Lewis v Nortex Pty Ltd

3081/97 PETER LAWRENCE LEWIS v NORTEX PTY LTD (In Liq) 1750/02 LAMRU PTY LIMITED v KATION PTY LIMITED & ORS JUDGMENT - Re Amendment to Pleadings re China Creditors 1 HIS HONOUR: There has been agitated before me a question of whether there should be some amendment to the "pleadings", or otherwise in relation to the definition of issues in this case, in relation to what is referred to as the "China creditors" issue. I place the word "pleadings" in inverted commas since the "pleadings" in this case are informal, being consolidated points of claim in the two sets of proceedings being heard together and documents filed consequent upon them. The "China creditors" issue relates to some $284,000 odd and arises in this way. 2 Originally an item was shown as a deduction in the 1997 accounts of Nortex being in respect of moneys owed to the "China creditors". The "China creditors" lodged a proof of debt in respect of this sum and the liquidator in due course rejected that proof. From that rejection there has been no appeal. 3 The $284,000 should be taken as at some point of time not having been or having ceased to be an obligation of Nortex. It is not mentioned in the points of claim or points of defence or Scott Schedule in these proceedings. The reason for that appears to me to be that, up to now, there has been no controversy amongst the parties to the proceedings about what should be done about the "China creditors'" item. The "China creditors" having ceased to be creditors, the $284,000 should be written back into the company's accounts as a credit item. What has not previously been, but is now made, a subject matter of controversy, is whether that should occur in the 1997 year, which is open before the Court, or the 1998 year which is not at present open before the Court. The former would or may be the appropriate course if the obligations in truth never existed. The latter would or may be the appropriate course if the debt undoubtedly did once exist, but was subsequently discovered to be a bad debt and written off as such. There is not sufficient clarity in the evidence before me concerning the "China creditors" to determine which of those courses is appropriate or to make a positive determination as to what should be the correct date for credit. 4 Mr Ventry Gray, of counsel for the liquidator, now suggests that it is necessary for Lamru to amend its points of claim to include an item of claim concerning the "China creditors" in order for the 1997 accounts to be adjusted by making the credit in that year. Mr Motbey, on behalf of Lamru, says that Lamru has advisedly not propounded a claim concerning this matter in its points of claim and that it ought not now be required to do so. Lamru says that no issue has been taken in the proceedings with the proposition that the proof of debt of the "China creditors" was rightly rejected by the liquidator and that 1997 is the appropriate year for the credit to be brought into account. As there is no issue at present among the parties concerning that, then it may be done on that agreed basis without being agitated in any way among the issues in these proceedings. The basis on which Mr Motbey contends that is as follows. 5 On 9 December 2002 Lamru's solicitor, Mr Lyons, wrote to Abbott Tout, the solicitors for the liquidator, a letter including the following: "What is plain enough in this difficult case is that there are a number of issues of substance, and a number of non-issues of substance, behind the different arithmetical positions advanced by the parties. When the issues of substance are ruled upon by the Court the parties, or perhaps some independent person, will be able to sit down and do the arithmetic. There having been no appeal by the so-called China creditors from the rejection of their claims for $284,837.20, the relevant arithmetical adjustment to the 1997 accounts has become a non-issue of substance. " 6 On 2 May 2003, Mr Lyons wrote to Kemp Strang, the solicitors for the Lewis interests, with a copy to Abbott Tout, as follows: "A close analysis of the Scott Schedule Item 24 and para 55 of the Points of Claim show that the $284,837.20 non-existent liability to some China creditors ... whose claims were advanced through Mr Lewis and rejected by the liquidator with no appeal has been omitted from the free nett income as at 30 June 1997. There is no issue but that the free nett income to that date must be increased by the $278,837.20 [sic] since there is no issue but that Nortex, as the liquidator rightly reckoned, did not owe this sum. " 7 The question was raised by Mr Cotman, of Senior Counsel for the Lewis interests, in Court on 17 June 2003 as to whether this issue should be raised and agitated in the proceedings. After argument concerning that, at transcript 2536 I said: "I don't think that letter says anything more than that the proofs were rejected by the liquidator and, therefore, as things stand there is a windfall of $284,000 which needs to be counted in."

Mr Cotman said, "I am indebted to your Honour". 8 On the next day Mr Motbey sent a memorandum to both Mr Cotman and to Mr Somerset, the liquidator's solicitor. In this he referred to the adding back of the "China creditors" and enclosed an amended schedule relating to Lamru's claims which clearly showed the item of $284,000 in respect of the China creditors as brought back into account in the 1997 year. Nothing further was heard from the Lewis interests concerning this. Their interest concerning it is fairly peripheral in that the "China creditors" issue is agitated only in the statutory appeal and not in the derivative proceedings against the Lewis interests. Nor was anything heard from the quarter of the liquidator up to the time that Lamru delivered its final written submissions in the matter on 15 December 2003. 9 There the following appeared concerning the "China creditors": "This matter was first raised with Abbott Tout in a letter dated 9 December 02. By a letter dated 2 May 03, Lamru advised Kemp Strang of its intention to add this amount of $284,837.20 to its 97 claims."

The submission proceeded to refer to what I had said at transcript 2536. 10 Even after these written submissions were delivered, there was no further response from the liquidator until the matter was raised in Court during the course of final submissions by Mr Ventry Gray on 17 February 2004. At that point the issue was raised as to whether on proper accounting principles the credit should be brought in in the 1997 or 1998 year. 11 If Lamru is now compelled to raise this matter more specifically than it has in its points of claim, the purpose of this would be to facilitate the liquidator pleading a defence suggesting that the credit should be made in the 1998 rather than the 1997 year. The liquidator says that this should or must be done to comply with proper accounting principles as to how the credit should be dealt with. This may well compel a reopening of the evidence in this already protracted case at or after the eleventh hour. 12 On the state of evidence before the Court, it is not clear that violence is done to any accounting principles by treating the credit as occurring in the 1997 year, because, on the evidence, it is impossible to conclude whether the credit should be brought in in the 1997 or the 1998 year. The utility of determining this finally is most unclear in view of the company's lack of money, which renders the issue irrelevant in any real sense to anyone, including the revenue authorities. The inutility of allowing this matter to be further protracted by the reopening of evidence at this stage is patent. 13 The view that I take is that I should infer from the circumstances that I have outlined an agreement among the parties that the liquidator's rejection of the proof of debt should be left undisturbed, that the $284,000 should be brought back to credit in the company's accounts and that that should occur in the 1997 year. The first two propositions are not even now disputed. The second proposition is now sought to be disputed, although it was made plain by Lamru from December 2002 that that was the basis on which it was proceeding. The matter was brought forward on behalf of the Lewis interests for ruling in June 2003, when I made my view plain. There was no further demur on behalf of any of the parties until December 2003 to that course being followed. 14 It is always a matter of concern to me that the evidence and determination in proceedings should match the pleadings or the issues as propounded in whatever manner (a view also acted on by McDougall J in White (ACT) (In Liquidation) v G B White [2004] NSWSC 71 at [52] - [67]). However, the situation as to when the "China creditors" debt should be brought back into account as a credit has been treated by all the parties until now as a non issue. That situation should not be allowed to be departed from. As it is a non issue, no difficulty arises from it not being dealt with as a matter of claim or more explicitly than it has been in the various documents by which the issues have been defined in these proceedings. **********

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