Dean-Willcocks v Commissioner of Taxation

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2883/02 RONALD JOHN DEAN-WILLCOCKS V COMMISSIONER OF TAXATION & ORS JUDGMENT 1 HIS HONOUR: In Dean-Willcocks v Air Transit International Pty Ltd (2002) 42 ACSR 328 I made orders which allowed a liquidator to bring a single proceeding for recovery of unfair preferences against a large number of defendants who had dealt with the company in a multitude of transactions. I held that although Part 8 rule 2(a) of the Supreme Court Rules did not apply so as to permit the joinder of many defendants in a single proceeding of this kind, the Court had jurisdiction to grant leave to permit the joinder of defendants under Part 8 rule 2(b), and I decided on the facts of that case that leave should be granted. In the present case Mr Dean-Willcocks, as applicant in another liquidation, seeks to build on my earlier decision by applying for orders for the separate determination of one of many unfair preference claims he has made in a single proceeding. 2 In reaching my earlier decision I took into account (judgment, at [15]) the advantages to the liquidator of using a single proceeding, with one filing fee, in a single court, in which all the defendants would be bound by the Court's decision with respect to such matters as insolvency, rather than being merely affected by presumptions which they could rebut. I had in mind, of course, the presumptions under s 588E (see judgment at [13]). 3 I contemplated, however (at [35] and [38]), that in an appropriate case the Court might decide to make orders under Part 8 rule 6 (which provides for the Court to order separate trials in a proceeding where the joinder of parties may embarrass or delay the trial of the proceeding or is otherwise inconvenient), or orders under Part 31 rule 2 (which allows orders to be made for the determination of separate questions). If a separate trial were to be ordered under Part 8 rule 6, the plaintiffs would lose the advantage that, after a single final hearing, all defendants would be bound by the Court's decision, but I said that the plaintiffs would have the benefit of the presumptions under s 588E as regards the other defendants. While I contemplated the possibility of an order under Part 31 rule 2, I noted that there were disadvantages in that procedure (at [38]). 4 In the present case Mr Dean-Willcocks is the first plaintiff, and he is the liquidator of the second plaintiff, SJP Formwork (NSW) Pty Ltd (in liq) ("the Company"). The plaintiffs seek to recover unfair preference payments under s 588FF of the Corporations Act. There are 14 defendants and a large number of alleged preference payments, listed in schedules to the originating process and the statement of claim. The proceeding was commenced on 27 May 2002, just within the three-year time limit specified in s 588FF(3). 5 Mr Dean-Willcocks was appointed voluntary administrator of the Company on 28 May 1999. Ultimately the creditors voted in favour of liquidation, and he became liquidator of the Company on 8 September 1999. The principal assets of the Company were causes of action in respect of construction work which it carried out on some large building projects. According to his affidavit, Mr Dean-Willcocks took various steps to pursue these claims but he was hampered by lack of funds. 6 Early in the administration he formed the view that there was a possibility of recovering various payments made by the Company on the ground that they were unfair preferences. His evidence is that he did not instigate an unfair preference proceeding until 27 May 2002, because he recognised the possibility of defendants raising the "running account" defence and possible problems in proving the insolvency of the company, and so he decided to delay in the hope that he would receive sufficient funds from the various recovery actions that had been undertaken. However, as the end of the three-year limitation period approached and no such funds had been generated, he instructed lawyers to advise him on the prospects of success, and then to initiate the present proceeding. 7 Although filed, the statement claim was not served for some time. In his affidavit Mr Dean-Willcocks explained this by saying that he needed to inspect some relevant records, which were not readily available, and he wanted to have counsel's advice and the concurrence of creditors before proceeding further. He was able to obtain access to various documents over the period to the end of November 2002, and then, following discussions and advice from counsel, he instructed his solicitors to serve the originating process and statement of claim on the first defendant, the Commissioner of Taxation. Service was effected on 7 March 2003. None of the other defendants has been served. Under the Supreme Court Rules services required to be affected within one year of 27 May 2002, the date of the filing of the initiating process. 8 By interlocutory process filed on 25 March 2003, Mr Dean-Willcocks has applied for an order under Part 31 rule 2 that all issues between the plaintiffs and Commissioner of Taxation be tried separately and prior to any other issues in the proceeding. He has also applied for an order under Part 2 rule 3 that the time for service of the originating process and statement of claim be extended to 27 May 2004. His intention in seeking these orders is to prosecute the unfair preference claim against the Commissioner of Taxation first, and then (as he has said in his affidavit) if a judgment or settlement is recovered against the Commissioner, this will facilitate his funding position to prosecute the balance of the claims against the other defendants. Additionally he is having discussions with a litigation funder, although no formal application for funding has been made at this stage. 9 The interlocutory application came before me in the Corporations List on 31 March 2003, when the only defendant to appear was the Commissioner of Taxation. I expressed some concern that 13 of the 14 defendants, whose interests would appear to be affected by the application, had received no notification of it. I stood the application over to 28 April 2003, to allow Mr Dean-Willcocks to send those defendants a letter in a form produced by counsel for my perusal. 10 When the matter returned to me on 28 April 2003 there was evidence that the letter had been sent to the 13 defendants other than the Commissioner of Taxation (who appeared again at the interlocutory hearing on 28 April), and that only three of the defendants had responded. Two of the defendants, namely Boral Framework and Scaffolding Pty Ltd and Boral Resources (NSW) Pty Ltd, appeared at the interlocutory hearing on 28 April, by their counsel. 11 The solicitor for another defendant, Big River Timbers Pty Ltd, made contact with Mr Dean-Willcocks' solicitors. He said that his client had no objection to "the cases being split", but would want to be heard on the issue of insolvency and would not want to be bound by any finding made in the case against the Commissioner of Taxation. By a letter dated 22 April 2003, the solicitors for Mr Dean-Willcocks wrote to the solicitor for Big River Timbers saying that if the orders sought in the interlocutory application were made, the issues decided in the claim against the Commissioner of Taxation would not bind the other defendants, but statutory presumptions would arise under s 588E, referring especially to s 588E(8). The letter continued: "Therefore if the orders are made, it is at least theoretically possible that your client will be prejudiced insofar as it wishes to raise issues regarding solvency. However, that is no different from any preference claim where the case against one defendant is heard earlier than against the other defendants." 12 The solicitor for Big River Timbers responded by telephone on 28 April, saying that on the basis of the matters stated in the letter, his client would not attend the hearing and would neither consent to nor oppose the application. 13 In my opinion the defendants have now been adequately notified of Mr Dean-Willcocks' interlocutory application. 14 At the hearing on 28 April the Commissioner of Taxation neither consented to nor opposed Mr Dean-Willcocks' application. Counsel for the two Boral companies said his client had no objection to the Court making an appropriate order for a separate trial of the plaintiff's claim against the Commissioner of Taxation, on the understanding that no finding against the Commissioner would be binding on the Boral companies and the evidence relied upon against the Commissioner would not necessarily be admissible against those companies. He conceded that presumptions under s 588E would arise against the Boral companies if the claim against the Commissioner were to be determined in the plaintiffs' favour. 15 Counsel submitted, however, that it would be more appropriate for the Court to make orders under Part 8 rule 6 than under Part 31 rule 2. If orders were made under Part 8 rule 6, the originating process and statement of claim could be served without any extension of time, but thereafter the proceedings could lay dormant without directions, although any party would be granted liberty to apply. 16 I agree with counsel's submission. The disadvantages of proceeding under Part 31 are well documented in reported cases. In ABB Engineering Constructions Pty Ltd v Freight Rail Corporation [1999] NSWSC 1037 Rolfe J (at [4]) expressed the view that the Court has become reluctant to accede to Part 31 applications as a result of long experience with them. I had occasion to analyse and apply his Honour's observations in Hathway v Cavanagh (2002) 43 ACSR 497, at [36]ff, although Arcfab Pty Ltd v Boral Ltd (2002) 43 ACSR 573 shows that an order under Part 31 is nevertheless sometimes appropriate. 17 In the present case I think there are several good reasons for not proceeding under Part 31. One is that the Part 31 procedure would entail that no steps would be taken against the other defendants until determination of the claim against the Commissioner of Taxation. The other defendants would not even be served. That could mean a very substantial delay before any progress was made in the proceeding against the other defendants, especially when one allows for the possibility of appeal. In the meantime, the other defendants would be prejudiced, at least theoretically and perhaps in substance, by not being served and therefore informed of the claims against them, and consequently by not having the opportunity to take any interlocutory steps to protect their interests, should they be advised to do so. They would also be prejudiced, again at least theoretically, by not being able to manage their commercial affairs with any certainty as to the outcome of a preference claim in respect of transactions that occurred many years earlier, a disadvantage sought to be overcome by the enactment of s 588FF(3). It would be necessary for the Court to grant a substantial extension of the time for serving the initiating process on the other defendants, possibly on more than one occasion. 18 The alternative proposed by counsel for the Boral companies, an order under Part 8 rule 6, is not without problems. It shares some of the disadvantages of the Part 31 procedure - for example, if the judge hearing the claim against the Commissioner of Taxation is required to make findings as to credit, perhaps on the issue insolvency, that judge may be disqualified from hearing the claims against the other defendants. Additionally, there would inevitably be some duplication or repetition involved in any separation of the trial against one defendant from the trials against the others. On the other hand, there are real advantages in the liquidator of the failed company testing the case, particularly as to insolvency, by running it against a single defendant in circumstances where the presumption under s 588E would become available to the liquidator, if successful, against the other defendants. Proceeding in this way, the liquidator might be able to use any recovery against one defendant to fund the prosecution of claims against the others. Moreover, the orders proposed by counsel for the Boral companies would enable any defendant, having been served, to initiate some interlocutory application if there were any real prejudice to its position that needed to be addressed. 19 Another advantage of the Part 8 rule 6 procedure over the Part 31 rule 2 procedure relates to the availability of presumptions under s 588E. The presumptions arise where certain things are proved in one "recovery proceeding", and they apply in "another recovery proceeding". In one sense, there is a single proceeding when the liquidator sues various defendants in one action, even though the action relates to a multitude of alleged preference transactions. However, s 588E(1) defines "recovery proceeding" to mean, relevantly, an application under s 588FF by the company's liquidator. Where the Court orders a separate trial under Part 8 rule 6, it seems to me plausible to argue that thereafter, there is a separate "application" relating to that separate trial, with the consequence that presumptions may arise out of the findings at that trial as regards the claims in the same proceeding against the other defendants. 20 Where, however, an order is made under Part 31 for the determination of a claim against one of the defendants as a separate question in the proceeding, it seems to me less clear that the statutory presumptions operate, because it is less obvious that the Part 31 determination constitutes an "application" separate from the proceeding against the other defendants. Since the matter has not been fully argued, I shall express no final view. It is arguable, however, that the wording of the definition of "recovery proceeding" in s 588E might plausibly lead to different outcomes as to the availability of the presumptions, depending upon whether the Part 8 rule 6 or the Part 31 rule 2 procedure is used. 21 There may be another problem. When separate questions are determined under Part 31, the result is a determination in the proceeding, binding all the parties to it. A determination that the first defendant has received an unfair preference which it must recoup is not a determination that the second defendant has received a unfair preference or that the second defendant has any recoupment liability. What seems to me less certain is whether the determination of an issue of fact under Part 31, such as the issue of insolvency, might create an estoppel of any kind in the proceeding, binding every party to it, or might prejudice some rights of the other defendants such as contribution rights. Again, the matter was not argued and so I express no final view on it. But a separate trial between the plaintiffs and one defendant under Part 8 rule 6 will not create similar problems because the separate trial proceeds in isolation from the other defendants and the determination is not a determination binding all parties in the proceeding. 22 In my opinion the grounds for an order for a separate trial under Part 8 rule 6 are present here. The joinder of 14 defendants in the proceeding is likely to delay the final hearing and give rise to other kinds of inconvenience (including the matters specified in Mr Dean-Willcocks's affidavit, summarised above), if an order for a separate trial is not made. The evidence called in the separate trial will be admitted only against the Commissioner of Taxation, and therefore there is likely to be some duplication between the separate trial and the final hearing, but on the other hand there should be no prejudice to the other defendants arising out of the adducing of evidence as against the Commissioner: cf Sandes v Wildsmith [1893] 1 QB 771, 774. 23 I am therefore prepared to make an order under Part 8 rule 6 for the separate trial of the claims made by the plaintiffs in the proceeding against the Commissioner of Taxation, together with consequential directions upon such matters as the filing of affidavits and (if appropriate) discovery and the issue of subpoenas. For the time being, the case should continue to be managed in the Corporations List. I shall not extend the time for service of the originating process and statement of claim unless a further application is successfully made for a short extension on the ground of some impracticability in attending to service by 27 May 2003. I shall make the order for costs sought by Mr Dean-Willcocks in the application, namely that the costs of the application be costs in the cause. I shall direct the plaintiffs to prepare draft short minutes of orders. 24 I should note one other matter. These reasons for judgment proceed on the assumption that the proceeding has been properly constituted. The application of Part 8 rule 2 to a proceeding similar to the present proceeding was considered by me in the Air Transit case, in which I held, in effect, that it was necessary for the Court's leave to be obtained under Part 8 rule 2(b). An order granting leave can be made nunc pro tunc. It does not appear that an application for such leave has been made in the present case. On the limited evidence before me now, adduced for another purpose, I am not able to say that application is required, but I draw the issue to the attention of the plaintiffs' legal advisers. **********

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