Plaintiff v Defendants

Supreme Court of Victoria|2006-12-06|Before: WHELAN J

CORPORATIONS - Corporations Act 2001 s 601AH - reinstatement of company - whether applicant is a "person aggrieved" - whether proposal for assignment of cause of action justifies reinstatement - attitude of secured creditor - proposed proceeding statute barred - application dismissed.

1 I have before me two related applications.

2 The first, in proceeding 8256 of 2005, is an appeal from an order of Master Efthim made 9 March 2006 whereby he dismissed the originating process in the proceeding. The relief sought in that originating process was an order under s 601AH(2) of the Corporations Act 2001 ("the Act") requiring the Australian Securities and Investment Commission ("ASIC") to restore Chalky's in the Dunes Pty Ltd ("the company") to the register.

3 The second proceeding, which is 6131 of 2006, seeks an order under ss 511 and 1322 of the Act that a meeting of creditors and contributories of the company held on 17 August 2002 and the proceedings at that meeting are void by reason of the fact that the meeting, which was the final meeting of creditors and members pursuant to s 509 of the Act, had not been duly convened.

4 On the hearing before me the plaintiff in each proceeding, Mr Chalker, was represented by counsel, and I also heard submissions on behalf of ASIC, and on behalf of Barwon Coast Community of Management Incorporated and the State of Victoria who are the prospective defendants to a proceeding which Mr Chalker wishes to institute should he be successful in having the company restored to the register and should he be successful in procuring an assignment to himself of what he contends to be the company's cause of action.

5 The subject matter of the proposed cause of action to which I have referred has already been the subject of a proceeding in this Court, being proceeding number 4252 of 2001. That proceeding was dismissed by Gillard J on 7 August 2003 upon hearing an appeal from orders made by Master Wheeler.[1] Gillard J's orders were upheld by the Court of Appeal.[2]

6 The background circumstances are referred to in some detail in the decisions of Gillard J and the Court of Appeal and in Master Efthim's written reasons but I will briefly repeat them.

7 The company was the trustee of a unit trust named the Chalky's in the Dunes Unit Trust ("the trust"). All of the units in the trust are owned by a company named Caveron Pty Ltd ("Caveron"). Caveron is in turn the trustee of a discretionary trust named the Chalker Family Trust ("the family trust"). The initial beneficiaries of the family trust are Mr Chalker and his wife, Catherine Mary Chalker.

8 By a written lease dated 19 December 1994 the company as lessee leased from the Ocean Grove Foreshore Reserve Committee of Management Incorporated (the predecessor of the Barwon Coast Committee of Management Incorporated) a building on the Ocean Grove foreshore for use as a kiosk and restaurant. The company entered into the lease in its capacity as trustee of the trust.

9 Mr Chalker maintains that significant losses were suffered as a result of breaches of the lease and related wrongs for which Barwon Coast Committee of Management Incorporated and the State of Victoria are responsible. In proceeding 4252 of 2001 the allegation was that the relevant breaches occurred in January and February 1995. If Mr Chalker is successful in these applications, and if the further steps he proposes can be carried out, the claim which he wishes to pursue is that set out in a draft statement of claim which is exhibit "CX-5" to affidavits sworn by him in proceeding 8256 of 2005 on 19 October 2006 and on 17 November 2006. This proposed claim also relies upon alleged breaches of the written lease in January and February 1995, and in addition relies upon breaches of an agreement referred to as the "Background Agreement", and upon other wrongs which extend beyond February 1995. As I read the draft statement of claim it can, however, be safely assumed that all of the breaches relied upon had occurred by 22 July 1996 when an administrator under Part 5.3A of the Act was appointed to the company. The administrator appointed was the first defendant in each proceeding before me, Mr Graham Clark.

10 Mr Clark swore and filed an affidavit in proceeding 8256 of 2005 on 23 November 2005. Otherwise, he has not participated in the proceedings before me.

11 On 15 August 1996 Mr Clark became liquidator of the company.

12 On 6 June 2000 Mr Chalker became bankrupt. Mr Chalker attributes his bankruptcy to the matters which are the subject of the company's claims against Barwon Coast Committee of Management Incorporated and the State of Victoria.

13 The final meeting of creditors and members of the company pursuant to s 509 of the Act was held on 17 August 2000. The company was deregistered on 22 November 2000.

14 The meeting held on 17 August 2000 was not convened in the manner required by the Act. Section 509(2) of the Act requires that the meeting must be convened by an advertisement published in the gazette at least one month before the meeting. The advertisement in this case was published on 18 July 2000, less than one month before 17 August 2000. Mr Chalker also maintains that creditors and members were not given notice of the meeting and that a quorum was not present. Mr Clark, in his affidavit sworn 23 November 2005 (para 6), says that he delegated the convening of the meeting to his staff and that he has "no reason to doubt" Mr Chalker's evidence both as to the insufficiency of the notice in the gazette and the fact that he did not receive notice himself. The material before me indicates that Barwon Coast Committee of Management Incorporated did receive notice.

15 Procedural irregularities do not invalidate a meeting unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice and declares the proceeding to be invalid: s 1322(2), or unless the Court declares proceedings at the meeting void: s 1322(3). Mr Chalker in proceeding 6131 of 2006 seeks an order under s 1322(3). He seeks that order so as to fortify his application to have the company reinstated and, according to his affidavits sworn 19 October 2006 and 17 November 2006 (para 7), so as to give him the opportunity to put a proposal to a meeting of creditors that they "consider my offer to the company to purchase by way of assignment in my favour whatever cause of action it may have against the defendants".

16 The "defendants" are Barwon Coast Committee of Management Incorporated and the State of Victoria. For ease of reference I will hereafter refer to them as the "objectors".

17 Mr Chalker and his son brought proceeding number 4252 of 2001 against the objectors purportedly in their capacity as new trustees of the trust and on some other grounds. The claim was dismissed because it was held that the proceeding when issued was incompetent. It was found that Mr Chalker and his son were not trustees of the trust and were not authorised to institute the claim at the time they did so. The Court of Appeal upheld the order dismissing the proceeding on 3 May 2005. Mr Chalker commenced the proceeding to have the company restored to the register on 19 September 2005.

18 The two proceedings now before me are related. It is desirable to deal with the appeal concerning reinstatement first.

Proceeding 8256 of 2005 to reinstate the company

19 Section 601AH(2) of the Act provides that the Court may make an order that ASIC reinstate the registration of a company if an application for reinstatement is made to the Court by a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated.

20 The objectors contended that Mr Chalker is not a "person aggrieved" by the deregistration. I reject that contention. Mr Chalker was a director and the secretary of the company for the entire period prior to the company going into administration, and was the sole director for the period after 31 May 1996. His wife, Catherine Chalker, was a director between August 1994 and May 1996. He held one of the two shares in the company, the other being held by his wife. He is associated with the family trust, which is ultimately where beneficial interests in the property held by the company reside. He was the manager of the business which is the subject of the relevant controversy involving the company. He is a person who has pursued and wishes to continue to pursue the possibility of taking an assignment of the company's cause of action. He is not a "mere busybody", and he has a "genuine grievance" (in the sense that he genuinely wishes to pursue the claims foreshadowed).[3]

21 What Mr Chalker proposes is not that the company should be reinstated so that it can itself, as trustee of the trust or in its own capacity, pursue the cause of action which Mr Chalker maintains exists against the objectors. Rather, what Mr Chalker proposes is that the company be reinstated so that the creditors and a new liquidator can consider offers from him to take an assignment of the cause of action which he will then pursue as assignee.

22 In considering whether it is just that the company be reinstated, a number of issues require to be addressed. They are the following:

1. National Australia Bank ("NAB") has a charge over all property which was held by the company, including any cause of action the company had against the objectors. It is contended on behalf of the objectors that the existence of NAB as a secured creditor and its attitude to the proposed claim means that there is no point in reinstating the company.

2. The objectors maintain that this is a clear case where the proposed cause of action to be pursued, which is the purpose of reinstating the company, is statute barred.

3. Mr Chalker relies on the irregularities concerning the final meeting in contending that it is just that the company be reinstated.

4. Material has been filed as to the attitude of the former liquidator, Mr Clark, both as to the cause of action itself and as to its assignment.

5. The offers made or foreshadowed by Mr Chalker in relation to the assignment involve, or have involved, modest sums, and an issue arises as to whether it is just to reinstate the company so as to consider such offers.

6. It was submitted on behalf of both ASIC and the objectors that it was unnecessary to reinstate the company as Mr Chalker and his son are now, or can become, the new trustees of the trust and there is nothing to prevent them from issuing a fresh proceeding in that capacity, although the objectors contend that any such proceeding would be statute barred.

Position of the secured creditor

23 All of the material filed in the reinstatement proceeding, and all of the submissions made, proceeded on the assumption that NAB holds security over all of the property and undertaking formerly held by the company, including the relevant cause of action. I will also do so.

24 In an affidavit he swore on 19 September 2005 Mr Chalker deposed (para 40) that NAB had rejected an offer he had made to it to assign the cause of action to him for the sum of $6,000.

25 In Mr Clark's affidavit of 23 November 2005 (para 5) he deposed that he had been unable to interest NAB in the proposed litigation.

26 More recently, the solicitors for the objectors sought confirmation from NAB as to its attitude. By a letter dated 2 February 2006 NAB set out its position. It was expressed as follows:

"The National has no view on the application for reinstatement of the Company.

Further, I am not aware that the National has reviewed the merits of the case against the State of Victoria and/or Barwon Coast Committee of Management Incorporated. Based on the fact that the National's recovery file has been closed, we would not be in a position to financially support the plaintiff's action in any event.

In the event that the application to reinstate the Company is successful, and any legal action taken by the Company is financially fruitful, the National accepts that an indemnifying creditor may be reimbursed for the costs incurred in pursuing the action. Subject to any court order regarding preferential payment to an indemnifying creditor, the National would expect the proceeds from any legal action to be paid to it pursuant to its fixed and floating charge in priority to unsecured creditors."

27 In substance, NAB will not assign the cause of action, it will not pursue it itself, it will not fund its pursuit, and it insists that if it is pursued by others any net proceeds be paid to it.

28 There is no reason to reinstate the company so that a liquidator and the creditors can consider an offer from Mr Chalker to take an assignment of the cause of action. If NAB is not a party to the assignment there is no point to it. Neither the creditors nor a new liquidator can effectively assign the cause of action to Mr Chalker.

29 I raised the impediment which the position of the secured creditor seemed to create with counsel for Mr Chalker on a number of occasions at directions hearings, and particularly at a directions hearing on 14 July 2006.[4]

30 In the hearing before me the response to this position given by counsel on behalf of Mr Chalker, and deposed to in an affidavit by Mr Chalker sworn on 17 November 2006 (para 16), was that Mr Chalker intended to "move" a new liquidator to redeem NAB's security under s 554F(2) of the Act. That affidavit also indicates that in July 2006 Mr Chalker made another attempt to persuade NAB to consent to an assignment and that he offered NAB the sum of $5,000. Mr Chalker deposes: "the Bank has refused that offer without offering any other terms".

31 Section 554F(2) is no answer to the problem posed by the position of the secured creditor. It became clear in the course of argument that Mr Chalker's position is premised on an assumption that a liquidator can impose redemption on a secured creditor under s 554F in any circumstances. This is not correct. That course can only be taken if the secured creditor elects to lodge a proof of debt for the deficiency after deducting the creditor's estimate of the value of the security.[5] There is no evidence before me that NAB has taken that course, and, to the extent there are any indications in the material which are relevant, they appear to indicate that NAB has not taken that course.

32 Accordingly, my conclusion is that NAB's position as the secured creditor, and its attitude, are a fatal objection to the application to reinstate the company. The appeal must be dismissed on that ground.

33 In deference to the submissions put, I will briefly deal with the other matters raised.

Statute of limitations

34 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 reinstatement is futile as the proposed cause of action is clearly statute barred.[6]

35 In proceeding 4252 of 2001 the Court of Appeal judgment recorded the following in relation to the position taken concerning the operation of the Limitation of Actions Act 1958 on the subject matter of that proceeding. At paragraph 7 their Honours said:

"It is accepted on both sides that if the proceeding was a nullity then fresh proceedings would be futile because the claims would now be statute barred."

36 On any view, all the alleged breaches occurred more than 10 years ago. As Mr Chalker apparently accepted before the Court of Appeal, a new proceeding would seem to be clearly statute barred.[7]

37 On the application before me counsel for Mr Chalker had two answers to this position. First, he submitted that the relevant claims were "specialty" claims within the meaning of s 5(3) of the Limitation of Actions Act and accordingly are subject to a 15 year limitation period. Second, he submitted that the Court was empowered under s 601AH(3)(b) to make an order suspending operation of the limitation period for the period of the company's deregistration.

38 The argument that the relevant claims fall under s 5(3) of the Limitation of Actions Act proceeded in three steps. First, it was said that the relevant claims are claims made under the written lease dated 19 December 1994. Second, it was submitted that the lease is a deed under seal. Finally, it was submitted that accordingly the relevant claims are to enforce obligations under seal and are thus specialties.

39 To the extent that one can precisely identify what the claims proposed to be made are (as set out in "CX-5"), it cannot be said that they are confined to, or are even substantially constituted by, claims for breach of the express written terms of the lease dated 19 December 1994.

40 In any event, it seems to me that the lease is not a deed. It is not expressed to be a deed. The argument that it is was based upon the fact that the company seal had been affixed to it, and upon the fact that the annexed guarantee had been executed by the guarantors as a deed. A relevantly similar argument was rejected by Tadgell J at first instance, and by the Full Court on appeal, in Comptroller of Stamps v Associated Broadcasting Services Limited.[8] As was the case there, the fact that an associated document has been executed as a deed fortifies the argument that the related document (not so designated) is not a deed. For the reasons given by Tadgell J, with which the Full Court agreed, the mere fact that a company affixes its common seal to an agreement does not render that agreement a deed.

41 If it had not been for the objection concerning the secured creditor, I would have refused the application on the ground that the proposed cause of action is statute barred, and was conceded to be so barred by Mr Chalker himself in the proceedings before the Court of Appeal. In the circumstances I would not have made any order ameliorating this position under s 602AH(3)(b).

Other issues

42 The former liquidator, Mr Clark, deposed in his affidavit of 23 November 2005 that he did examine the proposed cause of action but that he had been unable to interest the secured creditor in pursuing it. He expressed the view that he had considered the cause of action to be "highly speculative". Mr Chalker in his affidavit of 19 September 2005 deposed as to the attitude of Mr Clark. He swore that Mr Clark was not disposed to issue proceedings but said he would entertain the possibility of assigning the proceeding to Mr Chalker. According to Mr Chalker, he offered Mr Clark $6,000 for the assignment but that negotiations were discontinued in 2000 when it was explained to him that the secured creditor had rejected the proposal. Mr Clark himself deposes that he does not recall the $6,000 offer.

43 If the other objections had not been made out, I would not have reinstated the company merely for the purpose of Mr Chalker offering the creditors $6,000 to take an assignment of the cause of action. It seems to me to be likely that it would cost more than that to re-establish the liquidation, convene the meeting, deal with the assignment issues, keep the company in existence for so long it was thought desirable to do so while the cause of action was pursued, and then finalise the liquidation again.

44 Mr Chalker in his affidavits of 19 October 2006 and 17 November 2006 foreshadowed a different proposal. What he proposed there was that creditors would be asked to consider "an improvement in my offer in which I shall offer to pay to the creditors one third of the net profits in the event of my succeeding in prosecuting the said cause of action..." He also deposed that he will offer to indemnify the members and creditors against any loss or expense. He deposed that he has the resources to pursue the cause of action and to make good on this indemnity and he produced a list of what were said to be his assets as exhibit "CX-6". Upon my expressing dissatisfaction with the generality of "CX-6", Mr Chalker gave oral evidence. The effect of that evidence was that Mr Chalker now manages a restaurant business known as the "Owl and the Pussycat", under similar trust arrangements to those that existed in relation in Chalky's in the Dunes. Mr Chalker has resources available to him, but in my view his oral evidence revealed that they are not as extensive as the asset list in "CX-6" suggests. In my view creditors and a new liquidator might be rightly concerned that Mr Chalker would not have sufficient resources to unsuccessfully pursue the cause of action as he proposes and still meet any obligations he might have under the indemnity.

45 If I had not found that the position regarding the secured creditor is a fatal objection, and I had not found that the action proposed would be statute barred, I would not have considered it just to reinstate the company only so that a new liquidator and creditors could consider offers of the kind proposed to be put by Mr Chalker.

46 Mr Chalker, both in his sworn material, and in the submissions put on his behalf, relied on the irregularities in the conduct of the final meeting. If the other objections to which I have referred had not existed, the existence of those irregularities would have been a cogent factor suggesting that the company ought to be reinstated.

47 It was submitted on behalf of the objectors and by ASIC that there is no point in reinstatement as a new trustee of the trust can be appointed, or Mr Chalker and his son's status as the new trustees can be put beyond doubt, and the proceeding could then be instituted by the new trustee or trustees without the need for reinstatement of the old trustee. In this respect Young v Murphy[9] was cited. Whilst there is substance in this submission, in my view if any further proceeding was to be issued it would be desirable that all uncertainty concerning the capacity of the plaintiff be eliminated. If the other objections to which I have referred had not existed, I would not have refused reinstatement on this ground.

48 In all the circumstances I am not satisfied that it is just that the company's registration be reinstated. The appeal from Master Efthim's order in proceeding 8256 of 2005 whereby he dismissed the originating process will be dismissed.

Proceeding 6131 of 2006 to declare the final meeting void

49 Mr Chalker submits that the irregularities in the convening of the meeting mean he was not given the opportunity to put his proposals concerning assignment of the relevant causes of action to creditors. As his material in support demonstrates, he had foreshadowed to the liquidator his desire to have a meeting of creditors consider that issue.

50 The position and attitude of the NAB renders the view that the creditors might take irrelevant. No valid purpose will be advanced by declaring the meeting void and requiring a further meeting to be convened. The application in proceeding 6131 of 2006 will be dismissed.

Orders

51 I will hear the parties on the orders to be made and on any other matters arising from the reasons.

[1] Chalker v Barwon Coast Committee of Management Inc [2003] VSC 286.

[2] Chalker v Barwon Coast Committee of Management Inc [2005] VSCA 101.

[3] Attorney-General (Gambia) v N'jie [1961] AC 617 and National Trust of Australia (Vic) v Australian Temperance & General Mutual Life Assurance Society Ltd [1976] VicRp 60; [1976] VR 592.

[4] See: transcript 14 July 2006 p 4-7.

[5] See: Ford's Principles of Corporation Law at [27.440].

[6] Pilarinos & Ors v ASIC [2006] VSC 301 at [29]; AMP v VWA [2006] VSCA 236 at [42].

[7] Section 5(1)(a) of the Limitation of Actions Act 1958 provides that claims based on "simple contract" are statute barred six years after the accrual of the cause of action. For contract claims, the cause of action accrues upon breach. Cf Halsbury's Laws of Australia at 65-2255 and 255-45; Ward v Lewis (1896) 22 VLR 410; Kone Elevators Pty Ltd v Elena Popa & Ors [2006] VSCA 26 at [22].

[8] [1990] VicRp 31; [1990] VR 335.

[9] [1996] 1 VR 279 at 291.

At a glance

Court

Decision date

Before

Source

Judgment (11 paragraphs)

Parties

Legislation Cited (8)