REASONS FOR JUDGMENT
1 By order of a registrar, Annesley Plant Hire Pty Ltd (in liquidation) was wound up in insolvency and Mr White appointed its liquidator. The orders were made on the return of an unopposed application by the Deputy Commissioner of Taxation. That the application was unopposed was the result of uncertainty about the hearing day. There is now an application by Mr Annesley, the sole shareholder of the company, to set aside the winding up order.
2 The power to set aside a default judgment and an order made in the absence of a party is found in O 35, r 7(a). That rule provides that the Court may vary or set aside any judgment or order before it has been entered and may if it thinks fit vary or set aside a judgment or order after it has been entered where the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default and whether or not the absent party had notice of the motion for the order.
3 At issue on this application is whether the grounds for setting aside the winding up order have been made out. I note that the Deputy Commissioner does not oppose the making of the order. The amount due by the company for unpaid tax has been paid. Hence the Deputy Commissioner has no further interest in the winding up process.
4 In that circumstance I requested the liquidator to provide me with information about the affairs of the company. In particular I asked the liquidator to inform me about what he knew of the company's assets and liabilities to enable me to give proper consideration to Mr Annesley's application.
5 I should emphasise that while the liquidator has been able to provide some of the information I requested, he has not had sufficient time to fully investigate the matters. To some extent this may be the result of the alleged failure by Mr Annesley to provide information either in a timely manner or at all. In the end, however, I am satisfied the liquidator's inability to deal comprehensively with issues relating to the company's solvency will not affect the outcome of the application. For that reason I decided not to give the liquidator more time to complete his investigation.
6 Order 35 gives a discretion to set aside a judgment in the circumstances mentioned. The discretion is in terms unconditional. The courts have, however, laid down rules that guide them in the normal exercise of that discretion.
7 The way the discretionary power to set aside a default judgment is to be exercised was considered by the House of Lords in Evans v Bartlam [1937] AC 473. There the Law Lords said that, while there are no hard and fast rules, it was usual for the defendant to (a) give some satisfactory explanation for his failure to take the step that led to judgment being entered; (b) bring his application to set aside the judgment without undue delay; and (c) show that he has some serious (or prime facie) defence to the action: see Lord Wright at 489, Lord Atkin at 479-480 and Lord Russell at 481-482.
8 In Grimshaw v Dunbar [1953] 1 QB 408 Jenkins LJ, after referring to what was said in Evans v Bartlam, said (at 415) on the question of delay, that "delay in itself would not be important, but delay prejudicing the other party, or delay enabling rights of third parties to intervene, would be most material." Jenkins LJ went on to discuss how far a judge should consider the prospect of success of the party applying for a new trial. He said (at 416):
No doubt the judge is entitled to satisfy himself that the party applying has a bona fide intention of defending the action, and that there is some possibility of his doing so with success.
He then went on:
I think that a new trial should seldom, if ever, be refused merely on the ground that the applicant's case appears to be a weak one … [A] party to an action is prima facie entitled to have it heard in his presence; he is entitled to dispute his opponent's case and cross-examine his opponent's witnesses, and he is entitled to call his own witnesses and give his own evidence before the court. Prima facie that is his right, and if by some mischance or accident a party is shut out from that right and an order is made in his absence, then common justice demands, so far as it can be given effect to without injustice to the other parties, that that litigant who is accidentally absent should be allowed to come to the court and present his case - no doubt on suitable terms as to costs.
9 Reference should also be made to Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR NSW 239. That case involved an application to set aside a judgment where the defendant had failed to appear at the trial. Jordan CJ, with whom the other members of the Full Court agreed, said (at 243) that in such a case the rule was much stricter than in the case of a default judgment. The Chief Justice continued (at 243-4): "The question is whether, upon the material that has been placed before us, there is a real likelihood that it would be unjust to the defendant to allow the judgment to stand. If so, it should be set aside on such terms as it will minimise the possibility of injustice to the plaintiff. If not, we should not interfere."
10 What these authorities show is that the judge must decide what is just or fair in all the circumstances. This involves weighing up the extent to which the defendant is prejudiced by allowing the order to stand and the prejudice to the plaintiff in setting the order aside: Kostokanellis v Allen [1974] VR 596 at 605. It also involves the defendant showing some defence on the merits, for it is only if he has some defence that he will be seriously prejudiced if refused a trial. But, in the end, the judge's discretion is not to be exercised on any hard or fast rule. How the discretion is to be exercised will depend upon all the circumstances of each particular case.
11 Counsel for Mr Annesley referred me to George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464. There Hodgson J said (at 465) in relation to setting aside a winding up order:
In my view, if an order winding up a company is made in the absence of the defendant company, and an application is brought promptly by the company, with notice being given to the liquidator, to the plaintiff and to any creditor who appeared at the hearing; and if the evidence shows an explanation for the non-appearance at the hearing and indicates solvency of the company; and if there is consent to setting aside, or at least non-opposition; and if the liquidator indicates that nothing in his investigations to date shows a reason for the company to be stopped from trading, then the court will normally set aside the order.
12 It has been argued that this passage means that the company (or a person with standing to make the application on the company's behalf) must show that the company is solvent: ie that it would be able to defeat the application for winding up. For my part, I do not read the passage as going that far. The only requirement that Hodgson J imposed is that there be some evidence which "indicates" solvency, and this is a far cry from "proof" of solvency: see Registrar of Aboriginal Corporations v Murnkurni Women's Aboriginal Corporation (in liq) (1995) 58 FCR 125 at 128; Double Bay Newspapers Pty Ltd v The Fitness Lounge Pty Ltd (2006) 57 ACSR 131 at [24]; Workers Compensation Nominal Insurer v Deli Glenbrook Pty Ltd [201] FCA 380 at [7]. If Hodgson J meant that it was necessary for the company to show it was in fact solvent, his view is not consistent with the authorities.
13 There is, however, one troubling aspect about the passage quoted from Hodgson J. He implicitly suggests that the success of the application will depend upon there being consent by, or at least non-opposition from, the liquidator. That cannot be so. First, whether or not the application to set aside a winding up order (or, indeed any other type of order) is opposed is beside the point. What is important is that justice is done to the parties. Second, Hodgson J's approach, if followed, would have the effect of converting the liquidator into a protagonist. That is most undesirable. A liquidator is under a duty to act impartially when dealing with persons interested in the liquidation. On the other hand, if the liquidator's investigation shows some reason why the winding up should continue (for example, if there has been misconduct on the part of the directors), he should inform the judge because that would be a relevant matter to take into account.
14 What then are the circumstances which give rise to the present application? The company's dispute with the ATO arose out of a misunderstanding regarding the company's liability for GST. Based on accounting advice, Mr Annesley thought that something in the order of $450,000 was due. The ATO claimed $670,000. It was the failure to pay that debt which led to the service of the statutory demand and, in due course, the filing of the winding up application.
15 The application was made returnable on 6 May 2010. Counsel appeared on the company's behalf. Mr Annesley was also in attendance. By agreement between counsel and the lawyer who appeared for the Deputy Commissioner, the hearing was adjourned until 3 June 2010. Mr Annesley understood that in the meantime his accountant would discuss with the ATO the quantum of the tax that was in fact due.
16 Between 6 May and 3 June 2010 there were several conversations between Mr Annesley and the company's accountant. Mr Annesley was told that there were negotiations with the ATO and that "nothing would happen" while those negotiations were continuing. The accountant also informed Mr Annesley that it was not necessary to attend court on 3 June 2010 unless he received formal notification of a hearing.
17 Mr Annesley did not receive any notification that there would be a hearing on 3 June 2010. Hence, counsel was not instructed to appear for the company on that day. The upshot was that the winding up order was made as on an undefended application.
18 Mr Annesley soon discovered that his company had been wound up. He immediately contacted solicitors who, on 9 June 2010, wrote to both the liquidator and the ATO advising that application would be made to have the winding up order set aside. A motion to that effect was filed and served two days later.
19 Following the service of the motion there were further discussions between the company's solicitors and the ATO. During the course of those discussions the ATO acknowledged that only $495,497.86 was owing for GST and not the amount which had been the basis of the winding up order. Mr Annesley paid the unpaid tax from his own money.
20 The principal reason Mr Annesley seeks to set aside the winding up order is that the company is solvent. The company deals in heavy plant and machinery by way of sale or lease. It has a substantial business with an annual turnover in the millions of dollars. There is an affidavit from a Mr Gardiner who has valued the company's plant and machinery. Mr Gardiner is an auctioneer and valuer with over 30 years experience in valuing such equipment. Mr Gardiner said that the important factors to be taken into account when assessing the value of heavy plant and machinery are: (a) the make, model and year of manufacture; (b) the hours used or kilometres travelled; (c) type of work undertaken by the machinery; and (d) the identity of any previous owner of the machinery.
21 Mr Gardiner was not able to inspect each piece of machinery. Thus his valuation was conducted both on a "sighted" and an "unsighted" basis. As regards the physical items that he was able to inspect (some 22 in all), Mr Gardiner said their value was slightly over $5 million. As to the unsighted items, which are located at various mining sites and quarries around the country, Mr Gardiner assessed their value at slightly more than $9 million. In arriving at that valuation Mr Gardiner assumed that the description of the equipment provided to him by Mr Annesley was accurate. He also assumed that the equipment was in good working order. He said this was a reasonable assumption because the items were currently the subject of hire agreements.
22 The liquidator, not unfairly, points out the difficulty in relying on a valuation of equipment sight unseen. He has also appointed a valuer to conduct a valuation of the company's assets but that valuation is not yet to hand.
23 In addition the liquidator's office has undertaken a preliminary investigation of the company's liabilities. Mr Michell has been supervising the liquidation while the liquidator has been overseas. Mr Michell says the amount due to financiers under various hire purchase agreements is around $4.6 million, with the arrears being approximately $721,270. (A large portion of the arrears have fallen due since the commencement of the liquidation). In addition to the debts due to the financiers approximately $338,000 is due to the ATO. Thus, according to the liquidator, the company's current liabilities are around $1 million.
24 When one takes into account the value of the company's assets it appears that the company is solvent. Even if Mr Gardiner's valuation is discounted because he was not able to inspect many of the items of machinery he valued, the company seems still to be solvent.
25 In the end, however, that is not the relevant question. What Mr Annesley must demonstrate, and demonstrate it he has, is that there is an arguable case that the company is solvent.
26 In that circumstance it is inevitable that the winding up order should be set aside. It is necessary that the liquidator's costs and expenses be secured pending them being assessed. Appropriate undertakings have been given by Mr Annesley for that purpose.
27 Orders will be made in accordance with the minutes provided by the parties.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.