Cameron v Cole

Judgment - EX TEMPORE 1By Amended Notice of Motion filed by leave today, the Applicants, Lime Gourmet Pizza Bar (Charlestown) Pty Limited and others ("Companies") seek an order setting aside what they refer to as a judgment in these proceedings, being an order made by a Registrar determining the amount of remuneration payable to the former administrators of the companies under s 449E of the Corporations Act 2001 (Cth). That order was made following an application filed by Mr Vouris and Mr Rapsey in their capacity as former administrators of the three relevant companies on 23 April 2013. 2There is a degree of untidiness in that application, since the evidence before me raises a question - which it is not practicable to determine since the administrators had no notice of the point and was unable to respond to it - as to whether Mr Rapsey had in fact been appointed an administrator of Lime Gourmet Pizza Bar (Charlestown) Pty Limited although it is clear that, subject to any other matters which the Applicants may seek to raise, that he was at least purportedly appointed as administrator of the other Companies with Mr Vouris. Nothing may ultimately turn upon the question whether Mr Rapsey was appointed as administrator of that company, since he and Mr Vouris were appointed as joint and several administrators and it would seem to have been open to Mr Vouris to have brought the relevant application in his own right, in respect of remuneration payable to him and to any of his partners or staff who worked on the relevant administrations. 3The application brought by the administrators under s 449E of the Corporations Act was supported by an affidavit of Mr Vouris dated 15 March 2013 which referred to his and Mr Rapsey's appointment as administrators of the Companies; as I have noted above, the reference to Mr Rapsey's appointment as administrator of Lime Gourmet Pizza Bar (Charlestown) Pty Limited may have been incorrect, and was at least incomplete so far as there was a question as to that matter. Mr Vouris' affidavit drew attention to a dispute with the Companies' sole shareholder, Hani Mosh Pty Limited ("Hani Mosh"), as to the validity of the administrators' appointment and also set out the work undertaken in respect of the administration. The application was also supported by affidavits of the administrators' solicitor, Mr Mark Doble, dated 22 and 24 April 2013. Those affidavits set out the steps which have been taken by the administrators' solicitors to give notice of their intention to apply for remuneration to the Companies' creditors, who relevantly included Ms Alexandra Moshos, who appears to have been a director of the Companies at the time of the administrators' appointment; Mr Haralabos Moshos, who is presently a director of the Companies and appears for them in this application; and Hani Mosh which is the sole shareholder in each of the Companies. Mr Doble also gave evidence that he had not received a response from the shareholders or creditors of the Companies at the time of the relevant application. I should note at this point that, although Mr Moshos has filed affidavits in support of the application, and they indicate that he has consulted with Ms Alexandra Moshos in respect of the evidence that is led, there is no reference in those affidavits to the fact that he or Ms Alexandra Moshos, or Hani Mosh did not in fact receive those notices of intention to bring the relevant application. There is, however, evidence that the originating process and supporting affidavits was not served upon the Companies and the administrators do not contend to the contrary. 4It is at this point that a difficulty arises in respect of the application, because the administrators have plainly proceeded in the application for approval of their remuneration, as they make clear in their submissions, under rule 9.2 of the Supreme Court (Corporations) Rules 1999 (NSW) which deals with the Court's determination of the remuneration of an administrator. However, the introductory words of that rule makes clear that it applies to an application by the administrator of a company under administration or of a deed of company arrangement for an order under the relevant paragraphs of s 449E of the Act determining the administrators' remuneration. The application made by Mr Vouris and Mr Rapsey was not in fact an application by an administrator of a company or of a deed of company arrangement, but, as it made clear, an application by a former administrator of a company. The distinction seems to me to be one of substance, because rule 9.2 reflects a principle that there is no necessity to give notice to the relevant company where an administrator is still appointed to it, because there would be no point in giving such notice but where it is under the administrator's control. In those circumstances, the only persons with a real interest in the approval of remuneration are the companies' creditors and shareholders named in that rule, and the rule requires giving of notice to those persons. 5That principle has no application where a company is no longer under administration, and is returned to its directors' control, because it is plain in that situation that the company does have an interest in an order for approval of the administration's remuneration, where it may ultimately be required to pay that remuneration. Rule 9.2 seems to me to have no application in that situation, in its terms or by reference to the policy reflected by it, and the ordinary rules for service of proceedings upon persons interested in the proceedings would then apply. In the present case, the originating process filed by the administrators named the relevant companies as defendants but the originating process and supporting affidavits were not in fact served upon them. 6I note that there is one qualification that should be made to the observations I have made above. I have noted that there is evidence that the notice of intention to bring the relevant application was served upon at least Mr Moshos, Ms Alexandra Moshos and the Companies' sole shareholder, Hani Mosh, although Mr Moshos rightly points out that that evidence is given in general form and might not be sufficient to prove service upon those persons, if there was a real contest as to that matter. In the present circumstances, it does not seem to me that there is a real contest as to that matter because, if there were any suggestion that the notice of intention to bring the application had not to come to those persons' attention, one might have expected that that statement would have been made in Mr Moshos' affidavit. Where that statement is not made in Mr Moshos' affidavit, I can readily infer that the evidence of those persons would not have assisted the Companies' application. 7With this background, the Companies seek to set aside the Registrar's decision approving the relevant remuneration, and seeks consequential orders, on several grounds. The first is that the originating process was, they submit, invalid, because it did not comply with rule 2.4 of the Supreme Court (Corporations) Rules which requires an affidavit in support of the originating process to annex or exhibit a record of search of the records maintained by the Australian Securities and Investments Commission, carried out no earlier than seven days before the originating process is filed. In this application, company searches were annexed to the supporting affidavits, but they had been carried out significantly earlier than seven days before the originating process was filed. That was possibly not without significance in this matter because those searches showed the Companies as still under administration, whereas it is at least possible that searches carried out closer to the date of the application, and within the relevant seven day period, would have disclosed that the Companies were no longer under administration and alerted the Registrar to a possible issue as to whether persons affected by the order he or she was asked to make had properly been served with the application, and particularly whether the Companies had been served with that application. 8It is ultimately not necessary to determine whether this would have given rise to reason to set aside the judgment, for reasons that I will express below. In some circumstances, the Court will dispense with the application of that rule, although this is not a particularly clear case in which to do so, given that the searches undertaken at different times would in fact have disclosed different information in respect of a significantly relevant fact. 9The second basis on which the Companies apply to set aside the Registrar's judgment is that the Companies were not served with the originating process or the supporting affidavits. I have noted above that that appears to be common ground, and it raises the issue as to the application of rule 9.2 of the Corporations Rules to which I have referred above. I have noted that the Companies' position is weakened, to some extant, because I would infer that Mr Moshos and Ms Alexandra Moshos were in fact served with the notice of intention to bring the application, because there is evidence in general terms of the posting of that notice and because they do not suggest that they did not receive it. 10However, in my view, that is ultimately not material to the determination of this application. Accepting, for the sake of argument, that Mr Moshos and Ms Alexandra Moshos were on notice of the fact that the application was to be made, it remains that the originating process and supporting affidavits had not been served upon the Companies that were the defendants to the application. It does not seem to me that service under s 109X of the Corporations Act upon a director is established, because, as the administrators concede, the relevant material was not served upon the director personally. It does not seem to me that informal service is established, even if that principle were applicable in the present situation, because what was provided, namely a notice of intention to bring the relevant application, was substantively different and less detailed than the originating process and the supporting affidavits. The documents provided to the directors were therefore not the information that would have had to be served upon the Companies in the ordinary course. 11In this situation, the approach which the Court must take seems to me to be driven by wider principles, not only by the application of rules 36.15 and 36.16 of the Uniform Civil Procedure Rules 2005 (NSW), but also by principles addressed to the integrity of the Court's processes and procedural fairness. Rule 36.15 allows the Court to set aside a judgment or order of the Court if it was made, inter alia, irregularly and rule 36.16 allows the Court to set it aside after it has been entered if it were made in the absence of a party, whether or not the absent party had notice of the relevant hearing or the application for the judgment or order. It is important to recognise that these rules reflect fundamental principles, namely the fundamental right of a party to proceedings before the Court to be heard (Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571 at 589; Labraga v Pomfret [2005] NSWSC 654) and are directed to protecting the integrity of the Court's processes (Double Bay Newspapers Pty Ltd v The Fitness Lounge Pty Ltd [2006] NSWSC 226; (2006) 57 ACSR 131). Where a judgment is obtained through a fundamental irregularity, it should normally be set aside ex debito justitiae, in order to protect the integrity of the Court's processes. 12In the present case, it seems to me that the absence of service of the originating process and supporting affidavits upon the Companies is, not only in form but also in substance, a fundamental irregularity, which deprived them of procedural fairness in respect of the application. The question is not whether the result of the application would have been any different had they been given an opportunity to be heard, because they were entitled to be heard, even if hearing them would have made no difference. In these circumstances, I am comfortably satisfied that the orders made by the Registrar must be set aside, because there was a fundamental defect in the circumstances in which the orders were made, by reason of the absence of notice to the Companies by service of the originating process and affidavits upon them. 13The companies, by Mr Moshos, advance other submissions in respect of the application to set aside the orders made by the Registrar, which it is not necessary for me to determine. The first is an application that the proper Applicants would have been Mr Vouris and Mr Tonks, not Mr Vouris and Mr Rapsey. If that submission were correct, it would only be correct in respect of one of the relevant companies, Lime Gourmet Pizza Bar (Charlestown) Pty Limited. It does not seem to me that it is likely to be correct even in respect of that company, by reason of the fact that the administrators were appointed as joint and several administrators. 14Second, the Companies foreshadow a Cross-Claim that the appointment of the administrators was invalid, by reason that no assessment of solvency was undertaken prior to the supposed appointment, and contend (which is not accepted by the administrators) that Mr Tonks did not consent in writing to his appointment. It is not necessary for me to determinate these matters at this point, given the conclusion that I have reached above. I should note, however, that the Companies should be aware that applications of this kind run a significant risk of being costly to determine, and potentially more costly to determine than the amount in issue in this application, and a significant risk also of giving rise to a Pyrrhic victory if, first, the Court validates an appointment notwithstanding any deficiency in it or, second, orders that the administrator be remunerated on a quantum meruit basis, even if he or she were not properly appointed in the relevant case: compare Correa v Whittingham [2013] NSWCA 263. The Companies should therefore be aware that the pursuit of these claims may ultimately expose them to significant costs, and the prospect that no real benefit will be obtained, if the Court either validates the administrator's appointment or holds it to be invalid but nonetheless orders that they be remunerated on a quantum meruit basis. 15At this stage, I should do no more than to order that the orders made by the Registrar made on 22 May 2013 should be set aside. I will hear the parties as to costs and as to further orders which should be made in the conduct of the proceedings. 16Mr Moshos, on behalf of the companies, seeks costs in a modest amount in respect to the filing fee for today's application and travelling costs from Newcastle to Sydney. I am ultimately not persuaded that this is a proper case for order for costs in the Companies' favour. I accept that the usual position is of course that costs follow the event and the Companies have been successful in this application. However, the position is qualified in this case because, although the administrators incorrectly proceeded under rule 9.2 of the Supreme Court (Corporations) Rules, and that has been one cause of the necessity for the application, it seems to me that the inference should be drawn from the matters to which I referred above that the directors and shareholder of the Companies were aware of the application to be made by the administrators and took no steps on the Companies' behalf to contest that application when it was made. In these circumstances, it seems to me that the proper exercise of my discretion is to make no order as to the costs of this application.