Oak Dedicated Ltd v Australian Securities and Investments Commission [2009] VSC 665

1. Oak is the Defendant in the other proceeding which was brought by the HIH parties as Plaintiffs.
2. The HIH parties claim relief against Oak in relation to policies of insurance held by Bigridge with a number of Lloyd's underwriters for whom Oak is the nominee Defendant. Among the policies was one for the period of 1 July 1997 to 30 June 1998. In its defence, Oak denies liability to the HIH parties on the ground among others that a term of the 1997/1998 Lloyd's policy operated to exclude cover because the proposal submitted by Bigridge disclosed circumstances which were likely to give rise to a claim against Mr Andrew Young. Mr Young was a director of Bigridge who was an insured under an outgoing principals extension. Alternatively, Oak says that the 1997 proposal did not disclose the circumstances which were likely to give rise to a claim against Mr Young and should be rectified.
3. Oak has counterclaimed in the other proceeding against the HIH parties for rectification of the 1997 proposal. That counterclaim is set out in paragraphs 47-53 of Oak's amended defence and counterclaim dated 7 May 2009. Oak says that in February 1997, Bigridge notified Resource Underwriting Pacific Pty Ltd ("Resource") which was the underwriting agent of the underwriters at Lloyd's, of a claim by a Cameron Toomey who was injured when he fell over a balustrade at the Balmoral Apartments at Hawthorn.
4. Mr Toomey commenced proceedings against Bigridge for damages in negligence in the performance of its duties in relation to the construction of the Balmoral Apartments in January 1997. In the 1997 proposal, which was submitted to Resource in order to obtain cover under the 1997/1998 Lloyd's policy, Bigridge answered, contrary to the facts which were then known to it, "no" in response to a question whether any claims had ever been made against Bigridge. It answered "yes" (but gave no particulars) in response to a question whether any of the partners, principals or directors of Bigridge were aware of any circumstances which may result in any claim against Bigridge.
5. Oak says that in July 1997, Resource accepted the 1997 proposal and issued the 1997/1998 Lloyd's policy under a mutual mistake of fact. It says that any rights of the HIH parties in relation to that policy are subject to the disclosure by Bigridge to Resource of Mr Toomey's claim. Oak seeks an order on the counterclaim that the 1997/1998 Lloyd's policy proposal be rectified to reflect that disclosure together with a declaration that the rights of Oak under that policy are subject to the proposal as so rectified.
6. Oak says that it is entitled to an order that the registration of Bigridge be reinstated in order that it can proceed with the claim for rectification. It says that this cannot occur until Bigridge is restored to the register because of the principle that a court will not order the rectification of a contract in the absence of the parties to the contract[1].

The HIH parties application for leave to be heard

1. The HIH parties seek leave pursuant to rule 2.13 of the Supreme Court (Corporations) Rules 2003 to appear as contradictors to Oak's application for the reinstatement of registration of Bigridge and to oppose the application.
2. Rule 2.13(1) provides:

"The Court may grant leave to any person who is, or who claims to be:

to be heard in a proceeding without becoming a party to the proceeding.

1. The HIH parties say that their interests will be affected and prejudiced if the orders that Oak seeks in its application are made and, as such, they are each an "interested person" within the meaning of the rule.
2. In Pilarinos &Ors v ASIC [2006] VSC 301, Gillard J considered an application to reinstate a company pursuant to section 601AH of the Act. One of the questions that was considered was whether the State of Victoria should be granted leave as an "interested person" to be heard on the application. The State of Victoria wished to argue that the applicants for reinstatement of registration were not persons aggrieved within the meaning of section 601AH (2) of the Act and that if the company was reinstated and brought a proceeding against the State of Victoria, that the proceeding must fail. Accordingly, the state of Victoria argued that would be futile to make the order. His Honour stated at [22]:

"The latter question involves a consideration of the facts and the law, in circumstances where the evidence is adduced by affidavit, has not been tested and, what is more, relates to events that go back over at least 40 years and probably longer. As a general proposition, it would be inappropriate for this Court, in an application such as the present, to go into any factual matters which may be the subject of dispute. If the company is reinstated and brings a proceeding against the State of Victoria, then the parties to that litigation will have available to them the full armoury of the law to enable them to ascertain all relevant facts, to test the other party's case and to make submissions on the law after having a full opportunity of presenting their cases."

"One of the contentions of the State of Victoria is that it is entitled to appear on this application, and to establish that if a proceeding was brought against it, the proceeding would be doomed to fail. The proper place for the ventilation of the dispute between the parties and its determination is not on an application for reinstatement."

"If it is necessary to require notice to be given to the person who could be held ultimately responsible, a practice will develop whereby the cause of action may be the subject of a disputed application for reinstatement, resulting in a trial on affidavit of the merits. This, in my view, is the course that should be avoided."

"I think it would be appropriate, also, as a general guideline, that if a judge formed the view on the material that it was proposed to sue the company, and the cause of action was hopeless, it may be appropriate to require notice to be given to the potential litigant. Examples of this would be where there is a clear defence, such as a limitation defence or some statutory defence. However, it would only be in the clearest of clear cases that that should happen. I reiterate that the proper venue for the cause of action to be heard and determined is a court or statutory tribunal. The parties will then have every opportunity to fight the case in a proper setting, to have the advantage of discovery, to test the other party's case, and to properly present their cases.

[30] Because the State had been granted leave to be heard before the Master, and because it was before the Court on the appeal, I reluctantly granted it leave to appear. Whilst I permitted the State to put submissions on the question of the foreshadowed cause of action, the amount of material and the many sets of written submissions on the topic demonstrated that the State did not have an unanswerable defence to the proceeding. Consistent with what I have stated, the State of Victoria should not have been granted leave to argue the point . . .If the company is reinstated and sues the State of Victoria, the latter will have every opportunity to contest the proceeding in a proper forum. It is at that point that the State's rights and duties are to be determined."

1. Gillard J's approach in this regard was approved of by the Court of Appeal in AMP General Insurance Ltd v Victorian Workcover Authority and Others [2006] VSCA 236; (2006) 15 VR 175 at [42] and following. At [43], Maxwell P and Neave AJ stated:

"As the judge below noted, no argument was advanced by AMP that the authority's claim against the company was doomed to fail, such that reinstatement was futile. Rather, its argument was that the lapse of time meant that it was inevitable that no fair trial could be had, such that it could not possibly be "just" to reinstate the company. . .

[45] In our view, it will almost always be the appropriate course for the question of prejudice to a party to a proceeding to be assessed by the judge (or master) who has the management of that proceeding. Moreover, that assessment can really only be made after joinder of issue in the proceeding, at which point the court can ascertain precisely what is in contest between the parties, who the witnesses will be, and how much reliance is to be placed on oral evidence on the one hand and documentary evidence on the other.

[46] The forum of an application for reinstatement of a company is singularly inappropriate for such an investigation. The order for reinstatement is, in effect, purely administrative, albeit made in the exercise of a discretionary power. In all but the rare case to which we are referred, it is not for the court dealing with the reinstatement question to deal with, and weigh up, the various considerations bearing upon abuse of process/want of prosecution. As already noted, that assessment involves examining not only the risk of prejudice to the defendant but the plaintiff's explanation for the delay."

1. In order to ascertain whether the HIH parties should be given leave, it is to some extent necessary to embark on a preliminary assessment of the substantive issue, that is, whether reinstatement would be futile or pointless. In Chalker v Clark & ASIC & Ors [2008] VSCA 92, Maxwell P, Dodds-Streeton JA and Osborn AJA at [33] cited with approval the observation of Whelan J, at first instance, who observed:

"It is often not appropriate for prospective Defendants to a proceeding proposed to be pursued after reinstatement of a deregistered company to be permitted to make submissions as to the merits of the proposed action on the reinstatement application. In some circumstances, it is appropriate to entertain such submissions. For example, where it can be demonstrated that the reinstatement is futile, as the proposed cause of action is clearly statute barred" (Whelan J then referred to the decisions of Pilarinos & Ors v ASIC and AMP v Victorian Workcover Authority referred to above).

1. In the Chalker decision, it was clear from the reasoning of the Court of Appeal that there would have been no point at all for an order for reinstatement to be made as the claims for which reinstatement was sought were barred by limitation and faced other insurmountable legal impediments. Chalker was a clear case where reinstatement was futile. For that reason, the Court of Appeal regarded the granting of leave to the interested parties in that case to be appropriate and, indeed, awarded them their costs on the appeal. In my view, that is not this case.
2. The HIH parties in their submissions made certain criticisms of the amended defence and counter claim of 7 May 2009 in which the rectification claim is articulated. They point to certain deficiencies and what they say are insurmountable difficulties in successfully bringing the claim for rectification. These criticisms are articulated at some length but I note that there has not been to date any application to strike out those paragraphs of the counter claim by way of summary application.
3. It might well be that ultimately Oak does not succeed in its claim for rectification, because of such alleged deficiencies or for other reasons, but the claim for rectification is not, in my view, so clearly futile such that the HIH parties have a "unanswerable defence" to it (see Pilarinos at [30]).
4. This is not a case akin to Chalker where the application is being used as a mechanism to avoid a limitations defence, as occurred in that case_._ The HIH parties would have it that the purpose of Oak's application is to avoid the effect of the Insurance Contracts Act 1984 (Cth) which would otherwise operate for the benefit of the insured. The HIH parties' arguments in this regard are set out at paragraphs 29 to 34 of Mr Strahan's submissions of 7 August 2009. I disagree with that submission. The ability to be afforded the benefit of the provisions of the Insurance Contracts Act are hardly akin to obtaining the benefit of avoiding the limitations defence that occurred in Chalker.
5. The HIH parties will have an opportunity in the HIH proceeding to attack the claim for restitution by Oak either by summary procedure prior to trial or at trial. As the authorities that I have referred to above state, an application for reinstatement is not the appropriate venue for such an attack. I refuse the HIH parties leave to intervene.

"(2) The Court may make an order that ASIC reinstate the registration of a company if:

(a) An application for reinstatement is made to the Court by:

(b) The Court is satisfied that it is just that the company's registration be reinstated."

1. Thus, in order for an applicant to make out a case for reinstatement, two matters must be proved, namely:

(i) that the application for reinstatement is made by a person aggrieved by the deregistration;

(ii) that it is just that the company's registration be reinstated.[2]

1. As I have observed above, ASIC, which would generally be regarded as the primary contradictor to these applications, does not oppose the application (presumably on the basis that the usual undertakings were given).
2. In my view, Oak is clearly a person aggrieved by the deregistration of Bigridge because the relief, by way of rectification, that Oak seeks cannot be granted whilst Bigridge is deregistered.[3]
3. The remaining question is whether it is just that the company be reinstated. The issue was addressed by the Court of Appeal of the Supreme Court of Victoria in AMP General Insurance Limited v Victorian Workcover Authority [2006] VSCA 236; (2006) 15 VR 175 at [27]:

"In our view, the decision toward a reinstatement is properly characterised as a discretionary decision of the kind described in Norbis v Norbis. The decision has all of the features there referred to. The decision depends on the application of a very general standard - what is "just". The standard is so general, indeed, that it might be thought to do no more than make explicit the duty implicitly imposed on every decision-maker - to consider and weigh, fairly and rationally, all the relevant considerations. What is "just" is a value judgment, and there is room for reasonable differences of opinion, no particular opinion being uniquely right."

1. In Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 34 ACSR 232, Austin J observed:

"[27] The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement...

[28] These matters are only factors to be weighed in the exercise of the court's discretion. They are not limits on the court's power. Here, the reinstatement is likely to lead to the company being joined in proceedings in which the ACCC will seek orders for pecuniary penalties against it. The company may therefore be prejudiced. The Court may nevertheless conclude that it is just that the company's registration be reinstated, having regard (for example) to the strong public interest which is involved. It is appropriate for the court to take into account questions of public interest in exercising its discretion under section 601AH: Re Immunosearch Pty Ltd (1990) 2 ACSR 455."

1. I consider that, on an application of the principles set out above, it is just that a reinstatement order should be made. The company, which had been placed into liquidation, was ultimately dissolved at the end of the insolvency administration. If it is reinstated, it will be a necessary (but probably not an active) party to a claim by Oak for rectification. It is not required to be actively involved in the proceeding but its existence is necessary in order that Oak can agitate its claim for rectification. If reinstated, it will not trade and it will be under the control of its liquidator, Mr Mentha.
2. As to whether any person is likely to be prejudiced by the reinstatement, I do not consider that the HIH parties suffer prejudice in the relevant sense as an incidence of the making of such an order. As I have observed, the effect of reinstatement is not of the kind which would have attended an order for reinstatement had it been made in the Chalker decision. The HIH parties will have the opportunity to agitate their case about the deficiencies of the rectification claim in the HIH proceeding.
3. For these reasons, I will order that ASIC reinstate the registration of Bigridge.

The application for leave to proceed under section 471B of the Act

1. In my view, much the same considerations apply in assessing whether leave to proceed should be granted under s471B of the Act.
2. In Tyrrell, Austin J observed at [30]:

"In my view, the granting of leave under s 471B to permit Mr Tyrrell to make and pursue his cross-claims in the District Court flows from the Court's decision to reinstate the company. The purpose of the reinstatement is to permit Mr Tyrrell to make the apportionment claim. This is not a case where a plaintiff elects to bring proceedings against a company in liquidation instead of lodging a proof of debt in the normal way . . . for here the entitlement to apportionment depends upon the District Court's determination and is not amenable to proof of debt until that determination is made. To the extent that Mr Tyrrell's claim against the company is a claim for indemnity or contribution (these being alternatives in the draft cross claims) they would probably be amenable to proof of debt that the primary claim is the apportionment claim. Section 471B is not restricted to cases where the applicant for leave may also prove in the winding up; indeed, the fact that there is an obstacle to lodging a proof of debt, if it be so, is (or is part of) a ground for granting leave.

[31] There is no risk of prejudice to the creditors of the company because the winding up was fully administered before the company was the (sic) registered. Its reinstatement will not put it in a position to incur the new debts because the company will be in liquidation and under the control of a liquidator, and will continue to exist only for the purposes of the District Court proceeding.

"[33] Counsel for the Owners Corporation referred me to a substantial number of authorities on s 471B, but in my view they are of assistance only as a general level. True it is that good cause for the grant of leave must be shown on the merits . . . In my view, good cause has been clearly established in the present case."

1. In this case, Oak's position cannot be accommodated by the liquidator accepting a proof of debt. The purpose for the leave being required is to enable Bigridge to be named as a necessary party to Oak's rectification claim and no more. The liquidation of Bigridge has been finalised and there can be no prejudice to the creditors of Bigridge. I will grant the necessary leave under section 471B of the Act.
2. The HIH parties sought leave to intervene in this proceeding but were unsuccessful. They sought to become involved to contradict an application which was otherwise unopposed by ASIC and Mr Mentha. I consider that their quest to prevent Oak from obtaining its orders in this proceeding significantly increased the costs of the application and its length and complexity. For this reason, I will order that the HIH parties pay Oak's costs of this application.

[1] Oak referred to Rigg v Standard Bank of Australia Limited (1896) 22 VLR 419 430-431 and Beconwood Securities Pty Ltd v ANZ Banking Group Limited, unreported decision of the Federal Court of Australia, Finkelstein J [2009] FCA 131 at para [6].

[3] See Tyrrell v Tyrrells Building Consultancy Pty Ltd and Another [2008] NSWSC 416 at [17] per Austin J and the cases cited by him.