Affected Parties/Appellants v Plaintiff/Respondent

1 The plaintiffs made an application under s 601AH(2) of the Corporations Act 2001 (Cth) for the reinstatement of registration of Brockweir Pty Ltd (deregistered) ("the Company"). They contend that they have a claim against the Company.

2 The former directors of the Company have made submissions to the effect that any claim against the Company would be futile and that the application for reinstatement should be dismissed.

3 The application came on for hearing before Efthim AsJ on 7 March 2012. Without formally giving the directors leave to appear, his Honour heard submissions and ordered the reinstatement of the Company. The Company has since been reinstated.

4 The former directors contend that they are aggrieved by the decision and are entitled to appeal under Order 77.06(1) Supreme Court (General Civil Procedure) Rules 2005 (Vic).

5 The Company was incorporated on 20 May 1988 and was a wholly owned subsidiary of JGL Investments Pty Ltd. The Company was deregistered on 16 May 2010. The directors of the Company at the time of its deregistration were Michael Abeles and Boris Liberman. They are also directors of JGL Investments Pty Ltd.

6 The Company was trustee of the Swanston Street Unit Trust. The Swanston Street Unit Trust was terminated in accordance with the deed constituting the trust in consequence of the restructure of the JGL Group in 2009/2010. The sole unit holder of the trust was PWC Properties Pty Ltd. It has been under external administration since 2009. The Company, prior to its dissolution, sold its interest in the licences hereafter referred to, to Collins Street Pty Ltd.

7 The plaintiffs are either natural persons or directors of body corporates who assert that they are aggrieved by the deregistration of the Company.

8 Up until 10 April 2000, the Company was the sole registered proprietor of The Wales Corner Building, 227 Collins Street, Melbourne. Prior to 10 April 2000, the plaintiffs or their predecessors in title had entered into contracts of sale to purchase from the Company, lots on an unregistered plan of subdivision relating to 227 Collins Street.

9 On 10 April 2000, a plan of subdivision was registered in respect of the land and Owners Corporation No. PS425082B ("the Owners Corporation") was created pursuant to the provisions of the Subdivision Act 1988 (Vic).

10 On the date that the Owners Corporation was created, the Company was its sole member and the Owners Corporation held its first meeting. In that meeting, the Company procured the Owners Corporation (as licensor) to enter into two licence agreements with the Company (as licensee) in respect of part of the common property of the Owners Corporation. Each licence was for a fee of $1.00 per year for an indefinite term by which the Owners Corporation licensed to the Company, parts of common property being the roof and the walls of the property.

11 On 20 March 2000 (three weeks before the licence agreement was entered into), the Company, as licensor, entered into a licence with Hutchinson Telecommunications in respect of roof common property for a fee of $25,000. On 10 April 2000, the Company, as licensor, entered into a signage licence with Westpac as licensee for the use of the wall common property.

12 On registration of the plan of subdivision, the Company gave notice to each of the plaintiffs or their predecessors, that the settlement was to occur in 14 days. Subsequently, the plaintiffs completed the obligations imposed upon them by the respective contracts of sale. They became registered proprietors of certain lots. They then became members of the Owners Corporation on the date of settlement of their respective contracts and owners as tenants in common and shares proportional to their lot entitlement in the common property of the Owners Corporation.

13 By Deed of Variation dated 22 August 2002 made between the Owners Corporation and Hutchinson Telecommunications (Australia) Limited, the Owners Corporation consented to a licence dated 16 May 2002 between the Company and Telecom Hutchinson 3G Pty Ltd. From at least 2003, the manager of the Owners Corporation included in body corporate certificates provided to vendors of units in the subdivision for the provision of selling of those units, notice that the Body Corporate had granted the licences.

14 On 18 June 2009, the Owners Corporation convened a special general meeting and resolved that Schetzer Brott and Appel be appointed to brief counsel to provide advice regarding the licences in respect of the common property of the Owners Corporation.

15 On 17 February 2010, the Owners Corporation held its annual general meeting. A proposed resolution to the effect that the Owners Corporation resolve to institute proceedings against the Company in respect of the licences was put to the meeting but not passed.

16 There are 104 lots and the plaintiffs collectively own 22 lots. The plaintiffs, the owners of those lots, have filed a statement of claim in this Court on 3 September 2010 which has not been served on the Company. The statement of claim is stale as it has not been served.

1. In the period between the entering into of the respective contracts of sale and settlement of those contracts of sale (Settlement), alternatively in the period between registration of the Plan and Settlement, Brockweir was a constructive trustee of:
   1. The lots on the unregistered plan the subject of the contracts, which lots it held on trust for the respective purchasers of those lots including the First to Seventh Plaintiffs, in relation to those lots identified in paragraph 11 above;
   2. The common property, including the roof and the external walls of the building, the subject of the Roof Licence and the Signage Licence respectively which it held on trust for those persons who had entered into contracts of sale for the lots.
2. As a constructive trustee Blockweir owed to inter alia the First to Seventh Plaintiffs obligations in equity not to place itself in a position of conflict or to profit from contracts entered into relating to the common property.
3. In undertaking the actions referred to in paragraphs 5 and 6 hereof, Brockweir breached the obligation referred to in paragraph 15 hereof.
4. By reason of the matters pleaded above Brockweir holds on trust for the First to Seventh Plaintiffs, such parts of the moneys that it has received from Westpac and Hutchinson and that received by it upon the sale of its interest in the Westpac and Hutchinson licences to Collins Street, as is referable to the First to Seventh Plaintiffs' proportionate share in the common property as determined by lot entitlements, alternatively is liable to pay such amounts by way of equitable compensation to the Plaintiffs.

18 The plaintiffs claim a declaration that the Company holds on trust for the plaintiffs the money received by the Company from its licences which represents the plaintiffs' proportionate share in the common property as determined by the lot liability, all necessary accounts of enquiries, and alternatively, equitable compensation.

19 For the Company to be reinstated, the plaintiffs must demonstrate that they are aggrieved by the deregistration and that it is just that the Company be reinstated.

20 Section 601AH(2) of the Corporations Act provides:

1. The Court may make an order that ASIC reinstate the registration of a company if:
   1. application for reinstatement is made by the Court by:
      1. the person aggrieved by the deregistration; or
      2. ...; and
   2. The Court is satisfied that it is just that the company's registration be reinstated.

21 In Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd,[1] Barrett J stated:

"The question whether an applicant under s601AH(2) is a "person aggrieved by the deregistration" is considered by reference to legal rights and legal interests. It must be seen that the applicant has a genuine grievance that the dissolution of the company affected his or her interest because, for example, a right of some value or potential value has gone out of existence: Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688 (at [24]-[26]). Under analogous English legislation, the applicant was expected to have "an interest of a proprietary or pecuniary nature in resuscitating the company": Re Wood & Martin (Bricklaying Contractors) Ltd [1971] 1 WLR 293; and see Re GA & RJ Elliot Pty Ltd (1978) 3 ACLR 523."

22 In order to assess whether the plaintiffs are aggrieved parties, it is not necessary to embark upon a detailed and exhaustive analysis of the facts and the law underpinning the claim. The threshold is low. The assessment needs to be dealt with in a summary way. As long as the claim is not plainly hopeless and bound to fail, it should, subject to other relevant matters, proceed.

23 Despite the forceful submission of Mr Bick QC, who appeared for the former directors, to the effect that the claim is hopeless and bound to fail, I am unable to agree.

24 Mr Bick submitted that the plaintiffs did not have standing to bring a proceeding of the kind on foot. It was only the Owners Corporation that had such right. It was contended that this followed from the wording of s 31A of the Subdivision Act 1988 (Vic) ("the Act"). A further point was that even if they did have standing, such a claim was bound to fail, essentially because it was not sought - nor could it be - to set aside the licence agreements.

25 Section 31A of the Act is in the following terms:

31A Dealings in common property

(1) The share in the common property of a member of an owners corporation cannot be dealt with except -

1. as part of a dealing with the member's lot; or
2. under Division 3 or section 32A; or

1. by the owners corporation, in accordance with the regulations

26 It is at least arguable that the plaintiffs are not seeking to deal with their interest but rather, determine precisely what their interest is, and whether it includes an entitlement to a proportion of the income derived from the licensing arrangements.

27 As pointed out by Mr Juebner, who appeared for the plaintiffs, upon registration of a plan of subdivision, "the owners for the time being [are] tenants in common in shares proportionate to their lot entitlement".[2]

28 As at the date of registration of the plan of subdivision (10 April 2000) and perhaps before (the date that they entered into a contract of sale), each plaintiff acquired an equitable proprietary interest in not only the lot to be acquired, but also the common property.

29 At the very time that the plaintiffs (or their predecessors) had a vested equitable proprietary interest in the common property, the interest was affected directly by the granting of the licences, presumably without their knowledge although the matter was not concealed. At no stage did the Company become the owner of all the lots and the common property, free from any interest of a purchaser. The equitable proprietary interest of the purchaser in the common property arose at the very same time as the Company purported - as sole owner of all common property- to grant the licenses.

30 In my opinion, the nature and extent of the interests of the purchasers, the time of their accrual, whether it was affected by the granting of the licences and whether and at what stage the Company had fiduciary or other duties, are all matters that are not capable of immediate resolution. Nor should they be. However, the issues are complex and it cannot be said that any claim is plainly hopeless.

31 Although there may be difficulties with the present formulation of the claim, it does not follow that the claim is plainly hopeless.

II. Is it just that the registration be reinstated?

32 In Re Fensford Pty Ltd; Nour Pty ltd v ASIC[3], Balmford J referred to the following passage of Higgins J in Newham v ASIC:[4]

"The discretion [to reinstate the registration of a company under section 601AH] is in terms unfettered but, as with any like conferral of power, it must be exercised judicially and in conformity with the purposes of the relevant legislation. Two considerations should make a court reluctant to revive a defunct company. The first is that to do so revives obligations and liabilities previously considered to be ended thus prejudicing the right and legitimate expectations of the members and offices of the defunct company. The second is that it must create public confusion to have a company blinking out of and into existence. Reinstatement should be permitted only if an unjust result, not remediable otherwise, would follow."

33 Further, in Casali v Crisp,[5] Young CJ, at [31] stated (footnotes and citations omitted):

"The authorities show that, normally, it is not just to reinstate an insolvent company so that issues can be litigated which were not clearly signalled at the time of deregistration a fortiori when such reinstatement would increase its debt."

34 In my opinion, it is not just that the registration of the Company be reinstated at this stage. If the circumstances change, it may be necessary to revisit the application.

35 First, re-creation of the corporate existence is not necessary. Although any proceeding would necessitate a finding against the Company and perhaps others, it is not by this fact alone, a relevant or necessary party. Liability on the part of the Company can be established in its absence. Of course, and paradoxically, the directors may wish to reinstate the Company to defend its (and their) actions. However, the liability of the Company in the circumstances is for practical purposes, of little consequence. It is only a bare trustee as asserted, or a trustee with a paid up capital of $2.00. Unless it is entitled to indemnity out of trust assets, any proceeding is pointless. I am not prepared to reinstate a $2.00 company.

36 If the existence and extent of any indemnity were made part of the proceeding, it would not require the joinder or presence of the Company. As pointed out, it may - or indeed must- involve findings against the Company, but that does not require it to be a party. In the circumstances, part of the claim - and the most relevant from a practical point of view - will involve how and to what extent, any right of indemnity may be used or exploited. This will no doubt be a complicated matter, but it will be so, whether or not the Company is reinstated. If it was reinstated now, the real and practical issue of the availability and extent of the right of indemnity will loom large in any event. There is very little added advantage in reinstating the Company and having it as a party without means, simply for the sake of a judgment. The suggested advantage, namely that a liquidator would have the ability to conduct any relevant public examination and further, that the company would be obliged to make discovery, does not constitute a sufficient reason to reinstate the Company. There are other procedures available.

37 It is not uncommon for the liability of a party to depend on the liability of another. The liability of the proposed defendants - whatever and whoever that may be - will depend upon the liability of the Company. If the Company is not liable, that will be the end of the matter. If however the Company is liable, the question of indemnity out of the trust assets will follow as part of the proceeding. I see no difficulty with this. The liability of the Company will be the foundation or a trigger for the indemnity. If at some stage and for some reason, the Company needed to be a party, the application can be revisited. However, I see no difficulty in the plaintiffs, if they are successful against the absent Company, from exploiting to the fullest, any right of indemnity - presently an asset held by ASIC - that would give the Company, as an incident of such a right, an equitable proprietary interest in the assets of the trust. This process would be part of the subrogated right held by ASIC. Again, this claim can be made without the need to reinstate the Company (and would need to be made even if the Company was a party) and to this extent, the case is not dissimilar to the Danich case referred to by both parties.[6] Although it is common, and may represent the better view, that in this context, the creditor, the trustee and the beneficiaries should all be parties,[7] the Company is not available to be a party and its right of indemnity is vested in ASIC. Further, it is not apparent that there are any other creditors of the company. In these peculiar circumstances, it is not immediately apparent what advantage flows from any re-registration. Again, should this become necessary, the application can be revisited.

38 In Danich, Barrett J refused to reinstate Cenco Holdings Pty Ltd so as to enable Danich Pty Ltd to receive a dividend because it was not necessary. In dealing with this point, Barrett J said, at [38]-[39]:

"[38] Here, by contrast, Danich is the passive holder of an equitable interest in property, with the rights of a beneficiary under the Centrelease Trust in respect of that property, and the property, whatever it may be, is vested in ASIC. To the extend, if any, that the position of someone in Danich's situation is in need of protection or improvement, re-creation of the corporate existence of Cenco does not form part of any necessary or appropriate process.

[39] In the circumstances of this case, the provisions of Ch 5A, coupled with general law principles, adequately cover Danich's situation. The trust property, including the chose in action which is the source of the entitlement to a dividend in the winding up of Cenco Corp, is held by ASIC subject to the rights and interests of Danich and others having rights and interests in it. A gap in the tenure of a trustee has occurred but it is in the hands of ASIC or Danich or anyone else with the requisite standing to seek from the court an order for the appointment of a new trustee, which order would no doubt readily be made. The dissolution of Cenco has not diminished the rights of Cenco. Those rights remain exercisable in respect of the property vested in ASIC and are subject to protection by equity in the same way as if the trust property were vested in any other person. The stated intention of the liquidator of Cenco to pay dividends to no one by Cenco is no more than a reflection of the fact that the liquidator has not been presented with evidence of his right and duty to pay otherwise than to Cenco."

39 Secondly, at the time of its deregistration, there was no indication that a proceeding of the kind now sought to be agitated was "...clearly signalled". In fact, it may be said that the contrary was the position. A meeting of members of the Owners Corporation was held at the Town Hall on 17 February 2010 to consider a proposal to commence a proceeding of the kind now sought to be agitated. No resolution was passed and the directors of the Company then took steps to deregister the Company as part of a larger restructuring.

40 The Company was deregistered on 16 May 2010. The directors took the view after reading the minutes of the meeting, that no claim would be made on behalf of the Owners Corporation. If reinstated, the directors would presumably need to take an active role in the litigation and procure necessary funding. This course would revive the position of the Company, and perhaps its obligations and liabilities, a position contrary to the desire and expectation of the directors at a time when there was no impediment to their course of action. This position should remain unless it is absolutely necessary to reinstate the Company.

41 Thirdly, there are some minor matters which, in my view, make it just that the registration of the Company not be reinstated. It is obvious that there has been inordinate and inexcusable delay on the part of the plaintiffs. Whilst the claim may not be statute barred, the factual position was known over ten years ago. As pointed out, the evidence establishes that since 2003, body corporate certificates have included reference to the licenses. Further, only 22 out of 104 owners have decided to commence this proceeding.

42 In all of the circumstances, I am of the opinion that it is not just to order the reinstatement of the registration of the Company at this stage.

43 In my opinion, the former directors are aggrieved and are entitled to appeal under Order 77.06(1) Supreme Court (General Civil Procedure) Rules 2005 (Vic). For the purpose of the application, they are parties to the proceeding, however, the former directors are clearly interested parties and I would have given them leave to be heard under Order 2.13(1) of Chapter 5 Supreme Court (Corporations) Rules 2003 (Vic).

44 As the registration of the Company was reinstated after the decision of Efthim AsJ, I propose to order that the register of companies be rectified under s 1322(4)(b) of the Corporations Act to delete the registration of the Company.[8]

[1] (2010) ACSR 670 at [43].

[3] [2004] VSC 179 (26 May 2004).

[5] [2001] NSWSC 860.

[6] Danich Pty Lt; Re Cenco Holdings Pty Ltd [2005] NSWSC 293 ("Danich").

[7] See Heydon, JD and Leeming, MJ, Jacobs' Law of Trusts in Australia (7thed) p 575.

[8] Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd [2008] NSWCA 38.