Plaintiff v First Defendant

Plaintiff v First Defendant - [2005] VSC 463 - VSC 2005 case summary — Zoe

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1 The plaintiff, David Henry Scott, is the liquidator of Casualife Furniture International Pty Ltd ("Casualife") and Kencord Manufacturing Pty Ltd ("Kencord").

2 On 9 November 2004, the Court ordered pursuant to s.588FF(3)(b) of the Corporations Act 2001 (Cth) ("the Act") that the time within which the liquidator of Casualife and Kencord might commence an application under s.588FF(1) of the Act be extended to 9 March 2005 (ie an extension of four months).

3 Pursuant to rule 46.08 of the Rules of the Supreme Court (Chapter 1), the liquidator now seeks, in unusual circumstances, to vary the order of 9 November 2004, in effect by changing the extended date to 9 June 2005 (ie by adding an additional 3 months to the extension period originally sought).

4 The history leading up to this application is as follows.

5 Casualife and Kencord were wound up on 18 May 2004 in proceedings numbers 8250 and 8251 of 2001. The relation-back day was 9 November 2001, being the date of the winding-up application. The last day for making an application to extend time under s.588FF(3)(b) of the Act was thus 9 November 2004. The application having been filed on the last day, an order need not have been sought or made until later. In fact the order was sought ex parte and made on that day.

6 The background to the winding up order was referred to in the liquidator's affidavit sworn 9 November 2004. The liquidator referred to the findings of fact made by Hansen J in proceedings numbers 8250 and 8251 of 2001. It was found that a succession of companies under the control of Joseph Guss (the present second defendant) and/or members of his immediate family had carried on an outdoor furniture business. The business had been carried on by Bendix Consolidated Industries Ltd (1978 - 1982), Tropitone Furniture Co Pty Ltd (1982-1991), Tropitone Furniture Co International Pty Ltd (1991 - 2001) and then by Casualife and Kencord. It was found that each of the preceding companies had been the subject of a winding up order on the application of the Deputy Commissioner of Taxation ("ATO") on the ground that it was unable to pay its debts and at the date of the winding up order owed a substantial sum in relation to tax. Bendix owed about $1.2M, Tropitone Furniture Co owed about $1.4M and Tropitone Furniture Co International owed about $148,000, at the respective dates of their winding up orders. At the time of each winding up assets of that entity had been transferred to another entity which conducted the business until it was wound up and so on. Since 1992 Casualife had granted a charge to an entity related to and/or controlled by Guss family interests, namely Casualife Furniture International Ltd (incorporated in Hong Kong) ("Casualife Hong Kong"). Various other transactions were referred to in the judgment of Hansen J and his Honour found that the structures created had been deliberately created by Mr J Guss for the purpose of ensuring the ongoing control of the business by the Guss family, come what may.

7 The liquidator further deposed that, on the day after his appointment as liquidator of Casualife, Casualife Hong Kong appointed a receiver and manager to Casualife. The liquidator deposed as to his seeking of information from the receiver and manager and his continuing investigation as to whether the charge granted in favour of Casualife Hong Kong might be set aside. The liquidator added that there were no funds available in either liquidation and that he had been liaising with the ATO which had indicated that it might fund an investigation into the relevant transactions, and that he had received confirmation of the ATO's agreement to provide funding the day before swearing his affidavit (ie on 8 November 2004).

8 On the basis of the foregoing material the order of 9 November 2004 was made.

9 On 4 March 2005, the liquidator applied to the Court for a further extension of time, no proceeding under s.588FF(1) of the Act having been instituted by that stage. The liquidator's affidavit sworn 3 March 2005 recounted what had happened since the order of 9 November 2004. The liquidator deposed as to further communications with the receiver and manager of Casualife. Of more importance, the liquidator deposed that on 15 December 2004 Mr Zafiriou of the ATO had attended at the offices of the liquidator's solicitors and delivered to them 14 ring-binder folders of documents relating to the affairs of Casualife and that the liquidator's solicitors had undertaken a review of that material. The liquidator deposed that as a result of his investigations he believed that he had a claim to set aside the registered mortgage debenture granted by Casualife to Casualife Hong Kong pursuant to s.588FF(1) of the Act. The liquidator in particular said that he proposed to make application to set aside the relevant mortgage debenture as an uncommercial transaction within the meaning of s.588FB of the Act, alternatively as an insolvent transaction within the meaning of s.588FC of the Act.

10 The liquidator further deposed in March 2005 that he had requested from the ATO an indemnity with respect to his remuneration, costs and expenses in bringing any such application and that Mr Zafiriou had informed him that he had recommended that such indemnity be provided but that the liquidator had yet to receive confirmation of same. The liquidator further deposed that a former employee of Casualife had informed him, on Friday 25 February 2005 that the receiver and manager of Casualife had terminated the employment of all staff in January 2005 and that they had been immediately reemployed by Holy May Pty Ltd. Based on an ASIC search, the liquidator deposed that Holy May Pty Ltd was apparently a wholly-owned subsidiary of Casualife Hong Kong and also that Casualife Hong Kong held a registered mortgage debenture over the assets and undertaking of Holy May. The liquidator said that in the circumstances he suspected that the receiver and manager had already sold the business of Casualife to a party related to the Guss family interests and that he wished to both investigate the matter further and to finalised his arrangements with the ATO in relation to the provision of an indemnity.

11 On 4 March 2005, the Court extended time for commencing the relevant application to 9 June 2005, and required the liquidator to serve a copy of the order by prepaid post "on any party he considers may be affected thereby". Liberty to apply was reserved.

12 A proceeding (number 6480 of 2005) ("the principal proceeding") was commenced by originating process dated 8 June 2005. The plaintiffs are Casualife and the liquidator, and the defendants are Casualife Hong Kong, the receivers and mangers of Casualife, Joseph Guss and Antony Guss. Subsequently Holy May Pty Ltd was added as a defendant. A statement of claim of 64 pages was filed on 17 August 2005 from which it appears that the grounds relied upon to challenge various relevant transactions include sham, fraud, illegality and intent to defraud creditors within the meaning of s.172 of the Property Law Act 1958 (Vic), and also include reliance upon claims under s.588FF(1) of the Act.

13 The principal proceeding was commenced within the time allowed by the order of 4 March 2005. However the order of 4 March 2005 has now been set aside by order of 14 October 2005 on the basis that the Court had no power under the Act to make that order.[1]

14 As a result, those parts of the principal proceeding that rely upon s.588FF(1) of the Act have been initiated out of time and are liable to be struck out. The liquidator now seeks to remedy this problem by this application under rule 46.08.

15 Rule 46.08 provides:

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16 The evident intent of rule 46.08 is to enable a person affected by an order to seek to have it set aside or varied in circumstances where the person did not attend for some reason or other, including the absence of notice. However an application under the rule is not in terms confined to such a person and the person who obtained the order in the first place is not expressly excluded from seeking to set aside or vary the order. So, in the present case, the liquidator, having obtained the order without notice to the persons affected thereby, claims to be entitled to seek to set aside or vary the order under this rule. In relation to a similar rule in New South Wales it has been held[2] that the rule is wide enough to allow an application by a person other than the absent party, including the party who obtained the order in the first place and that there was no reason for cutting down the literal meaning of the rule, although it was obvious that it would only be in the exceptional case[3] that a party other than the absent party would be seeking to set aside such an order.

17 The defendants did not contend that the liquidator did not have standing to make an application under rule 46.08 and in my view he has such standing. However the defendants submitted that the rule did not apply to the order made on 9 November 2004 because rule 46.08 applied only to interlocutory orders and the order made on 9 November 2004 was a final order and not an interlocutory order.

18 In Delmo v Merrigal Pty Ltd[4] Murphy J said, obiter, that rule 46.08 related only to orders and not to judgments, adding that it appeared that O.46 applied to "interlocutory applications in a proceeding". In Collie v Merlaw Nominees Pty Ltd[5] Nettle J expressed doubt concerning the obiter dictum of Murphy J but assumed, without deciding, that it was correct. In Jenkins v Visualeyes Pty Ltd[6] Balmford J ruled in effect that rule 46.08 did not apply to judgments.

19 In my opinion the order made on 9 November 2004 was not a "judgment" whether that word is understood as meaning the decision of a court obtained in a proceeding the equivalent of what formerly would have been an action at law[7] or the determination of the rights of the parties in a principal cause[8]. The order made on 9 November 2004 may or may not have been an "interlocutory" order but, in my opinion, rule 46.08 applies to all orders, whether final or interlocutory, so long as they are not judgments. The Victorian cases cited above are not authority to the contrary. Furthermore the New South Wales decision to which I have already referred, is authority in relation to a similar rule, that the rule applies to all orders including "final" orders.[9]

20 Accordingly, I consider that the liquidator is entitled under rule 46.08 to seek an order that the order of 9 November 2004 be varied.

21 However in my opinion the liquidator has failed to establish satisfactory grounds for the Court to exercise its discretion to vary the extension of time contained in the order of 9 November 2004. It seems to me that the evidence of the liquidator shows that he was in a position to institute the principal proceeding within the period provided by the order of 9 November 2004 and failed to do so because he was awaiting confirmation of an indemnity from the ATO and perhaps due to error of law. I do not think that those considerations provide adequate reasons to vary the period of extension in an order which, when made, was thought to provide adequate time and, indeed, did provide adequate time to institute the principal proceeding.

22 There are also reasons of policy and justice which affect the exercise of my discretion. In that regard I would refer to the analysis of s.588FF contained in the judgment of Spigelman CJ in BP Australia Ltd v Brown.[10] In my opinion, the defendants were entitled to expect that the liquidator would obtain only one determinate extension of time under s.588FF(3)(b) of the Act and to expect that they should not remain at risk of losing the benefit of any established timebar by reason of the liquidator having recourse to a general power and discretion vested in the Court to vary any order that was made in the absence of the party or parties affected.

23 Accordingly the interlocutory process filed 25 October 2005 is dismissed and the plaintiff is ordered to pay the defendants' costs thereof (including reserved costs).

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