Re Jay-O-Bees; Rosseau v Jay-O-Bees

CATCHWORDS : CORPORATIONS - winding up - proof of debt - appeal against rejection of proof of debt - matters which court can take into consideration in determining appeal - procedure to be followed on such appeal - CORPORATIONS - winding up - winding up by the Court - proper scope of interlocutory process filed in winding up proceedings - PROCEDURE - Supreme Court procedure - relationship between relief sought by an interlocutory process, and relief sought by principal proceedings - EQUITY - rectification - whether available against a company after company has been ordered to be wound up Corporations Act 2001 Corporations Law LEGISLATION CITED : Corporations Regulations Industrial Relations Act 1996 Supreme Court (Corporations) Rules 1999 Supreme Court Act 1970 Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia (1977) 139 CLR 54 In re Armstrong Whitworth Securities Company, Limited [1947] 1 Ch 673 In re Ashpurton Estates Ltd [1983] Ch 110 Re Autolook Pty Ltd (1983) 1 ACLC 1211 Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167 Baird v BCE Holdings Pty Limited (1996) 40 NSWLR 374 Bloomenthal v Ford [1897] AC 156 Bosaid v Andry [1963] VR 465 Re Brown; Ex parte Jago (Federal Court of Australia, 12 October 1983, Fitzgerald J unreported) Buckingham v Pan Laboratories (Australia) Pty Ltd (in liq) [2004] FCA 597 In re Buckton; Buckton v Buckton [1907] 2 Ch 406 Burkinshaw v Nicolls (1878) 3 App Cas 1004 Burnells Pty Ltd (in liquidation) v Walsh (1979) QdR 440 Re Cahill; Ex parte Fielding (1931) 3 ABC 250 Capita Financial Group Ltd v Rothwells Ltd (1989) 15 ACLR 348 Commercial Banking Company of Sydney Limited v George Hudson Pty Limited (In Liquidation) (1973) 131 CLR 605 Craddock Brothers v Hunt [1923] 2 Ch 136 In re Cunningham; Sproule v Quested (1914) 31 WN (NSW) 44 Discount & Finance Ltd v Gehrig's NSW Wines Ltd (1940) 40 SR (NSW) 598 Re Equity Funds of Australia (in liq) [1976] 2 ACLR 238 In re Exchange Securities & Commodities Ltd (In Liquidation) [1988] 1 Ch 46 Fisher v Madden as Receiver and Manager of Dataflow Computer Services Pty Ltd (2002) 54 NSWLR 179 Harris v Truman (1882) 9 QBD 264 Harry Goudias Pty Ltd v Port Adelaide Freezers Pty Ltd (1992) 7 ACSR 303 In re Halston; Ewen v Halston [1912] 1 Ch 435 Haviland v McLeary (1894) 15 NSWR (Eq) 22 In re Home and Colonial Insurance Company, Limited [1930] 1 Ch 102 Hypec Electronics Pty Limited (in liq) v Mead; BL & GY International v Hypec Electronics Pty Limited (in liq) [2004] NSWSC 731 Issa v Berisha [1981] 1 NSWLR 261 J J Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (No 2) (1987) 13 ACLR 77 Johnston v Australia and New Zealand Banking Group Ltd; Johnston v Richardson [2003] NSWSC 454 Jones v Brien (1994) 13 ACLC 99 Keen v Holland [1984] 1 WLR 251 at 261 CASES CITED : In re Kentwood Constructions Ltd [1960] 1 WLR 646 Latec Investments Limited v Hotel Terrigal Pty Limited (in liquidation) (1965) 113 CLR 265 Malmesbury v Malmesbury (1862) 31 Beav 407 Maritime Electric Company, Limited v General Dairies, Limited [1937] AC 610 Marsland v Gamble [2002] WASC 213 Minister for Immigration and Ethnic Affairs v Kurtovic (1990) 21 FCR 193 Murdocca v Murdocca (No 2) [2002] NSWSC 505 O'Brien v Ritchie (1931) 48 WN (NSW) 85 Ogilvie-Grant v East as Liquidator of Gordon Grant and Grant Pty Ltd (in liq) (1983) 1 ACLC 742 Phillips v Walsh (1990) 20 NSWLR 206 Pulsford v Devenish [1903] 2 Ch 625 In re Reese; Ex parte Bryant (1890) 7 Morr 144 Re Robinson and Tarley (1847) 9 LTOS 412 Romero v Auty [2000] VSC 462 Silbermann v One Tel Ltd (in Liq) (2002) 167 FLR 274 Spathis v Hanave Investment Co Pty Limited [2002] NSWSC 304 Re Spedley Securities Ltd; ex parte Australian National Industries Ltd (No 2) (1991) 9 ACLC 698; (1991) 4 ACSR 552 Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 St George v Wallis [2001] NSWSC 23 Tanning Research Laboratories Inc v O'Brien (1987) 11 ACLR 778 Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 The New South Wales Trotting Club Limited v The Council of the Municipality of Glebe (1937) 37 SR (NSW) 288 Thomson v The Mulgoa Irrigation Company, Limited (1894) 4 BC (NSW) In re Trepca Mines Ltd [1960] 1 WLR 1273 Re Trivan Pty Ltd (1996) 14 ACLC 1654 Re Tyndall (1977) 30 FLR 6 UTSA Pty Ltd (in liquidation) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667; (1996) 14 ACLC 1262 Vagrand Pty Limited (In liquidation) v Fielding (1993) 41 FCR 550 In re Van Laun; Ex parte Chatterton [1907] 1 KB 155 In re Van Laun; Ex parte Chatterton [1907] 2 KB 23 Vector Capital Ltd v SNS Software Network Systems Pty Ltd (1988) 12 NSWLR 1 Webb Distributors (Aust) Pty Ltd v The State of Victoria (1993) 179 CLR 15 Westpac Banking Corporation v Totterdell (1998) 17 ACLC 317 Wight v Eckhardt Marine GmbH [2003] UKPC 37; [2004] 1 AC 147 Wongala Holdings Pty Limited v Mulinglebar Pty Ltd (1994) 6 BPR 13,527 Rosseau Pty Limited (in liquidation) - Plaintiff PARTIES : Jay-O-Bees Pty Limited (in liquidation) - Defendant Kenneth J Rennie as Liquidator of Jay-O-Bees Pty Limited (in liquidation) - Applicant Rosseau Pty Limited (in liquidation) - Respondent FILE NUMBER(S) : SC 3765/98 COUNSEL : C D Wood - Applicant K Rees - Respondent SOLICITORS : Hugh & Associates - Applicant Deacons - Respondent

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

3765/98 RE JAY-O-BEES PTY LIMITED; ROSSEAU PTY LIMITED (IN LIQUIDATION) v JAY-O-BEES JUDGMENT 1 HIS HONOUR: This is a preliminary skirmish in an appeal from a liquidator's rejection of a proof of debt. It turns largely on (a) what effect should be given, in the admission of proofs of debt in a company liquidation, to a claim that the contract on which the proof of debt is based should be rectified, and (b) by what procedure such a claim should be made. There is a subsidiary issue about the appropriateness of joining the company in liquidation as party to an interlocutory process filed in the winding up proceedings and seeking, by that interlocutory process, a declaration concerning construction of a contract to which the company is party. The Factual Circumstances Giving Rise to the Dispute 2 On 6 December 1996 Nodcad Pty Limited ("Nodcad") owed debts of differing amounts to three separate companies, Inteq Custodians Limited ("Inteq"), Athcad Pty Limited ("Athcad"), and Rodlow Pty Limited ("Rodlow"). The amount which Nodcad owed to Rodlow was $49,750. 3 On 6 December 1996 six Deeds of Assignment were entered. Three of them were ones which on their face appear to be ones whereby Inteq, Athcad and Rodlow assigned to Rosseau Pty Ltd ("Rosseau") the debts which they were respectively owed by Nodcad. The other three deeds on their face appear to be ones entered between Rosseau and Jay-O-Bees Pty Limited ("Jay-O-Bees"). Each of those deeds bears a coversheet showing it to be a "Deed of Assignment", between Rosseau and Jay-O-Bees. Each of those coversheets bears the name of the one firm of solicitors. It is common ground in these proceedings that one of those deeds is effective to assign from Rosseau to Jay-O-Bees the debt which Nodcad owed to Inteq, and to impose an obligation on Jay-O-Bees to pay to Rosseau an amount equal to the face value of that debt. It is common ground that another of the deeds is effective to assign from Rosseau to Jay-O-Bees the debt owed by Nodcad to Athcad, and to impose on Jay-O-Bees an obligation to pay to Rosseau the face value of that debt. 4 The third of the deeds between Rosseau and Jay-O-Bees ("the Disputed Deed") is the subject of contention. That deed refers to Jay-O-Bees as "J.O.B.". It contains recitals that: "A. On 6 December 1996 Rosseau took an assignment of a debt in the sum of forty nine thousand seven hundred and fifty dollars ($49,750.00) owed by Nodcad … to Rodlow … by way of Deed of Assignment dated 6 December 1996.

B. By virtue of the assignment referred to in recital A, Nodcad is indebted to Rosseau in the sum of forty nine thousand seven hundred and fifty dollars ($49,750.00) ("the Debt").

C. Rosseau has agreed with J.O.B. to sell and assign to it for the sum of forty nine thousand seven hundred and fifty dollars ($49,750.00) the Debt owing by Nodcad to Rosseau." 5 However, the operative provisions of the Disputed Deed do not fit with these recitals. Clause 1 of the deed says: "That in consideration of the sum of forty nine thousand seven hundred and fifty dollars ($49,750.00) which amount Rosseau agrees and undertakes to pay to Rodlow (18) eighteen months from the date of this Deed or thereafter as may be agreed between the parties or if not agreed payable on demand by Rosseau."

If the clause was to carry out the transaction envisaged by the recital, it would not say "which amount Rosseau agrees and undertakes to pay to Rodlow" , but would rather say "which amount J.O.B. agrees and undertakes to pay to Rosseau" . 6 As well, if this Clause were to carry out the transaction envisaged by the recitals it would say at the end "Rosseau hereby assigns to J.O.B. the Debt" or words to that effect. However, the omission of these words is apparently not something which anyone regards as a source of invalidity or doubt. I note that the two other deeds whose recitals refer to assignments of debts from Rosseau to Jay-O-Bees, being the debts owed by Nodcad to Inteq and Athcad respectively, also lack the words "Rosseau hereby assigns to J.O.B. the Debt", yet those deeds are conceded to be effective assignments of those debts. I infer that the parties accept that, as a matter of construction, those words should be treated as being in the Deeds. 7 On 10 July 1998 Rosseau (which by this time was in administration) served a statutory demand on Jay-O-Bees, alleging that Jay-O-Bees owed it a debt of $245,027.69. That amount was the total of the amounts referred to in the three "Deeds of Assignment" entered between Rosseau and Jay-O-Bees on 6 December 1996. 8 On 22 October 1998 an application by Rosseau to wind up Jay-O-Bees, on the basis of that statutory demand, was heard by Master McLaughlin. The learned Master made an order that day for the winding up of Jay-O-Bees. In the course of his judgment the learned Master said: "No evidence in opposition to the winding up was placed before the Court by the defendant. However, I raised with Counsel for the plaintiff the fact that the alleged debt owing by the defendant to the plaintiff, being a total amount of $245,027.69, is the total asserted to be owing under three separate deeds of assignment each dated 6 December 1996 between the plaintiff and the defendant. The first of those deeds does not contain any operative provision which creates an indebtedness in the defendant to the plaintiff. That deed refers to an amount of $49,750. I am not satisfied that that amount constitutes a component in the indebtedness of the defendant to the plaintiff. The indebtedness of the defendant to the plaintiff arises from the other two deeds of assignment, each of which in its operative provision creates an indebtedness in the defendant to the plaintiff, in the first deed in an amount of $151,277.69, and in the second deed in an amount of $44,000. I am satisfied that the defendant is indebted to the plaintiff in a total amount of $195,277.69. To the extent that it is necessary, I direct that that amount be substituted for the amount of $245,027.69 in the statutory demand and in the summons." 9 Rosseau (which by this time was itself in liquidation) lodged a proof of debt for $245,027 with the liquidator of Jay-O-Bees in February 2000. The liquidator of Jay-O-Bees has rejected that proof of debt as to $49,750, and admitted it as to the balance. The liquidator of Jay-O-Bees advised Rosseau of his rejection of the proof on 20 October 2003. 10 After an extension of time was granted, Rosseau filed a Notice of Motion, on 13 November 2003, in the proceedings for the winding up of Jay-O-Bees. That Notice of Motion named Mr Rennie, the liquidator of Jay-O-Bees, as first respondent, and Jay-O-Bees itself as second respondent. It sought the following orders: "1. Pursuant to subregulation 5.6.54(2) of the Corporations Regulations, that the first respondent's rejection of the applicant's proof of debt in the amount of $49,750.00 be revoked. 2. That the first respondent admit the applicant's proof of debt in the amount of $245,027.69. 3. Pursuant to section 471B of the Corporations Act, that leave be granted to the applicant to proceed against the second respondent. 4. Further or in the alternative to orders 1 and 2, that clause 1 of the Deed of Assignment between the plaintiff and the defendant dated 6 December 1996 be rectified to read as follows: "That in consideration of the sum of forty nine thousand seven hundred and fifty dollars ($49,750.00) which amount J.O.B. agrees and undertakes to pay to Rosseau eighteen (18) months from the date of this Deed or thereafter as may be agreed between the parties or if not agreed payable on demand by Rosseau." " 11 On 19 February 2004 the liquidator of Jay-O-Bees filed a Notice of Motion, naming Rosseau as respondent, seeking an order that paragraphs 3 and 4 of Rosseau's Notice of Motion of 13 November 2003 be struck out. 12 That strike-out motion is the one to which this judgment relates. Hence, the liquidator of Jay-O-Bees is the Applicant, and Rosseau Pty Limited (in liquidation) is the Respondent. 13 At the start of the hearing of the strike-out motion, Rosseau's Notice of Motion was itself amended in two respects. First, paragraph 1 was amended so that it invoked section 1321 of the Corporations Act 2001 (Cth) as well as subregulation 5.6.54(2) of the Corporations Regulations. Second, a new paragraph 2A was inserted, seeking: "A declaration that, on its true construction, clause 1 of the Deed of Assignment between the plaintiff and the defendant dated 6 December 1996 imposed an obligation on the defendant to pay the plaintiff $49,750." 14 This led the Applicant to orally amend his strike-out Notice of Motion, so that it sought the striking-out of paragraphs 2A, 3 and 4 of Rosseau's Amended Notice of Motion. 15 In the course of correspondence between solicitors before the Notice of Motion was taken out, the solicitors for the Applicant invited the Respondent to not only remove the paragraphs to which it objected from the Notice of Motion, but also to issue a fresh Equity Division Summons seeking rectification. The solicitors said that if that was done they would consent to those matters being heard together.

16 I should record that the Respondent does not accept that it is necessary for it either to actually obtain rectification, or demonstrate that circumstances exist where a court would grant rectification, before its appeal against rejection of the proof of debt can succeed. The Respondent says that, as a matter of construction, and independently of any right to obtain rectification, the Disputed Deed is one under which Rosseau has agreed to pay Jay-O-Bees $49,750. It is that contention which it seeks to uphold by para 2A of its Notice of Motion. The Relevant Statutory Provisions 17 The parties have assumed that it is the Corporations Act 2001 (Cth) rather than the Corporations Law which governs the present application. I shall do likewise. 18 Section 471B Corporations Act 2001 (Cth) provides: "While a company is being wound up in insolvency or by the Court … a person cannot begin or proceed with: (a) a proceeding in a court against the company … except with the leave of the Court and in accordance with such terms (if any) as the Court imposes." 19 The debts or claims that are provable in the winding up are defined by section 553 Corporations Act 2001 (Cth): "(1) Subject to this Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company."

Section 9 Corporations Act 2001 (Cth) defines "relevant date" , in relation to a winding up, as meaning: "the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun." 20 Section 553E Corporations Act 2001 (Cth) provides that, (subject to some exceptions not presently relevant): "… in the winding up of an insolvent company the same rules are to prevail and be observed with regard to debts provable as are in force for the time being under the Bankruptcy Act 1966 in relation to the estates of bankrupt persons (except the rules in sections 82 to 94 (inclusive) and 96 of that Act), and all persons who in any such case would be entitled to prove for and receive dividends out of the property of the company may come in under the winding up and make such claims against the company as they respectively are entitled to because of this section." 21 Section 554(1) Corporations Act 2001 (Cth) provides: "The amount of a debt or claim of a company … is to be computed for the purposes of the winding up as at the relevant date." 22 Section 1321 Corporations Act 2001 (Cth) provides: "A person aggrieved by any act, omission or decision of: … (d) a liquidator or provisional liquidator of a company; may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit." 23 Clause 5.6.54 of the Corporations Regulations sets out a procedure for a liquidator, who has rejected all or part of a formal proof of debt, to notify the creditor of the grounds of rejection, and of the creditor's right of appeal. It also sets out time limits within which that appeal can be exercised. 24 Pursuant to Clause 1.3 of the Supreme Court (Corporations) Rules 1999, those rules apply, unless the Court otherwise orders, to a proceeding in the Court under the Corporations Act 2001 (Cth) that is commenced on or after 1 March 2000. 25 Clause 14.1 of the Supreme Court (Corporations) Rules 1999 provides: "(1) All appeals to the Court authorised by the Corporations Act must be commenced by an originating process, or interlocutory process, stating (a) the act, omission or decision complained of; and (b) in the case of an appeal against a decision - whether the whole or part only, and if part only, which part of the decision is complained of; and (c) the grounds on which the complaint is based. … (4) As soon as practicable after filing the originating process, or interlocutory process … the person instituting the appeal must serve a copy of the originating process, or interlocutory process, and any supporting affidavit, on each person directly affected by the appeal." 26 Rule 2.2 of the Supreme Court (Corporations) Rules 1999 provides: "(1) Unless these Rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court: (a) if the application is not made in a proceeding already commenced in the Court - by filing an originating process; and (b) in any other case - by filing an interlocutory process." 27 Rule 2.4(1) of the Supreme Court (Corporations) Rules 1999 provides: "Unless the Court otherwise directs, an originating process, or interlocutory process, must be supported by an affidavit stating the facts in support of the process." 28 Rule 1.3 of the Supreme Court (Corporations) Rules 1999 provides: "(2) The other rules of the Court apply, so far as they are relevant and not inconsistent with these Rules, to a proceeding in the Court under the Corporations Act … that is commenced on or after the commencement of these Rules." 29 The Supreme Court Rules 1970 include, in Part 1, rule 3, provision that: "(1) The overriding purpose of these rules, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in such proceedings. (2) The Court must seek to give effect to the overriding purpose when it exercises any power given to it by the rules or when interpreting any rule." 30 Part 1, rule 12 Supreme Court Rules 1970 provides: "The Court may dispense with compliance with any of the requirements of the rules, either before or after the occasion for compliance arises." 31 Section 75A Supreme Court Act 1970 provides: (1) Subject to sub-sections (2) and (3), this section applies to an appeal to the Court … (4) This section has effect subject to any Act. (5) Where the decision or other matter under appeal has been given after a hearing, the appeal shall be by way of rehearing. (6) The Court shall have the powers and duties of the court, body or other person from whom the appeal is brought, including powers and duties concerning - (a) amendment (b) the drawing of inferences and the making of findings of fact; and (c) the assessment of damages and other money sums. (7) The Court may receive further evidence. (8) Notwithstanding subsection (7), where the appeal is from a judgment after a trial or hearing on the merits, the Court shall not receive further evidence except on special grounds … (10) The Court may make any finding or assessment, give any judgment, make any order or give any direction which ought to have been given or made or which the nature of the case requires." 32 Section 76A Supreme Court Act 1970 provides: "The Court may, from time to time, give such directions as the Court thinks fit (whether or not inconsistent with the rules) for the speedy determination of the real questions between the parties to civil proceedings."

To similar effect is Part 26, rule 1 Supreme Court Rules 1970 . Principles Concerning Appeal to the Court Against a Liquidator's Rejection of Proof of Debt 33 Considering the arguments which the Applicant presents in this Notice of Motion requires some preliminary consideration of how the process of proof of debt in liquidations, and appeal to the Court from rejections of proof of debt, operates. Clauses 5.6.39 to 5.6.56 (inclusive) of the Corporations Regulations establish a regime under which a liquidator can fix a time for creditors to submit details of their debt or claim to the liquidator. That procedure is one which enables the liquidator to admit a debt or claim without formal proof, or to require, in relation to any particular debt or claim, that it be formally proved. It is an important attribute of the system for proof of debts that a creditor must bear the cost of proving his or her debt or claim, or of amending a proof of debt or claim, unless the Court otherwise orders (5.6.51 Corporations Regulations). 34 In Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 338-40 Brennan and Dawson JJ described the role of a liquidator concerning proofs of debt as follows: "In determining whether to admit or reject a proof of debt, a liquidator has been said to act in a quasi-judicial capacity ( Re Britton & Millard Ltd (1957) 107 LJ 601) according to standards no less than the standards of a court or judge: Commissioner for Corporate Affairs v Harvey [1980] VR 669, at p.696. This description of the liquidator's function reflects his duty to distribute the assets in his hands or under his control among the persons truly entitled. That duty was stated by Viscount Simonds in Government of India v Taylor [1955] AC 491, at p.509: "I conceive that it is the duty of the liquidator to discharge out of the assets in his hands those claims which are legally enforceable, and to hand over any surplus to the contributories. I find no words which vest in him a discretion to meet claims which are not legally enforceable. It will be remembered that, so far as is relevant for this purpose, the law is the same whether the winding up is voluntary or by the court, whether the company is solvent or insolvent, and that an additional purpose of a winding up is to secure that creditors who have enforceable claims shall be treated equally, subject only to the priorities for which the statute provides." The principles which determine enforceability of the liability to which a proof of debt relates are, in the main, the same as the principles which would be applied in an action brought directly against the company to enforce that liability. Those principles include the law relating to the barring of actions by time: see, eg, Motor Terms Co Pty Ltd v Liberty Insurance Ltd (1967) 116 CLR 177. But this general rule is qualified. As the parties whose interests are affected by admission of a proof of debt are the general body of creditors and the contributories rather than the company in liquidation, there are some liabilities which would be enforceable against the company but which a liquidator is not bound to admit to proof of debt lest the interests of creditors and contributories may be unjustly affected. A liquidator may properly reject a proof of debt if the liability, though enforceable against the company, is not a true liability of the company but is founded merely on some act or omission on the part of the company which unjustly prejudices the interests of the creditors or contributories in the assets available for distribution. In this respect, there is no reason to distinguish between the position of a liquidator and that of a trustee in bankruptcy: see Ayerst v C & K (Construction) Ltd [1976] AC 167. In In re Van Laun; Ex parte Chatterton [1907] 2 KB 23, at p31, Buckley LJ said: "Whether the creditor alleges that there has resulted, and that he relies upon an account stated, or a covenant entered into by the debtor, or a judgment which he has obtained, the principle, I apprehend, is exactly the same, and is this - that the trustee is not the person who has stated the account, is not the covenantor, is not the judgment debtor, but is entitled to say, 'It is my business to see that those who seek to rank against this estate are persons who are really creditors of that estate'. If there be a judgment it is not necessary to shew fraud or collusion. It is sufficient, in the language of Lord Esher, to shew miscarriage of justice - that is to say, that for some good reason there ought not to have been a judgment. Exactly the same, I think, is true of an account stated or of a covenant." The same approach is equally applicable to estoppels which would defeat the distribution of assets among the true creditors of the company: In r e Exchange Securities Ltd [1988] Ch 46, at pp.59-60; and cf In re South American and Mexican Co; Ex parte Bank of England [1895] 1 Ch 37, at p.45. The occasions when it is right to reject a proof of debt in respect of what is not a true liability of the company may not be susceptible of exhaustive definition. Perhaps some guidance may be found in the terms employed by Barwick CJ in Wren v Mahony (1972) 126 CLR 212, at p.223, in reference to the grounds on which a court of bankruptcy will go behind a judgment: "Circumstances tending to show fraud or collusion or miscarriage of justice or that a compromise was not a fair and reasonable one, in the sense that even if not fraudulent it was foolish, absurd and improper, or resulted from an unequal position of the parties (see In re Hawkins; Ex parte Troup [1895] 1 QB 404 at p.409) offer occasions for the exercise by the Court of Bankruptcy of its power to inquire into the consideration for the judgment." It is not necessary in this case to determine the scope of this qualification. It suffices to note that it qualifies the principles governing the admission or rejection of a proof of debt by arming the liquidator with grounds for rejecting a proof of debt additional to any grounds available under the general law. For present purposes, the relevant consideration is that no liability which is unenforceable against the company by the general law can found a debt admissible to proof in a winding up." Why Equities of Estoppel Sometimes Do Not Apply when Considering Proofs of Debt 35 It is to be noted that the principle which Brennan and Dawson JJ stated concerning whether liquidators are bound by estoppels is that they are not bound by "estoppels which would defeat the distribution of assets among the true creditors of the company". That is not saying that liquidators are never bound by estoppels in any circumstances. If a company issues certificates stating that shares have been fully paid up, when they have not, and someone relies on the representation that the shares are fully paid up when acquiring the shares, the liquidator of the company can be bound by an estoppel to treat them as fully paid up when settling a list of contributories: Burkinshaw v Nicolls (1878) 3 App Cas 1004. Likewise if a company issues, as security to someone who provides the company with a loan, certificates stating that shares are fully paid up, the liquidator is estopped from denying that the shares are fully paid up when settling a list of contributories: Bloomenthal v Ford [1897] AC 156. As well, a trustee in bankruptcy is bound by an estoppel arising from representations of the bankrupt about who owns certain property, for the purpose of deciding what property is recoverable by the trustee for distribution in the administration: Harris v Truman (1882) 9 QBD 264, and there is no reason to believe a liquidator would not similarly be bound. This raises a question of why it is that a liquidator is bound by some estoppels which would be effective against the company, but not others. 36 The assets of a company which a liquidator obtains control of, and can distribute in the course of the liquidation, are those assets which the company has, subject to all equities which affect them. As Wilcox, Burchett and Beazley JJ said in Vagrand Pty Limited (In liquidation) v Fielding (1993) 41 FCR 550 at 552-3: "… the assets come to the liquidator with their history and inherent characteristics. Although the liquidator takes the assets on behalf of the creditors, third parties retain any rights which enure to them as a result of that history or those characteristics." 37 But a liquidator is not bound by all equities which affect the company when the liquidator is deciding whether to admit proofs of debt. In re Van Laun; Ex parte Chatterton [1907] 1 KB 155 concerned a claim by a solicitor to prove in the bankrupt estate of his client for fees. The client would have been bound as to the quantum of those fees by an account stated. The trustee in bankruptcy was not so bound. Bigham J said, at 162-3, in a passage approved and admired by the Court of Appeal (In re Van Laun; Ex parte Chatterton [1907] 2 KB 23): "But I am not dealing with the rights between Mr Van Laun and Mr Chatterton. I am dealing with the rights between Mr Chatterton and the general body of creditors as represented by the trustee. The trustee's right and duty when examining a proof for the purpose of admitting or rejecting it is to require some satisfactory evidence that the debt on which the proof is founded is a real debt. No judgment recovered against the bankrupt, no covenant given by or account stated with him, can deprive the trustee of this right. He is entitled to go behind such forms to get at the truth, and the estoppel to which the bankrupt may have subjected himself will not prevail against him." 38 Once it is accepted that even a judgment debt can be enquired into, when a trustee in bankruptcy is deciding to admit proofs of debt, it must follow that an estoppel can likewise be gone behind - it cannot be the case that "a debt which has not resulted in a judgment stands upon a more firm basis than a debt which has" (per Buckley LJ in In re Van Laun; Ex parte Chatterton [1907] 2 KB 23 at 31). 39 In company liquidations an analogous principle applies, whereby estoppels which bind a company do not always bind its liquidator when deciding whether to admit proofs of debt: In re Home and Colonial Insurance Company, Limited [1930] 1 Ch 102 at 130-131. Section 553E Corporations Act 2001 (Cth) (para [20] above) leads to the same conclusion. 40 There are two reasons why such an estoppel does not prevail against a liquidator. The first is that the statutory scheme under which liquidation is conducted is one which requires the liquidator "to distribute such assets as there are rateably amongst the true creditors" (In re Exchange Securities & Commodities Ltd (In Liquidation) [1988] 1 Ch 46 at 60 per Harman J), and neither an express contract nor an estoppel can operate to frustrate such a statutory obligation: Webb Distributors (Aust) Pty Ltd v The State of Victoria (1993) 179 CLR 15 at 38; Maritime Electric Company, Limited v General Dairies, Limited [1937] AC 610; Keen v Holland [1984] 1 WLR 251 at 261; The New South Wales Trotting Club Limited v The Council of the Municipality of Glebe (1937) 37 SR (NSW) 288; Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia (1977) 139 CLR 54; Minister for Immigration and Ethnic Affairs v Kurtovic (1990) 21 FCR 193. 41 The second reason why such an estoppel does not prevail against liquidator is that equity acts in personam, and once liquidation supervenes the people affected by any estoppel which might be asserted (namely, the person asserting the estoppel, and the general body of creditors and contributories) are different to the people involved in the circumstances which led to the creation of the estoppel (namely, the person asserting the estoppel, and the company). Once a winding up order is made, "All powers of dealing with the company's assets… are exercisable by the liquidator for the benefit of those persons only who are entitled to share in the proceeds of realisation of the assets under the statutory scheme. The company itself as a legal person, distinct from its members, can never be entitled to any part of the proceeds." (Per Lord Diplock, Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167 at 177). 42 While the company continues to exist after the winding up order is made and to be the holder of its own property, and while it is not correct to say that there is, after a winding up order is made, a fully-fledged trust of the property of the company for the creditors and contributories, "… the effect of the statute was to give to the property of a company in liquidation that essential characteristic which distinguished trust property from other property, viz, that it could not be used or disposed of by the legal owner for his own benefit, but must be used or disposed of for the benefit of other persons." (per Lord Diplock ibid , at 180). 43 In consequence of this the company was, once a winding up order was made, no longer the beneficial owner of the property it once held. It was for that reason that Brennan and Dawson JJ, in the passage quoted from Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at para [34] above, said: "As the parties whose interests are affected by admission of a proof of debt are the general body of creditors and the contributories rather than the company in liquidation, there are some liabilities which would be enforceable against the company but which a liquidator is not bound to admit to proof of debt lest the interests of creditors and contributories may be unjustly affected." 44 It was for an analogous reason that, in In re Van Laun; Ex parte Chatterton [1907] 1 KB 155 Bigham J explained (in the passage quoted at para [37] above) that the rights he was enforcing were not those between the creditor who claimed the benefit of an account stated and the bankrupt, but the rights between that creditor "and the general body of creditors as represented by the trustee." 45 In deciding whether an equity of rectification which bound the company should bind a liquidator in admitting proofs of debt, both of these reasons why some equities of estoppel do not bind a liquidator in admitting proofs of debt would need to be taken into account.

Role of the Court on Appeal from Rejection of Proof of Debt 46 The appeal to the Court from a liquidator's rejection of a proof of debt arises under section 1321 Corporations Act 2001 (Cth). That section is one which enables appeals to the Court to be made in relation to all manner of acts, omissions or decisions of a liquidator. The role which the Court takes on the appeal is affected significantly by the nature of the act, omission or decision which is being appealed against. Where the appeal is against a discretionary decision by a liquidator, or against a decision involving matters of business judgment, the Court will reverse the liquidator's decision only when it is satisfied that he was acting unreasonably or in bad faith: Re Equity Funds of Australia (in liq) [1976] 2 ACLR 238 at 239; Burnells Pty Ltd (in liquidation) v Walsh (1979) QdR 440; Re Spedley Securities Ltd; ex parte Australian National Industries Ltd (No 2) (1991) 9 ACLC 698; (1991) 4 ACSR 552; UTSA Pty Ltd (in liquidation) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667; (1996) 14 ACLC 1262; Re Tyndall (1977) 30 FLR 6 at 9. 47 The Court takes a different approach on an appeal from a liquidator's rejection of a proof of debt: Westpac Banking Corporation v Totterdell (1998) 17 ACLC 317 at 322 (Ipp J). There, the approach the Court takes is that stated by Brennan and Dawson JJ in Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 340-341: "The proceedings thus instituted, though often referred to as an "appeal" from the liquidator's decision to reject, are originating proceedings which the court hears de novo : In re Bird's Stores Pty Ltd (1931) 37 Arg LR 94; In re Kentwood Constructions Ltd [1960] 1 WLR 646; [1960] 2 All ER 655; In re Trepca Mines Ltd [1960] 1 WLR 1273; [1960] 3 All ER 304. In such a proceeding, a liquidator who defends his decision to reject a proof of debt is no longer acting in a quasi-judicial capacity; he is cast in the role of an adversary, defending the assets available for distribution against a liability which, according to the view he formed when acting quasi-judicially, is not legally enforceable. The liquidator may defend those assets against the creditor's claim on any ground on which the company might have defended the claim had it been sued by the creditor. If the liquidator relies on those special defences which allow him to go behind a judgment, an account stated, a covenant or an estoppel in order to ascertain the true liability of the company, he is none the less in the role of an adversary. The issue in the proceeding is whether the liability referred to in the proof of debt is a true liability of the company enforceable against it. The issue is contested between the putative creditor on the one hand and the liquidator on the other; the liquidator is a party litigant. And none the less so though the liquidator is required to act fairly in conducting the litigation."

48 Even on an appeal from a liquidator's rejection of a proof of debt there may be some appeals involving circumstances where a liquidator has exercised a discretionary business or factual judgment, which a court would be unwilling to depart from unless there was a demonstrated error on the liquidator's part. One example of such an occasion would be if the liquidator were required to make an estimate of the value of a contingent creditor's debt. However, if the issue on appeal from rejection of a proof of debt was whether the liquidator should have allowed the claim on the basis that the contract in question was rectified, there seems to be no room for any such discretionary business or factual judgments to enter into the argument. On an appeal involving that issue, the Court does not start with an assumption that the liquidator's decision will be confirmed unless it is shown to be wrong. 49 Even though section 75A(5) Supreme Court Act 1970 makes provision for a decision on appeal to the Court to be by way of rehearing, that subsection does not apply to appeals from a liquidator's rejection of a proof of debt. Whether or not the liquidator's giving to a creditor, at the time of submitting a proof of debt, the opportunity to put his case amounts to a "hearing " within the meaning of section 75A(5), section 75A applies only "subject to any Act", by reason of section 75A(4). Section 1321 Corporations Act 2001 and its predecessors are interpreted as requiring an appeal from a liquidator's rejection of proof of debt to be conducted in the way I have indicated, and thus displace section 75A(5). Procedure on Appeal from Rejection of Proof of Debt 50 Clause 14.1 of the Supreme Court (Corporations) Rules 1999 is an omnibus provision governing all manner of appeals to the Court which are authorised by the Corporations Act 2001 (Cth). In the particular case of an appeal to the Court from a decision of a liquidator in a winding up by the Court who has rejected a proof of debt, the appropriate initiating procedure to adopt is an Interlocutory Process.

51 In the present case, the appeal was initiated by notice of motion. The parties have not debated whether the correctly applicable rules require an Interlocutory Process, or a notice of motion. As that is a matter of form rather than substance, I shall not consider it further. 52 In Jones v Brien (1994) 13 ACLC 99 McLelland CJ in Eq dealt with the procedure to be followed under the then applicable rule of court relating to corporations, namely Part 80A Supreme Court Rules 1970. At that time Part 80A, rule 3(4) provided: "Without limiting the generality of Part 19 rule 1, application of the following kinds must be made by motion in the relevant winding up proceedings, namely - … (d) any application in the winding up of the subject corporation."

His Honour said, at 99: "… the proper procedure for an appeal by a person claiming to be a creditor of a company in liquidation against the rejection by the liquidator of a proof of debt is by motion in the winding up proceedings, and … the company should not be made a party to the motion. The person appealing should be the applicant and the liquidator should be the respondent. An appeal against the rejection by a liquidator of a proof of debt is an application to the Court for the determination of a question arising in the administration of the winding up by the Court, by the exercise of the Court's control over its own officer, which raises issues directly affecting only the respective rights of persons in whose interests the winding up is being conducted, namely creditors and/or contributories of the company. It is, in short, an application which is internal to the administration of the winding up. As such it is an "application in the winding up" (see Part 80A rule 3(4)(d) of the Supreme Court Rules ) required to be made by motion in the winding up proceedings. The company itself is neither a necessary nor a proper party to an application of that kind." 53 Rule 2.2 of the Supreme Court (Corporations) Rules 1999 contains the same concept as Part 80A, rule 3(4)(d), of whether an application is made "in" a proceeding which is already on foot. 54 When the Court makes an order that a company be wound up in insolvency it appoints an official liquidator to be the liquidator of the company (section 472(1) Corporations Act 2001 (Cth)) whose powers are subject to the control of the Court (section 477(6) Corporations Act 2001 (Cth)). The order that the company be wound up in insolvency is an order that a process be gone through, under the supervision of a court-appointed officer, all of whose powers are subject to the control of the Court. The process is, in the broadest terms, that the assets of the company be ascertained and got in, its liabilities ascertained, its contributories ascertained, any uncertainties about the respective entitlements of particular creditors or contributories decided, the assets distributed amongst those creditors and contributories entitled to them, and the company then dissolved. An appeal against rejection of a proof of debt is one matter which the Court decides, as an incident of the carrying through of the process which the Court has ordered, for the winding up of the company. That is why such an application is one which is made "in a proceeding already commenced in the Court", namely the winding up proceedings. Hence, Rule 2.2 of the Supreme Court (Corporations) Rules 1999 requires it to be brought by filing an Interlocutory Process. 55 Once the proceedings appealing against rejection of the proof of debt are commenced, there are no particular procedural bounds within which they must be conducted, other than those imposed by the Supreme Court (Corporations) Rules 1999 and Supreme Court Rules 1970 themselves. Section 1321 Corporations Act 2001 (Cth) itself confers upon the Court the widest power to make such order and give such directions as it thinks fit. That power is one which the Court itself exercises in accordance with its own rules. Once the proceedings have been begun, the Court can give directions so that the real issues involved in the proceedings can be determined, in whatever way seems best fitted to the particular case. In so doing, it exercises the powers of the court under section 76A Supreme Court Act 1970 and Part 26, rule 1 Supreme Court Rules 1970, applied in accordance with the "overriding purpose" rule contained in Part 1, rule 3 Supreme Court Rules 1970. 56 This means that there are no invariable rules about how appeals from rejection of a proof of debt are conducted, as to whether the case proceeds on pleadings or by a summary procedure, as to whether the evidence is given orally or on affidavit, or as to whether cross-examination is permitted. 57 If the issues in the appeal are such that they should be defined by pleadings, the Court can so order. There were pleadings in Tanning Research Laboratories at first instance (Tanning Research Laboratories Inc v O'Brien (1987) 11 ACLR 778 at 782). 58 As the terms of rule 2.4(1) and rule 14.1(4) Supreme Court (Corporations) Rules 1999 make clear, it is not an invariable requirement that the evidence in support of the Interlocutory Application be, even in the first instance, on affidavit. 59 There are examples of cross-examination occurring in proceedings involving an appeal from a liquidator's rejection of a proof of debt. Cross-examination occurred in Tanning Research Laboratories at first instance (Tanning Research Laboratories Inc v O'Brien (1998) 11 ACLR 778 at 783), to determine a disputed aspect of Florida law. Cross-examination was also permitted in such litigation in In re Trepca Mines Ltd [1960] 1 WLR 1273 at 1278, and in Romero v Auty [2000] VSC 462 at [48]; (2001) 19 ACLC 206 at 213. 60 The fact that the appeal is a hearing de novo has the consequence that the Court may make its decision on evidence that was not before the liquidator: In re Kentwood Constructions Ltd [1960] 1 WLR 646 at 648 (Buckley J); Romero v Auty [2000] VSC 462 at [41]; (2001) 19 ACLC 206 at 211 (Warren J); Marsland v Gamble [2002] WASC 213 at [10], [12] (Barker J). 61 In Ogilvie-Grant v East as Liquidator of Gordon Grant and Grant Pty Ltd (in liq) (1983) 1 ACLC 742 McPherson J (with whom Wanstall CJ and Sheahan J agreed) dealt with an appeal from a trial judge's refusal of leave to proceed against the company in liquidation. McPherson J said, at 744-5, in a passage often since cited: "As a matter of history, a winding up by the Court was and remains today an administration conducted by the Court ... Both because of this, and because it was before the Judicature Act an administration conducted in Chancery, it was inevitable that there should be restrictions on the bringing of proceedings, whether at common law or otherwise, during the course of that administration. What is substituted for litigation in the ordinary form is a procedure by which a claimant lodges a verified proof of debt with the liquidator, who admits or rejects it wholly or in part, and from whom an appeal lies to a Judge, who determines that appeal de novo primarily on affidavit material ... There can be no doubt that ordinarily such a procedure is, and is designed to be, much more expeditious and less expensive than ordinary proceedings by way of action. If this means that it occasionally has the consequence that the attainment of perfect justice is sacrificed to expedience, it may be justified by the circumstance that on appeal it is possible under modern rules of procedure for the Judge in appropriate cases to make orders for discovery and even for the delivery of pleadings where it appears necessary or desirable to do so. The question whether a claimant should be permitted to proceed by action, or should be required to submit his proof of debt and, if dissatisfied, appeal to a Judge, is therefore reduced largely to one of choosing between alternative forms of procedure. The effect of sec 230(3) is to require the claimant to adopt the course of lodging proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute. This is really all that is meant in this context by expressions such as "convenience" and "balance of convenience" that appear in judgments on the matter: see, for example, Re The Queensland Mercantile Agency Company Ltd (1888) 58 LT 878 at p.879; [ Stewart v Intercity Distributors Limited (1960) NZLR 944 at p.946 and cf Century Mercantile Co v Auckland Provincial Fruitgrowers' Co-operative Society Ltd (1921) NZLR 272 at p.276." 62 His Honour's remark that on an appeal the judge determines the appeal "primarily on affidavit material" is not a statement of law relating to such appeals; rather, it is an empirical generalisation about how most appeals in fact proceed. The final sentence of the paragraph in which that remark appears makes clear that his Honour fully recognises the flexibility of procedure which is possible on an appeal from a rejection of a proof of debt. His Honour's remark that "ordinarily such a procedure is, and is designed to be, much more expeditious and less expensive than ordinary proceedings by way of action" is also (as is shown by the word "ordinarily") an empirical generalisation. Further, it is an empirical generalisation which relates to the overall process by which first proofs are lodged, and then anyone dissatisfied with the decision of the liquidator concerning the proof might appeal - it is that combined process, in which by no means every decision of the liquidator is appealed against, which is ordinarily more expeditious and less expensive than if every creditor were to establish its debt by way of action. His Honour is not saying that, in any particular appeal from rejection of a proof of debt, the proceedings will be any simpler than would be proceedings in which the creditor sought to establish its claim by direct action against the company. Indeed, his Honour, at the end of the first paragraph quoted, identifies the possibility of there being discovery and pleadings on an appeal (which I take to be merely examples of the procedures available in fully contested litigation) as the justification for the less than perfect justice that might be involved in the proof of debt process at the stage of the liquidator making the decision whether to admit the proof. He is not suggesting that expedience or second-rate justice are involved in appeals from rejection of a proof of debt. Principles Concerning Relationship of Interlocutory Process to Principal Relief 63 One strand of the arguments which the Applicant presents in this Notice of Motion depends upon the relationship which an interlocutory application ought bear to the principal proceedings in which the interlocutory application is made. 64 An interlocutory application can involve a subject matter which will not arise in the principal proceedings - for example, whether a claim made against an overseas defendant is one which can properly be served outside Australia under Part 10 Supreme Court Rules 1970, whether a particular document need not be produced on the ground of privilege, or whether a particular interrogatory should be answered. Further, an interlocutory application can involve parties who are not parties to the principal proceedings - for example, a stranger to the litigation served with a subpoena applies on notice of motion in the proceedings to have that subpoena set aside. But relief which is sought in an interlocutory application must always be relief which is sought for the purpose of advancing claims which either a plaintiff or a defendant makes in the principal proceedings. 65 This purposive requirement was recognised by Owen CJ in Eq in Haviland v McLeary (1894) 15 NSWR (Eq) 22. In refusing to allow, in a suit involving the administration of a deceased estate in which a new trustee had been appointed, a motion for removal of that trustee, His Honour said, at 24: "If the parties could apply now there would be no reason … why they should not do so fifteen years hence, and a trustee might then be brought before the Court on motion in an old suit instituted for a different purpose, and one which had years ago been attained ." (emphasis added) 66 In Phillips v Walsh (1990) 20 NSWLR 206 McLelland J considered a Notice of Motion, brought in proceedings concerning administration of a deceased's estate, which sought relief beyond that claimed by the principal proceedings. He referred to Part 19, rule 1 of the Supreme Court Rules 1970, which provided (and still provides in Part 19, rule 1(1): "An interlocutory or other application, in or for the purposes of or in relation to proceedings commenced by statement of claim or by summons, shall be made by motion." 67 It is to be noted that this rule requires an application to be made by motion in three differently described circumstances - when it is "in" proceedings, when it is "for the purpose of" proceedings, or when it is "in relation to" proceedings. In Phillips v Walsh (1990) 20 NSWLR 206 the plaintiff submitted that the relief sought in her Notice of Motion was appropriate because it was "in relation to" the original proceedings commenced by Statement of Claim because both related to the administration of the same estate, and because the relief was intended to enforce compliance with a consent order which had been made in the principal proceedings. His Honour said, at 209-10: "In my opinion, it is not the purpose or the effect of Pt 19, r 1, to prescribe the kinds of applications which can be made in existing proceedings: the purpose of the rule is merely to prescribe the mode by which applications in existing proceedings are to be made, namely by motion. The question whether any particular application can properly be made in existing proceedings is a matter to be determined according to general law principles as modified by any relevant statutory provision … This exception or qualification does not, however, extend to an application made for the purpose of giving substantive relief not sought in the statement of claim or which is substantially different to that given by the final order: see generally Haviland v McLeary (1894) 15 LR (NSW) (Eq) 22; 10 WN (NSW) 146; Poisson & Woods v Robertson & Turvey (1902) 86 LT 302; 50 WR 260; 46 Sol Jo 196; Dowdle v Hillier (1949) 66 WN (NSW) 155; Re Porteous [1949] VLR 383; [1950] ALR 89; Cristel v Cristel [1951] 2 KB 725 and Re Scott (1964) 82 WN (Pt 1) (NSW) 313; [1964-5] NSWR 1636. 68 At 210 McLelland J concluded that it was inappropriate to try, on motion in proceedings, a question of whether those proceedings had themselves been compromised, and said: "it would not be proper to do so where substantial matters are involved beyond the ambit of the proceedings as originally constituted, or where, in the interests of justice, disposition of the matter on summary application is inappropriate". 69 In Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 at 697, Handley JA recognised that a consent judgment can be set aside on the same grounds as an agreement to compromise proceedings can be set aside, and continued: "However it is also established that the jurisdiction to set aside a consent order on such a ground should be invoked by a new action brought for that purpose and not by a motion in the original proceedings: see Ainsworth v Wilding [1896] 1 Ch 673 and Kinch v Walcott [1929] AC 482 at 494; compare Phillips v Walsh (1990) 20 NSWLR 206. This rule was described by the Privy Council as "alone consistent with convenient practice" : see Kinch v Walcott (at 494)." 70 In Johnston v Australia and New Zealand Banking Group Ltd; Johnston v Richardson [2003] NSWSC 454 at [57], Davies AJ declined to entertain an interlocutory motion seeking to have a person declared a vexatious litigant, and required any such application to be brought by separate proceedings. All the cases I have just been considering can be seen to be ones where the court declined to entertain an interlocutory motion because it was not for the purpose of advancing the relief claimed in the principal proceedings. 71 By contrast, in St George v Wallis [2001] NSWSC 23 Rolfe J said, at [58]: "… it is necessary in any given case to consider whether it is appropriate on the facts, to allow proceedings to go forward by way of motion. The factors making it appropriate in the exercise of the Court's discretion to do so in this case are that the matter is within the ambit of the original proceedings, the matter of substance is confined to an issue of construction on basically uncontradicted facts, and the interests of justice certainly favour a conclusion of these long drawn out proceedings without delay."

72 I should also say that whether the relief which is sought on an interlocutory application is for the purpose of advancing claims which either a plaintiff or defendant makes in the principal proceedings is not a matter of the subjective motivation of the person who brings the application. Rather, the application must be one of a kind which can be seen objectively to be of a type which advances those claims. If A brings an action for damages against B, it might be subjectively very useful for A, in deciding what steps to take concerning that action, to have a court determination that B is covered by a valid policy of insurance for the type of claim which A brings, but an application for a declaration to that effect could (apart from any other problems it has) not be brought by notice of motion in the action between A and B. The Applicant's Submissions - Differences Between Appeal and Rectification Proceedings 73 Mr Wood, counsel for the Applicant, submits that obtaining rectification is beyond the scope of the winding up proceedings in which the present Notice of Motion is brought. 74 In my view that submission is correct. The appeal against rejection of proof of debt is brought (and is required to be brought) as an interlocutory proceeding, because that appeal is for the purpose of advancing the process of the winding up of the company, which the Court has ordered. Seeking an order for rectification of a document such as the Disputed Deed is not seeking an order the objective purpose of which is to advance that process. Even though obtaining rectification is something which the Respondent wants for the subjective purpose of improving its position on the appeal from the rejection of its proof of debt, in claiming rectification it seeks to enforce substantive rights which have effect beyond the winding up. When a court rectifies a document, a standard provision of the order is that a copy of the order be endorsed on the document which is rectified: Seton's Judgments and Orders, 7th ed (1912) pp 1638-1643. The point of this is not just as evidence of the order, but also so that the document not be able to go abroad under false colours, purporting to be a record of a consensus which does not really exist. As well, an order for rectification can affect different parties to those involved in the winding up, in this case Rodlow (considered further below). This submission provides a sufficient reason why paragraph 4 of Rosseau's Notice of Motion should be struck out. 75 Mr Wood submits also that a rectification case would be considerably more complex than an appeal from rejection of the proof of debt. That submission is based on various factual matters. One is that Clause 1 of the Disputed Deed (para [5] above) contains, in its literal words, a promise by Rosseau to pay money to Rodlow. If that apparent right of Rodlow is to be taken away by rectification, then, Mr Wood submits, Rodlow should be a party to those rectification proceedings. 76 In my view that submission is correct. Even if Rodlow were to take the view that its prospects of actually receiving any benefit pursuant to the Disputed Deed were so slight it was not worth spending time and money on, and hence chose not to appear in the proceedings, it would still be bound by them if it were made a party, and the Court ought not determine a rectification question without ensuring that all persons whose rights might possibly be affected by the decision were parties. 77 There are other factual matters which the Applicant says would be involved in a rectification case, which would make it a different and factually more complex case than the type of case which would be involved in simply determining the appeal from rejection of the proof of debt. 78 One issue which the Applicant would raise in a rectification case is a factual problem about whether there is valid execution of the deed whereby Rodlow assigned to Rosseau the debt it was owed by Nodcad, and a further factual problem about the validity of the execution of the Disputed Deed. Both those questions of validity arise, the Applicant contends, because there is a lack of match between the people who purported to sign those deeds on behalf of the various companies, and the people identified in ASIC searches as being directors and officers of those companies at the appropriate time. These factual matters not only go to the validity of the deed, but also complicate the rectification issue, because it will be necessary to prove what the intention of each of the parties to the Disputed Deed was, and that question might not be able to be answered by enquiring only into the intention of the various people who executed the documents on behalf of the parties to that deed. 79 The Applicant also says that there is a question about whether the Disputed Deed was validly executed in the way required to make it a deed. If that contention is correct, the obligation contained in Clause 1 of the Disputed Deed (whatever it might mean) will, the Applicant says, be enforceable only if there was consideration for the entering of the deed - and that will give rise to yet another area of factual enquiry. 80 The Applicant says that there is a further question about the efficaciousness of the Disputed Deed, arising from there having been no notice of assignment, as required by section 12 Conveyancing Act 1919, concerning either of the assignments of debt which are relevant (Rodlow to Rosseau, and Rosseau to Jay-O-Bees). 81 The Applicant also says that, if the rectification case is allowed to run, there may be a question about whether there is an issue estoppel, arising from the judgment of Master McLaughlin, about whether any debt is owing to Jay-O-Bees. (In fairness I should say that this submission was put faintly, recognising that little in the way of submission was put to the Master on that issue, that it was not raised formally in any pleadings or Notice of Grounds of Opposition to the winding up order, and it was not an issue that the Master needed to determine on the winding up because the status of Rosseau as a creditor was clear from the other two deeds.) 82 Finally, the Applicant says that in any claim for rectification an issue of laches will arise from the delay of Jay-O-Bees in seeking rectification after it was first aware (from the terms of the judgment of Master McLaughlin) of the problem which existed concerning Clause 1 of the Disputed Deed. 83 I do not accept that any of these matters show that proceedings for rectification would be any more complicated than proceedings concerning an appeal from rejection of the proof of debt. In the appeal from rejection of the proof of debt, one essential issue will be what amount, if any, did Rosseau really owe Jay-O-Bees as at the day on which the winding up is taken to have begun. All the questions which Mr Wood has identified are ones which can go to that question. They can all legitimately be raised in the appeal proceedings. Digression: Applicant's Ignorance of Rodlow's Attitude to the Disputed Deed 84 I was informed at the hearing that it was not known what attitude Rodlow took to the fact that a literal reading of Clause 1 of the Disputed Deed conferred a benefit on it. Though this is not a matter central to deciding the questions raised by the Applicant's Notice of Motion, I should say that I find it difficult to understand how the liquidator could be in that state of ignorance, if he regarded the possibility that Rodlow might have a claim under that Clause as realistically tenable. 85 A liquidator has duties to act honestly, and impartially as between creditors: Re Autolook Pty Ltd (1983) 1 ACLC 1211 at 1213-14 per Needham J. That duty would require the liquidator to bring to the attention of someone, who there were realistic grounds for believing might be a creditor of the company, the need to lodge a proof of debt if any claim that person had was to be considered. 86 A liquidator also has a statutory obligation to apply the assets of the company in discharge of the company's liabilities before any distribution amongst the shareholders. That duty provides a separate basis for concluding that he is required to take all steps reasonably open to him on the information in his possession to ascertain whether someone who that information suggests might possibly be a creditor makes a claim to be such: In re Armstrong Whitworth Securities Company, Limited [1947] 1 Ch 673 at 691-2. The duty of a liquidator is " … not merely to advertise for creditors, but to write to the creditors of whose existence he knows, and who do not send in claims, and ask them if they have any claim": Pulsford v Devenish [1903] 2 Ch 625 at 631 per Farwell J; Harry Goudias Pty Ltd v Port Adelaide Freezers Pty Ltd (1992) 7 ACSR 303 at 306-7 (Mullighan J). Effect of Rectification Order not having been made at Relevant Date 87 Mr Wood points to the terms of section 553 Corporations Act 2001 (Cth), and says that, as at the relevant date, the Disputed Deed was in its unrectified form, and hence that any proof of debt concerning it needs to be decided on the basis of that Deed in its unrectified form. He points to cases where an alteration of the terms of an employment contract by the Industrial Relations Commission under section 106 Industrial Relations Act 1996, after the making of an order for the winding up of the employer, has not given rise to any provable debt: Fisher v Madden as Receiver and Manager of Dataflow Computer Services Pty Ltd (2002) 54 NSWLR 179; Silbermann v One Tel Ltd (in Liq) (2002) 167 FLR 274; Buckingham v Pan Laboratories (Australia) Pty Ltd (in liq) [2004] FCA 597. In Fisher v Madden the New South Wales Court of Appeal considered a situation where a company was in receivership, and section 433(3) Corporations Law required the receiver to give priority (inter alia) to any amount that in a winding up would be payable in priority to unsecured debts under section 556(1)(h) (which relates to "retrenchment payments"). Sheller JA (with whom Beazley JA agreed) said, at 192, that if the Industrial Relations Commission altered the contact of employment of a company employee by including in it a right for the employee to receive severance pay: "… In this case, such an obligation did not exist at the relevant date. It would come into existence only if and when the Industrial Relations Commission varied the contract of employment to include a provision for severance pay, even though the contract might be varied "ab initio". Thus, the question distilled is whether, within the meaning of section 556(1)(h) of the Corporations Law , retrenchment payments payable to employees of the company include payments which the company might become liable to pay as a result of a subsequent variation of the contract of employment giving rise to an obligation to pay. I think not."

Nor did the possibility, as at the relevant date, that the contract might be varied by proceedings taken in the Industrial Relations Commission mean that the employee was a "contingent creditor" . Sheller JA concluded at 194: "However Ms Fisher's right under section 106 of the Industrial Relations Act be categorised, her right to invoke the jurisdiction of the Industrial Relations Commission did not until such time as an order was made create any obligation on Dataflow to make a retrenchment payment to her. Moreover, even if the Industrial Relations Commission declared the contract unfair, varied it ab initio and ordered Dataflow to make a retrenchment payment to Ms Fisher, it remains true that at the relevant date of Mr Madden's appointment no amount for retrenchment payment had become payable before, on or after the relevant date." 88 Mr Wood, at least at one time in his argument, was suggesting that the fact that rectification had not been obtained at the "relevant date" meant that a liquidator could not possibly be affected, in deciding whether to accept or reject proofs, by any rectification which might subsequently be obtained. If that were right, the rectification claim could be struck out as being an abuse of process, as raising an issue which would have no practical effect for anyone. I do not think - for reasons which will follow - that that question is so clear as to provide a separate reason for striking out of the claim for rectification. 89 Construction of section 553 needs to be carried out bearing in mind its purpose, as a means of achieving a pari passu distribution of available assets among those who are really creditors of the company. In Wight v Eckhardt Marine GmbH [2003] UKPC 37 [26] -[29]; [2004] 1 AC 147 at 155-156 Lord Hoffmann said: "It is first necessary to remember that a winding up order is not the equivalent of a judgment against the company which converts the creditor's claim into something juridically different, like a judgment debt. Winding up is, as Brightman LJ said in In re Lines Bros Ltd [1983] Ch 1, 20, "a process of collective enforcement of debts". The creditor who petitions for a winding up is "not engaged in proceedings to establish the company's liability or the quantum of the liability (although liability and quantum may be put in issue) but to enforce the liability". The winding up leaves the debts of the creditors untouched. It only affects the way in which they can be enforced. When the order is made, ordinary proceedings against the company are stayed (although the stay can be enforced only against creditors subject to the personal jurisdiction of the court). The creditors are confined to a collective enforcement procedure that results in pari passu distribution of the company's assets. The winding up does not either create new substantive rights in the creditors or destroy the old ones. Their debts, if they are owing, remain debts throughout. They are discharged by the winding up only to the extent that they are paid out of dividends. But when the process of distribution is complete, there are no further assets against which they can be enforced. There is no equivalent of the discharge of a personal bankrupt which extinguishes his debts. When the company is dissolved, there is no longer an entity which the creditor can sue. But even then, discovery of an asset can result in the company being restored for the process to continue. Secondly, as Oliver J explained in the Dynamics Corpn case [1976] 1 WLR 757, 764, the purpose of the rule that debts are valued at the date of winding up is to give effect to the principle of pari passu distribution. It is a principle of fairness between creditors: "It is only in this way that a rateable, or pari passu, distribution of the available property can be achieved, and it is, as I see it, axiomatic that the claims of creditors amongst whom the division is to be effected must all be crystallised at the same date … for otherwise one is not comparing like with like …" The image of collecting and uno flatu distributing the assets of the company on the day of the winding up order is a vivid one, but the courts apply it to give effect to the underlying purpose of fair distribution between creditors pari passu and not as a rigid rule. 90 Section 553 does not have the effect that all and only claims which are provable are those which existed at the "relevant date". One way in which that proposition is shown to be correct, is by other provisions of the Corporations Act 2001 (Cth) which allow claims. Section 553 is expressed to be "Subject to this Division", and "this Division" extends from section 553 to section 564 (inclusive). However, there are provisions of the Corporations Act 2001 (Cth) outside "this Division" which can affect the claims which can be proved against the company. If a court declares that a transaction between a company and another party amounted to one of the types of transactions which was voidable under Part 5.7B Corporations Act 2001 (Cth), and thus was void against the liquidator, this order undoes the transaction, and permits the other party to have a right of proof for the amount he would be owed when the transaction is undone. A disclaiming of onerous property, under section 568 Corporations Act 2001 (Cth) can result in the person whose contract was disclaimed having a right of proof. If the creditor had issued execution against property of the company or instituted proceedings to attach a debt due to the company or to enforce a charge or charging order against property of the company within six months before commencement of the winding up, the creditor can be required to pay to the liquidator any amount so recovered, and is given a right of proof in relation to the amount he could have proved for if the execution, attachment or enforcement of charge or charging order, as the case may be, had not taken place (section 569 Corporations Act 2001 (Cth)). This list of exceptions to section 553 contained in the Corporations Act 2001 (Cth) itself is probably not exhaustive. 91 Further, sometimes events occurring after the winding up can cause a person who had a provable debt at the "relevant date" to cease to have a provable debt, if those events show that the creditor has ceased to be entitled to be paid: In re Reese; Ex parte Bryant (1890) 7 Morr 144; Re Cahill; Ex parte Fielding (1931) 3 ABC 250; Re Robinson and Tarley (1847) 9 LTOS 412; Wight v Eckhardt Marine GmbH [2003] UKPC 37; [2004] 1 AC 147. 92 Further, events happening after the "relevant date" can affect the quantum for which a claim is admitted. If a claim is to be valued as at the date on which the winding up is taken to have begun, and the value is affected by contingencies, the process of valuation can legitimately be carried out bearing in mind knowledge acquired subsequently about how those contingencies have turned out: Wight v Eckhardt Marine GmbH [2003] UKPC 37 at [30] - [32]; [2004] 1 AC 147 at 156-7. 93 Relevantly for present purposes, it is arguable that a liquidator, when deciding whether to admit a proof of debt, ought make that decision taking into account what the rights of the parties would be if any contract on which the claim is based is one on which a court would grant rectification. (I put it this way because for present purposes it is not necessary to decide that it is anything more than arguable.) It is well established that an order of the Court for rectification, once made, relates back so that the rights of the parties are treated as having always been in accordance with the contract as so rectified: Malmesbury v Malmesbury (1862) 31 Beav 407 at 418; 54 ER 1196 at 1200; Craddock Brothers v Hunt [1923] 2 Ch 136 at 151; Bosaid v Andry [1963] VR 465 at 468, 473; Issa v Berisha [1981] 1 NSWLR 261 at 265; Wongala Holdings Pty Limited v Mulinglebar Pty Ltd (1994) 6 BPR 13,527 at 13,533-13,534; Baird v BCE Holdings Pty Limited (1996) 40 NSWLR 374 at 387-8; Spathis v Hanave Investment Co Pty Limited [2002] NSWSC 304 at [107] - [111]. The entitlement to rectification of a written document depends upon the intention of the parties to the document at the time that document was entered. Thus, when the Disputed Deed was entered prior to the relevant date then it is arguable that the claim to rectification is itself a claim "the circumstances giving rise to which occurred before the relevant date", within the meaning of section 553(1) Corporations Act 2001 (Cth), and hence is a claim which should be given effect to by the liquidator in deciding whether to admit a proof of debt. 94 Further, and importantly, it is arguable that allowing such a claim as rectified would be in accordance with the principles stated by Brennan and Dawson JJ in Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 (quoted at para [34] above) - just as an equity of estoppel is ignored in an attempt to find what is the true liability of the company as at the winding up date, so an equity of rectification can be given effect to to find what is the true liability of the company at that date. The argument is that, the basis of the equity of rectification is that both parties had a common intention concerning the transaction, which it would be unconscionable for either of them to depart from, so the "true liability" of the company is ascertained in accordance with that common intention. 95 In Re Brown; Ex parte Jago (Federal Court of Australia, 12 October 1983, unreported) Fitzgerald J allowed an appeal from rejection of a proof of debt in bankruptcy on the basis that the instrument giving rise to the proof of debt could be rectified. He said: "It was not disputed that, if the applicant would be entitled to rectification in suitable proceedings, he is entitled to have his proof of debt considered on the footing that the form of guarantee has been rectified. Rectification is, of course, merely an order to reform a document to its true effect, not an order which alters the parties' bargain."

While the proposition on which his Honour acted was conceded, it was the central reason why the appeal succeeded. It is hard to believe that his Honour would have been prepared to act on the concession if he thought it wrong. 96 Mr Wood submitted that the decision of Young J in Re Trivan Pty Ltd (1996) 14 ACLC 1654 provided some support by analogy for the contention that an equity of rectification, which has not been enforced before winding up has begun, cannot affect the amount for which a liquidator should admit a proof of debt. Re Trivan was an appeal from a liquidator's rejection of a proof of debt. The company in liquidation was a builder, who had been constructing premises for the applicant. After a provisional liquidator was appointed to the builder, the proprietor terminated the building contract, and paid various sums which the builder owed to sub-contractors. Its proof of debt was based on a different equity to rectification - it was based on a claim to be subrogated to the rights of the sub-contractors against the builder because of the payments which it had made - and that is why any support Mr Wood can gain from it is only by analogy. Young J noted that the type of subrogation claimed was outside the traditional categories of subrogation, but, because subrogation was not restricted to closed categories, did not regard that as a sufficient reason to dismiss the appeal. Rather, his Honour's reason for dismissing the appeal was that the proprietor, having failed to pay an amount in excess of $3.2m which the architect had certified as being due to the builder, had failed to do equity, and hence was not entitled to the equitable relief of subrogation. When that is the ratio of the case, I do not regard it as casting doubt on the availability of rectification in the present case. I also note that the circumstances which the proprietor relied upon as giving rise to the right of subrogation were ones which arose after a provisional liquidator had been appointed, and hence after the winding up proceedings had been commenced. By contrast, any claim in the present case to an equity of rectification will be based on the intentions the parties to the Disputed Deed had at the time it was entered. 97 The arguments in favour of the liquidator admitting the proof of debt on the basis of the contract as rectified are not, however, all one way. In Commercial Banking Company of Sydney Limited v George Hudson Pty Limited (In Liquidation) (1973) 131 CLR 605 at 613 Menzies J said (obiter, and in the admittedly different context of extension of time for registration of a company charge): "It is a deeply rooted principle of company law that, when liquidation has commenced, one creditor should not be assisted by the court to improve its position vis-a-vis other creditors."

In J J Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (No 2) (1987) 13 ACLR 77, at 80, that principle was applied by Burt CJ (with whom Smith J agreed) as one reason why the clause in a company charge, which described the property being charged, should not be rectified once the company had gone into liquidation, as granting rectification would convert the creditor from being unsecured to being secured. Burt CJ applied that principle after referring, at 79-80, to the remarks of Lord Brightman in In re Ashpurton Estates Ltd [1983] Ch 110 at 123 that: "Once the company has gone into liquidation, the existing unsecured creditors are interested in all the assets of the company, since the liquidator is bound by the statute to distribute the net proceeds pari passu among the unsecured creditors, subject to preferential debts. The assets of the company are at that stage vested in the company for the benefit of its creditors. The unsecured creditors are in the nature of cestuis que trust with beneficial interests extending to all the company's property." 98 The principle does not, however, necessarily prevent the Court from exercising its discretion to extend the time for registration of a company charge once the company has gone into liquidation (though it is a relevant matter to be taken into account): Vector Capital Ltd v SNS Software Network Systems Pty Ltd (1988) 12 NSWLR 1 at 7-8, per Needhan J. 99 According to the speech of Lord Diplock in Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167 (paras [41]-[42] above), upon the making of a winding up order the company ceases to be the beneficial owner of its assets, and a right analogous to beneficial ownership arises in the general body of creditors and contributories. There might be a question of whether the arising of any such right in the general body of creditors and contributories is the kind of thing which would defeat an equity of rectification: cf Latec Investments Limited v Hotel Terrigal Pty Limited (in liquidation) (1965) 113 CLR 265. Any such argument would need to take into account that the right of creditors and contributories is a right of the general body of creditors and contributories, not a right of any individual creditor or contributory. It would also need to take into account that the instrument which is here sought to be rectified, is one which contains not choses in actions which are assets of the company, but rather is one which imposes liabilities on the company. It is to be observed that this is not the structure of facts in which questions of priorities usually arise, or when the distinction made in Latec between equitable interests and mere equities usually comes to be applied, namely where two different and inconsistent proprietary rights are claimed in the one asset. It is also to be observed that the type of right of property of the general body of creditors and contributories which arises on the making of the winding up order is a right which needs the assistance of the Court, in carrying through the winding up process, to actually result in any particular creditor or contributory receiving any return from the winding up. It is not necessary for present purposes to do more than observe that there might be scope for argument about whether the supervening of liquidation is something which would prevent an equity of rectification, of the type which Jay-O-Bees asserts here, from being given effect to. 100 In my view, the questions of whether the Disputed Deed could have been rectified, and of whether it is open for the liquidator to admit the proof of debt on the basis that it is for the same amount as would have been owed if rectification had been obtained, are both ones which the Court can consider on the appeal from the rejection of the proof of debt. 101 I should also observe here that the Disputed Deed contains, in Clauses 5 and 6, an agreement by Jay-O-Bees to give to Rosseau a fixed and floating charge, and a mortgage over an identified item of real estate. If the Disputed Deed is not able to be read, as a matter of construction, as involving an agreement by Jay-O-Bees to pay to Rosseau, granting rectification might alter the entitlement of the unsecured creditors to that property. However, Rosseau does not, it seems, claim any property rights by virtue of those clauses, so they can be ignored for present purposes. Strike out para 2A? 102 Para 2A of the Notice of Motion should also, in my view, be struck out. Seeking a declaration, as between Jay-O-Bees and Rosseau, concerning the true construction of Clause 1 of the Disputed Deed, by interlocutory process in the winding up proceedings, is seeking relief which does not have the necessary objective tendency to advance the purpose of the winding up. That question of construction is one which can properly be decided within the scope of the appeal which has been lodged, but for the Court to actually make a declaration, in proceedings to which the Company is a party and which binds the Company, is to seek relief which is outside the ambit of the winding up proceedings. Further, if the declaration were to end all questions about who had the entitlement to be paid (as a declaration should, in carrying through section 63 Supreme Court Act 1970) Rodlow would also need to be joined to the proceedings. This would take the application for a declaration even further outside the ambit of the winding up proceedings. Striking Out the Application for Leave to Proceed 103 The application for leave to proceed against the company in liquidation, made by para 3 of the Notice of Motion, is one which can properly be brought by an interlocutory proceeding in the winding up. 104 I am not presently hearing any application for leave to proceed. Mr Wood's submission is that the application for leave to proceed, in para 3 of the Notice of Motion, should be struck out because it is bound to fail. Serious Dispute 105 One matter which an applicant for leave to proceed must show is that the claim has a solid foundation and gives rise to a serious dispute, in a sense analogous to the "serious question to be tried" test used for interlocutory injunctions: Vagrand Pty Limited (in liquidation) v Fielding (1993) 41 FCR 550. The conflict between recital (C) and Clause 1 of the Disputed Deed, and the fact that Clause 1 read literally makes no commercial sense, is in my view itself enough to raise a question of whether there has been a mistake in drafting Clause 1. The terms of recital (C) are an admission by Rosseau about what that mistake was. That is enough to satisfy me that there is a serious question to be tried about whether rectification should be granted. It is not necessary to enter into the question of whether recital C gives rise to not only an admission, but also an estoppel by deed: cf Discount & Finance Ltd v Gehrig's NSW Wines Ltd (1940) 40 SR (NSW) 598 at 602. I appreciate that Mr Wood says that there are many reasons why rectification would not in fact be granted, but they are all part of the question which is to be tried. Not Suitable to be Dealt with by Proofs Process 106 Another requirement of granting leave to proceed is that the applicant establish that the matter is not one suitable to be dealt with by the usual process of submission of proofs of debt. This requirement is one which usually comes to be applied at a time when the applicant for leave to proceed has not yet lodged any proof of debt. It is at that stage that the principle that "… a company in liquidation is not to be harassed and its assets wasted by unnecessary litigation, and the leave of the Court is therefore required as a safeguard" (per Manning J, Thomson v The Mulgoa Irrigation Company, Limited (1894) 4 BC (NSW) at 33) comes into play. When a liquidator in the proof of debt process is deciding whether to admit or reject a proof, in whole or part, he is not restricted to admissible evidence, and can investigate and assess it in ways not necessarily open to a Court. Further, the default rule that claimants pay their own costs of lodging and amending proofs assists to preserve the assets of the company. When there is an appeal from a liquidator's rejection of a proof of debt, the matter is treated by the Court as an adversary proceeding, even though those adversary proceedings occur as an incident in an administrative process being conducted under the supervision of the Court. Thus, once there has been an appeal against rejection of a proof of debt, there is a real prospect that the hearing of that appeal will not be any simpler than the running of actual litigation against the company to determine whether the right which is the subject of the appeal exists. The rationale for the "not suitable to be dealt with by proof of debt process" requirement might well no longer apply, once an appeal against rejection of proof of debt has been lodged. It is not necessary for me to make any stronger finding than this, given the nature of Mr Wood's attack on the prayer in the Notice of Motion seeking leave to proceed. I do not find that the "not suitable to be dealt with by the proof of debt process" test provides a reason why any application for leave to proceed would be bound to fail. 107 The way in which costs are ordered to be borne in appeals from rejection of a proof of debt supports this conclusion. In the administration of a deceased estate, the principles concerning payment of costs vary depending upon whether the proceedings are adversary ones or not, with costs usually being paid from the fund for non-adversary proceedings, and by the loser for adversary proceedings: In re Buckton; Buckton v Buckton [1907] 2 Ch 406 at 414-5; In re Halston; Ewen v Halston [1912] 1 Ch 435; In re Cunningham; Sproule v Quested (1914) 31 WN (NSW) 44 at 45; O'Brien v Ritchie (1931) 48 WN (NSW) 85 at 86; Murdocca v Murdocca (No 2) [2002] NSWSC 505 esp at [71] - [78]. This approach to ordering payment of costs applies in the various circumstances in which funds are administered under the control of the court, including when there is a winding up by the court. If the proceedings for appeal against rejection of proof of debt are in substance adversary, then the Court is able to make costs orders requiring one party or another to pay the costs, rather than to have the costs paid out of the fund that is being administered - though if the liquidator loses the proceedings and is ordered to pay the costs of the other side, but has acted properly in defending them, he is usually entitled to have the costs he is ordered to pay indemnified to him from the funds of the company: Hypec Electronics Pty Limited (in liq) v Mead; BL & GY International v Hypec Electronics Pty Limited (in liq) [2004] NSWSC 731. If a rectification claim is brought (with leave) against the company itself, the prima facie rule for deciding how costs are borne is that costs follow the event. The effect of these principles governing the payment of legal costs means that the burden of costs is likely to be borne in the same way, whether a claim is litigated in the form of an appeal against rejection of a proof of debt, or as a claim against the company itself. 108 When an application for leave to bring proceedings against a company in liquidation is decided at a time before proofs have been lodged, it can be a factor in favour of the granting of leave that, if the proof of debt process were to be gone through, there is a high likelihood that there would in any event be an appeal to the Court concerning rejection of the proof: Capita Financial Group Ltd v Rothwells Ltd (1989) 15 ACLR 348 at 352. That principle is one which would tend to support the grant of leave in the present case where an appeal is already on foot. Nothing of Substance Gained by Proceeding Against Company Rather than Appealing 109 In the present case, all the issues which either Rosseau, or the liquidator, wish to raise concerning the entitlement of Rosseau to rectification of the Disputed Deed can be raised in the appeal proceedings. There is only one respect in which the appeal proceedings might possibly differ from a fully contested rectification hearing. That arises from the fact that Rodlow would be a necessary party to proceedings for rectification, and might raise issues of its own about whether Rosseau was entitled to rectification. However, it is possible that even that fact might not result in any difference between the two types of proceedings. One way in which that result might arise is that Rodlow choses not to take part in any rectification proceedings which are brought. Another is that, if the liquidator were to carry out his duty and enquire of Rodlow whether it wished to lodge a proof of debt in relation to Clause 1 of the Disputed Deed, and Rodlow wished to lodge such a proof of debt, which the liquidator rejected, and against which rejection Rodlow appealed, it might be convenient to hear the two appeals concurrently. 110 However, when all questions which either Jay-O-Bees or the Applicant might wish to raise in a rectification suit, about entitlement of Rosseau to rectification of the Disputed Deed, can be raised in the context of the appeal proceedings, and the question of construction of Clause 1 of the Disputed Deed can also be decided in the appeal proceedings, there is simply no reason why the leave should be granted. For that reason, seeking it is futile, and hence paragraph 3 of the Notice of Motion shall also be struck out.

Orders 1. Order para 2A, 3 and 4 of the Respondent's Amended Notice of Motion filed 27 May 2004 be struck out.

2. In the event that any party wishes to make application for an order for costs, I direct that, within 14 days of delivery of these reasons, such party obtain from my Associate an appointment for a date for such argument to occur. 111 If the parties are able to agree on an order for costs, and provide my Associate with a signed minute of the order agreed on, I will make that order in chambers. **********

Last Modified: 09/29/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.