Deputy Commissioner of Taxation v Australian Securities and Investments... [2011] FCA 219 | Case summary

REASONS FOR JUDGMENT 1 These reasons for judgment concern an application by a former director of two companies, Advance Finances Pty Ltd (Advance) and Civic Finance Pty Ltd (Civic), to set aside orders I made on 16 December 2010 reinstating the registration of and (on reinstatement) winding up each of the companies (Deputy Commissioner of Taxation v Australian Securities and Investments Commission; in the matter of Civic Finance Pty Limited (Deregistered) [2010] FCA 1411). I refer to the proceedings to which those orders relate as the "principal proceedings". 2 The former director, Gary Binetter, was granted leave to be heard in the principal proceedings. This grant of leave was made under r 2.13(1)(c) of the Federal Court (Corporations) Rules 2000. Rule 2.13(1)(c) provides that the Court may grant leave to any person who is or claims to be an "interested person" to be "heard in the proceeding without becoming a party to the proceeding". 3 In accordance with the grant of leave, and as recorded at [3] of the reasons for judgment published on 16 December 2010: Gary Binetter was represented at the hearing by counsel, called evidence, cross-examined witnesses for the Commissioner and made submissions opposing the reinstatement of Advance and Civic. 4 Mr Binetter also opposed the winding-up of the two deregistered companies. 5 Thereafter, Mr Binetter sought leave to appeal against the orders for the reinstatement and winding-up of the deregistered companies. On 4 March 2011, Perram J dismissed Mr Binetter's application for leave to appeal (Binetter v Deputy Commissioner of Taxation [2011] FCA 184). 6 By an interlocutory application filed in Court on 9 March 2011 and heard on that day, Mr Binetter sought that the orders in respect of the winding-up of the two deregistered companies, upon their reinstatement, be set aside. The basis upon which he sought to do so may be summarised as follows: (1) The orders of 16 December 2010 (which have been entered) provide for the reinstatement of the registration of each company (Order 1) and, "[u]pon reinstatement of the registration", for each company's winding-up. (2) Accordingly, the winding-up operates after the reinstatement of the registration of each company. (3) The companies will be directly affected by the winding-up. Accordingly, they are necessary parties to any winding-up order against them. (4) Because the companies did not exist when the orders were made, they could not be joined as parties to the proceedings. (5) It follows that the procedure adopted in the principal proceedings, in which the Deputy Commissioner of Taxation sought orders for both the reinstatement of the registration and the winding-up of the companies, was impermissible. Other cases in which the same procedure has been used were also in error to do so. The only permissible procedure, in such a case, is for consideration of the winding-up application to be deferred pending the reinstatement of the registration of the company. Upon reinstatement of the registration, the company (which will then exist) can be joined as a necessary party and thus heard. (6) The fact that Mr Binetter had the opportunity to raise this issue in the proceedings, but did not do so, is immaterial. The joinder of all necessary parties was the responsibility of the party seeking the orders. In any event, the circumstances are governed by the decision of the High Court in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd; Walker Corp Pty Ltd v White City Tennis Club Ltd (2010) 266 ALR 462; [2010] HCA 19 (the White City Tennis Club case). The principle is that where a court is invited or proposes to make orders "directly affecting the rights or liabilities of a non-party, the non-party is a necessary party and ought to be joined" (at [131]). If an order is made directly affecting the rights of a non-party, the order is not a nullity but the non-party is entitled to have the order set aside (at [137]). This principle operates independently of the capacity to set aside orders which have been entered under the Federal Court Rules (O 35 r 7(2)). (7) In the present case, Mr Binetter had a sufficient interest to be granted leave to appear. He must have the same sufficient interest to seek to have the orders set aside. If not, upon reinstatement of the registration of the companies, no person will be able to perform any function as an officer of the companies without the approval of the Court (ss 471A(1) and 471A(1A) of the Corporations Act 2001 (Cth) (the Corporations Act)). (8) Alternatively, O 35 r 7(2)(a) of the Federal Court Rules applies. References to "party" in that rule should be construed as references to "any necessary party". As such, the orders were made in the absence of a party within the meaning of that section. 7 The parties agreed that, insofar as they were aware, this issue had not been considered in any earlier proceeding. The Deputy Commissioner of Taxation identified a number of decisions in which the same procedure had been adopted, but without express consideration in the reasons for judgment of the issue now raised (including GIO General Ltd v Sabko Pty Ltd (2007) 70 NSWLR 743; [2007] NSWSC 251, Vukasin v ASIC [2007] NSWSC 1341, Vero Insurance Ltd v Nicejade Pty Ltd [2010] NSWSC 556, Scott v Janniki Pty Ltd (1994) 14 ACSR 334, Re Sparad Ltd (1993) 12 ACSR 12, Payne v Wizard Industries Pty Ltd; Payne v Australian Securities Commission (1997) 24 ACSR 277, and Deputy Commissioner of Taxation v Action Workwear Pty Ltd (Deregistered) (1996) 132 FLR 345). 8 I am not persuaded by Mr Binetter's submissions. 9 First, it cannot be the case that "party" in O 35 r 7(2)(a) includes a non-party who was a necessary party. If that were so, "party" would take one meaning in rules other than O 35 r 7(2)(a) of the Federal Court Rules, and another in that rule only. A necessary party to a proceeding is a person "whose joinder as a party is necessary to ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon" (O 6 r 8). Such a person includes any person whose rights are directly affected by an order or proposed order in the proceeding (as in the case of Walker Corporation in the White City Tennis Club case). A "party", however, is an actual party to the proceeding. Accordingly, this is not a case where O 35 r 7(2)(a) is engaged. 10 Second, Mr Binetter's submissions appear to overlook the basic fact that the deregistered companies did not exist when the proceedings were heard and determined or at the time the present application was made and heard. 11 As to the non-existence of the companies when the orders were made, the deregistered companies were not at that time a person (in the sense of a legal person) at all, let alone a person whose rights were directly affected by the order. The deregistered companies had no legal existence, and thus could not have been joined as parties at any time during the proceedings. As such, the deregistered companies could not have been necessary parties. In order to avoid the consequence of this basic fact of non-existence (and thus the impossibility of the existence of any rights that could be affected, directly or otherwise, by the orders when made), Mr Binetter's submissions focussed on a temporal gap which, it was said, would exist between reinstatement of the registration of the companies and their winding-up (which, by the terms of the order, takes effect "[u]pon reinstatement" of the registration). The order , Mr Binneter submitted, would directly affect the rights of each company from that moment of existence onwards, without the companies being joined to the proceedings in which the order was made as necessary parties. This focus is inappropriate. In the White City Tennis Club case the High Court was concerned with a person, Walker Corporation, the rights of which were directly affected by the order when made. In other words, the person, and the rights which will be directly affected by the order, must exist when the order is made. If the person does not exist and, by reason of that fact, the rights said to be directly affected do not exist, it cannot be said that orders have been or are proposed to be made "directly affecting the rights or liabilities of a non-party" as referred to at [131] of the White City Tennis Club case. It is true that, by reason of the making of the orders, a person will come into existence (the companies on reinstatement of their registration). But this does not attract the principle with which the High Court was concerned in the White City Tennis Club case. 12 Further, and as the Deputy Commissioner of Taxation submitted, the orders provide for the reinstatement of the registration of, and upon that reinstatement, the winding-up of the companies. It is wrong to conceptualise the orders as involving a temporal sequence, as Mr Binetter's submissions assumed. Upon reinstatement, the order is that the companies "be" wound up. That is to say, the orders contemplate that the companies be reinstated and, at the same moment, be subject to the winding-up orders. The orders contemplate that the companies be reinstated with a different status from that which they had before they were deregistered. On this analysis, it is not possible to identify any right of the companies directly affected by the orders when the orders were made. 13 As to the non-existence of the companies at the time this application was made and heard, as the Deputy Commissioner of Taxation pointed out, [137] of the White City Tennis Club case contemplates that the non-party directly affected by the orders is entitled to have them set aside and "is not limited merely to seeking the favourable exercise of a discretion". In this case there is no such "non-party". Mr Binetter's rights were not directly affected by the orders. He was afforded a right to be heard pursuant to a provision enabling leave to be granted to an "interested person". The companies did not exist at the relevant time, and thus were not non-parties the rights of which were directly affected by the orders. Despite Mr Binetter's submissions to the contrary, it is not apparent why he is entitled to have the orders set aside. Mr Binetter's status as an "interested person" pursuant to a rule permitting such persons to be granted leave to be heard in a proceeding does not make him a person whose rights were directly affected by the orders and thus a non-party entitled to have the orders set aside. The present application is by Mr Binetter. As he has no such entitlement, his application must fail. 14 Third, it is not contrary to the interests of justice for Mr Binetter's application to be refused. This submission, as noted, assumes that the orders directly affect the rights of a person who has not been heard. But, for the reasons given, on proper analysis, this is not so. Once it is recognised that the companies did not exist when the orders were made, it is difficult to accept that there is any injustice in the sense Mr Binetter claimed. The fact that former directors and officers of the companies, upon reinstatement of the companies to the register, will not be able to perform any of their functions except with the approval of the Court may be acknowledged. But that is a consequence of the terms of the orders made. The liquidator also appointed pursuant to the orders will be bound to perform functions for the companies. I see no injustice in former directors and officers of a deregistered company, which is ordered to have its registration reinstated and to be wound up on reinstatement, being subject to s 471A(1) of the Corporations Act. 15 For these reasons Mr Binetter's application must be dismissed with costs. The effect of so doing will be to remove the stay which I ordered on 9 March 2010 at the conclusion of the hearing pending determination of Mr Binetter's application. These reasons also answer the alternative submission of Mr Binetter that the winding-up orders could and should be stayed pending the reinstatement of the registration of the companies. The grounds on which the stay was sought by Mr Binetter were the same as the grounds on which he sought to set aside the orders. Those grounds do not found any reconsideration of the orders as made. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

Deputy Commissioner of Taxation v Australian Securities and Investments Commission

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