- John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd

Judgment - EX TEMPORE 1By Originating Process filed on 16 November 2012, Allco Managed Investments Limited (receivers and managers appointed) (in liquidation) ("Allco") applies under s 600A of the Corporations Act 2001 (Cth) for an order setting aside a resolution of creditors of the First Defendant, Raejoe Pty Limited (receiver and manager appointed) (administrators appointed) as trustee for the Coe Family Trust ("Raejoe"). Section 600A of the Corporations Act provides, inter alia, that the Court may set aside a resolution voted on at a meeting of creditors of a company held under Pt 5.3A of the Corporations Act, if that resolution would not have been passed if the votes of related creditors of the company had been disregarded, and the Court is satisfied of specified matters. 2The defendants in this application are Raejoe and Messrs Krejci and Burges who are its administrators. The Originating Process was also served on three identified creditors of Raejoe, namely Monetti Pty Limited, Kili Pty Limited and Ms Michelle Coe. Raejoe has not appeared and the administrators submit to the making of all orders sought and the entry of judgment in respect of all claims made other than costs. Monetti, Kili and Ms Coe have also not appeared. 3An issue as to the timing of a hearing of this matter had arisen, although the difficulty in that regard has now been mitigated to some extent. The administrators had initially undertaken not to execute the deed of company arrangement which is in issue until Wednesday, 28 November 2012 and initially had not been prepared to extend that undertaking given costs they would incur in maintaining Raejoe's property, and Allco had not to date been prepared to give an undertaking to support an interlocutory injunction and had instead sought an urgent final hearing. That issue has now been mitigated by an undertaking offered by Mr David Coe, who seeks to intervene in the proceedings, on the basis of which the administrators would be prepared to extend their undertaking not to execute the deed of company arrangement for a further period. 4After short service of the Originating Process had been ordered, and when the Originating Process was first returnable, Mr David Coe, who is the sole director of, and one of two shareholders in, Raejoe (his wife, Ms Michelle Coe being the other shareholder), appeared and was given leave to appear, pro tem, without being joined as a party to the proceeding. Mr Coe now applies, under rr 6.24 and 6.27 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") to be joined as a defendant to the proceedings. Mr Coe also seeks, pursuant to s 444B(2) of the Corporations Act, an order that the time for which Raejoe and the administrators must execute an instrument setting out the terms of the deed of company arrangement approved of the meeting of the Raejoe's creditors on 9 November 2012 be extended to such date as the Court determines. 5Rule 6.24 of the UCPR relevantly 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." 6The first part of this rule is directed to the joinder of a proper party to the proceeding, 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. The scope of a corresponding rule was considered in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; 139 ALR 193; 21 ACSR 635 where the Full Court of the Federal Court pointed to the intention to avoid, where reasonably practicable, a multiplicity of proceedings and observed that "[a]n order which directly affects a third person's rights against or liabilities to a party should not be made unless that person is also joined as a party". The Full Court observed that the relevant test: "... involves matters of degree, and ultimately judgment, having regard to the practical realities of the case, and the nature and value of the rights and liabilities of the third party which might be directly affected. The requirement that a third party's rights against, or liability to, any party to the proceedings be directly affected is an important qualification that recognises that many orders of a court are likely to affect other people to a greater or lessor extent... The requirement of a direct effect on rights or liabilities differentiates the case where a person ought to be joined, from other cases where the effect of the order on non-parties can be characterised as only indirect or consequential." 7In Re Edge; Re Eco Panels Australasia (in liq) [2007] FCA 30; (2007) 61 ACSR 139 Finkelstein J referred to the advice of Judicial Committee of Privy Council in Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 where Lord Diplock, speaking for the Privy Council, observed that: "While their Lordships agree that the mere fact that a person is likely to be better off financially if a case is decided one way rather than another is not a sufficient ground to entitle him to be added a party, they do not find the dichotomy between 'legal' and 'commercial' interests helpful. A better way of expressing the test is: Will his rights against or liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action?" 8In that case Finkelstein J held that shareholders of a company were not necessary parties to an application retrospectively to extend the time for a second meeting of creditors at which it had been resolved to wind up the company, but could have been joined as proper parties where their interests would be indirectly affected by a winding up, or alternatively given the need for a contradictor. The former basis does not seem to me to involve a particularly wide interpretation of the principle, since shareholders are contributories in a winding up. The latter basis, referable to the need for a contradictor, is not presently applicable where the administrators and Raejoe are proper contradictors and had been joined although they have chosen not actively to participate; and three creditors of Raejoe have been served, two of which are controlled by Mr Coe, and the third of which is his wife, who were proper parties but have also chosen not to participate. I do not consider that another party should be joined as a contradictor merely because those persons who are in fact proper contradictors have elected not to contradict. 9In John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1; 266 ALR 462 at [131]-[132], the High Court referred to the decision of the Full Court of the Federal Court in News Ltd v Australian Rugby Football League Ltd and 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 proprietary rights were created 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 as being that a person "ought to be joined as a party if its legal rights are directly effected by the orders sought but not otherwise". 10Mr Coe relies on an affidavit of an employed solicitor in the firm acting for him, Mr Steven Mattiussi, in support of his application to be joined to the proceedings. That affidavit indicates that Mr Coe is the sole director of Raejoe and also proposed the deed of company arrangement that Allco seeks to set aside. Mr Mattiussi's evidence was initially that Mr Coe left Australia to travel to the United States on 17 November 2012, the day after the proceedings were brought to the attention of Mr Coe's solicitors, and would return on 3 December 2012; that Mr Mattiussi has had "limited and intermittent contact" with him; and that Mr Mattiussi did not expect to be able to complete preparation for a hearing of the application until Mr Coe returned to Australia. Mr Mattiussi subsequently qualified, or corrected, his evidence to indicate that Mr Coe is in the United Kingdom, not the United States, and returns on 1 December 2012 not 3 December 2012. Mr Mattiussi's affidavit does not disclose the purpose of Mr Coe's travel or its urgency; what, if any, efforts have been made to obtain instructions or evidence; or why contact with Mr Coe is intermittent. 11As I understand the submissions made for Mr Coe, it is accepted that he is not a necessary party to the application for the purposes of UCPR r 6.24, but submitted that he is a proper party, because he is (1) a director of Raejoe and the proposed deed of company arrangement provides for Raejoe to be returned to his control; (2) a shareholder in Raejoe; (3) the proponent of the deed of company arrangement; (4) a debtor to Raejoe; or (5) a person who could apply to have the time for entry into the deed of company arrangement extended under s 444B of the Corporations Act. A submission that Mr Coe was a proper party on the basis that he was a creditor of Raejoe whose claim would be more valuable when Allco's claim was compromised under the deed of company arrangement was not pressed when it was recognised that Raejoe's creditors (other than Allco) were the two related entities under Mr Coe's control and Ms Coe who, as I have noted above, have not sought to intervene in the proceedings. 12In my view, in the possibly unusual circumstances of this case, Mr Coe's legal rights as against a party to the proceedings, Raejoe, are in fact directly affected by the orders sought in the proceedings on one of the five bases on which he relies. His ability to exercise powers as a director of Raejoe is presently suspended by s 437C of the Corporations Act during the administration; that suspension would cease under the terms of the deed of company arrangement which would return Raejoe to his control; and the orders sought by Allco would prevent that result arising. In my view, this is a sufficient basis for Mr Coe to be a proper, although not a necessary, party to the proceedings. To put it another way, the effect of the proceedings would be to prevent Raejoe being returned to his control as a director, and to prevent him exercising the rights of a director, and unless he is joined to the proceedings that would occur without his having the opportunity to be heard. 13I should add, for completeness, that I do not consider that Mr Coe would be a proper party to the proceedings on the other bases on which he relied. So far as he relies on his shareholding in Raejoe, Ms Dawson, who appears for Allco, rightly points out that it is creditors not shareholders who vote on whether a company in the relevant circumstances should enter into a deed of company arrangement, and I can see no impact on the legal rights of shareholders arising from that decision. 14So far as Mr Coe relies on his being the proponent of the deed of company arrangement for a debtor to Raejoe, I consider that his interest in that regard is, at best, an indirect commercial interest and is in any event not adequately explained by the evidence. One might infer that, because Mr Coe proposed the deed of company arrangement, he may have anticipated a commercial benefit from doing so, although Mr Mattiussi's affidavit does not indicate what that benefit was. It is also at least possible that Mr Coe might have had personal or other reasons to propose the deed of company arrangement and I do not consider that I should speculate as to what interest he sought to serve by doing so absent evidence given on his behalf as to that matter. Similarly, any commercial disadvantage or legal disadvantage from the deed of company arrangement being set aside is not identified in Mr Mattiussi's evidence, and there is no basis for the Court to conclude that any legal right of Mr Coe would therefore be directly, or even indirectly, affected by setting aside the deed of company arrangement so far as he is the proponent of it or a debtor to Raejoe. 15I would also not have held that, apart from the legal interests that I have identified arising from Mr Coe's capacity as a director of Raejoe, he was a proper party to the application by reason of any ability of the Court to extend the time for entry into a deed of company arrangement under s 444B of the Corporations Act. Although that section does not identify the persons who may apply for such an extension, I would understand those persons not to extend beyond the parties to the deed of company arrangement, creditors, and persons whose interest are directly affected by the deed to persons such as debtors who may hope to obtain some commercial benefit if a deed of company arrangement is executed. 16I should also add that, had I not found that Mr Coe should be joined as a proper party to the application on the basis set out above, I would have granted leave for him to be heard under r 2.13(1) of the Supreme Court (Corporations) Rules 1999 (NSW) which permits the Court to grant leave to a person who is, or claims to be, an officer of a corporation or an interested person to be heard in a proceeding without being a party. Those powers are commonly exercised, and the case law indicates that a broad approach is taken to allowing persons who claim to have such an interest to be heard under that rule: see the cases cited in Austin and Black's Annotations to the Corporations Act at [CR 2.13]. 17So far as the application to extend the time for execution of the deed of company arrangement under s 444B of the Corporations Act is concerned, I would adopt the approach indicated by Barrett J in Re Sydney Ringtread Tyres Pty Ltd (admin apptd) [2001] NSWSC 424; (2001) 38 ACSR 221 at 222, that an extension of time involves balancing the benefit and detriments to be obtained from pursuing the deed of company arrangement against those which would arise if the deed of company arrangement were allowed to expire without extension so that the party passes automatically into liquidation. In the present case, creditors, albeit reflecting a majority of related creditors, have voted in favour of a deed of company arrangement that would deliver particular outcomes. Allco seeks to set aside the resolution authorising entry into that deed of company arrangement on its merits. It would not be consistent with the interests of justice that that result should follow by default, without a hearing on the merits, by not extending the time for execution of the deed of company arrangement, and that is sufficient basis for the extension of that time. 18The parties agreed that, if I reach this result, the appropriate course was to extend the time for execution of the deed of company arrangement and list the matter for hearing on 10 December 2012, when another judge is available to hear the matter, and make orders for the preparation of the hearing. In setting the times by which evidence is due to be filed, I will give some weight to Mr Coe's absence overseas, notwithstanding the somewhat perfunctory evidence as to the circumstances of that absence and the suggested difficulties in communicating with him. I will also have regard to the fact that it is a common experience that parties in this Court, including litigants resident overseas, prepare evidence by the use of telecommunications, email facilities and facsimiles so that the presence of a party overseas is not, in my view, a basis upon which he or she should not be required to take steps to prepare an urgent matter for hearing within a short timetable. 19Mr Coe contends that he should have his costs of the application or alternatively, contends that costs should be his costs in the cause. Ms Dawson resists an order that Allco pay the costs of the application on the basis that the outcome has established, not that Mr Coe was a necessary party, but that he was a proper party who was able to be joined, and he has succeeded on only one ground of the application, which, she contends, was only clearly articulated in oral submissions yesterday. 20I do not consider that an order should be made that Allco should pay Mr Coe's costs of the application without regard to the outcome of the proceedings. The effect of the application is that Mr Coe will become a party to the proceedings and may or may not succeed in opposing the orders sought by Allco. Mr Coe's success in being joined to represent his interests does not warrant an order for costs irrespective of whether those interests ultimately prevail. I consider that the proper order for costs, in the circumstances, having regard to the fact that Mr Coe succeeded on one of the several grounds put, and, as I have noted, that success is preliminary to the ultimate outcome of the proceedings, is that Mr Coe's costs of the application be Mr Coe's costs in the cause. 21I note the following undertakings and make the following orders: