Rambaldi v Dallbrook Pty Ltd [2003] VSC 163

Supreme Court of Victoria|2003-05-29|Before: Hansen J

Corporations - Unfair preference - Voidable transaction - Insolvent transaction - Statement of claim - Leave to amend - Corporations Act 2001, ss 588FA, 588FE, 588FF

The amendment is to add a further four payments, made in the same period, totalling $341,796.14. One of the payments was made by KC Parksafe, while the other three were made by a related entity, KC Parksafe Treasury Pty Ltd ("Treasury"). The plaintiffs seek to recover these payments as unfair preferences.

In resisting the application to amend Dallbrook relied, in part, on s 588FF(3), which provides that an application under s 588FF(1)(a) may only be made within three years after the relation-back day. The Court has power under s 588FF(3)(b) to extend that time within the three year period. The relation-back day is, in the context of the liquidation, 5 November 1998, the day on which Rambaldi was appointed the administrator of KC Parksafe under s 436A of the Corporations Law ("the Law"). He became liquidator of KC Parksafe on 16 December 1998, when the creditors resolved that the company be wound up under s 439C of the Law. The relation-back date was not extended by an order under s 588FF(3)(b). Accordingly, the three year application period expired on 5 November 2001.

As mentioned, the claim is that Dallbrook be ordered to pay $946,029.73 to KC Parksafe pursuant to s 588FF of the Act.

Under s 588FF(1)(a), where a court is satisfied that a transaction of a company in liquidation is voidable because of s 588FE, the court may order a person to pay to that company an amount equal to some or all of the money the company paid under the transaction. A transaction is voidable under s 588FE(2) if:

"(a) it is an insolvent transaction of the company ; and (b) it was entered into ... : (i) during the 6 months ending on the relation-back day ..."

Section 588FC provides that a transaction of a company is an insolvent transaction if it is an unfair preference given by the company, or an uncommercial transaction (s 588FB) and, in summary, if the company is insolvent at the time the transaction is entered into or becomes insolvent as a result of entering into the transaction.

Section 588FF(3) provides that:

"An application under subsection (1) may only be made: (a) within 3 years after the relation-back day; or (b) within such longer period as the Court orders on an application under this paragraph made by the liquidator within those 3 years. "

The statement of claim alleges that during the six months ending on 5 November 1998, the company made payments totalling $946,029.73 to Dallbrook. Particulars to the plea set out 23 payments between 8 May 1998 and 25 September 1998. Each payment is alleged to have been made in payment of the company's liability as lessee to Dallbrook as lessor under a written lease of premises at 448-458 Flinders Lane, Melbourne, dated 1 January 1996. It is alleged that the payments were unfair preferences and that when they were made the company was insolvent, in which respect the plaintiffs rely on the presumption of insolvency in s 588E(3). The statement of claim also alleges that the transactions are voidable, and in that respect the plaintiffs rely on s 588FE(2).

The matter of amending the statement of claim was first mentioned to me at a directions hearing on 8 November 2002, after the elapse of the relation-back period. Counsel for the plaintiffs informed me of the plaintiffs' desire to amend the statement of claim and advised that a draft had been provided to the defendant. A revised draft was provided later in November.

The application was finally argued on 13 December 2002. The revised amended statement of claim brought into the existing claim the four additional payments totalling $341,796.14, made, as mentioned, by KC Parksafe and Treasury to Dallbrook between 5 May 1998 and 5 November 1998.

The substantial amendment is to para 6 which pleads the making of the payments during the relation-back period. The total amount of the payments is increased by the four further payments to $1,287,825.88. They are alleged to have been made by the company as follows:

" a) payments totalling at least $1,075,462.74 were made by the Company to the Defendant; and b) payments totalling at least $212,363.14 were made by KC Park Safe Treasury Pty Ltd (ACN 065 939 737) ("Treasury") to the Defendant: (i) at the direction or with the authorisation of the Company; or (ii) otherwise on behalf of the Company, in relation to debts owed by the Company to the Defendant. "

That is followed by two tables which set out, respectively, particulars of payments under paras (a) and (b) above. In the particulars a further payment of $129,433.03 on 1 June 1998 is added to the payments made by the company. This is inserted as the fourth payment made by the company. Then a second table is introduced which sets out particulars of the payments made by Treasury. There are three payments, $12,500 on 13 July 1998, $100,00 on 16 September 1998 and $99,863.14 on 24 September 1998. It is stated that the payments referred to in (b) above were made by Treasury to the defendant "at the direction, with the authorisation or otherwise on behalf of the Company, by reason of the following facts and circumstances". In summary, the facts and circumstances are that whereas there was a relationship of debtor and creditor between the company and the defendant, there was no commercial relationship between Treasury and the defendant which would explain Treasury making payments other than on behalf of the company; Treasury and the company had the same directors; the second and third payments were made by Treasury cheques sent by the company's solicitors to the defendant's solicitors, the covering letter referring to the company and the defendant and describing the cheques as "our client's cheque"; and, Treasury accounted for the amounts in its books as loans made to the company, and in fact they were loans. In the next para, para 7, there is an amendment to refer to the payments also being made "at the direction, with the authorisation or otherwise on behalf of the Company", as to which the particulars in para 6(b) are relied on. That is followed by a new para 7A which alleges that each payment was a transaction to which the company and the defendant were parties within the meaning of s 588FA(1)(a). The balance of the statement of claim is to remain except for the change to the amount claimed in the prayer for relief.

The submissions of counsel on 13 December may be summarised as follows. First, counsel for the company submitted that:

(a) The fact of the four payments became apparent during inspection of the defendant's discovered documents, in particular a document entitled "Tenant Reconciliation Report", which disclosed that the defendant had received the payments and treated them as reducing the amount owed by the company to the defendant.

(b) Section 588FF(3) is concerned with the time of commencement of the initial application, not a subsequent amendment to it, and as such the power to amend in Rule 36.01(6) applies. See Rodgers v Commissioner of Taxation[1] and Star v National Australia Bank Limited.[2]

(c) Contrary to the dicta of Batt J, as his Honour then was, in Keller v Bayside City Council,[3] R 36.01(6) is not limited to the periods of limitation in Part 1 of the Limitation of Actions Act 1958 ("the Limitation Act"). Nor is s 34 of the Limitation Act so limited.

(d) In the exercise of the Court's discretion, it is appropriate to allow the amendment.

(a) Each payment is a separate transaction in relation to which the plaintiff must establish that it is an unfair preference and an insolvent transaction. Hence, the inclusion of the four payments introduced to the case a new cause (or causes) of action outside the period of three years allowed in s 588FF(3) for the commencement of such a claim.

(b) Section 588FF(3) operates to prohibit an amendment after the expiration of the three year period. The contrary decision in Rodgers was wrongly decided and should not be followed.

(i) to differences between O 13 of the Federal Court Rules and the Victorian s 34 and R 36.01(6). As to Victoria:

* The dicta in Keller that s 34 applies only to periods of limitation outlined in Part 1 of the Limitation Act was correct. Rule 36.01(6) should be interpreted as being facilitative of the operation of s 34. Therefore s 34 and R 36.01(6) do not apply to the period of limitation in s 588FF(3).

* The contrary decisions of Ashley J in Hatfield v Agtrack (NT) Pty Ltd (t/as Spring Air)[4] and Simplot Australia Pty Ltd v PSL Industries[5] were wrongly decided and should not be followed.

(ii) to R 2.2 of the Corporations Law Rules pursuant to which the application to amend is made, which was not the case in Rodgers.

(d) Section 34 and R 36.01(6) not being applicable, the rule in Weldon v Neal remains applicable, and on that basis the application should be refused.

(e) Alternatively, the claims based on the three Treasury payments are untenable or do not disclose a cause of action. That is because there are no facts alleged which show that the Treasury payments resulted in the defendant receiving (from the company) the money constituted by those payments. The company did not suffer any decrease in its assets as a result of the payments.

(f) Alternatively, there has been no proper explanation of the plaintiffs' delay in bringing the new claims. The plaintiffs had at all times had documents which contain the facts upon which the amendments are alleged to be based.

At the time of the hearing the Court of Appeal had reserved judgment in appeals from the decisions of Ashley J in Hatfield and Simplot. I reserved judgment pending the determination of the appeals. The Court of Appeal delivered judgment[6] on 28 February 2003, following which I received written submissions from counsel regarding the effect of the decisions on the application. In their further submissions counsel for the defendant submitted that if allowed the amendments should be expressed to operate as from the date of the order.

The operation of s 588FF(3) was considered by the Full Court of the Federal Court in Rodgers. In that case a liquidator had commenced a proceeding against the Commissioner of Taxation for an order that the Commissioner repay the company in liquidation monies paid to the Commissioner for group tax on the ground that the payments were voidable transactions under s 588FE. Subsequently, and outside the period of three years in s 588FF(3), the liquidator sought to amend the claim by adding claims in respect of two further payments. The amendment was sought under O 13, r 2 of the Federal Court Rules 1979, paras (3) and (7) of which provided that:

"(3) Where an application to the Court for leave to make the amendment mentioned in subrules (4), (5), (6) or (7) made after any relevant period of limitation current at the date of commencement of the proceeding has expired, the Court may, nevertheless, grant such leave in the circumstances mentioned in that subrule if it thinks it is just to do so. ... (7) An amendment may be made notwithstanding that the effect of the amendment will be to add or substitute a new claim for relief or another foundation in law for a claim for relief if the new claim for relief or foundation in law to that claim arises out of the same facts or substantially the same facts as those already pleaded to support existing claims for relief by the party applying for leave to make the amendment."

The Full Court considered, inter alia, an argument (repeated by the defendant before me) that s 588FF(3) operated to preclude the amendment, and an argument (the like argument in relation to the Victorian rule also being made by the defendant before me) that the power to amend in the Rules was inconsistent with s 588FF(3). The Full Court commenced its reasoning by referring to the legislative history and, in particular, to the rule in Weldon v Neal[7] that amendments not be permitted if the effect would be to deprive the defendant of a limitation defence. It would be unjust to do so because unless an order to the contrary was made the amendment was taken to be effective from the date the proceeding was commenced, which would be within the limitation period. The question was how O 13, r 2, which had been introduced in 1994 to overcome the effect of the rule in Weldon and Neal, operated. In a unanimous judgment, the Full Court held that s 588FF(3) is concerned with the commencement of the proceeding, and is not directed at the amendment of an existing claim. There was therefore no inconsistency between s 588FF(3) and O 13, r 2. They were concerned with different matters. It was then necessary to conclude whether the case was within O 13, r 2(7). The Full Court concluded that it was and that the amendment should be permitted, saying:

"No doubt it is correct to say each payment amounted to a separate transaction; nonetheless we consider these additional claims arise out of substantially the same facts as those pleaded to support the original claim. The additional claims are said to be part of a pattern of conduct extending over a period of approximately eight months and involve allegations identical in form to those of the earlier claims. The additional payments were both made within five weeks of the date of the last payment specified in the original application. The requirements of O 13, r 2(7) are satisfied in respect of these two payments."[8]

A year later, in the Supreme Court of New South Wales, Rolfe J followed and applied Rodgers in Star v National Australia Bank Ltd.[9] The circumstances were the same: an application to amend to introduce transactions after more than three years had elapsed since the relation-back day. As in Rodgers, the defendant argued that s 588FF(3) barred the introduction of the claims on the basis that they were new and outside the time period. The defendant also argued that Pt 20 of the New South Wales Rules of Court could not be used to circumvent the limitation period. In rejecting these arguments Rolfe J applied Rodgers and held that s 588FF(3) was concerned with the commencement of the proceeding, and that Pt 20 was concerned with the amendment of the proceeding; two different matters which were not inconsistent. Rolfe J further concluded (at 601) that while the legislation and rules with which the Full Court was concerned in Rodgers differed in some respects from those applicable in New South Wales, the New South Wales Supreme Court had as wide a power to grant amendments as that conferred on the Federal Court. Therefore, the reasoning in Rodgers was applicable, subject to the amendment arising out of the same or essentially the same facts (which was a reference to the language in Pt 20 r 2(5)). Rolfe J concluded that that requirement was satisfied and allowed the amendment.

It was a difficult task for counsel for the defendant to find a way around these decisions. Quite apart from the reasoning and conclusions in them, the defendant was forced by the statement of the High Court in Australian Securities Commission v Marlborough Gold Mines Limited[10] to find a way of avoiding their application. The statement in Marlborough Gold Mines requires that I not depart from these decisions, especially that of Rodgers, as a decision of an appellate court, unless I am convinced that the interpretation of the Law in Rodgers and Star is plainly wrong.

Counsel sought to avoid the difficulty which the High Court statement presented by submitting that Rodgers and Star were distinguishable from the present proceeding. The submission emphasised Rodgers in particular, which was understandable given that Rodgers was decided by an appellate court and the decision was followed in Star. It was submitted that Rodgers was distinguishable on one or another of the following bases. First, the present application is made under R 2.2 of the Corporations Law Rules, which was not the case in Rodgers and Star. Secondly, Rodgers and Star were decided under the rules of court providing for amendment in the Federal Court and the Supreme Court of New South Wales, respectively. It seemed to be implicit in the submission that the relevant Victorian rule or statute providing for amendment differed in a material respect from those under consideration in Rodgers and Star, but counsel did not undertake an analysis of the respective provisions to establish such a difference. Rather, the course that counsel took was to make the submission based on the dicta of Batt J in Keller referred to at [13(c)]. Thirdly, the Full Court in Rodgers erred in deciding that s 588FF(3) applied to the commencement of an application and that the issue of an amendment was a different matter to be dealt with under the statute or rule of court applicable to amendment in the jurisdiction in which the application was made.

In my view none of these points has substance. The first point, concerning R 2.2, was stated to be that the rule covered the field as far as corporations matters are concerned. Therefore, counsel said, "you don't ever get to O 36". The submission misconceives the rule, but I have to set it out. The submission turns on the introductory words to R 2.2(1), namely "[u]nless these Rules otherwise provide, a person must make an application required or permitted by the Law to be made to the Court" by originating process or interlocutory process. That meant, in this case, an application by interlocutory process.[11] An application for amendment by such process "must encompass an amendment of the kind ... being sought here, subject of course to [the] time limitation". Accordingly, and there being no other relevant provision in the Rules, there was no warrant to go to O 36. This meant, as I understood it, that the application to amend was to be determined with regard to the time limit in s 588FF(3) and the rule in Weldon and Neal, although counsel did not develop the point. It was submitted, this apparently being considered sufficient for the purpose, that the point was one of distinction with Rodgers which was decided before R 2.2 existed. I should say that counsel did not go to the rules of court in force in the different jurisdictions prior to the commencement of the harmonised corporations rules to properly establish the basis of the contention. As counsel did not do so, I do not do so. It is not necessary to consider the submission further than to say that it confuses a rule (R 2.2) which is concerned with the form and name of the document by which an application is to be made with the law, procedural or substantive, to be applied in deciding the application. The Corporations Law Rules provide for matters of procedure, but not exclusively or completely in the way that Chapter 1 of the Rules do. It is for that reason, to ensure there is no gap in the Rules and in the Court's powers in dealing with applications, that R 1.3(2) provides that the other rules of the court apply so far as they are relevant and not inconsistent with the Corporations Law Rules to a proceeding under the Law commenced on or after the commencement of the Corporations Law Rules. The present proceeding was commenced after that date. Hence, as the Corporations Law Rules do not provide for the Court's powers in relation to amendment in circumstances such as the present, O 36, being relevant and not inconsistent, is applicable. The final point in this discussion is whether R 36.01(6) is materially different from the rules of court applied in Rodgers and Star. It is apparent from the decisions of the Court of Appeal in Hatfield and Simplot that the answer is that there is no material difference in the operation of the rules.

While Hatfield and Simplot concerned different statutory limitation periods they also concerned, and discussed, the nature and extent of the power to amend in the relevant Victorian provisions in circumstances in which a period for bringing a proceeding has expired. The principal judgment in Hatfield was delivered by Ormiston JA. Chernov JA and O'Bryan AJA agreed with his Honour's reasons. The judgment contains a substantial discussion of the purpose of s 34 and R 36.01(6) in abrogating the rule in Weldon and Neal and as to the operation of those provisions.

In Hatfield and Simplot the Court of Appeal was pressed to apply the dicta of Batt J in Keller, which, it was said, had been referred to with approval in Anglo Irish Beef Processors International v Federated Stevedores Geelong.[12] This is the same argument that was made before me. The argument was rejected in Hatfield and Simplot. In short, the Court of Appeal held that neither s 34 nor R 36.01(6) is confined to periods of limitation in the Limitation Act. That is, either provision can operate in relation to a period of limitation such as that contained in s 588FF(3). It is thus apparent that the defendant's argument before me based on the dicta in Keller is untenable.

It is also to be noted that in Simplot Chernov JA referred to O 13, r 2 of the Federal Court Rules as being "relevantly similar to R 36.01(6)".[13] Moreover, in my view the approach to the application of the relevant power to amend in Rodgers and Star is consistent with the approach in Hatfield and Simplot. In each case the Court of Appeal upheld the decision to allow the amendments even though the effect was to introduce a new cause of action. In Simplot Chernov JA said:

"But the new claim is not based on facts which bear little relationship to the existing cause of action. On the contrary, they are closely related to, and are intertwined with, the facts which relate to the present claims."[14]

That is consistent with the approach of Ormiston JA in Hatfield where His Honour referred to the need for "a close connection" between the claim already instituted and the claim to be added.[15]

That brings me to the third point, which is that the Court in Rodgers erred, to the point of manifest error, in deciding that s 588FF(3) applied only to the commencement of an application, and that the rules of court permit amendment after the lapse of the relation-back period. It was argued that the Court wrongly failed to apply the reasoning of the High Court in David Grant and Co Pty Ltd v Westpac Banking Corporation,[16] and a decision of the Full Court of the Federal Court in Quick v Stoland Pty Ltd.[17] It is sufficient for me to say that, in the circumstances, these points of attack must fail. The Full Court in Rodgers was aware of and considered both cases. Having considered the matter, it is my view not merely that Rodgers, and Star, were not "plainly wrong" but that they were correctly decided.

For these reasons I follow and apply the decisions of Rodgers and Star in determining this application.

It follows that R 36.01(6) is applicable. It provides that:

"The Court may, notwithstanding the expiry of any relevant limitation period after the day a proceeding is commenced, make an order under paragraph (1) where it is satisfied that any other party to the proceeding would not by reason of the order be prejudiced in the conduct of his claim or defence in a way that could not be fairly met by an adjournment, an award of costs or otherwise."

The observations in Hatfield and Simplot, which accord with the approach in Rodgers and Star, indicate the considerations that are appropriate to take into account in determining whether to exercise the discretion to allow an amendment. Ultimately it is for the judge in each case to decide, in light of the particular circumstances of the case and the terms of the rule, whether to allow an amendment. The purpose of conferring a discretion in terms such as the discretion in R 36.01(6) is to ensure that the Court is able to do that which is just and equitable in all the circumstances of the particular case bearing in mind the terms of the relevant rule.[18]

I turn then to the facts of the present case. The additional payments amount to a separate claim or claims. But, in the language of Chernov JA, the payments are closely related to, indeed intertwined with, the payments sought to be recovered in the existing proceeding. All of the payments were made under the one lease between the company and the defendant. The additional payments are but four payments within an overall series of payments received by the defendant on account of the company under that lease. There is but one context, being the relationship of landlord and tenant between the company and the defendant. The mere fact that Treasury has entered that context as the provider of three payments does not materially affect the situation. Like all of the other payments, the payment was by cheque and received by the defendant as a payment in reduction of the company's liability. In my view the amendment should be permitted. Several further submissions of the defendant remain to be considered.

Perhaps the first to mention is that the amendments should be allowed on the basis that they are effective from the date of making the order. This is said to be appropriate because of the new facts sought to be alleged. I reject that submission. Having decided that it is appropriate to allow the amendments, because in my view that is the just and appropriate exercise of the discretion in the circumstances, I likewise consider that it is just and appropriate to allow the amendments on the basis that they relate back to the date of commencement of the proceeding.

The defendant submitted that the claim based on the Treasury payments was untenable in the sense of not disclosing a cause of action. This submission related to the three payments made by Treasury. The result of the submission, if upheld, would be to refuse the application to the extent to which it relates to those three payments. That would leave the claim for the one payment made by the company.

Counsel referred to several cases in support of their respective submissions on this aspect. Counsel for the plaintiffs relied on Re Emanuel (14) Pty Ltd (in liq); Macks v Blacklaw and Shadforth Pty Ltd[19] in submitting that the Treasury payments could be recovered as preferences. Counsel said that the reasoning in Emanuel was approved in V R Dye and Co v Peninsula Hotels Pty Ltd (in liq).[20]

Counsel for the defendant denied the relevance of Emanuel to the present case submitting, in effect, that the critical difference was that nothing had moved from the company to the defendant. The company had not given up any of its property; see Ramsay v National Australia Bank Ltd,[21] and Walsh v Terranova.[22] There was no decrease in the net value of the company's assets; see Airservices Australia v Ferrier.[23] All that had happened was that the Treasury payments extinguished one debt and credited another in an equal sum.

In reply, counsel for the company submitted that the passage in Airservices relied on by the defendant did not, understood in the context there under consideration, aid the defendant. Ramsay and Walsh concerned the pre July 1993 preference provisions. Emanuel considered the meaning of "transaction" in the post July 1993 preference provisions, and the reasoning was approved in Dye. Counsel submitted that the position is, in substance and as a matter of commercial reality, the same as if Treasury had advanced the money to the company and the company then paid the defendant.

I do not propose to determine this issue at this stage of the case. In my view it is not convenient or appropriate to do so. An application to amend is not an appropriate stage at which to determine the untenability of a cause of action.[24] That is especially so when the amendment has not yet been made and pleaded to and the parties have, thus, not defined the issue. Further, whatever view I may take on this aspect, the proceeding will still proceed to trial. The full facts will then be ascertained. It is possible that in some respect or other that is relevant to the Treasury aspect, some twist or turn in the facts might emerge that bears on the Treasury issue. There is apparently a substantial quantity of discovered documents and the present application has come late because, it is said, of the discovery of the Tenant Reconciliation Report. Further, I do not consider that the Treasury claims will give rise to appreciable extra costs in the litigation. Overall, I consider that it is appropriate, from the point of view of the parties and the Court, that the issue of whether the Treasury payments can be recovered is an issue which ought to be determined at trial along with the other issues. There can then be one judgment given in light of the facts thus ascertained. See, generally, the observations of Kirby P, as he then was, in Wickstead v Browne.[25]

There remains the contention that the Court should exercise its discretion to refuse the application on account of delay in its making. I reject the submission. It appears that the liquidator has been confronted with much documentation in this liquidation. Before commencing the proceeding the liquidator sought to obtain from the defendant details of payments received by the defendant in relation to the lease during the relation-back period, and all documents in the defendant's possession, custody or control relating to or evidencing the payments. Accordingly, his solicitors wrote to the defendant's solicitors on 5 July 2001. On 16 July 2001 the defendant's solicitors said they would reply when they had instructions. The liquidator's solicitors wrote again seeking the information by 6 August 2001. No response was received. The proceeding was commenced on 1 November 2001. There was discovery. The plaintiffs' affidavit of documents runs to 115 pages and discovered 1,350 documents, a large proportion of which are bundles and correspondence relating to particular categories. The documents fill 15 Ausdoc boxes. On 2 October 2002 the defendant discovered the Tenant Reconciliation Report, which revealed the Treasury payments. As against this, the defendants contend that the relevant information was to be found in documents in the plaintiffs' possession. Sometimes information may be in a party's possession but the existence, meaning and effect of it is not necessarily apparent, or as apparent as it might seem to be to others with knowledge of the matter. I am satisfied, regarding the matter overall, including the contents of the solicitors' affidavits, that it would be unjust and unreasonable to refuse the application to amend on account of such delay as might be held to have occurred here. I am of the view that the liquidator acted with reasonable expedition in bringing the application to amend.

For these reasons there will be leave to amend, directions for pleadings and the further conduct of the case, and I will hear counsel on the question of costs.

[6] Agtrack (NT) Pty Ltd (t/as Spring Air) v Hatfield [2003] VSCA 6; PSL Industries Ltd v Simplot Australia Pty Ltd [2003] VSCA 7.

[11] In fact, the application was brought on under liberty to apply. The application was conducted, at my suggestion and without objection by the defendant, without an interlocutory process being filed, but as though it had been.

[18] See Mallett v Mallett [1984] HCA 21; [1984] 156 CLR 605, 609. See also McKenna v McKenna [1984] VicRp 58; [1984] VR 665, 674 on the matter of the approach to a judicial discretion.

[24] Commonwealth of Australia v Verwayen (1990) 170 CLR 394, 456.

At a glance

Court

Decision date

Before

Source

Judgment (80 paragraphs)

Parties

Cases Cited (8)