Plaintiff v Defendants

Supreme Court of Victoria|2007-06-28|Before: BYRNE J

The applicant, ASC, was one of the persons specified in the sub-section. Notwithstanding that no leave was sought or obtained, a winding up order was made, apparently due to an oversight. Upon appeal to the Full Court of the Federal Court, the difficulty came to light and the Court granted leave nunc pro tunc to cure the difficulty which it described as an irregularity. In a majority decision the High Court agreed that the want of leave was an irregularity only and that it could be cured by a subsequent order.

25 The case is of interest for my purposes inasmuch as it shows that a provision such as s. 459P(2), which contains the phrase "may only be made," may be seen either as imposing a jurisdictional limit upon the power of the Court to entertain an application to wind up in insolvency, or as a procedural matter whose breach amounts only to an irregularity. In the event, the High Court by a narrow majority favoured the latter view. In this regard, it will be recalled that Gummow J in David Grant[10] characterised the 21 day time limit upon the right of a company to apply to set aside a statutory demand under s. 459G, as jurisdictional.

27 Chief among these other matters is the availability or not of procedures other than s. 1322(4)(d) to deal with the case where a strict application of the time limit in the specific provision would impose hardship or would appear to defeat the object of the specific provision. The courts have therefore looked at the role that the time limit is intended to play in the scheme of the legislation.

28 Starting, as one must, with the text, the presence of the word "only" and the location of that word are of primary importance. It is said with considerable force that to permit s. 1322 to override a limit so expressed is to deny meaning to the word "only". This contention draws considerable support from the omission of this word from s. 1317EC, a time bar for the bringing of a civil penalty application which was introduced into the Law in 1992 as part of the same legislative package that included s. 1317HD. The explanatory memorandum reinforces this, for, in respect of s. 1317EC it says that it is to "provide that an application for a civil penalty order may be made within six years after the contravention.[11] Of s. 1317HD it says:

An application may be made under the section irrespective of whether the person has been convicted of an offence, or a civil penalty order has been made, in relation to the contravention, but must be made within six years of the contravention.[12]

A further textual consideration is the fact that s. 1322 which is, of course, of general application, was introduced into the Law some years prior to Part 9.4B.[13]

29 With respect to the arguments based on purpose, I observe that, unlike s. 459P and s. 588FF, there is in Part 9.4B no provision to alleviate any hardship which might be caused by the effluxion of this statutory limitation period. Furthermore, if the critical factor against the availability of s. 1322(4)(d) is the word "only", the position would be that time might be extended by that section for an application under s. 1317EC for a civil penalty, but not for an application for compensation under s. 1317HD. This disparity seems, at first blush, to be anomalous.

30 In my opinion, the structure of Part 9.4B does point to the conclusion that s. 1322 has no application to an application under s. 1317HD. The text of s. 1317HD points to this conclusion. To my mind, in its context, the word "only" has the role of meaning "not otherwise" rather than that of merely providing a non-imperative emphasis to the time limit.

31 This conclusion is not inconsistent with the different wording of the time limit for an application for a civil penalty under s. 1317EC. While such an application is not criminal in character,[14] the remedies which may be ordered are obviously directed to encouraging directors to comply with their statutory obligations[15] and to protecting the commercial community from delinquent directors.[16] Such an application may not be brought by any person; it must be made by the Commission or a delegate of the Minister.[17] The corporation itself might seek compensation upon such an application and may intervene in the proceeding for that purpose.[18] As I have mentioned, the corporation may seek compensation in a criminal proceeding under s. 1317FA.

32 The power of the corporation itself to initiate a proceeding for compensation is not controlled by any supervisory or government agency. It may therefore be seen as a civil right in the corporation to pursue an errant director, a statutory right conferred in addition to its common law or equitable rights. It is not surprising that this statutory right should have some time limitation as to the bringing of a proceeding to enforce the legal or equitable rights.

33 Under the 1989 legislation an application seeking compensation from a director in breach of a duty to exercise a reasonable degree of care and diligence could be brought as part of a criminal proceeding against that director pursuant to s. 232 (6) or by a proceeding brought by the corporation pursuant to s. 232(7). No limitation period was specified for the bringing of such an application. It would seem, therefore, that the ordinary limitation periods (if any) would apply. On the view I take of Part 9.4B of the Law after the 1992 amendments, the same position would apply to their successors.

34 There is also to be found in Part 5.7B Division 4 a power to order compensation against a director who has caused loss as a consequence of a breach of duty to prevent insolvent trading pursuant to s. 588G. Like Part 9.4B an application for such an order for compensation may be made in the course of an application for a civil penalty order,[19] in the course of a criminal proceeding[20] or upon application by the liquidator of the company.[21] The time limit for bringing an application for a civil penalty order is that fixed by s. 1317EA and there is no time limit specified for the bringing of a criminal proceeding. In the case of an application by the liquidator, there is a time limit prescribed by s. 588M(4) which is expressed in terms very similar to the time limit presently under consideration: the proceeding may only be begun within six years after the beginning of the winding up.

35 Unlike a criminal proceeding and a civil penalty proceeding under Part 9.4B, a proceeding under s. 1317HD is one brought essentially to resolve a dispute between the corporation and its director. These disputes are not restricted to claims by insolvent corporations or corporations under external administration. There is a good policy reason for bringing such disputes to an end so that each of the corporation and the director can focus on their commercial future. In general, this is an important reason for the imposition of a limitation period in any commercial dispute.

36 It may be accepted that the imposition of a limitation period, like any arbitrary rule, will throw up hard cases. Nevertheless, where the delinquency of the director is grave, this hardship may be mitigated by the corporation seeking to recover compensation in a criminal proceeding or a civil penalty proceeding where it is thought appropriate by the relevant authority that such a proceeding be brought.

37 It was put in the present case that such an interpretation would cause a hardship in a case where the six year period expired at a time when the corporation remained under the control of a receiver who was appointed by a corporation associated with the allegedly delinquent director. This, it was said, is the case now before the Court. Accordingly, it was only when a liquidator was appointed and a more independent mind brought to bear, that the question of a proceeding against the director arose. This consideration cannot affect my task of construing the statute. The fact is that, whenever there is a statutory limitation period, the prospective plaintiff may choose not to commence the proceeding. I say nothing as to whether such a decision by a receiver may give rise to other rights or remedies.

38 For these reasons, I conclude that s. 1322(4)(d) cannot be called upon in the present case to validate the Newtronics' statutory claim.

39 The conclusion I have reached is sufficient to dispose of the Newtronics' application. Nevertheless, in case this proceeding may go further, and in deference to the submissions of counsel, I will briefly venture my views upon the further question, whether I should extend time under s. 1322.

40 I would not extend time for the following reasons:

The events which gave rise to the proceeding occurred in 1994. While many of the issues will depend upon evidence which has been given in the Seeley proceeding and upon documentary evidence, there will be a good deal of oral evidence on the question as to the state of mind of the directors. There is a serious risk of injustice where this evidence must be given some 13 years after the event.
The liquidator was appointed in February 2002, nearly four years before the proceeding was commenced in December 2005. I accept that much of this period has been the subject of explanation by the liquidator. Nevertheless, the delay is inordinate.
The proceeding was commenced in December 2005 in violation of s. 1317HD(2). Counsel for Newtronics candidly accepted that this was not done by oversight; the view was taken that the limitation point might not be relied upon. It seems to me that a liquidator might without risk of criticism have approached the Court for an extension of time prior to commencement of the proceeding.
Having commenced the proceeding, the writ was not served until mid-2006. This is permitted by the rules, but it had the consequences of further delaying the proceeding.
The statute in emphatic terms fixes a time limitation. The intent of Parliament cannot lightly be put to one side. It is for the corporation to satisfy the Court that the justice of the case requires that this claim go forward.[22] I am not so satisfied.

41 There was no dispute before me that there should be an order in favour of Mr Gjergja for security for the costs he may be awarded in the event that he be successful. Nor was there any resistance to my suggestion that the order should, at this stage, cover only those costs to be incurred up to the date of setting down for trial. Under the current practice, this would include the preparation of the court book and witness statements.

42 The contest, therefore, was as to the amount of the security to be ordered.

43 On behalf of Mr Gjergja it was originally put that the costs should be assessed on the same basis as those incurred by Newtronics in its unsuccessful defence of the Seeley proceeding in the Federal Court. The figure should therefore be the appropriate part of the $6,000,000 costs there incurred. I reject this approach on any of a number of grounds. First, the issues are not the same or sufficiently similar to adopt this approach, even as a starting point. Second, inasmuch as there are common issues, more is now known of the evidence which is available. This should enable the parties to agree upon many matters. Third, the cases are not the same. I would not expect that the work involving costs of that order would be required in the present proceeding. Finally, I know nothing of the detail of the Seeley costs.

44 I will therefore address the alternative and more conventional approach put on behalf of Mr Gjergja which was based on the report of Harris Cost Lawyers. This produced a total amount of party and party costs including disbursements of $4,778,342. This assessment dealt with costs of Mr Gjergja from the commencement of the litigation up to the end of trial. The assessment of Mahlab Costing provided on behalf of Newtronics on the same basis was $429,226.

45 I will now set out the principles I will apply in determining the proper security to be given up to the setting down of this case for trial:

(1) I do not include costs incurred prior to the date of application. This was agreed by the parties.

(2) There was a serious dispute between the parties as to what will be the issues at trial. On behalf of Mr Gjergja it was said, for example, that he was not bound by the findings in the Seeley trial that the defective components caused the fires. But counsel for Newtronics disavowed any intention of proving that fact. The case which Newtronics wishes to present is that the delinquency of the directors exposed this corporation to the risk of a claim such as the Seeley claim. The task of the Court will be to value that risk. Its case is that the value of the risk is the amount which it has been ordered to pay as a consequence of the Seeley trial. Accordingly, they said, they had no need to and would not attempt to re-run the Seeley case. I proceed on the basis that the Newtronics case will not be conducted on the basis suggested by the defendant. It is not for me, or for the defendant for that matter, to presume, or to require Newtronics to do, otherwise. The costs to be assessed, therefore, will be very much less than those incurred at the Seeley trial.

(3) The costs are based on estimates. These are estimates of time and work to be done as well as the hours involved. Since further security will be sought my assessment may be seen as provisional only and subject to adjustment up or down as the interlocutory process continues. For the same reason I have approached the matter with a fairly broad brush, determining what seems to me the appropriate party and party costs which might reasonably be incurred in the case as I understand it from the pleadings and from what I was told by counsel at the hearing.

(4) I have brought to bear my own experience of litigation in deciding what work might be required. I have, with the agreement of parties, consulted the Taxing Master.

(5) In making my assessment I have adopted a conservative approach. Security for costs is not intended to be an indemnity to the defendant.

46 My assessment of the security to be provided up to the date of setting down, therefore, is $129,000. I have set out below, as an annexure, a summary of the items comprising this sum together with a brief note of my reasons where appropriate.

ANNEXURE TO JUDGMENT [2007] VSC 195

Party and Party costs of firstnamed defendant up to setting down.

[1] All references in this judgment to the Corporations Law are references to the Law as it stood in 1994.

[4] [1995] HCA 43; (1995) 184 CLR 265 at 277 per Gummow J.

[5] [1995] HCA 43; (1995) 184 CLR 265 at 277 (footnote omitted).

[6] (2003) 58 NSWLR 332, referred to with approval by the High Court in Gordon v Tolcher [2006] HCA 62; (2006) 231 ALR 582 at 589, [37] ff.

[7] 58 NSWLR 332 at 341, [85]-[88] per Spigelman CJ.

[8] 58 NSWLR 332 at 341, [88].

[10] David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 at 277. See par [15] above. Gummow J was not a member of the Court that decided Emanule.

[13] Section 70 of the Law, another general power to extend the time for doing an act, also preceded the enactment of Part 9.4B in 1992.

[15] Pecuniary penalty of not more than $200,000: s. 1317EA(3)(b).

[22] Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 at 554, per McHugh J.

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