Weinstock v Beck [2020] FCA 378 | Case summary

Background 10 CDC Australia, formerly known as ComfortDelGro Cabcharge Pty Ltd, is an Australian public transport company that provides bus, taxi and patient transport services across Victoria, New South Wales, Western Australia, Northern Territory and Queensland. Its ultimate holding company (as to 51%) is ComfortDelGro Corporation Ltd, a publicly listed company on the Singapore Securities Exchange. 11 As at 22 February 2006, CDC Australia was the holding company of the following subsidiaries (the original subsidiaries): (a) Westbus Region 1 Pty Ltd; (b) Hillsbus Co Pty Ltd; (c) Hunter Valley Buses Pty Ltd; (d) CDC NSW Pty Ltd (formerly Westbus Region 3 Pty Ltd); and (e) Coach Services Pty Ltd (subsequently also known as Charterplus Pty Ltd and now known as CDC Travel Pty Ltd). 12 In around May 2007, CDC Australia's then financial controller, Mr Stephen Thorne, requested advice from the company's lawyers, Coleman Greig, about lodging consolidated accounts for the financial year ending 31 December 2007. 13 Coleman Greig advised CDC Australia that in order to qualify for relief under the Old Class Order it had to provide ASIC with: (a) a deed of cross guarantee; (b) a statement by the directors of CDC Australia that, in their opinion, prior to the execution of such a deed there were reasonable grounds to believe that the company would be able to pay its debts as and when they fell due; and (c) evidence that CDC Australia was entitled to the relief sought. 14 But the advice did not mention the need to file an opt in notice. 15 Coleman Greig were instructed to prepare the relevant materials to enable CDC Australia and its subsidiaries to qualify for relief under the Old Class Order. On 6 June 2007, ASIC made orders under s 340(1) of the Act exempting CDC Australia and its original subsidiaries from the financial reporting requirements. The exemption was conditional on satisfaction with the conditions in the Old Class Order. 16 On 14 June 2007, CDC Australia and the original subsidiaries executed a deed of cross guarantee. 17 On 2 July 2007, Coleman Greig sent ASIC a copy of the deed of cross guarantee and other relevant materials. It requested confirmation that CDC Australia had met ASIC's requirements and that CDC Australia and its original subsidiaries were entitled to the relevant relief. No reply from ASIC has been located. 18 In 2009, CDC Australia acquired a further 13 wholly owned subsidiaries to expand the reach of its services in Victoria (the additional subsidiaries), being: (a) CDC Victoria Pty Ltd (formerly CDC Victoria 1 Pty Ltd); (b) CDC Wyndham Pty Ltd (formerly CDC Werribee Pty Ltd and prior to that, Point Cook-Werribee Passenger Service Proprietary Limited); (c) CDC Ballarat Pty Ltd (formerly H.A. Davis Motor Service Proprietary Limited); (d) CDC Geelong Pty Ltd (formerly Pivot Bus Services Pty Ltd) (e) CDC Altona Pty Ltd (formerly Altona Bus Lines Proprietary Limited); (f) CDC Sunshine Pty Ltd (formerly CDC Victoria 4 Pty Ltd); (g) CDC Oakleigh Pty Ltd (formerly W. Sinclair & Sons Proprietary Limited); (h) CDC Victoria 2 Pty Ltd (deregistered on 27 March 2012); (i) CDC Victoria 3 Pty Ltd (deregistered on 27 March 2012); (j) West Transit Bus Lines Pty Ltd (deregistered on 27 March 2012); (k) North Sunshine Bus Service Pty Limited (deregistered on 20 October 2019); (l) Eastern Suburbs Omnibus Services Proprietary Limited (deregistered on 27 March 2012); (m) Western Coach Services Pty Ltd (deregistered on 27 March 2012); and (n) St Albans Bus Service Pty Ltd (deregistered on 20 October 2019). 19 Following the acquisition, the then Contract and Compliance Manager of CDC Australia, Mr Wayne Jeff, advised the Chair and Deputy Chair of CDC Australia that the existing deed of cross guarantee should be extended to include the additional subsidiaries so that CDC Australia could continue to file consolidated financial statements. 20 On 18 June 2009, Mr Thorne requested that Coleman Greig prepare the appropriate materials and apply to ASIC for relief under the Old Class Order in respect of the additional subsidiaries for the financial year ending 31 December 2009. 21 On 14 July 2009, CDC Australia and the additional subsidiaries entered into an assumption deed concerning the deed of cross guarantee (assumption deed), by which the deed of cross guarantee was applied to the additional subsidiaries. 22 On 29 July 2009, Coleman Greig provided a copy of the assumption deed together with other relevant materials to ASIC. 23 On 9 September 2009 Coleman Greig sent a letter to Mr Thorne advising that ASIC had "accepted and profiled" the assumption deed. 24 The letter also advised that: these companies may also need to lodge an ASIC Form 389 notifying ASIC of those companies' resolution to take advantage of relief under the Class Order within 4 months of the end of their financial years. I imagine your auditors will attend to this matter at the relevant time, but please instruct me if you require our assistance in that regard. 25 Apparently, the records of CDC Australia, its auditors (Deloitte) and Coleman Greig have been searched, but no follow up advice from Coleman Greig or Deloitte in relation to the filing of an opt in notice has been located. I am prepared to infer that at no stage was CDC Australia given follow up advice that it and its subsidiaries must file an opt in notice with ASIC. I also note that the records of CDC Australia show that the auditors gave an unqualified audit for the consolidated financial statements for the 2009 financial year and all following years, which included reference to the fact that all relevant subsidiaries were relieved from their separate reporting obligations by virtue of the Old Class Order. 26 Indeed, let me generalise concerning the filing of financial reports. 27 CDC Australia has prepared and lodged annual consolidated financial statements for the years ending 31 December 2008 to 31 December 2018. These statements disclosed the financial information of CDC Australia, the original subsidiaries and the additional subsidiaries. Each of the notes of the financial statements included the explanation that the wholly owned subsidiaries had entered into a deed of cross guarantee with CDC Australia and were pursuant to the Old Class Order and/or the New Class Order (as applicable) relieved from the requirement to prepare and lodge separate audited financial reports. Each financial statement also included a directors' declaration stating that CDC Australia was within the class of companies affected by the relevant Class Order and noting that a deed of cross guarantee had been entered into in order to obtain the relevant relief. 28 As well, each year CDC Australia's auditors, Deloitte, conducted an audit of the consolidated financial statements and signed an Independent Auditor's Report addressed to CDC Australia's members. But at no time did Deloitte raise any concern about the material provided to ASIC or the right of the Group to relief under the Old Class Order or the New Class Order. Let me return to the chronology. 29 Between September 2017 and November 2018, CDC acquired 24 new entities (new subsidiaries). 30 In December 2018, Mr Williamson requested Coleman Greig to prepare the materials needed to add the new subsidiaries to the deed of cross guarantee to obtain relief under the New Class Order. 31 On 17 December 2018, on the advice of Coleman Greig, CDC Australia and its wholly owned subsidiaries (including the original, additional and new subsidiaries) entered into a new deed of cross guarantee. A copy of the deed was provided to ASIC on 19 December 2018. 32 Let me now turn to what has triggered the present application before me. 33 On 3 October 2019, ASIC wrote to several of the original and additional subsidiaries advising that they had each failed to file their 2018 financial statements and reports. 34 On 4 December 2019 ASIC sent each of those subsidiaries a notice under s 1274(11) of the Act requiring them to lodge financial statements and reports within 14 days. 35 Thereafter, Ms Pike, CDC Australia's General Counsel, communicated with ASIC about ASIC's actions. During those communications, ASIC advised that those subsidiaries had each failed to lodge an opt in notice, and that as a consequence they were not entitled to relief under the Old Class Order or the New Class Order. 36 Between late December 2019 and February 2020, Ms Pike and Mr Williamson caused extensive inquiries to be made to ascertain what had occurred. Those inquiries included: (a) a search of CDC Australia's records in relation to the 2007 deed of cross guarantee and the 2009 assumption deed; (b) requesting that Coleman Greig search its files for relevant documents; (c) requesting that Deloitte search its files for relevant documents; and (d) attempting to contact former employees of CDC Australia who may have been involved during the relevant period. 37 But CDC Australia was unable to locate opt in notices filed in respect of any of the original or additional subsidiaries. 38 The inquiries did not disclose any material which would suggest that the failure to lodge the opt in notices was anything other than inadvertent. Nor was there anything to suggest that the current or former directors of CDC Australia had not acted honestly. Mr Williamson has deposed that he believes that the failure to lodge the opt-in notices was unintentional, and he is not aware of any reason to suggest that the current or former directors did not act honestly in connection with arranging to lodge materials with ASIC so as to obtain relief. Mr Yap has deposed that he believed that: (a) all necessary forms had been lodged and all required steps had been taken so as to allow all of the CDC Australia entities to enjoy the relief granted by the Old Class Order and the New Class Order; (b) the subsidiaries were relieved from having to lodge their own audited financial statements as they were part of the corporate group included in the consolidated financial statements of CDC Australia; and (c) any failure to lodge an opt in notice with ASIC was inadvertent.

Analysis 39 Sub-sections 1322(4) to (6) provide as follows: Irregularities … (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit. (5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence. (6) The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and (b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and (c) in every case - that no substantial injustice has been or is likely to be caused to any person. 40 Section 1322(4) is "cast in very broad terms" and "is not to be hedged about by any implied limitation" (Weinstock v Beck (2013) 251 CLR 396 at [53] and [55] per the plurality). And as explained by French J in Re Wave Capital Ltd (2003) 47 ACSR 418 at [29] with his customary commerciality, the powers under s 1322(4) reflect: a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non‐compliance with its requirements where such non‐compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law. 41 But the power is not to be exercised lightly and is to be exercised having regard to the general purposes of the Act, including the provision in respect of which relief is sought, the interests of all parties affected and the public interest in ensuring compliance with the Act. Clearly, the power may be used to grant relief in respect of the failure to lodge an opt in notice (see Re Murray River Organics Ltd (2019) 138 ACSR 365 at [41] to [47] per Anderson J and In the matter of DAC Finance (NSW/Qld) Pty Ltd [2020] NSWSC 182 at [21], [36] to [39] and [44] to [50] per Gleeson JA). 42 The relevant exercise of power can be described as involving a two step process. First, is it appropriate to make one or other of the orders in 1322(4)? Second, are the conditions in s 1322(6) satisfied? 43 Section 1322(6)(c) provides that I must not make any order under s 1322(4) unless I am satisfied "that no substantial injustice has been or is likely to be caused to any person". The first part of the disjunction "has been" invites an inquiry as to the consequences of the non-compliance sought to be cured. The second part of the disjunction "likely to be" focuses on the effect of the proposed order. 44 Further, s 1322(6)(b) provides that an order under s 1322(4)(c) may not be made relieving a person of civil liability unless I am satisfied that the person acted honestly. The concept of acting honestly can embrace an active but incorrect consideration of an issue, a failure to turn one's mind to the relevant issue or a failure to appreciate the true significance of non-compliance (DAC Finance at [32] and [33] per Gleeson JA). 45 But even if the pre-conditions or criteria in ss 1322(4) and (6) are satisfied, I still retain a discretion whether to make the orders sought. So, it is necessary to take into account whether the relevant applicant has taken prompt action to remedy the error. But relief may still be granted even where there has been a large effluxion of time between the contravention or failure and the application for relief. Further, the public interest is a relevant consideration in the exercise of my discretion. 46 Now as I have said, CDC Australia seeks an order under s 1322(4)(d) extending the time specified by the Old Class Order and/or the New Class Order for itself and for the original subsidiaries and additional subsidiaries, save for the deregistered entities, to lodge an opt in notice as a condition of obtaining relief under the Class Orders. 47 It also seeks an order under s 1322(4)(c) for itself, the original subsidiaries, the additional subsidiaries and each of their respective current and former officers and directors relieving them from any civil liability in respect of any failure, in respect of the financial years ending 31 December 2007 to 31 December 2018, to lodge an opt in notice by the time specified in the Old Class Order and/or the New Class Order and to comply with ss 292(1), 301(1), 314(1) and 319(1) of the Act, and also to comply with the notice issued by ASIC under s 1274(11) of the Act dated 4 December 2019. 48 Ms Simona Gory, counsel for CDC Australia, has submitted that the relief under s 1322(4) should be granted because all persons concerned acted honestly and at all relevant times believed that all steps required to obtain relief under the Class Orders had been undertaken. Further, CDC Australia and the original and additional subsidiaries had properly entered into the deeds of cross guarantee, and the persons concerned believed that all necessary forms had been lodged with ASIC and that the original and additional subsidiaries were accordingly exempt from the requirements of the Act to lodge separate audited financial reports. I accept her careful and clear submissions on these aspects. 49 Clearly the evidence before me supports a conclusion that the failure was the result of inadvertence, rather than any deliberate disregard of CDC Australia's and its subsidiaries' obligations. 50 Further, no substantial injustice has been or is likely to be caused to any person by reason of the contraventions or by the making of the proposed form of order. There is no evidence that suggests that any third party could have acted to its detriment as a result of CDC Australia's or its subsidiaries' non-compliance. CDC Australia prepared and lodged consolidated financial statements which incorporated the operations of the original and additional subsidiaries. Those statements were audited by Deloitte. Moreover, the deeds of cross guarantee were operational during the entire period and creditors would have been able to rely on those guarantees. Further, at all relevant times the group on a consolidated basis had substantial net assets, for example, $595 million as at 31 December 2018. Accordingly, no creditor of the relevant entities could have been significantly prejudiced by the prior non-compliance or could be prejudiced by my orders. The deed(s) of cross guarantee together with a healthy consolidated balance sheet so demonstrate. 51 Further, I am also satisfied that public policy will not be undermined by the making of the orders. 52 Further, CDC Australia acted reasonably promptly in commencing an appropriate inquiry once it became aware of the error. 53 Finally, I raised with counsel whether the relevant subsidiaries needed to be joined as co-plaintiffs and also whether the relevant deregistered subsidiaries should be re-registered for this limited purpose. But on balance I am satisfied that the orders with their breadth can be made notwithstanding that such steps have not been taken. It is at the least reasonably arguable that the intermediate holding company, namely, CDC Australia, has standing to seek the orders, inter-alia, on their behalf given the scope of "interested person" as referred to in s 1322(4), and further that the orders would have the necessary breadth of efficacy. The concept of "interested" would be established both by CDC Australia's direct or indirect shareholding in the subsidiaries but also by its interest in the application and proper implementation of the Class Orders and the deed(s) of cross guarantee arrangements, and its interest in essence in restoring the position to what it would have been thereunder if all opt-in notices had been given. 54 I will make orders in the terms sought. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.

Weinstock v Beck

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