By Amended Interlocutory Process filed on 9 November 2018, the Second Defendant, Terex Australia Pty Limited trading as Terex Cranes ("Terex"), initially sought certain orders as to the conduct of proceedings to establish that certain transactions in which it was involved were voidable, brought against it by the liquidators of Force Corp Pty Limited (recs and mgrs apptd) (in liq) ("Company").
The first of the orders sought by Terex, as it was initially put, was an order that the proceedings involving Terex and other Defendants ("Preference Proceedings") and certain proceedings brought against the directors ("Directors") of the Company that allege liability for insolvent trading ("Insolvent Trading Proceedings") be consolidated, or alternatively heard at the same time, with the evidence in one proceedings to be the evidence in the other.
Terex's position was refined, to put it neutrally, in the Short Minutes of Order attached to its submissions although Mr Bova (who appears for it) submits there was no substantive change in it. In those Short Minutes of Order, Terex sought an order that the "Liquidators' Separate Question", directed to the solvency of the Company between 15 January 2015 and 15 July 2015, be determined as a separate question in the Preference Proceedings and that separate question be heard together with the Insolvent Trading Proceedings.
An order was also sought by Terex, in a form that is not particularly common, that evidence in the Insolvent Trading Proceedings be evidence as to the separate question in the Preference Proceedings. As Mr Barnett, who appears for the Directors, points out, that is not an order that evidence in one proceedings be evidence in the other, in the usual form, since it is appears to contemplate that evidence in the Insolvent Trading Proceedings will be evidence in the Preference Proceedings, but not vice versa. That gives rise to particular difficulties to which I will refer below.
Terex did not press a further order which it had originally included in its proposed Short Minutes of Order, which would have allowed it to participate in the Insolvent Trading Proceedings, in respect of the issues raised by the separate question, presumably making submissions in those proceedings as to the result which should be reached in them.
The parties have led substantial evidence, which I need not address in detail given the views that I have formed, and made comprehensive submissions. The application is interlocutory in character, involving matters of practice and procedure, and all parties have an interest in it being determined promptly, since there are other interlocutory applications which depend on its resolution, and at least the Insolvent Trading Proceedings are ready to be allocated a hearing date. It is preferable that I deliver judgment promptly, indicating the major matters which are significant for that judgment, rather than defer judgment and deal with other matters raised in the submissions which are not determinative of the judgment.
The liquidators relied on the affidavits dated 9 October 2018 and 21 October 2018 of their solicitor, Mr Whatley, and also tendered the expert report of Mr Lombe on which the Directors relied in the Insolvent Trading Proceedings. Terex in turn relied on the affidavits dated 11 October 2018 and 28 October 2018 of its solicitor, Mr Vella, and tendered the expert report of Ms Barnett on which the liquidators rely in the Insolvent Trading Proceedings. The Directors relied on the affidavit dated 30 October 2018 of their solicitor, Mr Mackenzie.
The issues of case management raised by this application are, of course, to be determined by ss 56-58 of the Civil Procedure Act 2005 (NSW). Section 56 identifies that the overriding purpose of the Act is to facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings and s 57 requires proceedings to be managed having regard, inter alia, to the just determination of the proceedings. Section 58 requires the Court to have regard to the dictates of justice when considering the relevant orders and to have regard to the provisions of sections 56 and 57. It was common ground between all parties that the proceedings should be conducted in a way that brought about the just, quick and cheap resolution of both proceedings, although there were significant differences of view as to what that would involve.
I accept significant aspects of the matters which Terex seeks to establish in this application, but not the conclusion which it seeks to draw from them. In particular, I accept that there is plainly a substantial overlap, to the point of near identity, of the issues as to solvency raised in the Insolvent Trading Proceedings and the Preference Proceedings, although there is a difference in the period involved so far as the Insolvent Trading Proceedings seek to establish insolvency for a somewhat longer period than the Preference Proceedings. That matter was convincingly demonstrated by Mr Bova's analysis of the particulars of the matters said to establish insolvency provided in the two cases. I also accept that there would likely be significant overlap in the evidence led in the liquidators' case in the two proceedings, since it is reasonable to expect that evidence of substantially the same matters would be led to establish insolvency over the particular period which is in common between the two applications, namely the shorter period at issue in the Preference Proceedings. Mr Bova also submits, and I accept, that the earlier matters which are in issue in the longer period in the Insolvent Trading Proceedings may be relevant, and relied upon by the liquidators, as background to insolvency in the narrower period in the Preference Proceedings.
I recognise, as was at least implicit in parts of Mr Bova's submissions, that Terex would benefit from access to the evidence led by their Directors and their expert in the Insolvent Trading Proceedings, in its defence of the Preference Proceedings. I do note that, in practical terms, it may be that Terex can in any event obtain access to that evidence by the issue of subpoenas, particularly where it appears that it has been provided by the Directors with copies of the evidence which they will give by affidavit in the Insolvent Trading Proceedings.
For reasons which will emerge below, I do not accept the consequence that Terex seeks to draw from these matters, namely that it would be "absurd" for two judges in this Court to determine questions of solvency over overlapping periods in two separate cases, both of which also involve other issues, at least when compared with the difficulties which emerged in respect of the approach for which Terex contended in the course of submissions today. Much of that submission as to absurdity amounted to the proposition that it can never be a proper use of the Court's resources to determine an overlapping issue in two separate cases involving separate parties. I do not accept that proposition. It will often be the case, in complex commercial proceedings, that different cases may be brought, including by a single plaintiff, against different defendants with substantial overlapping issues of fact or law. It will not always be the case that that overlap is best avoided by joining the two proceedings together. The reasons why that is not the case are amply demonstrated by the development of submissions today.
I also note that s 588E of the Corporations Act 2001 (Cth) recognises the possibility that there will be more than one recovery proceeding brought by a liquidator in an insolvency. That section deals with that matter, not by contemplating that those proceedings will necessarily be brought together, but instead by creating a limited presumption in specified circumstances, which can be rebutted by evidence in the subsequent proceedings. The possibility that that presumption would arise does not generally require that defendants which may be affected by it have the opportunity to have their proceedings joined with the earlier proceedings, rather than to be left to rebut it in subsequent proceedings. The relevance of that matter, for present purposes, is that the Act does not proceed on any basis that there should not be more than one such proceeding in respect of an insolvency, where the issue of solvency would generally be common to all proceedings.
Here, the effect of that presumption has in any event been addressed, albeit rather late, by the liquidators' offer of an unconditional undertaking in a form that corresponds to an undertaking that had previously been offered to the Directors in the Insolvent Trading Proceedings, relevantly not to rely on that presumption in the Preference Proceedings should any conclusion be reached or expressed in the Insolvent Trading Proceedings as to the solvency or insolvency of the Company at any given time. That undertaking ought, at least in part, to address Terex's concerns. Mr Bova pointed out that that undertaking did not protect Terex against the possibility that the liquidator would, in the Preference Proceedings, lead different evidence from that led in the Insolvent Trading Proceedings, so as to seek to improve their case, particularly if the liquidators had been unsuccessful in the Insolvent Trading Proceedings. That is plainly the case, but it is not apparent to me why Terex has any proper expectation that a litigant bringing further proceedings ought not to have the opportunity to learn from the experience of earlier proceedings in order to improve its case in the further proceedings, just as Terex may learn from the experience of the Insolvent Trading Proceedings in order to improve its defence of the Preference Proceedings.
Second, the matters to which Terex refers, and in particular the overlap of the issue of solvency in the Insolvent Trading Proceedings and the Preference Proceedings, might well have supported a separate hearing of the question of solvency in both the Insolvent Trading Proceedings and the Preference Proceedings, so that the overlapping issues could be determined together in the proceedings, in a way that would bind both the Directors and the Defendants to the Preference Proceedings and the liquidators. However, Terex did not advance that proposal, possibly because the Directors have made clear that they vehemently opposed an order for a separate question in the Insolvent Trading Proceedings, which are ready to be allocated a hearing date and where the evidence is directed not only to solvency but also to the Directors' state of knowledge, the defences available to them and claims by them for relief from liability under ss 1317S and 1318 of the Corporations Act.
Terex instead proposed, in effect, that the separate question in the Preference Proceedings be determined by the judge who would also determine the wider range of issues in the Insolvent Trading Proceedings. There were difficulties with that proposal. The first is that, as became apparent in Mr Bova's submissions, Terex understood that proposal as amounting, in substance, to the proposition which the Directors had rejected, which is that there would be a determination of a separate issue in the Insolvent Trading Proceedings as to insolvency. Second, that approach would have caused significant difficulty for the judge deciding both matters, since it would have in effect required that he or she extract, from the wider range of evidence relevant to matters in the Insolvent Trading Proceedings, that narrower range of matters which were relevant to solvency in the Preference Proceedings. The difficulty in doing so was likely to be exacerbated by the fact that there was no reason to think that the Directors would seek to distinguish the two, because they had made clear that their position was that they did not need to do so, and it would therefore be left to the judge to engage in that exercise with such assistance as the parties in the Preference Proceedings might or might not ultimately provide.
Third, and related to that difficulty, the apparent common ground between the Directors and Terex as to the desirability of this course collapsed after the difficulties that would arise from the extent of the evidence that would be led in the two proceedings became apparent. Mr Barnett made clear that the Directors' lack of opposition to Terex's proposal depended on what he described as "assumption" that the liquidators would lead no evidence in the Preference Proceedings beyond what they led in the Insolvent Trading Proceedings. The fundamental difficulty with that assumption was that there was no basis for it, because the liquidators were free to lead new evidence in the Preference Proceedings, their solicitor's affidavit indicated that they intended to do so, and Mr Krochmalik, who appeared for the them, indicated that he could not confirm that they would not do so. At that point, the basis of the apparent common ground between the Directors and Terex in the Preference Proceedings as to the desirability of hearing the two proceedings together collapsed. Mr Barnett pointed out, reasonably enough, that the Directors did not want additional evidence to be led by the liquidators in the Insolvent Trading Proceedings after the evidence had been completed in those proceedings, by the liquidators leading that evidence in the Preference Proceedings.
Mr Barnett also pointed out, critically, that a judge who was hearing both proceedings likely could not compartmentalise the information led in the two different proceedings by a form of information barrier in his or her own mind. However, the unusual form of order that had been sought that evidence in the Insolvent Trading Proceedings be evidence in the Preference Proceedings, but not vice versa, would have required the judge to do so, by excluding evidence in the Preference Proceedings from his or her determination of the Insolvent Trading Proceedings.
Fourth, there seemed to me to be a real difficulty that the complexity of requiring a judge who would already have to determine a complex insolvent trading case with multiple defendants, and would then also have to determine an overlapping issue as to solvency with different defendants, and on the basis that he or she could take into account only part of the evidence led before him or her in the two proceedings in the Insolvent Trading Proceedings, was unlikely to promote a just, quick and cheap determination of the real issues in the proceedings, and would make the determination of the matters much more difficult than it would otherwise be.
I do not underestimate the advantages in avoiding duplication of evidence in the two proceedings, and in allowing the Defendants in the Preference Proceedings access to the evidence in the Insolvent Trading Proceedings, without the need to lead that evidence again, if a question as to solvency could have been clearly isolated in both proceedings, and not just one of them; and evidence in one proceeding could be evidence in both proceedings, but not in a manner that allowed it to be taken into account in one proceeding but not the other. It seems to me that what was proposed was ultimately so complex, so unclear and so likely to cause difficulty, by placing an impossible burden on the trial judge of excluding evidence from his or her mind that had been led in the Preference Proceedings as to an overlapping issue when determining the Insolvent Trading Proceedings, that the orders sought could not properly be made.
It also seems to me that those orders would not, as Mr Bova had submitted, avoid the risk of inconsistent findings. If anything, that approach would have made the risk of inconsistent findings more difficult to manage, because it raised the possibility that the judge hearing both proceedings, performing his or her role properly and under the constraints that Terex's proposal would have imposed upon him or her, would have had to reach inconsistent findings as to the Company's solvency in the two cases over the same period. That could arise, obviously enough, because of the constraint that evidence in the Preference Proceedings could not be taken into account in the Insolvent Trading Proceedings, so that the evidence in the Insolvent Trading Proceedings might fall short of establishing the Company's insolvency, while more evidence or better evidence in the Preference Proceedings established insolvency, in respect of the same period. It is one thing for two judges determining separate proceedings to reach different results. It is certainly not better, and may well be worse, for the one judge to reach different results as to the insolvency of a single company in the same period because he or she is asked to determine proceedings in a manner which has evidence in one proceedings available to the other, but not vice versa.
For all these reasons, I am not satisfied that I should make the orders which are proposed. I bear in mind that Mr Bova makes clear that Terex was not wedded to the particular form of orders that it proposed and was seeking to address a wider difficulty that it perceived. However, the Court must ultimately address the form of orders which are proposed. The difficulties in that form of orders also seemed to me to reflect the difficulties of seeking to achieve an accommodation between conflicting interests of the Directors in the Insolvent Trading Proceedings of limiting the evidence to which they were exposed, and of the Defendants in the Preference Proceedings of seeking to be heard together with those proceedings, notwithstanding that different evidence may be led in the Preference Proceedings. The problem with the form of orders was not, ultimately, one of formulation, but a problem of substance arising from what they were seeking to achieve.
For these reasons, I am not persuaded that I should make order 2 sought in the Amended Interlocutory Process dated 9 November 2018, and the application for that order should be dismissed. In the ordinary course, Terex, or possibly the Defendants generally - none of which filed submitting appearances in this application - ought to be ordered to pay the costs of this application. I will, in making orders, note the liquidators' undertaking to waive the benefit of s 588E(8) of the Corporations Act and that it will not seek to rely on the presumption in s 588E(8) in the Preference Proceedings should any conclusion be reached or expressed in the Insolvent Trading Proceedings as to the solvency or insolvency of the Company at any given time.
[3]
Costs
In respect of the question of costs, Mr Bova fairly drew attention to the fact that, as I have noted above, this was a matter of practice and procedure, directed to the management of this case. He also pointed out that the starting point, in that case, was that there either would be no order as to costs, or that the costs should be the liquidators' costs in the cause. He submitted, and I accept, that Terex brought this application in order to advance what it saw as the just, quick and cheap resolution of the proceedings, although I have not accepted its submissions as to the effect of its proposal.
Mr Bova also pointed to matters which had developed in the course of the hearing today, including the offer of an undertaking by the liquidators, which he rightly acknowledged was not determinative in my judgment, and the emphasis on the fact, first identified by Mr Barnett as a matter of concern to the Directors, and then reconfirmed by the liquidators, that the liquidators might lead different evidence in the Preference Proceedings. I am not able to accept that that is a new development today. First, as I noted above, it was a matter that had been identified in the affidavit of the liquidators' solicitor. Second, and perhaps more fundamentally, that issue was foreseeable as is amply demonstrated by Mr Barnett's significant emphasis upon it as a matter that gave rise to concern for the Directors. I noted, in the course of submissions, that the question, to which Mr Bova also referred, of the effect of the one-way treatment of evidence in the two proceedings, to which I have referred above, was not a matter that I would take into account in making any order that is adverse to Terex as to the question of costs, and I do not do so.
I accept that the starting point is that, in a matter of practice and procedure, costs may ordinarily be not ordered, as is very commonly the case for questions of practice and procedure arising in directions hearings, or they would be one party's costs in the cause. It seems to me that the position here is different for at least two reasons. The first is that this has been a very substantial application, with voluminous evidence, detailed submissions, and argued over much of a day. Second, it seems to me that this is an application in which the liquidators have ultimately been successful in this application, and have been put to costs which would not ordinarily be incurred in addressing issues which could have arisen, but have not been raised, in many cases of this kind determined by this Court.
The difficulties of the application cannot have come as a surprise to Terex or those advising it, because they are evident from the way in which the application developed, including the change between the Interlocutory Process and the Short Minutes of Order which were proposed, which were seeking, at least in part, to address those difficulties. It seems to me that this matter is, therefore, out of the ordinary and is a proper case in which an order for costs should be made in the liquidators' favour although that order for costs will not be enforceable until the conclusion of the proceedings in the ordinary way.
I have had regard to the question whether an order for costs should be made against Terex or against all of the Defendants. That question is finely balanced. On the one hand, Terex has had the primary carriage of this application, and has developed the arguments and put the positions which have not been successful. On the other hand, the First Defendant, Telstra Corporation Limited, has appeared although it largely adopted Terex's submissions. The other Defendants have been content to seek to take the benefit of the submissions Terex have put, and have not, for example, put on submitting appearances other than as to costs. In those circumstances, it seems to me that there would be unfairness to Terex in making an order for costs against it alone, where all Defendants stood to benefit if it had been successful.
Accordingly, I make an order that the Defendants pay the costs of and incidental to the preparation and hearing of paragraph 2 of Terex's Amended Interlocutory Process dated 9 November 2018.
[4]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 17 December 2018