Trans Pacific Investment Corporation Pty Ltd v Rusty Rees Pty Ltd

[1995] FCA 288

CATCHWORDS

CORPORATIONS LAW - offences - by individuals connected with the company - company incurring debt when reasonable to expect inability to pay - deemed inability to pay - whether exclusive means of proof of inability to pay - Corporations Law s589(4), s592.

Corporations Law ss 589, 592

Butler Rains Menzies & Co. (a firm) v. Devine [1994] 1 Qd.R. 1

Macquarie Bank Ltd v. Fociri Pty Ltd (1992) 27 NSWLR 203

Cooper & Dysart Pty Ltd v. Sargon (1991) 5 WAR 472

TRANS PACIFIC INVESTMENT CORPORATION PTY LTD V. RUSTY REES PTY LTD AND OTHERS

PAN AQUATIC RESOURCES PTY LTD V. RUSTY REES PTY LTD AND OTHERS

No. QG71 of 1992
No. QG72 of 1992

Black CJ, Davies and Beaumont JJ.
28 April 1995
Brisbane

IN THE FEDERAL COURT OF AUSTRALIA       )  No. G71 of 1992

QUEENSLAND DISTRICT REGISTRY                )

GENERAL DIVISION  )

QUESTION RESERVED FOR THE CONSIDERATION OF THE
FULL FEDERAL COURT BY A JUDGE OF THE COURT

BETWEEN:TRANS PACIFIC INVESTMENT CORPORATION PTY LTD

Applicant

AND:RUSTY REES PTY LTD

First respondent

EMRYS REES

Second respondent

EMRYS REES (as executor of the estate of DOROTHY BERYL REES)

Third respondent

WAYNE REES

Fourth respondent

CORAM:     BLACK CJ, DAVIES AND BEAUMONT JJ.

DATE:        28 APRIL 1995    

PLACE:      BRISBANE

MINUTES OF ORDER

The Court orders that:

1. The question reserved for consideration of the Full Court namely;

"Whether the first respondent may be a company to which s.592 of the Corporations Law applies, by reason of the fact that it is unable to pay its debts, notwithstanding that execution or other process issued on a judgment, decree or order of any Court in favour of a creditor of the first
respondent had not been returned unsatisfied in whole or in part ?"

be answered:No.

1. The applicant pay the respondents' costs of the question reserved.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court rules.

IN THE FEDERAL COURT OF AUSTRALIA       )  No. G71 0f 1992

QUEENSLAND DISTRICT REGISTRY                )  No. G72 of 1992

GENERAL DIVISION  )

QUESTION RESERVED FOR THE CONSIDERATION OF THE
FULL FEDERAL COURT BY A JUDGE OF THE COURT

BETWEEN:TRANS PACIFIC INVESTMENT CORPORATION PTY LTD

Applicant

AND:RUSTY REES PTY LTD

First respondent

EMRYS REES

Second respondent

EMRYS REES (as executor of the estate of DOROTHY BERYL REES)

Third respondent

WAYNE REES

Fourth respondent

BETWEEN:PAN AQUATIC RESOURCES PTY LTD

Applicant

AND:RUSTY REES PTY LTD

First respondent

EMRYS REES

Second respondent

EMRYS REES (as executor of the estate of DOROTHY BERYL REES)

Third respondent

WAYNE REES

Fourth respondent

CORAM:     BLACK CJ, DAVIES AND BEAUMONT JJ.

DATE:        28 APRIL 1995    

PLACE:      BRISBANE

REASONS FOR JUDGMENT

THE COURT:

These are questions reserved by a judge of the Court (Drummond J) on a point which has arisen with respect to amendmentSmade by the applicants to their statements of claim.

Relevant provisions of the Corporations Law read:

"589(1) Sections 590 to 593 (inclusive) apply to a company:

(a)that has been wound up or is in the course of being wound up;   

[or]

...

(f)that has ceased to carry on business or is unable to pay its debts;

..."

(4)  For the purposes of this Part, a company shall be deemed to be unable to pay its debts if, and only if, execution or other process issued on a judgment, decree or order of a court (whether or not an Australian court) in favour of a creditor of the company is returned unsatisfied in whole or in part."

(5)In this part:

...

"relevant day" means the day on which:

...

(e) in relation to a company that is unable to pay its debts - the execution or other process was retured unsatisified in whole or in part;"

"592(1)Where:

(a)a company has incurred a debt before the commencement of Part 5.7B;

(b)immediately before the time when the debt was incurred:

(i)there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due;  or

(ii)there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due;  and

(c)the company was, at the time when the debt was incurred, or becomes at a later time, a company to which this section applies;

any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred contravenes this subsection and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt."

By its further amended statement of claim in G71 of 1992, the applicant makes the following claims:

"26A.Rusty Rees is, and has at all material times been, a company to which the provisions of section 592(1) of the Corporations Law have applied.

Particulars

(a)On 16 July 1992 the Supreme Court of Queensland ordered that Rusty Rees be wound up under the provisions of the Corporations Law.

(b)On 16 July 1992 Alan Raphael Tuttle and Gerard John Meier were appointed receivers and managers of the property of Rusty Rees.

(c)By no later than 28 November 1990, Rusty Rees was unable to pay its debts.  Further particulars of this allegation are provided in paragraph 26B below.

26B.(1)     In entering into:

(a)the Grafton Street contract, on November 28 1990; and

(b)the Amending Agreement, on 5 March 1991,

and thereby assuming the obligation to pay the consideration payable thereunder, Rusty Rees "incurred a debt" within the meaning of section 592 of the Corporations Law.

(2)On each of the dates referred to in subparagraphs 26B(1) ("the relevant dates"), there were reasonable grounds to expect that Rusty Rees would not be able to pay all its debts as and when they became due;

(3)Further, or alternatively, on each of the relevant dates, there were reasonable grounds to expect that if Rusty Rees incurred the debt represented by the consideration payable under the contract, it would not be able to pay all its debts as and when they fell due."

Paragraph 26B then sets out 15 particulars of the allegations in sub-paragraphs 26B(2) and 26B(3).  The amendment in G72 of 1992 was similar.

The second and third respondents applied to strike out the amended paragraphs of the statements of claim on the ground that there is no allegation that the first respondent is a company unable to pay its debts by reason of the fact that execution or other process issued on a judgment, decree or order of a court in favour of a creditor of the first respondent has been returned unsatisfied in whole or in part as provided by s.589(4) of the Corporations Law.

In each case, Drummond J has reserved this question for the consideration of the Full Court:

"Whether the first respondent may be a company to which s.592 of the Corporations Law applies, by reason of the fact that it is unable to pay its debts, notwithstanding that execution or other process issued on a judgment, decree or order of any Court in favour of a creditor of the first respondent has not been returned unsatisfied in whole or in part?"

On behalf of the respondents, it is submitted that the scheme of the legislation is to create both civil and quasi-criminal liability in certain specifically defined circumstances where such liability would not ordinarily be created, that is, the Corporations Law creates no more than a limited statutory fiction.  Although it is accepted by the applicant that there is no unsatisfied execution or other process, the applicant seeks to allege in other ways that the company was unable to pay its debts.  This, the respondents contend, is impermissible, as was held by the Queensland Court of Appeal in Butler Rains Menzies & Co. v Devine [1994] 1 Qd.R 1 at 5 and by a majority of the New South Wales Court of Appeal in Macquarie Bank Ltd. v Fociri Pty. Ltd. (1992) 27 NSWLR 203, despite the contrary conclusion arrived at by the Full Court of the Supreme Court of Western Australia in Cooper & Dysart Pty. Ltd. v Sargon (1991) 5 WAR 472. The respondents content that by reason of the quasi-criminal aspect of the relevant provisions of Corporations Law, the legislation should be construed in a manner which favours the subject; and such a construction, the respondents' argument runs, recognises the limited statutory fiction involved.

On behalf of the applicant, it is submitted, consistently with Sargon, that s.589(1)(f) is not a "deeming" provision; and that s.589(4), as a "deeming" provision, is purely adjectival and facilitative, enabling proof to be made in that way. But, the argument goes, s.589(4) does not confine the substantive scope of the factual inquiry contemplated by s.589(1)(f). Under that provision, the substantive question of inability to pay debts may be proved in any appropriate manner.

At the commencement of the hearing, the Court raised with counsel the possibility that the point sought to be raised by the reserved question may be moot because, as has been seen, the statement of claim not only alleges that no later than 28 November 1990 the company was unable to pay its debts (s.589(1)(f)) but also alleges (and it is common ground) that on 16 July 1992 the company was ordered to be wound up (s.589(1)(a)). That is to say, since each of the paragraphs of s.589(1) are expressed to be alternative (and this is common ground) and since it is accepted that para.(a) of s.589(1) applies here, it was unnecessary also to plead that another paragraph of s.589(1), i.e. para. (f), applied as well.

However, the fact that there is this common ground between the parties emerged only in discussion before us on the hearing of this appeal.  The pleadings as they stand, and as they stood when the question was reserved, do raise the question reserved as a live issue, albeit one which earlier discussion between the parties would have revealed as unnecessary in a practical sense.  In these circumstances the question reserved is not, technically, moot and the question being an important one upon which we have had the benefit of the submissions of counsel we consider that we should answer it.  We observe, however, that parties should be astute to avoid the unnecessary incurring of costs and the unnecessary expenditure of court time in applications with respect to pleadings.

In asking the Court to prefer the construction adopted by the Full Court of the Supreme Court of Western Australia in Cooper & Dysart Pty Ltd v Sargon, the applicant invites the Court to decline to follow the later and  recent decision of the Queensland Court of Appeal in Butler Rains Menzies & Co v Devine, a decision precisely in point on the same provisions of the Corporations Law as those to be considered in this case.  The applicant also invites the Court to decline to follow the decision of a majority of the New South Wales Court of Appeal in Macquarie Bank Ltd v Fociri Pty Ltd on the construction of the relevantly indistinguishable provisions of s.553 of the former Companies (New South Wales) Code.  These decisions must be taken to have settled the law on the present question in New South Wales and in Queensland.   In Victoria, the only reported decision of the Supreme Court to which we have been referred, Sunshine Management Services Pty Ltd v. Russo (1991) 9 ACLC 1069, is to the same effect.

Clearly, it would introduce undesirable disunity in the construction of uniform national legislation if we were now to depart from what is the settled construction of the Corporations Law in New South Wales and Queensland, and the construction also adopted in Victoria consonant with earlier decisions at first instance in New South Wales.  Uniformity of decision in the interpretation of uniform national legislation is obviously of particular importance if the benefits deriving from the uniformity of legislation are to be achieved.

In these circumstances the principle to be applied is clear.  It is that an intermediate appellate court should not depart from an interpretation placed upon uniform
national legislation such as the Corporations Law by another Australian intermediate appellate court unless convinced that the interpretation is plainly wrong: Australian Securities Commission v. Marlborough Gold Mines Limited (1993) 177 CLR 485 at 492 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ. The application of the principle in the present case requires that this Court should not depart from the preponderance of recent appellate authority that has settled the law in two States, and is consonant with authority in a third State, unless convinced that such authority is plainly wrong.

We are far from being convinced that the recent decisions of the New South Wales Court of Appeal and the Queensland Court of Appeal are wrong. To the contrary, in our view those cases were correctly decided. Apart from anything else, we think it almost impossible to reconcile with the applicant's argument the definition of "relevant day" in s.589(5) of the Corporations Law in its application to a company that is unable to pay its debts. In its application to such a company the relevant day "means" - not "includes" - the day upon which "the execution or other process was returned unsatisfied in whole or in part", an expression that mirrors the critical elements of the deeming provision in s.589(4). The ascertainment of a "relevant day" cannot be put to one side because it is necessary for the operation of several of the paragraphs and sub-paragraphs of s.590(1): see paras (a),(c)(i) to (v),(g) and (h).

We would therefore answer the question reserved for the consideration of the Full Court in each case: "No".

The applicant must pay the respondents' costs.

I certify that this and the preceding 9 pages are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Date: