Solicitors:
CLH Lawyers (Plaintiffs)
M & A Lawyers (Defendant)
File Number(s): 2015/212070
[2]
Judgment - ex tempore (revised 24 march 2016)
These proceedings are a voidable preference claim and it is common ground that the First Plaintiff, Alsafe Security Products Pty Ltd ("Company"), was insolvent and that the relevant dealings are properly characterised as a running account. It is also accepted by the Plaintiffs that the Defendant dealt with the Company in good faith and the remaining issue, arising under s 588FG(2) of the Corporations Act 2001 (Cth), is whether, at the time the Defendant became a party to the relevant dealings, it had no reasonable grounds for suspecting that the Company was insolvent or would become insolvent by reason of those dealings and a reasonable person in the Defendant's circumstances would have had no such grounds. Although objective in character, the latter question is to be determined by reference to a person in the Defendant's position.
Mr Hathway, who was formerly one of two joint liquidators of the Company, has prepared an affidavit which attaches an expert report, dealing, inter alia, with the Company's solvency. On one view, it would no longer be necessary to read that affidavit or to tender that expert report, so far as it sought to prove insolvency, which is no longer in issue. It appears that expert report goes somewhat further to express views as to whether the Defendant ought reasonably to have recognised the Company's insolvency and it may be tendered also for that purpose so far as that is the matter that remains in issue.
Ms King, who appears for the Plaintiffs, accepts that evidence of that nature may infringe the ultimate issue of principle, although that proposition requires a qualification to which I will refer below, or, alternatively, may address a matter for the Court. It seems to me that the issue raised by the expert evidence is not whether it addresses the ultimate issue, since the Evidence Act 1995 (Cth) permits expert evidence that addresses the ultimate issue. Rather, the question whether the Defendant ought reasonably to have recognised the insolvency of the Company is arguably not a matter for the application of the expertise of an accountant or, indeed, the expertise of an experienced insolvency practitioner. In other words, a person with specialist skills in respect of insolvency is not in a better position than a lay person to express the view whether another entity ought or ought not reasonably to have suspected insolvency. That is a question ultimately for the Court.
A further difficulty arises, namely that Mr Hathway's affidavit was read with a limiting order under s 136 of the Evidence Act, that it is the evidence referred to in Mr Van der Velde's affidavit and an affidavit of Mr Hudson. The exhibit to Mr Hathway's affidavit was read on the same basis. It appears that course was taken in circumstances that Mr Hathway is not available for cross-examination. Mr Van der Velde in turn gives evidence, by his affidavit dated 11 March 2016 that he agrees with the statements, conclusions and content of that affidavit and adopts them as his own. He also gives evidence that he has read the "insolvency report" exhibited to Mr Hathway's affidavit and documentation relied on in support of it and has made enquiries of Mr Hudson, a supervisor in his employ, regarding the preparation of the report and agrees with the concluding opinion that the Company was insolvent at all times within the meaning of s 95A of the Corporations Act. I note in passing that the matter as to which Mr Van der Velde agrees, so far as the report is concerned, is a matter that is no longer in issue in the proceedings.
Objection was taken by Ms Tovey, who appears for the Defendant, to the relevant paragraphs of Mr Van der Velde's affidavit on the basis of relevance, hearsay, opinion and form. So far as hearsay is concerned, Ms Tovey refers to the decision of Barrett J in Singh v Singh [2007] NSWSC 1357, approved by Schmidt J in Keys v Salway [2015] NSWSC 613, as to the difficulty where one witness simply adopt the evidence of another. Ms King, who appears for the Plaintiffs, responds that that case is distinguishable, so far as it dealt with lay rather than expert evidence. I accept that is a fair distinction between the two cases, although it seems to me that distinction then raises another difficulty.
That difficulty is that, as Ms Tovey points out, the admissibility of expert evidence under s 79 of the Evidence Act requires that the expert have specialist knowledge; that he or she identify the facts and matters that are assumed for the purpose of his or her report; and that he or she then discloses the process of reasoning which leads to the conclusions reached. It is likely that Mr Hathway's report complied with that requirement, so far as it was an expert report in an orthodox form albeit led by a liquidator who was not independent but had appropriate expert qualifications. It seems to me that Mr Van der Velde's affidavit does not meet that standard, since it does not disclose what is the process of reasoning which Mr Van der Velde, as distinct from Mr Hathway, has adopted in reaching the conclusion that he agreed with Mr Hathway's conclusions.
Ms King responds that, first, the court permits liquidators to give expert evidence as to the insolvency of companies in cases of this kind and refers to the decision of Austin J in Collins Thomson Pty Ltd (in liq) v Clayton [2002] NSWSC 366. I accept that such evidence is commonplace and that a liquidator need not be independent to give such evidence. However, it is not commonplace that a second liquidator relies on the expert's report of a first liquidator who is not called, where the second liquidator does not indicate the extent of the inquiries he or she has made to satisfy himself or herself as to the correctness of the first liquidator's views.
Ms King also submits that it would be unduly expensive if, when a liquidator resigns, another liquidator had to repeat the work done by the first liquidator, to prepare a new report. I accept that that would be unfortunate so far as scarce resources of creditors are concerned, but it does not seem to me that it is likely to be a common position. In the first place, it will be open to the continuing liquidator to ask a liquidator who has prepared such a report that resigned to give evidence as to his or her report, and one would expect that, in the ordinary course, a liquidator who has resigned, conscious of his or her role as an officer of the court in a court-appointed liquidation, and of his or her professional responsibilities in all liquidations, would agree to do so. In the, hopefully unlikely, case that a liquidator who has resigned did not agree to give such evidence, then a subpoena could readily be issued to that liquidator. That course is open even if, after the resignation of the liquidator, the two liquidators are not on the best of terms. If both of those courses are not practicable, for reasons that one would expect would be rare, then it may be that a further report will need to be prepared or at least more detailed evidence would need to be led by a second liquidator, indicating what steps have been taken to verify the conclusions of the earlier report, than was led in this case. It seems to me that it would be profoundly unfair to a defendant, faced with a preference claim, to be left to address an affidavit of a second liquidator, which adopts a report of a first liquidator, without clear identification of the reasoning process that led to that adoption.
In the event, notwithstanding that both Counsel have addressed this issue, it seems to me that it has limited significance in the present case. First, as I noted above, the issues of the Company's insolvency and whether the account is a running account are no longer in dispute. For that reason, it seems to me that the Court should dispense with the application of the Evidence Act, under s 190 of the Evidence Act, which is available where matters are not generally in dispute, to permit Mr Van Der Velde's evidence to be read so far as it deals with the question of the Company's insolvency and the status of the running account which are no longer in dispute. It seems to me, that so far as Mr Van Der Velde's evidence adopts Mr Hathway's report, addressing the question whether the Defendant ought to have recognised as to the Company's insolvency, then it also should be admitted, with a limiting order under s 136 of the Evidence Act, that those aspects of Mr Hathway's report are to be treated as submission only.
There are, however, two qualifications to that outcome. The first is that, as I noted earlier this morning, parts of the exhibit to Mr Hathway's report may be admissible as business records and, to the extent that the Plaintiffs seek to rely on those documents, it is open to the Plaintiffs to tender them on that basis. Ultimately, it may be in the interests of both parties to seek to reach some broad compromise as to that question, rather than spending further time in debating the admissibility of those documents on a document by document basis, and potentially giving up the benefit of any narrowing of the issues between them in expenditure of further time on that debate. Second, it may be that there are particular passages of Mr Hathway's report that are sought to be relied upon on some wider basis, beyond the limiting order which I have made. It seems to me that I should reserve the opportunity to Ms King to seek to identify those passages, if she seeks to do so, and to Ms Tovey the opportunity to identify any particular objection to those passages. However, it seems to me that any ruling as to those passages could only sensibly be made after they are identified and their significance was identified.
[3]
Amendments
02 May 2016 - Paragraph 6, line 1: Typographical error.
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Decision last updated: 02 May 2016