Western United Limited v Sheahan No. Scgrg-00-727

IN THE MATTER OF THE DUKE GROUP LIMITED (IN LIQUIDATION)
WESTERN UNITED LIMITED (IN LIQUIDATION) v SHEAHAN
[2001] SASC 74

Nyland J:

This is an application for summary judgment pursuant to SCR 25.01. The plaintiff (WUL) is a company in liquidation. Mr Stephen Young was appointed the official liquidator of WUL on 25 July 1989. Mr Stephen Duncan replaced Mr Young as liquidator on 3 November 1999. The defendant, Mr John Sheahan, is sued in his capacity as the liquidator of the Duke Group Limited (TDGL). TDGL was formerly known as Kia Ora Gold (Kia Ora). The name was changed on 26 July 1988. Mr Sheahan was appointed the official liquidator of TDGL pursuant to an application filed for the winding up of TDGL on 26 May 1989.
In these proceedings, WUL seeks a declaration that the defendant is liable to pay to it the sum of $178,492.41.
In about 1987, Western United Management Services Pty Ltd (WUM) provided management services to Kia Ora. The claim for monies owing with respect thereto was subsequently assigned to WUL. A dispute subsequently arose between WUL and TDGL and the liquidators as to the quantum of indebtedness of each company to the other. That dispute was resolved by a deed executed on 21 November 1990 (the deed). Pursuant to the terms of the deed, WUL was entitled to prove in the winding up of TDGL in the sum of $533,639.13.
Five dividends declared by TDGL were subsequently paid to WUL in part satisfaction of its proof of debt for $533,639.13. Those payments were made on 30 September 1992, 2 March 1993, 25 August 1993, 9 February 1994 and 21 March 1994. A sixth and final dividend in the sum of $160,091.73, declared on 30 November 1999, was not paid to WUL although it was paid to other creditors. In addition, three dividends declared by TDGL were paid to WUL in satisfaction of the assignment of the claim from WUM on 25 August 1993, 9 February 1994 and 21 March 1994. The final dividend in the sum of $18.400.68, declared on 30 November 1999, was not paid to WUL. The amount claimed to be payable to WUL by TDGL is therefore $178,492.41, being the total sum of the declared but unpaid dividends.
It is also of relevance to note that between 1990 and 1996, the liquidator of WUL paid creditors in WUL’s winding up 13 dividends comprising in total 86.8 cents in the dollar. The dates of payment were 5 April 1990, 27 September 1990, 31 May 1991, 17 September 1991, 13 February 1992, 30 July 1992, 17 November 1992, 12 February 1993, 8 July 1993, 15 December 1993, 9 May 1994, 22 December 1994 and 29 May 1996.
On 2 February 2000, Mr Sheahan’s solicitors wrote to Mr Duncan with respect to the proof lodged in the winding up of TDGL (Exhibit SJD7 to the affidavit of Stephen James Duncan, sworn 4 August 2000). The letter inter alia said:
“... As you are aware I act for the Liquidator of TDGL. I refer to previous correspondence with respect to the proof lodged in the winding up of TDGL by Mr S Young on behalf of Western United Limited (In Liquidation) (“WUL”) on 7 June 1990.
On 30 November 1999 a dividend was declared on proofs of debt lodged by creditors of TDGL. Since declaring that dividend, my client has undertaken a comprehensive review of all the admitted proofs. In the course of that review he has considered afresh the proof lodged by WUL and has now instructed us to advise you that he has revoked it pursuant to Regulation 127 of the Companies (South Australia) Regulations. This has been done on the basis that WUL and its employees participated in a fraud against TDGL in relation to the takcover (sic) by TDGL of WUL in 1987. The relevant facts only came to light during the proceedings against Nelson Wheeler and the directors of TDGL and as set out in the Judgments of Justice Mullighan in the Full Court of the South Australian Supreme Court.
The effect of this fraud is that TDGL has a claim to prove against WUL which is reflected in the damages awarded against the directors of TDGL in that litigation. That loss was of the order of $76,769,842.91 together with equitable interest accruing thereon at the rate applicable to defaulting fiduciaries. TDGL’s claim against the former common directors of TDGL and WUL which is analogous to its claim against WUL was confirmed by the Full Court in excess of $188 million together with statutory interest accruing since 30 January 1998. Thus TDGL is a creditor of WUL to the extent that that loss remains unsatisfied. Accordingly, TDGL would be pleased to receive a formal proof of debt form to be completed by the Liquidator on behalf of TDGL.
This claim by TDGL overwhelms the claim by WUL in the winding up of TDGL and is set-off against the claim of WUL by Section 86 of the Bankruptcy Act. The deed entered between TDGL, WUL, Mr Young and Mr Sheahan contains no compromise or release of claims arising in relation to the takeover transaction in 1987. We are instructed to advise that notwithstanding the Liquidator’s revocation of the WUL proof and without any concession of liability to do so, he shall hold a sum sufficient to meet the WUL proof for a period of one month from the date of this letter.
I appreciate that the facts giving rise to TDGL’s claim against WUL are complex. They are reflected in the Judgment of Justice Mullighan as affirmed by the Full Court. The Judgment of Justice Mullighan drew extensively upon 32 lever arch folders of written submissions filed by TDGL. Those written submissions in turn are substantiated by numerous exhibits and transcript references which are all identified expressly in the written submissions. I would be happy to explain any of these matters to you in detail and trust you will not hesitate to contact me should you wish to discuss this matter.”
On 10 February 2000, a further letter was written to Mr Duncan with respect to the WUMS dividend (Exhibit SJD8 to the affidavit of Stephen James Duncan, sworn on 4 August 2000):
“I refer to my letter of 2 February 2000 notifying you of the Liquidator’s revocation of the proof of Western United Limited (In Liquidation) (“WUL”) and to a letter of 17 January 19994 (sic) from Arthur Andersen of Perth on behalf of the liquidator of Western United Management Services Pty Ltd (In Liquidation) (“WUMS”) notifying the Liquidator of an assignment of the claim by that company to prove in this winding up to WUL.
I am instructed to advise that the Liquidator has set off the dividend of $18,400.68 payable to WUL as assignee of the WUMS claim against its liability to repay the dividends received under its revoked proof. Notwithstanding the revocation of the WUL proof and without any concession of liability to do so, the Liquidator will hold a sum sufficient to meet the WUMS proof for a period of one month from the date of this letter.
Please direct any questions with respect to this matter to me.”
WUL subsequently issued the within application on 7 August 2000 by way of an appeal against the revocation of proof of debt by the liquidator of TDGL pursuant to s 538 of the Companies (SA) Code.
On 20 September 2000, in Action No. 902 of 2000, TDGL filed an application pursuant to s 538 of the Companies (SA) Code/ and/or s 1321 of Corporations Law by way of an appeal against the revocation of proof by a liquidator of WUL and seeking a declaration that WUL was liable to pay TDGL the sum of $142,989,724.08.
On 29 September 2000, in Action No. 937 of 2000, WUL instituted further proceedings by way of an appeal against the rejection of its proof of debt in relation to its claim for interest, and sought a declaration that TDGL was liable to pay it the sum of $2,443,730.73. In the same proceedings on 25 October 2000, Mr Sheahan filed an application to strike out or dismiss the WUL claim. He opposed the claim for interest and sought orders for indemnity costs and consolidation of Actions 727 of 2000 and 937 of 2000.
I do not propose to deal with the matters raised in Actions No. 937 of 2000 or 902 of 2000, although some of the matters raised on the hearing of this matter will be relevant to those actions and my ruling in these proceedings will have some consequential effect on the procedure to be adopted with respect to the hearing of those two actions.
In the course of the hearing of this matter I was provided with an agreed chronological history of relevant events, much of which has been incorporated into these reasons. For convenience, however, I have annexed hereto the complete document.
The reference to the judgment of Justice Mullighan in the letter dated 2 February 2000 referred to in para 6 hereof is a reference to another action in this court by TGDL. The trial of that action occupied approximately 450 sitting days. The judgment of Mullighan J is reported as Duke Group Limited (In Liquidation) v Pilmer & Ors (1998) 27 ACSR 1. Pilmer was a member of Nelson Wheeler, a national association of accounting firms. The case is therefore referred to in the annexed chronology and in these reasons as “the Nelson Wheeler proceedings”.
As can be seen, the present proceedings arise against a background of long and complex litigation involving TDGL. Some aspects of that litigation are relevant to the argument presented on the hearing of this application. Some of the particulars of that litigation which are set out hereafter are extracted from the annexed chronology.
In 1990, TDGL issued proceedings against accounting firm Arthur Young, alleging negligence by them in connection with a report prepared for the purposes of the reverse takeover of Kia Ora by Duke Holdings in mid-1988.
On 11 September 1990, the Arthur Young trial commenced. Those proceedings eventually concluded with a settlement in March 1992.
In August 1992, TDGL issued proceedings against Nelson Wheeler concerning the takeover of WUL by Kia Ora at a substantial over-value, alleging reasonable reliance by directors and shareholders of Kia Ora upon the Nelson Wheeler report.
On 19 March 1993, Nelson Wheeler sought leave to issue third party proceedings against WUL, alleging that the duty of care owed by WUL to Nelson Wheeler had been breached. That application was opposed by both WUL and TDGL.
On 11 June 1993, Mullighan J refused leave to join WUL as third party to the Nelson Wheeler proceedings. The reasons for judgment with respect to that matter are contained in The Duke Group Limited (In Liquidation) v Pilmer & Ors (No. 2) (1993) 171 LSJS 32, a copy of which is contained in Exhibit SJD 23 to the affidavit of Stephen James Duncan, sworn on 4 August 2000 and filed in these proceedings. Essentially, Mullighan J refused the application on the basis that the proposed action would be futile in the absence of insurance covering wholly or in part the defendant’s claim against WUL.
On 3 September 1993, an application was filed by TDGL seeking leave to amend its summons and statement of claim in order to join the common directors of WUL as defendants to the Nelson Wheeler proceedings, in the alternative, to the claim against Nelson Wheeler, and seeking compensation only if TDGL was unsuccessful. On 17 September 1993, leave was given to amend the summons so as to join the proposed defendants as defendants in the action and to amend the statement of claim.
The next relevant event in the chronological history of this matter occurred on 22 September 1993 when Mr Young confirmed by letter to Mr Sheahan that WUL’s proof of debt lodged in the winding up of TDGL had been admitted in the sum of $533,639.13.
The trial of the Nelson Wheeler proceedings eventually got underway in June 1994 when there was a mini opening of the case. Allegations of conduct asserted to be fraud were made against the directors of Kia Ora, but only in an unparticularised way.
In September/October 1994, cross-examination of TDGL’s expert accountant, Mr Easton, provided sufficient detail of allegations for TDGL to commence detailed investigations into the nature and conduct of the directors.
In the first half of 1997, the cross-examination of the defendant directors commenced.
On 30 January 1998, Mullighan J handed down judgment in the Nelson Wheeler proceedings, reported as Duke GroupLimited (In Liquidation) v Pilmer & Ors (1998) 27 ACSR 1 and as referred to above.
On 20 May 1999, the Full Court of the South Australian Supreme Court delivered reasons in the Nelson Wheeler proceedings: Duke Group Limited (In Liquidation) v Pilmer & Ors (1999) 73 SASR 64.
On 3 August 1999, the Full Court of the Supreme Court entered judgment in the Nelson Wheeler proceedings.
On 30 November 1999, Nelson Wheeler were granted special leave to appeal to the High Court from part of the judgment and order of the Full Court of the Supreme Court on a limited issue. At the date hereof that matter has not been resolved.
In February 2000, Mr Sheahan rejected the proofs of debt with respect to the WUL and WUM dividends.
As appears from the letter set out in para 6 hereof, the basis on which the claims were rejected were:
(1).... That WUL’s involvement in the Kia Ora directors’ fraudulent scheme rendered the deed void ab initio.
(2)... That TDGL was entitled to offset its claim for damages against any entitlement of WUL.
As a result of the rejection of WUL’s proof by Mr Sheahan WUL then instituted the within proceedings by way of an appeal against the liquidator’s determination.
Mr Walsh QC, who appeared with Mr Rochow on behalf of WUL with respect to the present application, challenged the liquidator’s determination on the following bases:
(1).... That TDGL did not have any claim against WUL which was capable of being set-off against WUL’s entitlement.
(2)That TDGL did not have any claims which were sustainable against WUL.
(3).... As a matter of public policy, TDGL was estopped by the deed from asserting its claim against WUL.
Professor O’Donovan, who appeared with Mr Lipman on behalf of Mr Sheahan and TDGL, accepted, at least for the purposes of this application, that Mr Sheahan and TDGL were bound by the terms of the deed. He did not therefore pursue an argument that the deed was void or voidable. Professor O’Donovan maintained, however, that the deed did not preclude Mr Sheahan from rejecting the proof of debt. The deed was, by its terms, limited to the matters in dispute at that time. It did not estop the defendant from exercising a right of set-off in relation to mutual dealings arising between the parties outside the deed, nor did it prevent TDGL from proving in WUL liquidation.
Professor O’Donovan said that the claims which are now made against WUL arise out of matters occurring in the course of the take over of WUL in 1987. First, TDGL claims damages against WUL (through its directors and other officers) for misleading and deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth). Secondly, in the alternative, there is a claim for equitable compensation under the second limb of Barnes v Addy (1874) LR 9 Ch App 284 for knowing assistance in breach of a fiduciary obligation. Finally, there is a claim for unliquidated damages arising from a “breach of trust” within the exception of s 82 (2) of the Bankruptcy Act 1966.
The matters said to be determined by the deed (which is Exhibit SJD3 to the affidavit of Stephen James Duncan, sworn on 4 August 2000) are set out in paras E and F thereof.
Para E is in the following terms:
“E.... Since the appointments of the TDGL Liquidator and the WUL Liquidator as the provisional liquidators of TDGL and WUL respectively on 30 May 1989 a dispute has arisen between TDGL and WUL. The dispute concerns:
(a)..... The balance owing under a loan account maintained between TDGL and WUL recording loan transactions, other advances, mutual credits and debits and payments made for and on behalf of each of TDGL and WUL by the other.
(b)..... In relation to this loan account the WUL Liquidator asserts that:
(i)....... monies are owing by TDGL to WUL under the terms of the said loan account; and
(ii)the monies owing by TDGL to WUL are secured by a charge over certain securities previously held by TDGL being shares issued by Kia Pacific Gold Limited, shares and options issued by Mineral Estates NL and shares issued by Rotair Limited.
(c)..... In relation to the loan account the TDGL Liquidator asserts that:
(i)....... monies are owing by WUL to TDGL under the terms of the said loan account; and
(ii)no enforceable charge capable of being enforced against TDGL or the TDGL Liquidator has been created by TDGL in favour of WUL to secure any monies alleged by the WUL liquidator to be owed by TDGL to WUL.”
Para F then more particularly identifies the matters in dispute between the parties by reference to certain correspondence passing between TDGL’s solicitors (namely Fisher Jeffries) and WUL’s solicitors (namely Thomson Simmons & Co) as well as a draft document entitled “Points of Claim” prepared by Fisher Jeffries and sent to Thomson Simmons & Co on 27 July 1990. That documentation is annexed to the deed and in simplistic terms may be described as dealing with claims arising with respect to specific monetary amounts due by way of loan accounts/advances. Accordingly, the defence maintain that the deed did not deal with nor have any bearing upon the claims now made against WUL with respect to misleading or deceptive conduct or knowing assistance.
Mr Walsh argued, however, that there had not been any finding that WUL had been involved in any fraudulent behaviour in relation to the takeover or at all. There was therefore no basis upon which TDGL could refuse to pay the monies claimed. The defendant was bound by the terms of the deed and was estopped from denying WUL’s entitlement to prove in the winding up of TDGL. The failure of Mr Sheahan to make payment of the final dividend was therefore in breach of WUL’s entitlement to prove in the winding up of TDGL, pursuant to s 438 of the Companies (SA) Code, as well as being in breach of the deed.
TDGL supports the present claims by relying upon the factual findings of Mullighan J and the Full Court in Duke GroupLimited (In Liquidation) v Pilmer & Ors. The argument presented by TDGL is to the effect that on the basis of those findings, the knowledge and dishonesty of the WUL directors who orchestrated the takeover of WUL by TDGL could be attributed to WUL. Professor O’Donovan submitted that it was not necessary for the defendant to obtain a judgment against WUL in order for him to invoke a statutory right of set-off. Furthermore, Mr Sheahan was obliged to invoke the statutory right to set-off where the elements of s 86 were satisfied.
Professor O’Donovan submitted that all that was required by the raising of a set off was the taking of an account between the parties to determine “what is due from one party to the other and the sum due from the one party should be set off against the sum due from the other” (per Dixon J in Hiley v Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468 at 495).
The ability of TDGL to defend WUL’s claim by way of a set off is a matter of considerable significance with respect to the determination of this application. The rights in relation to set-off are governed by the provisions of s 86 of the Bankruptcy Act 1966 (Cth) which apply by operation of s 438(2) of the Companies (SA) Code. Section 86 is in the following terms:
“(1).. Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy:
(a)... an account shall be taken of what is due from the one party to the other in respect of those mutual dealings;
(b).... the sum due from the one party shall be set-off against any sum due from the other party; and
(c).... only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be.”
Mr Walsh argued that the claim to prove in the winding up of TDGL was based upon the loan which was compromised by the deed in November 1990. It was not based on a right in existence at the time of the commencement of the winding up of TDGL, which was in 1989. The claim based on the deed could not therefore be subject to a right of set-off pursuant to s 86 of the Bankruptcy Act 1966 (Cth). There were no “mutual credits, debits or dealings” which would give TDGL a right to set-off. Any right which may have existed prior to the winding up as a result of any previously existing mutuality was effectively removed by the deed, which settled the dispute as to loan accounts and mutual credits and debits between WUL and the then Kia Ora Gold Corporation NL.

The High Court considered the provisions of s 86 in Gye v McIntyre (1991) 171 CLR 609. The court said with respect to the ability to set off (at 619):
“On the other hand, ‘substantial justice’ requires that the operation of set-off in bankruptcy be confined within limits which protect the creditors of the bankrupt from being disadvantaged by a set-off being allowed in circumstances where debts, credits or other dealings have not been genuinely mutual as a matter of substance, such as where beneficial ownership is not the same or where, after bankruptcy or notice of an act of bankruptcy, a debtor of the bankrupt has bought up liabilities of the bankrupt at a discount for the purpose of setting them off against his own indebtedness. ... Protection against abuse of the section by steps taken after bankruptcy lies, in the main, in the confinement, by the cases, of set-off under s 86 to circumstances where the requirement of mutual debts, credits or other dealings is satisfied at the date of bankruptcy.”
The court went on to discuss the issue of mutuality (at 623):
“So understood, there are three aspects of the section’s requirement of mutuality. The first is that the credits, the debts, or the claims arising from other dealings be between the same persons. The second is that the benefit or burden of them lie in the same interests. In determining whether credits, debts or claims arising from other dealings are between the same persons and in the same interests, it is the equitable or beneficial interests of the parties which must be considered, see eg Hiley (1938) 60 CLR at 497. The third requirement of mutuality is that the credits, debts, or claims arising from other dealings must be commensurable for the purposes of set-off under the section. That means that they must ultimately sound in money.
The requirement that the credits, the debts or the claims arising from other dealings be commensurable does not mean they must be vested, liquidated or enforceable at the decisive date, that is to say, at the time of the sequestration order or special resolution accepting the composition. Provided they exist as contingent at that date and are of a kind which will ultimately mature into pecuniary demands susceptible of set-off, the requirement of the section may be satisfied in relation to them. In so far as ‘dealings’ are concerned, Dixon J pointed out in Hiley (supra) at 497:
‘It is enough that at the commencement of the winding up mutual dealings exist which involve rights and obligations whether absolute or contingent of such a nature that afterwards in the events that happen they mature or develop into pecuniary demands capable of set off. If the end contemplated by the transaction is a claim sounding in money so that, in the phrase employed in the cases, it is commensurable with the cross-demand, no more is required than that at the commencement of the winding up liabilities shall have been contracted by the company and the other part respectively from which cross money claims accrue during the course of the winding up.’”
In considering whether a claim arising after the date of a sequestration order was capable of being set off under s 86, the court said (at 629):
“A claim arising after the date of the sequestration order can be set off under s 86 only if it is in respect of a credit, debt or other dealings which existed or had occurred at that date. In the case of a claim against the bankrupt, the requirement that it be provable in the bankruptcy means that, if it be a demand ‘in the nature of unliquidated damages’, it must be a demand ‘arising ... by reason of a contract, promise or breach of trust’. In the case of a claim by the bankrupt, the requirement that it vest in the trustee will mean that, if it be a demand for unliquidated damages, it must not be a claim for personal injury or personal wrong (s 116(2)(g)(i)). Once it is accepted that the word ‘dealings’ in s 86 should not be construed as a synonym of ‘contract’ and that a set-off of (or against) an unliquidated claim vested in the trustee in bankruptcy is not limited by an implied additional requirement that the claim would have been provable in a hypothetical bankruptcy of the other party, there is no convincing reason for further confining set-off under s 86 by an implied restriction to the effect that no subsequently arising claim in respect of a credit, debt or other dealings which existed or had occurred at the time of the sequestration order can be set off unless it is a claim in contract. To allow set-off in respect of such subsequently arising claims is neither to prevent a drawing of the line as at the time of the sequestration order nor ‘to alter the rights of the parties by reference to subsequent transactions’ (per Rich J, Hiley (1938) 60 CLR at 487. It is merely ‘to ascertain [those rights] by reference to the natural outcome of previous transactions’ (ibid).”
Although in this case the mutual dealings between the parties appear to have concluded with the deed, it is clear from the above dicta that the term “mutual dealings” is to be broadly construed. It appears to encompass a claim such as that which the defendant now seeks to pursue. The claim arises as a result of dealings between the same parties which occurred prior to the winding up order. If successful it is a claim which will “ultimately sound in money”. It would not appear to be necessary for the defendant to establish his claim against WUL as a provable debt in its liquidation in order to invoke the right of set off.
Against that background, there is some force in the submission put by Professor O’Donovan that there would be a substantial injustice to TDGL should it be denied its right to pursue a claim of approximately $142 million against WUL, especially when TDGL could prove a debt against WUL simply be establishing that the proven fraud of the directors of WUL in relation to the takeover should be attributed to WUL. I am not therefore prepared to resolve this matter by rejecting the defendant’s right to set off pursuant to the provisions of s 86.
I have vacillated over that part of the plaintiff’s claim which relates to the WUM assigned debt as that would appear to be in a different category. There would appear, with respect to that matter and considering that WUL took the assignment of the debt in about 1994, to be a lack of mutuality which would take it outside of the provisions of s 86. In so doing, however, WUL took subject to all prior equities. On the argument put forward by Professor O’Donovan, this would include the present claim against WUL. It is also alleged that WUM was involved in the dishonesty and fraud involved in the takeover. It was a wholly owned subsidiary of WUL and was a vehicle used to orchestrate the takeover. On that basis, the defence maintain that a lifting of the veil between WUM and WUL would lead to a finding as to mutuality so as to give rise to the ability to set off, and would therefore appear to be covered by the provisions of s 86.
Mr Walsh further submitted, however, that even if TDGL had a claim for damages pursuant to s 82(1) of the Trade Practices Act 1974 (Cth) arising out of the plaintiff’s alleged breach of s 52 of that Act, the claim was in any event time barred as a result of the provisions of s 82(2) of that Act. That section requires an action to be commenced within three years after the date on which the cause of action accrued. As the claim by TDGL is based on alleged misleading and deceptive conduct arising out of certain activities alleged against WUL in or about the year 1987, that is, at the time of the takeover, any claim against it should have been instituted, at the latest, by the end of 1990.
There is, however, some merit in the argument presented by the defence, namely that s82(2) is concerned with the commencement of “an action”. It does not therefore preclude the liquidator from raising a set-off, as this does not involve the bringing of any action or raising a claim. It simply involves the taking of an account of monies owing between the parties (Hiley v Peoples Prudential Assurance Co Ltd). This is not inconsistent with s 371 of the Companies (SA) Code, as that section is merely concerned with applications for leave to commence proceedings against companies in liquidation and does not purport to extend the period of limitation pursuant to s 82. There is nothing on the face of s 82 of the Trade Practices Act 1974 (Cth) therefore to restrict the right of the liquidator to invoke his set-off under s 86 of the Bankruptcy Act 1966 (Cth) and the general law.
That is still not the end of the matter. There remains the further submission put by WUL that TDGL should be estopped, as a matter of public policy, by reason of the long delay in asserting its claim. The claim is based upon conduct which allegedly occurred in about 1987, yet the claim was not raised until February 2000. As Mr Walsh pointed out, there were at least four occasions on which Mr Sheahan must have considered TDGL’s position with respect to WUL, ie:

1....... Before concluding the deed in November 1990.

At the time the Nelson Wheeler proceedings were instituted in August 1992.

3....... At the time of the hearing of the third party joinder proceedings in March 1993.

At the time of the application to join the common directors as defendants in September 1993.

Against that background it is asserted that TDGL, in addition to having ample opportunity to raise these claims, has acted inconsistently by opposing the joinder of WUL as third party in the Nelson Wheeler proceedings as well as having made dividend payments under the deed. The inference to be drawn, therefore, from the defendant raising these claims at such a late stage is that it is a tactical manoeuvre designed to defeat WUL’s rights. It is further suggested that if the defendant is now permitted to raise these claims there is a potential for there to be findings of fraud conflicting with those made by Mullighan J and the Full Court in The Duke Group Limited (In Liquidation) v Pilmer & Ors.
In my opinion, it is surprising that this claim has been raised so long after the relevant events. Even allowing for the complexity of the litigation which has been evolving over the years, I would have thought that these particular matters would have been considered at some earlier stage of the litigation. I am, however, confronted with the sworn evidence of Mr Sheahan in his affidavit sworn on 20 September 2000 and filed in Action No. 902 of 2000 but admitted in evidence (with the exception of para 12) in these proceedings. Mr Sheahan says:
“30... It was during the course of the Arthur Young proceedings that my solicitors, Fisher Jeffries and I learned of the circumstances surrounding the earlier takeover of Western United by Kia Ora at a substantial over-value which warranted commencement of the takeover proceedings against Nelson Wheeler. The takeover proceedings were issued in August 1992.
31.At the time of issuance of the takeover proceedings, I was not aware of the conduct which warranted an allegation of fraud against the directors of Kia Ora. I was also unaware of the circumstances giving rise to TDGL’s claim against WUL for its knowing assistance in that fraud.
32..... On 19 March 1993, Nelson Wheeler sought leave to issue third party proceedings against WUL. As WUL was in liquidation, leave was required for their joinder. Now produced and shown to me marked “JS6” is a copy of the Third Party Statement of Claim issued by Nelson Wheeler against WUL.
33.On 31 March 1993 Nelson Wheeler issued third party proceedings against the directors of Kia Ora, seeking an indemnity and contribution from those directors. The allegations made by Nelson Wheeler against the directors of Kia Ora were merely tortious, and did not involve allegations of fraud. Now produced and shown to me marked “JS7” is a true copy of the third party pleadings issued by Nelson Wheeler against the directors of Kia Ora.
34..... Nelson Wheeler’s application for leave to join WUL was heard by Mullighan J in March and April 1993. His Honour’s reasons for judgment were delivered on 11 June 1993 and a copy of those reasons are now produced and shown to me marked “JS8”.
35.WUL opposed Nelson Wheeler’s application for leave to issue.
36..... Nelson Wheeler’s claim against WUL was limited to one in tort. The claim was that the senior management of WUL, acting for and on behalf of WUL, provided information to Nelson Wheeler which was inaccurate and unreliable and that they were negligent in so doing (pages 1-2 of Mullighan J’s reasons).
37.Despite the finding (page 3) that a prima face case existed against WUL, Mullighan J concluded that leave should be refused on account of the futility of the proposed action against WUL. The proposed action was futile because the proposed claim in tort was neither covered by insurance (page 9) nor a demand “in the nature of an unliquidated demand arising otherwise than by reason of a contract, promise or breach of trust” (for the purposes of section 82 (2) of the Bankruptcy Act 1966 (Cth) (page 7)) and hence was not provable.
38..... It was not until the mini-opening of Nelson Wheeler in mid 1994 that the first allegations of conduct said to amount to fraud were made against the directors of Kia Ora.
39.Even then the allegations made were general unsubstantiated submissions and it was not until the cross-examination of TDGL’s expert accountant, Mr Easton commencing in late September 1994 that I first learned sufficient detail of the allegations to commence detailed investigations into the nature of the conduct of the directors.
40..... It was not until the first half of 1997 when a number of these, to then, unsubstantiated allegations were put to the directors of Kia Ora in cross-examination and the unsatisfactory nature of their responses and explanations became apparent.
41.As mentioned above, the trial of the takeover proceedings continued until late 1997. The appellate procedures following that trial are ongoing. The trial and appeals in the takeover proceedings have occupied, and continue to occupy, a significant proportion of my and my advisers’ time since the issue of those proceedings in 1992.
42..... During the course of the administration of TDGL I have paid dividends to TDGL’s creditors as described in paragraph 12 of the Duncan affidavit. In total 100 cents in the dollar has been paid to creditors through six separate dividends. The fifth and penultimate dividend was paid to creditors on 21 March 1994. The sixth and final dividend was paid to creditors on 30 November 1999.
43.At the time of declaring the sixth dividend I gave detailed consideration to each of TDGL’s creditors’ entitlements in light of the knowledge I had gained during the course of the Nelson Wheeler litigation and since the time of the payment of the fifth dividend.
44..... In light of that knowledge I believed WUL’s involvement in the takeover of WUL by Kia Ora was such that Kia Ora was entitled to substantial damages against WUL arising from its having both mislead and deceived Kia Ora in connection with the takeover and knowingly assisted the directors in their fraudulent conduct in connection with the takeover.”
I am therefore faced with the sworn evidence of an officer of the court that he did not consider these issues until the date of declaration of the sixth dividend. TDGL is not required in these proceedings to prove its defence. It appears to have a genuine defence to the claim by WUL, arising against the background of complex litigation in which the facts were evolving over a long period of time. I have some concern about detrimental reliance but this would appear only to affect the last WUL payment in May 1996, as the last dividend payment by TDGL was in 1994.
I am however mindful of the fact that this is an application for summary judgment. As White J said in The Duke Group Limited (In Liquidation) (formerly Kia Ora Gold Corporation NL) v Arthur Young (Reg) (1990) S2238, unreported:
“Summary judgment is usually only granted where there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 48 ALR 1 at 10; Singh v Varinder (1985) 61 ALR 720; Clark v Union Bank of Australia Ltd (1917) 23 CLR 5; Jones v Stone [1894] AC 122. While the court may determine any difficult question of law on an application for immediate relief, in most instances the determination of such questions is better left for trial: Theseus Exploration NL v Foyster (1972) 126 CLR 507; Excel Finance Corp v Commonwealth Bank of Australia (1988) 48 SASR 225.”
I have not dealt with all of the arguments presented in the course of this application as I am of the opinion that TDGL has shown that it does have a good defence on the merits. Accordingly, I do not consider that this is a proper case for entry of summary judgment in accordance with SCR 25.01. The application is therefore refused.

[2001] SASC 74

19 March 2001