Carpenter v Pioneer Park Pty Ltd; ANZ Banking Group

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

5190/04 - CLIFFORD JOHN CARPENTER v PIONEER PARK PTY LIMITED (IN LIQUIDATION); AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - APPLICANT JUDGMENT 1 By an interlocutory process filed in court on 18 October 2004, Australia and New Zealand Banking Group Limited ("ANZ") seeks an order that it be joined as a party to these proceedings or be given leave to intervene and be heard. The proceedings themselves were initiated by originating process filed on 22 September 2004 by Clifford John Carpenter ("Mr Carpenter") who seeks, as against Pioneer Park Pty Limited ("the Company"), an order that he have leave to commence proceedings on behalf of the Company against either or both of ANZ and PricewaterhouseCoopers. The application for such leave is expressed to be made under provisions in Part 2F.1A of the Corporations Act 2001 (Cth) by which the "statutory derivative action" was created in 2000 . 2 ANZ's application is cast in the alternative in the way I have described. Reference was made in the course of argument to Part 8 rule 2 of the Supreme Court Rules. As I see it, however, the fact that the application is made by a non-party seeking to become a party means that it must be treated as an application to intervene based on Part 8 rule 8 of the Supreme Court Rules. I approach it on that basis. The situation is not one in which ANZ claims a right to become a party to Mr Carpenter's proceeding under Part 2F.1A. It concedes that it could not become a party except by an order for joinder. Mr Carpenter opposes the making of any order that would cause ANZ to be a party to, or to have a right to be heard in, the proceedings in which Mr Carpenter seeks leave to sue on behalf of the Company. 3 Because it will be the defendant in any proceedings commenced by Mr Carpenter on behalf of the Company in exercise of leave under Part 2F.1A, if granted, ANZ considers itself to have such an interest in the question of the grant of that leave that it ought to have an opportunity to be heard on that question. ANZ has been made fully aware of the proceeding that Mr Carpenter has it in mind to initiate for the Company if granted leave to do so. Indeed, Mr Carpenter's solicitors have given ANZ's solicitors a copy of a proposed summons containing pleaded claims in the form used in Commercial List proceedings. 4 A point to be mentioned at this early stage is that the liquidator of the Company has no funds and therefore seems unlikely to take any position when Mr Carpenter's application under Part 2F.1A comes before the court. It is unlikely that, in the absence of ANZ, there will be any contradictor when the question whether Mr Carpenter should be allowed to sue ANZ on behalf of the company comes to be argued. 5 ANZ goes back to first principles of justice in contending that it should be allowed to play an active part in the impending application by Mr Carpenter based on Part 2F.1A. Mr Thomson of counsel, who appeared for ANZ, referred to the well-known passage in the judgment of Mason J in Kioa v West (1985) 159 CLR 550 at 582-3: "It is a fundamental rule of the common law doctrine of natural justice expressed in traditional terms that, generally speaking, when an order is to be made which will deprive a person of some right or interest or the legitimate expectation of a benefit, he is entitled to know the case sought to be made against him and to be given an opportunity of replying to it … The reference to 'right or interest' in the formulation must be understood as relating to personal liberty, status, preservation of livelihood and reputation, as well as to proprietary rights and interests.

The reference to 'legitimate expectation' makes it clear that the doctrine applies in circumstances where the order will not result in the deprivation of a legal right or interest …" 6 Mr Thomson referred to two cases in particular in the company law context. The first is the decision of Bryson J in Dahozo Pty Ltd v Oz-US Film Productions Pty Ltd (1997) 24 ACSR 739, a case in which shareholders of a deregistered company sought an order for its restoration to the register with a view to its pursuing certain proceedings that had been commenced before the deregistration. The object of the proceedings was one Heath who was a shareholder and was (or had been) a director at the time of deregistration. The question before the court was whether it was "just" that there be an order that the company be reinstated to the register. Referring to the position of Heath, Bryson J said: "In the present case the apparent interest of Mr Simon Heath in the application is very clear. He is shareholder in the company, one of four shareholders, and the question whether he was a director or not was in dispute when the company went into provisional liquidation; he will probably maintain that he was a director. Further, he or interests associated with him have been repeatedly involved in claims by or in the interest of the company which have been unsuccessful. To my mind the unfairness of deciding whether the court is satisfied that it is just that the registration of the company be reinstated without notice to him is very clear. To proceed that way would obviously be unfair. As a shareholder, alleged director and defendant in the proposed claim he is quite likely to wish to bring forward relevant considerations on the issue raised by s 574. He is not involved as a potential member of a large group of similar interests or nor is he involved on any basis which cannot be clearly seen."

Bryson J ordered that Heath be made a defendant to the reinstatement application. (As will be seen when I come to mention two decisions of Needham J, special considerations apply to reinstatement applications of this kind). 7 Mr Thomson also referred to Brown v DML Resources Pty Ltd (2001) 39 ACSR 219, a case involving an application to extend the limitation period applicable under s.588FF for the recovery of voidable preferences on the application of a liquidator. Austin J had to decide whether identified persons who might become the subject of recovery claims should be heard on the liquidators' application to extend the limitation period. His Honour decided that the guiding principle was that in Dahozo. That approach was, in the particular context, strongly endorsed by the Court of Appeal in BP Australia Ltd v Brown (2003) 58 NSWLR 322 where Spigelman CJ said (at [134] - [135]): "The obligation to comply with procedural fairness imports a higher level of content when imposed on a court than in decision-making processes conducted by administrators or tribunals. It requires, in my opinion, that a person likely to be adversely affected by the order of the court is given an opportunity of making submissions to the court before any such order is made or if, exceptionally, an order is made without such an opportunity being given that, upon application, the person must be put in the same position as he or she would have been prior to the order being made. It is the inherent difficulty of achieving the latter that makes an ex parte order a course to be followed only in the case of necessity or other strong reason.

The creation of a situation in which a person must apply to vacate or vary an order after the order has been made is an exceptional situation. Nothing on the facts of the present case, as at the time of the first judgment, was such as to justify the exceptional course."

(See also Greig v Stramit Corp Pty Ltd [2004] 2 QdR 17.) 8 In Mr Thomson's submission, ANZ, as the potential defendant in proceedings that Mr Carpenter wishes to bring on behalf of the Company, has such an interest in the outcome of Mr Carpenter's Part 2F.1A application as to attract the operation of these principles of natural justice. 9 Mr Garnsey QC, with whom Mr Connell and Ms Avenell appeared for Mr Carpenter, submitted that ANZ has no interest sufficient to activate the principles discussed. No proceedings have yet been commenced. The questions the court will be called upon to consider when Mr Carpenter's Part 2F.1A application is heard will go to the general viability of the action he proposes to take on the Company's behalf against ANZ and the issue of the Company's best interests and his bona fides. That application by Mr Carpenter does not seek any relief against ANZ. The court is asked only to play a statutory role relevant to questions of internal decision-making for the Company: essentially, if the liquidator who now alone has the power, in the ordinary course, to pursue any claim the Company has against ANZ is, as a practical matter, unable to do so because of shortage of funds, should the power to initiate and prosecute proceedings be placed instead in the hands of Mr Carpenter? I should say here that, in view of Mr Thomson's indication in the course of argument that ANZ does not accept the applicability of Part 2F.1A to a company in liquidation (a matter most recently considered in Kamper v Applied Soil Technology Pty Ltd [2004] NSWSC 891), I should not be taken to be expressing any opinion on that here. 10 Mr Garnsey says that cases such as Dahozo and Brown v DML are distinguishable. They were cases in which someone had a right to rely on some existing state of affairs that the court was asked to change - in the one instance, the non-existence of the deregistered company and in the other the fixed limitation period. Here, by contrast, ANZ has no right to avoid being sued by the Company. If the liquidator had funds, the Company's action against ANZ could be commenced without any need for a preliminary order of the court; likewise if the liquidator were funded by an interested party or if the Company were not in liquidation and its affairs continued to be administered by a board of directors. The rights of ANZ, according to Mr Garnsey's submissions, are and will be the same whether or not Mr Carpenter's Part 2F.1A application is successful. It is not a matter of interfering with rights. It is purely a matter of the internal decision as to who, if anyone, should be allowed to set the Company in motion in suing ANZ and that is a matter of purely domestic concern. 11 I asked both counsel whether any guidance could be obtained from earlier cases involving applications for leave under Part 2F.1A. The answer was generally in the negative, particularly since some of the cases have involved applications for leave to continue proceedings already on foot. My own brief review of the cases confirms this. In several, it is clear that the person I might call the substantive defendant has played an active part when the question of Part 2F.1A leave has been argued. But that, it seems to me, has always been because of the stage at which the need for the leave has been recognised or other factors affecting the existing constitution of the proceedings which have not involved any clear need to address the threshold question that is now before me. 12 If Part 8 rule 8 of the Supreme Court Rules is to form a basis for the order ANZ seeks, it must be found that joinder of ANZ is "necessary to ensure that all matters in dispute in the proceedings may be effectually and completely determined and adjudicated upon". This is the formulation in Part 8 rule 8(1)(b) which is the only potentially applicable provision. 13 This provision is to be construed broadly. That approach was taken by Hutley JA in McIntosh v Williams [1979] 2 NSWLR 543 at p.561 following Lord Denning MR in Guirtner v Circuit [1967] 2 QB 587 at p.595: "It seems to me that when two parties are in dispute in an action at law, and the determination of that dispute will directly affect a third person in his legal rights or in his pocket, in that he will be bound to foot the bill, then the court in its discretion may allow him to be added as a party on such terms as it thinks fit. By so doing, the court achieves the object of the rule. It enables all matters in dispute to 'be effectually and completely determined and adjudicated upon' between all those directly concerned in the outcome." 14 But, as Lord Morris of Borth-y-Gest emphasised in In re Vandervell's Trusts [1971] AC 912 at p.930 the word "necessary" must be given its full weight: "The only question is whether their presence before the court is 'necessary' - that is necessary 'to ensure that all matters in dispute in the cause or matter to be effectually and completely determined and adjudicated upon'. I do not think that any process of giving a wide or liberal interpretation to the rule can be employed to alter it or to give it an enlarged meaning which, on a fair and reasonable interpretation, it does not bear." 15 In both Re Great Eastern Cleaning Services Pty Ltd [1978] 2 NSWLR 278 and Re Rown Pty Ltd (1981) 5 ACLR 745, Needham J allowed intervention in proceedings for restoration of a company's name to the register. He did so on the basis that the persons seeking to intervene were in a position to put before the court matters potentially relevant to the exercise of the court's discretion. But the context was one in which the statutory provision allowing an order for restoration to the register occupied what Needham J, in the latter case, described as "a peculiar position". This was because: "the interests of persons who would be affected by the restoration of the company are specifically placed in the hands of the court and, in many cases, those interests could not be taken into consideration without joining such persons as parties." 16 No such statutory purpose exists in the present case. Part 2F.1A is concerned with the domestic process by which a company makes decisions relevant to initiation and continuation of legal proceedings. The statutory provisions aim to counter the effects of inaction on the part of those who would normally decide such matters internally. In most cases, those persons will be directors whose inaction may be a product of self-interest. Here, the inaction upon which Mr Carpenter seems likely to rely is the inaction of an unfunded liquidator. The provisions do not, in my opinion, have in view the welfare or interests of persons who are, from the company's perspective, "outsiders". They enable anyone with a particular form of "insider" status described in s.236(1)(a) to seek the court's assistance in taking over the role of the normal decision makers in relation to a particular proceeding. The court's function is essentially a screening function. It must assess against specified criteria the litigation proposal the applicant has in mind for the company. If that proposal is found by the court to meet the criteria, it must grant leave enabling the applicant to pursue it for the company. 17 The intended defendant in the proposed proceeding no doubt has an interest of a general kind in the question whether leave should be granted under Part 2F.1A. If leave is granted, that person will be sued (or is likely to be sued). If it is not granted, the person will not be sued, at least at the instigation of the person who has failed to obtain leave under Part 2F.1A. But this cannot, in my view, form a basis for intervention under Part 8 rule 8. I accept, in this respect, the submissions made by Mr Garnsey. The question whether leave should be granted under Part 2F.1A can be decided perfectly well in the absence of the intended defendant. No legal liability or other legal consequence will accrue to that person by any grant of leave. The presence and involvement of the person when the leave question is argued is in no sense "necessary" to an effectual and complete determination of the matters with which Part 2F.1A is concerned. 18 In saying this, I am conscious of the fact that the intended defendant might place before the court perspectives on the proposed litigation that are not available from the applicant for Part 2F.1A leave. But, in the absence of some established interest as such, an ability to be potentially helpful in a proceeding is not sufficient to satisfy the "necessary" criterion in Part 8 rule 8(1)(b). 19 If Mr Carpenter is successful in obtaining a grant of leave under Part 2F.1A and exercises that leave by commencing proceedings on behalf of the Company against ANZ, it will be open to ANZ to make such applications as it thinks fit with a view to having the proceedings struck out or stayed. ANZ will be able to ventilate in that way any view it has that the proceedings, as eventually pursued, lack substance or are motivated by some ulterior or improper purpose. It may also be able to ventilate any view that there was no jurisdiction to grant the leave under Part 2F.1A upon which Mr Carpenter relies. These avenues will be available to ANZ in the way in which they are available to any litigant. 20 Because, for the reasons I have outlined, ANZ is and should remain a stranger to the question whether, in the due administration of the affairs of the Company, Mr Carpenter ought properly be allowed to set it in motion in the way he wishes, ANZ's application for an order that it be added as a party to the proceedings commenced by Mr Carpenter's originating process filed on 22 September 2004 will be refused. The interlocutory process filed on 18 October 2004 is therefore dismissed. **********

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