Yuan v Huang

Overview of proceedings

1. The proceedings were commenced on 4 June 2021. The plaintiff filed a statement of claim on 23 June 2021.
2. As presently framed, the proceedings relate to an investment of $300,000 by the plaintiff in a company, Sunwin Investment Pty Limited ACN 629 705 933 (Sunwin), on 27 January 2021. The first and second defendants were apparently directors of Sunwin at the time and the plaintiff alleges that she made the investment by reason of certain misleading and deceptive statements of the defendants made on 27 January 2021. The statement of claim alleges that the moneys that were invested by the plaintiff were not used as she thought but were in fact spent by the, at least first defendant, on what might loosely by described as personal expenses.
3. The second defendant filed her defence on 28 July 2021 in which she contended, amongst other things, that she was not present at the meeting on 27 January 2021 and therefore did not make any of the alleged misleading statements.
4. Prior to proceedings being commenced, Sunwin went into liquidation. The plaintiff was aware of this.
5. On 24 November 2021, the plaintiff's solicitors wrote to the former liquidator of Sunwin advising of their intention to commence an insolvent trading claim against Ms Li (the second defendant) and seeking their consent to that course. On 24 November 2021, the former liquidator replied to the effect that the liquidation was finalised.
6. It appears that nothing was thereafter done in relation to the insolvent trading claim until about July 2023.
7. My attention was drawn, during the course of this hearing, to an explanation as to what occurred during that period. In substance, the evidence seems to demonstrate that the focus was on the assets of the first defendant during that period and it was not until the conclusion of a contempt hearing against the first defendant in relation to dissipation of assets that a conclusion was formed in July 2023 that insolvent trading proceedings should be commenced against the second defendant.
8. On 7 August 2023, an application under s 601AH(2) of the Corporations Act 2001 (Cth) (Act) was filed by the plaintiff to reinstate Sunwin. On that same day, the Registrar in Equity listed these proceedings for hearing to commence on 3 June 2024 with an estimate of five days.
9. The application to reinstate Sunwin was heard and granted by Black J on 1 December 2023. Apparently because of an incorrect understanding of the procedure, nothing was thereafter done by the plaintiff's solicitor to cause ASIC to reinstate Sunwin until late January 2024. As a consequence, Sunwin was not reinstated until some time in February 2024.
10. The plaintiff's solicitor has since sought the consent of Sunwin's liquidators to the plaintiff commencing an insolvent trading claim against the second defendant. The plaintiff's solicitor has most recently been told that no decision has yet been made by the liquidators as to whether they consent and that they may provide a response in late March 2024, or at the very latest by mid-April 2024.
11. If consent is not forthcoming, the plaintiff has available to it the regime under s 588T of the Act of seeking the leave of the Court to commence the proceedings. Such leave cannot be sought, however, until the expiry of a three-month period after the consent of the liquidator was sought.
12. It is against this background that the plaintiff seeks an order vacating the hearing date or, alternatively, standing the motion over to 9 April 2024, or a date soon thereafter, so as to give time for the liquidators to consider whether they will consent to the plaintiff commencing insolvent trading proceedings.
13. It is not suggested by the second defendant that the foreshadowed insolvent trading claim is unarguable.

Relevant principles

1. The present application is, in substance, an application to vacate the hearing date so as to allow the plaintiff to amend the statement of claim to run the insolvent trading claim in these proceedings. In these circumstances, the Court must exercise the discretion under s 64 of the Civil Procedure Act 2005 (NSW) (CPA) in a manner that seeks to give effect to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings: see s 56 CPA. The provision in s 64(2), that all necessary amendments are to be made for the purpose of determining the real questions raised by or depending on the proceedings, is subject to s 58 CPA, which requires the Court to seek to act in accordance with the dictates of justice. In determining the dictates of justice in the particular case, s 58 requires the Court to have regard to the overriding purpose, and permits the Court to have regard to a range of matters that include the degree of difficulty or complexity to which the issues in the proceedings give rise, the degree of expedition with which the parties have approached the proceedings (including interlocutory activities), the extent to which any lack of expedition by a party is attributable to that party or to circumstances beyond that party's control, and the degree of injustice that would be suffered by the parties as a consequence of leave to amend being granted or being refused.
2. A just resolution of the proceedings is the paramount objective.
3. A just resolution of the proceedings does not require that a party be permitted to raise any arguable case, at any stage of the proceedings, subject to an order requiring it to pay the other party's costs thrown away by the amendment. An order for costs does not always ameliorate the prejudice that those other parties suffer by reason of a late amendment, particularly if the proposed amendment would cause the hearing to be adjourned part-heard, or if the proposed amendment would cause the hearing dates to be vacated at a time when the proceedings were otherwise ready for trial.
4. As Gummow, Hayne, Crennan, Kiefel and Bell JJ said in Aon Risk Services Australia v Australian National University (2009) 239 CLR 175 at [111] - [113]: [111] An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in J L Holdings which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases. On the contrary, the statements are not consonant with this Court's earlier recognition of the effects of delay, not only upon the parties to the proceedings in question, but upon the court and other litigants. Such statements should not be applied in the future. [112] A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate. [113] In the past it has been left largely to the parties to prepare for trial and to seek the court's assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings.

Application of the principles in the present case

1. As I said above, it is not said that the proposed insolvent trading claim is unarguable.
2. The principal matter relied upon by the second defendant was the unexplained delay in bringing the insolvent trading claim and the consequent prejudice to the second defendant that would result if the hearing date was to be vacated.
3. There are two periods of delay in the present case. First, the period is between November 2021 and July 2023. As set out above, it was in November 2021 that it was clear that the plaintiff was then contemplating commencing insolvent trading proceedings against the second defendant. It was not, however, until July 2023 that anything really happened in relation to the bringing of those proceedings and it was not until early August 2023 that the application to reinstate Sunwin was filed. The second period of delay is from late 2023, when Black J made an order reinstating Sunwin, until now, where the application to amend has turned into an application to vacate the hearing date in circumstances where the liquidator has not yet been able to indicate its position in relation to whether they would consent to the plaintiff commencing the insolvent trading proceedings.
4. In my view, the explanation for delay is far from adequate in the present case. Delay is, however, only one factor that needs to be taken into account in determining the dictates of justice in the present case.
5. The proposed insolvent trading proceedings have some factual overlap with the matters that are already alleged in the proceedings. That factual overlap is difficult to precisely determine at the present time, but at least involved in both proceedings is a consideration of the financial dealings in relation to Sunwin during the relevant period. There is at least a prospect that, if the plaintiff is not given leave to include the insolvent trading claim in these proceedings and, should the liquidators to Sunwin consent to the plaintiff bringing such proceedings, and the plaintiff commences separate proceedings, that a point would be taken in those separate proceedings that, because of the factual overlap, the allegation should have been brought in these earlier proceedings and, accordingly, the plaintiff is not permitted to bring them in the later proceedings. It is difficult to be precise in relation to these matters at the present time.
6. It is also difficult to know, at the present time, whether it is still possible for the 3 June 2024 hearing date to be maintained. The first thing that needs to occur is for the liquidators of Sunwin to indicate their position in relation to whether they consent. As set out above, the present information is that a decision will be made in relation to this in late March or, at the latest, by mid-April 2024.
7. Assuming the liquidators do consent, then the issue would be whether the parties can be ready to have a hearing on all issues, i.e. including the insolvent trading proceedings on 3 June 2024. This will depend, from the plaintiff's perspective, on the material that is likely to be able to be availed of in running the insolvent trading proceedings. It would appear that the current liquidator of Sunwin now has all of the material or all of the files from the earlier liquidator of Sunwin and that these files do not provide much assistance in relation to the insolvent trading claim. If this remains the position, then the plaintiff will primarily be relying upon the presumption created by Sunwin's failure to comply with s 286 of the Act. This was a matter referred to by the earlier liquidators of Sunwin in the liquidators' report to which I was taken.
8. In terms of the position of the second defendant, I was informed that she has already sworn an affidavit in the proceedings which, in effect, deposes to the fact that, at the time of the alleged conduct in early 2021, she was in China and had little to no involvement in relation to the business of Sunwin. This position may well circumscribe her ability to avail herself of the defences that are set out in the Act in relation to an insolvent trading claim.
9. I accept that the second defendant is entitled to an adequate opportunity to properly consider any insolvent trading claim and should not be forced to deal with such a claim without having the opportunity to properly prepare.
10. I also need to consider the interests of other litigants and the Court.
11. There is also the position of the first defendant to consider. His position is a little unclear. As I have said above, he is presently in a correctional facility serving a six-month sentence for contempt in relation to breach of court orders and misleading the Court in relation to these proceedings. That custodial sentence is set to come to an end on 19 June 2024. Accordingly, unless arrangements are made between now and the hearing for the first defendant to be brought to the Supreme Court to be able to appear in person, the first defendant will likely be participating at the hearing by way of video link. I should say that it is also unclear as to whether the first defendant will have legal representation. Mr Wu, solicitor, appeared before me today to indicate that he has had limited ability to contact the first defendant in recent times and that the first defendant does not have sufficient funds to be able to retain counsel for the hearing.
12. It seems to me that the position of the first defendant does not have much significance in terms of today's motion. It is really a matter for the first defendant as to whether, given that he will likely still be incarcerated at the time of the proposed hearing in June 2024, he wishes to make any application to vacate the hearing date or to have arrangements made for him to be brought to Sydney so as to be able to properly participate in the hearing.
13. I am most reluctant to vacate the hearing date. It is a date that has been set since August 2023 and even to vacate it now would cause disruption to the Court's diary and necessarily prejudice to other litigants in the Court.
14. Doing the best I can, having regard to the uncertainties that presently exist, I am not minded to vacate the hearing date at present. I propose to adopt the second course that was suggested to the parties during the course of the argument this afternoon, namely, to wait and see what happens in relation to the liquidators' consent or otherwise to the plaintiff bringing the insolvent trading claim. My hope is that the position in relation to the liquidators will become clear in the very near future and that, with that clarity, the parties will still be able to prepare for and run a hearing on 3 June 2024 on all issues commencing.
15. If it eventuates that my hope is thwarted and there is either a delay in the liquidators indicating their position and/or the parties being ready to be able to hear the matter on all issues, then I will consider the position as and when it arises.
16. For these reasons, I order that the motion filed on 4 March 2024 as amended before me today be stood over to 9.30am on 4 April 2024.

Amendments 26 March 2024 - Date of decision corrected to 19 March 2024 from 26 March 2024 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 March 2024