Rowa Australia v Kalamazoo Logistics

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 471B, 500(2)

Fielding v Vagrand Pty Ltd (in liq) (1992) 39 FCR 251 CASES CITED : Re Atlantic Computer Systems Plc [1992] Ch 505 Vagrand Pty limited (in liq) v Fielding (1993) 41 FCR 550

PARTIES : Rowa Australia Pty Ltd (P) Kalamazoo Logistics Pty Ltd (in liq)(rec mgrs apptd) (D)

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

3438/05 ROWA AUSTRALIA PTY LTD V KALAMAZOO LOGISTICS PTY LTD (IN LIQ) (REC MGRS APPTD)

1 HIS HONOUR: This is an application that leave be granted to the plaintiff to continue a specified proceeding against the defendant. The application has been brought by interlocutory process in the principal proceeding against the defendant, that is, in the proceeding for which leave is sought.

2 The defendant is in liquidation under a creditors' voluntary winding up, which commenced on 2 December 2005. Receivers and managers were appointed to the defendant on 12 September 2005. The interlocutory process has been served on both the receivers and managers and the liquidator. The solicitors for the receivers and managers have said in correspondence that they neither consent nor object to the application. The liquidators have not responded to service of the interlocutory process.

3 According to the interlocutory process, leave is sought under s 471B of the Corporations Act 2001 (Cth). Section 471B applies where "a company is being wound up in insolvency or by the Court, or a provisional liquidator of the company is acting". It is plain from the express words of the section that it applies only when the winding up is initiated by an order of the court, either for insolvency or on other grounds, or the court has appointed a provisional liquidator. The section does not apply to a company, such as the defendant, which is being wound up under a creditors' voluntary winding up. The application should have been made under s 500(2), and I shall treat it as if it had been made under the correct section.

4 Section 500(2) states: "After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes." The question is whether the court should grant leave to permit the plaintiffs to continue with the principal proceeding against the defendant.

5 The plaintiff is an importer and wholesale distributor of home electrical goods (principally television sets) throughout Australia. It commenced trading in about March or April 2004. It engaged the defendant to provide transport, warehousing and logistics services, pursuant to the defendant's written warehousing and logistics proposal dated 6 May 2004. Under these arrangements, the defendant organised the shipping of the plaintiff's products from China to Australia, their passage through Australian Customs, the distribution of the products into store and their delivery to retail outlets in accordance with the plaintiff's instructions from time to time. The plaintiff has imported approximately 60,000 television sets into Australia.

6 Representatives of the parties met on 24 February 2005, in order to discuss the plaintiff's indebtedness to the defendant and the fact that the defendant's agent was refusing to release the plaintiff's products. Since prior to that time, the plaintiff has not deposited any of its goods with the defendant, save for a small number of goods returned from retail outlets.

7 On 14 June 2005 the plaintiff commenced a proceeding in this court for a declaration that it was entitled to possession of electrical goods warehoused by the defendant, an injunction to restrain the defendant from dealing with the goods in its possession, and an order for delivery up of the goods. The defendant claimed that the plaintiff is indebted to it for unpaid warehousing, transport and logistics charges, and it has asserted a lien over the plaintiff's goods, and retained them in its possession.

8 I have not been invited to consider all of the plaintiff's evidence in the principal proceeding, or any of the defendant's evidence. It appears that there is a dispute between the parties as to whether the defendant was entitled to charge fees in respect of demurrage and detention, whether interest was payable on overdue accounts at the rate of 1.75% per month or part of a month or some other rate, whether there was a term of the agreement between the parties as to the conversion rates for US dollar invoices, and whether there was a term giving the defendant the right to exercise a lien over the plaintiff's goods in its possession in respect of moneys due and payable to it.

9 The plaintiff denies that the defendant is entitled to retain possession under a contractual lien, and denies that it is indebted to the defendant in the amount claimed by the defendant at the time the proceeding was commenced. The court is not in a position to make even a prima facie assessment of that case. However, the affidavits of Robert Nati of 14 June 2005 and Scott Maurice Freidman of 1 March 2006, and the exhibited warehousing and logistics proposal and correspondence, establish, in my view, that the plaintiff has a case that involves a real dispute that is not futile and raises serious questions for decision. This is the threshold to be met for the granting of leave: Fielding v Vagrand Pty Ltd (in liq) (1992) 39 FCR 251, affirmed Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550.

10 On 16 June 2005 the court made consent orders for the release by the defendant of a proportion of the approximately 12,900 television sets that were in the defendant's possession, upon payment by the plaintiff of an agreed amount in cleared funds. The defendant released approximately 5457 television sets to the plaintiff and retained approximately 7458 sets.

11 Further interlocutory orders were made by the court on 19 July 2005. The gist of them was that the plaintiff would pay $555,500 into a joint controlled moneys account and the defendant would permit the plaintiff to take possession of the remaining television sets and air-conditioning units in the defendant's possession. The defendant was to give the plaintiff supervised access to the warehouses where the goods were stored so as to permit the plaintiff to perform a stocktake. The defendant was directed to file any cross-claim and further evidence by 29 July 2005.

12 Subsequently, the plaintiff has paid $376,000 into its solicitors' trust account and some, but not all, of the television sets in the defendant's possession have been released. According to the plaintiff's evidence, the parties agreed that payment into the plaintiff's solicitors' trust account rather than a joint controlled moneys account would be sufficient. The plaintiff says these funds are held by its solicitors on trust pending further order of the court. Their solicitor has given affidavit evidence that $376,000 remains in his trust account and cannot be released pending an order of the court.

13 The defendant filed a cross-claim on 29 July 2005, pursuant to the court's orders of 19 July 2005, and the plaintiff filed a defence to the cross-claim on 15 August 2005. The defendant made an application for expedition, which was heard on 26 August 2005, when the court made consent orders extending the time for the plaintiff to file and serve affidavits in reply, and directing that subpoenas and notices to produce be made returnable on 14 September 2005. The proceedings were stood over to the Expedition List on 23 September 2005. As I have said, receivers and managers were appointed to the defendant on 12 September 2005.

14 Affidavits have been filed on behalf of the plaintiff and the defendant. It appears from the correspondence in evidence that there was a prospect of the matter being ready for expedited hearing by mid-September 2005. However, when the proceeding was listed in the Expedition List on 23 September 2005, the court was informed that the defendant was in administration and the plaintiff could not then proceed with the matter having regard to s 440D of the Corporations Act. The motion for expedition was dismissed and the matter was stood over to the Registrar's list on 24 October 2005. Since that time the proceeding has been stood over on a number of occasions as a result of the defendant's administration and, subsequently, liquidation.

15 The plaintiff's solicitors corresponded with the receivers and managers and their solicitors on 27 September 2005. They said that, following the deposits made into their trust account, 1178 units of stock should have been released and approximately 1221 units should be retained to secure the defendant's position. They said the plaintiff was anxious to procure release of the stock that should have been released, in order to fulfil its commitments to a customer.

16 The present position is that the plaintiff has been unable to obtain possession of all its stock from the defendant and the parties have been able to reach a settlement. The plaintiff maintains that it is not indebted to the defendant for any sum, and claims that orders should be made for the return to it of the money held in trust, and for the delivery up of its stock remaining in the defendant's possession or control. According to the plaintiff's solicitor, if interlocutory orders are made for the return of the goods, the receivers and managers are likely to defend the proceedings alleging that the plaintiff is indebted to the defendant for an amount to be quantified.

17 In my opinion there are several factors pointing towards the granting of leave in this case. First, there is, as I have said, evidence of a real dispute between the parties, involving serious questions. The plaintiffs submitted that the hearing is likely to involve less than two hearing days. I have no reason to disagree. Secondly, when external administration intervened, the case was at a relatively mature stage of preparation and the plaintiff was pushing for an expedited hearing. Thirdly, the amount involved is substantial. Fourthly, the plaintiff seeks specific relief and asserts ownership of goods in the defendant's possession or control and the right to immediate possession of them, denied by the defendant's claim to a contractual lien for unpaid charges (see Fielding v Vagrand, supra). This is not a case of a plaintiff seeking specific relief over property owned by the defendant company (Re Atlantic Computer Systems Plc [1992] Ch 505 at 520-1). Fourthly, a substantial fund is being held in trust pending the order of the court, in a proceeding that will determine beneficial entitlement to that money. Fifthly, the receivers and managers and liquidators of the defendant have been served with notice of the application for leave and have not appeared before the court to resist it.

18 The granting of leave will have the practical effect of forcing the receivers and managers to decide whether to commit financial resources to the defence of the proceeding, carrying the risk that the fund of company assets available to the secured and (especially) the unsecured creditors will be depleted by legal costs (see Ford's Principles of Corporations Law (LexisNexis, looseleaf) at [27.126]). But in the present case, the weight to be attached to that risk seems to me to be outweighed by the factors to which I have referred.

19 I shall therefore make an order under s 500(2), granting the plaintiff leave to proceed with Equity Division proceeding No 3438 of 2005. I see no reason to impose any terms on the granting of leave that would limit the range of remedies that the plaintiff may seek. However, I shall impose a term requiring the plaintiff to undertake that it will not, without the further leave of the court, seek to enforce against the defendant any judgment or order that it obtains in the principal proceeding. This will ensure that the court retains some control over the process of enforcement in the interests of the company's creditors as a whole. It will not prevent the company, by its receivers and managers or liquidators, complying with any order the court makes, such as an order for the delivery up of goods.

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