CLC Corp v Read

REASONS FOR JUDGMENT 1 This matter has been referred to me by his Honour Justice Carr Pursuant to Order 79 Rule 3 of the Federal Court Rules. 2 The matter before me concerns an application for an extension of time within which to appeal the decision of the first respondents as Liquidators of Penale Pty Ltd (in Liquidation) to make a payment to the second respondent of the sum of $146, 918.51 on or about 6 July 1998. 3 The application was filed in this court on 7 December 1998. Amongst other relief the applicant seeks an order that the time for bringing the application be extended to the date on which the application was filed. 4 The facts of this case are in brief as follows. Penale Pty Ltd ("Penale") is, and since 9 April 1998 has been, in liquidation. The first respondents ("the liquidators") were in July of 1998 the joint liquidators of Penale Pty Ltd. The applicant ("CLC") is a creditor of Penale. The second respondent ("Bennetts") is a firm of solicitors which had acted for Penale, and to which Penale owed money in respect of legal fees. 5 In July of 1998 Penale was indebted to Bennetts in the sum of $146, 918.51. Bennetts had previously obtained judgment against Penale in the sum of $115, 624.78. The balance of the amount paid by the liquidators to Bennetts represented further legal fees incurred by Penale. 6 Bennetts at all material times had possession of duplicate Certificates of Title in respect of two properties owned by Penale. Bennetts was asserting the right to a general possessory lien over these certificates. The liquidators paid out in full the sum of $146,918.00 to Bennett in order to gain possession of the Certificates of Title. 7 In its substantive application in this matter CLC is seeking orders that the payment of $146, 918.51 made by the liquidators to Bennetts be set aside and that Bennetts be ordered to pay to Penale the sum of $146,918.51 with interest. The grounds of the application are that at the time of the payment Bennetts was, or claimed to be, a creditor (but not a priority creditor) of Penale (or its former director Mr B J De Conway), but that Bennetts was at no time a secured creditor of Penale. It is alleged that the payment was made in contravention of Section 555 of the Corporations Law, in that the property of Penale is and was insufficient to meet all debts and claims proved or to be proved in its winding up in full; that the payment satisfied all or almost all of the debts owed by Penale (or Mr B J De Conway) to Bennetts; and that the payment to Bennetts was not proportionate to the value of Bennetts' proof of debts as a proportion of all debts in respect to which a proof of debt had been, or might be, submitted. 8 Affidavits annexing correspondence between the solicitors for CLC and the solicitors for the liquidators between 8 May 1998 and 4 December 1998 were filed in this matter. That correspondence shows that CLC through its solicitors challenged the (then) proposed payment by the liquidators to Bennetts of the sum in dispute. In a letter dated 8 May 1998 to the solicitors for the liquidators, the solicitors for CLC stated in part as follows: "Would your client liquidator specifically note, that, in our view, Bennett & Co's lien is defeasible by him as liquidator, and our client, as the largest creditor in the administration, will question any acknowledgment or concession by the liquidator that Bennett & Co have a secured or priority position and any payment made to Bennett & Co as a result." 9 In a letter dated 26 May 1998 the solicitors for the liquidators wrote to the solicitors for CLC advising that the liquidators had negotiated the sale of one of the Penale properties and that settlement was to occur on 23 July 1998. The solicitors for the liquidators enclosed a withdrawal of caveat form for filing by the solicitors for CLC. It appears that the withdrawal of caveat related to a consent order made by Carr J on 31 March 1998 setting aside a Mareva injunction. By letter dated 28 May 1998 the solicitors for CLC advised the solicitors for the liquidators that the withdrawal of caveat forms were with their client for execution. 10 There was correspondence between the solicitors for CLC and the solicitors for the liquidators between 2 June 1998 and 23 June 1998 in relation to Bennetts' claim to a possessory lien over the Certificates of Title, and to the question of whether the liquidators should pay the sum in dispute to Bennetts in order to gain possession of the Certificates of Title. In that correspondence the solicitors for CLC made it clear that in their view Bennetts should not be given the status of a secured creditor. In response the solicitors for the liquidators indicated that in their view their clients did need to compromise Bennetts' claim to gain possession of the Certificates of Titles to settle the sale of the properties. 11 It is also apparent from the correspondence that the solicitors for CLC were advised by the solicitors for the liquidators that one of the Penale properties was to be sold and that settlement was to occur on 23 July 1998. In an affidavit sworn 8 February 1999 Mr David Shaw (a partner of Bennetts) stated that settlement of one of the properties (Halse Crescent) eventually took place on 6 July 1998, and that he had attended the settlement offices and had handed over the Certificate of Title in return for a bank cheque for $146,918.00. The Certificate of Title in relation to the other property (Dalgety Street) was collected from the offices of Bennetts by a solicitor for the liquidators on 31 July 1998. Mr Shaw states in his affidavit that "had the Applicant filed and served its Application within 21 days of the Liquidators' decision (or even within 21 days of the settlement of the Halse Crescent property on 6 July 1998) Bennett & Co would not have relinquished possession of the Dalgety Street Certificate of Title. At no time prior to the filing of the within Application did the Applicant or its solicitors inform Bennett & Co that it would seek to appeal any decision by the First Respondents to pay to Bennett & Co the monies owed by Penale. The failure of the Applicant to file its Application in a timely manner will therefore cause Bennett & Co loss and damage if the Applicant is given leave to appeal out of time and succeeds on its Application". 12 It appears from the correspondence that the solicitors for CLC did not raise the issue of the making of the payment again until 12 November 1998. On that date the solicitors for CLC wrote to the solicitors for the liquidators and asked them to provide information about the payment, including whether the payment had been made to Bennetts and if so on what date; if the payment was made, the precise amount of payment; and whether directions from the Court were sought prior to the payment. In that letter the solicitors for CLC state: "I ought to add that my client, CLC Corporation, has instructed me to consider an appeal against any decision by the joint liquidators to make a payment of $146, 000, or any sum, to Bennett & Co so as to discharge a possessory lien". By a letter 4 December 1998 the solicitors for the liquidators advised that a payment of $146,918.51 was made to Bennetts on 6 July 1998; the payment was made to allow the liquidators to provide Certificates of Title to the purchasers of the two properties owned by Penale; the Certificates of Title were subject to a lien claimed by Bennett & Co; and no directions from the Court had been sought prior to the payment being made. 13 The appeal in this matter was filed on 7 December 1998. 14 In an affidavit sworn 4 January 1998, Wendy Elizabeth Cook, a solicitor in the employ of the solicitors for CLC, states that in May of 1998 the solicitors for CLC were instructed by CLC to advise it in relation to, and to protest to the liquidators of Penale about, the then proposed payment to Bennetts. Correspondence was then entered into between the solicitors for CLC and the solicitors for the liquidators. Ms Cook states that as from 25 June 1998, the solicitors for CLC suspected that the payment had been made to Bennetts and that if the liquidators actions were to be challenged, they must be challenged on the basis of a payment in fact made, rather than to be made. Ms Cook then goes on to state in the affidavit as follows: "Williams and Hughes [the solicitors for CLC] was then asked by CLC Corporation to advise it further in relation to the payment. The question of the advice was not given priority; this was because (1) the payment had been made, (2) there was no transaction which might be jeopardised because the propriety of making the payment had been challenged, (3) it appeared to Mr Stone [the solicitor having the conduct of the matter on behalf of the Applicant] that the most likely causes of action were in negligence and/or for breach of duty in respect of which the periods of limitation are six years. It appears that the prospect of challenging the payment by appeal under Section 1321 of the Corporations Law was not adverted to until November 1998 and Mr Stone then decided that an appeal was the preferable vehicle to challenge the payment since the procedure was relatively simple and as a consequence inexpensive; that if CLC Corporation was correct in its view, the Second Respondent must disgorge the sum paid to it which was a preferable and more just outcome than the Second Respondents retaining the payment and the joint Liquidators being held liable to repay the same sum to administration. The solicitors for the Applicant did not advert to the period of the limitation prescribed by Order 71 Rule 100 (2) of the Federal Court Rules until they checked the procedure for the appeal. Instructions were given by CLC Corporation to institute an appeal against the joint liquidators' decision on 6 November 1998 and the solicitors for the Applicant wrote to the solicitors for the First Respondent by letter dated 12 November 1998 seeking further information. A response was received on 4 December 1998, and the Application herein was filed on 7 December 1998. The solicitors for the Applicant did not inform the Applicant of the period of limitation prescribed by the Rules until 3 November 1998". 15 In an affidavit sworn 4 January 1998, Norman Leighton, the director of CLC (who resides in Monaco) states that CLC was a substantial creditor of Penale to the tune of $7,060,452.46 which sum is a judgment debt under a judgment given by Justice Carin the Federal Court on 24 October 1997. Mr Leighton states that it appeared that the assets of Penale (in liquidation) amounted to between $500,000.00 and $600,000.00, and that therefore $146, 000 was a substantial proportion of the sum available to the unsecured creditors of Penale. Mr Leighton states in his affidavit that he was informed by Mr Stone in early July 1998 that he had protested to the liquidators through their solicitors in relation to the proposed payment, that the liquidators were asserting an entitlement and an obligation to make the payment, and that, though this was not confirmed, the probability was that the liquidators had made the payment to Bennetts in or about late June 1998. Mr Leighton states in his affidavit that he then asked CLC's solicitors to advise him generally in relation to the issue. He states that he received advice from the solicitors on 3 November 1998 and he was not until then aware of the procedure for an appeal against the liquidators' decision or the time limit imposed on such an appeal by Order 71 Rule 100 (2) of the Federal Court Rules. On the basis of advice received from the solicitors he instructed them to issue the application herein, subject to their being satisfied that the payment had not been made to Bennetts under the sanction of a direction by this Court or by any other competent Court. Written outlines of submissions were filed on behalf of CLC and the liquidators.