William Kamper & Anor v Applied Soil Technology Pty Limited & Ors

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

Wednesday 22 September 2004 ex tempore Revised 23 September 2004

50048/04 William Kamper & Anor v Applied Soil Technology Pty Limited & 4 Ors JUDGMENT

1 There are before the Court complex commercial proceedings having their genesis in a joint venture concerning business operating facilities for storage treatment and processing of food waste into a form which could apparently be injected into soil as fertiliser for profit.

2 There were before the Court today a number of notices of motion dealing with disparate issues. 3 Security for costs were sought by J and M Group Holdings Pty Limited ["Holdings"]. Holdings is the sixth cross-defendant to the first cross-claim. That matter has been the subject of consent orders.

4 Another matter which was to have been treated with today involved an application for leave to file further amended cross-claims. That matter has been the subject of consent orders.

5 The only matter which remained live concerned an application for an order pursuant to section 237 of the Corporations Act granting leave to Shannongrove Pty Limited ["Shannongrove"] to intervene in the cross-claim insofar as the fourth, fifth and sixth cross-defendants to the cross-claim were concerned.

6 A threshold issue was the subject of detailed written submissions advanced to the Court by the fourth and fifth cross-defendants, at that time in support of the proposition that section 237 had no application to a company under external administration.

7 The sixth cross-defendant, represented by Mr Brender of counsel, has today indicated that it will abide the decision of the Court in relation to the section 237 issue.

8 At the commencement of the hearing of the motions, Mr Marshall SC, who appears for the fourth and fifth cross-defendants, submitted that the terms of the very recent deed of company arrangement were material to the section 237 issue. Upon his having had an opportunity to inspect that document, the position which obtained was that, subject to a question of costs being treated with, the fourth and fifth cross-defendants elected not to further oppose the making of a section 237 order.

9 It is appropriate to shortly deal with the question of principle. There is substantial authority in support of the proposition that uniform national legislation should be construed in like fashion by different courts wherever possible. There is substantial authority in support of the proposition that the proper approach to construction of the words used in particular legislation is to deal with that legislation in its own terms in context. 10 There are four decisions of relevance in relation to the section 237 issue: BL & GY International Co Limited v Hypec Electronics Pty Ltd [2001] NSWSC 705 (Einstein J); Roach v Winnote Pty Ltd (In Liq) [2001] NSWSC 822 [Santow J]; Brightwell v RFB Holdings Pty Ltd (2003) 44 ACSR 186; [2003] NSWSC 7 [Austin J]; Charlton v Baber [2003] NSWSC 745 [Barrett J]; Mhanna v Sovereign Capital Limited [2004] FCA 1040 (Hely J). In the last mentioned decision, Hely J expressed the view that the weight of authority favoured the proposition that leave may be granted even where the company is in liquidation, citing Barrett J in Charlton. 11 In BL & GY International the view was expressed that Part 2F.1A does not apply to a company in liquidation although at the end of the day that matter did not have to be decided. Having given full consideration to the additional authorities referred to above it does seem to me that Part 2F.1A continues to apply despite the intervention of a winding up. The proper approach was expressed by Barrett J in Charlton in the following terms:

"25 In BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2001) 19 ACLC 1622, Einstein J expressed the view that Part 2F.1A does not apply to a company in liquidation. His Honour was influenced by the fact that s.237(3)(c) appears to assume that a company's directors will play a part in deciding whether it will itself engage in the particular litigation. Once creditors voluntary winding up commences, the directors will ordinarily have no power to make such decisions for the company: see s.499(4). Einstein J eventually did not need to decide this point. In Roach v Winnote Pty Ltd [2001] NSWSC 822, Santow J, who was apparently not referred to Einstein J's earlier decision, inclined to the view that Part 2F.1A continues to apply despite the intervention of winding up, describing s.237(3) and its reference to directors' decision making as merely adjectival to the earlier substantive provisions of s.237.

26 The question has recently been addressed by Austin J in Brightwell v RFB Holdings Pty Ltd (above). With "some hesitation", his Honour expressed a preference for the view of Santow J: "Sections 236(3) and 237 literally apply to proceedings brought on behalf of a "company". That word is defined in s 9 in a manner that extends to a company in liquidation. I respectfully agree with Santow J that s 237 (3) is adjectival. The matters to be taken into account by the Court in exercising its discretion to grant leave are set out in s 237(2). Section 237(3) operates in aid of subsection (2)(c) by creating a rebuttable presumption in specified circumstances. Those circumstances apply to a case where the directors of the company have made a decision of a kind that could not be made by them if the company were in liquidation. But the fact that the rebuttable presumption arising out of s 237 (3) cannot arise in a case where at all relevant times the company is in liquidation should not be taken to imply that where a liquidator is in control the Court cannot exercise its discretion under subsection (2). Each of the criteria specified in subsection (2) is perfectly comprehensible in the case of the company in liquidation.

If Part 2F.1A were held to be inapplicable to a company in liquidation because of the wording of s 237 (3) (c), it would be equally inapplicable if a receiver and manager had been appointed to the company. As Santow J observed in the Roach case (at para [4]), it would be an incongruous result if the statutory derivative action were not available where a receiver has displaced the board, as regards its external relations which would embrace litigation."

27 My views coincide with those of Santow J and Austin J and I respectfully adopt the approach that commended itself to them. Section 237(3), which refers to decision making by directors, does no more than cause a rebuttable presumption to arise as to one of the matters to be examined by the court under s.237(2). If the facts as found (including as to directors' decision making) cause the case to fit within s.237(3), the presumption arises. If they do not - because directors did not participate in a relevant decision, or for any other reason - the presumption does not arise. In either event, there is no reason why the substantive provisions of ss.237(1) and 237(2) cannot operate perfectly well according to their terms." 12 None of the written submissions advanced by the fourth and fifth cross-defendants challenging the above view are, in my view, of substance. For convenience it is appropriate to record that those submissions, prior to the advent of the scheme of arrangement, sought to pray in aid: · Section 237 itself, its place in the Corporations Act and other provisions of the Corporations Act that may shed light on the question; · The purposive approach to statutory interpretation indicated by: (a) Section 15AA of the Acts Interpretation Act (Cth); (b) Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 at 387G and 388E; (c) Newcastle City Council v GIO Limited (1997) 191 CLR 85 at 94.6, 101.8, 102.5 and 112.6. · Examination of extrinsic materials and in particular the explanatory memorandum which, in paragraph 6.12, refers in terms to CSLRC Report no. 12; · Consideration of the law prior to the amendments; existing case law on the topic. 13 In light of the approach ultimately taken by the fourth and fifth cross-defendants, it is unnecessary to do more than to set out the terms of paragraph 11.3 of the deed of company arrangement which has become exhibit RM1 in the proceeding:

"Any Related Party who obtains an order against the Company under the Related Party Litigation Proceeding, whether for damages, interest and/or costs, shall be entitled to submit such a Related Party Claim to the Deed Administrator and on admission, to share on a pro rata basis with other admitted Related Parties any funds held in the Related Party Fund." 14 I am of the view that for the reasons given in writing by Mr Ashhurst it is appropriate that leave to intervene be granted and I will so order. Those submissions will be initialled and dated and placed with the papers and it is suffices to simply refer to those submissions for that purpose.

15 The Court made plain during the course of the parties' indication of their approach to section 237 that it would be quite probably a material parameter for the Court to take into account, in exercising its discretion whether or not to make the section 237 order, that it be satisfied with respect to the proposition that, should the fourth and fifth cross-defendants, and indeed the sixth cross-defendant or any cross-defendants to the first cross-claim be successful, Shannongrove would be liable to pay costs of any of those successful cross-defendants. That matter has led to some obtaining of instructions by Shannongrove and it has put forward certain orders which are suggested as appropriate.

16 To my mind, the proper approach is to simply require the parties to bring forward short minutes of order generally in line with the orders read out aloud by Mr Ashhurst today. As it appears to me, the effect of the second of the proposed orders is not to depart in any material fashion from what already is to be found in the scheme of clause 11 of the deed of company arrangement, in particular clause 11.1. Costs

17 In terms of the notice of motion filed by Shannongrove Pty Limited on 19 August 2004 an issue requires to be determined as to the costs of so much of that motion as comprised the application pursuant to section 237 of the Corporations Act 2001. The costs issue is live as between Shannongrove on the one hand and the fourth and fifth cross-defendants to the first cross-claim on the other hand.

18 Mr Marshall contends that, as must clearly be the case, the proceedings being in any event irregular against the fourth and fifth cross-defendants to the first cross-claim, the application would always have required to be pursued. Mr Ashhurst accepts that proposition but submits that there is a respectable dimensional difference between an application which is not contested for leave to have a section 237 order made and one which is vigorously contested, his proposition being, as I understand it, that up until this morning that is the proper description of the approach taken by Mr Marshall's clients to this application. 19 Mr Marshall's further submission was that it was only very recently that the deed of company arrangement came to the attention of his client. 20 Mr Ashhurst repeats the proposition that the manner in which the matter has been litigated today and has fallen out has meant that it would always have been necessary for the Court to decide the section 237 threshold question and that Mr Marshall was always going to lose in that regard.

21 In my own view, the proper order is to direct that the fourth and fifth cross-defendants pay 50 percent only of Shannongrove's costs of the notice of motion insofar as it deals with the section 237 of the Corporations Act issue. The short minutes of order which are to be brought in should provide accordingly.

I certify that paragraphs 1 -21 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 22 September 2004 ex tempore and revised 23 September 2004

      Susan Piggott
      Associate

23 September 2004

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