Elyard v DDB Needham

REASONS FOR JUDGMENT HIS HONOUR: There is fixed for hearing before me today an application by Inteq Limited ("Inteq") to be substituted as an applicant in proceedings brought under the Corporations Law ("the Law") for the winding up of CEL Entertainment Pty Limited ("CEL"). The proceedings were commenced on 10 October 1997 when an application for the winding up of CEL was filed by Polygram Pty Limited ("Polygram"). The application by Polygram was made under section 459A of the Law on the basis that CEL is an insolvent company. Polygram had standing under section 459P as a creditor of CEL. Section 459R(1) of the Law provides that an application for a company to be wound up in insolvency is to be determined within six months after it is made. Sections 459R(2) and (3) provide as follows: (2) The Court may by order extend the period within which an application must be determined, but only if: (a) the Court is satisfied that special circumstances justify the extension; and (b) the order is made within the period as prescribed by subsection (1), or as last extended under this subsection, as the case requires. (3) An application is, because of this subsection, dismissed if it is not determined as required by this section The period of six months referred to in section 459R(1) expired no later than 10 April 1998. No order under section 459R(2) was sought or made prior to that date. It would normally follow, pursuant to section 459R(3), that the winding up application is dismissed. However, a further application has been made on behalf of Inteq pursuant to Order 35 Rule 7(3) of the Federal Court Rules, for an order correcting orders which were previously made by me in these proceedings. It is necessary therefore to consider the history of the proceedings up to today. As I have said, the proceedings were commenced on 10 October 1997. The application stated an appointment for a directions hearing on 27 November 1997. On that day notices of motion were filed on behalf of both HSV Channel 7 Pty Limited ("HSV") and Inteq seeking to be substituted as applicant pursuant to section 465B of the Law. Section 465B provides that the Court may, by order, substitute, as applicant in an application under section 459P for a company to be wound up, a person who might otherwise have so applied for the company to be wound up. On 27 November 1997 Polygram was given leave to withdraw from the proceedings and the proceedings were adjourned to 28 November 1997. On 28 November 1997 HSV was substituted as applicant and Inteq's application was adjourned to 14 January 1998. On that day HSV was given leave to withdraw and Inteq's motion was adjourned to a date to be fixed by the registry. Also, directions were given for Inteq and CEL to file affidavits in relation to the question of whether Inteq should be substituted as applicant. It was indicated at that stage that there was an issue as to whether or not CEL was in fact indebted to Inteq. Because the registrar considered that the question of the standing of Inteq was one which involved some novelty, the matter was referred to a judge and it came before me for the first time on 6 February 1998. At that stage, the directions given on 14 January 1998 had not been complied with and on that day I gave directions that CEL file and serve any affidavits on which it intended to rely in opposition to Inteq's application by 20 February 1998. Inteq was directed to file and serve any evidence in reply by 27 February 1998 and I fixed 25 March 1998 for the hearing of the motion seeking substitution. The direction requiring CEL to file affidavits by 20 February 1998 was not complied with. The affidavits were not in fact filed by CEL until 16 March 1998. When the matter came before me on 25 March 1998 I was informed by counsel and solicitors that, because affidavits had been filed by CEL considerably out of time, Inteq would not be in a position to deal with the application on that day. I therefore vacated the hearing set down for that day and gave further directions for the filing of affidavits. I also fixed the notice of motion for substitution for hearing on 10 June 1998. On 25 March 1998 I also directed the solicitor for CEL to file an affidavit explaining why my directions had not been complied with. Pursuant to that direction, an affidavit was filed on 28 May 1998. The affidavit indicated that two directors of CEL were away from Sydney from 14 February and from 16 February. There was no explanation, however, as to why steps were not taken before 14 February and before 16 February to prepare the affidavits which I had directed on 6 February to be filed. Nor was there an explanation as to why the directions which had been given on 14 January 1998 for the filing of affidavits had not been complied with. It is apparent that on 25 March 1998 no one adverted to the terms of section 459R of the Law. Mr David Sekel, the solicitor for Inteq, says in an affidavit filed in the proceedings that he was unaware of the effect which section 459R of the Law would have on the proceedings until 28 May 1998. He says that as soon as he became aware of that effect, he sought instructions to file the notice of motion which is presently before me seeking orders under Order 35 Rule 7. In Westpac Banking Corporation v E & W Jury Pty Limited & Ors (unreported, 12 February 1998), I considered the decision of the Court in Elyard v DDB Needham (Sydney) Pty Limited (1995) 133 ALR 206, in which the Full Court concluded that, notwithstanding the terms of section 459R, the Court had power to make an order under the slip rule operating nunc pro tunc extending the period within which a winding up application must be determined. Counsel for CEL accepts that had I been asked on 25 March 1998 to make an order under section 459R(2), there would have been no basis for his objecting to the making of an order apart from two matters. The first matter was a formal reservation of the position in relation to the decision of the Full Court in Elyard. The other was that it would not have been open to me to make an order on 25 March 1998 and that it is still not open to me to make such an order. The argument was that the Court may not exercise power under section 459R(2) except upon the application of a party and that only a party to the winding up application had standing to apply for an order under section 459R(2). It is said that, as at 25 March 1998 and as at today, Inteq is not a party to the winding up application because no order has yet been made under section 465B for it to be substituted as applicant. There is no requirement in section 459R itself which requires that the Court may make an order only pursuant to an application made by a party to a winding up application. Counsel for CEL referred to Order 71 Rule 39A which provides that an application under section 459R must be made by notice of motion in the winding up proceedings. Under Order 71 Rule 39A(2) such an application must be supported by an affidavit setting out the material facts on which the applicant relies. The rules, of course, cannot be used to construe the Law itself. In any event, Order 71 Rule 39A does not specify that an order may be made only pursuant to an application. It simply says that if an application is to be made, it must be made by notice of motion. I do not consider that Order 71 Rule 39A would preclude an order being made by the Court on its own motion. The language of section 459R might be contrasted with sections 459A and 459P. Section 459A says: On an application under section 459P, the Court may order that an insolvent company be wound up in insolvency. Section 459P(1) then specifies the persons by whom an application for winding up in insolvency may be made. Thus it is clear that an applicant for winding up must be qualified under section 459P. On the other hand, section 465B itself simply refers to the Court, by order, substituting as applicant a person who might otherwise have so applied for the company to be wound up. It may be, of course, that the Court could, on its own motion, make an order under section 465B subject to hearing both parties as to whether or not an order should be made. I would be disposed to conclude that the Court could make an order under section 459R, notwithstanding that no application had been made, subject of course to ensuring procedural fairness in relation to any proposed order. For example, if the Court reserved its decision, having heard argument as to whether a winding up order ought to be made, it may well be appropriate for the Court, once a judge realised that the decision may not be given within six months, to indicate to the parties that it was proposed to make an order extending the time within which the application must be determined. In any event an application has in fact been made in accordance with the Rules. The real question is whether or not Inteq has standing to do so. It goes without saying that an applicant under section 465B has a clear interest in keeping a winding up application on foot. Notwithstanding that no order has been made, Inteq is clearly making the application for the extension of time before the Court, as contemplated by Order 71 Rule 39A. I consider that it has sufficient interest to justify any application, notwithstanding that a determination has not yet been made as to whether or not Inteq should be substituted as applicant. In any event, I am of the view that the Court has power to make such an order on its motion and, in the present circumstances, I would be disposed to do so. The present circumstances have arisen solely by reason of default on the part of CEL in complying with Court's directions and I have no doubt that justice requires that, if I have power to do so, I should make an order under Order 35 Rule 7. Had I turned my mind to the question on 25 March 1998, I would have made an order under section 459R(2). In fixing the matter for hearing on 10 June 1998, I was certainly intending that there would still be a winding up application on foot. Nothing has been said in opposition to the making of an order other than the two matters which I have indicated. For reasons which I indicated in Westpac v Jury, I am satisfied that the Court has power to make an order operating nunc pro tunc in order to avoid injustice. Accordingly, I propose to make an order that the orders which I made on 25 March 1998 be corrected by making an order that the period within which the winding up application must be determined be extended up to and including 10 June 1998. I also indicate that if I have not determined the winding up application today, I will be disposed to entertain ore tenus a further application for extension up to the date which I next fix for the hearing of the winding up application. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett