Smolarek v Liwszyc
[2006] WASCA 50 (S)
•26 APRIL 2006
| JURISDICTION | : | SUPREME COURT OF WESTERN AUSTRALIA |
| TITLE OF COURT : | THE COURT OF APPEAL (WA) | |
| CITATION | : | SMOLAREK & ANOR -v- LIWSZYC & ORS [2006] WASCA 50 (S) |
| CORAM | : STEYTLER P MCLURE JA BUSS JA | ||
| HEARD | : 21 FEBRUARY 2006 | ||
| DELIVERED | : 29 MARCH 2006 | ||
| SUPPLEMENTARY | |||
| DECISION | : 26 APRIL 2006 | ||
| FILE NO/S |
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| BETWEEN | : HANNA SMOLAREK |
First Appellant
CHRISTINA SMOLAREK
Second Appellant
AND
DAVID LIWSZYC
First Respondent
GHEORGHE EMIL DUTA
Second Respondent
EZNUT PTY LTD (ADMINISTRATORS
APPOINTED) (ACN 102 508 789)
Third Respondent
ON APPEAL FROM:
| Jurisdiction | : | SUPREME COURT OF WESTERN AUSTRALIA |
| Coram | : HASLUCK J | ||
| Citation |
| ||
| File No |
| ||
| Catchwords: |
Practice and procedure - Rules of the Supreme Court 1971 (WA) - Order 42 r 2 - Principles relevant to exercise of discretion to antedate orders - Whether order of this Court allowing appeal should be antedated
Legislation:
Civil Judgments Enforcement Act 2004 (WA), s 3, s 11
Corporations Act 2001 (Cth), s 128, s 129, s 201 M, s 435A, s 435C(2),
s 435C(3), s 436A(1), s 440 D
Rules of the Supreme Court 1971 (WA), O 42 r 2
Supreme Court (Court of Appeal) Rules 2005 (WA), s 5
Result:
Application under O 42 r 2 to antedate order refused
Category: A
[2006] WASCA 50 (S)
Representation:
Counsel:
| First Appellant | : | In person |
| Second Appellant | : | In person |
| First Respondent | : | Mr G W Massey |
| Second Respondent | : | Mr G W Massey |
| Third Respondent | : | No appearance |
| Administrators of the Third Respondent | : | Mr J C Vaughan |
Solicitors:
| First Appellant | : | In person |
| Second Appellant | : | In person |
| First Respondent | : | Holborn Lenhoff Massey |
| Second Respondent | : | Holborn Lenhoff Massey |
| Third Respondent | : | No appearance |
| Administrators of the Third Respondent | : | Christensen Vaughan |
Case(s) referred to in judgment(s):
Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd (1997)
71 ALJR 814
Air Express Limited v Ansett Transport Industries (Operations) Pty Ltd (1981)
146 CLR 249
Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270
Belgian Grain and Produce Co Ltd v Cox & Co (France) Ltd [1919] WN 317
Bingham v England (1996) 17 WAR 226
Borthwick v Elderslie Steamship Company Ltd (No 2) [1905] 2 KB 516
Cameron v Cole (1944) 68 CLR 571
Hartley Poynton Ltd v Ali [2005] VSCA 53
Kazar v Duus (1998) 88 FCR 218
Kuwait Airways Corporation v Iraqi Airways Co (No 2) [1994] 1 WLR 985
Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1
WLR 1627
Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306
Wilde v Australian Trade Equipment Co Pty Ltd (1981) 145 CLR 590
[2006] WASCA 50 (S)
Case(s) also cited:
Battenberg v Union Club (2005) 189 FLR 206
Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220
Easterday v Western Australia (2005) 30 WAR 122
Isaacs v Robertson [1985] 1 AC 97
Kschammer v R W Piper and Sons Pty Ltd [2003] WASCA 298 (S)
Matheson v Commissioner of Main Roads (2001) WAR 269
Minister for Immigration Local Government and Ethnic Affairs v Taveli (1990)
20 ALD 315
Nicol v Allyacht Spars Pty Ltd (No 2) (1988) 165 CLR 306
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia
(1998) 195 CLR 1
Templeton v Hamersley Iron Pty Ltd [2001] WASCA 179
Toolan v Metropolitan (Perth) Passenger Transport Trust (2001) 25 WAR 1
White v White [1947] VLR 434
[2006] WASCA 50 (S)
JUDGMENT OF THE COURT
JUDGMENT OF THE COURT: On 29 March 2006 this Court delivered reasons for decision ([2006] WASCA 50) in an appeal against a number of interlocutory orders made by the primary Judge in proceedings brought by the first and second respondents against the appellants ([2005] WASC 199).
2 We decided, relevantly for present purposes, that the appeal should
be allowed, but only to the extent of setting aside the order made by the primary Judge for the reinstatement of the second respondent as a director.
3 When our reasons for decision were delivered, an issue arose as to
whether this Court's order, setting aside the primary Judge's order for the reinstatement of the second respondent as a director, should take effect from the date of its pronouncement by this Court or from the date of the primary Judge's order (namely, 2 September 2005). The appellants and the respondents have filed written submissions in relation to this issue pursuant to leave which this Court granted on 29 March 2006.
Order 42 r 2 of the Rules of the Supreme Court 1971 (WA) provides:
"(1) A judgment or order of the Court takes effect from the
day of its date.(2)
Such judgment or order shall be dated as of the day on which it is pronounced, given or made, unless the Court orders that it be dated as of some earlier or later day, in which case it shall be dated as of that other day."
Order 42 r 2 applies to orders of this Court on appeal. See r 5 of the
Supreme Court (Court of Appeal) Rules 2005 (WA).
In Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd (1997) 71 ALJR 814 at 816, McHugh J observed:
" … it needs to be understood that judgments given by courts are not provisional judgments until they are subsequently confirmed by appellate courts. They create legal rights and duties. A party which is entitled to the benefit of a judgment is also entitled to enforce it …"
6 A decision of a Judge of a superior court is valid unless and until it is
set aside. See Cameron v Cole (1944) 68 CLR 571 at 590. If such a decision has not been set aside, and a stay has not been granted, it is a
[2006] WASCA 50 (S)
JUDGMENT OF THE COURT
lawful judgment and action taken in reliance upon it is lawful. See Wilde
v Australian Trade Equipment Co Pty Ltd (1981) 145 CLR 590 at 603.7 In Borthwick v Elderslie Steamship Company Ltd (No 2) [1905] 2 KB 516, consideration was given to the date on which a judgment allowing an appeal should take effect in the context of a Rule of Court analogous to O 42 r 2. Collins MR said, at 519:
"The judgment is not ipso facto antedated by reason that it is substituted for the judgment in the Court below. The power to antedate ought, in my opinion, only to be used on good ground shewn …"
Romer LJ said, at 521:
"When a plaintiff has failed in the Court below so that his action has been dismissed, if he succeeds on appeal it cannot, I think, be properly said that the judgment of the Court of Appeal must be regarded for all purposes as if it had been the judgment given by the Judge in the Court below. The judgment in favour of the plaintiff must be treated as of the date on which it was given in the Court of Appeal, subject to the right of that Court to antedate its judgment. That right should, in my opinion, be exercised with caution."
See also Belgian Grain and Produce Co Ltd v Cox & Co (France) Ltd [1919] WN 317; Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 318.
In Bingham v England (1996) 17 WAR 226 at 234, Kennedy ACJ said, in relation to O 42 r 2:
"Traditionally, the power to make an order nunc pro tunc has been exercised cautiously and only where there has been something exceptional in the facts to justify the making of such an order."
His Honour noted the decision in Kuwait Airways Corporation v Iraqi Airways Co (No 2) [1994] 1 WLR 985, in which the Court of Appeal evinced a greater willingness to make such orders. Kuwait Airways was, however, overruled subsequently by the House of Lords in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627.
[2006] WASCA 50 (S)
JUDGMENT OF THE COURT
9 In Hartley Poynton Ltd v Ali [2005] VSCA 53 Ormiston JA (with whom Buchanan and Eames JJA agreed) reviewed the authorities relating to the power to antedate judgments and orders, and concluded, at [73]:
" … with a few minor exceptions, nunc pro tunc judgments and orders, … have not been granted to alter the substantive rights of parties but only to overcome procedural irregularities and difficulties. …"
10 As we mentioned in our reasons for decision delivered on 29 March
2006, the third respondent has been under voluntary administration pursuant to Pt 5.3A of the Corporations Act 2001 (Cth) ("the Act") since 27 January 2006. This Court granted leave, under s 440D of the Act, for the appeal to proceed against the third respondent.
11 There is evidence before this Court that the administrators, Brian
Keith McMaster and Oren Zohar, were appointed pursuant to resolutions passed by the first and second respondents at a meeting of the board of directors of the third respondent held on 27 January 2006. It appears that the first appellant was not in attendance at the meeting.
12 On 8 February 2006, Mr McMaster and Mr Zohar, in their capacities
as administrators of the third respondent, commenced proceedings in the Supreme Court (COR 16 of 2006) against the third respondent (as first defendant), the first appellant (as second defendant), the second appellant (as third defendant) and the first and second respondents (as fourth defendants). Mr McMaster and Mr Zohar sought relief, as follows:
"A declaration in accordance with s 447C(2) of the Corporations Act 2001 that the plaintiffs were validly appointed as administrators of the first defendant under s 436A of the Corporations Act 2001 on 27 January 2006 despite doubts, on the following specified grounds as raised by the second defendant (a director of the first defendant), about whether the appointment is valid, namely, that the resolution of the first defendant's directors made 27 January 2006 was invalid in that:
(1) the resolution was outside the powers of the fourth defendants as directors of the first defendant as they were mere caretakers appointed pursuant to an interlocutory order of this Honourable Court made 2 September 2005 in action COR 144 of 2005 which order is the subject of an appeal;
[2006] WASCA 50 (S)
JUDGMENT OF THE COURT
(2) the resolution was not bona fide and genuinely formed; (3) the resolution was made for an improper purpose; (4) the second defendant was not given notice of the meeting of the first defendant's directors at which the resolution was passed. Alternatively, an order in accordance with s 447A(1) of the Corporations Act that Part 5.3A of the Corporations Act 2001 is to operate in relation to the first defendant as if the plaintiffs had been validly appointed as administrators of the first defendant on 27 January 2006 under s 436A of the Corporations Act 2001".
13 COR 16 of 2006 was tried before Simmonds J on 1 and 2 March
2006. The learned Judge reserved judgment. It has not yet been
delivered.14 Part 5.3A of the Act is headed "Administration of a Company's
Affairs with a View to Executing a Deed of Company Arrangement". Its object is said, by s 435A, to be:
"… to provide for the business, property and affairs of an
insolvent company to be administered in a way that:
(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company."
As Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ said in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at 274 – 275 [2]:
"Part 5.3A contains elaborate and detailed provisions about how and when the administration of a company is to begin and end (ss 435C, 436A, 436B, 436C), about the consequences of administration, and about how and when a company may pass from administration to the making of a deed of company arrangement, or into liquidation (ss 439C, 445E and Div 12 of
[2006] WASCA 50 (S)
JUDGMENT OF THE COURT
Pt 5.3A (ss 446A-446B)) or back into the hands of its directors
(s 439C)."
16 The system of voluntary administration embodied in Pt 5.3A of the
Act gives effect to public policy considerations in relation to the handling of the affairs of companies which are or are likely to become insolvent. See Justice R Austin and R Brown, "Voluntary Administrators as Fiduciaries" in Key Developments in Corporate Law and Trusts Law (I Ramsay, editor), 2002, at pages 182 – 183, where it is said:
"[The Australian system of voluntary administration] was conceived as a simple and efficient method for an expert assessment to be made of the position and prospects of companies in, or at the brink of, insolvency. It permits an expert insolvency practitioner to implement a workout scheme when it is feasible to do so, without needing to obtain court approval, while offering a safe harbour from directors' liability.
The system depends crucially on the competence and independence of the insolvency practitioners who are available for appointment as voluntary administrators. The administrator is required to review the business and report to creditors, comparing any proposed workout scheme with the alternatives of liquidation and the return of the company to its directors. In doing so, the administrator must consider the creditors' prospects of recovering assets through legal proceedings in the course of liquidation. Frequently a focus of attention will be the conduct of the directors, and their potential liability for breach of duty and insolvent trading. Questions will also arise about unfair preferences to individual creditors."
Section 435C(2) of the Act provides that the normal outcome of the administration of a company is that:
(a)
a deed of company arrangement is executed by the company and the deed's administrator; or
(b)
the company's creditors resolve under section 439C(b) that the administration should end; or
(c)
the company's creditors resolve under section 439C(c) that the company be wound up.
[2006] WASCA 50 (S)
JUDGMENT OF THE COURT
18 Section 435C(3) provides, however, that the administration of a
company may also end in other ways specified in the subsection. In particular, by s 435C(3)(a), the administration of a company may end because the Court orders, under s 447A or otherwise, that the administration is to end, for example, because the Court is satisfied that the company is solvent.
Section 436A(1) empowers a company, by writing, to appoint an administrator of the company if the board has resolved to the effect that:
(a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and (b) an administrator of the company should be appointed.
The directors must form a genuine opinion in relation to the company's insolvency. Also, the power of a company to appoint an administrator must be exercised in furtherance of the object of Pt 5.3A, as set out in s 435A. If the power is exercised for an ulterior or extraneous purpose, the exercise of the power will be invalid. See Kazar v Duus (1998) 88 FCR 218 at 233.
20 In our opinion, this Court's order, setting aside the primary Judge's
order for the reinstatement of the second respondent as a director, should take effect from the date of its pronouncement by this Court and not from the date of the primary Judge's order. We are of this opinion for these reasons:
(a)
The appointment of Mr McMaster and Mr Zohar as administrators of the third respondent militates against the antedating of this Court's order. If the third respondent is or is likely to become insolvent, it is in the interests of the third respondent's creditors and members, and also in the public interest, that the third respondent's business, property and affairs be administered in the manner contemplated by Pt 5.3A. If the third respondent is solvent, an application may be made to the Court for an order under s 435C(3)(a) that the administration be brought to an end. If the appointment of Mr McMaster and Mr Zohar as administrators of the third respondent was procured in consequence of an improper exercise of power by the first and second respondents, as alleged by the first appellant in COR 16 of 2006, the appointment
[2006] WASCA 50 (S)
JUDGMENT OF THE COURT
will be invalid. If any such improper exercise of power by the first and second respondents constituted a breach of their duties to the third respondent, the third respondent may recover from them any loss or damage it has suffered by reason of that improper exercise of power.
(b)
Notwithstanding ss 128, 129 and 201M of the Act, the antedating of this Court's order may affect the accrued rights of third parties who have dealt with the third respondent (including, in particular, Mr McMaster and Mr Zohar in their capacity as administrators), which rights may depend for their efficacy upon the second respondent's status as a director pursuant to the primary Judge's order.
(c)
The appellants have alleged in their submissions that the first and second respondents, in their capacity as directors of the third respondent, abused their powers and breached their duties by resolutions allegedly passed by them at a meeting of the directors of the third respondent held on 29 October 2005. The first and second respondents deny these allegations. If the first and second respondents have abused their powers or breached their duties, as alleged by the appellants or at all, the third respondent will not be without a remedy. For example, the third respondent may obtain declaratory relief in relation to the alleged abuse of power and compensation for any loss or damage suffered in consequence of the alleged breach of duty. Plainly, whether there is any substance in the appellants' allegations cannot be determined by this Court in the context of an argument as to the orders which this Court should make in the appeal.
(d)
Any loss or damage suffered by the appellants which flows directly from the primary Judge's order, and which could have been foreseen when the order was made, should be recoverable from the first and second respondents under their undertaking as to damages. See Air Express Limited v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 at 266 - 267.
[2006] WASCA 50 (S)
JUDGMENT OF THE COURT
(e) There is no procedural irregularity or difficulty to be overcome. (f) The decision of the learned Judge was not provisional; it was valid, unless and until set aside, and created legal rights and duties. (g) The power under O 42 r 2 to antedate orders is to be exercised cautiously, and the appellants have not established anything exceptional in the facts to justify antedating this Court's order. The appointment of Mr McMaster and Mr Zohar as administrators of the third respondent is not "exceptional" for this purpose. Indeed, for the reasons we have given in par 20(a) and (b) above, the fact of their appointment militates against (and not in favour of) the antedating of this Court's order.
21 In the circumstances, the order of this Court, setting aside the order
made by the primary Judge for the reinstatement of the second respondent as a director, should take effect from the date on which this Court's order is pronounced.
22 Finally, we should mention that s 11(1) of the Civil Judgments Enforcement Act 2004 (WA) does not apply in that the order of this Court, setting aside the primary Judge's order for the reinstatement of the second respondent as a director, is not a "judgment" as defined in s 3 of the Act. In any event, for the reasons we have given in relation to O 42 r 2, we would not have antedated this Court's order pursuant to s 11(1)(b).
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