2010/123110 WORKERS COMPENSATION NOMINAL INSURER v DETAILED FLOORING PTY LTD
JUDGMENT
1 I am dealing with an application brought by Mr Asher Davis in relation to orders made in these proceedings on 24 June 2010 on the application of Workers Compensation Nominal Insurer, as plaintiff.
2 The orders were, first, an order that the defendant, Detailed Flooring Pty Ltd (which I shall call "Flooring"), be wound up, second, an order that Mr Marsden be appointed liquidator of Flooring and, third, an order that the defendant pay the plaintiff's costs. The orders were made on the basis of a presumption of insolvency arising by operation of s 459C(2)(a) of the Corporations Act 2001 (Cth) in consequence of Flooring's failure to comply with a statutory demand served on it by the plaintiff.
3 Mr Davis's principal claim is a claim for an order that the three orders of 24 June 2010 be set aside. He relies, in that respect, on rule 36.16(2)(b) of the Uniform Civil Procedure Rules 2005:
"The court may set aside or vary a judgment or order after it has been entered if:
. . .
(b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order,"
4 There is a preliminary question whether Mr Davis has standing to bring an application under rule 36.16(2)(b) seeking to have the three orders of 24 June 2010 set aside. He was not a party to the proceedings in which the orders were made. He is not bound or directly affected by the orders. His interest comes from the fact that he and his brother are the only shareholders of Flooring and that he is a creditor of the company. Mr Davis and his brother have equal shareholdings and are the company's only directors.
5 Flooring itself is not the applicant. Because it is in the course of being wound up by the court, the company cannot, through its directors, seek review or setting aside of the winding up order except with the approval of the liquidator or the court: s 471A(1A)(c) and (d); and see Rock Bottom Fashion Markets Pty Ltd v H R & CE Griffiths Pty Ltd [1997] QCA 399; [2000] 2 Qd R 573, among other cases including, in recent months, Deputy Commissioner of Taxation v Soiland Pty Ltd [2010] FCA 168. There has been no grant of approval under either of these provisions in the present case.
6 As a contributory, Mr Davis has standing under s 482 of the Corporations Act to apply for an order terminating or staying the winding up of Flooring: see s 482(1A)(a) (he in fact makes such an application in the alternative). That is, in a sense, statutory recognition of the interest that a contributory has in a winding up order affecting his or her company. It may be thought that that, coupled with the circumstance that a non-party with a clear interest in the subject matter has been regarded as a competent applicant under the predecessor to rule 36.16(2)(b) (Nicholson v Nicholson [1974] 2 NSWLR 59; Douglass v Gillmann [1990] 19 NSWLR 570), means that the court may and should entertain Mr Davis's application for an order setting aside the orders of 24 June 2010.
7 There is, however, a strong contrary indication in the judgment of Callinan J in Dooney v Henry [2000] HCA 44; (2000) 74 ALJR 1289. His Honour there said (at 1295):
"The action has been brought by a natural person, a director, in order to seek relief in favour of, that is, effectively on behalf of, a company in liquidation. A director is not a proper party in any such proceedings. If there is to be any challenge to the winding up order it must be made by the company itself with leave pursuant to s 471A of the Corporations Law . [Emphasis added]
8 The italicised passage indicates that "any challenge" to a winding up order in respect of a company can only be made by the company itself activated by officers acting with leave under s 471A of the Corporations Act; and that this is a consequence of the particular statutory scheme. That statutory scheme, it appears, leaves no room for the notion that a person such as a creditor or contributory with a clear interest in a winding up order may, in his or her own right, apply to have that order set aside; and that this is so even though a creditor or contributory is given by the statute itself standing to seek an order terminating the staying or termination of the winding up.
9 Given, however, that Mr Davis and his brother are the only directors of Flooring and that approval under s 471A(1A)(d) may be given retrospectively (Brolrik Pty Ltd v Sambah Holdings Pty Ltd [2001] NSWSC 1171; (2001) 40 ACSR 361), the convenient course is to consider the merits of Mr Davis's claim to have the orders of 24 June 2010 set aside. The question of approval under the section can then be addressed if it appears that the necessary case has been made out and an appropriate application in that respect is made.
10 The only factual pre-condition to the exercise of the discretion under rule 36.16(2)(b) is that the order in question was "made in the absence of a party", it being beside the point whether the absent party had notice of the hearing or of the application for the order. That condition is satisfied in this case. The orders of 24 June 2010 were made at a hearing before the Registrar at which there was no appearance or participation on behalf of Flooring. The discretion to set aside the orders is therefore available to be exercised.
11 That leads to the first matter relevant to the question whether the discretion should be exercised, that is, the circumstances that caused the defendant to be absent.
12 An important consideration in that connection is the question of service. The court had before it on the hearing of the winding up application evidence (that has been in no way challenged) that the registered office of Flooring was, at material times, at a particular address in Paterson Road, Springwood; that the statutory demand dated 24 March 2010 was, on 30 March 2010, posted by an employee of the plaintiff's solicitors to that address; and that the originating process and supporting affidavits were, on 25 May 2010, left by a process server at that address.
13 Mr Davis deposes that he does not dispute service of either the statutory demand or the originating process and affidavits at the address in Paterson Road, Springwood. He accepts that the registered office of Flooring was at that address at the two relevant dates. He deposes, however, that the change of registered office to that address was "in error" since, he says, the address of the registered office "was to have been changed" from an address in Surry Hills to his home address at Ashfield. At the time the Springwood address was notified to and recorded by ASIC as the registered office, it was the home address of Mr Davis's sister. She went to live elsewhere in late 2009. Nothing was done, at that point, to notify ASIC of any change of registered office.
14 The circumstances just mentioned in no way call into question the proposition that the statutory demand and the originating process were served on Flooring (see s 109X(1)(a) of the Corporations Act) and that a presumption of insolvency was available to be relied on by the plaintiff when the winding up application came before the court on 24 June 2010. The plaintiff acted appropriately and in good faith on the basis of the information available on search at ASIC, which information Mr Davis accepts correctly reflected particulars of the situation of the registered office lodged by Flooring. The problem, from Flooring's point of view, is that it failed to maintain at the notified address an ability actually to receive documents delivered and to ensure that its registered office was at a place at which it could be reached.
15 The onus and responsibility, in these respects, rest squarely with the company concerned. It is apposite to quote what was said by Ashley JA (with the concurrence of Beach AJA) in Von Risefer v Mainfreight International Pty Ltd [2009] VSCA 179; (2009) 73 ACSR 427 (at [21]):
"It is important that a party wishing to serve a document on a company be able to rely upon details of the company's registered office in records maintained by ASIC. It is a company's obligation to maintain a satisfactory address. If things were otherwise, as Santow J stated in FP Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd: (1993) 12 ACSR 136 at 138]:
'… the evident legislative intent … to provide an official public address for service would be defeated if a company could flout its obligations by simply failing to notify any change of that office. A resourceful and dishonest company could thus easily avoid service of documents and escape unwanted litigation by simply, "decamping" from the registered office without leaving a trail.'
There is more than one way in which a company might fail to ensure that ASIC records of its registered office were up to date. It might simply move address and fail to keep ASIC informed - whether deliberately or carelessly. Again, as may well have occurred here, its directors might fail to keep themselves informed as to the registered office of the company's accountant, that address being in turn the registered office of the company.
Consistently with what Santow J said in FP Leonard , in any of those circumstances service of a document able to be served on the registered office of a company will be good service if service is averred - provided that the essential facts stated in the averment are not impugned."
16 The orders of 24 June 2010 were regularly made in proceedings properly constituted in which all jurisdictional elements necessary to the making of the orders were established. It is from that position that any challenge to them must be approached.
17 In arguing that the court should exercise its discretion under rule 36.16(2)(b) to set such orders aside, an applicant must contend with the proposition that great value attaches to certainty in the outcome of litigation. The approach to be taken to an application such as the present is indicated in the joint judgment of Gibbs CJ, Mason J, Wilson J, Brennan J Deane J and Dawson J in University of Wollongong v Metwally (No 2) [1985] HCA 28; (1985) 59 ALJR 481 at 482-3:
"It may be assumed, without deciding, that the court has power to vacate its order of 22 November 1984, notwithstanding that it has been perfected. If such power exists, it must be exercised with great caution, after weighing what might otherwise be irremediable injustice against the public interest in maintaining the finality of litigation: see State Rail Authority of New South Wales v Codelfa Construction Pty Ltd (1982) 150 CLR 29 at 38. The present is not a case in which an order was made by mistake or as a result of fraud, or a case in which by some accident an order has been made against a party who was not heard."
18 This passage enjoins "great caution" in approaching applications of the kind that Mr Davis has sought to pursue. It also gives some examples of situations in which it may be found appropriate for the court to intervene in relation to a final order that has been perfected: where the order was made by mistake, where the order was made as a result of fraud and where, by some accident, an order has been made against a party who was not heard.
19 The central question is whether it is unjust to let the perfected order stand. The matter was put thus by Jordan CJ (Davidson J and Roper J concurring) in Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR NSW 239 at 243-4:
"The question is whether, upon the material that has been placed before us, there is a real likelihood that it would be unjust to the defendant to allow the judgment to stand. If so, it should be set aside on such terms as it will minimise the possibility of injustice to the plaintiff. If not, we should not interfere."
20 The test, in circumstances such as the present, is more demanding than that which applies upon an application to have a default judgment set aside. The two cases were distinguished by Jordan CJ at 243:
"The present is not a case in which judgment was signed by default through some procedural omission on the part of the defendant or his legal advisers. . . . It is one in which, the action coming on for trial in its ordinary place in the list, no one was present in Court to conduct it for the defendant, and it therefore proceeded in his absence. In such a case, when the plaintiff is in no respect in default, a new trial will not be granted save in very special circumstances."
21 It is instructive, against this background, to note some of the cases in which winding up orders made after a hearing in the absence of a defendant company have been set aside:
(a) where the plaintiff proceeded to obtain the winding up order in the face of an agreement with the defendant not to do so: Double Bay Newspapers Pty Ltd v The Fitness Lounge Pty Ltd [2006] NSWSC 226; (2006) 57 ACSR 131;
(b) where the plaintiff proceeded to obtain the winding up order despite the defendant's accountant having been told by the plaintiff that "nothing would happen" while negotiations continued: Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd [2010] FCA 755;
(c) where the plaintiff proceeded to obtain the winding up order after overlooking the fact that the defendant's debt had been paid: Workers Compensation Nominal Insurer Pty Ltd; re Deli Glenbrook Pty Ltd [2010] FCA 380; and
(d) where solicitors instructed by the defendant in the winding up proceedings failed to protect the defendant's interests: Registrar of Aboriginal Corporations v Murnkurni Women's Aboriginal Corporation (1995) 137 ALR 404.
22 The mere fact that the defendant was absent and took no part in the proceedings is, of itself, not sufficient to warrant the exercise of the discretion to set aside a winding up order. Exercise of the discretion will be appropriate only if some additional factor makes it unjust for the ordinary outcome of the litigation process to stand.
23 In Gyrro Pty Ltd v Deputy Commissioner of Taxation [2009] FCA 1477, it was held that mere inattentiveness to the defendant's affairs by its directors was insufficient to warrant the exercise of the equivalent power under the rules of the Federal Court. Nicholas J said (at [19]):
"In the present case there is no satisfactory explanation given for the Defendant's non-appearance. The Defendant simply says that its directors left the country to live abroad and, while away, neglected to attend to the company's affairs for a period of almost five years. I think this is a factor that tells against the exercise of any discretion in favour of the Defendant."
24 The reference here to a "satisfactory explanation" for the defendant's non-appearance is instructive. The need to assess an applicant's explanation was noted in a passage in the ex tempore judgment of Hodgson J in George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 at 465 which is often quoted in cases of this kind:
"In my view, if an order winding up a company is made in the absence of the defendant company, and an application is brought promptly by the company, with notice being given to the liquidator, to the plaintiff and to any creditor who appeared at the hearing; and if the evidence shows an explanation for the non-appearance at the hearing and indicates solvency of the company; and if there is consent to setting aside, or at least non-opposition; and if the liquidator indicates that nothing in his investigations to date shows a reason for the company to be stopped from trading, then the court will normally set aside the order."
25 The reference here to "an explanation for the non-appearance at the hearing" is, in truth, a reference to what Nicholas J called a "satisfactory explanation" for that omission; and the relevant concept of what is "satisfactory" takes its content from the principles stated at paragraphs [17] and [20] as illustrated by the kinds of cases mentioned at paragraph [21] above - those in which it is inconsistent with justice and good conscience for the plaintiff to retain the benefit of the order regularly obtained in the absence of the defendant.
26 One can imagine a great number of situations in which the defendant will be able to proffer an "explanation" which is by no means a "satisfactory explanation": for example, where the originating process is carelessly cast aside and not attended to; where the directors simply decide to go to ground in the hope that the problem will blow over; where a responsible officer delegates matters to an employee who fails to take necessary steps (see, for example, Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365 at [31] to [33]). In each of these hypothetical cases, there is an "explanation" for the defendant's non-appearance but it is not, in the relevant sense, a "satisfactory explanation" in that it involves no element of injustice or unconscionability that can be laid at the feet of the party by whom the order was obtained.
27 The explanation in the present case is that the statutory demand and the originating process did not come to the notice of the directors of Flooring because they defaulted in the fundamental requirement that the address on record at ASIC as the address of the registered office be an address at which the company can in fact be reached. Section 142 of the Corporations Act is in these terms:
"(1) A company must have a registered office in this jurisdiction. Communications and notices to the company may be addressed to its registered office.
Note 1:
A document may be served on a company by leaving it at, or posting it to, the company's registered office (see subsection 109X(1)).
Note 2:
Communications and notices from ASIC may also be addressed to the company's contact address (see section 146A).