CLC Corp v Read

CLC's SUBMISSIONS 16 In the outline of submissions filed on behalf of CLC it is stated that the time limit imposed on an appeal under section 1321 of the Corporations Law by Order 71 Rule 100 (2) is (probably) a procedural time limit in that the time limitation is imposed by the rules of Court rather, than by the statute creating a right of appeal (see Jackamarra v Krakouer (1998) 72 ALJR 819; In re Salmon (deceased) [1978] 2 All ER 1084). 17 In contrast to the discretion conferred by Order 52 Rule 15 (2), an extension of time under Order 100 Rule 2 does not require an applicant to show "special reasons". The question is whether it would be just in all the circumstances to grant the application (Hall v Nominal Defendant (1966) 117CLR 423; Jackamara (supra) at 832). 18 It is submitted on behalf of CLC that the relevant circumstances include:

1. There is an explanation for the delay, and the litigant in this case is faultless. In such circumstances, an application for an extension of time is usually considered favourably (Esther Investments Pty Ltd v Markalinga Pty Ltd (1989) 2 WAR 196);
2. It is significant that an appeal under section 1321 of the Corporations Law is one of a number of avenues which the Applicant may follow to challenge the joint Liquidators payment, including a complaint to the Court under section 536 (1) Corporations Law; to seek the removal of the joint Liquidators under section 473 (1); and with the leave of the Court bring proceedings against the joint Liquidators for negligence. None of these three alternative routes is time barred, but the appeal under section 1321 is the most cost effective and efficacious way of raising and dealing with the issues to be litigated. It is submitted that the efficient disposal of the litigation and effective use of public resources is an important factor in the discretion (Chapman v Travelstead (1998) Federal Court, French J (unreported), 25 August 1998);
3. The Applicant has a good arguable case on appeal, and at this stage need not do more than show the appeal "has some prospects of success" (Jackamarra, supra). If the time limit is procedural the threshold is even lower (Jackamarra). In support of its contention that the Applicant has a good arguable case in the appeal it is submitted that the joint Liquidators have contravened section 555 of the Corporations Law in that they have paid the Second Respondent's debt or claim in full in circumstances where the property of the company in liquidation was insufficient to meet all claims in full; they have failed or refused to enforce their right under Sections 530B(1)(b) and 530B(4) of the Corporations Law to require the delivery up of the Certificates of Title, which are one of the "books" of the company (section 9 definition "books") ;
4. If the Second Respondent was not entitled to payment of the sum of $146,000.00, the transaction has prejudiced all of Penale's creditors who will receive a smaller distribution than that to which they were entitled; the First Respondents assert no prejudice to themselves or their administration; the Second Respondents have suffered no prejudice, because from the time they were paid the sum of $146, 000.00, they had no possessory lien and they were not entitled in any event to assert a lien against the Liquidator;
5. The joint Liquidators were informed, before they paid the money to the Second Respondent, that the Applicant opposed the payment and said that they were not entitled to make it.
6. The payment was made on 6 July 1998 and the twenty-one day period prescribed by Rule100 (2) expired on 28 July 1998. On 12 November 1998 the Applicant sought further information from the joint Liquidators with a view to challenging the decision. No response was received until 4 December 1998 and proceedings instituted 3 days thereafter. The effective delay is therefore slightly over 3 months which in the scheme of things is not a long delay.
7. There is a public interest in the subject matter of the appeal which arises because the joint liquidators are officers of the Court and are subject to the supervision of the Court, and there is a public interest in assuring that they act properly and in the interest of the creditors;
8. The second Respondents as solicitors are officers of Court and the lien they asserted only arises because they are solicitors, and there is a public interest in ensuring that the Courts officers do not receive a substantial advantage over other creditors, if, in the event they are not entitled to it;
9. The points raised, in particular regarding the effect of section 530B of the Corporations Law are not directly covered by authority;
10. There is a public interest in the efficient and cost effective administration of justice and the procedure under section 1321 of the Corporations Law is a direct and simple means of enforcing the repayment of the sum of $146, 000.00 to Penale if the Applicant is right, whereas alternative routes are more time consuming and more costly to the parties and the public generally;
11. Important considerations of public perception arise as this is a case where liquidators, without power, preferred the interests of solicitors over the interests of other creditors in a liquidation, and the maintenance of public confidence in the administration of justice requires that the creditors' right to test that decision should not be defeated by the application of the procedural rule.
12. The interests of justice require an extension of time be granted (Jackamarra supra 832).

THE LIQUIDATORS' SUBMISSIONS The solicitors for the liquidators submit that: 1. The act of the joint liquidators of Penale on 6 July 1998, in paying the second Respondent a compromise sum of $146, 918.51, is the relevant act which the Applicant seeks to appeal. Under Order 71 Rule 100 (2) of the Federal Court Rules, the Applicant has 21 days in which to bring the application to appeal in respect of the act of the administrators, that is, by 27 July 1998. In fact the application was filed on behalf of CLC on 9 December 1998, which is a delay of approximately 4˝ months; 2. The solicitors for the Applicants were informed by the solicitors for the first Respondents by facsimile dated 23 June 1998, that settlement was scheduled for 25 June 1998 and that the Liquidators intended to make the payment to the second Respondent from the proceed of the settlement; 3. It was due to an oversight or inadvertence by the solicitors for the Applicant that the application was not filed until 9 December 1998; 4. The position of the first Respondents as liquidators of Penale is that no relief is expressly sought against the first Respondents but it is their act that is the subject of the appeal. Therefore, should the present application be successful it will affect the further conduct of the administration of the liquidation; 5. Order 71 Rule 100 (3) of the Federal Court Rules deals with the procedure in appealing the decision of liquidators and administrators and provide that an appeal must be commenced within 21 days of the act from which the appeal is brought. Whether or not the extension should be granted is a matter of discretion for the Court; 6. The relevant factors that the Court ought to take into account in exercising its discretion to grant an extension of time in which to bring the appeal is set out in the unreported decision of Branson J in Kabushi Kaisha Universal v Aristocrat Leisure Industries Pty Ltd (Federal Court (unreported) 4 March 1998, upheld on appeal, 20 March 1998). Branson J in Kabushi's case considered the following factors - the length of the delay; the explanation for the delay, in particular, whether the Applicant is personally blameless for the delay; any prejudice to the Respondent or to other persons arising out of the delay; action taken by the Applicant to alert the Respondent to the fact that the decision may be contested; the merits of the proposed appeal; alternative avenues of relief, if any, available to the Applicant; and questions of public interest, if any, in the subject matter of the appeal; 7. The length of the delay in bringing the appeal in this case is gross and a similar delay in Kabushi's case was described as "gross". Although the explanation for the delay in this case can be described as an oversight by the solicitors for the Applicant, French J in Chapman v Gooch Ware Travelstead and Ors (Federal Court (unreported) 25 August 1998) stated that a mere oversight by a practitioner "is not an excuse which carries weight in an application for an extension of time". However, the Full Court in Chalmers v Deakin University (Full Court, (unreported) 23 September 1998) was of the view that an error of a legal representative may be relevant depending on whether the delays are attributable to the representative or whether the conduct of the Applicant has contributed to the delay; 8. While the first Respondents are not personally prejudiced by the costs which are being incurred, if the application is ultimately unsuccessful the proceedings will reduce the amount recoverable by creditors because of the necessary legal costs incurred in litigation; 9. Following the exchange of correspondence in May and June of 1998, there was no indication by the Applicant that it intended to bring an application to appeal the act of the first Respondents; 10. As to the merits of the appeal, the issue is whether the Liquidators of Penale ought to have made a payment to Bennett & Co of $146, 000.00 in exchange for a possessory lien over two Certificates of Title. Although CLC asserts that the possessory lien is extinguished once the property is delivered up to the liquidators, there is no support for that view in Australia, and the authorities in England take an opposite view. The decision in Re Aveling Barford Ltd & Ors [1998] 3 All ER 1019 is authority for the proposition that production of a document which is subject to a lien, to a liquidator pursuant to a statutory right to production, does not destroy the lien notwithstanding the relinquishment of possession. However, production of the instrument may render the instrument itself valueless. It is submitted that the above interpretation is readily applicable to section 530B of the Corporations Law, as the provisions in the UK are similar to the Corporations Law. This interpretation of section 530B (1) gives full effect to the words "but such a lien is not otherwise prejudiced". Further, general principles of statutory interpretation require that where it is contended that legislation overrides the common law, that it be clearly shown that the legislature intended to do so. 11. The case which is relied on by the Applicant, Doyles Construction Lawyers v Harsands Pty Ltd ( Supreme Court of NSW, (unreported) 24 December 1996) does not state that the lien over the records required to be delivered up by the Liquidator is extinguished by the handing over of the relevant documents. Rather, that the solicitors could not, as against the Liquidator, retain the books belonging to the client. On the facts of Doyles, the practical effect of the production of the documents was to render the lien valueless. This was because the solicitors sought to "act on" their security by preventing access to information contained in the documents. In this case the value of the lien over the Certificates of Title is not lost by disclosure of any information contained in them. The Certificates of Title represent propriety rights and interests, and the lien which affects the underlying right (represented by the title) is not rendered valueless by production of the document; 12. There was little merit in the appeal and given the delay in bringing the proceedings, the application ought to be dismissed.

BENNETTS' SUBMISSIONS 19 Mr Bennett on behalf of the second Respondents submitted that Jackamarra's case makes it plain that the burden is on the Applicant to satisfy the Court that an extension of time should be granted. 20 Mr Bennett submitted that although it was asserted on behalf of the Applicants that CLC was Penale's largest creditor, there was no evidence of that before this Court. There was also no evidence that the Applicant was unrepresented on the committee of creditors. 21 On behalf of Bennetts it was said that the documents before the Court showed that the lien was claimed only on outstanding costs incurred by Penale, and it was only when the Liquidator's cheque was cleared that the lien on the second Certificate of Title was taken to be extinguished. Mr Bennett submitted that the lien is not extinguished simply on payment of the debt but only on clearance of the cheque. 22 It was submitted that by the Applicant's delay, the lien could never be restored as the Certificates of Title have now both been handed over. 23 Mr Bennett accepted that Jackamarra's case is useful. 24 It was submitted that each case must be decided on its own circumstances. In this case, the affidavits make it clear that there was an exchange of correspondence before the payment to Bennett & Co was made. The Applicant was fully aware of the proposed payment and did nothing about it. It was submitted that the Applicant made a conscious decision to allow the Liquidator to make the payment, and did not treat this matter as urgent. 25 It was submitted that the party seeking the Court's indulgence has to satisfy the Court that it will suffer prejudice if the application is refused. In this case, the only thing the Applicant is saying is that this is the quickest and cheapest way of resolving the issues. It was submitted that the fact that it would cost the Applicant more if the application is refused is of the Applicant's own making. Mr Bennett submitted that normally there is a substantial loss if the Applicant loses the right of instituting an appeal. In this case, the Applicant has alternative methods of seeking a redress. It was submitted that the Court should consider the purpose for which the Corporations Law provides for an appeal. If an extension of time was granted in this case, the hearing of an appeal would impede the liquidation which should proceed swiftly for all parties including the creditors and shareholders. The Corporations Law provides a limited opportunity to challenge the liquidators' decision. It was submitted that in this case, there has been a gross delay as it was clear that Mr Leighton knew in May of 1998 of the proposed payment. Mr Leighton at that time only asked for advice generally and it could not be said in these circumstances that the client is faultless. 26 Mr Bennett submitted that the Court should look at the following issues: the length of delay (which is gross in this case); whether there is an arguable case; and whether there is prejudice to the Respondent. 27 In this case, according to Mr Bennett, there was an intentional standing by on behalf of the Applicant which allowed the relinquishment of the Certificates of Title by the second Respondent. The solicitors' possessory lien can never be restored. After the 21 day period had elapsed, Bennetts was entitled to assume that there would be no appeal and had a legitimate expectation that he matter was complete. 28 It was argued on behalf of Bennetts that there were no special public interest considerations any more than in any other exercise of discretion by the Court. 29 The substantive application concerns an appeal under section 1321 of the Corporations Law which states as follows: 1321 A person aggrieved by any act, omission or decision of; a) a person administering a compromise, arrangement or scheme referred to in Part 5.1; b) a receiver, or a receiver and manager, of property of a corporation; c) an administrator of a company; (ca) an administrator of a deed of company arrangement executed by a company; or d) a liquidator or a provisional liquidator of a company; may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit. 30 Order 71 Rule 100 of the Federal Court Rules states in part as follows: "100 (1) [bringing appeal] An appeal in respect of the act, omission or decision of (a) a person administering a compromise, arrangement or scheme referred to in Part 5.1; (b) a receiver or a receiver and manager of property of a corporation; or (c) an official manager or deputy official manager; or (d) a liquidator or provisional liquidator may be brought by an application in form 5 stating the act, omission or decision complained of and stating concisely the grounds of appeal 100 (2) [time limit] Unless the Court grants en extension of time to commence the appeal, an application under section 1321 must be commenced by filing the application within 21 days of the act, omission or decision from which the appeal is brought". 31 CLC relies on the decision of Jackamarra (supra), a decision of the High Court of Australia. In that case, the Court allowed to the appellant extra time for entering an appeal for hearing. The appeal had already been lodged. The Court noted that the appellant's appeal was as of right and was instituted within time, but that the right must be exercised subject to the limitations imposed by the Rules, including the time limited for the entry for hearing of the appeal. In that sense, the time limit under consideration by the High Court in Jackamarra's case was a procedural time limit. 32 The solicitors for CLC have argued that the time limit imposed on an appeal under section 1321 Corporations Law by Order 71 Rule 100 (2) is probably a procedural time limit in a similar way. 33 Section 1321 Corporation Law does not of itself contain a time limit for the lodging of an appeal. The time limit is contained in the Federal Court Rules. Section 59 of the Federal Court Act states in part as follows: 59 (1) The Judges of the Court or a majority of them may make Rules of Court, not inconsistent with this Act, making provision for or in relation to the practice and procedure to be followed in the Court (including the practice and procedure to be followed in the Registries of the Court) and for or in relation to all matters and things incidental to any such practice or procedure, or necessary or convenient to be prescribed for the conduct of any business of the Court. 59 (2) In particular, the Rules of Court may make provision for or in relation to - … (r) the time and manner of instituting appeals to the Court; and … 59 (3) Rules of Court under this Act have effect subject to any provision made by another Act, or by Rules or Regulations under another Act, with respect to the practice and procedure and particular matters". 34 It is clear from the provisions of section 59 (3) that the Rules of the Federal Court are subject to the provisions of the Corporations Law relating to appeals and are intended to regulate the practice or procedure of the Court. In this sense, the time limit imposed by Order 71 Rule 100 is procedural in nature. 35 The present case, however, differs from the situation in Jackamarra's case in that no appeal at all had been lodged on behalf of CLC until some considerable time after the time limited by Order 71 Rule 100 had expired. In Jackamarra's case, therefore, the Respondent had been made aware that an appeal had been lodged, whereas in the present case the liquidators and Bennetts were not made aware until 7 December 1998 of CLC's appeal. 36 However, in this case the appeal is against an act of the liquidators as distinct from an appeal against a prior decision of a Court. In the case of Chalmers v Deakin University (supra) the Full Court of the Federal Court stated that it agreed with the observations of the Full Court of the Industrial Relations Court of Australia in Coyne v Ansett Transport Industries (unreported, 24 December 1996) where it was stated that: "In the context of an application for extension of time heard separately from the substantive application a Court, if it is to take any account at all of the prospects of success, can necessarily never come to a concluded view as to the merits of the substantiative application… The Court when dealing separately with an application for extension of time is usually confined to untested assertions, often of only one party, and must take an approach similar to that adopted in granting or refusing interlocutory injunctions. If the merits have been considered by a judicial registrar or other authority whose opinion is entitled to respect, it is open to the Court to have a regard to the conclusion then reached as an aid in forming its own impression of the merits". 37 In this case, the merits of the case have not been considered on an earlier occasion by a Court. The information before me as to the merits of the substantive application is limited. Counsel have argued the merits of the substantive application before me. I do not propose to go into the merits of the substantive application in detail. I am however satisfied that this is not a case in which the appeal is doomed to failure, and that for the reasons argued by counsel for the CLC, there is some merit in the appeal and that it can be considered arguable. 38 Although the facts of this case may be distinguished from those of Jackamarra's case, I am of the view that that case is one of a number of relevant authorities which it is appropriate for me to take into account. 39 This Court must look at all of the circumstances of the case in deciding whether or not to grant and extension of time. One of the circumstances which it is appropriate to take into account is the length of the delay. In this case, the length of the delay in filing the appeal is significant, and mitigates against the granting of an extension of time. The appeal should have been lodged by 27 July 1998 and was not filed until 7 December 1998. One factor somewhat lessening the effect of the delay is however that the liquidators were advised before they made the payment to Bennetts that CLC opposed that action. However, I am mindful of the fact that the liquidators were not aware that their act, once carried out, may become the subject of an appeal until the letter from CLC's solicitors dated 12 November 1998. It appears that Bennetts were not advised of the possibility of an appeal until the appeal was lodged. 40 The explanation for the delay was that due to an oversight the solicitors for CLC were not aware of the time limit imposed by Order 71 Rule 100 . I am satisfied from the documents before me that Mr Leighton on behalf of CLC gave instructions to the solicitors in May 1998 for advice as to the proposed payment by the liquidators to Bennetts, and that CLC was not advised of the date of the proposed payment until that date had already passed. I am also satisfied that CLC was not given advice by its solicitors in relation to challenging the payment, or in relation to the time limit for the appeal, until well after the time limit had expired. In these circumstances I am satisfied that CLC is blameless and that the reason for the delay was the oversight of its solicitors. This, in my view, is a factor which mitigates in favour of granting an extension of time. 41 CLC's solicitors have enumerated several alternative methods of relief which may be available to CLC. This by itself would be a factor weighing against the grant of an extension of time. However, those avenues of relief are less efficient and therefore likely to be more costly to all the parties concerned than an appeal under Section 1321 of the Corporations Law. In these circumstances I consider that the availability of alternative methods of relief are a neutral factor in deciding whether or not to grant an extension of time. 42 A further factor to be considered is whether there is any prejudice to either respondent. The liquidators assert no prejudice other than the delay in the process of liquidation and the costs to the creditors as a result of conducting the litigation. I consider that this is a neutral factor because CLC's solicitors have indicated that alternative, more time consuming and more costly litigation will in all likelihood be entered into by CLC if the present application is unsuccessful. 43 Bennetts asserts prejudice in that it says it would never had relinquished the documents the subject to the possessory lien claimed by it if it had known that CLC intended to appeal the liquidator's decision. It is argued that now that as the documents have now been relinquished, the lien is extinguished and will never be able to be restored. I am not persuaded by that argument, as it appears to me that if there was a valid solicitors' lien over the Certificates of Title it was extinguished once Bennetts received payment for the amount in question. If the substantive application proceeds to a hearing, the question of whether it was proper for the liquidators to pay the amount in issue to Bennetts will be determined. If the substantive application is eventually dismissed, Bennetts will retain the money paid to it. 44 The final factor I propose to take into account is the question of the public interest. There are competing issues to be resolved in this regard. It is in the public interest for litigation to proceed quickly and smoothly and for time limits to be adhered to. On the other hand, in this case it is asserted that Bennetts, which is a firm of solicitors, has claimed the right of payment in full when the other creditors of Penale will receive a much smaller proportion of the amounts owed to them. In these circumstances there is, in my view, a public interest in proceeding to a hearing and determining the substantive application. 45 In balancing all of these factors, I am satisfied that, in all the circumstances of the case, it is appropriate to make an order that the time for bringing the application be extended to 7 December 1998. The question of costs is reserved. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the BOON JR.

Solicitor for the Applicant: Williams & Hughes

Solicitor for the First Respondents: Mallesons Stephen Jaques

Counsel for the Second Mr M Bennett Respondents:

Solicitor for the Second Respondents: Bennett & Co

Date of Hearing: 11 February 1999

Date of Judgment: 8 April 1999