Stephenson v ACN 000 007 492 Limited

[2009] FCA 706

FEDERAL COURT OF AUSTRALIA

Stephenson v ACN 000 007 492 Limited [2009] FCA 706

AARON GEOFFREY STEPHENSON v ACN 000 007 492 LIMITED
ROBERT WILLIAM JOSEPH ELLIOTT v ACN 000 007 492 LIMITED

NSD 1678 of 2008
NSD 186 of 2009

PERRAM J
18 JUNE 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1678 of 2008 NSD 186 of 2009

BETWEEN:

AARON GEOFFREY STEPHENSON
Applicant

AND:

ACN 000 007 492 LIMITED
Respondent

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
Intervener

BETWEEN:

ROBERT WILLIAM JOSEPH ELLIOTT
Applicant

AND:

ACN 000 007 492 LIMITED
Respondent

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
Intervener

JUDGE:	PERRAM J
DATE OF ORDER:	18 JUNE 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The Australian Prudential Regulation Authority be joined as a party to proceeding NSD 1678/2008.

2.The Australian Prudential Regulation Authority be joined as the second respondent to proceeding NSD 186/2009.

3.Leave be granted to APRA to file a cross-claim in the proceeding NSD 186/2009 in the terms provided to his Honour.

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 eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1678 of 2008 NSD 186 of 2009

BETWEEN:

AARON GEOFFREY STEPHENSON
Applicant

AND:

ACN 000 007 492 LIMITED
Respondent

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
Intervener

BETWEEN:	ROBERT WILLIAM JOSEPH ELLIOTT Applicant
AND:	ACN 000 007 492 LIMITED Respondent

JUDGE:	PERRAM J
DATE:	18 JUNE 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. There are before the Court two proceedings.  The first is a proceeding brought by Mr Stephenson against a company currently known as ACN 000 007 492 Limited, which was formerly called Rural & General Insurance Limited (“RGI”).  In that proceeding Mr Stephenson seeks to have removed from office the current administrators who are administering a deed of company arrangement to which RGI is currently subject.

2. The applicant in the second proceeding is one of those administrators and he seeks to have this Court approve their remuneration.  The present question which arises concerns, broadly speaking, the issue of whether the Australian Prudential and Regulation Authority (“APRA”) should be permitted to intervene, be joined as a party or otherwise be involved in both applications.

3. The proceedings arise in a way which is not necessarily susceptible of a straight-forward statement.  However, evidence was given on both applications from Ms Balding who is a senior manager of enforcement at APRA.  She gave evidence which indicated that the company, RGI, was formerly an insurance company.  Prior to 2 July 2002 it carried on business as a general insurer authorised under the Insurance Act 1973 (Cth) (“the Act”). In 2001 the General Insurance Reform Act 2001 (Cth) was passed, as a consequence of which RGI was required to apply for reauthorisation to carry on its business as a general insurer and to obtain that authorisation prior to 1 July 2002. RGI failed to obtain reauthorisation within the time in which it was required to do so.

4. On 2 July 2002, under some transitional arrangements, APRA authorised the respondent to carry on business as a general insurer for the purpose of discharging liabilities under contracts of insurance entered into by it prior to 2 July 2002.  Putting the matter colloquially, APRA authorised RGI effectively to carry on business as a general insurer but only in run-off.  The reason, I was informed, that APRA took that position in relation to RGI was that it had significant and considerable concerns as to the regularity and competence of the manner in which RGI was being conducted.

5. Consonant with those concerns, at the same time that APRA permitted RGI to carry on business only in run-off, it also imposed, pursuant to s 13 of the Act, various conditions on RGI and on the way in which it was to carry on its business. It would be fair to say that following the imposition of that form of discipline upon RGI APRA remained dissatisfied with the way in which RGI was being managed. Consequently, following the receipt of a report by an inspector appointed pursuant to s 52 of the Act, APRA then moved to wind up RGI. It did this on 9 September 2003 by means of proceedings which were filed in this Court. Prior to the conclusion of those winding up proceedings, the directors of RGI resolved to appoint administrators to it, which took place on 12 February 2004.

6. On 12 March 2004 a deed of company arrangement (“DOCA”) was entered into between RGI and its creditors.  The present administrators, Mr Elliott and Mr McDonald, were appointed as the deed administrators.  Since that time the business of RGI in run-off has been administered, as might naturally be expected, by the administrators.  Mr Stephenson is a person who was formerly involved in the day to day administration of RGI prior to the appointment of the administrators and the execution of the DOCA.

7. Not only was he involved, it would appear, in a management position but additionally he was also a shareholder in the company.  The stage is then set to understand the issues which arise between the parties.  The administrators require the approval of this Court for their remuneration.  They can also obtain that permission from other sources but for reasons which will become apparent there has been a necessity that they apply to this Court.  In their remuneration application the administrators seek the Court’s approval to an amount of remuneration in the sum of $470,663.20 together with GST thereon.  That application for approval would appear to have excited disharmony with Mr Stephenson.

8. It is not entirely obvious on this application but I assume Mr Stephenson, possibly in his capacity as a creditor arising from his former employment, but more likely from his capacity as a shareholder of the company, is concerned that such a significant sum of remuneration will effectively rebound upon him in economic terms.  He has therefore commenced a proceeding seeking to remove the administrators from office and to replace them with other persons.  I should say for completeness that one of the conditions imposed by APRA was a condition which prohibited RGI from expending in a period of seven days more than $10,000 without obtaining the approval of APRA.

9. By interlocutory applications made in March 2009, APRA has sought to be made a party to both proceedings.  It wishes to be made a party to Mr Stephenson’s application to remove the administrators because one of the conditions which APRA imposed upon RGI was a condition that would have the effect of preventing Mr Stephenson from being involved in the management of RGI.  The evidence suggests that the deed administrators have in fact used the services of a company controlled by Mr Stephenson to effect the day to day operation of its business.

10. APRA is concerned that if the administrators are removed that any new administrator should consent to an arrangement that prevents Mr Stephenson being further involved in the administration of the company.  That is APRA’s professed reason for participation in Mr Stephenson’s proceedings.

11. Insofar as the proceeding brought by the administrators for approval of their remuneration is concerned, APRA says that it has voiced with the administrators concerns relating to the size and extent of their remuneration. This is not a generalised concern, rather APRA notes that in the evidence in support of the application for approval of the remuneration brought by the deed administrators, there are significant references, as might naturally be expected, to work done by those administrators in compliance with certain requirements of APRA, arising from the Act itself.

12. Mr Wheelhouse submitted that as a regulator APRA had a legitimate interest in ensuring that the requirements of its legislation and the efficacy of its legislative regime were preserved and, to the extent necessary, monitored.  Mr Anderson, who appeared for the deed administrators, argued that it was not possible for APRA to be joined as a respondent to the remuneration application because of the effect of the Federal Court (Corporations) Rules and in particular r 9.2.  Rule 9.2(2) provides that any application in respect of an approval of remuneration should be served on a series of persons.  APRA does not appear on the list.

13. Mr Anderson further noted that those persons who do appear on the list are of a kind which indicate an intention on the part of those who wrote the rules that lesser creditors, if I might put it that way, should not be able to get themselves involved in the remuneration proceedings.  I do not think that r 9.2 prevents this Court from joining, pursuant to O 6 r 8, a party to a remuneration application where that party has standing.  It is common practice for there to exist applications in this Court in which there are no respondents but it would be surprising indeed to think that where the Court were otherwise satisfied that a respondent had standing to resist an application being made, that the mere happenstance that there were only applicants provided for by the rule creating the application should mean that the operation of O 6 r 8 was thereby frustrated.

14. In my opinion APRA has an interest in the administration of the Act and a further interest in ensuring that the conditions which it has imposed upon RGI are enforced. There was a time at which it was thought only the Attorney-General could enforce a statutory regime but it has been established, particularly in the context of injunctions by regulators to enforce their regimes, that a regulator does have standing with respect to the enforcement of its own scheme. It seems to me to follow that APRA has standing to ensure that its regime is complied with when it comes to the question of the approval of the remuneration of the deed administrators.

15. Mr Anderson referred to the decision of this Court in ReStockford Ltd (2004) 140 FCR 424. In that case Finkelstein J was dealing with an application brought by the joint administrators of the Stockland Group with respect to the remuneration. His Honour held (at 428 [4]):

    The administrator is entitled to “such remuneration as is fixed by resolution of the company’s creditors” or, if they do not fix the remuneration then “such remuneration as the Court fixes”: s 449E(1).  If the administrator’s remuneration is fixed by the creditors their decision may be reviewed by the Court on the application of the administrator or an officer, member or creditor of the company: s 449E(2)(a).  There is a surprising gap.  ASIC has no standing to apply for a review.

16. I do not regard that statement as having any impact on the present situation.  It is clearly couched in terms of the standing necessary for the bringing of an application and is not addressed to the question which arises here, which is the standing necessary for joinder as a respondent under O 6  r 8.

17. Accordingly, it seems to me that APRA should be joined as a respondent to the remuneration application.  One issue which arose in the course of the application was that quite apart from APRA’s entitlement to be heard on the quantum of the remuneration which the Court might ultimately award, it was also concerned to ensure that the condition which it has imposed on RGI – that no more than $10,000 in any continuous period of seven days be paid out by RGI – did not conflict with any order made by this Court approving the remuneration of the administrators.

18. Originally as the application was made it was suggested that the Court could simply decline in some form to accede to remuneration of more than $10,000 within seven days.  There may be some difficulties with that view.   In the end, Mr Wheelhouse sought to adumbrate a cross-claim by APRA in the remuneration proceeding which would have the effect of seeking relief which restrains RGI from paying remuneration to the administrators contrary to the conditions of authorisation imposed on 11 July 2002 and 10 September 2002.  In my opinion that cross-claim is an appropriate procedural step to take and I will make an order granting leave to APRA to file that cross-claim.

19. I then turn to the removal proceeding.  In the removal proceeding Mr Stephenson’s position was ultimately that he neither consented to nor opposed the application.  The deed administrators adopted a similar position in the question of whether the removal should take place but with the caveat that APRA should be joined to the proceeding as an applicant rather than a respondent.  For reasons I have already given it is appropriate that APRA be joined as a party to the proceeding.  It has an interest in ensuring that a condition be imposed upon any new administrator barring Mr Stephenson’s further involvement in the company.

20. On the question of whether APRA should be an applicant or a respondent Mr Anderson quite properly pointed out that effectively APRA’s position was that it would be seeking the appointment of a person to replace the administrators – as it was not really in dispute that the administrators wished to retire – and hence APRA should be seen as a moving party.  Order 6 r 2 deals with the joinder of parties generally.  It provides that two or more persons may be joined as applicants where, if a separate proceeding were brought by each of them some common question of law or of fact would arise in all of the proceedings.  The rule also requires that all rights to relief claimed in the proceeding are in respect of or arise out of the same transaction or series of transactions.

21. I do not think that APRA should be joined as a joint applicant with Mr Stephenson.  This is for two reasons.  The first is that the interest which APRA seeks to vindicate by its participation in these proceedings is its interest as a regulator.  The interest Mr Stephenson seeks to vindicate and to protect is his interest as a creditor and shareholder.  It thus follows that the interests which are underpinning the respective positions of the two parties are different.  That provides a sufficient reason to prevent joinder as an applicant.  It also seems to me that the consent of Mr Stephenson would be necessary to take that course, and further that there would be a requirement that both Mr Stephenson and APRA then be represented by the same solicitor, which seems to me to be both a surreal and unreasonable position to adopt.

22. In that circumstance it is appropriate that APRA be joined as a respondent to those proceedings rather than as an applicant.

23. Mr Stephenson applied for an order that costs be reserved.  The other parties are of the opinion that there should be no order as to costs.  It is difficult to understand how the determination in the substantive way of the proceedings will throw any more light on what the appropriate costs order is this morning.  It seems to me the appropriate order is that there be no order as to costs.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate:

Dated:        1 July 2009

Solicitors for the Applicant:	ERA Legal
Counsel for the Respondent:	Boyd-Boland Law
Counsel for the Intervener:	Mr JS Wheelhouse SC

Date of Hearing:	18 June 2009
Date of Judgment:	18 June 2009