Supreme Court of WA|1999-12-13|Before: Mr J, Anderson J

Carob Industries Pty Ltd (In Liq) Trading as Foremost Equipment v Simto Pty Ltd Trading as Simto Australia [1999] WASC 258 (13 December 1999)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CAROB INDUSTRIES PTY LTD (IN LIQ) Trading as FOREMOST EQUIPMENT -v- SIMTO PTY LTD Trading as SIMTO AUSTRALIA [1999] WASC 258

BETWEEN : CAROB INDUSTRIES PTY LTD (IN LIQ) Trading as FOREMOST EQUIPMENT

BETWEEN : CAROB INDUSTRIES PTY LTD (IN LIQ) (ACN 008 847 256)

CAROB INDUSTRIES PTY LTD (IN LIQ) (ACN 008 847 256)

Commercial arbitration - Termination of proceedings - Want of prosecution - Inordinate and inexcusable delay - Prejudice to defendants

Corporations - Companies - Liquidators - Sale of chose in action - Sale neither beneficial nor detrimental to creditors - Purpose of sale to pay liquidator's fees and complete winding-up - Principles

No order on application for approval of deed pursuant to Corporations Law s 477(2B)

Custom Credit Corporation Ltd (In Liq) v James, unreported; SCt of WA; Library No 980137; 31 March 1998

Putnin v Kane, unreported; SCt of WA; Library No 980454; 11 August 1998

1 ANDERSON J: I have before me three applications. There is an application under s 46 of the Commercial Arbitration Act 1985 to terminate the arbitration on the ground of undue delay on the part of the claimant in prosecuting the claim. There is an application on the part of the claimant to lift an order for the stay of the arbitration; and there is an application to have a deed approved under s 477(2B) of the Corporations Law. That is the section which permits a liquidator of a company to enter into an agreement on the company's behalf, having a duration of more than three months subject to the approval of the creditors or of the court. The agreement in question in this case is an agreement to sell one of the assets of the company; namely, its chose in action being the claim in the arbitration.

3 In 1991, the respondent, Simto Pty Ltd, was engaged as the main contractor to construct two sea walls at Cape Lambert. In March 1991, Simto made a subcontract agreement with the applicant, Carob Industries Pty Ltd (In Liq) by which Carob agreed to cart various classes of earth materials required in connection with the construction of the two walls.

4 Carob carted a substantial quantity of material and claims that it has been short-paid for that work. Simto contends that Carob failed to cart the quantity of material which it contracted to cart and claims that it was put to expense in arranging for others to complete the work. Thus, there is a substantial claim by Carob against Simto and a substantial claim by Simto against Carob.

5 On 14 May 1992, Carob gave notice of a dispute under the subcontract agreement and on 8 June 1992 called for the nomination of an arbitrator. On 3 July 1992, Mr J G Foster was nominated by the Institute of Arbitrators, Australia. Shortly after, on 5 August 1992, the winding-up order was made placing Carob in liquidation and Mr V C Court was appointed liquidator. By notice of originating motion dated 19 November 1993 in the arbitration proceedings, Carob referred the question of the validity of the arbitration clause to the Supreme Court for determination. On 17 April 1996, Scott J held that there was no valid arbitration clause in the subcontract. Carob appealed this decision to the Full Court by notice of appeal dated 8 May 1996. On 17 January 1997, Simto filed a motion to stay the appeal on the grounds that the arbitration proceedings were being maintained under a champertous arrangement and were an abuse of process. For reasons which do not matter, the stay application was adjourned and the appeal went ahead. The Full Court handed down its decision on 22 May 1997, allowing the appeal and determining that there was a valid arbitration clause in the subcontract. By originating summons dated 26 May 1997, Simto brought an application in the arbitration proceedings seeking a stay of the arbitration proceedings on the ground that the proceedings were champertous and an abuse of process. The application was heard by me on 10 July and 2 October 1997 and on 11 December 1997 I held that the arbitration was, indeed, being maintained under a champertous arrangement between the liquidator and a Mr Phillip Clements, a peripatetic character who seems to never be at any one place or in any one country for any length of time. In the affidavits that he filed in the champerty proceedings, the picture that he attempted to paint was that he was not involved in any arrangement whereby he was funding the arbitration for a share of the award, but was merely acting as the liquidator's agent in instructing the solicitors. In Carob Industries Pty Ltd (In Liq) v Simto Pty Ltd, unreported; SCt of WA; Library No 970692; 11 December 1997, I gave detailed reasons why that was not true. I held that Clements was maintaining the arbitration in the name of Carob and doing so without possessing any legitimate and genuine interest in the outcome of the arbitration. He did so for some five years - from some time in 1993 until the order I made on 11 December 1997 staying the arbitration proceedings on the ground of unlawful maintenance.

6 Now, nearly two years after that stay order was made, these applications have been made.

7 I will deal first with the question whether the arbitration should be terminated for want of prosecution. In my opinion, it should. It is the duty of each party to an arbitration agreement to exercise due diligence in prosecuting a dispute referred to arbitration: Commercial Arbitration Act s 46(1) and (2). A court will not terminate an arbitration for delay unless it is satisfied that the delay has been inordinate and inexcusable and will give rise to a substantial risk of prejudice to the other party. Commercial Arbitration Act s 46(3). The test is the same as the common law test. If there is inordinate and inexcusable delay, coupled with a substantial risk that it is not possible to have a fair trial of the issues in the action, or there is a likelihood of serious prejudice to the defendant, the proceedings will usually be brought to an end by the court. Lewandowski v Lovell (1994) 11 WAR 124, especially at 131; Hughes v Gales (1995) 14 WAR 434; Birkett v James [1978] AC 297 at 318; Ulowski v Miller [1968] SASR 277 at 280.

8 It seems that there are five main matters which are to be considered, they being the length of the delay, the explanation for the delay, hardship to the plaintiff if the action is dismissed and the cause of action left statute-barred, the prejudice to the defendant if the action is allowed to proceed notwithstanding the delay and the conduct of the defendant in the proceedings. Lewandowski v Lovell (supra) at 133.

9 In this matter, the delay has been quite extraordinary. The arbitrator was appointed on 3 July 1992 and the arbitration should have been disposed of long since. Some part of the delay can be explained by a dispute between the parties as to whether the agreement did contain an arbitration clause. Clements sought to resolve that dispute by bringing an originating motion to this Court in the name of Carob, seeking determination of that question and subsidiary questions, including the validity of the appointment of the arbitrator, Mr Foster. He moved extremely slowly. It was not until November 1993 that the notice of originating motion was filed, that is, some 16 months after the arbitrator was appointed. No affidavit was filed in support of the originating motion until 24 August 1994 - another nine months. The originating motion was not actually served on Simto until 6 September 1994, 10 months after it was filed. There is no explanation for this delay. The affidavit in support was sworn by Clements who, I have held, was illegally maintaining the arbitration proceedings. In late 1995 through to early 1996, there was an unsuccessful attempt by Simto to terminate the arbitration for want of prosecution. There is no reason why that should have held up the main proceedings. Then there was the application to stay the proceedings on the ground that they were being unlawfully maintained and that occasioned some delay. However, the fact is that the proceedings were being unlawfully maintained. To the extent that the proceedings were being prosecuted at all, they were not being prosecuted by Carob, but by Clements in a most desultory fashion and pursuant to an unlawful arrangement. My decision was handed down in early December 1997. Here we are in December 1999 not one step further ahead. Nothing has happened between December 1997 and December 1999 which could give any excuse for inactivity, except for difficulties said to have been experienced by the liquidator in remedying the unlawful arrangement pursuant to which the proceedings were being conducted. In an affidavit dated 16 August 1999, the liquidator attempted to explain that delay. Essentially, it gets down to solicitors' delay. I cannot accept that excuse. It should have been a simple matter to terminate any unlawful arrangement with Clements and to enter into a proper arrangement pursuant to s 477(2)(c) of the Corporations Law. The agreement now presented for consideration by the court is a short, uncomplicated agreement.

10 The long and the short of it is that it is some seven years since this arbitration was started and no useful step at all has been taken in the arbitration proceedings themselves. It is now more than eight years since the work was finished. Mr Caruso, who was the respondent's construction manager, has sworn an affidavit to the effect that over the years his recollection of events has faded to the extent that he now has difficulty recalling in detail the events which took place in 1991 and that is not in the least surprising. He has deposed that no site survey of the work done by Carob is now possible because the site has undergone structural change. In an affidavit sworn on 14 December 1995, Mr Caruso deposed to the fact that Simto's contract engineer, one Mattner, left the respondent's employment in June 1993, and its project engineer, one Francis, left Simto's employment in February 1992. Simto has no contemporaneous record of the quantity of material excavated and transported by the claimant.

11 One cannot help but conclude, from an examination of the proceedings as a whole, that they have been conducted by (or on behalf of) the claimant in a most unsatisfactory manner from their inception. I have come to the conclusion that the liquidator has never been interested in prosecuting the arbitration. He left it in the hands of Clements under an unlawful arrangement; and Clements turned his attention to it when it suited him in his travels around the world. It is this which has caused the inordinate delay. I do not think it is at all to the point for the liquidator or Carob or Clements to complain about the delay occasioned by Simto's application to stay the arbitration on the ground that it was being unlawfully maintained. The fact is that the arbitration was being unlawfully maintained almost from its very inception, so that any delays occasioned by having that matter resolved must be laid at the feet of Carob and must be regarded as inexcusable. There was nothing to prevent proper arrangements being made between the liquidator and Clements long ago.

12 As has been observed, the liquidator now wishes to enter into an arrangement with Clements for the sale of the chose in action to him. Section 477(2)(c) of the Corporations Law empowers a liquidator to -

"sell or otherwise dispose of, in any manner, all or any part of the property of the company;"

any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action."

13 This section makes it lawful for a liquidator to sell or otherwise dispose of a cause of action and there is no requirement implied or express to the effect that the liquidator must sell the cause of action to someone already having an interest in the outcome of it: Ultra Tune Australia Pty Ltd v UTSA Pty Ltd (In Liq) (1996) 14 ACLC 1610 per Hayne JA at 1615.

14 It would appear that Carob's claim against Simto is for $128,233. The essential part of the agreement between Clements and the liquidator is that Clements will fund the arbitration and upon the "successful completion" of it, Clements will pay to Carob 50 per cent of the net amount received after costs. The agreement is exhibit VCC7 in the affidavit of the liquidator, sworn 14 September 1998 in ARB 36 of 1998. As appears from par 32 of Mr Caruso's affidavit and annexure JAC1, the liquidator has already received fees of $65,925 and claims further fees of $67,986 as at 4 September 1998. Thus far, creditors of the company have received nothing. The creditors have not been consulted about the sale of the chose in action. If the arbitration proceedings are wholly successful, the company will receive 50 per cent of $128,233, or $64,116, which is less than the amount due to Mr Court. Whilst there might be an award of interest if the claim is successful, it is reasonably plain that the only persons who can benefit from the proposed sale are Clements and the liquidator. Neither the company nor its unsecured creditors nor its members will receive any benefit. This is relevant both to the question whether the arbitration should be terminated for undue delay (termination of the arbitration will not disadvantage creditors or members) and to the question whether the agreement should be approved. The main basis upon which the court would give an approval under s 477(2B) of the Corporations Law is to advance the interests of the company as a whole. The transaction should be seen to be "in the interests of the company, the creditors and the community": Re G A Listing & Maintenance Pty Ltd (1994) 14 ACLC 587 at 310, 311. Although under s 477(2)(b) the power of the court to approve the sale of a chose in action is not conditioned on the liquidator obtaining the approval of the creditors or members, it will usually be regarded as important to have that approval. Re Movitor Pty Ltd (1996) 14 ACLC 587; Re Addston Pty Ltd (In Liq) (1998) 16 ACLC 1320 at 1330 - 1331. The court is more readily able to come to the conclusion that the liquidator is acting bona fide if what he proposes to do has the approval of the creditors. Having said all that, although it is very obvious that the members and creditors will not be any better off if the agreement is approved, I cannot see that they can be any worse off. The company has no funds whatever and is in no position to undertake the proceedings itself. There is evidence that the liquidator has approached the company's major creditor, the Commissioner of Taxation, to see whether that creditor is prepared to fund the arbitration and that creditor is not prepared to do so. Although the proceeds that may arise from the prosecution of the arbitration to a successful conclusion are likely to be absorbed in their entirety by the amount of unpaid liquidator's fees, I do not consider that is of itself a reason not to approve the arrangement. Obviously, it is in the company's interests and also in the interests of the community that the liquidator should be paid his proper fees and the winding-up concluded in an orderly manner.

15 It cannot be said, therefore, that no purpose at all will be served in approving the arrangement. I accept the submission made on behalf of the liquidator that, at the very least, a successful conclusion of the arbitration will provide funds to enable the liquidator to be paid his proper fees and to conclude the liquidation in an orderly fashion. However, I do not think the order that is sought under s 477(2B) should be made on an application in the arbitration proceedings. I think there should be an application in accordance with the Corporations Rules; ie, O 81G.

16 I am mindful of the fact that, having decided to order that the arbitration should be terminated for want of prosecution, an order approving the funding arrangement between the liquidator and Clements may be futile. It may not be entirely futile, however, because, of course, the company has a right of appeal against that order.

17 It follows, of course, from the decision I would make to approve the funding arrangement that the stay of proceedings should be lifted.

1. The arbitration should be dismissed for want of prosecution.

2. On the filing of a proper application, the proposed funding arrangement between the liquidator and Clements should be approved pursuant to s 477(2B) of the Corporations Law.

3. The stay of proceedings ordered by me on 11 December 1997 should be lifted.

18 Simto should have the costs of the application to dismiss the arbitration proceedings for want of prosecution. There should be no order for costs in respect to the other applications. If either party wishes to persuade me to make different costs orders, I will hear submissions, but otherwise I invite the parties to send down an agreed minute giving effect to these orders.

Arbitration Act 1985

Carob Industries Pty Ltd (In Liq) Trading as Foremost Equipment v Simto Pty Ltd Trading as Simto Australia [1999] WASC 258

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (35 paragraphs)

Carob Industries Pty Ltd (In Liq) Trading as Foremost Equipment v Simto Pty Ltd Trading as Simto Australia [1999] WASC 258 (13 December 1999)

Parties

Legislation Cited (1)

Cases Cited (3)