Dean-Willcocks v Air Transit International [2002] NSWSC 525 | Case summary

5862/01 RONALD JOHN DEAN-WILLCOCKS & ORS V COMMISSIONER OF TAXATION & ORS JUDGMENT HIS HONOUR: The proceedings 1 In these two proceedings a company liquidator, Mr Dean-Willcocks, seeks to recover alleged unfair preferences. Initially he was one of two joint liquidators, but as a result of orders made in another proceeding he is now the sole liquidator. In proceeding No 5662 of 2001 he sues as liquidator of three companies in the Austral Pacific Group, namely Austral Pacific Group Ltd ("Austral"), Austral Pacific Purchasing Pty Ltd ("Purchasing") and Saydair Commercial Seating Pty Ltd ("Saydair"). In proceeding No 5862 of 2001 he sues as liquidator of Clifford Corporation Ltd, the parent of the other three companies. 2 Austral, Purchasing and Saydair conducted a substantial bus manufacture and refurbishment operation. All three companies had their registered offices in New South Wales, and the principal place of business of each of Austral and Purchasing was in New South Wales. Austral had five bank accounts and conducted banking facilities for itself and on behalf of the Austral Group. Neither Purchasing nor Saydair had any bank accounts or banking facilities. The alleged preferential payments claimed in these proceedings were made by Austral to creditors in satisfaction of debts owed by Austral or the Austral Group as the case may be. 3 The total amount of potential claims of ordinary unsecured creditors of the companies are estimated to be, subject to proofs and repayment of the preferential payments claimed in these proceedings: · Austral $53,835,307 · Purchasing $18,014,326 · Saydair $21,073,805 4 Each proceeding was commenced by originating process but there is now a statement of claim in each case. In proceeding No 5662 of 2001 the three Austral Group companies, Austral, Purchasing and Saydair, are co-plaintiffs with the liquidator. In proceeding No 5862 of 2001 Clifford Corporation is a co-plaintiff with him. 5 In proceeding No 5862 of 2001, 13 defendants were named, including one interstate defendant. In proceeding No 5662 of 2001 there were initially 58 defendants, from New South Wales, Queensland, Victoria, South Australia, and Western Australia. They were named in three schedules to the originating process, the schedules being headed "Austral Defendants", "Purchasing Defendants" and "Saydair Defendants". The three schedules identify, respectively, the claims relating to each of the three co-plaintiffs of the liquidator. Thus, where a defendant is mentioned only in Schedule 3, the claim is that the defendant benefited from an unfair preference given by Saydair, and where the defendant is mentioned only in Schedule 1 or only in Schedule 2, the claim relates to an unfair preference given by Austral or Purchasing respectively. Air International Transit is listed in both Schedule 1 and Schedule 3, signifying that there are claims against it by Austral and Saydair. 6 The number of defendants in each case has been substantially reduced as a result of discontinuance and compromise. After the hearing and at my request, the liquidator's solicitors presented my associate with some figures showing that many of the claims had been settled since commencement of the proceedings. Counsel for some of the defendants objected to my receiving those figures. Subsequently the liquidator's solicitors provided my associate with some updated figures showing that further settlements had taken place, and when the solicitors for Air International Transit wrote to my associate objecting to my having regard to the contents of that letter, I arranged for the proceedings to be listed for further argument. Having heard the further submissions of the parties, I have decided that, while it is generally undesirable for a party to make written submissions after conclusion of the hearing except by express leave, in the present case the second letter from the liquidator's solicitor was merely an update of figures supplied at my request. Now that the defendants have had the opportunity to make any relevant submissions, I shall have regard to the updated figures. 7 The figures show that in proceeding No 5862 of 2001 there remain 10 defendants, all located in New South Wales. Of the 58 defendants originally in proceeding No 5662 of 2001, there are now only 16 (including Air International Transport twice). Three of the defendants are in Victoria, three are in Queensland, one is in Western Australia, Air International Transport is in South Australia, and the rest are in New South Wales. Fourteen of the claims are for amounts less than $150,000, one is in the range from $150,000 to $200,000, one is for $618,000 and one is for $960,000. The applications 8 Some of the defendants have objected to the way in which the two proceedings have been constituted. The liquidator maintains that he was entitled to constitute the proceedings in their present form, but in case that is wrong, he has made an application for leave to join the defendants in each proceeding. These reasons for judgment relate to the liquidator's application, and the applications by certain defendants in both proceedings to strike out or separate the proceedings or prevent their joinder. 9 The liquidator's application, by an interlocutory process filed in each case on 22 February 2002, is for leave under Part 8 rule 2 (b) of the Supreme Court Rules to bring the proceeding and join each of the defendants to it. In proceeding No 5662 of 2001, applications by notice of motion or interlocutory process have been filed by Air International Transit Pty Ltd (the first defendant in the first and third schedules), Nwodsha Enterprises (Wholesale) Pty Ltd (the third defendant in the first schedule), BOC Gases Australia Ltd (the fifth defendant in the first schedule), G James Safety Glass (Qld) Pty Ltd (the tenth defendant in the first schedule), Styleride Pty Ltd (the nineteenth defendant in the second schedule), and Trimtech Australia Pty Ltd and Van Seats Australia Pty Ltd (the fourth and fifth defendants in the third schedule). In proceeding No 5862 of 2001, applications by interlocutory process have been filed by Commercial Mediation Pty Ltd (the second defendant), Ian Sapier Pty Ltd (the fifth defendant), True Perspective Pty Ltd (the tenth defendant), and Heller Financial Services Pty Ltd and Heller Equipment Finance Pty Ltd (the eleventh and twelfth defendants). Some of the applications are no longer current, by virtue of settlements between the liquidator and those parties. 10 The defendants' applications are not identical, but they seek substantially equivalent relief, by way of summary dismissal or the striking out of the proceedings against them, or an order for separate trials under Part 8 rule 6, or an order for transfer to another court such as the District Court. 11 At issue in this case is an important matter of procedure for the Corporations List. It is common, particularly in large liquidations, for a liquidator to wish to commence proceedings for recovery of unfair preferences against a substantial number of defendants. Common issues will arise in each claim. In particular, a fundamental question in each case will be whether the company has ever been insolvent and if it has, when the insolvency commenced. It may be that individual defendants have different defences relating to the circumstances in which their transactions with the company were made and enforced, such as the "good faith" defence in s 588FG (2), or the "running account" defence (see s 588FA (3)). But there is likely to be a common core, relating to the insolvency of the company. 12 Until now the usual practice in this Court has been for the liquidator to commence a separate proceeding in respect of each impugned transaction, unless there obviously is a series of transactions involving a single defendant or group of defendants and raising the same issues. Typically, however, one of the proceedings is selected for early hearing, and in some recent large liquidations the Court has been able to case manage all of the proceedings together, to assist in their efficient determination. Once the first proceeding has been determined, the liquidator will have the benefit of certain presumptions arising under s 588E of the Corporations Act. 13 Section 588E sets out some presumptions that are to be made in various proceedings, including proceedings for recovery of unfair preferences under s 588FF. Subsection 588E (8) states that if, for the purposes of another recovery proceeding in relation to the company, various things have been proved, it must be presumed that those things were the case. The matters to be presumed include, in paragraph (a) of s 588E (8), that the company was insolvent at the time when the transaction in issue in the other proceeding was entered into or something was done to give effect to that transaction. In other words, if it is established in proceeding No 1 that the company was insolvent on 1 July when a certain transaction was entered into, it must be presumed in proceeding No 2 that the company was insolvent on 1 July. Then s 588E (3) applies. It says that if it must be presumed that the company was insolvent at a particular time during the 12 months ending on the relation-back day, it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day. Thus, once in proceeding No 1 insolvency is established at a particular time, there is a presumption in proceeding No 2 that the company was insolvent throughout a specified period beginning at that time. 14 The liquidator in the present cases endeavoured to establish a new model. Rather than having separate proceedings, transaction by transaction, case managed together while moving to the hearing and determination of one or a few proceedings before the others, then relying on the statutory presumptions, the liquidator proposed that proceeding No 5862 of 2001 be a "mother proceeding" in which multiple transactions entered into by Clifford Corporation are challenged and each other party to each of those transactions is a defendant. Proceeding No 5662 of 2001 goes even further, for in that case there are multiple corporate plaintiffs as well as multiple defendants. In the liquidator's submission, case management may involve separately hearing some of his claims in due course, when all defences have been filed and the matters in issue against each defendant are known, but in the meantime the liquidator wants the Court to case manage the two mother proceedings as two single proceedings, both with many defendants and one with three corporate plaintiffs. 15 The advantages to the liquidator are obvious. All claims are pursued in the same Court, regardless of the amounts involved. All parties to impugned transactions are bound by the decision of the Court with respect to such matters as insolvency, rather than being affected by presumptions which they may each rebut. There is a single filing fee (not an insubstantial consideration where a very large number of impugned transactions is involved). 16 The liquidator maintained that joining multiple defendants in a "mother proceeding" is permitted by the Supreme Court Rules. Likewise, he claimed that the Rules permit multiple corporate plaintiffs. He relied on Part 8 rule 2, which is in the following terms: "Two or more persons may be joined as plaintiffs or defendants in any proceedings - (a) where - (i) if separate proceedings were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and (ii) all rights to relief claimed in the proceedings (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or (b) where the Court gives leave so to do." 17 The liquidator contended that the ingredients of subparagraph (a) are satisfied in each proceeding but that if they are not, the Court should grant leave under subparagraph (b). To fit within subparagraph (a), the liquidator must identify, in each proceeding, a question of law or of fact common to all of the transactions encompassed by the proceeding. He must also show that in each proceeding, all rights to relief are in respect of or arise out of "the same transaction or series of transactions". I shall consider each of these elements. Common questions of law or fact 18 As to the first matter, the liquidator submitted that the common issues of fact and law that arise in each proceeding are the issue whether the relevant company or companies were insolvent at any time, and if so the time when the company or each of the companies became insolvent, and whether there will be a shortfall to unsecured creditors in the winding up of the company or companies. 19 Those submissions are clearly correct as regards proceeding No 5862 of 2001. The question is more difficult to answer in proceeding No 5662 of 2001, because there are three corporate plaintiffs. Some of the defendants submitted that there is no common question of law or fact in that proceeding because the question of solvency of a particular corporate plaintiff would not arise where the claims were made on behalf of another corporate plaintiff. However, the liquidator's case is that the three companies were part of a single group, and that only one of them operated bank accounts, used in respect of all three companies. While the proceeding will require the Court to make separate determinations as to the solvency of each of the three corporate plaintiffs, the fact that all payments were made by Austral on behalf of itself and the other two plaintiff companies means that the solvency of all three companies will be affected by the determination of common questions of fact with respect to payments out of the Austral bank accounts. 20 Some of the defendants also made a submission drawing attention to s 588FC, under which solvency must be established at the date of the relevant transaction. They submitted that as currently configured, proceeding 5662 of 2001 relates to 265 separate cheque or transfer of funds payments ranging from an amount of $1,358.32 to an amount of $81,950.17 (excluding payments to Air International Transit which reached $173,993), those payments ranging over the period from 5 May to 17 November 1998. Those defendants submitted that while there may be some coincidental conformity in transaction or payment dates, the claim in relation to each of the 265 transactions demands, in principle, a determination as to solvency at a separate date. The answer to that submission is provided by the way the liquidator intends to run his case on solvency, as disclosed in his affidavit. He intends to assert that the companies were all insolvent throughout the period between 26 May and 26 November 1998. That will raise, in respect of the various claims in proceeding 5662 of 2001, a common question of mixed fact and law. Same transaction or series of transactions 21 The scope of the phrase "are in respect of or arise out of the same transaction or series of transactions" in the equivalent rule of the High Court of Australia was considered in Payne v Young (1981) 145 CLR 609. In that case seven operators of abattoirs took a single proceeding against eight defendants claiming declarations that regulations made under State health legislation for the levying of meat inspection fees were invalid, because they constituted excise duties contrary to s 90 of the Constitution. Each plaintiff also sought, in the same proceeding, to recover the inspection fees that he had paid, under protest, to one of the defendants. Each plaintiff had paid inspection fees to a different defendant, and the amount of the fees and the basis for calculating them varied from case to case. 22 The High Court unanimously held that the proceeding was improperly constituted, to the extent that orders for recovery of fees had been sought. As a matter of construction, both Barwick CJ and Mason J took the view that the word "series" was governed by the words "the same" (the point being expressly articulated by Mason J at 616-7 and, in my view, implied in Barwick CJ's reasoning). The requirement that the transactions be in the same series was not satisfied because, in the case before the Court, there was no common participation in the inspection services that were performed, or in the liability to pay the fees demanded, or in the payments which were actually made (at 618 per Mason J). Barwick CJ said it was right to say of each plaintiff that its money claim arose out of a series of transactions, that is to say, his own transactions with a particular defendant (at 614). But since there was no transaction to which all the plaintiffs were a party, it could not be said that the proceeding asserted a right to relief in respect of a series of transactions. Stephen J agreed with the reasoning of both Barwick CJ and Mason J, and Murphy J dissented. 23 The liquidator's submission is that the rights to relief claimed in each proceeding arise out of the same series of transactions: namely either the series of payments made to the defendants and now said to be preferences, or the series of transactions which have led to the companies being solvent and winding up orders being made. In my view, the fact that various transactions are linked together by the liquidator's allegation that each of them is an unfair preference is not enough to make those transactions the same series of transactions for the purposes of the Rule, just as it was not enough in Payne v Young that the various exactions of fees were linked together by the plaintiffs' allegation that the legislation authorising them was invalid. The same point was made by Hill J in Re The Thai Silk Company Ltd (Federal Court of Australia, unreported, 31 May 1989). His Honour referred (at paragraph 22) to a hypothetical case where a vendor sells a number of properties by auction one after the other, subject to a common misrepresentation by the vendor. As his Honour said, it would not be correct to describe each of the contracts negotiated at auction with different purchasers as being a series of transactions for the purposes of the Rule. 24 Nor can it be said that the rights to relief alleged to arise out of various preferential transactions are "in respect of or arise out of" the course of transactions which led to the companies becoming insolvent, even if that course of transactions could be described as a "series" - just as the exactions of fees in Payne v Young could not be said to be in respect of or to arise out of the events leading to the enactment of allegedly unconstitutional legislation. 25 The observations of Tadgell J, dealing with the equivalent Victorian rule in Marina v Esanda Ltd [1986] VR 735, at 740, are apposite: "I think that the Rule no more applies here than it would be to authorise the joinder as plaintiffs of 100 unrelated members of the public who all went to a supermarket on Saturday morning and bought, each of them, a pound of butter that happened to be contaminated. Each purchaser, if he consumed part of his purchase and became ill as a result, might have a right of action against the vendor by virtue of breach of an implied condition or warranty derived from the Goods Act, and perhaps also some other statutory rights to compensation. Those who sued would sue the common vendor and each would presumably have a cause of action of a kind identical to that of each of the others. Moreover, the 100 purchase transactions could well be described as a series, but the relief obtainable by none of the purchasers could be said to arise out of the same transaction or series of transactions; in the case of each the relief would be in respect of or arise out of his individual transaction and nothing else." 26 Here, the liquidator's right to relief against a defendant in respect of a particular preferential transaction arises out of that transaction and not out of the events giving rise to the insolvency. Those events are analogous to the negligent contamination of the butter, rather than the sale of the contaminated product to a particular customer. 27 In Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1991) ATPR paragraph 41-078, at 52,165, Rogers CJ Comm D observed that an unduly strict interpretation of subparagraph (a) of the Rule may not give effect to the intentions of the drafters. That may be so, but subparagraph (a) is not attracted merely because a common question of solvency arises in respect of each transaction. There needs to be links between the impugned transactions themselves, sufficient to warrant their being treated as the same series. In Re The Thai Silk Company Ltd Hill J observed that there must be some "interdependence" or an "intelligible ground" removing the transactions from the category of separate transactions and uniting them under the head of a series (at paragraphs 22 and 23). The discretion to grant leave 28 The liquidator submits that if I find subparagraph (a) of the Rule to be inapplicable, as I do, then I should exercise my discretion in his favour under subparagraph (b). Both sides referred to some observations by Wilcox J in Bishop v Bridgelands Securities Ltd (1990) 25 FCR 311, as to the principles to be applied when exercising the discretion. That case concerned the equivalent rule in the Federal Court of Australia, which is not materially different from Part 8 rule 2. His Honour said (at 314): "As the discretion conferred by subrule (b) is, in terms, unconfined, it would be inappropriate to specify circumstances in which it might be applied. Everything must depend upon the facts of the particular case. But it is appropriate to consider what principles ought to guide the exercise of such a discretion. The basic principle, as it seems to me, is that the Court should take whatever course seems to be conducive to a just resolution of the disputes between the parties, but having regard to the desirability of limiting, so far as practicable, the costs and delay of the litigation. Considerations of costs and delay may often support the grant of leave under subrule (b); but in my opinion, leave ought not to be granted unless the Court is affirmatively satisfied that joinder is unlikely to result in unfairness to any party. Secondly, regard must be had to practical matters. For example, it would normally be inappropriate to grant leave for the joinder of applicants who were represented by different solicitors. There must be a single solicitor, or firm of solicitors, who is accountable for the conduct of the proceeding on the applicants' side of the case. Similarly, although all applicants might propose to rely upon some common, or similar facts, there may be such differences between the evidence intended to be relied upon in support of the claims of particular applicants as to make it inexpedient to join the claims. The discrete material may overbear that which is common to all the claims. Again, there may be cases in which the sheer number of the claims, if joinder is permitted, will impose an undue burden on the respondent; although it seems to me unlikely that this will be so except in cases where separate evidence is proposed to be adduced in support of individual claims." 29 Wilcox J applied these principles to grant leave to 80 plaintiffs to sue as investors who invested, with the first respondent, money that was subsequently deposited with some Estate Mortgage trusts. He took into account that the case would be substantially dependent upon documents, the plaintiffs foregoing any reliance on oral representations, and only a little additional work would be involved in tracing individual claims through the financial records of the respondents. 30 Rogers CJ Comm D applied the approach of Wilcox J in Springfield Nominees Pty Ltd v Bridgelands Securities Ltd, which was another Estate Mortgage case. The plaintiffs sued an investment adviser and its managing director for negligence, breach of contract, and misleading and deceptive conduct. They relied on misleading representations contained in a standard letter sent to depositors in the Estate Mortgage trusts. The plaintiffs were a husband, his three children, and two family companies controlled by the husband and his wife. It was accepted that deposits made in reliance on each misrepresenting letter constituted separate transactions for the purposes of the Rule, even though the letters were in standard form. However, Rogers CJ was persuaded to grant leave under subparagraph (b). He took into account that the principal issue raised by each plaintiff would be whether or not the managing director of the defendant was in breach of his company's retainer or was negligent. Moreover, the plaintiffs were connected not only by family ties but because the responsibility for management of their financial activities was reposed in the husband, who placed reliance upon the managing director of the investment adviser. 31 In Carter v Commissioner of Taxation (Cth) [2001] FCA 575 Goldberg J said (at paragraph [23]) that he would add to the principles stated by Wilcox J that the Court should also be concerned to determine what is the most efficient use of the resources of the parties and also of the Court. I respectfully agree. This leads to a practical calculation of advantages and disadvantages, exemplified by the decision of Mandy J in Newman v Hold Pty Ltd [2001] VSC 282. 32 Often the exercise of the discretion under subparagraph (b) arises in a case where an attempt is made to join many people as plaintiffs - for example, because they have all suffered investment losses at the hands of the same adviser, who is made the defendant in the proceeding. In such a case the Court will be concerned that it may be unfair to the defendant to be forced to deal in a single proceeding with a multitude of transactions, even though the alleged wrongdoing (say, by circulation of a letter in standard form) may be identical or similar in the case of each plaintiff. The principles discussed by Wilcox J and Rogers CJ Comm D are applied to resolve the problem. 33 Where there is a single plaintiff but many defendants, the concern is rather different, and those principles are not fully applicable, although the general objectives of fairness and practicability remain. Each defendant will be required to answer a case individually pleaded against it by the plaintiff, but the pleaded case against each defendant will contain assertions made against all defendants. It is not unfair to a defendant that the plaintiff makes identical or similar allegations against others. The fact that the plaintiff does so by joining more than one defendant to a single proceeding does not itself create unfairness. Disadvantage to a defendant, and the possibility of unfairness, may arise if, for example: · the making out of the case against one defendant in some way hampers another defendant from adequately making out its defence; or · the joinder of multiple defendants leads to cost or delay to a defendant materially greater than would have occurred if the cases had been brought separately; or · a defendant is forced to defend its case in an inconveniently located court; or · a defendant is forced to defend its case in the Supreme Court, whereas if the case had been brought separately against a defendant it would have been brought in a lower court at less cost to the defendant. 34 It seems to me that the Court's task is to identify disadvantages of these kinds, and to weigh them up against identified advantages to the plaintiff, to the defendants as a whole, and in terms of the efficient use of the Court's resources, having regard to the commonality of the issues raised by each claim and the Court's ability to case manage so as to minimise the disadvantages. In some cases the disadvantages to a defendant will be so great as to outweigh the advantages of a single proceeding, and the Court should therefore decline to exercise its discretion under subparagraph (b) as to the joinder of that defendant. In other cases, the sensible and practical solution will be to grant leave to the plaintiff to join all defendants to the proceeding, subject perhaps to case management and review at a later stage. 35 Some special features of unfair preference proceedings may justify the granting of leave under subparagraph (b), although leave would not be granted in similarly constituted proceedings with a different subject matter. First, since unfair preference proceedings arise under the Corporations Act, it is appropriate that any applications concerning them, and their case management, be allocated to the Corporations List. The significance of doing so is that the Corporations List is a regular weekly list, within which issues concerning the progression of an unfair preference proceeding against multiple defendants can be aired and resolved expeditiously. Secondly, the issue at stake in unfair preference proceedings is whether the liquidator of a failed company should recover assets for the benefit of unsecured creditors as a whole. The adoption of a procedure that is speedy, inexpensive and efficient from the point of view of liquidators should facilitate the commencement and maintenance of proceedings in cases where there appear to be reasonable prospects of success. That would be an important outcome in terms of public policy and the interests of the commercial community as a whole. Thirdly, a central ingredient of unfair preference proceedings is the establishment of the insolvency of the company at the relevant time: s 588FC. In the case of a company of any significant size, that question should where practicable be determined by this Court rather than the District Court or a Local Court. By granting leave to the liquidator to maintain a single proceeding in this Court, managed within the Corporations List, the Court can bring the matter to a point where the question of insolvency has been determined or it emerges from the defences that insolvency is not in issue, before deciding whether to make an order transferring the balance of the proceeding to another Court, or to make an appropriate set of orders and directions under Part 8 rule 6, or to take other appropriate steps. 36 These considerations affect the balancing of interests involved in the exercise of the discretion. Thus, given the public interest at stake, it is unlikely that the Court would regard the additional cost of defending a claim in this Court as opposed to the cost of doing so in an inferior court as a consideration having any significant weight. It is not uncommon for this Court to be asked to deal with a dispute involving little monetary value, because of the public interest involved - an example in the corporate context is an application to set aside a statutory demand under s 459G of the Corporations Act, regardless of the amount claimed by the creditor. Similarly, the ability of the Court to make appropriate directions in the Corporations List should enable it to minimise the additional costs arising out of the presence of multiple defendants. For example, directions could be given to the liquidator to give reports to defendants against whom relatively small claims have been made as to the outcome of directions hearings, and on that basis those defendants could be excused from attendance. 37 The fact that a person is located in another State should not necessarily lead the Court to deny the liquidator's application to join that person as a defendant in the proceeding. State borders ceased to have any substantial significance in Australian commercial life some decades ago. Company law now reflects commercial reality in this respect, for the Corporations Act is a national statute, administered by a national commission, and by courts operating under rules of court harmonised on a national basis. Where the defendant in question is a corporation of reasonably substantial size, and the amount claimed against it is a substantial amount, it is not unreasonable to expect the defendant to respond to proceedings initiated in this Court, even though its place of incorporation or registered office or principal place of business is in another State. Where the largest group of defendants comprises corporations whose principal places of business are New South Wales, or persons resident in this State, and the other defendants are scattered throughout other States (as in proceeding No 5662 of 2001), the considerations I have mentioned may well justify granting leave notwithstanding that some of the defendants are located interstate. On the other hand, where a single proceeding is instituted against defendants mostly located in one other State, and most of the witnesses reside in that other State, questions of cost and convenience may lead to denial of the application for leave. 38 In my opinion, if a liquidator of a company wishes to bring a single proceeding to recover unfair preferences from multiple defendants, it is open to him or her to file and serve the originating process, together with an interlocutory process seeking the Court's leave under Part 8 rule 2, and supporting affidavit evidence. Care should be taken to ensure that there is sufficient time to initiate separate proceedings within the three year time limit set by s 588FF (3) in the event that the application for leave is denied in respect of any defendant. The interlocutory process would normally be made returnable in the Corporations List. If leave is granted, the Court is likely to make directions for the filing of a statement of claim and defences, and then bring the matter back for further consideration. If it appears from the defences that insolvency has been placed in issue, the Court will endeavour to make arrangements for the determination of that question. It may do so by leaving the proceeding as a single proceeding against all defendants and making directions to bring it to hearing; or by ordering under Part 8 rule 6 that (having regard to such matters as the amounts of the respective claims) the claim against a particular defendant be heard before the other claims in the proceeding, causing the presumptions under s 588E to arise against the other defendants; or even by making an order for the determination of matters to do with insolvency as separate questions under Part 31 (though the disadvantages which may arise from doing so must be borne in mind: see, for example, ABB Engineering Constructions Pty Ltd v Freight Rail Corporation [1999] NSWSC 1037). If the defences show that the insolvency of the company at all relevant times is conceded, but separate issues are raised by the defendants as to such matters as the running account defence or the good faith defence, the Court may make orders for separate hearings of the claims against individual defendants or groups of defendants under Part 8 rule 6, and/or in some cases it may transfer the proceeding to another court. The present case 39 Some of the defendants referred, as a preliminary matter, to the presumptions created by s 588E. They argued that the liquidator in the present two cases is endeavouring to produce a better outcome than the law provides, by seeking to join all the relevant persons as defendants to the same proceeding and thereby binding them to the outcome rather than merely creating presumptions against them. In my opinion the presumptions in s 588E do not work against the liquidator's application. Section 588E amounts to legislative recognition of the need to simplify recovery proceedings where the issue of solvency recurs case by case. The section is addressed to circumstances where there are separate recovery proceedings, and does not seek to define the occasions when it is appropriate for several transactions to be challenged in a single proceeding. But the underlying legislative policy is consistent with the approach advocated by the liquidator. 40 The central problem for the liquidator in both cases is that, although the ingredients of the plaintiff's case in a challenge to unfairly preferential transactions with several defendants are substantially uniform, and the question of solvency is of central importance, individual cases become differentiated when one considers the question of defences. Commonly the defendant will raise the "good faith" defence or the "running account" defence, found respectively in s 588FG (2) and s 588FA (3). The fate of those defences will depend upon a close analysis of the facts concerning the particular transaction under challenge: Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477. 41 The liquidator contends that I should not be concerned, in the exercise of my discretion under subparagraph (b) of the Rule, with questions relating to defences. The defences have not yet been filed. No assumptions can be made, at this stage, as to the nature of the individual defences or whether, indeed, there will be defences at all. The correct approach, according to the liquidator, is to case manage the claims in the mother proceedings until all defences have been filed and the scope of the defences can be understood. 42 I have decided that the liquidator's submission on this subject should be accepted. I have outlined above the way in which a single proceeding of this kind might be case managed through the Corporations List. That, it seems to me, is the correct approach in the present circumstances. 43 Some of the defendants submitted that the sheer presence of a large and unwieldy number of defendants is sufficient ground for refusing to grant leave to the liquidator in proceeding No 5662 of 2001. I agree that at a certain point the sheer size and logistics of the litigation will present a task beyond the bounds of case management and rational adjudication. In my view, however, that point has not been reached in proceeding No 5662 of 2001 and, a fortiori, in proceeding No 5862 of 2001. 44 The liquidator's updated figures with respect to settlements against various defendants are relevant here. I should not, indeed cannot on the evidence, make any assumptions whatever about the reasons for the settlements that have occurred. I do not know whether any of the settlements produced a recovery. However, I am able to take into account, in the exercise of my discretion, the fact that the number of defendants has been significantly reduced. If all 58 defendants had remained active in proceeding No 5662 of 2001 I may well have hesitated to grant leave, but I am able to take into account that there are now only 16 defendants left in that case, and 10 in proceeding No 5862 of 2001. 45 Some defendants submitted that in considering the exercise of my discretion I should take into account that no inter-relationship or relevant connection is alleged between any of the defendants and any other defendants. That does not seem to me to matter. The case for a single proceeding is based on the commonality of the assertions against the defendants rather than any relationship between them. 46 I have dealt with the question of significance of the location of the defendants when considering the Court's general approach to the exercise of its discretion as to joinder in unfair preference proceedings. It seems to me that in both proceedings, the plaintiffs are principally connected to New South Wales and the largest group of defendants is also connected with New South Wales. While the Court must do what it can to minimise costs and expenses for all defendants arising out of the use of a single proceeding, the fact that some of them are outside New South Wales ought not to be a governing consideration. 47 I have also considered the relevance of the size of the claims and the availability of courts of inferior jurisdiction to deal with claims below their monetary limits. As to the costs of interlocutory hearings for directions and the like, it may be possible to set up arrangements, as I said, in which the liquidator is required to report on directions hearings to defendants with small claims, if they wish to be excused from attendance at the preliminary stages. 48 Most of the defendants submitted that the length of the final hearing of each proceeding would be oppressive to them, because some or many of the issues contested at the final hearing would not relate to their own cases. It seems to me that this point will be relevant to consider once the defences have been filed and the Court can identify the matters in issue. Matters to do with the costs of the final hearing may make it necessary to have one claim determined first, prior to the hearing of the other claims. But that will be a matter for consideration in the future. 49 Some defendants submitted that the Court should be concerned that the liquidator has instituted two single proceedings just days before the expiry of the three-year limitation period set by s 588 FF (3). I do not follow this point. If it was proper for the liquidator to commence two single proceedings rather than separate proceedings against every defendant, the fact that those proceedings were commenced just within the three-year limitation period is relevant. If it is suggested that the liquidator has delayed until the last-minute and then, realising the enormity of the task of preparing separate originating processes and affidavits for about 70 proceedings in a matter of days, he cynically and improperly commenced two single proceedings, the answer is that there is no evidence to that effect. 50 On the other hand, the fact that individual proceedings may now be out of time, subject to any possible extension of time under s 1322, is a matter relevant to the exercise of my discretion. It was a consideration taken into account, for example, by Hill J in Re The Thai Silk Company Ltd, at paragraph 25. The Court would be reluctant to exercise its discretion in a manner that effectively brought these two proceedings to an end, if in consequence all claims to recover unfair preferences for the benefit of unsecured creditors became statute-barred, where another alternative is available. 51 The issues that have troubled me most relate to the fact that proceeding No 5662 of 2001 involves claims against three groups of defendants in respect of each group's transactions with one of the three corporate plaintiffs. The question is whether the liquidator was justified to combine these claims in one rather than three proceedings. The justification for doing so seems to be that · the three corporate plaintiffs are all members of the same group, of which Clifford Corporation is the parent; · they operated various aspects of a bus manufacture and refurbishment business, and only Austral conducted bank accounts, for the purposes of the businesses of all three companies. 52 It is true, as one of the defendants pointed out, that the Court has no evidence as to the nature, type, size and spread of the businesses conducted by the three companies; the precise relationship between each of the three companies and their respective businesses; the nature of the relationships between each of the three companies and the various defendants named in the three schedules; the nature of the goods supplied or services provided by the various defendants to the various plaintiffs; and the degree to which there will be common witnesses for the plaintiffs and the defendants in respect of the various claims. 53 After some hesitation, I have decided that in the special circumstances before me I should exercise my discretion to grant leave in respect of proceeding No 5662 of 2001 notwithstanding that there are three corporate plaintiffs claiming in respect of separate transactions by each of them with various defendants. The critical matter is that although there are three separate corporate plaintiffs, payments were processed by Austral on behalf of the other two, and so the focus of the proceeding will be on that payment process in the transactions reflected in it. 54 Various defendants have adduced affidavit evidence as to the prejudice they will individually suffer if the proceedings are allowed to continue in their present form. It is unnecessary to set out that evidence here. Having considered it, I am of the view that the evidence is answered by the considerations referred to above. In particular, to the extent that the evidence goes to prejudice arising at a final hearing against all defendants, due to costs, the location of witnesses, and the disproportionality of costs to amounts claimed, the argument is premature. Until the defences have been filed and an assessment has been made of the issues remaining, and any further settlements are taken into account, the prejudice to be suffered by individual defendants cannot be accurately ascertained, and no decision can be taken as to the best method of bringing the claims to final determination. 55 The plaintiffs submitted that in light of s 181 of the Supreme Court Act 1970 (NSW) and Part 8 rule 7 of the Supreme Court Rules, I should not strike out or summarily dismiss the proceedings even if I reach the view that they are improperly constituted. Since I have decided that the proceedings are not improperly constituted and that leave ought to be granted for them to be continued in their present form under Part 8 rule 2, I do not need to consider the plaintiffs' submission on this point. Conclusions 56 I have decided to make an order in proceeding No 5662 of 2001, on the plaintiffs' application, granting leave to join the liquidator and the three corporate plaintiffs as plaintiffs and to join the 58 defendants listed in the three schedules as the defendants. In proceeding No 5862 of 2001 I shall make an order, on the plaintiffs' application, granting leave to join the liquidator and the corporate plaintiffs as plaintiffs and to join the 13 defendants listed in the originating process as the defendants. I shall dismiss the various applications by defendants challenging the composition of the proceedings. 57 I shall direct the liquidator to bring in short minutes of order to reflect these reasons for judgment, and I shall fix a time to hear the parties on the question of costs. At present I am inclined to order that the costs of the plaintiffs' applications and the various applications by defendants be costs in the proceedings, bearing in mind that my decision reflects, to a degree, a new approach in this Court to the administration (as a matter of Court practice) of unfair preference proceedings. **********

Dean-Willcocks v Air Transit International

At a glance

Result

Key principles

Issues before the court

Plain English Summary

Catchwords

Cited legislation

Judgment (10 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (6)

Cited By (13)

AI Analysis