First Netcom Pty Ltd v Telstra Corporation Ltd

REASONS FOR JUDGMENT 1 In April 1997, Telstra Corporation Limited ("Telstra") commenced proceedings against First Netcom Pty Limited ("First Netcom") claiming $13.8 million. In June 1997, First Netcom filed a defence to Telstra's claim and a cross-claim for approximately $37 million. First Netcom also sought an interlocutory injunction restraining Telstra from discontinuing the supply of telephone services to First Netcom. In effect First Netcom sought an interim mandatory judgment to compel Telstra to supply such services. 2 Upon the hearing of the application for interim relief, a judge of the Court granted an interlocutory mandatory injunction. A Full Court of this Court subsequently set aside those orders. Further orders were made by the primary judge in the nature of Mareva orders. Those orders were varied on appeal by a Full Court differently constituted. Following leave reserved by that Full Court for application to be made to vary the terms of the Mareva orders, an application for that purpose was made to me. In support of that application, affidavits were filed, although they were not in fact read on the hearing of the application. 3 Proceedings have been commenced in the Supreme Court of New South Wales ("the Supreme Court") by the Deputy Commissioner of Taxation seeking an order for the winding up of First Netcom. Those proceedings are fixed for hearing on Monday 23 October 2000 before the Company Judge. Telstra, by notice of motion filed today, seeks orders by way of leave to use the affidavits to which I have just referred. The order sought by Telstra is as follows: "Telstra Corporation be granted leave to use the affidavits of Peter Bruce Raupach, sworn on behalf of First Netcom Pty Limited on 11 and 13 September 2000 in and in relation to Supreme Court proceedings No 3760 of 2000." 4 First Netcom is now under administration, as that term is defined in the Corporations Law. Section 440A(2) of the Corporations Law provides as follows: "The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up." Telstra is a supporting creditor. It is therefore likely that it would be entitled to adduce evidence and cross-examine witnesses on the hearing of the winding up application or any application to adjourn the hearing of the winding up application under s 440A(2) only with the leave of the Supreme Court. There is nothing before me to indicate that such leave would necessarily be withheld. Nor, of course, is there any reason to indicate that it would necessarily be granted. Nonetheless, Telstra seeks leave to make use of the affidavits referred to in its notice of motion on the hearing of a foreshadowed application by First Netcom for an adjournment pursuant to s 440A(2) of the Corporations Law. 5 In the course of the hearing of the motion, counsel for Telstra indicated with more specificity the material that Telstra seeks leave to use before the Supreme Court. The affidavits in question were sworn, as I said, by Peter Bruce Raupach who is, or was at the time when the affidavits were sworn, the credit manager of First Netcom. The material relied on comprises paragraphs 2 and 3 of the first affidavit and paragraph 2 and annexures B and C to the second affidavit. Paragraph 2 of the affidavit of 11 September 2000 relevantly provides as follows: "…Costs and expenses of the nature listed [in a statement of earnings for the twelve months to 30 June 1999 which was in the appeal papers before the Full Court] have continued to be incurred and are continuing to be incurred by First Netcom. First Netcom has ten employees, apart from its managing director, Neil Macdonald, whose activities are largely concerned with the collection of debts but also extend to assisting with the conduct of this litigation." Paragraph 3 provides as follows: "First Netcom's operations and these legal proceedings have been funded during this year partly from internal revenue (collection of debts) and partly from external borrowings comprising:- (a) a loan of $175,000 in or about January 2000 from CMF Property Services Pty Ltd, a third party financier unconnected in any way with First Netcom so far as I am aware, of which $125,000 was paid into Court towards payment of the expert process ordered by the Court herein. (b) external loans from time to time arranged by Neil Macdonald from a company associated with him called First Netcom Mobile Pty Ltd." 6 Paragraph 2 of the affidavit of 13 September 2000, refers to copies of documents annexed which are said to be business records of First Netcom as follows: · an internal unaudited document entitled "Statement of Earnings" for the period ending 30 June 2000; · an internal unaudited balance sheet as at 30 June 2000. 7 On the hearing of an application under s 440A(2) two of the questions that will be in issue are the identity of the creditors of First Netcom and the interests of those creditors in First Netcom continuing under administration. It may be presumed that if First Netcom continues under administration it would continue its operations as described in the affidavit referred to above. That is to say, it would continue to incur expenditure. 8 The unaudited document entitled "Statement of Earnings" discloses the trading results of First Netcom for the period ended 30 June 2000, being a very substantial loss. The unaudited balance sheet as at 30 June 2000 lists a number of current liabilities disclosing some information concerning the creditors of First Netcom. That material, it seems to me, would be relevant to a hearing under s 440A(2). Whether it would be in admissible form, whether it would be fair to First Netcom for the material to be admitted on Monday and the weight that should be given to such material are matters for the Supreme Court. It is not appropriate for this Court to express any view about those matters one way or the other. 9 However, I am satisfied that there is material in the parts of the affidavits sought to be relied on that could be relevant to the proceeding in the Supreme Court. Accordingly, I would be disposed to give leave to Telstra insofar as such leave is required in accordance with the doctrines referred to by Hill J in Allstate Life Insurance Co v ANZ Banking Group (1995) 57 FCR 360. 10 However, counsel for First Netcom, who appears on the instructions of the administrator, has drawn the Court's attention to the provisions of s 440D of the Corporations Law which provides relevantly as follows "(1)During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except: (a) with the administrator's written consent; or (b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes." The reference to "a court" in that subsection must now be taken to be limited to the Supreme Court of New South Wales - see Re Wakim; Ex parte McNally (1999) 198 CLR 511. 11 Leave has not been given nor has the administrator's written consent been given. The question is whether the application presently before me is a proceeding against First Netcom within the meaning of s 440D. In my opinion it is not. Certainly, the proceeding that was brought in this Court by Telstra against First Netcom, out of which the appeals have arisen is a proceeding against First Netcom. Whether s 440D would prohibit Telstra from proceeding with that proceeding may be an interesting constitutional question. There may be some question as to whether or not s 440D is effective to prohibit the Federal Court from exercising federal jurisdiction. Be that as it may, and assuming its validity, I am not persuaded that in its terms it purports to prohibit the proceeding that has been commenced by way of the notice of motion. 12 While it is appropriate that First Netcom be notified of the application, and that it be heard on the hearing of the application, the application is in the nature of a request for the leave of the Court to use documents that have been filed with the Court, the use of which in the way contemplated would otherwise constitute a contempt. It is an application for the Court's leave and no more. I do not regard it as an application brought against First Netcom such that it could be characterised as a proceeding against First Netcom. Accordingly, I do not consider that s 440D would stand in the way of appropriate orders. 13 The order sought on the notice of motion is not one that I am prepared to make in terms. Counsel for Telstra has, as I have indicated, identified those parts of the affidavits sought to be relied upon. While, because of the shortness of time, counsel for Telstra has not been able to identify the precise use that will in fact be made of the material, she has indicated that it would be of the following nature: · reliance on the information for the purpose of cross-examining witnesses; · reliance on the information for the purposes of giving First Netcom a notice to produce documents; · tender of the material as an admission by First Netcom; and · reading the affidavits in the Supreme Court proceeding. Whether any of those courses would be allowed in the Supreme Court is, as I have said, a matter for the Supreme Court. However, insofar as the leave of this Court is required for any such use I consider that that leave should be given.