Banque Commerciale S.A. (En Liqn) v Akhil Holdings Ltd

Judgment

1. GLEESON J: On 14 December 2020, the fourth and final day of the trial of these proceedings, the Court dealt with an amendment application by the plaintiffs seeking leave to amend the points of claim to include new paragraphs [29A] and [35A]: [29A] By reason of section 588E(8) of the Corporations Act, the second plaintiff is presumed to be insolvent as at the date of each of the Interest Payments. [35A] By reason of section 588E(8) of the Corporations Act, the second plaintiff is presumed to be insolvent as at the date of the June 2014 Payment.
2. The evidence in support of the application was an affidavit of Mr David Greenberg sworn 9 December 2020, a solicitor employed by the plaintiffs' solicitors. The amendment was opposed by the defendant, Ficema Pty Limited (Ficema), which relied upon an affidavit of its solicitor, Ms Kylie Anne Rae, sworn 14 December 2020. At the conclusion of oral argument, I allowed the amendment. These are my reasons for that ruling.

Background

1. The proceedings involve a voidable transaction claim by the first plaintiffs who are the liquidators of the second and third plaintiffs, BBY Limited (BBY) and BBY Holdings Pty Limited (BBY Holdings), seeking relief under s 588FF of the Corporations Act 2001 (Cth). The proceedings were commenced by originating process filed on 15 May 2018 and the plaintiffs filed points of claim on 29 May 2018. The plaintiffs' case includes a claim that three payments made by BBY to Ficema on 8 January 2014, 20 January 2014 and 26 May 2014, totalling $186,526.64, and a payment of $3 million made by BBY to Ficema on 24 June 2014 were unfair preferences within the meaning of s 588FA of the Corporations Act.
2. On 15 May 2018, the liquidators of BBY commenced separate proceedings against Mr Glenn Rosewall and GARF Pty Limited (the GARF proceedings) alleging receipt of unfair preferences. Mr Glenn Rosewall subsequently became a bankrupt on 12 March 2019 and his trustee in bankruptcy, Mr Adam Shepard, indicated through his solicitors that he would not cause GARF to defend the GARF proceedings.
3. On 1 May 2019, Rees J delivered judgment in the GARF proceedings: Re BBY Limited (Receivers and Managers Appointed) (in liq) [2019] NSWSC 1271. Her Honour found that BBY was insolvent at all times between 1 January 2014 and 17 May 2015, concluding at [30]-[31]: [30] It appears to me from the liquidator's summary of contemporaneous records that BBY was, from January 2014 on, in significant financial distress and, further, BBY's staff recognised the seriousness of the position that the company was in. The staff, in their emails, indicated a willingness to endeavour to raise funds by continuing to make trades in order to make up their losses, that is, to chase their losses. [31] Having regard to the analysis of himself and his staff, Mr Vaughan considered that BBY was insolvent at all times between 1 January 2014 and 17 May 2015. I agree.

Statutory presumption

1. Section 588E of the Corporations Act relevantly provides: Presumptions to be made in recovery proceedings (1) In this section: recovery proceeding, in relation to a company, means: (a) an application under section 588FF by the company's liquidator; or … (8) If, for the purposes of another recovery proceeding in relation to the company, there has been proved: (a) if the other proceeding is of the kind referred to in paragraph (1)(a) of this section - a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2) or in subsection 588FG(9); … it must be presumed that that matter was the case, or that the matters constituting that defence were the case. (9) A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the proceeding concerned.
2. On the facts of this case, given the finding of insolvency by Rees J in the GARF proceedings, the effect of the presumption in s 588E(8) is that each of the payments made by BBY to Ficema referred to in [3] above will be taken to have been made at a time when BBY was insolvent, unless the contrary is proved by Ficema in the present proceedings: s 588E(9).
3. Following the judgment in the GARF proceedings, the liquidators' solicitors sent an email to Ficema's solicitors on 6 August 2019, which included the following statements: 2. The arguments raised in your letter dated 12 March 2019 no longer hold any concern to our clients following: a. the service of Stephen Vaughan's affidavit sworn 26 March 2019; and b. the judgment given by Justice Rees in In the matter of BBY Limited (Receivers and Managers Appointed) (in Liquidation) (Unreported, NSWSC, 1 May 2019) a copy of which is attached. At paragraph [31] of that judgment, Justice Rees said she agreed with the liquidators analysis that BBY was insolvent at all times between 1 January 2014 and 17 May 2015. This finding is capable of giving rise to a presumption that BBY was insolvent in the proceedings against Ficema under section 588E(2) and 588E(8)(a) of the Corporations Act 2001 (Cth). 3. With solvency proved back to 1 January 2014 and Ficema not raising any defence under section 588FG at a minimum Ficema is liable to pay back the $341,890.37 in interest repayments.
4. On 7 August 2019, Ms Rae replied to the liquidators' solicitors as follows: … 2. Mr Vaughan's Affidavit sworn 26 March 2019 causes no concern to our client. In relation to your clients' attempt to rely on the decision of the Court in the GARF matter, we do not consider that your clients can rely on this judgment based on the state of the caselaw, given inter alia, that the matter proceeded undefended.
5. It is plain from this correspondence that Ficema was on notice that the liquidators of BBY intended to rely upon the presumption of insolvency arising under s 588E(8), given the finding of insolvency in the GARF proceedings.
6. These proceedings were listed for hearing before Rees J to commence on 8 September 2020. In accordance with pre-trial directions, the parties exchanged respective outlines of opening submissions dated 3 September 2020.
7. The plaintiffs' opening submissions addressed, among other things, the issue of whether the BBY companies were insolvent in the period from 1 January 2014 onwards, and expressly relied upon the presumption of insolvency contained in s 588E(8) of the Corporations Act 2001 (Cth) in relation to BBY, stating in par [44]: In this case, a presumption of insolvency arises (as set out in Section D.1 below). In any event, as a matter of fact, each of the BBY Companies was insolvent in the whole of the relevant period (as set out in Section D.2 below).
8. Section D.1 of the plaintiffs' submissions, headed "The presumption of insolvency and the shifting onus of proof", referred to the presumption of insolvency under s 588E(8) of the Corporations Act, the decision of Rees J in the GARF proceedings, and the findings of Rees J at [30]-[31]. The submissions acknowledged in par [48] that the finding by Rees J was only with respect to BBY and not BBY Holdings, as only BBY was a plaintiff in the GARF proceedings. The plaintiffs' submissions continued in par [49]: However, BBY Holdings was the holding company of BBY; the BBY Group traded as a consolidated enterprise [CB 2/76]; BBY Holdings held no other assets other than its shares in BBY (other than a receivable from BBY, which was essentially worthless); it was liable for the BBY Group's tax debts [CB 2/76]; it guaranteed BBY's liabilities to St George [CB 3/748-759] and was therefore liable for the shortfall owing to St George [CB 2/130, 2/138]; and it granted the Charge in favour of St George to secure its obligations [CB 3/760-784]. Thus, given the presumption that BBY was insolvent from 1 January 2014 onwards, it must follow (in the absence of the presumption being rebutted) that BBY Holdings was similarly insolvent at all times from 1 January 2014.
9. Ficema's opening submissions made no reference to the plaintiffs' reliance upon the presumption of insolvency arising under s 588E(8) with respect to BBY.
10. The hearing before Rees J was adjourned on the first day (8 September 2020) after Ficema objected to the plaintiffs' reliance upon a late affidavit sworn by Mr Vaughan. The proceedings were ultimately given a new hearing date commencing on 10 November 2020.
11. During the plaintiffs' oral opening on 10 November 2020, counsel referred to the plaintiffs' reliance on the presumption arising under s 588E(8) with respect to BBY, and the judgment of Rees J in the GARF proceedings which had concluded that BBY was insolvent from 1 January 2014 onwards. The hearing proceeded over the next three days and was adjourned to 14 December 2020 due to the unavailability for cross-examination of a witness called by Ficema.
12. Pursuant to directions given by the Court on 12 November 2020, the parties served their written closing submissions prior to the recommencement of the hearing on 14 December 2020. In Ficema's closing submissions dated 20 November 2020, a pleading point was taken for the first time that the plaintiffs' reliance on the presumption of insolvency arising under s 588E(8) with respect to BBY had not been pleaded in the points of claim. Following correspondence between the parties' solicitors, the plaintiffs filed an interlocutory process on 9 December 2020 seeking leave to amend the points of claim to include new pars [29A] and [35A] as indicated above.

Submissions

1. The plaintiffs submitted that pleading the presumption in s 588E(8) is unnecessary, as on its proper construction, the presumption operates by force of its own terms and as such does not need to be pleaded. The plaintiffs say that the two cases referred to by Ficema for the submission that the presumption must be pleaded are distinguishable: see Re Harris Scarfe Ltd (recs and mgrs apptd) (in liq); Dwyer v R-Jay Pty Ltd (2007) 97 SASR 377; [2007] SASC 115, and Kazar (in the capacity as liquidator of Frontier Architects Pty Ltd) (in liq) v Kargarian [2010] FCA 1381; (2010) 81 ACSR 158.
2. The plaintiffs further submitted that no amendment is required because the plaintiffs' case was plainly run on the basis that the presumption in s 588E(8) was available and was relied upon, given the pre-hearing correspondence referred to at [8]-[9] above, and the plaintiffs' written and oral opening, to which no objection was taken by Ficema as being outside the pleaded case.
3. Alternatively, the plaintiffs submitted that if the presumption should have been pleaded, as Ficema contended, then the amendment should be allowed to regularise the pleadings to reflect the case that was in fact run at trial. The plaintiffs further submitted that in all the circumstances the amendment would not cause any prejudice to Ficema.
4. In opposing the amendment, Ficema submitted that it was not on notice of the case raised by the proposed amendments. Alternatively, Ficema submitted that even if it had objected to the plaintiffs' written and oral opening as being outside the pleaded case, that would not have made any difference to how the plaintiffs ran their case because the plaintiffs still had to prove insolvency and call evidence on that issue. According to Ficema, an objection to the plaintiffs' opening would only have led to another potential adjournment application by Ficema.

Decision

1. Given the view I have reached as to the way the case was run at trial, it is not necessary to decide whether the presumption in s 588E(8) operates by force of its own terms and as such does not need to be pleaded.
2. If it were necessary to decide this point, I would incline to the view taken by Flick J in Kazar v Kargarian at [86], notwithstanding that it involved the presumption in slightly different language in s 588E(4) where a company has failed to keep or retain financial records as required by s 286 of the Corporations Act. I agree with Flick J that reliance upon the presumption in s 588E should be pleaded in such a manner as to make such reliance apparent. This is necessary to avoid the potential of taking an opposing party "by surprise", as referred to in Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 14.14(1). Although points of claim are not strictly pleadings, the same approach should be taken to points of claim; they should inform an opposing party of the case they have to meet. Further, notwithstanding the use of the imperative language "must" in s 588E(8), I agree with Debelle J in Harris Scarfe at [23] that there is no public policy ground, nor any other reason, why it is not possible for a liquidator to waive the presumption in s 588E.
3. As to the way this case was run at trial, no pleading objection was taken by Ficema after receipt of the plaintiffs' opening written submissions on 3 September 2020, either in correspondence or on the first day of the hearing on 8 September 2020 when an adjournment application by Ficema was granted. Nor was any objection taken by Ficema after the oral opening by counsel for the plaintiffs on 10 November 2020 which again made plain that the plaintiffs relied upon the presumption in s 588E(8) in relation to proof of insolvency of BBY.
4. It is well-established that pleadings are not an end in themselves, rather they are a means to the ultimate attainment of justice between the parties to litigation: Banque Commerciale S.A. (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 293; [1990] HCA 11 (Dawson J), citing Isaacs and Rich JJ in Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 at 517; [1916] HCA 81; see also Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356; [2010] FCAFC 133 at [52]. A case may be decided on a basis different from that disclosed by the pleadings where the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities: Banque Commerciale at 287 (Mason CJ and Gaudron J).
5. As to what is sufficient to inform the other party of the case it has to meet, in Harris v Harris [2021] NSWCA 329 at [73], the Court of Appeal referred with approval to Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15, where Greenwood, McKerracher and Reeves JJ said at [13]: … courts do not, at least in the current era, take an unduly technical or restrictive approach to pleadings such that, among other things, a party is strictly bound to the literal meaning of the case it has pleaded. The introduction of case management has, in part, been responsible for this change in approach.
6. The Court of Appeal also noted at [74] that in Thomson v STX Pan Ocean Co Ltd, their Honours cited the decision of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82; [2006] WASC 281, including at [6]-[8], where Martin CJ said that contemporary case management techniques including preparation and exchange of witness statements and hearing bundles: [6] … leave very little opportunity for surprise or ambush at hearing and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-hearing case management will exist and be implemented to aid in defining the issues and appraising the parties to the proceedings of the case that has to be met. [7] In my view, it follows that provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action or defence, as the case may be, and appraising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleadings rules that evolved in and derive from a very different case management environment. [8] Most pleadings in complex cases, and this is a complex case, can be criticised from the perspective of technical pleading rules that evolved in a very different case management environment. In my view, the advent of contemporary case management techniques and the pre-hearing directions, to which I have referred, should result in the court adopting an approach to pleading disputes to the effect that only where the criticisms of a pleading significantly impact upon the proper preparation of the case and its presentation at trial should those criticisms be seriously entertained.
7. I find that Ficema was on notice from the pre-trial correspondence in August 2019 of the plaintiffs' case which was run at trial, specifically that the plaintiffs relied upon the presumption arising under s 588E(8) in relation to BBY. The only response by Ficema in its pre-trial correspondence was its legal contention that reliance upon the presumption in s 588E(8) was unavailable because the GARF proceedings were undefended. That objection was misconceived and senior counsel for Ficema correctly accepted that if the amendment was allowed, then the presumption was engaged by the judgment of Rees J in the GARF proceedings, notwithstanding that those proceedings were undefended.
8. Ficema did not object to the plaintiffs' notified reliance upon s 588E(8) in the pre-trial correspondence, on the ground of a pleading point. That was the time to speak up if a pleading point was to be taken. Upon receipt of the plaintiffs' written opening dated 3 September 2020 Ficema faced yet another "fork in the road". It is too late to take a pleading point in closing submissions where no objection has been previously raised: Gould v Mount Oxide Mines Ltd (in liq) at 517. Given the acquiescence by Ficema in the departure from the pleadings from its failure to object to the plaintiffs' notification in pre-trial correspondence and again in their written and oral opening that they relied upon the presumption in s 588E(8), strict adherence to the pleadings would be unjust or unfair to the plaintiffs: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 at [422]-[424].
9. I reject Ficema's submission that it would have made absolutely no difference to the way the plaintiffs ran their case, if Ficema had taken a pleading point earlier (than in its closing submissions). That submission is inconsistent with well-established authority rejecting the culture of trial by ambush and adversarial tactics: White v Overland [2001] FCA 1333 at [4] (Allsop J); Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116; [2001] NSWCA 346 at [28]-[32], [40]-[46], [127].
10. In any event, I accept the plaintiffs' submission that if a pleading objection had been taken by Ficema, which at the latest should have been immediately upon receipt of the plaintiffs written opening on 3 September 2020, the plaintiffs could and would have sought to amend their points of claim in opening submissions on 8 September 2020 to expressly rely upon the presumption. Additionally, the plaintiffs may well have taken a different course in relation to the evidence adduced from Mr Maharaj or Ms Yuen about particular issues relating to the indicia of insolvency, such as creditor pressure.
11. Further, there was no evidence of prejudice to Ficema if the amendment was allowed. No evidence was adduced that Ficema would have done things differently in terms of the expert evidence it had served, but ultimately did not read at the trial, if notice of the plaintiffs' reliance on the presumption arising under s 588E(8) in relation to BBY had been given by an amendment to the points of claim after the decision of Rees J was delivered, as opposed to in the pre-trial correspondence from the plaintiffs' solicitors and the plaintiffs' written and oral opening.
12. In all the circumstances, I was satisfied that it was appropriate that the points of claim be amended to reflect the case that was in fact run at trial. Accordingly, the amendment was allowed.

Amendments 28 January 2022 - Inclusion of "Representation". 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: 28 January 2022