Selex Communications SpA v Rennie, in the matter of Stanilite Pacific Ltd (in liq)
[2010] FCA 1482
•21 December 2010
FEDERAL COURT OF AUSTRALIA
Selex Communications SpA v Rennie, in the matter of Stanilite Pacific Ltd (in liq) [2010] FCA 1482
Citation: Selex Communications SpA v Rennie, in the matter of Stanilite Pacific Ltd (in liq) [2010] FCA 1482 Parties: SELEX COMMUNICATIONS SPA v KENNETH JOHN RENNIE AND JOHN RAYMOND GIBBONS (IN THEIR CAPACITY AS JOINT LIQUIDATORS OF STANILITE PACIFIC LIMITED ACN 002 930 289 (IN LIQUIDATION)) AND GEOFFRY RALPH JAMES (IN HIS CAPACITY AS FORMER LIQUIDATOR OF STANILITE PACIFIC LIMITED ACN 002 930 289 (IN LIQUIDATION)) File number: VID 3347 of 1996 Judge: RARES J Date of judgment: 21 December 2010 Catchwords: BANKRUPTCY AND INSOLVENCY – proof of debt – identical proofs of debt made by creditor in liquidations of two related companies – common liquidators – one proof lodged three years before proof lodged in other liquidation – delay in adjudication, and subsequent rejection, of second proof of debt after three years – first proof not rejected for twelve years and after all assets of both companies distributed – creditor failed to challenge earlier rejection of proof of debt – creditor claiming liquidators’ duty to decide all proofs in all related liquidations at same time – creditor seeking extension of time under reg 5.6.54(2) of the Corporations Regulation 2001 (Cth) to appeal against first rejection of proof of debt seven years later
PRACTICE AND PROCEDURE – amendment of pleadings – delay – amendment to join related company and its liquidations, to appeal against rejection of proof of debt seven years previously, and to include new claims in respect of proofs of debt – amended application made over one year after proceedings commenced – amendments including novel, unparticularised claim for negligence against liquidators – refusal to provide particulars of novel claim – failure to explain delay – principles for considering grant of amendment to pleadings
Legislation: Corporations Act 2001 (Cth); ss 553(1), 553D(1) and (3), 536(1)
Federal Court of Australia Act1976 (Cth), Part VB
Corporations Regulations 2001 (Cth), regs 5.6.53(2), 5.6.54(2)Cases cited: Agar v Hyde (2000) 201 CLR 552 referred to
Aon Risk Services Australia v Australian National University (2009) 239 CLR 175 applied
Austin Securities Ltd v Northgate & English Stores Ltd [1969] 1 WLR 529 distinguished
Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 applied
Dye v Commonwealth Securities Limited (No 2) [2010] FCAFC 118 applied
Jackamarra v Krakouer (1998) 195 CLR 516 referred to
Tanning Research Laboratories Incorporated v O’Brien (1990) 169 CLR 332 referred toDate of hearing: 21 December 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 48 Counsel for the Applicant: A Ogborne Solicitor for the Applicant: Bruce Stewart Dimarco Counsel for the Respondent: S D Robb QC Solicitor for the Respondent: Hugh & Associates
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
VID 3347 of 1996
IN THE MATTER OF STANILITE PACIFIC LIMITED ACN 002 930 289 (IN LIQUIDATION)
BETWEEN: SELEX COMMUNICATIONS SPA
ApplicantAND: KENNETH JOHN RENNIE AND JOHN RAYMOND GIBBONS (IN THEIR CAPACITY AS JOINT LIQUIDATORS OF STANILITE PACIFIC LIMITED ACN 002 930 289 (IN LIQUIDATION)) AND GEOFFRY RALPH JAMES (IN HIS CAPACITY AS FORMER LIQUIDATOR OF STANILITE PACIFIC LIMITED ACN 002 930 289 (IN LIQUIDATION)) Respondent
JUDGE:
RARES J
DATE OF ORDER:
21 DECEMBER 2010
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The notice of motion dated 1 September 2010 be dismissed.
2. The applicant on the motion pay the respondents’ costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
VID 3347 of 1996
IN THE MATTER OF STANILITE PACIFIC LIMITED ACN 002 930 289 (IN LIQUIDATION)
BETWEEN: SELEX COMMUNICATIONS SPA
ApplicantAND: KENNETH JOHN RENNIE AND JOHN RAYMOND GIBBONS (IN THEIR CAPACITY AS JOINT LIQUIDATORS OF STANILITE PACIFIC LIMITED ACN 002 930 289 (IN LIQUIDATION)) AND GEOFFRY RALPH JAMES (IN HIS CAPACITY AS FORMER LIQUIDATOR OF STANILITE PACIFIC LIMITED ACN 002 930 289 (IN LIQUIDATION))
Respondent
JUDGE:
RARES J
DATE:
21 DECEMBER 2010
PLACE:
SYDNEY
REASONS FOR JUDGMENT
(REVISED FROM THE TRANSCRIPT)
This is an application to join a new respondent and to amend the application and statement of claim. Selex Communications SpA, the applicant, is the legal successor in title to an Italian company, OTE SpA. On about 10 March 1994, OTE entered into a memorandum of understanding with, apparently, one or other of Stanilite Pacific Limited, the existing respondent, or Stanilite Electronics Pty Limited, one of the proposed new respondents. Both of those companies were subsequently ordered to be wound up in 1996, the former by this Court and the latter by the Supreme Court of New South Wales. The other existing and proposed respondents are the former and present liquidators of both companies.
OTE lodged proofs of debt in 1997 in Stanilite Pacific’s liquidation and in 2000 in Stanilite Electronics’ liquidation. Each proof claimed that the relevant Stanilite company was indebted to it for the same amount under a contract constituted by the memorandum of understanding. In 2003 the liquidators rejected the Stanilite Electronics’ proof of debt asserting that Stanilite Pacific was party to the memorandum of understanding. They had not then determined the Stanilite Pacific proof of debt and did not do so until 2009. Selex now seeks leave to appeal against the 2003 rejection of the Stanilite Electronics’ proof of debt.
BACKGROUND
The proceedings presently before me arise out of an application in the liquidation of Stanilite Pacific that was commenced by an interlocutory process filed on 21 July 2009. That followed the rejection of Stanilite Pacific’s proof of debt by its current liquidators. That proof of debt had been lodged as long ago as 26 September 1997, but it was only rejected on 7 July 2009 at a time when the liquidators had already distributed all, or substantially all, of the assets of Stanilite Pacific to its other creditors whose debts they had admitted to proof and the balance of the funds to the contributories. The due course of this liquidation had resulted in a surplus of assets over the then accepted liabilities of Stanilite Pacific.
Among other things, Selex has sought an inquiry into the conduct of the liquidation, but the parties have agreed that that is a matter to be dealt with as a separate question after the conclusion of the balance of the proceedings. The issues to be decided first in the proceedings are Selex’s appeal against the rejection of its proof of debt, under reg 5.6.54(2) of the Corporations Regulations 2001 (Cth); and its claims against the liquidators past and present, for damages. Those claims allege that the liquidators were negligent because of their failures to consider OTE’s proof of debt at any time in the almost 12 years that they had it, and following a number of reminders to do so. The precise circumstances in which the liquidators and their predecessors acted, or failed to act, will be the subject of the proceedings when they are tried, and are not in issue today.
The memorandum of understanding was the focus of the two apparently inconsistent proofs of debt. It named Stanilite Electronics in clause 1.2 and then defined it as “Stanilite”. However, the definition was immediately followed by a description that appeared to have been directed to its parent company, Stanilite Pacific, namely:
“…is a prominent Australian public company whose telecommunications division has particular expertise in the design, manufacturing, and implementation of both software and hardware for trunked network infrastructures complying with particular standards.” (emphasis added)
Stanilite Pacific was a public company and Stanilite Electronics was not. To add to the confusion, the execution clause of the memorandum of understanding was simply typed: “for Stanilite Pacific Ltd”. A handwritten signature John R Harriss as joint managing director appeared above the execution clause. It appears to be common ground that Mr Harriss was not a joint managing director of Stanilite Electronics. Thus, on its face the terms of the memorandum of understanding conveyed a degree of ambiguity as to which Stanilite company was or were a party to it. That ambiguity is reflected in the fact that OTE lodged proofs of debt against both Stanilite Pacific and Stanilite Electronics, claiming exactly the same debt under exactly the same contract, albeit identifying each of the two apparent purchasers as the contracting party for the purposes of the relevant proof of debt. Each rejection appeared to be premised on the alternate hypothesis that the other Stanilite company was the contracting party.
In June 1997, the originally appointed liquidators, Geoffrey James and Kenneth Rennie (the original liquidators), wrote a report to creditors of companies in the group that included Stanilite Pacific and Stanilite Electronics. The original liquidators noted in the report that on 19 December 1996, the Supreme Court had appointed them as liquidators of almost all of the subsidiaries of Stanilite Pacific. They called for proofs of debt shortly afterwards. OTE submitted a proof of debt claiming, among other sums, $1,723,581.16 for goods sold pursuant to an agreement dated 10 March 1994, namely the memorandum of understanding.
On 18 September 2000, the liquidators of Stanilite Electronics, who were the same persons as the original liquidators, called for proofs of debt in its liquidation. Once again, OTE lodged a formal proof dated 16 October 2000. It made a claim for goods sold pursuant to the memorandum of understanding dated 10 March 1994 in the same amount, and on the same basis on which it had claimed against Stanilite Pacific, other than to change the identity of the alleged debtor. I will refer to the two claims for the $1,723,581.15 as “the $1.7 million claim”.
On 24 October 2000, the liquidators of Stanilite Electronics wrote to OTE, care of its solicitors through whom it had lodged the claim, requiring details of the formal proof of debt or claim, including a statement of account, and invoices by which the claim could be substantiated. The solicitors responded relatively promptly with two letters on 1 and 16 November 2000, attaching the calculations they had made for interest, some correspondence about a variety of contracts, the memorandum of understanding itself, which they described as being between “Stanilite and OTE SpA, dated 10 March 1994”, as well as a number of invoices.
Nothing more was heard by OTE or its solicitors from the original liquidators until 24 January 2003. Then they wrote to OTE rejecting the proof of debt in respect of Stanilite Electronics for about 80 per cent of the claims it had made, including for the $1.7 million claim. The reasons given were:
“I reject your claim for $1,723,581.16 relating to goods identified in a facsimile transmission dated 16 December 1994 from you to S.L. Electronics (NSW) Pty Limited (“Electronics”) on the basis that the relevant goods were not delivered to Electronics.
In relation to your contention that Electronics is liable to pay for goods in the amount of $1,723581.16 pursuant to the Memorandum of Understanding dated 10 March 1994, I advise that your claim is rejected for the reasons that, inter alia:-
(i)the agreement in question was executed by Stanilite Pacific Limited and not Electronics;
…”
OTE did not appeal against the rejected parts of its proof of debt, including in respect of the $1.7 million claim within the 14 days that the notice given by the liquidators specified in accordance with reg 5.6.54(2)(a).
The amendment application seeks to join Stanilite Electronics and its liquidators as two respondents and an extension of time in which to appeal against the rejection of OTE’s proof of debt in that liquidation, nearly eight years ago, on 24 January 2003, under reg 5.6.54(2)(b). That regulation permits an appeal within any further period “if the court allows”.
There is some evidence that in April, and then May 2003, and following, that the solicitors for OTE asked the original liquidators when they could expect a determination of the proof it had lodged in Stanilite Pacific’s liquidation. On the occasion of each of those inquiries, as I apprehend the evidence, the original liquidators or their representatives suggested that they were not aware of that proof and asked for a copy, which was then provided. The original liquidators apparently, filed each such copy in the same remote place that the earlier versions of that 1997 proof of debt had been placed.
Mr James retired as a liquidator on 24 May 2004 and was replaced by John Gibbons, over a year after Stanilite Electronics’ proof of debt was rejected. Mr Gibbons remains one of the liquidators with Mr Rennie. Thus, Mr Rennie has continued as a liquidator throughout the relevant period. (I will refer to Mr Rennie and Mr Gibbons as “the current liquidators”.)
THE NATURE OF THE AMENDMENTS
Selex seeks leave to amend its further amended interlocutory process by adding claims that:
·the original liquidators failed to act with due diligence, in that they had failed to determine Stanilite Pacific’s proof of debt at or prior to the time Stanilite Electronics’ proof was determined by the same persons, in their capacity as liquidators of that company;
·the original and current liquidators had failed to act with due diligence, because they failed to determine the Stanilite Pacific proof of debt prior to payment of the final dividend that then exhausted all money recovered in Stanilite Electronics’ liquidation;
·an order that the rejection of OTE’s proof in Stanilite Electronics’ liquidation be reversed and that OTE be admitted to proof for its claim;
·an order that the liquidators of Stanilite Electronics pay a final dividend of nearly $190,000 to Selex; and
·there be an inquiry under s 536(1) of the Act into the alleged failure of the original and current liquidators to act with due diligence to ensure the determination of OTE’s proofs of debt in both liquidations prior to the final distributions that occurred.
Selex’s principal proposed amendments to its statement of claim involve new pleadings that:
·the memorandum of understanding was a contract between OTE and Stanilite Electronics, as an alternative to Selex’s claim that it constituted a contract between OTE and Stanilite Pacific, and that on that premise, the earlier claims made by Selex that Stanilite Pacific had been in breach of its contract with OTE should be then understood, in the alternative, as a claim that the defaulting party to the contract was Stanilite Electronics;
·OTE did not appeal against the rejection of its proof of debt in Stanilite Electronics’ liquidation because it had relied on the reason given for that rejection by the original liquidators of Stanilite Electronics’ namely, that the memorandum of understanding had been executed by Stanilite Pacific and because OTE had made such a claim in its earlier, still unadjudicated, proof of debt in Stanilite Pacific’s liquidation;
·had the liquidators made a timely, or even roughly contemporaneous, rejection of OTE’s Stanilite Pacific proof of debt on the basis that Stanilite Pacific was not a party to the memorandum of understanding, then OTE would have appealed against the rejection of both proofs of debt;
·the original or current liquidators had an asserted duty under section 506(3) of the Corporations Act to pay the debts of Stanilite Electronics in their administration of its liquidation;
·the original liquidators breached that duty to OTE or Selex because they failed to take due care in rejecting OTE’s Stanilite Electronics’ proof of debt, and they failed to act with due diligence by failing to determine OTE’s Stanilite Pacific proof of debt at, or prior to, the time that they had determined OTE’s proof in Stanilite Electronics;
·thereafter, both the original and the current liquidators failed to act with due diligence in determining the Stanilite Pacific proof of debt prior to the current liquidators declaring and paying a final dividend in the Stanilite Electronics liquidation that completely exhausted the moneys recovered in that liquidation;
·the original and current liquidators failed to perform their duties with the requisite degree of care and skill, as a result of which OTE or Selex was not paid anything in respect of the $1.7 million claim in the liquidation of Stanilite Electronics;
·Selex suffered loss and damage because of the original and current liquidators’ alleged breaches of duty.
STATUTORY CONTEXT
Relevantly, ss 553(1) and 553D(1) and (3) of the Corporations Act 2001 (Cth) provide:
“553 Debts or claims that are provable in winding up
(1)Subject to this Division and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.
553D Debts or claims may be proved formally or informally
(1)A debt or claim must be proved formally if the liquidator, in accordance with the regulations, requires it to be proved formally.
…
(3)A debt or claim is proved formally if it satisfies the requirements of the regulations relating to the formal proof of debts and claims.”
Here, the liquidators appear to have required formal proof under s 553D(1). Regulation 5.6.53(1) provides that a liquidator must within 28 days after receiving a request in writing from a creditor to do so, admit or reject in writing, all or part of the formal proof of debt or claim submitted by the creditor, or require further evidence in support of it. If the liquidator does not deal with such a request, the creditor who submitted the proof is entitled to apply to the Court for a decision in respect of it, pursuant to reg 5.6.53(2). Then reg 5.6.54(2) provides that a person may appeal against the rejection of a formal proof of debt or claim, within the time specified in the notice of the grounds of rejection, or, if the Court allows, any further period.
THE EVIDENCE ON THE MOTION FOR LEAVE TO AMEND
The notice of motion brought by Selex was only filed on 1 September 2010. It was supported by the affidavit of Robert Gorczyca of 1 October 2010 and, in part, an earlier affidavit of Michael Clear of 21 July 2009, filed when the present proceedings commenced. Mr Clear’s affidavit exhibited documents including correspondence but, of course, did not deal with this application to amend.
Mr Gorczyca said that, if granted leave to amend, Selex did not intend to seek any additional categories of documents for discovery and did not intend to lead evidence from any new or different witnesses. However, at the moment, no directions have been given for the adduction of evidence for the trial. He had been acting for OTE and Selex in respect of the proofs of debt and later in the proceedings for some time. He said that, in the seven years after Stanilite Electronics’ $1.7 million claim had been rejected by the liquidators, it had not been suggested to OTE and Selex that the liquidators would then reject the similar proof, when acting in the liquidation of Stanilite Pacific, on a similar basis as they had for Stanilite Electronics. The grounds for the rejection of the Stanilite Pacific proof of debt in respect of the $1.7 million claim were stated as follows:
“In relation to your contention that Stanilite Pacific Limited is liable to pay for goods in the amount of $1,723,581.16 pursuant to an “Agreement” (also referred to as a Memorandum of Understanding dated 10 March 1994, (“MOU”) I advise that your claim is rejected for the reasons that, inter alia:
(i)the MOU does not impose or purport to impose any obligation on the part of Stanilite Pacific Limited to pay for goods;
(ii)the MOU is described as being between OTE SpA and “Stanilite Electronics Pty Ltd”;
…”
The present and proposed respondents relied on an affidavit of 29 October 2010 by their solicitor, John Vohralik. He said that as at 30 September 2010 Stanilite Electronics’ liquidators’ bank account had a current credit balance of about $61,000. Of that sum about $53,000 related to unpresented cheques that had been sent to unsecured creditors in respect of their dividend entitlements for debts that had been admitted to proof. The balance of about $8,000, was intended to be drawn as the approved remuneration for the liquidators. The current liquidators propose in due course to pay so much of the credit balance in that account as reflects the value of the unpresented cheques to an unclaimed moneys account.
No explanation was provided by Selex for why it did not make the amendments the subject of the present application at any earlier time in these present proceedings. When the solicitors acting for the liquidators sought particulars of the new allegations on 1 October 2010, Selex’s solicitors responded on the same day that it was not appropriate to provide particulars because the request was “premature … as noted above, your clients are opposing the amendments”.
SELEX’S SUBMISSIONS
Selex argued that it or OTE would have been in a position to determine that they should appeal against the rejection of the Stanilite Electronics proof of debt when that occurred, after having been informed by the attitude the original liquidators had taken to OTE’s proof of debt in Stanilite Pacific’s liquidation. In essence, Selex argued that the liquidators, in their capacity as liquidators of Stanilite Pacific owed Selex or OTE a duty of care to determine the Stanilite Pacific proof of debt timeously, and in any event, before rejecting OTE’s Stanilite Electronics' proof of debt. Selex alleged that the consequence of that alleged breach of duty was that OTE or Selex lost the opportunity of then appealing in the Stanilite Electronic liquidation prior to the final distribution of its assets.
Selex argued that there is a likelihood that not all the funds of Stanilite Electronics have been distributed in the final dividend, because about $53,000 remains in a bank account to meet unpresented final dividend cheques. Selex contended that this showed that some funds would be available to pay it a dividend and so there is utility in allowing the proceedings now to be brought against Stanilite Electronics and its current liquidators by way of an appeal against the liquidators’ rejection of the proof of debt in that company.
CONSIDERATION
The foregoing recitation of the matters raised by the amendment application indicates that there is a degree of both interaction with the current pleading and a superadded level of complexity that would be introduced by the amendments.
Selex’s proposed amendment propounding a duty of care asserted that the original liquidators of Stanilite Pacific had a duty to determine OTE’s proof of debt prior to their determination of its proof of debt in Stanilite Electronics’ liquidation. It is somewhat surprising that, for over five years since September 1997 when OTE lodged it, prior to the rejection in January 2003 of OTE’s claim in the Stanilite Electronics liquidation, no determination of its proof of debt in Stanilite Pacific’s liquidation had been made. While one can feel some sympathy with Selex’s complaint that the liquidators ought to have acted consistently in rejecting the proof of debt, with respect to their identifying which of the two Stanilite companies was the contracting party under the memorandum of understanding, the question here is somewhat different. It is whether it is possible to create a legally comprehensible claim that the liquidators owed OTE or Selex some identifiable duty of care that arose in the administration of Stanilite Electronics, requiring them or their successors, to come to a consistent outcome with some later determination of a proof of debt in Stanilite Pacific’s liquidation.
During the course of argument I sought to elucidate how it could be said that the original liquidators of Stanilite Electronics owed a duty of care to OTE or Selex, as a creditor of that company, to act consistently in determining its proof of debt with their or their successors’ determination of OTE’s proof of debt against Stanilite Pacific in respect of OTE’s inconsistent claims that both companies were its debtor under the memorandum of understanding.
Selex’s argument was that in circumstances of a liquidation of a group of companies, the common liquidators were bound to make concurrent, or nearly concurrent, determinations of proofs of debt in all liquidations, at whatever stage the various liquidations of different members of the group may be, at the same time as they were in the position to determine proofs in just one company. Selex contended that the liquidators also had a duty to then act consistently, even if the factual circumstances or instructions by officers of the different companies in the group, may have required different results. No doubt there may be consequences in law from a person’s failure to act consistently in certain situations. But here, it is necessary to consider the consequence of establishing that a liquidator owes a person claiming to be a creditor a legally enforceable duty of care outside the duty imposed on the liquidator by the Corporations Act and Corporations Regulations.
The basis for discerning a legal source for such a duty is not at all clear. No decided authority was cited by counsel in support of a proposition that a duty of care of the kind sought to be propounded has ever been found. Novelty, of course, is no reason to reject a pleading of a duty of care in a new factual context, cp: Agar v Hyde (2000) 201 CLR 552 at 577-578 [64]–[67] per Gaudron, McHugh, Gummow and Hayne JJ. Indeed, the common law has developed by responding to novel situations through the application of established principles to determine legal rights.
There are four critical matters that arise. The principal difficulty that I have is with the overall formulation of this new claim. It fails to integrate itself with the obligations imposed on liquidators in the Corporations Act and Corporations Regulations in relation to calling for and adjudicating on proofs of debt. Secondly, Selex refused to particularise its new allegations. Thirdly, the prospect of any recovery of substance in the liquidation of Stanilite Electronics is slight, given that a final distribution has occurred. Fourthly, Selex has given no explanation for its delay in seeking to appeal against the rejection of its proof of debt in Stanilite Electronics.
A creditor has a statutory remedy under reg 5.6.53. A creditor who is dissatisfied because a liquidator not dealing with his, her or its proof of debt timeously, can require the liquidator to make a decision promptly, failing which he, she or it can immediately ask the Court to deal with it. An appeal against the rejection of a proof of debt is an original proceeding that the Court hears de novo. The liquidator who defends his or her decision to reject a proof of debt no longer acts in a quasi-judicial capacity of adjudication on such a proof of debt, but rather as an adversary in the litigation defending the assets available for distribution against a liability which, according to the view he or she formed when adjudicating on the proof of debt, was not legally enforceable. He or she can defend the company’s assets against the creditor’s claim on such an appeal on any ground which the company might have defended the claim had it been sued by the creditor: Tanning Research Laboratories Incorporated v O’Brien (1990) 169 CLR 332 at 341 per Brennan and Dawson JJ, with whom, on this point, Toohey J agreed.
Here OTE or Selex had the right to seek from the Court an extension of time to appeal, under reg 5.6.54(2)(b), against the original liquidators’ rejection of their proof of debt in Stanilite Electronics’ liquidation at any time in the seven and a half years prior to the filing of the notice of motion on 1 September 2010. It was open to OTE and Selex to appeal against the rejection, or seek an extension of time to do so, pursuant to reg 5.6.54, from the moment the original liquidators rejected the Stanilite Electronics’ proof of debt. Similarly, it would have been open to OTE or Selex to apply to the Court had either required the liquidators to determine the Stanilite Pacific proof of debt within 28 days pursuant to reg 5.6.53. No doubt, if OTE or Selex had pursued either of those paths, the Court would have granted any extension of time necessary to bring an appeal and then would have determined it.
In addition, Selex chose not to provide any particulars of the circumstances of its new case. I am not, on the material before me, in a position to know of what, if any, complexities there were in these liquidations or how, in those circumstances any extra-statutory duty arguably could arise. Thus, it is not easy to comprehend how the common law or equity would superimpose on a liquidator another duty of care to act, at some particular time, in a group liquidation in relation to inconsistent claims brought by the same creditor in more than one of the liquidations, in circumstances where the creditor is aware that one of the creditor’s claims has been left unadjudicated. While it may be that there could be circumstances where such a duty may arise, I have not considered whether this proposition would be arguable in another factual context and I express no view on it.
The overarching purpose of the civil practice and procedure provisions of this Court are contained in Part VB of the Federal Court of Australia Act1976 (Cth). Part VB came into effect on 1 January 2010. Relevantly, the overarching purpose is for the Court, the parties and their lawyers to facilitate the just resolution of disputes according to law as quickly, inexpensively, and efficiently as possible. In achieving the overarching purpose, the Court must have regard, among others, to the objectives of the just determination of all proceedings before it, the efficient use of judicial and administrative resources available for the purposes of the Court, the efficient disposal of its overall case load, the disposal of all proceedings in a timely manner, and the resolution of disputes at a cost that is proportionate to the importance of the complexity of the matters in dispute.
I am of opinion that it would be futile and an inappropriate use of the resources of the Court to permit the amendments for joinder of claims against Stanilite Electronics and the liquidators of that company in respect of its proof of debt on the material before me. There is virtually no money available in that liquidation to pay any claims. Most of the money retained in the bank account consists of what is required to meet unpresented cheques for the final dividend due to the cheques’ payees. The balance is a small amount of remuneration for the liquidators. Even if any of that sum were available to meet a liability to Selex, if it were admitted to proof, having regard to the dividend rate of about 9.2 cents in the dollar, the distribution payable to Selex on its $1.7 million claim would be nominal. The size of such a dividend would not justify conducting substantive litigation in respect of the proposed claims.
DELAY
In addition, while the liquidator’s failures to deal with matters in respect of OTE’s and Selex’s claims for proof in Stanilite Pacific’s liquidation may be open to criticism by reason of delay, there has been no explanation given by Selex for its delay in raising these new matters in the proposed amendments.
Where a party seeks an extension of time in which to bring proceedings outside the time allowed, ordinarily, some explanation as to the circumstances for the making of that application by law should be given. Ordinarily, a party who seeks to have a discretion exercised in his, her or its favour, will wish, and ought, to explain, even if very briefly, why it is that he, she or it, did not avail themselves of a legal right within the time that it was able to be exercised without seeking some indulgence.
The issue of a failure to provide an explanation for an amendment application raises slightly different considerations. These matters have been discussed recently in Aon Risk Services Australia v Australian National University (2009) 239 CLR 175, see particularly at 214-215 [102]-[103] per Gummow, Hayne, Crennan, Kiefel and Bell JJ; Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 at 273-275 [38]-[45] per Keane CJ, Gilmour and Logan JJ, and Dye v Commonwealth Securities Limited (No 2) [2010] FCAFC 118 at [18]-[22] per Marshall, Flick JJ and myself.
In Dye (No 2) [2010] FCAFC 118 at [18] the Full Court noted the distinction between an application to amend in existing proceedings and an application to bring proceedings out of time, pursuant to a power to extend the time. The Court said that the discretion to grant an extension of time in which to commence proceedings is substantively different from the discretion to permit an amendment in existing proceedings. In the former situation, a proposed defendant or respondent has the benefit of an existing statutory bar to being subjected to litigation. In the latter, a defendant or respondent, is a party to an existing proceeding, the regulation of which is in the control of the Court, albeit subject to any overriding statutory constraint or procedural rule. The distinction between the nature of the discretions is that one involves altering a substantive right by permitting the bringing of a proceedings outside the ordinary limitation period, and the other involves regulating procedural rights and defining the nature of the controversy that the Court is engaged to quell: cf the analogous position discussed in Jackamarra v Krakouer (1998) 195 CLR 516 at 519-520 [4] per Brennan CJ, McHugh J, and 539-543 [66] per Kirby J; Dye (No 2) [2010] FCAFC 118 at [18].
In Aon 239 CLR at 214-215 [102]-[103], the plurality discussed a rule of the Supreme Court of the Australian Capital Territory that reflected similar principles to the overarching objective in Part VB of the Federal Court of Australia Act. Their Honours emphasised that such provisions assumed that some ill-effects would flow from the fact of delay in the bringing of amendment applications, but that assumption, of itself, would not prevent the parties dealing with its particular effects in their case in more detail. Gummow, Hayne, Crennan, Kiefel and Bell JJ pointed to the need, first, to identify the extent of the delay and the costs associated with it, together with both the prejudice that might reasonably be assumed to follow and that which was shown, as being factors that were to be weighed against the grant of permission to a party to alter its case. As their Honours emphasised, much might depend upon the point the litigation had reached relative to a trial when the application to amend is made. They said that there might be cases where it could properly be concluded that a party had had sufficient opportunity to plead their case, and it was too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. They said that the rule there made it plain that the extent and the effect of delay, together with costs, would be regarded as an important consideration in the exercise of the Court’s discretion and:
“…invariably, the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment.”
Their Honours went on to say that the fact that an explanation had been offered for the delay in raising the new point was relevant, and that generally speaking, where a party sought the exercise of a discretion in its favour and to the disadvantage of another party, an explanation would be called for from the seeker.
In Cement 187 FCR at 275-276 [51], the Full Court said that Aon 239 CLR 175 was not a one size fits all cases. In Dye (No 2) [2010] FCAFC 118 at [22] the Full Court drew on the principles of those two cases to observe that where the effect of an amendment would be to introduce a small, new issue that caused no substantive prejudice and did not adversely affect the conduct of the proceedings, a lack of, or a deficient, explanation for a party’s delay in raising the new issue may be a factor to be weighed but, ordinarily, it was hardly likely to be decisive.
As I have indicated, not only was there no explanation for its delay, but Selex’s solicitors refused to give any particulars of its proposed new allegations. That response was both entirely unhelpful and contrary to the obligations of parties under Pt VB to assist in the achievement of the overarching purpose, namely, to identify the real issues in dispute and to assist in their resolution: Clement 187 FCR at 274 [44].
Given the novelty, to say the least, of the claim in negligence involved in the proposed amendments, detailed particulars in support of that claim would have been helpful in elucidating precisely how Selex wished to put the matter should it be allowed to go to trial. Particulars would have enabled the liquidators and the Court to have a better appreciation of the nature and extent of the alleged duty and of the way in which evidence may be relevant in the case. True it is that, at this stage, I have not made directions for a trial, partly because I have been waiting for the discovery process to conclude so that I could then set the matter down. While no new discovery will be called for, this amendment appears to raise a significant, new, evidentiary field in addition to those already destined to be explored in this complex and difficult litigation.
The liquidators’ written submissions have gone into considerable detail about documents that, at the moment, they may wish to draw attention, or refer, to at a final hearing so as to suggest that no relevant duty or breach occurred. They suggested that one reason for Selex bringing its application to amend at the present time is that the process of discovery elicited documents, and an appreciation of documents, that make it clear that it is more likely that the contract, if there were one in the memorandum of understanding, was between OTE and Stanilite Electronics, rather than Stanilite Pacific. If that were the case, then because it did not seek to challenge the rejection of the Stanilite Electronics proof of debt earlier, Selex may have lost the opportunity to receive a dividend payment of $190,000.
I am of opinion that the application for the joinder of Stanilite Electronics and its liquidators to the proceedings is similar to an application to commence proceedings outside a limitation period in respect of a claim in negligence. The application for an extension of time under reg 5.6.54 is clearly an application to bring proceedings outside the limitation period. An application to amend so as to make a new claim against a currently existing party sued in one capacity, as liquidators of one company, where the new claims are made against them as liquidators of another company not being an existing party, substantively amounts to a new proceeding. It is not the same, in substance in the present circumstances, as the mere addition of a new claim against an existing party.
CONCLUSION
In the light of the complexity, together with the unsatisfactory formulation and particularization of the claim based on the allegation of a duty of care owed by the liquidators of Stanilite Electronics to OTE and Selex, the unexplained delay in bringing the application and the undefined additional issues that it may raise, I am not persuaded that it is in the interests of justice to grant the amendment application. Moreover, to do so would result in litigation that is likely to have the consequence that a company with no or almost no assets with which to pay the claim, would be made to defend it. The liquidators would have no resort to any further assets of Stanilite Electronics. This is unlike the situation in Austin Securities Ltd v Northgate & English Stores Ltd [1969] 1 WLR 529 on which Selex relied. There, as Lord Denning MR observed, the creditors to whom most of the assets realised in the winding up had been distributed, had given the liquidators an indemnity: Austin Securities [1969] I WLR at 533E-F, see too at 534G-H per Edmund-Davies LJ.
It would not be in the interests of justice to permit Selex to appeal against the rejection of Stanilite Electronics’ proof of debt nearly seven years after OTE was informed of that rejection and over a year after Selex began these proceedings. I am not satisfied that granting leave to make the proposed amendments would be consistent with the overarching purpose of the Court’s civil practice and procedure divisions. Selex has not only delayed in seeking this indulgence, it has refused to particularise its new claims so as to assist its opponents and the Court in understanding the full facts, matters and circumstances which might be involved in determining them.
For these reasons, I reject the application.
I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate:
Dated: 14 January 2011
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