Genworth Financial Mortgage Insurance Pty Limited v Hodder Rook & Associates Pty Limited

Supreme Court of NSW|2017-03-28|Before: Black J

Solicitors: Hicksons (Applicant/Respondent) M Perera (Respondent/Applicant) File Number(s): 2008/290472

The matters in issue

I have heard two notices of motion brought by each of Genworth Financial Mortgage Insurance Pty Ltd ("Genworth") and Mr Madura Perera who, as I will note below, seeks to be joined as defendant to the proceedings.
By notice of motion filed on 6 February 2017, Genworth seeks leave under r 12.1 of the Uniform Civil Procedure Rules (NSW) to discontinue these proceedings against the Defendant, Hodder Rook & Associates (in liq) ("HRA") with no orders as to costs, with the intent that each party bear its own costs. The proceedings, as they stand, are presently stayed by reason of s 471B of the Corporations Act 2001 (Cth) where HRA was wound up by order of the Federal Court of Australia on 12 August 2011 and, indeed, have been stayed for nearly six years. Genworth does not seek leave to continue the proceedings under s 471B of the Corporations Act and, as I will note below, it seems to me inevitable that such leave would not have been granted if it had been sought. One might have thought that, in that situation, an application for leave to discontinue proceedings which had been stayed for nearly six years, where leave could not be granted to recommence them, would be uncontroversial other than possibly in respect of the question of costs. HRA, by its liquidator, does not appear in the proceedings, although, as I will note below, there is evidence that HRA's liquidator considers that there is no utility in the continuance of the proceedings so far as HRA is concerned.

The affidavit evidence and submissions

Both parties served affidavit evidence in respect of the applications, and made detailed written submissions and further oral submissions. I will place the written submissions in the Court file but will largely only refer to those matters that are necessary to determine the application. I should first refer to the affidavit evidence on which the parties rely, commencing with Genworth's affidavit evidence, and then turning to Mr Perera's affidavit evidence.
Genworth relies, first, on an affidavit of its solicitor Mr Cameron, sworn 6 February 2017, which sets out the nature of the proceedings, in which Genworth claimed damages against HRA for allegedly negligent valuations in respect, initially, of eight projects. Claims as to three of those projects were settled, claims as to three other projects were not pressed, and claims as to two of those projects went to trial at first instance before Einstein J. Genworth succeeded in its claim at the trial at first instance, but that judgment was subsequently set aside by the Court of Appeal, primarily by reference to a question whether expert evidence on which Mr Perera sought to rely ought to have been excluded at that trial. HRA was already in liquidation by the time the Court of Appeal delivered its judgment and the matter was remitted by the Court of Appeal for a further hearing, which has not taken place in the six years since HRA was placed into winding up. Mr Cameron refers to a belief, which is consistent with Mr Perera's evidence, to which I will refer below, that HRA has no insurance cover that would respond to the claims in respect of the two properties that remain in issue in the proceedings. That is a matter of considerable significance so far as leave under s 471B of the Corporations Act for Genworth to pursue the proceedings would be concerned.
Genworth also relies on a second affidavit of Mr Cameron dated 6 March 2017 which notes that HRA was placed into liquidation in August 2011, refers to the decision of the Court of Appeal to which I have referred above, and refers to subsequent communications with the liquidator in respect of Genworth's claim for costs in respect of the appeal. It appears that the liquidator did not provide evidence that HRA had itself paid disbursements in respect of the appeal, and HRA was not entitled to recover costs in respect of the appeal, where it was represented by Mr Perera in respect of the appeal rather than by external legal representatives. The liquidator's inability to provide evidence that it had paid the disbursements was addressed by Mr Perera in submissions, by a claim, which may or may not be established by the evidence but which may be controversial, that HRA did not in fact pay the disbursements because Mr Perera had done so.
Mr Cameron's second affidavit also annexes a Form 505 subsequently filed by the liquidator indicating that he had ceased to be liquidator of HRA from 18 November 2014, and leads evidence that the liquidator has requested the Australian Securities and Investments Commission ("ASIC") to deregister HRA and ASIC has given notice of its intention to do so, and indicated that it would do so within two months of late 2016. There is no evidence today as to whether HRA has in fact been deregistered, because my attention has not been drawn to any current company search of HRA. It would, of course, be unfortunate if this matter was being determined in circumstances where the proceeding was already a nullity because HRA had already been deregistered. Mr Cameron also refers to an estimate of Genworth's costs of the proceedings to date.
Genworth also relies on a further affidavit of Mr Cameron dated 24 March 2017. I drew Mr Perera's attention to his ability to object to that affidavit being read if there was any prejudice to him by reason of its lateness. Mr Perera sensibly did not seek to do so, in circumstances that that affidavit does no more than annex correspondence with HRA's liquidator (or former liquidator) which confirms his knowledge of the application today and the attitude which he takes. By email dated 23 March 2017, Genworth's solicitor had provided a comprehensive update to that liquidator of the present status of the proceedings and by email dated 24 March 2017, a representative of the liquidator's firm had advised that: "As stated in your email, the liquidation is complete and ASIC have been notified. De-registration of [HRA] is expected to occur shortly. As such we see no merit in continuing with the proceeding. Furthermore there are no funds available from the liquidation for us to instruct someone to appear on the liquidator's behalf."
I recognise that, of course, where the liquidator has indicated he has ceased to act as liquidator, he is arguably not speaking on HRA's behalf in expressing that view. It is, nonetheless, of some significance that a representative of the firm which had carriage of the liquidation, as a liquidator appointed by the Court to promote the interests of the creditors and the public interest, expresses the view that there is no merit from HRA's perspective in continuing the proceedings.
Mr Perera in turn relies on a first affidavit dated 16 January 2017 which refers to an agreement with the liquidator that the liquidator would not settle the proceedings and to orders made by the Court of Appeal that the costs of the first trial be referred to the judge who conducted the second trial, which I noted above has now not occurred in the several years since the determination of the appeal. I recognise that, if Genworth is permitted to discontinue the proceedings, there will be no opportunity for a second trial and no opportunity for a trial judge in that second trial to determine the costs of the first proceedings, or indeed of the second proceedings, although it would of course be open to any party to seek a variation of the Court of Appeal's order if it wishes to do so.
Mr Perera claims in that affidavit to be authorised to act on behalf of HRA. That claim is not well-founded since directors cannot exercise functions or powers on behalf of a company while it is being wound up in insolvency or by the court. Ms Mansted, who appears for Genworth, points out that HRA continues to have that status, albeit the liquidator is no longer acting, unless and until it is deregistered. In the event, Mr Perera sought leave under s 471A of the Corporations Act to exercise functions and powers on behalf of HRA in the course of the application today, and also sought to be permitted to represent HRA, whether under r 7.1 of the Uniform Civil Procedure Rules or by the Court dispensing with the application of that rule. I did not give that leave for reasons indicated in my earlier judgment. It seemed to me that there was a fundamental conflict between Mr Perera's interest, as a person who seeks to vindicate his personal reputation by the continuance of the proceedings, as I will note below, and HRA's interests as a party against which a claim was brought in the proceedings, which in the ordinary course would benefit from, or at least would not resist, the discontinuance of the proceedings against it. The conclusion that I reached in that earlier judgment is reinforced by the evidence that has now emerged, although I was not aware of it when I delivered that earlier judgment, that the position which Mr Perera seeks to advance on HRA's behalf is inconsistent with the view which HRA's former liquidator has indicated as to HRA's interests as to whether the proceedings should be continued.
Mr Perera also relied on a second affidavit dated 13 February 2017, described as an "Amended Affidavit", which I permitted to be read as a freestanding affidavit . That affidavit added material to Mr Perera's affidavit dated 16 January 2017, and sought to establish that Mr Perera personally had valued the two properties that remain in issue in the proceedings.
Mr Perera also relied on a third affidavit dated 20 February 2017 which repeated aspects of his first affidavit; again referred to the fact that he valued two of the properties that are in issue in the proceedings; and indicated that he is content to being joined as Second Defendant in the proceedings. I note, of course, that Genworth has not and does not seek to bring a claim against Mr Perera, as distinct from HRA, so that is not a question of Mr Perera being content to be joined to a proceeding which a party seeks to bring against him, as distinct from seeking to be joined in respect of a claim that is not brought against him. Mr Perera also refers to a settlement reached by HRA's insurers with Genworth in respect of three properties which were in issue in the proceedings and to the insurer's denial of indemnity in respect of other properties, which confirms Mr Cameron's evidence that HRA is not insured in respect of those other properties. Mr Perera also referred, in submissions, to a letter sent by Mr Perera on 20 February 2017 to HRA, although apparently not to its liquidator or former liquidator, by which he had indicated that: "I am the valuer who conducted all the valuations that are in dispute on the table in this trial, as such I take full responsibility for those valuations."
Mr Perera also referred to observations in the transcript of the proceedings at first instance before Einstein J, where it appears to have been put in opening by Genworth that Mr Perera had undertaken those valuations.

Mr Perera's application to be joined as Second Defendant

I now turn to the substance of Mr Perera's application to be joined as Second Defendant to the proceedings, under s 38 of the Civil Liability Act or alternatively r 6.24 of the Uniform Civil Procedure Rules. I will deal with that application first, as a matter of convenience, although there is no particular logic as to whether that question or Genworth's application to discontinue the proceedings should be dealt with first. I recognise the two applications interact, since there would, as I noted above, be little utility in joining Mr Perera as a defendant to proceedings if Genworth was then to be granted leave to discontinue them.
I have had regard both to Mr Perera's earlier submissions for an earlier hearing on 30 January 2017, and to his further detailed submissions in respect of this application, and to his oral submissions. Mr Perera submits that he should be added to the proceedings on the basis that, if Genworth were successful, it could obtain orders against him. That submission has an immediate difficulty, namely that Genworth could not obtain orders against Mr Perera in a case that it has not brought against him and does not seek to bring against him. The premise of Mr Perera's claim is in substance that, not only should he be joined to the proceedings so that Genworth can obtain orders against him, if successful, but Genworth should be required to bring a claim against him that it does not wish to bring, so that it can achieve or fail to achieve those orders. Mr Perera submits that he personally funded the costs of the proceedings, whether at first instance or on appeal, and I have referred to his submission above that that explains why the liquidator could not establish that he had paid those costs. It is not immediately clear that that proposition has any relevance to this matter, so far as Mr Perera's rights in respect of any funding which he has provided to HRA would, in the ordinary course, be rights as between Mr Perera and HRA or its liquidator, which one would expect would be addressed in the liquidation. There is, of course, no general principle that the funder of proceedings has an interest permitting that funder to be joined as a party to the proceedings. In fairness to Mr Perera, I should note he did not suggest to the contrary.
Mr Perera also identified, in oral submissions, that he sought to achieve the result from being joined to the proceedings that, if the proceedings were then discontinued by Genworth, he would have available a claim for malicious prosecution against Genworth. Mr Perera submitted, by reference to an earlier unsuccessful claim that he had brought against Genworth, that he could not have such a claim against Genworth where the proceedings brought by Genworth were proceedings against HRA and not him. It seems to me that that submission was misconceived, and that that result could not conceivably follow from the joinder of Mr Perera to these proceedings, where that joinder is resisted by Genworth and Genworth does not in fact bring a claim against Mr Perera. To put it another way, it is impossible to see how Genworth could be found, whether or not Mr Perera is joined as party to the proceedings, to have brought a prosecution against Mr Perera, maliciously or otherwise, where it has not in fact brought a claim against him and his joinder to the proceedings, in which there was no claim against him, was on his application and over Genworth's opposition. To the extent that Mr Perera sought to obtain the possibility of bringing a malicious prosecution claim from his joinder to the proceedings, I am comfortably satisfied he could not have done so.
By further submissions today, Mr Perera also relied on r 6.24 and r 6.27 of the Uniform Civil Procedure Rules to support his joinder, and submitted that the Court had power to grant leave for him to represent HRA under s 471A of the Corporations Act. I accept that the Court has power under that section to approve the exercise of powers of an officer holder where a company is in winding up and also has power under r 7.1 of the Uniform Civil Procedure Rules to grant leave for a director to represent a company, but I have indicated above, and in my earlier judgment, why I was not satisfied that that should be permitted in the present case.
Mr Perera also submitted, in a submission to which he gave substantial weight, that there is utility for him in a trial since he can then clear his name. There seems to me to be a significant degree of artificiality in that proposition, where Genworth now does not seek to bring a case against HRA, but to discontinue it, and has never sought to bring and does not now bring a case against Mr Perera. Where HRA's rather than Mr Perera's liability is in issue, it is difficult to see how Mr Perera could vindicate his reputation by defeating a claim that is not brought against him. There is a further difficulty with that proposition to which I referred in declining to grant leave to Mr Perera to exercise powers or functions of a director on behalf of HRA, or to represent HRA in these proceedings, that Mr Perera's interests in seeking to clear his name are plainly different from, and seems to me to be in conflict with, HRA's interests as to whether the proceedings should be continued against it or not.
Mr Perera also raised a claim, in submissions, as to a dealing between HRA's liquidator and Genworth as to a security deposit, and asserted a breach of contract by the liquidator in respect of the liquidator's approach to the proceedings. It does not seem to me that I can or should address either submission where the liquidator is not party to the proceedings and would not have an opportunity to be heard in response to these claims. In any event, those matters do not seem to me to be relevant to the matters in issue, which relate only to whether Mr Perera should be joined as a defendant in the proceedings.
Genworth responds to Mr Perera's joinder application by emphasising that it does not wish to bring proceedings against Mr Perera and had chosen to bring a claim against HRA only while it was still solvent, and not against Mr Perera, notwithstanding that he claimed to have provided the two valuations that are in issue. As Genworth points out, that is hardly an unusual course, and Plaintiffs should not, as a matter of course, be required to bring claims against individual officers, directors or employees rather than against a company which is vicariously liable for its officers or employee's actions.
Other issues that arose in the course of oral submissions in respect of Mr Perera's joinder to the proceedings turn on the scope of r 6.24 of the Uniform Civil Procedure Rules and whether Mr Perera was a necessary or proper party to the proceedings. I should now refer to the scope of that rule, before returning to those issues. That rule provides that, if the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party. The first part of the rule is directed to the joinder of a proper party to the proceedings, that is a person who might have been joined as a party, and the second to a "necessary" party to the proceeding although those concepts overlap.
In News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, the Full Court of the Federal Court observed that the rule was directed to the situation where an order directly affected a third person's rights against or liabilities to a party, which should not be made unless that person is also joined as a party. In John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1, the High Court in turn applied a test of direct effect on the legal rights of another person, in that case the interests of a person claiming an interest in the land which would be deprived of its rights, if indefeasible propriety rights were granted in favour of a party to the litigation without it being heard. In Metcash Ltd v Jardim (No 2) [2010] NSWSC 1042 at [7], Ball J summarised the relevant principle, with customary succinctness, as being that a person "ought to be joined as a party if its legal rights are directly affected by the orders sought but not otherwise", and I followed that approach in Re Raejoe Pty Ltd (rec and mgr apptd) (admin apptd) as Trustee for "The Coe Family Trust" [2012] NSWSC 1457. The decision of the Court of Appeal in Ashton v Pratt [2013] NSWCA 400, to which the parties also referred, also seems to me to be consistent with this approach.
Turning then to the question whether Mr Perera has a legal right that is directly affected by the orders sought, it should be noted that no claim is brought against him by Genworth. Mr Perera submitted that he had a legal right that was affected, because he had acquired an interest in HRA at substantial cost, and a claim was brought against HRA. I do not accept that submission, because a shareholder's interest in proceedings against a company is, in company law, reflexive of the company's interest in the proceedings. There can be no suggestion that, where judgment is sought against a company which may have a diverse and large body of shareholders, which will reduce the assets of the company and thereby reduce the value of shareholder's shares, all or any of the company's shareholders are necessary or proper parties to the proceeding. Mr Perera also submitted that he had a legal right affected because he had paid the costs of the proceedings, in respect of HRA, but I also do not accept that submission. A funder of legal proceedings has at best an indirect and economic interest in a proceeding, not a direct legal interest in them.
Genworth also refers, in oral submissions, to the fact that the joinder application is plainly made very late, some six years after HRA was placed in liquidation, and even longer after the commencement of the proceedings, and that Mr Perera had, and appears to have exercised, the opportunity to bring other claims against Genworth in other proceedings in his personal capacity.
I am satisfied that Mr Perera is neither a necessary nor a proper party to the proceedings within the scope of r 6.24 of the Uniform Civil Procedure Rules and should not be joined as a party to the proceedings, irrespective of the question of whether they are to be continued or discontinued. That conclusion is reinforced by the lack of utility of the proceedings, where HRA is insolvent and no judgment against it could be met by it, but does not depend upon that conclusion. Mr Perera's motion to be joined as party to the proceedings should therefore be dismissed, in its original and in its amended form, and costs in respect of that motion should follow the event.

Genworth's application for leave to discontinue the proceedings

I turn now to the question whether Genworth should be granted leave to discontinue the proceedings on the basis that there be no order as to costs, or on the alternative basis which I raised in oral submissions and which Mr Perera accepted would protect his and HRA's position in respect of earlier costs orders, that there should be no order as to costs after the date of the winding up on 12 August 2011.
Genworth refers, in support of its application for leave to discontinue the proceedings, to aspects of HRA's position, including the fact that it is being wound up with unsecured debts in excess of $344,000; there has been and will be no dividend to creditors; and its assets have been largely exhausted by the liquidator's remuneration and expenses. Ms Mansted submits that Genworth would likely be refused leave to continue the proceedings against HRA, if it remains in winding up and has not in fact been deregistered, since HRA has no insurance cover with respect to the valuations that are the subject of the proceedings and has no assets, and no income and its deregistration is pending, if it has not already occurred.
Ms Mansted points out, plainly correctly, that there is no practical benefit to Genworth in pursuing proceedings where HRA could not meet a judgment against it or pay its costs if it were successful. Ms Mansted also points to the observation of Needham J in Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318 at 319 that the court ought not grant leave to continue proceedings if there is no possibility that a company could meet a judgment, or act so as to approve proceedings which can only involve a waste of public time and money. I agree with that view, which seems to me to have been plainly correct when it was expressed in 1979 and to have even greater force since the introduction of ss 56-58 of the Civil Procedure Act 2005 (NSW) and in an environment where scarce public resources are devoted to funding the court system. Where Genworth could not continue proceedings without leave, which would not be granted, it seems to me that leave to discontinue those proceedings ought to be granted. It seems to me that that result follows, notwithstanding Mr Perera's unsuccessful application to be joined in the proceedings, and might well have followed even if Mr Perera had been successful in his application to be joined in the proceedings. In making that observation, I have in mind that, even if Mr Perera had been joined in the proceedings, there would still have been no claim against him to be determined in the proceedings, and no utility in the only claim that was made in the proceedings, as against HRA.
Genworth also seeks an order that each party pay costs of the proceedings. Rule 42.19(2) of the Uniform Civil Procedure Rules provides that, on discontinuance, the Plaintiff must pay the Defendant's costs of the discontinued proceedings, unless the court otherwise orders. Ms Mansted draws attention to the authorities which consider the circumstances in which the Court may otherwise order, including the Court of Appeal's decision in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54]ff where Hodgson JA (with whom Tobias JA agreed) summarised the circumstances in which the court might make such an order. It seems to me that it can scarcely be said that Genworth acted unreasonably in commencing the proceedings, where there has not been any suggestion that they were not at any time seriously arguable; no application to strike them out was made; the Court of Appeal considered it should remit the proceedings for retrial at first instance, presumably on the basis there was a serious question to be determined in them; and there has been no determination on the merits such as to allow a finding of any lack of merit in the claim. What has occurred, in the meantime, as Ms Mansted points out, is that a lack of utility has intruded by reason of HRA's financial position and its winding up.
I also have regard to the helpful decision of Slattery J in Edwards v Adam [2016] NSWSC 1534, which adopted a similar approach in the closely analogous situation where a defendant to proceedings had become bankrupt in the course of the proceedings. I do not consider it necessary to determine any question, which may be open, as to the extent to which the court should have reference to the principle in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 in an application of this kind. Whether or not the Court had reference to that principle, as a matter of substance, the Court cannot determine who would succeed in these proceedings, if they went to trial, in circumstances that they should not go to trial where the Defendant to them is incapable of meeting a judgment or costs order against it in the proceedings.
I am satisfied that the winding up order in this matter has had the result the proceedings are now futile, and in any event could not be continued where leave would not be granted for them to be continued. It seems to me, however, that the proper order as to costs is not that there be no order as to costs generally, but that there be no order as to costs as and from 12 August 2011 when HRA was wound up, leaving any earlier order as to costs incurred prior to that date undisturbed. That reflects the substance of Genworth's submission, namely that the intervening event of a winding up has frustrated the continuance of the proceedings.
I have not neglected the fact that the grant of leave to discontinue the proceedings to Genworth will have the result that the costs of the earlier proceedings before Einstein J cannot now be determined in a second trial, where the proceedings will be discontinued and that second trial will not take place. That is the consequence, it seems to me, of the fact that the Court of Appeal have left those costs for determination by a trial judge in a second trial, presumably because it was not satisfied that it could make an order for costs of the first trial, without a determination of the underlying issues on their merits. It remains that, in my view, Genworth should not be forced to continue a substantial case against an insolvent company, shortly to be deregistered, to obtain a fruitless judgment, in order to determine the responsibility for the costs of earlier proceedings which Genworth could then not recover if it was successful in the earlier proceedings. To the extent that that has the result that HRA loses any prospect of recovery of the costs of the first hearing, on a success in a second hearing, then that is a matter which may be addressed, if appropriate, by an application to the Court of Appeal to vary the orders which it previously made, to have regard to the fact that there will be no second trial.
For these reasons, leave should be granted to Genworth to discontinue the proceedings, on the basis that there be no order for costs as and from 12 August 2011. Accordingly I make the following orders:
The Plaintiff have leave to discontinue proceedings, with no order as to costs (with the intent that each party bear its own costs) as and from 12 August 2011.
Mr Perera's motion filed 16 January 2017 and his Amended Motion filed today be dismissed, and Mr Perera pay the costs of and incidental to those motions as agreed and as assessed.

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