Western Australia v Vetter Trittler Pty Ltd (in liq) (rec and mgr apptd)

[1991] FCA 339

Re: STATE OF WESTERN AUSTRALIA and R. AND I. BANK OF WESTERN AUSTRALIA LTD
A.C.N. 050 494 454
And: VETTER TRITTLER PTY LTD (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED)
A.C.N. 008 973 386; WOLF DIETRICH PFLAUMBAUM; R. STAHL GMBH and CO.; GUNTER
STAHL; JOACHIM RAUCH; LOTHAR WETTENGEL and KURT FRANZ HELMUT SANDNER
No. WA G3003 of 1991
FED No. 339
Corporations Law - Practice and Procedure
4 ACSR 795
30 FCR 102/9 ACLC 1459

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Corporations Law - insolvency - winding up - application for leave to proceed in Federal Court - transitional provisions - application under s.371(2) of Companies (Western Australia) Code - order for winding up made in Supreme Court of Western Australia - whether Federal Court is "the Court" empowered by s.371(2) - discretion to decline jurisdiction - application stayed pending leave of Supreme Court.

Practice and Procedure - service out of jurisdiction - German directors of Western Australian company - causes of action under Trade Practices Act, Fair Trading Act, Companies Code and in tort - where causes of action arose - requirements for prima facie case - discretionary considerations.

Federal Court Rules O.8 r.1, O.8 r.2(2), O.8 r.2(3)

Industries (Advances) Act 1947 (WA) ss.3, 4, 6

Technology and Industry Development Act 1983 (WA)

Trade Practices Act 1974 s.52

Fair Trading Act (WA) 1987 s.10

Companies (Western Australia) Code s.556(1). s.371(2)

Corporations Law s.471(2), s.601

Corporations (Western Australia) Act 1990 s.7

Companies and Securities (Interpretation and Miscellaneous Provisions) (Western Australia) Code s.9

Jurisdiction of Courts (Cross Vesting) Act 1987 (WA) s.3, s.4(1)

Jurisdiction of Courts (Cross Vesting) Act 1987 (Cwth) sub-s.9(2)

Glass v Tarea Management (North Shore) Pty Ltd (In Liquidation) (1990 ) 25 FCR 242

Australian Trade Commission v Film Funding and Management Pty Ltd (1989) 24 FCR 595

State Bank of South Australia v Motor Show Room Enterprises Pty Ltd (Receiver and Manager Appointed) (In Liquidation) (unrep. Fed. Ct. Von Doussa J. 17/4/91)

Re Mercovich and Griffiths; Mercovich v Vanguard Service Print (unrep . Fed. Ct. 27/5/85; Toohey J.)

Merpro Montassa Limited v Conoco Special Products Inc. (1991) ATPR 41-096

May v O'Sullivan (1955) 92 CLR 654

HEARING

PERTH

#DATE 18:6:1991

Counsel for the Applicants: Mr Dharmananda

Solicitors for the Applicants: Mallesons Stephen Jaques

ORDER

The application for leave to proceed against the first respondent is dismissed and the substantive application stayed as against the first respondent unless and until leave to proceed is granted by the Supreme Court of Western Australia.

The applicants have leave to serve the application and the statement of claim in these proceedings outside the Commonwealth on the second to seventh respondents inclusive.

The costs of the applicants' motion dated 10 June 1991 be costs in the cause.

NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

On 23 May 1991, the State of Western Australia and the Rural and Industries Bank of Western Australia Limited filed an application in this Court claiming damages and other relief against Vetter Trittler Pty Ltd, a manufacturer and supplier of cranes and lifting equipment, which is now in liquidation. Also joined as respondents were the company's managing director, Wolf Pflaumbaum, its ultimate German holding company, R. Stahl GmbH and Co. and three other persons, Gunter Stahl, Joachim Rauch and Lothar Wettengel, who are directors of Stahl GmbH and were appointed as directors of Vetter Trittler Pty Ltd on 18 October 1989. The seventh respondent is Kurt Sandner, allegedly an employee or agent of Stahl GmbH, appointed as an alternate director of Vetter Trittler for Rauch, Wettengel and Stahl.

1. Because Vetter Trittler is in liquidation, the applicants must, at the outset, seek leave to proceed against it. They also move for leave to serve the application and statement of claim outside the Commonwealth of Australia on Pflaumbaum, R Stahl GmbH and Co., Gunter Stahl, Joachim Rauch, Lothar Wettengel and Kurt Sandner. At this stage, the application and statement of claim have only been served on Vetter Trittler Pty Ltd. The liquidator does not oppose the application for leave to proceed and did not appear when it was heard. It is nevertheless necessary, both for the purposes of that step and the motion to serve the process outside Australia, that brief consideration be given to the statement of claim. The outline that follows in that regard is a summary of the principal allegations and does not involve any finding of fact.
   The Statement of Claim

2. The applicants allege that in January 1989, Vetter Trittler by its managing director, Pflaumbaum, applied to the State for financial assistance under s.4 of the Industries (Advances) Act 1947 (WA). The assistance sought was by way of a guarantee of a $2 million credit facility to be provided by the Commonwealth Bank of Australia. The application was made through the Western Australian Technology Development Authority, a statutory body established under the Technology and Industry Development Act 1983 (WA). The Authority acted at all material times as an agent for the State. In a cabinet submission dated 24 May 1989, the Authority recommended that the R. and I. Bank should be caused, under s.3 of the Industry (Advances) Act, to provide the guarantee. The Department of Treasury also, it is said, concluded that the application for guarantee should be approved (para.19(a)). On 26 June 1989 the State Cabinet approved Vetter Trittler's application for the provision of a guarantee by the R. and I. Bank (para.19(b)). Draft security documents relating to the proposed facility and bank guarantee were negotiated in December 1989 and January 1990. On 14 February 1990, the R. and I. Bank and the Commonwealth Bank executed relevant security documents. These included a Loan and Guarantee Agreement to which Vetter Trittler, the Commonwealth Bank and the R. and I. Bank were parties. Under the terms of the Loan and Guarantee Agreement the Commonwealth Bank could only advance moneys to Vetter Trittler with the consent of the Authority which was entitled to withhold that consent in its discretion (para.27). Notwithstanding the execution of the various security documents, the draw down on the facility was delayed until the R. and I. Bank had executed a priority agreement with the Commonwealth Bank in relation to their respective securities. On 5 April 1990 the Commonwealth Bank advanced $2 million to Vetter Trittler by crediting that amount to Vetter Trittler's overdraft account with it.

3. The support given by the Department of Treasury to Vetter Trittler's application for the guarantee and its approval by the State Government are said to have been induced by financial information provided to the Authority by Vetter Trittler between November 1988 and March 1989 ("the Initial Financial Information"). This indicated that at least since the year ended 30 June 1985 the company had been trading profitably with a substantial surplus of assets. Profitability and cashflow projections were also included in the Initial Financial Information. Further information provided in June 1989 ("the June 1989 Information") included updated profit and loss and cashflow projections for the calendar years 1989 and 1990, together with trading reports and a statement that at the end of April 1989 the reconciled balance of Vetter Trittler's overdraft borrowings from the Commonwealth Bank was $1,959,600. Between July 1989 and January 1990 it is further alleged that Vetter Trittler, by its managing director, Pflaumbaum, another director, Hodges, and its financial controller, Attwood, represented to the Authority that in July 1989 it was able to repay a loan of $300,000 and pay a dividend of $213,898 to its immediate parent company R. Stahl Pty Ltd, without increasing borrowings. It is also said to have represented that it had an increasing amount of work in progress and was trading satisfactorily.

4. The applicants say that the Initial Financial Information, the June 1989 Information and the representations were false in various respects. They say that Vetter Trittler had in fact incurred substantial losses during the 1988/89 financial year, that during June 1989 it anticipated making a loss of approximately $1 million and that its actual and projected working capital requirements were substantially in excess of what had been disclosed in the Initial Financial Information and the June 1989 Information. The company's conduct is said to have been misleading or deceptive in various respects relating to and flowing from the provision of the information referred to and the deterioration of its financial position. It is said thereby to have contravened s.52 of the Trade Practices Act 1974 and s.10 of the Fair Trading Act (WA) 1987. The other respondents are each said to have been knowingly involved in the contraventions, it being alleged that they knew of the falsity of the information provided and that they aided, abetted, counselled or procured the contravention or otherwise were knowingly involved in it.In the particulars of loss and damage said to have been suffered by the State and the R. and I. Bank, it is alleged that on 30 August 1990 the Commonwealth Bank appointed a receiver and manager over the assets of Vetter Trittler and that a winding up order was made in respect of the company on 19 October 1990, a provisional liquidator having been appointed on 21 June 1990. By s.6 of the Industry (Advances) Act the R. and I. Bank is said to be indemnified by the State in respect of losses, costs and damages incurred under (inter alia) the Bank guarantee. On 11 September 1990 the State, on behalf of the Bank, is said to have paid to the Commonwealth Bank $2,163,723.60 under the terms of the guarantee.

5. A cause of action in deceit is pleaded against Vetter Trittler based substantially on Pflaumbaum's conduct. A claim is also brought under s.556(1) of the former Companies (WA) Code against Pflaumbaum, Stahl, Rauch, Wettengel and Sandner as directors of Vetter Trittler. This claim is made on the basis that when the sum of $2 million was advanced to the company by the Commonwealth Bank, there were reasonable grounds to expect that the company would not then be able to pay all of its debts as and when they became due and that they are therefore liable by virtue of the operation of the Code. A cause of action in conspiracy against the directors and Stahl GmbH is also pleaded.
   The Application for Leave to Proceed

6. The application for leave to proceed against Vetter Trittler Pty Ltd was initially brought under s.471(2) of the Corporations Law. When it came on for hearing, counsel submitted that because the winding up order was made before 1 January 1991, the provisions of the Companies (Western Australia) Code applied and in particular s.371. Reference was made to the Corporations (Western Australia) Act 1990 which applies the Corporations Law as the law of Western Australia. Section 7 of that Act provides:
   

"7. The Corporations Law set out in s.82 of the Corporations Act as in force for the time being:

(a) applies as a law of Western Australia; and

(b) as so applying, may be referred to as the Corporations Law of Western Australia."

Section 84 of the Act defines what it calls "co-operative scheme laws" being laws established under the previous Co-operative Companies Scheme. They include the Companies (Western Australia) Code. Section 85 then provides:

"85(1) This section provides for the national scheme laws of this jurisdiction to supersede the co-operative scheme laws, which are to continue to operate of their own force only in relation to:

(a) matters arising before the commencement of this section; and

(b) matters arising, directly or indirectly, out of such matters, in so far as the national scheme laws do not deal with those matters."

The effect of this sub-section seems to be to leave co-operative scheme laws operating of their own force only in relation to matters arising before the commencement of that sub-section or related matters not covered by the national scheme. Also relevant is s.601 of the Corporations Law as applied by the Corporations Law (Western Australia) Act. It is in the following terms:

"601. The provisions of this Law with respect to winding up do not apply to any body corporate the winding up of which was started before the commencement of this Chapter and:

(a) any such company is to be wound up in the same manner, and with the same incidents as if this Law had not been enacted; and

(b) for the purposes of the winding up, the previous law of this jurisdiction corresponding to this Chapter is taken to remain in force."

One of the provisions of the Corporations Law with respect to winding up is s.471(2) which provides:

"471(2) Where an order has been made for the winding up of a company, or a provisional liquidator has been appointed in respect of a company, no action or other civil proceeding may be commenced or proceeded with against the company except:

(a) by leave of the Court;

(b) in accordance with such terms as the Court imposes."

On the basis of the date of the winding up order made in respect of Vetter Trittler Pty Ltd, I am satisfied that the applicable provision is s.371(2) of the Companies (Western Australia) Code. The language of that sub-section is precisely the same as the language of s.471(2).

1. By s.9 of the Companies and Securities (Interpretation and Miscellaneous Provisions) (Western Australia) Code, in any relevant Code, unless the contrary intention appears, the word "Court" means the Supreme Court of Western Australia or a judge of that Court. Thus the reference to the Court in s.371(2) is a reference to the Supreme Court of Western Australia. Counsel nevertheless invoked s.4(1) of the Jurisdiction of Courts (Cross Vesting) Act 1987 (WA):
   

"4(1) The Federal Court has and may exercise original and appellate jurisdiction with respect to State matters.:

He also referred to sub-s.9(2) of the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cwth):

"9(2) The Federal Court, the Family Court or the Supreme Court of a Territory may-

(a) exercise jurisdiction (whether original or appellate) conferred on that Court by a provision of this Act or of a law of a State relating to cross vesting of jurisdiction; and

(b) hear and determine a proceeding transferred to that Court under such a provision."

1. The cross-vesting legislation has the effect that the jurisdiction conferred by s.371(2) to grant leave to proceed against a company under a winding up order may be exercised by this Court - Glass v Tarea Management (North Shore) Pty Ltd (In Liquidation) (1990) 25 FCR 242 at 245 (Beaumont J.). His Honour there referred to the judgment of Gummow J. in Australian Trade Commission v Film Funding and Management Pty Ltd (1989) 24 FCR 595 at 599-600 as support for that proposition. The latter case involved the operation of the equivalent provision of the Companies Act 1962 (ACT) and led to no firm conclusion about the effect of cross vesting legislation in the context of State Codes. But given the width of the definition of "State matters" in s.3 of the Jurisdiction of Courts (Cross Vesting) Act (WA) and absent any challenge to the constitutional validity of that scheme, I accept that the legislation is effective to confer upon this Court the jurisdiction conferred upon the Supreme Court of Western Australia by s.371(2) of the Companies Code. That leaves open however the question whether the jurisdiction may be exercised by any Court other than that which made the winding up order. In State Bank of South Australia v Motor Show Room Enterprises Pty Ltd (Receiver and Manager Appointed) (In liquidation) (unrep. Fed. Ct. Von Doussa J. 17/4/91), Von Doussa J. took the view that as a matter of construction "the Court" referred to in s.471 of the Corporations Law meant the Court which in the exercise of jurisdiction conferred on it by s.42 of the Corporations (South Australia) Act made the winding up order. The line of reasoning underlying that conclusion is indicated by the following passage at p 4 of the judgment:
   

"Under former companies legislation, a compulsory winding up has been recognised as an administration conducted by the Court which made the winding up order: Re Phoenix Oil and Transport Co. Ltd (No. 2) (1958) 1 Ch 565 at 570. An official liquidator appointed to conduct that administration was an officer of the Court which made the appointment. There is in my opinion nothing in the new package of Corporations legislation which alters the validity of these propositions.

.

.

.

The purpose of requiring leave to commence, or to proceed with, civil proceedings against a company in liquidation is to ensure that the assets of the company will be administered in accordance with the provisions of the relevant legislation, to ensure that no person will get an advantage to which there is no entitlement under the legislation, and to enable the court effectively to supervise all claims brought against the company: Re Sydney Formworks Pty Ltd (in liq.) (1965) NSWR 646. If some court other than the court which is conducting the administration were empowered to entertain an application for leave to commence, or to proceed with, civil proceedings against the company, supervision of the winding up would no longer be in the hands of the one court. Moreover, the liquidator as an officer of one court could find it necessary to report and explain to another court aspects of the administration which bore on the question of whether to permit civil proceedings to be commenced or continued by one creditor would cause prejudice to other creditors, or would disrupt the orderly winding up of the company. It would be surprising if the legislative scheme embodied in the new Corporations legislation envisaged this. A reading of Part 5.4 of the Corporations Law makes it clear that references to "the Court" throughout Part 5.4 are references to the particular court, being one of the courts on which jurisdiction has been conferred, before which the application to wind up the relevant company has been made, and where a winding up order has been made, to the court which made that order. The provisions of ss.468, 479(3), 480, 482 and 488(1) in particular indicate a clear intention that "the Court" means the court which made the winding up order, not each and every one of the courts in Australia on which jurisdiction is conferred by s.42 of the Corporations (South Australia) Act."

His Honour also drew attention to a similar approach applied to like provisions in the Bankruptcy Act in an unreported judgment of Toohey J. in Re Mercovich and Griffiths; Mercovich v Vanguard Service Print (unrep. Fed. Ct. 27/5/85; Toohey J.).

1. In my respectful opinion his Honour's reasoning is persuasive. It is not necessary however that I express any concluded view on the position in relation to the Corporations Law. In so saying, I note that there is no reference in the judgment to the reciprocal enforcement provisions of s.588A of the Corporations Law. Whether in the light of the new arrangements they would be seen as affecting his Honour's reasoning, is not necessary to determine here. The reasoning is plainly applicable to s.371(2) of the Companies (Western Australia) Code. And in that context at least, I think, it is correct. In the end however it is sufficient for me to indicate that even if his Honour's reasoning were incorrect in relation to s.371(2), I do not consider that any sufficient reason has been shown for this Court rather than the Supreme Court of Western Australia to exercise the jurisdiction to grant leave to proceed. The Supreme Court made the winding up order and there is no serious inconvenience involved in seeking its leave to institute these proceedings against Vetter Trittler. If leave were to be refused that would not prevent the applicants from proceeding against the other respondents. Joinder of the corporation alleged to have committed a contravention of s.52 of the Trade Practices Act 1974 is not a prerequisite for bringing action against persons said to be involved in the contravention by virtue of s.75B of the Act. The application for leave will therefore be dismissed and the application as against Vetter Trittler stayed unless and until an order for leave to proceed is made by the Supreme Court of Western Australia.
   Application for Leave to Serve Out of the Jurisdiction

1. Order 8 r.1 of the Federal Court Rules provides, inter alia, that subject to r.2 originating process may be served outside the Commonwealth in cases:
   

(a) where the proceeding is founded upon a cause of action arising in the Commonwealth;

(b) where the proceeding is founded on a breach of an Act, where the breach is committed in the Commonwealth;

(c) where the proceeding is founded on a breach, wherever occurring, of an Act, and is brought in respect of, or for the recovery of, damage suffered wholly or partly in the Commonwealth.

Order 8 r.2(1) conditions the validity of service outside the Commonwealth upon the grant of leave by the Court, confirmation after the event under r.2(4) or waiver of objection by entry of an appearance by the person served. Order 8 r.2(2) and (3) provide:

"2(2) Where the Court is satisfied of the following matters:

(a) that the proceeding is a proceeding in which the Court has jurisdiction;

(b) that the proceeding is a proceeding to which r.1 applies; and

(c) that the applicant has a prima facie case for the relief which he seeks,

the Court may, by order, grant leave to serve originating process outside the Commonwealth under this Order.

(3) The evidence on a motion for leave under sub-r.(2) shall include evidence showing in what country or place the person to be served is, or probably may be found."

In this case I am satisfied that the proceedings are founded upon causes of action arising in the Commonwealth. The claims under the Trade Practices Act 1974 and the Fair Trading Act 1987 depend upon misleading or deceptive conduct within the Commonwealth and loss or damage sustained in Australia. To the extent that the alleged accessorial liability of the second to seventh respondents turns on conduct outside Australia, the causes of action against them as pleaded depend upon misleading or deceptive conduct engaged in and damage suffered within the Commonwealth. And so far as the claim under s.556 is concerned, the debt allegedly incurred by Vetter Trittler and relied upon as giving rise to liability under s.556 on the part of its directors was a debt allegedly incurred within Australia. On the face of the pleadings therefore, it would seem that these causes of action arise within Australia. As to the conspiracy count, it is not apparent where the agreement alleged to constitute the conspiracy is said to have been made but the relief claimed is by way of damages on the same basis as for the alleged contraventions of the Trade Practices Act and the Fair Trading Act. In respect of all of the causes of action I am satisfied on the materials presently before me that they are proceedings to which r.1 applies and in which the Court has jurisdiction. In respect of the claims under the Trade Practices Act that jurisdiction is conferred directly on the Court by s.86 of the Act. The other claims under the Fair Trading Act, the Companies (Western Australia) Code and at common law fall at least within the accrued jurisdiction of the Court, arising as they do essentially out of the one controversy as disclosed on the statement of claim.

1. The principal question that remains to be considered is whether the applicants have a prima facie case for the relief which they seek. The nature of the prima facie case required to satisfy the rule was recently considered by Heerey J. in Merpro Montassa Limited v Conoco Special Products Inc. (1991) ATPR 41-096. His Honour there accepted that the applicable test was that laid down in May v O'Sullivan (1955) 92 CLR 654, but said:
   

"It need only be added that the requirement of order 8 r.2(2)(c) has to be met at the outset of the proceedings. It does not suggest the kind of scrutiny that would occur in a submission of no case to answer following the closure of an applicant's case at trial. As a matter of practicality, one is here concerned with Sheppard J.'s words, "evidence which discloses in a little detail what the facts are..." (Stanley Kerr Holdings Pty Ltd v Gibor Textile Enterprises Ltd (1978) 2 NSWLR 372, 375). It may be therefore that a Court at this stage might draw inferences more readily in favour of an applicant, bearing in mind, amongst other things, that the applicant will not have had the advantage of discovery, subpoena and other procedural aids to the making out of a prima facie case at trial."

I would add that whatever is required to satisfy the Court that there is a prima facie case, that satisfaction should leave open the possibility that the respondent once served could move to strike out the statement of claim or invoke other provisions of the rules which provide for summary disposition of proceedings. To the extent that it does not, the rules may be setting too high a threshold for service out of the jurisdiction. It is notable that the merit requirement of service out of the jurisdiction in England is expressed in the formula that it be "made sufficiently to appear to the Court that the case was a proper one for service out of the jurisdiction" - O.11 r.4(2). The concept of an arguable case, the strength of which could be taken into account as a discretionary factor would seem appropriate. In my opinion however, for the purposes of the existing O.8 r.2(2) a prima facie case is made out if, on the material before the Court, inferences are open which if translated into findings of fact, would support the relief claimed. The present case has some factual complexity and there has been put before the Court substantial documentation in support of various elements of the statement of claim. Without descending into the detail of that evidence, I am satisfied that there is sufficient to support a claim for relief under the Trade Practices Act and the Fair Trading Act and s.556 of the Companies (Western Australia) Code. The question of conspiracy is, I think, open to doubt but the relief claimed under that head is the same as is claimed under the Trade Practices Act. It is therefore not necessary for present purposes to find that there is a prima facie case in relation to the conspiracy plea.

1. On the question of discretion, it seems reasonably clear that on the materials before me this is an appropriate, if not the most appropriate forum for these proceedings. The respondents are not unconnected with the jurisdiction. Messrs. Pflaumbaum, Stahl, Rauch, Wettengel and Sandner, have all assumed office in Vetter Trittler which involves the acceptance of statutory and other duties. Most of the events central to the claim seem to have taken place in Australia. Stahl GmbH and Rauch have instructed solicitors in Perth in connection with an examination by the provisional liquidator for Vetter Trittler of Rauch and an employee of Stahl GmbH, one Werner Wagner, on 13 September 1990 and 11 October 1990. The same solicitors were instructed by Stahl GmbH in relation to legal proceedings instituted by that company in Western Australia to obtain the benefit of securities granted by Vetter Trittler. Another firm acts for Pflaumbaum in connection with civil proceedings brought against him in the Supreme Court by the R. and I. Bank suing on a personal guarantee of Vetter Trittler's liabilities.

2. In my opinion the case is one in which service out of the jurisdiction is appropriate and I propose to make orders accordingly.