Lechmere Financial Corporation v Aspermont Limited

Federal Court of Australia|2004-01-30|Before: Nicholson J

REASONS FOR JUDGMENT 1 These reasons arise as the consequence of an application made by a proposed intervenor, Andrew Leslie Kent, for leave to be heard in the winding up proceeding or to have orders made on an oral application pursuant to O 25 r 1 of the Federal Court Rules.

background circumstances 2 On 20 October 2003 I delivered reasons in response to an application brought by the plaintiff in reliance on s 459P(1) of the Corporations Act 2001 (Cth) ('the Act') for the defendant company to be wound up in insolvency: Lechmere Financial Corporation v Aspermont Limited [2003] FCA 1138 ('Lechmere [2003] FCA 1138'). The ground relied upon was that the defendant had failed to comply with certain statutory demands and therefore must be presumed to be insolvent in accordance with the provisions of s 459C(2)(a). In the course of the reasons I rejected a submission that the statutory demands were not 'still in effect' as required by s 459F(1) of the Act and a further argument that there was an inability to comply with those demands due to an injunctive order made in the Supreme Court of Western Australia. I further found that the defendant had failed to rebut the presumption of insolvency. On the issue of the exercise of the discretion not to order a winding up, I adjourned the matter in the terms of the orders made to provide the defendant to pay into court the moneys required by the statutory demands, failing which the application would stand granted. In accordance with the orders, the defendant obtained from the Supreme Court of Western Australia discharge of the interim injunction granted with its consent on 13 December 2002 and forthwith filed and served an authority for this Court to pay the moneys held by it, being the moneys paid into court by the defendant on 21 October 2003, to the plaintiff. The orders provided that 'upon such payment the application shall stand dismissed'. 3 The orders further provided that in the event the defendant had not complied either with the orders referred to or in the event the discharge of the injunction had been refused, either of which by close of business on 17 November 2003, the matter was to be listed for determination of the application at 2.15 pm on 18 November 2003. In the meantime a notice of the proposed intervenor's application was received and listed on the return date for the winding up petition. 4 In Lechmere [2003] FCA 1138 at [4], I described the defendant as a public company in which Mr Kent was the Chairman of Directors and in which a company controlled by him, Drysdale Investments Ltd ('Drysdale'), holds about 47% of the issued share capital of approximately 103 million shares on issue held by 960 shareholders. It may be taken therefore that the proposed intervenor was thoroughly aware of the course of the proceedings from their inception to the making of the orders on 20 October 2003. 5 It is also a relevant background circumstance that the proposed intervenor has brought four actions in the Supreme Court against various parties including the plaintiff. In each case the plaintiff (i.e. Lechmere Financial Corporation) entered a conditional appearance. In each case the action against it was dismissed. Only in respect of the last of these four actions did the proposed intervenor lodge an appeal against the orders made. A summary of these proceedings appeared in Lechmere [2003] FCA 1138. 6 The thrust of those actions was to assert a claim on behalf of the proposed intervenor that the present defendant had agreed to 'assume responsibility' for a debt of the proposed intervenor to the plaintiff. His claim is that the debt is property of a trust of which he is a sole beneficiary, that the trust has been terminated, and that directions were given to pay the debt and interest to him. He asserts that the trustees refused or neglected to follow such directions and the defendant refuses to acknowledge his claim. In the last of the actions the Master could find no proper basis in these claims for the joinder of the proposed defendants who included the plaintiff.

application in winding up proceeding 7 Creditors, officers and contributories may seek leave to be heard in winding up proceedings. The mechanism governing such applications is set out in s 465C of the Act and the Federal Court (Corporations) Rules 2000. Section 465C of the Act requires a person who wishes to oppose a winding up application to file and serve upon the applicant the notice of the grounds of opposition and provides that a person may not, without leave, oppose the application unless that document has been served. No such document has been served here. By the application of the proposed intervenor leave is now sought to oppose the application. 8 Rule 2.9 requires any person who intends to appear before the Court on the hearing of a winding up application to serve an appearance and affidavit not less than three days prior to the hearing. In this case the hearing occurred on 22 August 2003. No document was filed on behalf of the proposed intervenor until 4 November 2003. 9 Neither the requirements of the Act nor the rules are met so as to support any grant of such leave to the proposed intervenor. Furthermore, the application of the proposed intervenor relates not to opposition to the application for winding up but rather to ownership of funds paid into court as a consequence of the orders made on 20 October 2003. In my opinion there is no basis upon which leave can be given to the proposed intervenor to join in the winding up application. 10 Furthermore, if there were such a basis it would necessarily involve the exercise of discretion by the Court. The circumstances here are such that no such discretion should be exercised in favour of the proposed intervenor. This is because he was a director of the defendant and a principal shareholder in it through Drysdale with notice of the present proceedings at all times since the date of their service on 19 February 2003. He had chosen not to participate in the proceedings or to give evidence in them. Additionally he has sought, unsuccessfully, to litigate the issues now being the focus of his application for intervention in the Supreme Court, entirely without success. 11 There is a further aspect. That is that the plaintiff, having chosen to make conditional appearances in the Supreme Court, has appeared in this Court in respect of the application for winding up. No argument brought for the proposed intervenor has persuaded me that the plaintiff has submitted generally to the jurisdiction of this Court. 12 It is precisely that concern that prompts the proposed intervenor to seek the leave of the Court at this time. Doubtless the unsuccessful record of litigation in the Supreme Court prompts him to do so. 13 Such authority as is available supports the approach which I believe is dictated by the above matters. The authority is Re Bambi Restaurants, Ltd, [1965] 2 All ER 79. There Pennycuick J dealt with an application, made in a winding up proceeding between opposing contributories, concerning the ownership of a share in the defendant company. That was a factual situation on all fours with the instant matter. At 81, Pennycuick J referred to the fact that counsel for the party seeking to raise the issue of the determination of the beneficial ownership of the shares could cite no authority for saying that on a contributory's winding up petition the court could properly come to such a determination. He considered it was an issue that could only be determined in proceedings 'constituted in the ordinary way between the person claiming to have an interest in the share as plaintiff and the registered owner of the share as defendant'. While he reached this view with some regret because it would involve a certain duplication of proceedings, he did not consider it was legitimate to avoid that result by treating the winding up petition as comprising an issue between the parties concerned as to the ownership of the share. 14 That reasoning is apposite here. It is even more apposite here as a matter of discretion in view of the long involvement of the proposed intervenor in the proceedings in which he now seeks to intervene in the closing moments after determination of the issue of winding up. 15 On behalf of the proposed intervenor reference is made to In re QBS Pty Ltd [1967] QdR 218 at 255 and Ocean City Ltd v Southern Oceanic Hotels Pty Ltd (1993) 10 ACSR 483 as authorities for the proposition that the modern notions of efficiency in the use of judicial time support the determination of issues concerning disputed debts rather than separation of the dispute and ordering the stay or dismissal of the winding up proceedings pending its determination. Those cases, however, are between an applicant for winding up order and the defendant company concerning alleged disputes as to the existence of a debt relied upon to found the winding up application. Here, the winding up application has been determined and the alleged dispute is in relation to moneys paid into court as a consequence of the order of the Court on that determination. These authorities are significantly distinguishable from the present circumstances. 16 For these reasons the application on behalf of the proposed intervenor to be joined in the application for winding up and to have leave to that end must be refused.

application pursuant TO federal court rules 17 There is no proper foundation upon which leave can be granted pursuant to O 25 r 1. In the first place the application is to intervene in an application for winding up and that itself, for the reasons given above, is not an application which can succeed. Second, the proposed proceeding raises the same issues as the four unsuccessful proceedings in the Supreme Court brought by the proposed intervenor. Third, because of his close connection with the defendant the proposed intervenor has had the opportunity to seek to intervene at some stage other than by way of an oral application made at the final moments of a winding up application. Fourth, the applicant has not established that this Court has any jurisdiction over the plaintiff other than in respect of the winding up application. 18 Considerable oral argument and subsequent written argument was, at the Court's request, addressed to the issue of whether the proposed intervenor had a 'good arguable case'. This was for consideration in the event that the matter came down to the exercise of the discretion by the Court. In my opinion the application simply does not reach that point and it is not necessary to canvass the factual issues raised. 19 It may also be noted that in Kent v Aspermont Ltd [2003] WASC 107, Master Sanderson in applying the test of 'serious question to be tried' formed the view, previously referred to, that the proposed intervenor had failed to clear that hurdle. The test of a good arguable case is clearly of a higher standard. 20 Finally, O 25 r 1 is a provision for application 'in an urgent case'. For reasons already given, the proposed intervenor cannot now allege urgency when the possibility of the orders made has been so long known to him through his intrinsic involvement with the defendant.

conclusion 21 For these reasons I consider that the applications on behalf of the proposed intervenor should be dismissed. 22 As a consequence of this conclusion, the Court will, on the handing down of these reasons, revoke the order made on 12 November 2003 requiring the District Registrar not to act on the authority received pursuant to order 5 dated 20 October 2003 until the hearing and determination of the proposed intervenor's application. There will therefore be no barrier to his implementing the authority for the Court to pay the moneys held by it to the plaintiff in accordance with order 5 made on 20 October 2003. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.

Counsel for the Plaintiff: Mr SJ Penrose

Solicitor for the Plaintiff: Tottle Partners

Counsel for the Defendant: Mr CR Coulson

Counsel for the proposed intervenor: MR MJ Hawkins

Solicitor for the proposed intervenor: O'Toole & Oprandi

Date of Hearing: 18 November 2003

Date of Judgment: 30 January 2004

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