Thirteenth Corp Pty Ltd v State

REASONS FOR JUDGMENT 1 By notice dated 14 April 2006, the first and second respondents move the Court for orders that - (a) the proceeding against them be stayed or dismissed as an abuse of process; alternatively (b) the applicant provide security for costs in the sum of $81,204.00. 2 This proceeding concerns certain events in 1999 and 2000 in which the applicant and a company, since placed into liquidation, called E M Mactec Pty Ltd ("Mactec") participated. Four of the directors of Mactec at the time are the respondents. Mactec is not a respondent. I shall later set out in more detail the applicant's claims, but broadly they are that the respondents misled it in relation to a loan of $500,000 which it made to Mactec in 2000. The loan was not repaid. The applicant relies on ss 52, 75B and 82 of the Trade Practices Act 1974 (Cth) and on ss 42 and 68 of the Fair Trading Act 1987 (NSW) and claims damages, interest and costs. 3 At the hearing of this motion, I was informed by Mr Parncutt, who appeared for the applicant, that the third and fourth respondents have not yet been served. They did not participate in the hearing. In what follows, unless the context indicates otherwise, when I refer to the "respondents", I mean the first and second respondents only.

The facts 4 It will be convenient if I first provide a broad outline of the events of 1999 and 2000 which gave rise to this, and to certain other, proceedings. Although most of these events have not been proved as a matter of evidence, they either form the basis of the applicant's allegations or were set out in affidavits filed in support of, or in opposition to, the motion, on which there was no cross examination. To the extent referred to below, unless otherwise stated, the facts appear to be uncontroversial. 5 As I have indicated, the respondents were two of the directors of Mactec in 1999 and 2000. In July 1999, Mactec and certain other companies entered into an agreement called a landfill project operation agreement ("the landfill agreement"). It is not suggested that the applicant had anything to do with this transaction. The landfill agreement did, however, become relevant to the applicant in April 2000, when it lent the sum of $500,000 to Mactec, pursuant to an agreement ("the loan agreement") which contained the following provision (cl 3.1 thereof): EMM agrees to offer as security for the Loan, a Charge in favour of TC over EMM's contractual rights to dispose of waste at the National Landfill Technologies Pty Limited Landfill situated at New Chum, in the state of Queensland, as set out in the Landfill Project Operation Agreement dated July 1999 between EMM, National Landfill Technologies Pty Limited, Queensland Trade Waste Pty Limited, Environautics Waste Management Pty Limited and Environautics Pty Limited ("LPO Agreement') 6 In the mortgage to which this provision refers ("the landfill mortgage"), the "mortgaged property" was defined as "all of the present and future right, title and interest of the mortgagor [Mactec] as are comprised in, or arise under, the landfill agreement". Clause 2.1 of the mortgage then provided: "The Mortgagor as legal and beneficial owner mortgages all of its right, title and interest in the Mortgaged Property to the Mortgagee [the present applicant] as security for the due and punctual payment of the Secured Money." 7 The $500,000 lent under the loan agreement should have been repaid on 23 May 2000. It was not, and shortly thereafter Mactec went into liquidation. 8 On 18 April 2002, the applicant commenced an action in the Supreme Court of Victoria (No 5226 of 2002) ("the Victorian proceeding") against five individuals, including the four respondents to the present proceeding. In its Statement of Claim in the Victorian proceeding, the plaintiff (ie the applicant in the present proceeding) referred to the $500,000 loan which it made to Mactec in April 2000 and alleged that, at the time when that loan ought to have been, but was not, repaid in May 2000, Mactec was insolvent. Alternatively, it was alleged that Mactec became insolvent by incurring the debt constituted by the non-repayment of the loan, or that there were reasonable grounds for suspecting that Mactec was, or would become, insolvent. It was alleged that the defendants (including all four respondents in the present proceeding) were, at the time, directors of Mactec, and in that capacity permitted Mactec to incur the debt whilst insolvent in contravention of s 588G of the Corporations Act 2001 (Cth). The Victorian proceeding had the object of recovering compensation against the directors pursuant to s 588M(3) of that Act which the plaintiff quantified at $643,836, being the $500,000 which was lent and not repaid, plus interest. It was also alleged by the plaintiff, and substantially admitted by the first and second defendants (the respondents here) that, in June 2000, an administrator was appointed by Mactec and that, in July 2000, a meeting of creditors of Mactec resolved that Mactec be wound up under s 439C(c) of the Corporations Act. 9 Various interlocutory steps were taken in the Victorian proceeding down to about mid-2004, none of which needs to be mentioned for present purposes. In June 2004, the proceeding was fixed for trial in October 2004. However, in July 2004, solicitors for the first and second defendants wrote to the plaintiff's solicitors seeking security for their costs, but referring also to a basis upon which it was said that the action would fail, namely, that the debt upon which the plaintiff relied was not "wholly or partly unsecured" as required by s 588M(1)(c) of the Corporations Act. This correspondence was followed by a summons, on behalf of these defendants, in which they sought leave to amend their Defence, they sought to have the proceeding struck out under r 23.01 of the Supreme Court Rules and, alternatively, they sought the security for costs to which their correspondence had referred. When the matter came on before Mandie J, these defendants' argument under r 23.01 was, or at least included, a proposition to the effect that the loan to Mactec in April 2000 was secured by the landfill mortgage and, therefore, that the plaintiff could not satisfy the requirement arising under par (c) of s 588M(1) of the Corporations Act. In his judgment given on 1 September 2004, Mandie J expressed the provisional view that the arguments of these defendants were quite strong but, since the matters were, in his Honour's view, of some complexity and difficulty, he declined to strike out the action under r 23.01. 10 Mandie J then turned to consider the application of the first and second defendants for security. His Honour referred to various financial transactions involving the plaintiff and a director of the plaintiff, and concluded: "It is evident from this account that the plaintiff is probably without means and that the Court has jurisdiction, subject to discretionary considerations, to make an order for security for costs." His Honour observed that the shareholders of the plaintiff had not disclosed their financial position, and also took into account "the real difficulties facing the plaintiff in this proceeding". In the result, Mandie J made an order that the plaintiff provide security to these defendants in the sum of $114,000. His Honour also ordered that the proceeding be stayed, and the October trial date be vacated unless the security were provided on or before 9 September 2004. That did not occur, in consequence of which, by the operation of Mandie J's order, the Victorian proceeding was stayed. 11 Nothing further appears to have happened, at least relevantly here, in the Victorian proceeding until August 2005, when the first and second defendants sought to have the action dismissed under r 62.04 of the Supreme Court Rules. In response, the plaintiff applied for an extension of time to provide the security for costs ordered by Mandie J in September 2004. On 23 September 2005, Mandie J ordered that, unless on or before 9 February 2006 the plaintiff provided security in the sum of $114,000, the proceeding stand dismissed. That security was not provided by 9 February 2006, but before reaching that date, it is necessary to refer to intervening developments in this Court. 12 On 16 January 2006 the applicant commenced a proceeding against Mactec (in liquidation) in this Court: NSD 69 of 2006 ("the NSW proceeding"). In the NSW proceeding the applicant sought to set aside the landfill mortgage pursuant to ss 266 and 500(2) of the Corporations Act. Since Mactec was in liquidation, the leave of the Court was necessary to commence this proceeding. In its Statement of Claim in the NSW proceeding, the applicant referred to the landfill agreement, to the loan agreement and to the landfill mortgage. It also alleged that it was a fundamental term of, and a condition precedent to the operation of, the landfill agreement that a further agreement, called a waste supply and acceptance agreement ("the waste supply agreement") be executed by all parties to the landfill agreement. The applicant proceeded to allege that the waste supply agreement never came into existence and, therefore, that "the purported mortgage created no interest whatsoever", and was void for uncertainty and of no effect. Upon being served with process in the NSW proceeding, the liquidator of Mactec told the applicant's solicitor, by letter dated 18 January 2006, that, since the landfill agreement itself had been terminated (resulting in no realisation for Mactec), the existence or otherwise of a security over the landfill agreement had no financial impact on the administration of Mactec. The liquidator stated that he did not oppose the landfill mortgage being voided ab initio should the Court so determine. He said that he did not consider that it was necessary for him to be represented at the hearing of the NSW proceeding, and asked for his letter dated 18 January 2006 to be presented to the Court. 13 When the NSW proceeding came before Graham J on 25 January 2006, his Honour said that the application was curious, in that it was an application by a mortgagee to have a mortgage, which conferred rights on the mortgagee, set aside as void ab inito. His Honour proceeded to explain the applicant's apparent strategy as follows: "The reason for this application would appear to be that the Plaintiff has brought separate proceedings in the Supreme Court of Victoria in which relief is sought against directors of the Defendant company for insolvent trading in accordance with s 588M(3) of the Act. Those proceedings, so I understand, are due to come before the Court in Victoria for hearing in mid February this year. For the Plaintiff to have standing as a creditor in those proceedings, the Plaintiff must be owed a debt which is wholly or partly unsecured when its loss or damage was suffered within the meaning of s 588M(1)(c) of the Act. On the basis that the Plaintiff may not qualify under that provision with rights under the mortgage the Plaintiff seeks to have the mortgage declared void ab initio in the current proceedings." According to his Honour's reasons given on 25 January 2006, after about two hours of hearing time, counsel for the applicant applied for an adjournment because the applicant would "wish to consider its position and the possibility that it may 're-group'." His Honour concluded: "I would have some hesitation in granting leave to commence this proceeding against the Defendant if there were no more to the case than what has been briefly summarised by me above. However, it seems to me that the interests of justice require an opportunity to be afforded to the Plaintiff, which apparently advanced $500,000 to the Defendant company at a time when it is said that the company was insolvent, to consider its position and, to use the expression of Counsel for the Plaintiff, "re-group"." 14 In the present proceeding, the applicant's solicitor has sworn an affidavit in which he states that, on 3 February 2006, he caused to be filed a Notice of Motion in the NSW proceeding with a view to amending the applicant's Statement of Claim. It is not clear whether leave was given to make this amendment, but the proposed Amended Statement of Claim had the purpose of introducing into the NSW proceeding claims under ss 52 and 87(2)(a) of the Trade Practices Act. The relevant allegation arising under s 52 was that, prior to and at the time of entering into the loan agreement and the landfill mortgage, Mactec represented to the applicant (falsely) that the waste supply agreement had been executed, and the applicant relied on that representation in making its $500,000 loan to Mactec. I should add that, after the hearing of the motion, the applicant's solicitor filed an affidavit to which he exhibited a proposed Amended Application in the NSW proceeding, which document likewise foreshadowed the introduction of claims under ss 52 and 87(2)(a) of the Trade Practices Act. The deponent did not in this affidavit state when the proposed Amended Application was prepared, but the exhibit itself bears the date 22 December 2005, the same date as endorsed on the originating Application in the NSW proceeding as the "Date of Document". The Application was, as I have mentioned, filed on 16 January 2006. In the circumstances, I infer on the probabilities that the proposed Amended Application was filed with the proposed Amended Statement of Claim on 3 February 2006. In both documents, the only respondent was Mactec, as had always been the case in the NSW proceeding. 15 The NSW proceeding next came before Rares J on 7 February 2006. It seems that his Honour was concerned about the absence of a proper contradictor, since the parties with the most obvious interest in resisting the proceeding were the first and second defendants in the Victorian proceeding (the respondents here). In the result, the hearing of the NSW proceeding was adjourned on 7 February 2006, with Rares J granting leave to the applicant to approach his associate in chambers with documents for the purpose of obtaining an order under O 8 of the Federal Court Rules to serve such persons in the United States of America as it was advised may be proper contradictors to its application. Those persons, I understand, were the former directors of Mactec (including the respondents in the present proceeding). 16 I mention the applicant's motion to introduce claims under s 52 of the Trade Practices Act into the NSW proceeding on 3 February 2006 at this stage since it indicates that, at least about six days before the operation of the self-executing order made by Mandie J in the Victorian proceeding in September 2005, the applicant had in mind proceedings under s 52 of the Trade Practices Act in relation to conduct engaged in at or about the time of the making of the loan agreement. 17 On 8 February 2006, the plaintiff in the Victorian proceeding applied by summons for a further extension of time within which to provide security for costs. It relied upon the fact that it had instituted the NSW proceeding in which it sought to set aside the mortgage which presented difficulties for it under s 588M(3)(c) of the Corporations Act.