd & Anor [2000] 34 ACSR 210 Owen J. of the Supreme Court of Western Australia with respect to the winding up of a company and the appointment of a provisional liquidator has expressed very strict views with respect to s.471A of the Corporations Act.

1. Having considered the authorities, it seems to me very clear that the position is that before an appeal against a winding up order can be determined, it is necessary for any appellant or prospective appellant to make application under s.471A of the Corporations Act.  As I indicated, no such application was made in this instance.

1. The question does arise as to whether the court should grant leave nunc pro tunc in any event.  Before doing so in my view it would be necessary for the court to be satisfied that there was a purpose in granting such leave and in so determining that matter, the court would need to be satisfied as to the solvency of the subject company. 

1. During the course of submissions the matter as to the solvency of the company was raised with Mr Hardy for the appellants.  Specifically, the matter was raised with Mr Hardy as to the deficiencies in the affidavit of Mr Cassar purporting to assert that the companies are solvent.  During the course of the luncheon adjournment a further affidavit was sworn by Mr Cassar with respect to Caprice.  Mr Hardy sought to file and rely upon that affidavit immediately after the luncheon adjournment.  I note that no application was made or explanation provided for the granting of special leave to rely on such affidavit pursuant to Order 77.05(7)(b) of Chapter I of the Rules. 

1. The second affidavit of Mr Cassar deposes as to assets of Caprice, some of which appear to be of considerable worth and value.  Mr Cassar went on in the affidavit to depose that Caprice had debts with respect to certain loans as recited and also that he was not aware of any other "significant debts" owed by the company.  He adverted to minor debts.  He also adverted to the fact that he had paid the debt to the plaintiff in the Caprice matter, Australian Associated Motor Insurers Ltd.

1. In my view, the second affidavit of Mr Cassar is deficient.  It does not demonstrate solvency of Caprice.  What it does do is demonstrate that the company has assets.  It demonstrates that some of those assets are encumbered.  However, the affidavit does not satisfactorily set out in the ordinary and proper way the liabilities of the company.  No further affidavit was relied on in relation to CJS.  In this respect I restate the matters raised by each of the liquidators with respect to the companies Caprice and CJS that there has been a lack of cooperation with the subject liquidator and that there has been difficulty, if not impossibility, so far as each of the liquidators has been concerned in getting in the assets, identifying the assets and determining the liabilities and other aspects of the relevant company.

1. It follows, then, from what I have said, that the only evidence before the court with respect to asserted solvency of the company Caprice is that contained in the affidavits of Cassar. I cannot be satisfied that the affidavits demonstrate solvency. With respect to the Caprice company, therefore, I do not consider that leave should be granted, in any event, nunc pro tunc under s.471A of the Corporations Act.

1. With respect to CJS, there is no evidence as to the solvency or otherwise of that company such as to satisfy the usual requirements in these sorts of circumstances. It follows, therefore, that any application nunc pro tunc or otherwise under s.471A at this stage must fail.

1. I turn, then, to the next matter that arose during the course of submissions. Mr Hardy, on behalf of the appellants, sought to rely upon s.482 of the Corporations Act such as to apply, nunc pro tunc, to stay the winding-up orders with respect to each company ordered by the Senior Master on 31 October 2001. It is to be observed that there was no evidence put before the court as to why such application had not been brought on earlier. Furthermore, I note that a period of almost a month has elapsed since the winding‑up orders were made by the Senior Master and no opportunity has been taken to prepare affidavit evidence to be placed before the court. Again, no explanation was provided to the court as to why this was not done or could not have been done.

1. In any event, I turn to consider s.482 of the Corporations Act and the application made by Mr Hardy on behalf of his clients. Section 482 empowers the court to grant a stay or terminate a winding‑up order in certain circumstances. As a general statement of principle, it is to be observed that the power under the section will not be exercised lightly; it is a power that is not exercised often, notwithstanding that the provision is plainly remedial in its nature (see In Re Calgary and Edmonton Land Co Ltd (in liq.) (1975) 1 WLR 355, 358-359; Re South Barrule Slate Quarry Co (1869) 8 Eq. 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113; Re Mascot Home Furnishers Pty Ltd (1970) VR 593, 598). As a very important aspect of such application, in my view it would be necessary for the court to be satisfied that the company was solvent. For the reasons already stated, I cannot be so satisfied.

1. These observations clearly apply to Caprice. There is a further aspect to be noted with respect to the company CJS. Mr Cassar, who purports to bring the appeal and make the application under s.482 nunc pro tunc, is not, on the evidence before me, a contributory of the company and cannot therefore have standing for the purposes of s.482. Accordingly, the application with respect to CJS must fail on this further basis. There is an additional observation to be made. In the ordinary course, when considering an application under s.482, the court will give consideration as to the position of other creditors. Ms Reid, appeared on behalf of the supporting creditor in Caprice. The position of her client as a supporting creditor with respect to Caprice, is a matter that has to be taken into account. I observe that the supporting creditor did not have an opportunity to respond to the assertions in the affidavits of Mr Cassar. I could not, therefore, be entirely satisfied that the position of the supporting creditor would be adequately accommodated if the application under s.482 was granted. I do not know the position with respect to other creditors of CJS. Ultimately I conclude as I say, that the application under s.482 should be refused.

1. I return then to the application for the adjournment.  For the reasons I have stated, the adjournment would be futile as the appellants have difficulty in bringing the appeal for the reasons I have stated.

1. Accordingly the application for an adjournment in each case is refused, and accordingly the appeal in each case for the reasons I have stated should be dismissed.

1. I turn now to the question of the costs of each of the appeals. 

1. In my view it is apparent from the reasons I have delivered that there were difficulties, although different difficulties, that arose with respect to each appeal.  I consider it is appropriate therefore to consider the question of costs separately in relation to each matter.

1. I turn first of all to the Caprice matter.  At the outset Mr Denton who appeared with Ms Hardy for the plaintiff sought costs on an indemnity basis against both the agitating party, Francis Michael Cassar, and also the solicitor for that party, Mr Barry Freid.  Mr Denton took me to a number of authorities to support the proposition that it was appropriate that costs be ordered against the solicitor (see The Bullfinch Surprise Gold Mining Company No Liability v Butler (1913) 35 ALT 99; Da Sousa & Anor v Minister of State for Immigration (1993) 114 ALR 708; Broughton v Broughton (1955) SASR 241). In essence the submissions of Mr Denton were to the effect that the application was hopeless and high-handed, but more importantly that the applicant had no standing to bring the application and the solicitor, it followed, had no instructions to agitate it on behalf of his client.

1. I have considered this matter very carefully and I find it somewhat troubling. Ultimately I conclude that given the way the matter has developed in the course of submissions this day, there were a number of matters that arose. There were the questions of the application for an adjournment together with the application under s.471A purportedly made nunc pro tunc, and then there was the very belated application under s.482 of the Corporations Act. All of these matters, and having heard the argument and considered the authorities, lead me to conclude that Mr Freid as solicitor on behalf of Mr Cassar was acting on the instructions of Mr Cassar and with respect to the application under s.482 was acting properly.

1. Ultimately I have concluded that the appellant in the Caprice matter has failed. Nevertheless the position at law was not entirely clear. The authorities with respect to s.471A are relatively recent. For the purposes of the costs application it seems to me that the position was at least arguable on the part of the applicant and it is appropriate therefore to order costs such that they follow the event and that they be paid by Mr Cassar only. It is not appropriate in my view that costs be order against the solicitor Mr Freid.

1. Insofar as the level of costs are concerned, costs on an indemnity basis are sought by each of the plaintiff, the liquidator and the supporting creditor.  In this matter, for the reasons I have stated, the position of the appellant, Mr Cassar, was as at least arguable.  It seems to me on balance that it does not entirely fall within the parameters or principles described by Tadgell J. in AGC v de Jager (1984) VR 481 as being "high-handed".

1. Accordingly I consider that costs should be ordered against Mr Cassar but on the usual party/party basis. 

1. I turn then to the second matter, the CJS appeal.

1. This matter in some respects invites the same observations as already made with respect to the costs application in the Caprice matter. However there are some important differences. Perhaps the most significant difference is the fact that Mr Cassar who agitated the appeal was not a director, even more so he was not a contributory as was the case in the Caprice matter. In my view the applications brought under the appeal and sections 471A and 482 of the Corporations Act were entirely misconceived.  In my view in the CJS matter, Mr Cassar must have been taken to have been on notice as to whether or not to proceed with the appeal.

1. It is necessary because an application is made in this matter also to consider the liability of the solicitor Mr Freid, for costs.  On balance and in the circumstances of the matter, I am satisfied that Mr Freid at all times was acting in the interests and on the instructions of his client Mr Cassar.  It seems to me appropriate therefore that the costs order should be made against Mr Cassar solely and not against Mr Freid.

1. I turn then to the question of the level of costs that should be ordered. From the very outset in my view, the application by way of appeal, the application for the adjournment, and the applications nunc pro tunc under both ss.471A and 482 of the Corporations Act were futile.  It follows in my view that having been warned of the futility of the application in correspondence by the other parties, it was inappropriate for the appeal to proceed, particularly when it is borne in mind that Mr Cassar was not only not a director but he was not a contributory of the subject company.  In my view, in the CJS case the conduct of the appellant falls into the category described by Tadgell J. in de Jager, and also as adverted to in Colgate-Palmolive Company v Cussens Pty Ltd (1993) 46 FCR 225, 231 as high handed. Accordingly, I consider that Mr Cassar should pay the costs in the CJS matter of the appeal and on an indemnity basis.

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