Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP

The Court's power to vary orders

1. The Court's power to vary orders is set out in Uniform Civil Procedure Rules 2005 (NSW) Pt 36 Div 4.
2. Mr Knowles, who appeared on this application for the Angelis Parties, relied on UCPR r 36.16(2)(b) which provides, relevantly that: (2) The court may … vary a judgment or order after it has been entered if- …. (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order …
3. Mr Knowles submitted that my orders of 11 September were made "in the absence" of Coverforce and that the Court's power to vary the order was thereby enlivened.
4. Mr Knowles submitted that it was competent for the Angelis Parties to bring this application even though they were not the party "absent" at the time that the order was made. [10]
5. Coverforce is the sixth defendant. On 11 September 2020, and indeed for most of the duration of these proceedings, Coverforce has not entered an appearance nor been separately represented. It was separately represented between December 2019 [11] until 24 April 2020 and retained counsel to appear before me twice during that period.
6. Throughout the proceedings, the Angelis Parties and Pemba, who comprise a number of the directors of the Coverforce and together hold all the shares in Coverforce, have been active participants and effective contradictors of the Kitchin Parties.
7. Thus, in my 10 December 2019 judgment I said: "Because of this dispute, there is currently a deadlock on the Coverforce board. For that reason, the board has been unable to appoint legal advisors to represent Coverforce in these proceedings. No party sought any order appointing a party to represent Coverforce's interests in the proceedings. It was common ground that, as the Coverforce business is active and highly profitable, it would have been commercially disastrous for a receiver or provisional liquidator to be appointed to Coverforce for this purpose. Each of the shareholders of Coverforce has actively participated in these proceedings. As was submitted on behalf the Kitchin Parties, all of the shareholders have a keen interest in acting in this litigation in a manner that does not prejudice the legitimate interests of Coverforce. Each has had every opportunity to identify and advance arguments that would serve Coverforce's interests. Each has done so. I accept the submission made on behalf of both Pemba and the Kitchin Parties that the Angelis Parties are effective contradictors of their cases, so far as they affect Coverforce, and that the interests of Coverforce will not be adversely affected by its want of separate representation no matter what the outcome of these proceedings may be. And, as a practical matter, I saw no alternative than to proceed this way." [12]
8. In my 13 August 2020 judgment I said: "In the main judgment I recorded that because of a deadlock on the Coverforce board it was not represented but that the Angelis Parties were effective contradictors of Pemba's and the Kitchin Parties' positions. Since December 2019, Coverforce has appeared by solicitor and counsel, including at the hearings on 2 and 25 March 2020. However, from 24 April 2020 it has again ceased to be represented. No one suggested this was an impediment to me dealing with the remaining issues. I see the position now to be the same as it was last year. One party or other has put all arguments needed to protect Coverforce's position. As a practical matter, there is no alternative but to resolve the remaining issues without Coverforce's separate involvement." [13]
9. In this sense, Coverforce has been very much "present" throughout the proceedings, albeit at times without separate, formal representation.
10. The question of whether a corporation is "absent" when an order is made affecting it, or as here, actually directing it to do something is a question of fact the answer to which may depend on more than whether or not it has a solicitor on the record or a legal representative in court at the time the order is made.
11. In Workers Compensation Nominal Insurer v Detailed Flooring Pty Limited [14] Barrett J said: "The only factual pre-condition to the exercise of the discretion under rule 36.16(20(b) is that the order in question was 'made in the absence of a party', it being beside the point whether the absent party had notice of the hearing or of the application for the order. That condition is satisfied in this case. The orders of 24 June 2010 were made at a hearing before the Registrar at which there was no appearance or participation on behalf of Flooring. The discretion to set aside the orders is therefore available to be exercised." [15] (Emphasis Added.)
12. In that case there was no appearance for the company in question on the return of a winding up application. It is true, as Mr Knowles pointed out, that in the passage I have emphasised, his Honour was referring to the facts before him. But his Honour's reference to a "participation" on behalf of the party whose "absence" was under consideration suggests that his Honour considered that to be a matter of potential relevance.
13. Whether or not that was his Honour's intention, my opinion is that if a party or parties other than the company in question has or have appeared to argue whether an order should be made that the company do something, especially if, as here, those parties comprise directors of the company and all of its shareholders, the "participation" of those parties is relevant to the factual question of whether the company was "absent" when the order was made.
14. Both the Angelis Parties and Pemba have participated in these proceedings on behalf of Coverforce in the sense of advocating for a result promoting Coverforce's position, as well as participating in the proceedings in their own rights and interests.
15. In relation to the orders now under consideration, the whole point of the participation by the Angelis Parties in the debate as to the form the orders should take was to advance an argument that Coverforce not pay the Account until such time as the Kitchin Parties were to repay the Loan.
16. As Mr Elliott SC and Mr Ratnam, for the Kitchin Parties, put in written submissions: "The orders made in September 2020 were all concerned with the relationship between Coverforce on the one hand and the Kitchin Parties and Resilium OpCo on the other. In relation to that contest, the Angelis parties (who hold directorships and shareholdings in Coverforce) advanced arguments and orders for and on behalf of Coverforce, and did so with the knowledge of the only remaining shareholder, Pemba, who appeared throughout and equally had the opportunity to participate and inform the Court if it had any issue with the stance being taken by the Angelis parties for Coverforce."
17. Coverforce was on notice of the orders the Kitchin Parties proposed and of the fact that I was to resolve the remaining debate on the papers.
18. In those circumstances, I do not accept that Coverforce should be seen as an "absent" party for the purposes of UCPR r 36.16(2)(b). Accordingly, I am not satisfied that UCPR r 36.16(2)(b) is engaged.
19. It appears that those advising Coverforce were aware of the possible consequences to Coverforce of it not providing an unconditional bank guarantee within the time specified in my order of 11 September 2020.
20. Thus, in a file note dated 24 September 2020, a solicitor from Norton Rose Fulbright described as "JS" is recorded as saying to an officer of Macquarie Bank: "The only other thing relates to timing. Barristers did this in a hurry, bank guarantee needed to be provided last week. We've let the other side know CF [16] is doing everything it can to get the bank guarantee across. They might trust us, or there could be some delightful bomb coming our way soon. So there is a sense of urgency."
21. Someone described as "SF" is recorded as having responded: "We did have that discussion with CF. They repeated what you said."
22. In those circumstances it would have been open to the Angelis Parties, or Coverforce, to make an application under UCPR r 36.16(3A). That and the following rules provide: (3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered. (3B) Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered. (3C) Despite rule 1.12, the court may not extend the time limited by subrule (3A) or (3B). (4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order.
23. But any such application would have had to have been made within 14 days of my order, which time limit by reason of UCPR 36.16(3C) cannot be extended. No application was made under these provisions within that time, or at all.
24. Mr Knowles did not point to any other power available to me to vary the orders made on 11 September 2020.
25. Mr Knowles did make submissions concerning the Court's power and discretion to decline to enforce its orders where it would be inequitable to do so at the time when enforcement was sought. [17] However, in oral submissions Mr Knowles accepted that unless a power to vary my order of 11 September 2020 could be identified and a basis shown to exercise that power, no stay would be separately available.
26. For these reasons, my conclusion is that I do not have power to grant Coverforce the relief that is sought on its behalf.

Whether the Court would exercise its discretion to vary order

1. In any event, and assuming I have power to make the orders sought by the Angelis Parties, I would not exercise that power.
2. My orders of 11 September 2020 were final orders, made after a lengthy and closely fought case.
3. Although the order in question was not made by consent, it is one that the Kitchin Parties had foreshadowed well before 11 September 2020 as the order for which they would contend.
4. Mr Knowles submitted: "…this is not a case where a party deliberately did not comply with the Court's order. The evidence of Mr Dutt shows that through its management, Coverforce took steps promptly to obtain a bank guarantee. The reasons why it has not yet been able to obtain the bank guarantee relate to the procedures put in place by the bank and are in no way the fault of either Coverforce or the Angelis Parties."
5. That may be so, but the submission highlights the artificiality of characterising Coverforce as an "absent" party. Coverforce, by its "management", was well aware of the terms of the order and was taking steps to comply with it.
6. The file note to which I have referred at [41] and [42] shows that Coverforce was aware that the failure to provide the bank guarantee in time might cause "some delightful bomb" to come Coverforce's "way soon"; and that Coverforce was taking a risk in simply notifying the Kitchin Parties of the fact that Macquarie Bank could not provide a bank guarantee within 7 days and, evidently, hoping for the best.
7. Mr Knowles also submitted that: "The current orders impose unforeseen and significant prejudice upon Coverforce (and through it, the Angelis Parties). Not only does it create an immediate liability to pay the amount due on the account, Mr Dutt's evidence is that the continued existence of the winding up proceedings beyond 28 October 2020 will operate as an event of default under Coverforce's banking facility regardless of the merit of those proceedings".
8. Again, this highlights the artificiality of characterising Coverforce as being "absent".
9. Another file note produced by the Angelis Parties, evidently dated in September 2020, records Coverforce would be obliged to provide "term deposits for security".
10. That suggests that one condition that Macquarie Bank proposes to impose for provision of a bank guarantee is a term deposit by Coverforce, presumably for an equal amount. That points against the proposition that Coverforce will be prejudiced by having to pay the Account to Resilium OpCo as it appears it will have to set aside the funds in any event.
11. Further, as I have set out above, Mr Dutt has emphasised Coverforce's healthy financial state and before me Mr Knowles accepted that Coverforce could pay Resilium OpCo the amount of the Account now. [18]
12. Mr Knowles also pointed to the "credit risk" to which Coverforce will be exposed if it must pay Resilium OpCo the Account now but wait until May 2021 for the Kitchin Parties to repay it the Loan. But Coverforce will have security over the shares in the Resilium companies the meantime; and interest is accruing.
13. Mr Knowles also submitted that my orders of 11 September 2020 reflected "the Court's attempt to balance the interests of the parties", namely that the Kitchin Parties be given until May 2021 to pay the Loan and Coverforce be given a corresponding period to pay the Account and that, "because of circumstances outside the control of Coverforce, and because of the swift enforcement action taken by the Kitchin Parties, the balance sought to be due by the Court has been undermined".
14. However, any "balance" reflected in my orders of 11 September 2020 was on terms: and one of those was that Coverforce provide the bank guarantee within 7 days.
15. Mr Knowles also submitted that the Kitchin Parties would not be prejudiced by the making of the orders sought by the Angelis Parties because, were Coverforce able to procure a bank guarantee in the next few days, the Kitchin Parties' position, and that of the Resilium OpCo, would be restored to the position which obtained at 11 September 2020.
16. But that misses the point that by reason of the terms of those orders, and the failure by Coverforce to provide the bank guarantee in compliance with them, Resilium OpCo has accrued rights and is seeking to enforce those rights.
17. And the right that has now accrued to Resilium OpCo is to recover the value of the profit made by Coverforce from the Resilium business to which, on my findings, Coverforce had no entitlement. [19]
18. In any event, there appears to be some uncertainty, still, as to whether Coverforce can procure the bank guarantee as it is still "subject to formal approval".
19. Overall, assuming I had power to do so, I would not have made the orders sought by the Angelis Parties.

Decision

1. I order that the plaintiff's notice of motion of 15 October 2020 be dismissed with costs.

Endnotes

1. Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP (No 3) [2019] NSWSC 1759.
2. Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP (No 7) [2020] NSWSC 1060.
3. $8,274,620.51 - agreed, following a reference out to the Hon R C McDougall QC - see [10] of my 13 August 2020 judgment.
4. See [61(1)] of my 13 August 2020 judgment.
5. At [72].
6. Which, in the events that happened, I infer they did.
7. Ie the Loan
8. Which provides that the Court must presume a company is insolvent if, during or after the three months ending on the day on which the application is made, execution or other process issued on a judgment of an Australian Court is returned wholly or partly unsatisfied.
9. Including minor changes foreshadowed during oral submissions.
10. JPMorgan Chase Bank, National Association v Fletcher; Grant Samuel Corporate Finance Pty Ltd v Fletcher (2014) 85 NSWLR 644; [2014] NSWCA 31 at [129]-[131] (Beazley P).
11. Albeit after I delivered the 10 December 2019 judgment.
12. At [38]-[42].
13. At [18]-20].
14. [2010] NSWSC 1056.
15. At [10].
16. Obviously, Coverforce.
17. Eg In the matter of Prismex Technologies Pty Ltd [2013] NSWSC 292 at [40] and [49] (Brereton J).
18. T8.8.
19. See [58] of my 13 August 2020 judgment. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 October 2020