Cooper (liquidator), in the matter of Disclinc Pty Ltd (in liq) v Difonzo

Introduction 1 This is an application by the plaintiff in a proceeding for leave to serve an Originating Process, a Statement of Claim and two affidavits on the defendant in a foreign country. The application is made pursuant to rr 10.43(2) and 10.44(1) of the Federal Court Rules 2011 (Cth) (the Rules). The plaintiff also seeks an order that service on the defendant be in accordance with Art 5 of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the Hague Convention), by request for service abroad in accordance with rr 10.64 to 10.68. 2 On 12 June 2020, I made the orders sought by the plaintiff. These are my reasons for making those orders.

Background 3 The plaintiff is Nicholas David Cooper and he is a registered liquidator. On 14 May 2014, Mr Cooper was appointed as the liquidator of Disclinc Pty Ltd (In Liquidation) (the company) pursuant to an order made by this Court. On that date, the Court also made an order that the company be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (the Act). 4 The defendant is Guy Anthony Difonzo and it is alleged that, during the period between 30 June 2012 and 13 May 2014 (the relevance of this period is explained below), he was a director of the company. The records kept by the Australian Securities and Investments Commission indicate that he was the sole director of the company during that period. It is alleged that Mr Difonzo ordinarily resides in the United States of America. 5 In summary, this proceeding concerns an application by the plaintiff for the recovery of loss and damage resulting from the defendant failing to prevent the company trading whilst insolvent, in contravention of s 588G(2) of the Act. The plaintiff seeks, inter alia, an order pursuant to s 588M(2) of the Act that he recover from the defendant, as a debt due to the company, the amount of $329,028.17.

The present application 6 On the present application, the plaintiff seeks the following orders: 1. This action proceed by way of pleadings in lieu of affidavits 2. Pursuant to rr.10.43(2) and 10.44(1) of the Federal Court Rules 2011 (Cth), the plaintiff be given leave to serve the originating process filed on 23 April 2020, the statement of claim filed on 23 April 2020, the affidavit of Arnie Subramanian Narayan sworn on 22 April 2020 and the affidavit of Nicholas David Cooper sworn on 11 June 2020 on the defendant at 308 NW Treeline Terrace, Port St Lucie, Florida 34986, United States of America. 3. Service be in accordance with Art 5 of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at the Hague on 15 November 1965, by request for service abroad in accordance with the Federal Court Form 25 and otherwise as provided for by rr.10.64 to 10.68 of the Federal Court Rules 2011 (Cth). 4. Costs be reserved. 5. The case management hearing be adjourned sine die pending service pursuant to Orders 2 and 3 above. 6. The Plaintiff have liberty to apply. 7 Rule 10.43(1)(a) provides that service of an originating application on a person in a foreign country is effective for the purpose of a proceeding only if the Court has given leave under subrule (2) before the application is served. Rule 10.43(2) relevantly provides that a party may apply to the Court for leave to serve an originating application on a person in a foreign country in accordance with the Hague Convention. 8 Before leave is granted under r 10.43(2), the party must satisfy the Court of a number of matters. First, the party must satisfy the Court that it has jurisdiction in the proceeding (r 10.43(4)(a)). Secondly, the party must satisfy the Court that the proceeding is of a kind set out in the table in r 10.42 (r 10.43(4)(b)). Thirdly, the party must satisfy the Court that he or she has a prima facie case for all or any of the relief claimed in the proceeding (r 10.43(4)(c)). The application under r 10.43(2) must be accompanied by an affidavit stating the name of the foreign country where the person to be served is or is likely to be, the proposed method of service, and, if the Hague Convention applies, that the proposed method of service is permitted by the Hague Convention (r 10.43(3)(a)-(c)). The Court has a residual discretion to refuse leave to serve, notwithstanding that the requirements in the Rules are otherwise satisfied (see Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2015] FCA 1453; (2015) 331 ALR 108 (Jasmin Solar) at [66] per Edelman J). 9 The plaintiff relies on the following evidence and material in support of his application: the Originating Process filed on 22 April 2020, the Statement of Claim filed on 22 April 2020, an affidavit of Arnie Subramanian Narayan sworn on 22 April 2020 and an affidavit of Mr Cooper sworn on 11 June 2020. Mr Narayan is the plaintiff's solicitor.

Whether the Court has jurisdiction in the proceeding 10 The first matter of which the Court must be satisfied is that it has jurisdiction in the proceeding. 11 As I have said, the plaintiff seeks an order pursuant to s 588M(2) of the Act that he recover from the defendant, as a debt due to the company, the amount of $329,028.17. The plaintiff contends that that amount is equal to the loss or damage resulting from the defendant's failure to prevent insolvent trading by the company in contravention of s 588G of the Act. 12 The Court has jurisdiction in this proceeding. The plaintiff's application under s 588M(2) of the Act is a civil matter arising under the Corporations legislation and the Court has jurisdiction by reason of s 1337B(1) of the Act.

Whether the proceeding is of a kind set out in the table in r 10.42 13 The second matter of which the Court must be satisfied is that the proceeding is of a kind set out in the table in r 10.42. 14 Rule 10.42 relevantly provides that, subject to r 10.43, an originating application may be served on a person in a foreign country in a proceeding that consists of, or includes, any one or more of the kinds of proceeding set out in the table in the rule. 15 I am satisfied, by reference to the plaintiff's evidence and other material, that the proceeding consists of, or includes, one or more of the following kinds of proceeding set out in the table in r 10.42: a proceeding based on a cause of action arising in Australia (Item 1); a proceeding based on a contravention of an Act that is committed in Australia (i.e., the Corporations Act) (Item 12); a proceeding based on a contravention of an Act (wherever occurring) seeking relief in relation to damage suffered wholly or partly in Australia (Item 13); and a proceeding seeking any relief or remedy under an Act (Item 15).

Whether the plaintiff has a prima facie case 16 The third matter of which the Court must be satisfied is that the party making the application for leave to serve has a prima facie case for all or any of the relief claimed in the proceeding. 17 In The Owners - Strata Plan No 87231 v 3A Composites GmbH [2019] FCA 811; (2019) 369 ALR 315, Wigney J said (at [27]): In determining whether a prima facie case exists for the purposes of r 10.43(4)(c) of the Federal Court Rules, the Court need not exercise the kind of scrutiny that would occur in, for example, a no case to answer application at the conclusion of an applicant's case at trial. Rather, it is sufficient that there is placed before the Court material from which "inferences are open which, if translated into findings of fact, would support the relief claimed": Perdaman Chemicals & Fertilisers v Griffin Coal Mining Co Pty Ltd [2011] FCA 1425 at [14]. In short terms, a prima facie case may exist where it is shown that there is a controversy the resolution of which that warrants the use of the Court's processes and that justifies the involvement of the foreign respondent: see Santa Trade Concerns Pty Limited v Robinson [2016] FCA 1510 at [9]; Suzlon Energy v Bangad (No 3) [2012] FCA 123 at [35]. 18 The plaintiff submits that a number of inferences can be drawn from his evidence and other material which, if translated into findings of fact in this proceeding, would lead to the plaintiff being entitled to some or all of the relief claimed by him in the proceeding. 19 I am satisfied that the evidence and other material relied upon by the plaintiff in support of this application establishes that he has a prima facie case for the relief sought by him for the purposes of r 10.43(4)(c). I do not need to repeat the plaintiff's submissions. However, I note the following matters. 20 The plaintiff submits that an inference can be drawn from the evidence and other material that, in the period between 30 June 2012 and 13 May 2014, a contemporaneous comparison by a person in the position of the defendant of the liquid resources available to the company against the mounting taxation debt of the company would lead to the conclusion that there were reasonable grounds for suspecting that the company was insolvent, or would become insolvent. The plaintiff further submits that an inference can be drawn that the defendant, as the sole directing mind and will of the company, failed to prevent the company from incurring the debts incurred by the company in the period between 30 June 2012 and 13 May 2014 when a reasonable person in a like position to the defendant in a company in the company's circumstances would be aware that there were grounds for suspecting that the company was insolvent, or would become insolvent by incurring those debts. 21 I accept that such inferences are open by reference to the company's externally prepared financial statements for the financial years ended 31 December 2011 and 31 December 2012, the company's taxation return and the cash flow deficiency analyses prepared by the plaintiff and annexed to his affidavit. The financial statements support the conclusion that the company incurred significant losses in both financial years and, as deposed to by Mr Cooper in his affidavit, that the company's "current assets ratio" was indicative of insolvency as at 31 December 2011 and strongly suggestive of insolvency as a 31 December 2012. The cash flow analyses suggest that the company was, from 10 September 2012, facing a significant cash flow deficiency. 22 I accept the plaintiff's submission that to the extent that these (and other) matters remain controversial following service, resolution cannot occur without the use of the Court's processes and the involvement of the foreign defendant.

Whether the affidavit accompanying the application satisfies rr 10.43(3) and 10.44(2) 23 The Court must be satisfied that the application for leave to serve the originating application is accompanied by an affidavit stating the name of the foreign country where the person to be served is or is likely to be, the proposed method of service, and, if the Hague Convention applies, that the proposed method of service is permitted by the Hague Convention (r 10.43(3)). The same requirement exists for the application for leave to serve the Statement of Claim and the affidavits of Mr Narayan and Mr Cooper (see rr 10.44(1) and (2)). 24 I am satisfied that the requirements of rr 10.43(3) and 10.44(2) have been met. The affidavit of Mr Cooper states the name of the foreign country where the defendant is to be served (that is, the United States of America), the proposed method of service, and that the proposed method of service is permitted by the Hague Convention.

Residual discretion 25 There remains a residual discretion to refuse leave to serve (see Jasmin Solar at [66] per Edelman J). I accept the plaintiff's submission that, given the absence of one or more of the common grounds of opposition (such as parallel proceedings, the inevitability of a stay, an applicable arbitration clause, or multiple defendants (one of whom has been properly served within Australia) in respect of whom the merits of the claim and the relief which might follow are the same), there is no reason why the discretion should be exercised to refuse leave to serve.

Conclusion 26 It was for these reasons that I considered that it was appropriate to make the orders sought by the plaintiff. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.