BKA Practice Co Pty Ltd v Viking Group Holdings Pty Ltd [2015] VSC 699

1 For many years until 30 June 2011, Jerry Belleli and Brendan King ('the partners') conducted a legal practice in partnership under the name 'Belleli King & Associates' ('the partnership'). On 21 March 2011, the partners caused the defendant company, BKA Practice Co Pty Ltd ('the company') to be incorporated, with a view to selling the partnership business to the company and the company thereafter conducting the legal practice previously conducted by them as partners.

2 In early June 2011, the partners entered into a sale of business agreement with the company, under which they agreed to sell the business of the legal practice known as Belleli King & Associates to the company on certain terms.

3 General Condition 9.2 of the contract of sale provided that the assets sold by the partners did not include the debts owing to the partnership on the day of settlement. Settlement occurred on 1 July 2011. Accordingly, all of the debts due to the partnership up to and including 30 June 2011 remained partnership property.

4 By special condition 4 of the contract of sale, the company agreed to use its reasonable endeavours to recover the debts owing to the partnership and to account to the partnership for any moneys recovered on that account.

5 With effect from 1 July 2011, the company was registered as the owner of the business name 'Belleli King & Associates' and from that time conducted business as proprietor of that name under a different ABN to that used by the partnership.

6 From about 2008, the partnership acted as the solicitors for the first plaintiff, Viking Group Holdings Pty Ltd ('Viking Group') and associated persons and entities (collectively, 'Viking'). The partnership issued invoices to Viking over the years. For example, 33 invoices were issued in the four and half month period between 18 February 2011 and ending on 30 June 2011. Each of those invoices named the partners as proprietors of Belleli King & Associates trading under ABN 43 155 944 140.

7 On 30 June 2011, being the last day that the partnership traded as Belleli King & Associates, the partnership issued its final invoice to Viking in the sum of $202,990.10 ('the original final invoice'). Subsequently, on 4 July 2011, the partnership issued an amended final invoice in the total sum of $175,828.32. The amended final invoice mistakenly understated the true amount owing by $10,000. It was later adjusted upwards to $185,828.32.

8 On 1 and 6 July 2011, Viking Group instructed a tax agent holding tax refund moneys on trust for it to make two rounded payments of $100,000 each to 'Belleli King & Associates'. The first instruction did not include any bank account details. The second instruction included the bank account details for the company's trust account. The total of $200,000 was initially banked into the company's trust account. It was later transferred into the partnership trust account, which was still being maintained in order to wind-up the affairs of the partnership.

9 The $200,000 was applied by the partnership as payment of the amount of the final amended invoice (as corrected for arithmetical error), and some other unpaid debts due to the partnership from Viking. The amount applied to debts due to the partnership totalled $195,144.28.

10 The remaining balance of $4,855.62 was later paid to the company. I infer that the company applied it in part payment of the company's first invoice to Viking issued on 15 September 2011, in respect of work done from 11 August 2011.

(1) the sum of $195,144.30 was owing by Viking to the partnership on and from 30 June 2011;

(2) Viking owed no money to the company at the time the $200,000 was paid on 5 and 6 July 2011; and

(3) no amount was owing or contingently owing by Viking to the company until 11 August at earliest.

12 Accordingly, the company was not a creditor of Viking Group at the time the $200,000 was paid. Under the terms of the contract of sale, it received the sum of $195,144.28 as agent for the partnership. The evidence does not establish whether Viking Group intended any balance of the $200,000 to be paid to the partnership towards the original invoice and other debts to the partnership, or, subsequent to the amended final invoice, to the company on account of expected future debts as work was performed.

13 On 18 August 2011 Westpac Banking Corporation applied to this Court for orders that Viking Group be wound up. On 21 September 2011, this Court ordered that Viking Group be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (the 'Act') and that the second plaintiff, Glenn A Crisp, be appointed liquidator for the purpose of the winding-up (the 'liquidator'). As the application for winding up had been filed on 18 August 2011, that day became the 'relation-back day' within the meaning of the Act.

14 On 18 June 2014, the liquidator instructed his solicitors to prepare and commence a proceeding against 'Belleli King' to recover the $200,000 as 'voidable transactions' under s 588FE of the Act, on the grounds that the payment and receipt of that amount constituted unfair preferences under s 588FA of the Act, uncommercial transactions under s 588FB of the Act, insolvent transactions under s 588FC of the Act and/or unreasonable director-related transactions under s 588FDA of the Act. Proceedings by a liquidator for relief in such circumstances must be brought by application under s 588FF(1) of the Act. Applications under s 588FF(1) must be brought within the time prescribed in s 588FF(3). Relevantly, s 588FF(3)(a) provides that such applications 'may only be made' during the period beginning on the relation-back day and ending three years after that day. In this case, that meant that the liquidator had until 18 August 2014 to commence any application under s 588FF(1).

15 In these circumstances, the liquidator's solicitors had to act promptly to identify the correct defendant, prepare the originating process and supporting affidavit material and ensure that the proceeding was commenced before expiry of the three year limitation period on 18 August 2014.

16 In order to determine the identity of the proposed defendant, the liquidator's solicitors conducted a number of company and business name searches, and inspected two boxes of Viking Group's records concerning its dealings with 'Belleli King'. Those records included invoices from both the partnership prior to 30 June 2011, and from the company after 1 July 2011. If the solicitors had considered these invoices carefully, they would have discovered that the partnership was a creditor of Viking Group at the time the two rounded payments were made and banked, at least for the amount of the amended final invoice, and that the company was not a creditor of Viking Group at that time. Based on these facts, the solicitors ought to have concluded that any proceeding under s 588FF(1) should name the partnership as the defendant and not the company. Alternatively, as a matter of prudence, they ought to have commenced proceedings against both the partnership and the company, given the unexplained difference between the amended final invoice and the total of the rounded payments.

17 But a mistake was made. This proceeding was commenced on 11 August 2014, one week before the expiration of the limitation period, against the company only. The mistake was discovered after the limitation period had expired. In these circumstances the liquidator applied to the Court for an order correcting the mistake in the name of the defendant, so as to substitute the partnership for the company. The application was made under r 36.01 of the Supreme Court (General Civil Procedure) Rules 2005, which relevantly provides as follows:

36.01 General

(1) For the purpose of -

(a) ...

(b) correcting any defect or error in any proceeding; ...

(c) ... -

the Court may, at any stage order that any document in the proceeding be amended or that any party have leave to amend any document in the proceeding.

(2) In this Order document includes originating process, an indorsement of claim on originating process and a pleading.

(3) ...

(4) A mistake in the name of a party may be corrected under paragraph (1), whether or not the effect is to substitute another person as a party.

(5) Where an order to correct a mistake in the name of a party has the effect of substituting another person as a party, the proceeding shall be taken to have commenced with respect to that person on the day the proceeding commenced.

(6) The Court may, notwithstanding the expiry of any relevant limitation period after the day a proceeding is commenced, make an order under paragraph (1) where it is satisfied that any other party to the proceeding would not by reason of the order be prejudiced in the conduct of that party's claim or defence in a way that could not be fairly met by an adjournment, an award of costs or otherwise.

(7) For the purpose of paragraph (6) any other party to the proceeding includes a person who is substituted as a party by virtue of an order made to correct a mistake in the name of a party.[1]

18 The application was supported by an affidavit sworn by Rebecca Mae Fahey. Ms Fahey deposed that she was the solicitor with the care and conduct of the proceeding on behalf of the liquidator and as to the circumstances of her making the mistake in the name of the defendant. The mistake she deposed to was her conclusion that the company 'was the entity which acted as the former lawyers for [Viking Group] at the relevant time and should be named as the defendant in this proceeding', and that '[i]t was always the intention of the plaintiffs to commence this proceeding against the former lawyers of [Viking Group] who had provided legal services to [Viking Group]'. Ms Fahey then deposed that, based on 'the information' then available, the partnership ought to have been named as the defendant in the proceeding, and that '[t]his was a mistake in the name of the proper defendant only'.

19 If Ms Fahey's affidavit is read in isolation, 'the information' she refers to appears to be the original final invoice for $202,990.10. However, pleadings were ordered and, in response to the amended statement of claim, the company pleaded in its defence that it was not a creditor of Viking Group at the time the $200,000 was paid.

20 The application was heard by Efthim AsJ. His Honour gave written reasons for allowing the application. He ordered that the name of the defendant to the proceeding be amended, to substitute the partners trading as Belleli King & Associates for the company.

21 The company has exercised its right of appeal under r 77.06.

22 Ms Fahey was cross-examined at the hearing of the application before Efthim AsJ. She agreed with the suggestion by senior counsel for the company that 'the prudent and appropriate thing to do ... would have been to name both the partnership and the company in the originating process', and said that her error was 'to only proceed against one of those entities'.

23 Efthim AsJ set out some, but not all, of the above facts. In addition, his Honour noted that:

(1) no letter of demand was received by the partnership or the company from the liquidator prior to the commencement of this proceeding;[2]

(2) the liquidator had, however, requested 'Belleli King & Associates' to provide him with information concerning the matters upon which they had been instructed by Viking Group and as to any moneys held on its behalf or in trust;[3]

(3) the liquidator also demanded production of Viking Group's books, records or documents in the possession of Belleli King & Associates.[4] I would add that these requests did not specify whether they were addressed to the partnership or the company.

24 Efthim AsJ concluded on the facts that the liquidator 'intended to sue the solicitors that provided the services and received payment', and that '[t]he correct name was not used because of a mistake'.[5] In these circumstances, Efthim AsJ considered that the application fell to be determined by reference to the provisions of r 36.01 and the principles to be applied to applications under that rule as stated by the High Court in Bridge Shipping Pty Ltd v Grand Shipping S.A.[6]

25 In Bridge Shipping, McHugh J (Brennan and Deane JJ agreeing) stated that r 36.01(4) is a remedial rule which should be interpreted beneficially, giving it:

the widest interpretation which its language will permit. It should be interpreted to cover not only cases of misnomer, clerical error and misdescription but also cases where the plaintiff, intending to sue a person he or she identifies by a particular description, was mistaken as to the name of the person who answers that description.[7]

26 Earlier, McHugh J gave examples of situations where a plaintiff intended to sue a person identified by a particular description but was mistaken as to the name of the person who answered that description:

a plaintiff may make 'a mistake in the name of a party' not only because the plaintiff mistakenly believes that a certain person, whom the plaintiff can otherwise identify, bears a certain name but also because the plaintiff mistakenly believes that a person who answers a particular description bears a certain name. Thus, a plaintiff may make a mistake 'in the name of a party' because, although intending to sue a particular person whom the plaintiff knows by sight, the plaintiff is mistaken as to that person's name. Equally, the plaintiff may make a mistake 'in the name of a party' because, although intending to sue a person whom the plaintiff knows by a particular description, eg the driver of a certain car, the plaintiff is mistaken as to the name of the person who answers that description. In both cases, the plaintiff knows the person intended to be sued by reference to some property or properties which is or are peculiar to that person but is mistaken as to the name of that person. In the first case, the properties which identify the person are personal characteristics; in the second case, they are the properties which are of the essence of the description of that person. But for the purpose of sub-r (4) that distinction is irrelevant. In both cases, the plaintiff was mistaken only as to the name of the person intended to be sued.[8]

27 McHugh J then went on to consider whether the plaintiff in that case intended to sue the owner of the ship or the carrier. The correct defendant should have been the carrier, but the owner had been named as defendant. On the facts of the case, McHugh J concluded that the plaintiff had intended to sue the owner, because the statement of claim identified the defendant by reference to its capacity as owner.

28 Importantly, in the course of his reasons, McHugh J rejected any suggestion that r 36.01(4) applies only to misnomers, and overruled Australian authorities which had relied upon the statement of Devlin LJ in Davies v Elsby Bros. Ltd:[9]

In Davies v Elsby Bros. Ltd,[10] the Court of Appeal held that a plaintiff could not be permitted to amend 'if that would deprive the defendant of the benefit to which he had become entitled as of right under the Statute of Limitations' and 'the amendment involves the addition of a party and not the mere correction of a misnomer'.[11] Devlin LJ said:[12]

I think that the test must be: how would a reasonable person receiving the document take it? If, in all the circumstances of the case and looking at the document as a whole, he would say to himself: 'Of course it must mean me, but they have got my name wrong,' then there is a case of mere misnomer. If, on the other hand, he would say: 'I cannot tell from the document itself whether they mean me or not and I shall have to make inquiries,' then it seems to me that one is getting beyond the realm of misnomer.

29 Efthim AsJ decided that this was a case where the liquidator 'intended to sue the solicitor that provided the services and received payment'. In other words, that the liquidator intended to sue the legal practice which had provided the services and issued invoices, which remained unpaid, at the date the $200,000 was paid. Only one person satisfies that description on the evidence - the partnership. On appeal, the company acknowledges that if Efthim AsJ was correct in considering that the application was governed only by r 36.01 and the principles stated in Bridge Shipping, there was no error in his Honour's exercise of discretion. The company contends, however, that Efthim AsJ 'fundamentally misconstrued the source and scope of the Court's power' on the hearing of the application.

31 First, before the provisions of r 36.01 are engaged, it is necessary to determine whether, as a matter of construction of s 588FF(1) of the Act, an application was in fact made under that sub-section before the expiry of the limitation period. I accept that this is so.

32 Second, in determining whether an application under s 588FF has been made where the wrong defendant is sued, the applicable test is that stated by White J in Austin Australia Pty Ltd (in liq) v A & G Scaffolding & Rigging Service Pty Ltd in the Supreme Court of New South Wales.[13]

33 In Austin, the liquidators sent a letter of demand to Peter K Ceilings Pty Ltd claiming repayment of allegedly preferential payments. The company replied under the name 'Peter K Ceilings' and asked for reasons supporting the claim. Later, the solicitors for Peter K Ceilings Pty Ltd wrote to the liquidator denying any preferential payment had been received. In internal working documents, the liquidator and his staff had occasionally referred to 'PK Ceilings' as a shorthand expression for Peter K Ceilings Pty Ltd. This led to a mistake in the name of the defendant.

34 The liquidator's solicitors conducted an ASIC search of the name 'P K Ceilings' and discovered that it was a registered business name owned by Dean Mann. By mistake, 'Dean Mann trading as P K Ceilings' was sued instead of P K Ceilings Pty Ltd. Upon realising the mistake, the liquidator applied to the New South Wales Supreme Court to amend the name of the defendant by substituting Peter K Ceilings Pty Ltd for Dean Mann trading as P K Ceilings. The application was not made until after the expiry of the relevant three year limitation period. The power to make such an order in New South Wales is governed by ss 64 and 65 of the Civil Procedure Act 2005 (NSW), which is not in identical terms to r 36.01 in this jurisdiction.

35 In Austin, as here on appeal, there was no issue that the amendment to substitute the correct party for the wrongly named defendant should be made if the procedural rules in the Civil Procedure Act 2005 (NSW) applied. In these circumstances White J held that, in determining whether 'an application' had been made under s 588FF(1), the plaintiff needed to establish that 'there was simply a misnomer' of the defendant so that there was not, in substance, the substitution of a new party except in a technical or formal sense.[14] White J did not make it clear why he thought this was so, although it may be that he was influenced by two Queensland decisions which stand for the proposition that 'an amendment to add a new party is to make an application under sub-s 588FF(1), and hence the application must be made within three years after the relation-back day'.[15] As his Honour noted, however, those cases were not concerned with the mistaken naming of a party. 'They were cases in which the effect of an amendment, if allowed, would have been to commence a fresh proceeding against a newly added defendant outside the prescribed time.'[16]

36 Having determined that it was necessary for the plaintiff to establish a misnomer for 'an application' under s 588FF(1) of the Act to have been made, White J then considered what test should be applied in determining whether there had been a misnomer. Notwithstanding the criticisms of the Davies[17] test in Bridge Shipping,[18] White J considered that test was 'nonetheless an appropriate test to determine whether within the meaning of s 588FF(3) an application was made against Peter K Ceilings Pty Ltd under s 588FF(1)' when the application was made.[19] On the facts of that case, the Davies test was satisfied because there had not been any dealings between the company in liquidation and the named defendant.

37 With respect to White J, I do not agree that, in determining whether an application has been made under s 588FF(1) when there is a mistake in the name of a defendant, it is necessary to consider how the mistake arose. In my opinion, the general requirements for determining whether 'an application' under s 588FF(1) has been made, as stated by the High Court in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher,[20] should apply:

an application under s 588FF(1) must seek orders for which that subsection provides, which concern a transaction alleged to be voidable under s 588FE between the company and one or more other parties. The transaction must be identified, in terms of conduct of the company. It must be arguably capable of inclusion in one of the designated classes of transaction mentioned in s 588FE. The specification of the time that it was done, or of an act done to give effect to it within a relevant period, would also be necessary to the contention that it was a voidable transaction. Parties to the transaction who would be affected by the orders sought would have to be identified and those parties named as respondents.[21]

38 In this case, all of those requirements have been satisfied, albeit that the defendant was, by mistake, wrongly named. The defendant was identified as the person, 'trading as Belleli King & Associates', who was the creditor of Viking Group at the time of the identified transactions. In error, the company, and not the partnership, was named as that person. The High Court's statements in Fortress Credit were not concerned with mistakes in the names of parties, and so the requirement for the affected parties to be 'named as respondents' should not be read as requiring strict accuracy in names as a condition of a valid application under s 588FF(1).

39 Once such an application has been filed with a Court which is competent to exercise Federal jurisdiction under s 588FF, the procedures to be adopted by the Court are those applying to that Court. In Gordon v Tolcher, the High Court stated:

Section 588FF does not deal with the investment of federal jurisdiction in any court or with the manner of exercise of that jurisdiction. The section is found in Pt 5.7B, whilst the jurisdiction of courts is provided for in Pt 9.6A. Section 588FF is silent respecting the procedures to be adopted by the court exercising federal jurisdiction in the present matter; ... Section 588FF evinces a two-fold legislative intention. First, conferral of federal jurisdiction is left to Pt 9.6A of the Corporations Act. Secondly, subject to any operation of other provisions of the Corporations Act, after the institution of an application the procedural regulation of the conduct of a matter is left for that particular State or territorial procedural law which is to be picked up by s 79 of the Judiciary Act.[22]

40 Later, the Court stated the same principle in different words:

An application may be made only to a court invested with federal jurisdiction by one or other of the provisions of Pt 9.6A. Thereafter, and subject to any other relevant provision of the Corporations Act, the conduct of the litigation is left for the operation of the procedures of that court. These procedures will vary from one State or Territory to another and within the court structures of those States and Territories. The scheme of the Corporations Act is not to impose a direct federal and universal procedural regime. Rather, s 79 of the Judiciary Act is left to operate according to its terms in the particular State or Territory concerned.[23]

41 Section 79 of the Judiciary Act 1903 (Cth) relevantly provides:

79 State or Territory laws to govern where applicable

(1) The laws of each State or Territory, including the laws relating to procedure ... shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.

...

(3) This subsection covers a law of a State or Territory that would be applicable to the suit if it did not involve federal jurisdiction, including, for example, a law doing any of the following:

(a) limiting the period for bringing the suit to recover the amount;

(b) requiring prior notice to be given to the person against whom the suit is brought;

(c) barring the suit on the grounds that the person bringing the suit has charged someone else for the amount.[24]

42 In Gordon v Tolcher the plaintiff liquidator had commenced proceedings in a Court of competent jurisdiction (the District Court) within the three year limitation period, but the relevant rules of the District Court operated to dismiss the proceeding because certain procedural steps had not been taken within specified times. The procedural rules of the District Court permitted the court to extend any time fixed by the rules, either before or after the time had expired. In the meantime, the three year limitation period had expired. It was nevertheless held that the Court's procedural rules gave the Court power to revive the proceeding after its dismissal. This was because it was not 'otherwise provided in s 588FF or any other provision of the Act'.[25]

43 Gordon v Tolcher was applied in the recent decision of the High Court in Grant Samuel Corporate Finance Pty Ltd v Fletcher,[26] a case concerning whether the procedural rules in New South Wales empowered the Court to extend the time for bringing a proceeding under s 588FF(1). The High Court determined that the rules could not be used for this purpose, because s 588FF(3) otherwise provided.[27]

44 The decision in Grant Samuel is relevant for two purposes. First, it confirms that the bringing of an application within the time required by s 588FF(3) 'is a precondition to the Court's jurisdiction under s 588FF(1).'[28] Second, the decision also confirms that, once an application under s 588FF(1) is made within time to a Court of competent jurisdiction, the procedural regulation of the proceeding after the institution of the application 'is left to the State or Territory procedural law',[29] unless the relevant procedural law is inconsistent with the Act - so that it can be said the Act 'otherwise provides' within the meaning of s 79 of the Judiciary Act.

45 Section 588FF does not deal with mistakes in the names of parties to applications made within time under s 588FF(1). I am not aware of any other provision in the Act which does. Accordingly, s 588FF(1) does not 'otherwise provide' within the meaning of s 79 of the Judiciary Act, and r 36.01(4) applies to any application made under s 588FF(1) in this Court. As discussed above, any application under r 36.01(4) should be determined according to the principles stated in Bridge Shipping.[30] As it is agreed that Efthim AsJ's exercise of discretion on that basis was correct, the appeal should be dismissed with costs.

[2] Viking Group Holdings Pty Ltd [2015] VSC 485 [13].

[6] [1991] HCA 45; (1991) 173 CLR 231 ('Bridge Shipping').

[9] Ibid 254-5 (citations in original), 259.

[10] [1961] 1 WLR 170; [1960] 3 All ER 672 ('Davies').

[13] [2007] NSWSC 1077 ('Austin').

[15] Ibid [18], referring to Greig v Stramit Corporation Pty Ltd [2003] QCA 298; (2004) 2 Qd R 17, 37-8 [83]-[90], 45 [118], 58 [168]; Tagoori Pty Ltd (in liq) v Lee [2001] 2 Qd R 98, 99.

[17] [1961] 1 WLR 170; [1960] 3 All ER 672.

[18] [1991] HCA 45; (1991) 173 CLR 231.

[19] Austin [2007] NSWSC 1077 [30].

[22] [2006] HCA 62; (2006) 231 CLR 334, 346 [32] (emphasis added).

[25] Gordon v Tolcher [2006] HCA 62; (2006) 231 CLR 334, 348-9 [41].

[30] [1991] HCA 45; (1991) 173 CLR 231.