NUCLEAR UTILITY TECHNOLOGY & ENVIRONMENTAL CORPORATION INC v AUSTRALIAN... [2008] NSWSC 841 | Case summary

JUDGMENT HER HONOUR: These are proceedings for defamation arising out of the broadcast of two stories on ABC Television on its programme "The 7.30 Report" on 21 and 22 March 2005. The first plaintiff is Nuclear Utility Technology & Environmental Corporation Inc. The second and third plaintiffs are two of its directors. The first plaintiff was incorporated in the state of Delaware on 15 October 2001. However, by operation of Delaware corporation law, its charter became void on 1 March 2005 for non-payment of franchise taxes. The primary issue in these proceedings is the effect of that event. The defendant contends that the first plaintiff has no standing to bring the proceedings. The first plaintiff contends that Delaware law continues its corporate status and power to sue. The two matters complained of were published before 1 January 2006. The proceedings are accordingly governed by the Defamation Act 1974 which has since been repealed. A jury trial pursuant to section 7A of that Act was listed for hearing on 24 October 2007 and commenced before Nicholas J and a jury but had to be vacated due to the unresolved issue of the company's standing. The proceedings were again listed for section 7A trial for five days to - 12 - commence on Monday of this week, 28 April 2008. It is not clear, from the material before me, why it was so listed when the question of the first plaintiff's standing had not been resolved. In any event, in February of this year, Simpson J directed that the hearing dates be used not for a section 7A trial but to determine a number of preliminary issues, including the question of the first plaintiff's standing as a separate question. When the proceedings came before me for hearing on Monday, the first plaintiff sought an adjournment on the basis that the defendant had threatened to seek personal costs orders against the plaintiffs' solicitor, who was then separately represented. I refused that application. The first plaintiff's solicitor then sought leave to file a Notice of Ceasing to Act. I also refused that application. My reasons for both decisions were given on that day. I proceeded to hear the three matters listed for separate question seriatim. They were: first, the question of the first plaintiff's standing to bring the proceedings; secondly, the question whether the first plaintiff, assuming it had standing, could nonetheless bring itself within section 8A of the Defamation Act 1974; and, thirdly, an application in the event that the first two applications were determined in favour of the first plaintiff for security for costs to be paid by it, presumably on the ground that it is a foreign corporation. The evidence and submissions as to the first of those three questions concluded on Tuesday afternoon. I then embarked on a hearing of the issue as to whether the first plaintiff comes within section 8A. Yesterday morning the parties sought time to engage in discussions. Those discussions apparently not resolving in any agreement, the first plaintiff then sought leave to discontinue pursuant to rule 12.1 of the Uniform Civil Procedure Rules 2005. Mr Dawson, who appeared for the defendant, opposed my granting such leave on the basis that the discontinuance would cause an injustice to the defendant. The injustice identified was that if I did not proceed to deliver a judgment in respect of the question of the first plaintiff's standing and the proceedings then went over for argument as to the various costs issues, including the defendant's application for a personal costs order against the first plaintiff's solicitor, the defendant may be placed in a position where it would have to reargue or relitigate some of the issues the subject of the first two days' hearing this week. It was accordingly necessary for the court to balance the interests of the first plaintiff and its solicitor, Mr Bayliss, on the one hand, and those of the defendant on the other. I am sympathetic to the interest of the first plaintiff and Mr Bayliss in seeking to stem the flow of further costs which might be incurred this week. On the other hand, it seemed to me that the defendant was entitled to seek to bring the hearing of the preliminary question as to the standing of the first defendant to completion to avoid relitigation of the foreign law issue in a different context and, arguably, with a different onus of proof. Balancing those interests, I decided yesterday to stop hearing the further issues identified for separate hearing and to deliver a judgment on the standing issue. I indicated yesterday that, after delivering the judgment, I would invite the first plaintiff to renew its application for leave to discontinue at that point, if it remained appropriate, and the first plaintiff saw fit to do so. That seemed to me to be the fairest way to proceed in all the circumstances. As indicated, the proceedings are governed by the Defamation Act 1974. Pursuant to section 8A of that Act, a corporation has no cause of action at all unless it can bring itself within one of the exceptions identified in that section. I take it to be an implicit premise of that provision that a party that seeks to bring itself within one of the exceptions must otherwise have the standing of a corporation, that is, it must be duly incorporated and have power to sue. That raises a question of fact as to the effect of Delaware law. On that issue, the defendant relied on the evidence of Professor Hamermesh who was called as an expert in Delaware corporations law. Mr Dibb, who appeared for the first plaintiff, objected to the admission of some of the evidence of Professor Hamermesh. At the time that objection was made, owing to the applications referred to above, the court had already lost part of the hearing time allocated for taking the evidence of Professor Hamermesh by video-link, and the court was informed that the professor was unavailable on the following days, so it was expedient to hear his evidence and preserve Mr Dibb's right to object to it after the event. The gist of Professor Hamermesh's evidence was that the first plaintiff did not have power to commence these proceedings on 16 March 2006, or to continue and maintain the proceedings, because, having had its charter voided, its power to do so is inoperative and the provision that allows dissolved corporations to prosecute litigation for three years after their dissolution does not apply to the first plaintiff. The reasoning of Professor Hamermesh was based principally on the provisions of section 510 of the corporation franchise tax legislation of Delaware. At the relevant time, that provision provided: "If any corporation, accepting the Constitution of this State and coming under Chapter 1 of this title, or any corporation which has heretofore filed or may hereafter file a certificate of incorporation under said chapter, neglects or refuses for 1 year to pay the State any franchise tax or taxes, which has or have been, or shall be assessed against it, or which it is required to pay under this chapter, or shall neglect or refuse to file a complete annual franchise tax report, the charter of the corporation shall be void, and all powers conferred by law upon the corporation are declared inoperative, unless the Secretary of State, for good cause shown, shall have given further time for payment of the tax or taxes or the completion of an annual franchise tax report, in which case a certificate thereof shall be filed in the office of the Secretary of State stating the reason therefor. On or before the last day of November in each year, the Secretary of State shall notify each corporation which has neglected or refused to pay the franchise tax or taxes assessed against it or becoming due during the year that the charter of the corporation shall become void unless such taxes are paid on or before March 1 of the following year. (21 Del. Laws, c. 166, s 10; 22 Del. Laws, c. 15, s 9; 27 Del. Laws, c. 21, s 2; Code 1915, s 111; 36 Del. Laws, c. 6, s 10; Code 1935, s 105; 44 Del. Laws, c. 3, s 2; 8 Del. C. 1953, s 510; 55 Del. Laws, c. 90, s 1; 57 Del. Laws, c. 712, ss 3-5; 58 Del. Laws, c. 450, s 6; 71 Del. Laws, c. 339, s 104.)"

Professor Hamermesh noted that his view is "reflected" in a decision of the Supreme Court of Delaware in Transpolymer Industries v Chapel Main Corporation decided on 18 September 1990. That is a single page judgment which does not expressly reason in the way in which Professor Hamermesh did. However, in Transpolymer, the court stated in paragraph 2: "According to the records of the Department of State, Division of Corporations, Transpolymer Industries, Inc, became 'inactive' and was 'voided' on March 1, 1989 for failure to pay the required franchise taxes for the years 1987, 1988, and 1989. As a consequence, the charter or certification of incorporation of the corporation has, pursuant to 8 Del. clause 510, become void and revoked and all powers heretofore conferred upon the corporation have become 'inoperative'. The corporation has thereby ceased to exist and has lost any standing to appeal and be heard, even if represented by counsel." Professor Hamermesh acknowledged that there are authorities that suggest that section 278 does apply to corporations whose charters have become void by operation of section 510. However, he expressed the opinion that the better view is that section 278 does not apply, and it was in respect of that opinion that he noted his view is reflected in the decision in Transpolymer. As to the use that I should make of the report of Professor Hamermesh, both parties relied on the decision of Einstein J in Idoport v National Australia Bank (2000) 50 NSWLR 640. Mr Dibb relied on paragraph 47 of that decision and, in particular, on the proposition that, no matter how cogent or convincing the reasoning of an eminent expert, and no matter how plausible their conclusion, the court must form and act upon its own view as to the effect of the foreign law. Mr Dawson noted that paragraph 48 of the same judgment indicates that the evidence of an expert is nonetheless admissible in the proceedings, and may include evidence as to the meaning and effect to be given to foreign statutory and common law. The parts of Professor Hamermesh's report objected to by Mr Dibb were the passage from the third paragraph on page 3 in response to question 1; and the responses to questions 4 and 5. The first part objected to dealt with the question whether proceedings for defamation are "necessary to bring the former business affairs of the corporation to a conclusion". That is an issue on which no question peculiar to Delaware law arises. It is a plain question of the proper consideration of the nature of the tort of defamation. In light of the view I have reached, it is not necessary for me to decide whether Professor Hamermesh's view on that issue is properly admissible because I have placed no reliance on it. I acceded to Mr Dibb's objection to the responses to questions 4 and 5 of Professor Hamermesh's report, which dealt with a question of the legality of the conduct of the directors of the first plaintiff. That question does not arise for consideration by me on this application. Mr Dibb said that the law of Delaware is an issue of fact for me. He frankly and properly acknowledged that if I find that section 278 does not apply to a company that falls within section 510, the first plaintiff does not have power to bring or maintain these proceedings. He acknowledged that the matter for determination comes down to my view as to whether the effect of Delaware law is that section 278 applies to such a corporation. I have come to the conclusion that section 278 cannot apply to a corporation whose charter is void by operation of section 510. My principal basis for so concluding is that under Delaware corporations law, as I construe the relevant provisions, the very circumstance that attracts the operation of section 510, namely non-payment of franchise tax, is required, by section 277, to be removed before the status contemplated by section 278, that is dissolution, can be attained. In other words, on the proper construction of all of the relevant provisions, it seems to me that the application of section 510 and the application of section 278 are mutually exclusive in the circumstances of this case. That is because section 277 of the general corporation law provides that "no corporation shall be dissolved or merged under this chapter until all franchise taxes due to or assessable by the State including all franchise taxes due or which would be due or assessable for the entire calendar month during which the dissolution or merger becomes effective have been paid by the corporation". Plainly, the scheme of the legislation intends to provide that a company that fails to pay its franchise taxes may not go into dissolution until the outstanding taxes are paid. I have also considered section 312 of the general corporation law which provides a mechanism by which a company whose charter has become void by operation of section 510 may effectively revive itself on the precondition that it has paid outstanding taxes. A further consideration militating in favour of the conclusion I have reached is that section 510 expressly provides that, in respect of a corporation to which it applies, "all powers conferred by law upon the corporation are declared inoperative". The powers conferred by the law of Delaware on a Delaware corporation are set out in section 122 of the general corporation law. They include the power of a corporation to wind-up and dissolve itself in the manner provided in that chapter. If a company to which section 510 applies has no operative powers and does not have the power to dissolve itself, I do not see how it can ever properly be described as being "dissolved" within the meaning of section 278. On its plain meaning, section 510 also suspends the operation of the power to sue by reference to the same reasoning. Mr Dibb said, in respect of section 277, that "Delaware law doesn't quite make sense". Certainly I accept that there are some anomalies in the operation of the legislation contended for by Mr Dawson. Nonetheless, having regard only to the provisions themselves, I am satisfied that the statutory scheme is better achieved if section 278 is construed as not applying to a section 510 company. Mr Dibb sought to sustain his contention by a careful and detailed analysis of authorities which he submitted demonstrate that the weight of Delaware authority contradicts the proposition contended for by Professor Hamermesh. He referred first to a decision of the Superior Court of Delaware in Wax v Riverview Cemetery Co decided on 21 January 1942. However, as submitted by Mr Dawson, that decision does not say that section 278 or its earlier equivalent applies to a void corporation. It is authority, apparently, for the proposition that a corporation which has been proclaimed for non-payment of taxes is: "not completely dead. It is in a state of coma from which it can easily be resuscitated." Wax noted that such a company could still serve as a repository of title and as an obligor of a debt. That is not the same as saying that it maintains any power to sue. Wax in turn refers to some older authorities which, as submitted by Mr Dibb, appear to assume a coincidence between the concept of a void corporation under section 510 or its predecessors, and a dissolved corporation under section 278 or its predecessors. However, as submitted by Mr Dawson, there was no evidence before me as to the precise terms of the provisions on which those cases were decided. In any event, I accept, as submitted by Mr Dawson, that the decision of the highest authority in assisting me to construe the relevant legislation is the decision in Transpolymer. Mr Dibb also relied on an earlier decision of the Supreme Court of Delaware in Frederic G Krapf & Son v Gordon decided on 27 May 1968. The point of distinction of that decision is that the company there under consideration had, at the time of the hearing, become reinstated by the mechanism now provided for under section 312. Mr Dawson submitted that, insofar as the decision purports to determine that section 278 applies in such circumstances, that passage of the judgment is entirely irrelevant to the result and that the case can be wholly explained by reference to sections 510, 511 and 312. He submitted that it says nothing authoritative about section 278 or its application to a voided corporation under section 510. I accept that submission. In any event, Krapf was decided before Transpolymer which, notwithstanding the brevity of its reasoning, seems to me to be authoritative on the point. Finally, Mr Dibb relied on two decisions since Transpolymer of Vice Chancellor Parsons in the Court of Chancery. The first was the decision of First State Staffing v Montgomery Mutual Insurance Company decided on 6 September 2005. In that decision, Vice Chancellor Parsons noted that the defendant relied on the decision in Transpolymer for the proposition that First State's inoperative and void status deprived it of standing. Vice Chancellor Parsons said: "In Transpolymer, the Supreme Court held in a very brief unpublished opinion that a void corporation attempting to appear pro se did not have standing to pursue an appeal. It is well-established that a corporation cannot appear pro se, thus the brief reference in Transpolymer to a void corporation lacking standing could be considered dicta. In any event, I conclude that in the circumstances of this case Transpolymer does not require a departure from the traditional rule that a dissolved Delaware corporation has the power to close its affairs but not to carry on the business for which it was established." Mr Dibb cross-examined Professor Hamermesh about the apparent inconsistency between the decision of Vice Chancellor Parsons in First State and the decision in Transpolymer . Professor Hamermesh's evidence in respect of that decision was that if he (Professor Hamermesh) thought that Vice Chancellor Parsons was correct he would not have expressed the opinion he expresses in his report. Whilst I accept that the question is ultimately a matter on which I must form my own opinion, the reasoning of Professor Hamermesh on that issue impressed me as being cogent. As contemplated in Idoport , the cross-examination of Professor Hamermesh allowed me, in my view, to better perceive the foreign law issue and its likely solution and assisted me to come to the firm view to which I have come in respect of the application of section 278 to a corporation void under section 510. Mr Dibb yesterday handed up a further decision, only recently discovered by him, which, unfortunately for the first plaintiff, appears to support the construction contended for by the defendant. It was a decision of the Supreme Court of Delaware in Belfint, Lyons & Shuman v Pevar decided on 17 September 2004. In that decision, the Court, in a discussion as to Belfint's reliance on the earlier decision in Transpolymer , described the issue in Transpolymer as being whether an inactive corporation had standing to appear in court notwithstanding representation by counsel. The decision in Belfint confirms that Transpolymer does stand as authority for the proposition articulated in the opinion of Professor Hamermesh. My review of the authorities relied on by Mr Dibb does not cause me to resile from the view that the effect of the law of Delaware is that a company to which section 510 applies has no standing as a corporation and no power to sue. I have not referred to every decision relied on by Mr Dibb and it is not necessary for me to do so. I am satisfied that section 278 does not apply to such a company. On the basis of that finding, I am satisfied that the first plaintiff has no standing to bring these proceedings. In those circumstances, it is not necessary for me to consider the further issue whether the first plaintiff can pursue an action for a defamation which occurred after the date on which Mr Dibb contends it was dissolved. However, I note that the purpose of section 278 appears to be to permit a company, in the process of dissolving, to bring in the assets which existed at the time of its dissolution. It is doubtful whether a cause of action which accrued after the date of dissolution falls within that description. In any event, there is no need for me to reach a conclusion on that issue. I will hear the parties as to the orders which I should now make. The orders I make now are: 1. In accordance with order 2 of the Notice of Motion filed in court on 24 October 2007 by the defendant, that the proceedings brought by the first plaintiff be dismissed. 2. I stand over to 16 May 2008 for directions the following applications: (i). The defendant's Notice of Motion filed in court on 24 October 2007 in respect of orders 3 and 4 in the motion. (ii). The defendant's Notice of Motion filed on 18 March 2008. (iii). The Notice of Motion filed in court on 28 April 2008 on behalf of the solicitor for the plaintiffs, Mr Bayliss, and I simply note that in respect of the present listing of the proceedings before Nicholas J in the Defamation List commencing 19 May 2008, I will contact the parties. All other questions of costs are reserved and may also be agitated for directions at the directions hearing on 16 May 2008.

NUCLEAR UTILITY TECHNOLOGY & ENVIRONMENTAL CORPORATION INC v AUSTRALIAN BROADCASTING CORPORATION

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