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[2004] NSWSC 391
plaintiff. Leave was granted under Part 10 rule 2(1) to proceed against National Indemnity Company. Under s 588FF(3)(b), the period for a liquidator of one or more of the second to nineteenth plaintiffs to...
The liquidators filed their application to preserve the possibility of bringing a voidable-transaction claim against National Indemnity Company before the three-year deadline. The judge held that the application, rather than the eventual court order, had to be filed within that period. Adding the company as a defendant after the period did not change the application's character and related back to the original filing. The judge was satisfied that the foreign company had been served in accordance with the applicable rules, that the contemplated claim had the required New South Wales connection, and that there was a triable issue. The court extended the time to 10 March 2005. It did not decide whether the proposed transaction was voidable or whether the liquidators would succeed in any later substantive proceeding.
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Barrett J dealt with an application by the liquidators of HIH Insurance Limited and eighteen subsidiaries for more time to bring possible voidable-transaction proceedings against National Indemnity Company, a corporation organised under Nebraska law. The companies were being wound up by the court, and their relation-back day was 15 March 2001 ([1]). Under s 588FF(3)(b) of the Corporations Act 2001 (Cth), a liquidator could seek a longer period, but the application had to be made within three years after that day ([2]).
The liquidators filed their original originating process on 10 March 2004, shortly before the three-year period ended. It sought an extension until 10 March 2005 in relation to possible claims against National Indemnity Company ([2]). The original process did not formally name the company as a defendant and said that no person would be served. On 12 March 2004, Barrett J indicated that he would not make the requested order unless the company was made a defendant and given an opportunity to be heard. He granted leave to amend. The amended process, filed on 24 March, named the company, stated that it would be served, and included the prescribed notice about non-appearance ([3]-[5]).
National Indemnity Company was outside Australia and did not appear at the hearing. The liquidators relied on evidence that the company was incorporated in Nebraska and that the amended process and accompanying documents had been sent by certified mail to its registered agent. The evidence included a Nebraska lawyer's explanation of the relevant service rules and a return receipt ([27]-[30]). The judgment records that the lawyer said the documents were sent on 2 April 2003, although the amended process was filed on 24 March 2004. The judgment does not explain that apparent date inconsistency.
The potential substantive claim concerned a contract described as reinsurance. The HIH companies were to pay $55 million over five years in return for a maximum recovery of $50 million, or $80 million if a defined event occurred. That event required two very large Australian earthquakes, each in a different year during the five-year period. The HIH Royal Commission had received expert evidence that the probability of that combined event was 1.8 to 3.3 per cent, and expressed a view about the contract's purpose ([35]). These matters were part of the preliminary account of the proposed claim, not a final finding that the transaction was voidable.
The court granted leave to proceed and extended the period for specified s 588FF(1) applications until 10 March 2005 ([48]). It did not determine the merits of any later voidable-transaction claim.
The first central question was what had to occur within the three-year statutory period. Section 588FF(3)(b) referred to a longer period “as the Court orders on an application under this paragraph by the liquidator within those 3 years”. Barrett J identified two possible readings: either the court had to make its order within three years, or the liquidator had to make the application within that time ([14]). He accepted the latter construction.
The judge considered the Court of Appeal's decision in BP Australia Ltd v Brown. Although he noted that the precise point had not been directly decided there, he read aspects of Spigelman CJ's reasoning as supporting the view that it was the application, not the order, that had to be initiated within the period ([15]-[17]). He also reasoned from practicalities: the timing of a judicial decision is not controlled by the successful applicant. Opposition, interlocutory disputes, court schedules, or time needed to prepare reasons could push the decision beyond the statutory period. Without a clear indication that Parliament intended to impose such a limit on the court's determination, he considered it more realistic to require timely initiation and allow the proceeding to take its ordinary course ([18]).
That construction made the original filing date important. The process was filed on 10 March 2004, before the three-year period ended. The later amendment formally added the affected company as defendant and enabled proper service, but did not alter the relief sought or the essential character of the application. Barrett J treated the amendment as operating from the date the original process was filed, applying the general principle reflected in Australia and New Zealand Banking Group Ltd v Laros and Part 20 rule 1 of the Supreme Court Rules ([19]-[21]).
The court also addressed procedural fairness. An extension order is final in the sense that it removes the affected party's ability to rely on the original time bar if substantive proceedings are later brought within the extended period ([8]). Drawing on Cameron v Cole and the Court of Appeal's observations in BP Australia, Barrett J considered it important that an identified person likely to be affected receive a reasonable opportunity to be heard ([9]-[12]). That concern explained why he required the company to be named and served rather than proceeding on the original process alone ([4]-[6]).
Because the defendant was outside Australia and had not appeared, the judge required four procedural conditions: service in accordance with the rules, the required Form 13A notice, a ground permitting service outside Australia, and leave to proceed ([22]). The Nebraska evidence satisfied him that service had been carried out in accordance with the law of the place of service, as required by Part 10 rule 5 ([27]-[30]). He treated compliance with that rule as sufficient without needing to decide whether service also complied with Part 10 rule 4 ([26]).
For the ground permitting service outside Australia, the plaintiffs relied on Part 10 rule 1A(1)(a), which concerned proceedings founded on a cause of action arising in New South Wales ([32]). Barrett J had previously treated s 588FF(1) as providing a cause of action in New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd. Here, the contemplated claim related to a contract made in the course of the HIH companies' operations in New South Wales ([34]-[36]). He reasoned that the preliminary extension proceeding took its territorial quality from the substantive claim it was intended to permit ([37]-[38]).
Finally, the judge applied the leave threshold from Agar v Hyde: whether the substantive case was sufficiently cogent to disclose a triable issue ([40]). He also applied the three considerations in Green v Chiswell Furniture Pty Ltd: the explanation for delay, a preliminary examination of the claim's merits, and prejudice to the prospective defendant ([47]). He considered the evidence sufficient on those matters. National Indemnity Company had communicated that it would not oppose the extension, but expressly did not concede Australian jurisdiction or the merits of the future claim. The liquidators accepted that the non-opposition would not be relied on as a concession on those separate questions ([43]-[46]).
Before this decision, the statutory wording in s 588FF(3)(b) was capable of two readings: the extension order itself might have to be made within three years, or only the liquidator's application might have to be filed within that period. Barrett J stated that he had not found a decision directly determining that question ([18]). He resolved the ambiguity for the latter reading: timely filing preserves the court's ability to decide the application after the three-year period expires.
The decision also addressed the effect of a post-period amendment. The relevant distinction was between changing the substance of the proceeding and adding procedural features that allowed the already affected person to be named, served, and heard. On the facts, the amendment fell into the latter category and operated from the original filing date ([20]). The judgment does not establish that every amendment made after the period will relate back. Its reasoning depended on the unchanged relief and unchanged character of this application.
On service and jurisdiction, the judgment treated an extension application as requiring proper attention to an identified foreign person's participation where the proposed order could remove a time-bar defence. The procedural analysis was particular to the Supreme Court Rules then in force, the evidence of Nebraska service law, and the pleaded basis for service outside Australia ([22]-[38]). The judgment does not purport to resolve every jurisdictional question that might arise where a foreign target has not been served or has not submitted to jurisdiction. At [7], the judge raised that concern conditionally, while the actual case proceeded on proof of service.
The result was an extension for the particular transactions and companies described in the order, not a general extension for all possible HIH claims. The order allowed the liquidators to make specified applications by 10 March 2005 ([48]). It did not determine that the contract was a voidable transaction, nor that any amount was recoverable.
At [18], Barrett J said the application must be filed within three years, but the court's order can come later. In plain English, a liquidator does not lose the opportunity merely because the court cannot decide the extension request before the deadline, provided the request itself was initiated in time.
At [20], he described the amendment as adding features that facilitated service and gave the affected party the formal position of a party able to appear. In plain English, the amendment did not start a new application because the original process already sought the same extension concerning the same company.
At [37], the judge said the extension proceeding should have the same territorial quality as the substantive claim the extension would permit. In plain English, where the proposed substantive claim is grounded in events connected with New South Wales, that connection may also support treating the preliminary extension proceeding as arising there for the applicable service rule.
At [40], he adopted a triable-issue threshold for leave to proceed. In plain English, the liquidators did not have to prove the future claim at the extension hearing, but had to show a sufficiently cogent case to cross the threshold described in Agar v Hyde.
At [47], he identified the three considerations used in assessing the extension: why the substantive proceedings had not been brought earlier, whether the prospective claim was so lacking in substance that it would be unfair to expose the defendant to it, and whether the defendant would suffer prejudice. He concluded that those matters favoured an extension in this instance.
The decision is most directly relevant to an application under s 588FF(3)(b) where the liquidator files before the three-year period expires but the court is likely to determine the application later. Its timing analysis is especially relevant where the statutory language can be read as limiting either the filing of the application or the making of the order ([14]-[18]).
It also bears on a case where an originating process is filed in time but later amended to add a specifically affected person as defendant or to make service possible. The reasoning depends on the amendment not changing the relief sought or the character of the original application ([19]-[21]). A substantial change in the claim is not addressed by this judgment.
The procedural discussion concerns an identified prospective defendant outside Australia, especially one in a country to which the relevant convention-country provisions do not apply, who has not appeared. In that setting, the court examined proof of service under foreign law, notice requirements, a recognised basis for service abroad, and leave to proceed ([22]-[30], [32]-[40]).
The decision also concerns an extension request that would affect a person's ability to rely on the three-year time bar in later substantive proceedings. Barrett J's fairness analysis stresses the significance of giving that person a proper opportunity to decide whether to appear and make submissions ([4]-[12]). The judgment does not establish that non-opposition to an extension admits the substantive claim or submits the foreign defendant to jurisdiction. Here, the defendant expressly preserved those positions ([43]-[46]).
The supplied judgment contains no later judicial treatment of McGrath & Ors v National Indemnity Company. It therefore does not establish whether later courts followed, applied, distinguished, or questioned its construction of s 588FF(3)(b), its relation-back analysis, or its territorial reasoning.
Within this judgment, Barrett J relied on and discussed earlier authorities. He referred to BP Australia Ltd v Brown and Greig v Australian Building Pty Ltd concerning procedural fairness and participation by an identified person affected by an extension application ([5], [11]-[17]). He applied the relation-back principle by reference to Australia and New Zealand Banking Group Ltd v Laros ([20]). He relied on New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd to explain the nature and territorial connection of a contemplated s 588FF(1) claim ([34]-[37]). Those are the relationships shown by the present judgment, not evidence of subsequent treatment of this decision.
The judgment leaves several boundaries unresolved. First, Barrett J expressly said the precise question of whether the order itself had to be made within three years had not been directly decided in BP Australia or another decision he had identified ([18]). He resolved it in this case, but the supplied text does not show how an appellate court or later court treated that construction.
Second, the judgment's relation-back conclusion is tied to an amendment that left the relief and character of the proceeding unchanged. It does not decide what would happen if a post-deadline amendment added a new transaction, materially expanded the relief, or introduced a different target ([20]).
Third, the judge raised, but did not decide, the possible jurisdictional problem where an extension is sought concerning a foreign person who has not been served and has not submitted to the court's jurisdiction ([7]). In this case, he found service and the other procedural preconditions satisfied ([30], [38]-[41]).
Fourth, the judgment decided only whether there was a triable issue for the procedural application and whether to extend time. It did not decide whether the contract was voidable, what orders might be available under s 588FF(1), or the defendant's substantive response. Those issues were left for any later proceeding.
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Background 1 The first plaintiffs, Mr McGrath and Mr Macintosh, are the liquidators of the second to nineteenth plaintiffs, being HIH Insurance Limited and eighteen of its subsidiaries. I shall refer to the first plaintiffs as "the liquidators" and the second to nineteenth plaintiffs as "the HIH companies". Each of the HIH companies is in the course of winding up by the court. The "relation-back" day (as defined by s.9 of the Corporations Act 2001 (Cth)) in relation to each winding up is 15 March 2001. 2 By an originating process filed in court on 10 March 2004, the liquidators sought an order under s.588FF(3)(b) of the Corporations Act extending until 10 March 2005 the period within which an application under s.588FF(1) might be made against National Indemnity Company, a corporation organised under the laws of Nebraska in the United States of America. Sections 588FF(1) and (3) are in the following terms: " Courts may make orders about voidable transactions (1) Where, on the application of a company's liquidator a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; (b) an order directing a person to transfer to the company property that the company has transferred under the transaction; (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; (d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following: (i) money that the company has paid under the transaction; (ii) proceeds of property that the company has transferred under the transaction; (e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction; (f) if the transaction is an unfair loan and such a debt, security or guarantee has been assigned - an order directing a person to indemnify the company in respect of some or all of its liability to the assignee; (g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company; (h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time; (i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time; (j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable. …
(3) An application under subsection (1) may only be made: (a) within 3 years after the relation-back day; or (b) within such longer period as the Court orders on an application under this paragraph made by the liquidator within those 3 years. …" 3 On 24 March 2004 and in exercise of leave granted by me on 12 March 2004, the plaintiffs filed an amended originating process. The relief sought was unchanged, as was all other matter in Part A under the heading "Details of Application". The amendments involved addition of National Indemnity Company as defendant (there was originally no defendant named, even though the order sought clearly related to National Indemnity Company), alteration of Part D ("Service") by omitting "It is not intended to serve a copy of this originating process on any person" and substituting "It is intended to serve a copy of this originating process on the defendant"; omission of the original statement as to the time and date when the application would be heard and substituting a statement that it would be heard by me in Court 11B, Law Courts Building, Queens Square, Sydney at 10 am on Monday 3 May 2004; and alteration of the material in Part B ("Notice to Defendant(s)") so as to omit the words "Not applicable" and substitute the full form of words in Form 2 in the schedule to the Supreme Court (Corporations) Rules 1999 designed to make a defendant aware of the consequences of failing to appear in the specified court at the specified time. All such amendments, and the addition of the defendant as a party, were pursuant to the orders made by me on 12 March 2004. Reason for the amendment of the originating process 4 The plaintiffs' application for leave to amend in this way was made after I had indicated that I would not make the order sought under s.588FF(3)(b) unless National Indemnity Company was made a defendant and given an adequate opportunity to decide whether it wished to be heard and, if it did, to make appropriate preparations. I should explain now why I took that attitude. 5 The decisions of the Queensland Court of Appeal and the Court of Appeal of this Court in, respectively, Greig v Australian Building Pty Ltd (2003) 21 ACLC 1565 and BP Australia Ltd v Brown (2003) 46 ACSR 677, plus some of the first instance judgments in the latter course of litigation, seem to me to make it clear that the appropriate course, procedurally, is that, where an identified person is squarely contemplated by an application for an order for the extension of time under s.588FF(3)(b) (in the sense that the extension sought is intended to allow further time to mount a s.588FF(1) challenge to some transaction or transactions involving that person and, in the absence of the extension, the person would be the beneficiary of the time bar), that person should be made a defendant to the extension application and be served with the originating process accordingly. This requirement may be relaxed if, as happened in some of the HIH extension cases I dealt with during the days immediately before 15 March 2004, the originating process was directed at a particular person not made a defendant and that person, although not formally served as a defendant, nevertheless attended court, through counsel or solicitor, on the hearing of the plaintiffs' application and sought leave to be heard on that application for the purpose of stating a position on the question whether the extension order should be made: see, for example, McGrath re HIH Insurance Ltd [2004] NSWSC 143. 6 In a case such as the present involving, as I shall explain in greater detail presently, a foreign corporation having no presence here, the matter of service may not be just a point of technicality. The jurisdiction of a superior court such as the Supreme Court of New South Wales, being without territorial limit, is exercisable against or in respect of persons outside the jurisdiction only on the basis of service. Two conditions must be satisfied for the court to be in a position regularly to make an order binding on a person beyond its territorial jurisdiction: the person must be duly served; and some appropriate connection must exist between the forum and the claim against the person. These matters are reflected in Part 10 of the Supreme Court Rules. If a person outside the jurisdiction is subjected to a claim of a relevant kind and is served, but enters no appearance, the person seeking the order cannot proceed further without the court's leave. This is provided by Part 10 rule 2. Proof of proper service is essential if such leave is to be granted. 7 If a s.588FF(3)(b) extension order is sought in respect of possible s.588FF(1) proceedings against a person who has no presence within the jurisdiction, has not been served and has not, by appearance or otherwise, submitted to the jurisdiction of the court, it may be that, despite the statutory context in which the matter arises, the claim is (or is sufficiently akin to) a claim in personam that the court does not have jurisdiction to make the order in respect of that person. 8 It is also to be borne in mind that a s.588FF(3)(b) order for the extension of time is a final order. It deprives the affected person of the right and ability to plead a time bar should a liquidator seek to proceed against the person under s.588FF(1) within the extended period. The order thus has serious implications for such a person. 9 In Cameron v Cole (1944) 68 CLR 571, Rich J said: "It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case." 10 His Honour later said: "If this principle be not observed, the person affected is entitled, ex debito justitiae , to have any determination which affects him set aside; and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside ... In such a case there has been no valid trial at all. The setting aside of the invalid determination lays the ghost of the simulacrum of a trial, and leaves the field open for a real trial." 11 The applicability of this fundamental principle to proceedings of this particular kind was confirmed with some force in both Greig v Australian Building Industries Pty Ltd (above) and BP Australia Ltd v Brown (above). I refer in particular to the observations of Spigelman CJ in the latter case at paragraphs at 133 to 136: "The power to make orders, and the power to extend time under s588FF(1) and (3) are conferred on a court. There can be no doubt that such a body must obey the rules of procedural fairness. An order of a superior court is not a nullity even if made in breach of this obligation. Nevertheless, a person affected is entitled as of right to have any such order which affects that person set aside. (See e.g. Cameron v Cole (1944) 68 CLR 571 at 589 and 590-591.) The basic principle has been affirmed many times, including with respect to powers conferred upon the Court by corporations legislation. (See e.g. Re Great Eastern Cleaning Services Pty Ltd [1978] 2 NSWLR 278 esp at 281; Dahozo Pty Ltd v Oz-US Film Productions Pty Ltd (1997) 24 ACSR 739 esp at 741-742 and 743).
The obligation to comply with procedural fairness imports a higher level of content when imposed on a court than in decision-making processes conducted by administrators or tribunals. It requires, in my opinion, that a person likely to be adversely affected by the order of the court is given an opportunity of making submissions to the court before any such order is made or if, exceptionally, an order is made without such an opportunity being given that, upon application, the person must be put in the same position as he or she would have been prior to the order being made. It is the inherent difficulty of achieving the latter that makes an ex parte order a course to be followed only in the case of necessity or other strong reason.
The creation of a situation in which a person must apply to vacate or vary an order after the order has been made is an exceptional situation. Nothing on the facts of the present case, as at the time of the first judgment, was such as to justify the exceptional course.
Perhaps there will be circumstances in which it is not appropriate to give all who may be affected by an order under s588FF(3)(b) an opportunity to make submissions prior to the order being made. It is not necessary to determine this question. Here there was a clearly identified party with a substantial interest in the question to be determined. Nothing appeared by way of urgency or otherwise to require an ex parte order to be made. The Appellant was unnecessarily placed in the position of applying to the Court, pursuant to leave reserved by order of the Court, to have the order discharged." 12 The Chief Justice went on to say, consistently with what was said by the Queensland Court in Greig, that it is inappropriate for a judge, faced with a question whether the audi alterem partem rule has been satisfied, to take the course of, in effect, sidestepping the question by making the order in the absence of the affected party on the implicit basis that that party may later apply to have it set aside either under Part 40 rule 9(3) of the Supreme Court Rules or by way of exercise of the inherent jurisdiction reflected in that rule. It is not open to the court knowingly to act contrary to the principles of procedural fairness. The hearing on 3 May 2004 13 The amended originating process duly came before me in Court 11B, Queens Square on 3 May 2004 at 10am. Mr Oakes SC appeared for the plaintiffs. The matter was called outside the court. There was no appearance on behalf of the defendant; nor had any notice of appearance been filed in accordance with the rules. Having filed an interlocutory process seeking leave to proceed under Part 10 rule 2 of the Supreme Court Rules and read the several affidavits on which the plaintiffs relied, Mr Oakes submitted that the liquidators were entitled to both that leave and the order under s.588FF(3)(b) of the Corporations Act sought in the amended originating process. (I note, in passing, that the interlocutory process named 23 plaintiff companies but, since these included the 19 named in both the originating process and the amended originating process and, in view of the terms of s.588FF, the necessary parties are the liquidators, this circumstance does not appear to require further comment.) A preliminary question of construction 14 Before proceeding to certain jurisdictional questions and the merits of the application, I must deal with an important question of construction. The court's power to extend the period for the making of an application under s.588FF(1) may be exercised only in accordance with s.588FF(3)(b) which refers to "such longer period as the Court orders on application under this paragraph by the liquidator within those three years", that is, the three years beginning on the "relation-back day" which, as I have said, is 15 March 2001. Section 588FF(3)(b) poses a question as to the thing that must happen within the three year period for the time specification to be satisfied in such a way that an order for the extension of time may be seen to be validly made. Is that thing the making of the application under s.588FF(3)(b) by the liquidator or the making of the order by the court in response to the application? In other words, is the provision to be construed as referring to:
(a) "such longer period as the Court orders (on an application under this paragraph by the liquidator) within those 3 years"; or
(b) "such longer period as the Court orders (on an application under this paragraph by the liquidator within those 3 years)"?
The statutory language, although exhibiting the modern (and generally desirable) tendency towards verbal economy, is ambiguous because it does not provide any means of knowing, from the words themselves, whether "within those 3 years" qualifies the visible verb "orders" or the invisible "made" where it fails to appear immediately after "application". 15 Mr Oakes submitted that the time specification is satisfied if the application for an order extending time is made within the three year period and that an order made upon an application so made is effective to extend time even though the period has expired by the time the order itself is made. In support of that, he referred to the course of litigation that culminated in the decision of the Court of Appeal in BP Australia Ltd v Brown (above). It is convenient to set out the contentions in this respect as they appear in Mr Oakes' written submissions: "(a) The relation back day was 24 October 1997: appeal judgment 46 ACSR 677 at paragraph [17]. (b) The 3 year limitation period thus ended in October 2000 (these submissions leave to another case whether 23 or 24 October 2000 as not relevant to these proceedings). (c) Austin J made ex parte extension orders on 4 September 2000 - within the 3 year period on any construction: appeal judgment paragraph [37]. (d) BP filed on 4 October 2000 an application seeking leave to be joined as a defendant and to set aside the 4 September 2000 order. However, that application was not heard until 19 and 20 April 2001, ie outside the 3 years period: appeal judgment paragraph [39]. (e) Austin J set aside the 4 September 2000 order, so there was at that stage no extension order made within the 3 year period. (f) Austin J later held that s 1322(4)(d) could apply to extend time for an application to extend time (6th judgment). This proposition was over-ruled on appeal but ultimately became irrelevant because of the construction given to SCR Part 8 Rule 11(3) by the Chief Justice. (g) Austin J then proceeded to hear the contested application to extend time under s 588FF(3)(b) and ordered an extension outside the 3 year period: Brown v DML No 7 (2002) 41 ACSR 299. Judgment was given on 13 March 2002; well outside the 3 year period. (h) The Chief Justice upheld Austin J's final granting of an extension order. The steps leading to that conclusion may be summarised as follows: · The application was made within the 3 year period. · The joining of BP outside the 3 year period was not an invalidating factor. (There was an argument on the effect of SCR Part 8 Rule 11(3) not relevant here as National Indemnity Company was joined within the 3 year period.) · The proceedings were thus regularly constituted. (The purported use of s 1322(4) though incorrect, was irrelevant.) · The discretion under s 588FF(3)(b) was available to be exercised. The proposition that it was not available to be exercised on the grounds that it needed to be exercised within the 3 year period does not appear to have been advanced. (i) At several points in his judgment the Chief Justice articulated the premise that only the application needs to be made in the 3 year period: see paragraphs [115], [118], [151] and [162]." 16 I also set out the paragraphs of the Chief Justice's judgment to which the last submission refers: "[115] A creditor or other person who has received the benefit of a voidable transaction is at risk of having to surrender it. The time limit in s588FF(3) has the effect that at the end of the period of three years, such a person will know whether s/he remains at risk. In a legislative scheme which seeks to balance conflicting commercial interests of this character, that appears to me to be a perfectly reasonable requirement. Those who have an interest, or who represent those who have an interest, to disturb transactions must indicate, within three years, whether they wish to keep open the option of doing so. In this, as in other areas, legal policy favours certainty. … [118] Section 588FF(3) does not have the effect of requiring all applications to be brought within a short period of time. It does, however, have the effect of requiring those who wish to keep open the option to do so, to determine that they do wish to do so within the three year period and to seek a determinate extension of the period. One thing that must be decided within the three year period is how long the process of deciding whether to pursue voidable transactions will take. Eventually, investigations to overcome deficiencies of information or the pursuit of funding must cease. Parliament has identified a reasonable time for such matters to occur, subject to a single determinate extension of time. … [151] Nothing in s588FF(3)(b) directs attention expressly to a period of this character. The relevant date is the date on which an application for a "longer period" is made to the Court. Such an application must be made within the original period of three years after the relation back day. Nothing under s588FF(3)(b) turns, directly or indirectly, on the date on which proceedings are commenced against a particular person. Accordingly, Pt 8 r11(3) does not impinge upon an application made to the Court under s588FF(3)(b). … [162] On 4 September 2000, Austin J made these orders. The effect of his Honour's second, third, fourth and fifth judgments was that each order was set aside insofar as it affected the Appellant. If, as I have decided, his Honour erred in doing so then, subject to the discretionary considerations that arise with respect to the extension of time under s588FF(3)(b), an application had been made to the Court within the three year period identified in that paragraph." 17 Clearly implicit in these statements by Spigelman CJ is a construction requiring no more than that the application be initiated within the three year period. The clearest indication in that direction is in paragraph [151]. There is also an indication that anyone against whom substantive proceedings may be brought should be made aware, by the end of the three year period, whether the possibility of their being pursued under s.588FF(1) may be kept alive or whether proceedings are unquestionably barred. That is consistent with the notion that it is only the application that needs to materialise during the three year period. 18 While this point was not directly decided in BP Australia Ltd v Brown and neither Mr Oakes' researches nor my own have brought to light any other decision bearing directly upon the matter, I am satisfied that the ambiguity in s.588FF(3)(b) should be resolved in favour of the construction under which an extension order made after the period of three years has expired is effective for the purposes of the section provided that the application upon which the order was made was itself (by filing of the appropriate initiating process) within that period. There is, I think, another sound reason of policy favouring that view, in addition to those referred to by Spigelman CJ. The time at which a court order is made is beyond the control of the ultimately successful applicant. Strenuous opposition and interlocutory skirmishes may mean that there is an interval of months between filing of an application and its disposition by the court. Busy court calendars may give rise to delay. A judge, having heard an application raising difficult questions, may take time to consider the matter and to prepare detailed reasons for judgment. In the absence of some clear indication to the contrary, I do not think that the legislature should be presumed to have intended to place time limits on the resolution and determination (as distinct from unilateral initiation) of court proceedings. Much more consonant with reality is a legislative intention of requiring a liquidator to initiate proceedings within the specified time (or forfeit the s.588FF(1) opportunity), with those proceedings then taking their ordinary course within the court system. 19 In the present case, the originating process was filed on 10 March 2004, a few days before the end of the relevant period of three years. On 12 March 2004 (still within the three year period), leave was given to add the defendant as a party and to amend procedural aspects of the originating process accordingly. In exercise of that leave, the amended originating process upon which the plaintiffs eventually proceeded was filed on 24 March 2004, that is, somewhat more than a week after the end of the three year period. Does the timing of the amendment mean that the plaintiffs did not act, in a timing sense, consistently with s.588FF(3)(b)? 20 In my opinion, this question must be answered in the negative. The only substantial effect of the amendment was that the defendant was formally named as a party, the statement that it was not intended to serve the originating process on any person was replaced by a statement of intention of serving the defendant and the statement as to the consequences of non-appearance at the specified time and place were added. There was no change in the description of the relief sought or, as it were, of the cause of action pleaded involving, of its very nature, an order affecting the defendant. The character of the application remained the same. There was no more than the addition of features facilitating service on the person obviously affected by the originating process in its original form so that that person might be afforded the formal position of a party capable of appearing and joining issue. In accordance with general principle (eg, Australia and New Zealand Banking Group Ltd v Laros (1987) 13 NSWLR 286) as reflected in Part 20 rule 1 of the Supreme Court Rules, the amendment should be regarded as operating from the time at which the originating process in its original form came into effect upon being filed on 10 March 2004. 21 Having regard to the conclusions I have expressed about the construction of s.588FF(3)(b) and the effect of the amendment of the originating process, I am satisfied that the extension order the plaintiffs seek, if made, will be an order "on" an application by the plaintiffs within the relevant three year period. To put this another way, the amended originating process now before the court represents, in terms of the statute, a sound basis for the making of a valid order extending the time within which an application by the plaintiffs under s.588FF(1) for an order against the defendant may be made. Procedural requirements 22 Having disposed of these questions going to jurisdiction, I turn to some procedural matters. Mr Oakes submitted, and I accept, that where, as here, a defendant is to be found in a place which is not a "convention country" as defined in Part 1 rule 8 of the Supreme Court Rules, and there is no appearance by that defendant, the following conditions must be found to be satisfied before the court can address the claim for substantive relief advanced by the plaintiffs: 1. The court must be satisfied as to service in accordance with either Part 10 rule 4 or Part 10 rule 5. 2. Having regard to Part 10 rule 2A, the court must be satisfied that the originating process was accompanied by Form 13A. 3. The court must be satisfied that the case falls within Part 10 rule 1A. 4. Leave to proceed must have been granted under Part 10 rule 2. Service 23 Evidence to which I shall refer presently shows that the defendant is a corporation owing its existence to the laws of Nebraska. There is no suggestion that it has a place of business or carries on business in New South Wales or any other part of Australia or that it is registered under Part 5B.2 of the Corporations Act. 24 Being incorporated in Nebraska, the defendant may be taken, for the purposes of our law, to be domiciled in Nebraska. Due service of the originating process on it in Nebraska in a way satisfying the requirements of the Supreme Court Rules will therefore be effective to enable this court to entertain and dispose of the claims in that originating process, subject to the remaining matters to which I have referred. 25 Part 10 rules 4 and 5 are as follows: "4 Rules as to service generally Subject to this Part and subject to any convention, the rules apply to service outside the State under this Part as they apply to service inside the State. 5 Mode of service A document which is to be served outside Australia need not be served personally on the person required to be served so long as it is served on him in accordance with the law of the country in which service is effected." 26 The effect of Part 10 rule 5 is to make service in a country outside Australia good service provided that it is in accordance with the law of that country. Compliance with Part 10 rule 5 makes it unnecessary to consider whether there has been compliance with Part 10 rule 4. This is the effect of the opening words of the latter provision: BP Exploration Co (Libya) Ltd v Hunt [1980] 1 NSWLR 497 at 501-2. 27 The plaintiffs have introduced into evidence an affidavit of Richard P. Garden Jr, an attorney duly licensed to practise law in the State of Nebraska. Mr Garden deposes to having searched records kept by the Nebraska Secretary of State, ascertained that the defendant is "a Nebraska corporation in good standing" and that the registered agent of the defendant is Walter C. Strain of 4016 Farnam Street, Omaha, Nebraska. Mr Garden also deposes to having sent to Mr Strain by certified mail on 2 April 2003 (with a return receipt requested) the amended originating process, Mr McGrath's supporting affidavit sworn on 9 March 2004 and a Notice to Defendant Served Outside Australia (Form 13A) prescribed by the Supreme Court Rules. Copies of all of these are annexed to Mr Garden's affidavit. On 6 April 2004, Mr Garden received from the post office a return receipt showing delivery of the envelope containing the documents despatched by him by means of certified mail. 28 Mr Garden also gave evidence about the law of Nebraska regarding service of process: "3. I am familiar with the laws of the State of Nebraska governing service of process. Neb. Rev. Stat. s 25-5-5.01 provides that a summons may be served on a defendant by personal service, residential service, or by certified mail. 4. In the event that process is served by certified mail, service must be made by sending the summons to the defendant by certified mail with a return receipt requested showing to whom and where delivered and the date of delivery. Proof of service must be filed with the Court with the signed receipt attached. A true and correct copy of Neb. Rev. Stat. s 25.505.01 which governs service of process by certified mail is attached hereto as Exhibit 1 and is incorporated herein by this reference. 5. Service of process by certified mail may be made by the plaintiff or the plaintiff's attorney, as further set forth in Neb. Rev. Stat. s 25-506.01. A true and correct copy of Neb. Rev. Stat. s 25-506.01 is attached hereto as Exhibit 2 and is incorporated herein by this reference. 6. A corporation may be served by personal, residence, or certified mail service upon any officer, director, managing agent, or registered agent, or by leaving the process at the corporation's registered office with a person employed therein, or by certified mail service to the corporation's registered office, as further set forth in Neb. Rev. Stat. s 25-509.01. A true and correct copy of Neb. Rev. Stat. s 25-509.01 is attacked hereto as Exhibit 3 and is incorporated herein by this reference." 29 Annexed to Mr Garden's affidavit are extracts from the Nebraska Revised States of 1943, chapter 25, article 5, dealing with service of process in civil proceedings. In accordance with s.174 of the Evidence Act 1995, regard may be had to this foreign statutory material for the purpose of determining the statute law of the jurisdiction in question. That material fully bears out the statements in Mr Garden's affidavit as to the Nebraska legislative provisions and their effect. 30 Having regard to the whole of Mr Garden's evidence, I am satisfied that the amended originating process, Mr McGrath's affidavit and Form 13A were served in accordance with Part 10 rule 5 of the Supreme Court Rules. The pre-condition to jurisdiction requiring service has thus been satisfied. 31 That disposes of the first and second procedural requirements referred to at [22] above. Part 10 rule 1A 32 The third of those procedural requirements is that the court be satisfied that the case falls within Part 10 rule 1A. That rule identifies the cases in which originating process may be served outside Australia. Mr Oakes' submission is that the present case is within Part 10 rule 1A(1)(a): "where the proceedings are founded on a cause of action arising in the State." 33 That submission proceeds on the basis that any proceedings eventually instituted by the plaintiffs against the defendant under s.588FF(1) of the Corporations Act will be a proceeding "founded on a cause of action arising in the State" and that these separate and anterior proceedings to extend the time in which s.588FF(1) proceedings may be brought must be seen as being of the same character and description. 34 The first part of this submission is said to be supported by my decision in New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd (2002) 43 ACSR 65. It was there held that s.588FF(1) makes a "cause of action" available to a liquidator upon which the court may make a range of orders against other persons with a view to remedying depletion of assets of the company in liquidation at the hands of the controllers in office before winding up. The acts which, in that case, gave rise to the complaint at the heart of the cause of action were the acts of depletion and, since those acts occurred in New South Wales, the cause of action was regarded as a cause of action arising in the State. That conclusion was seen to be consistent with the decision of Cohen J on earlier analogous legislation in Staff Membranes Pty Ltd v Synflex Industries (International) Inc [1984] 2 NSWLR 116. 35 The evidence adduced by the plaintiffs in support of the present application for extension of time outlines the general nature of the possible s.588FF(1) proceedings against the defendant, as presently seen by the plaintiffs. Mr McGrath's affidavit explains that the object of the proceedings would be to seek to remedy depletion of assets that occurred by reason of the making and performance by several of the HIH companies of a contract with the defendant. The contract is described as a reinsurance contract but that may be something of a misnomer. Under that contract, those plaintiff companies were obliged to pay $55 million to the defendant by instalments over five years in return for a contracted maximum recovery of $50 million or, in a defined event, $80 million. The defined event was the occurrence of two earthquakes in Australia, each causing damage of more than $5 billion and each occurring within the period of five years to which I have referred, but neither occurring in the same year as the other. The HIH Royal Commission received expert opinion that the probability of this composite event happening was in the range of 1.8 to 3.3 per cent. The Royal Commission expressed a view that the contract was negotiated and finalised with the primary purpose of enabling FAI to record a profit to boost its results. 36 The contract in question was made in the course of conducting the operations of the relevant plaintiff companies in New South Wales where the centre of their activities was located. In the same way as in the New Cap Reinsurance case (above), any s.588FF(1) proceedings in which it was sought to redress the effects of asset depletion through that contract would, in my opinion, be proceedings "founded on a cause of action arising in the State". 37 But the question before me is, of course, a different question, namely, whether the present proceedings in which an order for the extension of time under s.588FF(3)(b) is sought are "proceedings founded on a cause of action arising in the State". These proceedings are a preliminary to any s.588FF(1) proceedings that the plaintiffs may in due course choose to pursue. In my opinion - particularly because a s.588FF(3)(b) order must, of its nature, have in contemplation a particular proceeding (or a proceeding within definable boundaries) under s.588FF(1) - it is appropriate to regard the subject matter of that contemplated s.588FF(1) proceedings as marking out the ground covered also by s.588FF(3)(b) proceedings. Putting this another way, the "cause of action" as to extension of time under s.588FF(3)(b) should, in my view, be taken to have the same territorial quality as the "cause of action" that the extension would permit to be pursued by way of substantive claim under s.588FF(1). 38 On that basis, I am satisfied that the claim for an order extending time under s.588F(3)(b) is, in this case, "a cause of action arising in the State" as referred to in Part 10 rule 1A(1)(a). Leave to proceed 39 The fourth condition referred to in paragraph [22] above is that leave to proceed has been granted under Part 10 rule 2. The interlocutory process seeks that leave. The condition will be satisfied only if the claim in the interlocutory process is determined favourably to the plaintiffs. By virtue of Part 10 rule 2(2), the interlocutory process need not be served. 40 In Agar v Hyde (2000) 201 CLR 552 at 576, Gaudron, McHugh, Gummow and Hayne JJ held that leave is to be given or withheld under this provision by reference to the cogency of the substantive case. The test to be applied is the same "as is applied in an application for summary judgment by a defendant served locally". It follows that leave should be granted if the plaintiffs show that there is a triable issue. 41 On that, little needs to be said. The potential viability of any s.588FF(1) claim eventually pursued against the defendant sufficiently emerges from the brief description of the relevant transaction at paragraph [35] above, supplemented by the observations of the HIH Royal Commission. The reasons why the liquidators have not so far been able to pursue that possibility in full are set out in Mr McGrath's affidavit. They correspond with the reasons advanced in support of the application I granted in McGrath re HIH Insurance Ltd (2004) 22 ACLC 449 (see paragraph [14] thereof). I am satisfied that the plaintiffs have shown a triable issue in relation to s.588FF(3)(b) extension and that it is therefore appropriate to grant leave to proceed under Part 10 rule 2. Conclusion 42 There is then the question whether I should deal immediately with the s.588FF(3)(b) claim itself, without having heard from the defendant. 43 I have before me affidavits of Mr Coffey of Blake Dawson Waldron, the plaintiffs' solicitors, describing contacts and correspondence he has had with Mr Snover, an officer of the defendant. Most of that contact occurred before service of the originating process, supporting affidavit and Form 13A. I leave that to one side. More pertinent is what happened after service. On 17 April 2004, Mr Snover sent to Mr Coffey an email as follows: "We have received your notice to National Indemnity Company ('NICO') concerning an application and haring to extend by twelve months the period in which the Liquidator may file applications against NICO in relation to the liquidation proceedings. We are concerned that, given the period of three years since HIH went into liquidation with no indication from anyone representing HIH that there was any basis for a claim against NICO, your request that NICO now consent to an extension is intended solely to create some pressure on NICO to offer some payment and not to preserve any truly viable claim. We are convinced that NICO's actions in this matter were totally appropriate and proper. Balancing these factors, we have determined not to oppose your application, as we do not wish any opposition to be perceived incorrectly as an effort by us to conceal or avoid scrutiny over our transaction with HIH. Our non-opposition is conditioned on the Liquidator's affirmative agreement that this act of cooperation will not be used as a basis for claiming that the Australian courts have any jurisdiction over NICO, as we do no business in Australia and there is no basis for jurisdiction over NICO in Australia. We remain prepared, as we have indicated in the past, to discuss with the Liquidator the NICO contract or issues relating to it at your convenience. Thank you." 44 Mr Coffey replied by email to Mr Snover on 23 April 2004 as follows: "I refer to my recent e-mail to you regarding your message below. I have now received instructions from our clients to accept your non-objection to our application to extend time, on the basis that we will not seek to rely on that offer in future as any submission to the jurisdiction of the Australian Courts on the part of National Indemnity Company. Please could you confirm whether you have instructed any legal representatives in Australia to attend at Court and confirm your instructions at the return of this matter before Justice Barrett at 10.00am on Monday 3 May 2004. I look forward to hearing from you in this regard as soon as convenient." 45 I do not have any evidence of reply by Mr Snover to Mr Coffey. 46 Having decided to grant leave to proceed, I would in some cases be reluctant to go to the next stage of determining the substantive application without giving the defendant a further opportunity to oppose the making of the order sought. In this case, however, Mr Snover's message to Mr Coffey - or more precisely, the message conveyed, in that way, by the defendant as a corporation to the liquidators - makes it clear that the defendant has decided not to oppose the application for extension of time under s.588FF(3)(b) but, in so doing, makes no concession whatsoever in relation to the foreshadowed s.588FF(1) claim. The plaintiffs, moreover, have accepted that the indication of non-opposition in relation to s.588FF(3)(b) extension will not be relied upon as any concession inimical to the position of the defendant in the longer term. 47 In these circumstances, I am prepared to make the extension order now, particularly as I consider factors I have already mentioned sufficient to satisfy the threefold test referred to by Austin J in Green v Chiswell Furniture Pty Ltd [1999] NSWSC 608. That test directs attention to, first, the explanation for delay in bringing the s.588FF(1) proceedings, second, a preliminary examination of merits to see that the foreshadowed s.588FF(1) claim is not so devoid of substance that it would be unfair to expose the potential defendant to it and, third, questions of prejudice to that party. I have already referred to explanation for delay by way of evidence corresponding with that discussed in McGrath re HIH Insurance Ltd (2004) 22 ACLC 449. The preliminary assessment of merits has been made in the context of the application for leave to proceed. The matter of possible prejudice is adequately laid to rest by the communication between Mr Coffey and Mr Snover. My conclusions on all three matters favour the grant of the extension of time sought. 48 The orders of the court are as follows: 1. Noting that the plaintiffs have duly served on the defendant outside Australia the amended originating process filed on 24 March 2004 together with Form 13A and the affidavit of Anthony Gregory McGrath sworn 10 March 2004 and filed herein, grant to the first plaintiffs leave under Part 10 rule 2(1) to proceed against the defendant under that amended originating process. 2. Order pursuant to s.588FF(3)(b) of the Corporations Act 2001 that any application under s.588FF(1) by the liquidator or liquidators of any one or more of the second to nineteenth plaintiffs in respect of a transaction or transactions between any one or more of the second to nineteenth plaintiffs and the defendant in relation to circumstances involving the defendant and generally described in the affidavit of Anthony Gregory McGrath sworn 10 March 2004 and filed herein may be made within the period ending on 10 March 2005. **********
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McGrath & Ors
National Indemnity Company
CITATION : McGrath & Ors v National Indemnity Company [2004] NSWSC 391 HEARING DATE(S) : 10/03/04, 12/03/04, 03/05/04, 04/05/04 JUDGMENT DATE : 11 May 2004
(2000) 201 CLR 552
(1987) 13 NSWLR 286
(1944) 68 CLR 571
Leave was granted under Part 10 rule 2(1) to proceed against National Indemnity Company. Under s 588FF(3)(b), the period for a liquidator of one or more of the second to nineteenth plaintiffs to make an application under s 588FF(1) concerning the described transaction or transactions with the defendant was extended to 10 March 2005: [48].