Smith v Offermans

Case [2015] QCA 55

SUPREME COURT OF QUEENSLAND

CITATION:

Smith v Offermans [2015] QCA 55

PARTIES:

JEFFREY ALEXANDER SMITH
(applicant/appellant)
v
DENNIS JOHN OFFERMANS
(respondent)

FILE NO/S:

Appeal No 7910 of 2014
DC No 117 of 2014

DIVISION:

Court of Appeal

PROCEEDING:

Application for Leave s 118 DCA (Civil)

ORIGINATING COURT:


District Court at Townsville

DELIVERED ON:

14 April 2015

DELIVERED AT:

Brisbane

HEARING DATE:

17 March 2015

JUDGES:

Margaret McMurdo P, Morrison and Philippides JJA
Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

1.   Leave be granted to appeal.

2.   The appeal be allowed.

3.   The orders of 25 July 2014 be set aside and, in lieu thereof, order that the application for summary judgment filed 4 July 2014 be dismissed.

4.   The respondent pay the appellant's costs of and incidental to the application for summary judgment and the application for leave to appeal and the appeal.

CATCHWORDS:

APPEAL AND NEW TRIAL – PROCEDURE – QUEENSLAND – WHEN APPEAL LIES – FROM DISTRICT COURT – BY LEAVE OF COURT – where the applicant was a director of a Company placed into liquidation – where the respondent liquidator obtained summary judgment against the applicant in relation to an insolvent trading claim – where the applicant sought leave to appeal – whether the primary judge erred in finding no real prospect of defending the claim and no need for a trial

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – OFFICERS OF INSOLVENT CORPORATIONS – DUTY TO PREVENT INSOLVENT TRADING – where the Company had a payment plan with the Deputy Commissioner of Taxation (DCT) as at 28 February 2012 – where there was evidence that payments were made under the payment plan until June 2012 – whether the Company was insolvent at 28 February 2012 given the payment plan then in existence – whether the alleged insolvent trading debt was proved to have been incurred during the alleged period of insolvency – whether it was established that the DCT was shown to have suffered loss or damage in the amount alleged because of the Company’s insolvency – where the liquidator did not depose to that matter and there was evidence of some minor recovery by the liquidator

Corporations Act 2001 (Cth), s 95A, s 588G, s 588M
Uniform Civil Procedure Rules 1999 (Qld), r 166(4), r 292

ACI Operations Pty Ltd v Bawden[2002] QCA 286, cited
Australian Beverage Distributors v The Redrock Co (2008) 26 ACLC 74; [2008] NSWSC 3, considered
Cape York Airlines Pty Ltd v QBE Insurance (Australia) Limited [2009] 1 Qd R 116; [2008] QSC 302, cited
Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232; [2005] QCA 227, cited
Edenden v Bignell [2007] NSWSC 1122, cited
In the matter of Ashington Bayswater Pty Limited (in liq) [2013] NSWSC 1008, considered
LCR Mining Group Pty Ltd v Ocean Tyres Pty Ltd[2011] QCA 105, cited
Pickering v McArthur

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AGLC
Smith v Offermans [2015] QCA 55
Case
[2015] QCA 55
Decision Date

CaseChat Overview and Summary

In the case of Smith v Offermans, Jeffrey Smith, a former director of Reotech Services Pty Ltd, sought leave to appeal a decision of the District Court of Queensland that granted summary judgment to Dennis Offermans, the liquidator of Reotech Services, in relation to an insolvent trading claim. The Court of Appeal was required to determine whether the primary judge had erred in finding no real prospect of defending the claim and no need for a trial. The appeal raised significant points of law concerning the interpretation of the Corporations Act 2001 (Cth) and the commercial ramifications for directors generally. The Court of Appeal found that the primary judge had indeed erred in his findings, leading to a substantial injustice that warranted correction.

The key legal issues that the Court of Appeal had to decide included whether the Company was insolvent at the relevant time, whether the alleged insolvent trading debt was incurred during the period of insolvency, and whether the Deputy Commissioner of Taxation had suffered loss or damage as alleged. The Court of Appeal held that the primary judge's findings on these matters were incorrect, leading to the conclusion that leave to appeal should be granted and the appeal allowed. The Court set aside the orders of the District Court and dismissed the application for summary judgment, while also directing that the respondent pay the appellant's costs of the appeal and related proceedings.

Orders

Orders of the court

1. Leave be granted to appeal.

2. The appeal be allowed.

3. The orders of 25 July 2014 be set aside and, in lieu thereof, order that the application for summary judgment filed 4 July 2014 be dismissed.

4. The respondent pay the appellant's costs of and incidental to the application for summary judgment and the application for leave to appeal and the appeal.

Background

Background to the litigation

PHILIPPIDES JA: Background The applicant, Jeffrey Smith, was, at all relevant times, a director of Reotech Services Pty Ltd (the Company), which was placed into liquidation. The respondent, Dennis Offermans, was appointed as liquidator of the Company and brought a proceeding as first plaintiff (together with the Company as second plaintiff) against the applicant in the District Court. The proceeding included a claim, pursuant to s 588M(2) of the Corporations Act 2001 (Cth) (the Act) in the sum of $138,221 for insolvent trading, in respect of which summary judgment was granted. The applicant seeks leave to appeal against that decision. Considerations relevant to the exercise of the discretion in favour of granting leave include whether an important point of law or question of general public importance is involved or whether an appeal is necessary to correct a substantial injustice to the applicant and there is a reasonable argument that there is an error to be corrected (ACI Operations Pty Ltd v Bawden [2002] QCA 286; Smith v Ash [2011] 2 Qd R 175). In the present case, leave was sought on the basis that the appeal raises important points of law and matters of general significance concerning s 588M(2) of the Act, having commercial ramifications for directors generally. It was also submitted that leave ought to be granted because the decision was attended by sufficient doubt to warrant review and, additionally, that it was necessary to correct a substantial injustice arising from errors of law made by the primary judge. In that regard, it was submitted that the present matter was only one component of litigation which remained to be determined, in circumstances where the applicant raised as a concern his inability to meet the judgment awarded from liquid funds. The respondent, on the other hand, contended that the issues raised by the applicant only concerned factual findings made by the primary judge in the course of exercising a discretion, which was not shown to have miscarried. Nor was any important principle of law or justice involved or any matter of general importance raised. The application for leave to appeal was heard on the basis that the substantive grounds of appeal were also argued. In order to assess whether leave should be granted, it is necessary to consider the proposed grounds of appeal. In my view, for the reasons that follow, when the grounds of appeal are considered, it is evident that leave should be granted.The insolvent trading claim In respect of the insolvent trading claim, it was relevantly alleged in the statement of claim that:·the Company was placed into liquidation pursuant to a Court order made on 4 October 2013 and in the process of being wound up (paras 2 and 3);·the Company was insolvent for the period 28 February 2012 to 4 October 2013 in that it was unable to pay its debts for that period (para 4);·there were reasonable grounds for suspecting that the Company was so insolvent (para 5);·the applicant was aware for the period 28 February 2012 to 4 October 2013, that there were reasonable grounds for suspecting that the Company was insolvent as alleged (para 6) and, alternatively, a reasonable person in the applicant’s position would have been so aware (para 7);·during the period from 28 February 2012 to 4 October 2013, the Company incurred a debt to the Deputy Commissioner of Taxation (DCT) for unremitted taxation in the amount of $138,211 (the insolvent trading debt) (para 9);·the applicant failed to prevent the Company from incurring the insolvent trading debt in contravention of s 588G of the Act (paras 10 and 11);·the DCT suffered loss and damage in relation to the insolvent trading debt because of the Company’s insolvency, in that, as at 5 May 2014, no return could be expected in relation to the insolvent trading debt (para 12);·the insolvent trading debt was wholly or partly unsecured (para 13);·in the circumstances, the respondent was entitled to recover from the applicant as a debt due to the Company and pursuant to s 588M(2) of the Act, an amount equal to the amount of the loss or damage suffered by the DCT (para 14); and·the amount of the loss or damage suffered by the DCT was $138,221 (para 15).

Evidence

Evidence Before The Court

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Decision

Reasons for decision

For the reasons above there are errors in the primary judge’s findings. The question remaining is whether an appeal is necessary to correct a substantial injustice. For the reasons given by Philippides JA in paragraphs [66]-[67] that question should be answered in the affirmative.Conclusion For the reasons expressed above I agree with the orders proposed by Philippides JA. PHILIPPIDES JA: Background The applicant, Jeffrey Smith, was, at all relevant times, a director of Reotech Services Pty Ltd (the Company), which was placed into liquidation. The respondent, Dennis Offermans, was appointed as liquidator of the Company and brought a proceeding as first plaintiff (together with the Company as second plaintiff) against the applicant in the District Court. The proceeding included a claim, pursuant to s 588M(2) of the Corporations Act 2001 (Cth) (the Act) in the sum of $138,221 for insolvent trading, in respect of which summary judgment was granted. The applicant seeks leave to appeal against that decision. Considerations relevant to the exercise of the discretion in favour of granting leave include whether an important point of law or question of general public importance is involved or whether an appeal is necessary to correct a substantial injustice to the applicant and there is a reasonable argument that there is an error to be corrected (ACI Operations Pty Ltd v Bawden [2002] QCA 286; Smith v Ash [2011] 2 Qd R 175). In the present case, leave was sought on the basis that the appeal raises important points of law and matters of general significance concerning s 588M(2) of the Act, having commercial ramifications for directors generally. It was also submitted that leave ought to be granted because the decision was attended by sufficient doubt to warrant review and, additionally, that it was necessary to correct a substantial injustice arising from errors of law made by the primary judge. In that regard, it was submitted that the present matter was only one component of litigation which remained to be determined, in circumstances where the applicant raised as a concern his inability to meet the judgment awarded from liquid funds. The respondent, on the other hand, contended that the issues raised by the applicant only concerned factual findings made by the primary judge in the course of exercising a discretion, which was not shown to have miscarried. Nor was any important principle of law or justice involved or any matter of general importance raised. The application for leave to appeal was heard on the basis that the substantive grounds of appeal were also argued. In order to assess whether leave should be granted, it is necessary to consider the proposed grounds of appeal. In my view, for the reasons that follow, when the grounds of appeal are considered, it is evident that leave should be granted.The insolvent trading claim In respect of the insolvent trading claim, it was relevantly alleged in the statement of claim that:·the Company was placed into liquidation pursuant to a Court order made on 4 October 2013 and in the process of being wound up (paras 2 and 3);·the Company was insolvent for the period 28 February 2012 to 4 October 2013 in that it was unable to pay its debts for that period (para 4);·there were reasonable grounds for suspecting that the Company was so insolvent (para 5);·the applicant was aware for the period 28 February 2012 to 4 October 2013, that there were reasonable grounds for suspecting that the Company was insolvent as alleged (para 6) and, alternatively, a reasonable person in the applicant’s position would have been so aware (para 7);·during the period from 28 February 2012 to 4 October 2013, the Company incurred a debt to the Deputy Commissioner of Taxation (DCT) for unremitted taxation in the amount of $138,211 (the insolvent trading debt) (para 9);·the applicant failed to prevent the Company from incurring the insolvent trading debt in contravention of s 588G of the Act (paras 10 and 11);·the DCT suffered loss and damage in relation to the insolvent trading debt because of the Company’s insolvency, in that, as at 5 May 2014, no return could be expected in relation to the insolvent trading debt (para 12);·the insolvent trading debt was wholly or partly unsecured (para 13);·in the circumstances, the respondent was entitled to recover from the applicant as a debt due to the Company and pursuant to s 588M(2) of the Act, an amount equal to the amount of the loss or damage suffered by the DCT (para 14); and·the amount of the loss or damage suffered by the DCT was $138,221 (para 15).

Ratio Decidendi

Legal Principle Established

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