Carter, in the matter of Spec FS NSW Pty Ltd (In Liquidation)
[2013] FCA 1027
Place: | Sydney |
Division: | GENERAL DIVISION |
Category: | Catchwords |
Number of paragraphs: | |
Solicitor for the Plaintiff: | Jones Day |
Counsel for the Defendant / Frist Respondent: | F Assaf |
Solicitor for the Defendant / First Respondent | Grahame Tanna, Legal Services Branch, Australian Taxation Office |
Counsel for the Second Respondent | E A Collins SC |
Solicitor for the Second Respondent | Addisons Lawyers |
Counsel for the Third Respondent | A P Lo Surdo SC |
Solicitor for the Third Respondent | DibbsBarker |
IN THE FEDERAL COURT OF AUSTRALIA | |
IN THE MATTER OF SPEC FS NSW PTY LTD (IN LIQUIDATION) & ORS
PHILIP PATRICK CARTER IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF SPEC FS NSW PTY LTD AND OTHER COMPANIES NAMED IN THE SCHEDULE Plaintiff |
AND: AND: | COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Defendant / First Respondent DAVID ROYCE WILLETT Second Respondent JAMES HAMILTON WENTWORTH Third Respondent |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. Leave to amend the originating application in the form annexed as “PTB1” to the affidavit of Peter Thomas Brabant dated 29 August 2013 be refused.
2. Leave to amend the statement of claim in the form annexed as “PTB2” to the affidavit of Peter Thomas Brabant dated 29 August 2013 be refused.
3. The defendant/first respondent provide the plaintiff and second and third respondents with full particulars of the taxation liabilities (or prospective tax liabilities) to which the payments referred to in paragraphs 9, 10, 11, 12 and 13 of the statement of claim filed 21 December 2012 and paragraphs 5, 6, 7 and 8 of the re-amended defence filed 19 July 2013 were applied by the defendant/first respondent, including the precise nature of the taxation liabilities and the identity of the entities whose tax liabilities were affected by the application of the payments, within 7 days of the making of this order.
4. Within 21 days of the making of this order, the plaintiff serve the defendant/first respondent, second respondent and third respondent with a further draft of the proposed amended statement of claim and proposed amended originating application.
5. Within 14 days of being served with the further draft of the proposed statement of claim and originating application, the defendant/first respondent, second respondent and third respondent advise the plaintiff and the Court whether leave to amend the statement of claim and originating application in the form of the further draft proposed statement of claim and originating application is opposed on the basis that the pleading is deficient or defective.
6. If leave to amend is opposed, within 7 days of the notification in order 5, each opposing party file and serve written submissions (not exceeding 5 pages) in relation to the deficiencies or defects in the proposed draft statement of claim, why leave to amend should be refused and whether the matter should be relisted for the hearing of oral submissions.
7. Within 7 days of receiving submissions in accordance with order 6, the plaintiff file and serve written submissions in reply (not exceeding 5 pages).
8. If leave to amend is not opposed by any party, the parties prepare draft consent orders and provide them to the associate to Wigney J within 7 days of the notification in order 5.
9. The interlocutory application filed 29 August 2013 is otherwise adjourned for further directions on a date to be fixed by arrangement with the associate to Wigney J following compliance with order 4.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
NEW SOUTH WALES DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 2237 of 2012 |
IN THE MATTER OF SPEC FS NSW PTY LTD (IN LIQUIDATION) & ORS
BETWEEN: | PHILIP PATRICK CARTER IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF SPEC FS NSW PTY LTD AND OTHER COMPANIES NAMED IN THE SCHEDULE Plaintiff |
AND: and: | COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Defendant / First Respondent DAVID ROYCE WILLETT Second Respondent JAMES HAMILTON WENTWORTH Third Respondent |
JUDGE: | WIGNEY J |
DATE: | 10 october 2013 |
PLACE: | SYDNEY |
REASONS FOR JUDGMENT
1 By interlocutory application filed 29 August 2013 the plaintiff, Philip Carter in his capacity as liquidator of a number of companies within the former Spectrum Fire group of companies (the Liquidator), applies for leave pursuant to rr 8.21 and 16.53 of the Federal Court Rules 2011 (Cth) for leave to amend the originating process and statement of claim that have been filed in the proceedings. The defendant (the Commissioner), who is first respondent to the interlocutory application, does not oppose leave to amend being granted. Leave is, however, opposed by the second respondent (Mr Willett) and the third respondent (Mr Wentworth).
2 For the reasons that follow, leave to amend the originating process and statement of claim in the form proposed should be refused on the basis that there are some material deficiencies in the proposed amended pleadings that should be remedied before leave is granted. If those deficiencies are able to be remedied, in my opinion leave to amend should be granted. Directions will be made to allow the Liquidator to remedy the pleading deficiencies and obtain leave to amend without the need to file a further interlocutory application.
Evidence, nature of proceedings and reasons for amendment
3 The evidence relied on by the Liquidator in support of the application for leave to amend is primarily contained in the affidavit of the Liquidator’s solicitor, Peter Thomas Brabant, sworn on 29 August 2013. Some of the evidence in his affidavit was admitted on a limited basis, but nothing significant turned on the evidence that was admitted on that basis. Mr Brabant was not cross-examined and his evidence was not challenged.
4 The Liquidator also relied on his affidavit sworn on 3 September 2013. That affidavit set out the facts in support of the Liquidator’s originating process and was filed in accordance with r 2.4 of the Federal Court (Corporations) Rules 2000 (Cth). Mr Willett objected to the reading of the Liquidator’s affidavit on this application on the basis that the Liquidator had not advised Mr Willett that he would rely on his affidavit on this application. It was also submitted that one of the annexures to the affidavit, a report in relation to insolvency, was inadmissible on this application because it was hearsay. The Liquidator’s affidavit (and the exhibits to it) was admitted on the limited basis that it set out the facts that the Liquidator would rely on at the final hearing. It was not admitted as evidence of the existence or truth of facts referred to in it. In the end result, virtually no attention was given to the Liquidator’s affidavit in the submissions advanced on the Liquidator’s behalf.
5 It is unnecessary to set out in any detail the content of Mr Brabant’s affidavit. In very brief terms, Mr Brabant outlines the nature of the existing originating process and statement of claim, the new or additional information that has come into his possession since the proceedings were commenced and the reason he advances for why it is necessary to amend the originating process and statement of claim in the light of that new information. Mr Brabant annexes the proposed amended originating process and statement of claim. He also annexes copies of correspondence between the parties to the interlocutory application, though virtually no attention was given to any of the correspondence in the parties’ submissions and nothing much appears to turn on it.
6 In very brief terms, in the statement of claim in its current form, the Liquidator alleges that a number of payments made to the Commissioner by six companies formerly within the Spectrum Fire group (paying companies) between about November 2009 and April 2010 were preference payments within the meaning of s 588FA of the Corporations Act 2001 (Cth) and were therefore voidable transactions pursuant to s 588FE of the Corporations Act. In the originating application in its present form, the Liquidator seeks various declarations concerning the payments and orders pursuant to s 588FF(1)(a) of the Corporations Act to the effect that the Commissioner pay to the Liquidator, in his capacity as liquidator of the paying companies, amounts equal to the payments.
7 The Commissioner has filed a defence. It is unnecessary to provide any detail of the nature of the defence, other than to point out that in relation to a number of the relevant payments, the Commissioner admits that money was paid to him by the paying companies, but states that the money was “paid towards the account of” four other companies in the Spectrum Fire group (the additional companies). Following the filing of the defence, the Commissioner provided the Liquidator with some further details of how the money was applied or allocated to the accounts of the additional companies. It was this further information that prompted the application for leave to amend.
8 The Commissioner has also filed an interlocutory process pursuant to s 588FGA of the Corporations Act in which he seeks orders against Mr Willett and Mr Wentworth, who were directors of the paying companies, the effect of which is that they are obliged to indemnify the Commissioner in respect of any amounts that the Commissioner is required to pay to the Liquidator pursuant to s 588FF of the Corporations Act. The Commissioner has filed points of claim setting out the material facts upon which he relies in seeking this relief. Messrs Willett and Wentworth have filed defences both to the Liquidator’s statement of claim and the Commissioner’s points of claim.
9 The circumstances that Mr Brabant says give rise to the proposed amendments to the originating application and statement of claim are that after the filing of the Commissioner’s defence, discussions took place between the Liquidator’s representatives and the Commissioner’s representatives in relation to the way the Commissioner received and dealt with some of the payments the subject of the proceedings. According to Mr Brabant, as a result of these discussions it became clear that some of the payments (totalling $1,365,459.66) were credited by the Commissioner against tax liabilities of the additional companies, being other companies within the Spectrum Fire group of which the Liquidator is also liquidator. Mr Brabant candidly concedes, however, that the evidence gathered to date discloses “no evidence in relation to officers of the Spectrum Fire group directing the allocation of payments against tax liabilities” of the additional companies, and that the question of whether the making or allocation of these payments was authorised by the additional companies “remains unclear”.
10 The effect of the proposed amendments is to attempt to deal with the fact that some of the payments made by the paying companies were not applied by the Commissioner towards the tax liabilities of the paying companies, but were allocated against the tax liabilities of the additional companies. That is done in three ways. First, amendments are sought to be made to both the originating application and statement of claim which have the effect of expanding the capacity in which the Liquidator commences the proceedings from his capacity as liquidator of the six named paying companies, to include his capacity as liquidator of the four additional companies. Second, amendments are made so as to raise the alternative allegation that some of the monies paid to the Commissioner by the paying companies were made by the paying companies as agents for the additional companies “in relation to the Business Activity Statement and/or Pay As You Go taxation liabilities” of the additional companies. Third, alternative allegations are pleaded in relation to the effect of the allocation of the payments to the taxation liabilities of the additional companies. It is alleged that payments that were directed by the Commissioner to the taxation liabilities of the four additional companies, if made by the paying companies as agent for the additional companies, were preference payments and uncommercial transactions of the paying companies for the purposes of s 588FB(1) of the Corporations Act. In the alternative, it is alleged that if the payments were not made by the paying companies as agent for the additional companies, they were uncommercial transactions of the paying companies.
11 There is an additional category of proposed amendments that does not directly relate to the allocation of some of the payments to the tax liabilities of the additional companies. This category of amendments concerns the allegation that some of the payments were made by particular paying companies as agents for other paying companies: see paragraphs 10A(a), 12(f) and 13(a) of the proposed amended statement of claim. It would appear that these proposed amendments have also been occasioned by the provision of further information by the Commissioner in relation to the allocation of the payments. These proposed amendments do not appear to be as contentious as the amendments that introduce the additional companies.
12 The proposed amendments to both the originating application and the statement of claim are not opposed by the Commissioner. The amendments are, however, opposed by both Mr Willett and Mr Wentworth.
13 Messrs Willett and Wentworth advance three reasons why leave to amend should be refused. First, it is contended that the new causes of action arising from the allegations that the payments were allocated against the taxation liabilities of the additional companies are made outside the three year limitation period in s 588FF(3) of the Corporations Act. In this context, Messrs Willett and Wentworth submit that the facts and circumstances of this matter do not fall within r 8.21(1)(c), (d), (e) or (g)(i) of the Federal Court Rules and therefore r 8.21(2) does not apply. If it applies, r 8.21(2) would permit the amendments even if made after the end of the relevant limitation period that applied at the date the proceeding was commenced. Second, Messrs Willett and Wentworth submit that the proposed amendments to the statement of claim are deficient in a number of respects. In particular, they contend that the proposed amended pleadings do not properly plead all material facts in relation to the new causes of action. Third, they advance a number of considerations which, they submit, are relevant to the exercise of the Court’s discretion to allow the amendments.
14 Before addressing the matters raised by Messrs Willett and Wentworth in opposition to the proposed amendments, it is necessary to determine whether they have standing to oppose the Liquidator’s application for leave to amend. The Liquidator contends that Messrs Willett and Wentworth do not have standing to oppose the application. Indeed, the effect of the Liquidator’s submission is that Messrs Willett and Wentworth do not have standing to raise any matter in defence of the Liquidator’s claim against the Commissioner.
Standing of Messrs Willett and Wentworth
15 As is apparent from the earlier summary of the proceedings, Messrs Willett and Wentworth are not named as defendants in the originating process and statement of claim. They are parties to the proceedings by reason of the Commissioner filing an interlocutory process seeking a statutory indemnity against them pursuant to s 588FGA. Their position is accordingly akin to the position of third parties. It is to be noted in this context that Messrs Willett and Wentworth have not only filed defences to the Commissioner’s points of claim, but they have also filed defences to the Liquidator’s statement of claim. Their defences to the statement of claim were initially filed pursuant to an order made by Jacobson J on 5 April 2013. It does not appear that the Liquidator took issue with the orders for the filing of defences.
16 Messrs Willett and Wentworth rely on a number of decisions of this Court and State Supreme Courts as authority for the proposition that a director against whom indemnity under s 588FGA is sought by the Commissioner is entitled to contest all matters relevant to the question of liability between a liquidator and the Commissioner. Reliance is placed in particular on the decision of Finkelstein J in Crosbie v Commissioner of Taxation (2003) 130 FCR 275; and the decision of Barrett J in Hall (as liquidator of Reynolds Wines Ltd) v Commissioner of Taxation (2004) 51 ACSR 173 at [16] and [22]. Those decisions have been referred to and followed in a number of other decisions.
17 In Crosbie, a liquidator of a company commenced proceedings against the Commissioner seeking recovery of certain payments under s 588FF, and the Commissioner filed cross-claims against the directors for an indemnity under s 588FGA. The Commissioner indicated that he would not contest the liquidator’s claim, and the directors sought leave to defend the liquidator’s action for the purpose of challenging the assertion that the company was insolvent. Finkelstein J granted the directors leave to defend the liquidator’s claim on terms that they would be bound by every decision made in that claim. His Honour noted that, strictly speaking, there is no issue created between plaintiffs and third parties simply by the institution of a cross-claim by a defendant, but said (at [4]) that nevertheless:
it is clear that the order sought by the third parties should be made. They would suffer grave injustice if that leave were refused. And what they seek is consistent with the cases.
18 The cases to which his Honour was referring were cases which established that third parties had some role to play in actions by a plaintiff against a defendant in the third party procedures introduced by the Judicature Act 1873 (UK). That role included the right to appear at the trial, which his Honour noted was now expressly provided for in the rules (under O 5 r 12(2)(c) of the former Federal Court Rules 1979 (Cth)). The equivalent rules are now in r 15.13 of the Rules. His Honour continued (at [6]):
Even if proceedings had not been taken against the third parties, the interests of justice would demand that they be given permission to intervene in the proceeding between the plaintiffs and the defendant especially where, as in this case, the defendant will not take steps to protect its possible liability to the plaintiffs: Bradvica v Radulovic [1975] VR 434.
19 In Hall, Barrett J addressed the situation where, as in this matter, a liquidator of a company commenced proceedings against the Commissioner and the Commissioner, by interlocutory process filed in those proceedings, sought an indemnity against the company’s directors under s 588FGA. His Honour noted that the procedure whereby the Commissioner filed an interlocutory process, rather than an originating process, arose because s 588FGA(4) requires that any order made against the directors be made “in the proceedings in which [the Court] made the order against the Commissioner.” As such, the Commissioner’s claim was not a cross-claim: see also Condon (as liquidators of Justinprint Australia Pty Ltd v Commissioner of Taxation (2004) 49 ACSR 681. Barrett J considered that the words “in the proceedings in which it made” in s 588FGA(4) had the added significance that, where the Commissioner proceeds against the directors by interlocutory process, the directors become parties to the proceedings “in” which the order, if ultimately made, is made against the Commissioner; that is, the proceedings brought by the liquidator against the Commissioner. His Honour then said (at [16]):
For reasons I have stated, a decision by the Commissioner to pursue the s 588FGA(4) route (as distinct from any other) in seeking to enforce the s 588FGA(2) indemnity carries within it a decision that the relevant directors should be afforded the position of third parties in the proceedings brought by the liquidator against the Commissioner. As a corollary, it must, in my opinion, be intended that the directors in question should be able to defend the liquidator’s claim against the Commissioner, that being a generally accepted incident of third party status: see Helicopter Sales Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1; 4 ALR 77 per Barwick CJ at CLR 5; ALR 79 and Mason J at CLR 15; ALR 87.
20 Barrett J also referred to the judgment of Finklestein in Crosbie, and said (at [22]):
Consistently with this, the directors, as statutory third parties to the proceedings, must be afforded the right and ability to contest all matters relevant to the question of liability between the liquidators and the Commissioner, including the matter of insolvency. I agree with Finkelstein J that, in a case of this kind, basic principles of justice so require. A likely consequence is that the liquidators will be put to proof of the matters in para 9 of the statement of claim despite the Commissioner’s admission. But it is to be borne firmly in mind that the Commissioner, as well as making the admission, has taken the particular opportunity made available by s 588FGA(4) to recast the liquidators’ proceedings by inserting as parties the persons who not only have a real interest in contesting the insolvency question but also are likely to have the factual wherewithal to do so. That those persons should be able to participate fully in that contest is, to me, obvious.
21 The decisions in Crosbie and Hall have been followed on a number of occasions. In Harris v Commissioner of Taxation [2006] 2 Qd R 445, Mackenzie J considered the situation where a liquidator sought to recover payments from the Commissioner under s 588FF, the Commissioner filed but did not serve third party notices seeking an indemnity from the directors, and the Commissioner and the liquidator signed a consent to judgment without notifying the directors. When the Commissioner filed an interlocutory application seeking orders against the directors, the directors contested the validity of the consent order and the procedure that had been followed by the Commissioner. Mackenzie J set aside the consent order on the basis that the procedures involved an irregularity because the directors were denied the procedural right to defend the liquidator’s claim. His Honour referred to both Crosbie and Hall and said (at [29]) that “[a]part from the propriety of adopting a coherent approach by applying decisions in other jurisdictions under national legislation, there is no authority to which my attention was drawn or which researches revealed suggesting that the thrust of the authorities is wrong.”
22 Crosbie and Hall were also followed by Young J in Duncan v Commissioner of Taxation (2006) 58 ACSR 555 at 561 [22]-[24]. In Commissioner of Taxation v Sims (2008) 72 NSWLR 716, Ipp JA (with whom Beazley and Macfarlan JJA agreed), at [40] referred with approval to the finding of Young J in Duncan that the “authorities recognise that directors [sued under s 588FGA(2)] should be able to contest the liquidator’s claims against the Commissioner.”
23 The Liquidator’s contention is that Crosbie and Hall (and therefore the cases following them) were wrongly decided. He puts forward two arguments in support of this contention. First, it is said that in Hall, Barrett J’s reliance, in the passage extracted earlier in these reasons, on Helicopter Sales (Australia) Pty Limited v Rotor-Work Pty Limited (1974) 132 CLR 1 is misplaced because that case is not authority for the proposition that it is a generally accepted incident of third party status that a third party is able to defend the principal proceedings. Second, it is submitted that both Barrett J and Finkelstein J failed to have regard to the apparent statutory intention and purpose of s 588FGA.
24 In relation to the first of these arguments, there is something to be said for the proposition that Helicopter Sales is not authority for the broad proposition that leave to defend the principal proceedings is a generally accepted incident of third party status: see the obiter observations of Besanko J in Shrimp v Landmark Operations Limited [2007] FCA 1468 at [82]. As Finkelstein J pointed out in Crosbie (at [5]), the judgments of Barwick CJ and (probably) Mason J in Helicopter Sales are authority for the proposition that if leave to defend a plaintiff’s action is given to a third party, it automatically follows that the third party will be bound by the result of the issue contested. It does not appear that these judgments are authority for any other proposition relevant to this matter.
25 It does not follow, however, that Barrett J’s conclusions in Hall are wrong. Barrett J’s conclusions do not depend entirely, or in my opinion even significantly, on Helicopter Sales. Rather, Barrett J relied as much on the construction of s 588FGA(4), which meant that the directors were parties to the principal proceedings, and on his Honour’s agreement with Finkelstein J in Crosbie that the basic principles of justice required that the directors be afforded the right to contest all matters relevant to the question of liability between the liquidator and the Commissioner.
26 In relation to the second argument, the Liquidator relies on the terms of the Explanatory Memorandum to the Bill that inserted s 588FGA: the Insolvency (Tax Priorities) Legislation Amendment Bill 1993 (Cth). In Dean-Willcocks v Federal Commissioner of Taxation (2004) 57 ATR 413, Austin J considered the legislative purpose disclosed in the Explanatory Memorandum to this Bill and said (at [45]):
It is arguable, when one has regard to the legislative purpose disclosed in the explanatory memorandum for the package of amendments made in the Bill, that s 588FGA impliedly excludes any right on the part of the directors to be heard before a recovery order is made against the Commissioner. A contractual guarantor whose guarantee obligation is triggered by the making of such an order is not entitled to notice of the creditor’s action against the principal debtor unless the contract so provides: see J O’Donovan and J Phillips, The Modern Contract of Guarantee, English ed (2003) at 533 and 590. On the other hand, the directors are exposed to liability, not under a true contractual guarantee but by virtue of a statutory indemnity, expressed in unqualified terms save only for the making of a recovery order against the Commissioner, and without recourse to the general law of guarantees. Their direct statutory liability is of a kind that would normally provide a basis for application of the rules of natural justice.
27 Ultimately Austin J was not required to decide which of the two arguments he referred to in this passage was correct. His Honour did, however, express agreement with the finding by Finkelstein J in Crosbie in relation to the “third party point”, namely that the directors should be given the opportunity to appear to defend the plaintiffs’ claim, because they would suffer grave injustice if leave were refused: see at [15]-[17].
28 In Hall, Barrett J referred to the decision of Austin J in Dean-Willcocks and pointed out that it was not a case where the Commissioner had resorted to s 588FGA(4). Rather, Austin J’s remarks were directed to the situation where a liquidator’s claim against the Commissioner and the Commissioner’s claim against directors are pursued in separate proceedings. In any event, Barrett J was clearly aware of the issue raised by Austin J based on the Explanatory Memorandum. The Liquidator’s submission that Barrett J did not turn his mind to the apparent intention behind s 588FGA must be rejected. Barrett J was obviously not swayed by the argument based on the position in relation to general law guarantees and instead based his decision on the application of the rules of natural justice.
29 The Liquidator correctly accepts that, as a matter of comity, I should follow Hall and Crosbie unless I find that those decisions are plainly wrong. Not only am I not satisfied that the decisions are wrong (let alone plainly wrong), in my opinion they are, with respect, plainly correct. For the reasons given by both Barrett J in Hall and Finkelstein J in Crosbie, the interests of justice require that the directors be permitted to defend or contest the proceeding between the Liquidator and the Commissioner and the issues that arise therein where the Commissioner has proceeded against the directors under s 588FGA by taking the route provided in s 588FGA(4).
30 It necessarily follows, in my opinion, that in this matter, Messrs Willett and Wentworth have standing to oppose the amendment of the originating process and statement of claim. That is because one of the effects of the amendments is to potentially increase the amount of the indemnity sought against them. The adequacy of the proposed amended pleadings also has direct implications for their defence to the claims made against them. If Messrs Willett and Wentworth are able to contest and raise defences to the Liquidator’s action against the Commissioner, I can see no reason whey they are not able to take issue with the proposed amended pleadings.
Are the proposed new claims statute barred?
31 Both Mr Willett and Mr Wentworth submit that the proposed amended originating application and statement of claim plead new causes of action that are statute barred and that leave should therefore be refused on the basis that the amendments are futile.
32 There is no doubt that the amendments raise new causes of action. The new causes of action include claims that some of the relevant payments are voidable under s 588FF based on the allegation that the payments were preference payments and uncommercial transactions by the paying companies as agents for the additional companies (and in some cases as agents of other paying companies) and alternative causes of action based on the allegation that the payments were uncommercial transactions by the paying companies. Section 588FF(3) of the Corporations Act provides that an application under s 588FF may only be made during the period beginning on the relation back day and ending, relevantly, three years after the relation back day. It appears to be common ground that the three year period relevant to the new causes of action ended on 2 May 2013. It follows that, but for the potential operation of r 8.21(2) of the Federal Court Rules, the proposed new claims would be statute barred and the amendments would be futile.
33 Rule 8.21 of the Federal Court Rules relevantly provides:
8.21(1) An applicant may apply to the court for leave to amend an originating application for any reason, including:
…
(c) to correct a mistake in the name of a party to the proceeding; or
(d) to correct the identity of a party to the proceeding; or
(e) to change the capacity in which the party is suing in the proceeding, if the changed capacity is one that the party had when the proceeding started, or has acquired since that time;
…
(g) to add or substitute a new claim for relief, or a new foundation in law for a claim for relief, that arises:
(i) out of the same facts or substantially the same facts as those already pleaded to support an existing claim for relief by the applicant;
(ii) in whole or in part, out of facts or matters that have occurred or arisen since the start of the proceeding.
(2) An applicant may apply to the Court for leave to amend an originating application in accordance with paragraph (1)(c), (d), (e) or subparagraph (g)(i) even if the application is made after the end of any relevant period of limitation applying at the date the proceeding was started.
(3) However, an applicant must not apply to amend an originating application in accordance with subparagraph (1)(g)(ii) after the time within which any statute that limits the time within which a proceeding may be started has expired.
34 If the amendments proposed by the Liquidator fall within r 8.21(1)(c), (d), (e) or (g)(i), r 8.21(2) will apply and the amendments can be applied for (and made) even though the application is made after the expiry of the limitation period.
35 In my opinion the proposed amendments fall within the terms of r 8.21(1)(e) and (g)(i), and accordingly r 8.21(2) applies.
36 In relation to r 8.21(1)(e), it is apparent that one of the reasons for some of the proposed amendments is the need to change the capacity in which the Liquidator is suing in the proceeding from one whereby he is suing in his capacity as joint and several liquidator of the paying companies, to one in which he is suing in his capacity as joint and several liquidator of the paying companies and also the four additional companies: see amendments to schedule 1 and paragraphs 7A(c), (d) and (e), 9A(b) and 10A(b) of the proposed amended originating application; amendments to schedule 1 and paragraphs 1(a)(vi) to (x) of the proposed amended statement of claim. Messrs Willett and Wentworth submit that the effect of these proposed amendments is to add four new plaintiffs to the proceedings. That submission is rejected. The plaintiff in the proceedings as filed is the Liquidator. The plaintiff in the proceedings, if amended, is still the Liquidator, albeit in an expanded, and therefore changed, capacity; that is, as liquidator of ten named companies rather than six.
37 Section 588FF(1) provides that an application for relief under that section is to be commenced by a company’s liquidator. It may be accepted that the effect of the amendments is to permit the Liquidator to raise new claims on behalf of (and ultimately for the benefit of) four additional companies. It does not, however, follow that the proposed amendments fall outside the terms of r 8.21(1)(e) of the Rules. Senior Counsel for both Mr Willett and Mr Wentworth submit that they have been unable to find any previous cases where r 8.21(1)(e) has been utilised to permit amendments of this kind. That may be so. It does appear that the cases where this paragraph of r 8.21(1) has been utilised in the past have essentially been limited to situations where, for example, the amendment has the effect of changing a party’s capacity from a personal capacity to the capacity as a trustee of another person or entity: see Pearl Coast Divers Pty Ltd (in liq) v Cossack Pearls Pty Ltd (2008) 249 ALR 591; Vintage Developments Pty Ltd v GHD Pty Ltd (No 2) [2006] FCA 1437. It does not follow, however, that the paragraph, which is in broad terms, cannot encompass the situation where the capacity of a liquidator, who brings proceedings in that capacity on behalf of a company or companies, is expanded to include other companies of which he (or she, as the case may be) is also liquidator. An expanded capacity is capable of amounting to a changed capacity. That is the situation here.
38 In my opinion, the proposed amendments also fall within r 8.21(1)(g)(i) of the Rules. The language of r 8.21(1)(g)(i) “requires the Court to focus on the facts currently pleaded and to determine whether the new claim for relief (or new legal foundation for a claim) arises out of the same, or substantially the same facts”: Darcy v Medtel Pty Limited (No 3) [2004] FCA 807 at [30] (per Sackville J). The central facts as currently pleaded are that the paying companies made a number of payments to the Commissioner. The new claims for relief and new pleadings arise out of the same payments. The new claims for relief, or new legal foundations for those claims, arise from the fact that some of those payments were applied or allocated by the Commissioner to accounts relating to the tax liabilities of the additional companies. For the Liquidator to successfully recover the payments that were allocated to the additional companies, it is necessary for him to plead (and ultimately prove) that the paying companies made these payments as agent for the additional companies, or that they were otherwise uncommercial transactions.
39 It may be accepted that the proposed amendments raise some new facts and give rise to some new issues. The new facts, however, are essentially limited to facts relating to the allocation of the payments by the Commissioner. The allegations of agency are based essentially on inferences said to be available from the Commissioner’s allocation of the payments. Beyond the fact that the payments were allocated to the accounts of the additional companies, virtually no new facts are relied on. Whilst the amendments may also give rise to a new issue relating to the solvency of the additional companies, it appears that the Liquidator’s case in this respect is that the issue of solvency of all of the Spectrum Fire group companies, including the additional companies, can be approached on a group basis. Whether that is correct or not is a matter for determination at the final hearing. Whilst this may give rise to a new factual enquiry, virtually no additional facts are relied on in relation to the solvency of the additional companies.
40 For r 8.21(1)(g)(i) to operate it is not necessary to demonstrate that the new claims arise from the same facts as those already pleaded. It is only necessary for the new claims for relief to arise out of “substantially” the same facts. That is the case here. The Liquidator’s claims, both in the existing application and pleadings and the proposed amended application and pleadings, arise out of substantially the same facts; that a number of payments were made to the Commissioner by the paying companies in certain circumstances. The additional facts relied on in the proposed amended pleadings, most if not all of which arise from the allocation of the payments by the Commissioner to the tax liabilities of the additional companies, are minimal. This finding also applies to those proposed amendments which involve the new allegation that some of the payments were made by some of the paying companies on behalf of other paying companies.
41 Senior Counsel for Mr Wentworth submits that the proposed amendments arise in whole or in part out of factual matters that have occurred or arisen since the start of the proceedings. In these circumstances, it is submitted that r 8.21(1)(g)(ii) applies and that accordingly, by reason of r 8.21(3) the Liquidator is not able to amend the originating application given that the time limit that applies to a proceeding under s 588FF has expired. The submission is to the effect that the relevant factual matters from which the amendments arise comprise the Liquidator’s knowledge or awareness that the Commissioner had applied some of the payments made by the paying companies towards the tax liabilities of the additional companies. This knowledge and awareness is said to have occurred or arisen after the defence was filed.
42 That submission is rejected. The relevant facts or matters that give rise to the new claims for relief comprise the objective fact that the relevant payments were applied by the Commissioner in a particular way. The fact that the Commissioner applied the payments in that particular way occurred or existed before the commencement of the proceedings. The relevant facts or matters from which the new claims arise are not the Liquidator’s subjective knowledge or awareness of the Commissioner’s allocation of the payments. The fact that the Liquidator based his application to amend on his discovery, after the commencement of the proceedings, of the relevant facts (the way the payments were applied by the Commissioner), does not mean that the new claims arise out of facts or matters that occurred or arose since the start of the proceedings.
43 Senior Counsel for Mr Willett submitted that the proposed amendments would have the effect of bypassing the statutory time limit in s 588FF(3) of the Corporations Act and that r 8.21 must be construed having regard to the authorities which establish that s 588FF(3) was intended to cover the field of extensions of time with respect to actions under s 588FF(1): see in particular BP Australia Ltd v Brown (2003) 58 NSWLR 322. It may be accepted that the effect of r 8.21(2) of the Rules is that, in circumstances where it applies, new claims for relief may be added to existing proceedings in circumstances where the new claims would otherwise be statute barred. That is the very purpose of the rule. The construction of r 8.21 is different to the question of construction considered in BP Australia, which concerned whether the general power to extend time in s 1322(4) of the Corporations Act could operate to permit the extension of time to commence an action under s 588FF in circumstances where the specific provision in s 588FF(3) could not operate to extend time. Not surprisingly, the Court of Appeal found that the broader legislative scheme in the Corporations Act indicated that the specific provision in s 588FF(3) excluded the operation of the general power of extension in s 1322(4).
44 Unlike s 588FF(3), r 8.21(2) does not operate to extend the time for commencement of proceedings. Where it applies, it permits an amendment to an application commenced within time, even though the effect of the amendment is to add a new claim for relief which, had the proceedings not already been commenced, would have been statute barred: see Rodgers v Commissioner of Taxation (1998) 88 FCR 61 at 67F-68B. This matter is more akin to the scenario considered in Gordon v Tolcher (2006) 231 CLR 334. The proceedings here were commenced by the Liquidator within time. After the institution of the proceedings, the conduct of the matter is governed by procedural rules of the court, including relevantly r 8.21.
45 In my opinion, the reasons for the proposed amendments fall within r 8.21(1)(e) and (g)(i), and therefore r 8.21(2) applies. Leave to amend should not be refused on the basis that, but for the operation of r 8.21(2), the new claims raised by the amendments would be outside the limitation period in s 588FF(3).
Are the proposed amended pleadings defective?
46 Senior Counsel for Mr Willett submits that the proposed amended statement of claim is defective in that in at least three respects it fails to plead the material facts on which the Liquidator relies. First, it is submitted that the proposed pleading fails to identify the particular company said to be the debtor of the Commissioner in respect of each of the alleged payments. That is said to be an essential element of the preference claims on the basis that s 588FA(1)(b) refers to “an unsecured debt that the company owes to the creditor”. Second, it is said that the proposed pleading is deficient insofar as it adopts the formulation “in relation to the Business Activity Statement and/or Pay As You Go taxation liabilities” of specified companies when describing the debts allegedly owed by the relevant companies. Third, it is submitted that the proposed pleading is deficient insofar as it pleads that the paying companies were agents of other companies in the Spectrum Fire group, that being a conclusion without proper specification of the material facts said to support the conclusion. It is also submitted in this context that the pleading is deficient because it fails to plead specifically whether or not the paying companies were authorised to make the payments on behalf of the other companies.
47 There is some merit in these criticisms of the proposed amended statement of claim.
48 In relation to the first complaint, the pleading should clearly identify the company said to be in the relevant debtor relationship with the Commissioner in relation to each payment. The proposed pleading does go some way towards identifying the relevant debtor company. It does so by pleading that relevant payments were made “in relation to the Business Activity Statement and/or Pay As You Go taxation liabilities of” a particular company. It is implicit from these words that it is alleged that the named company owed a debt, comprised of taxation liabilities, to the Commissioner. For example, in paragraph 13(a) of the proposed amended statement of claim, it is pleaded that a particular payment by On-Line Pro Pty Limited was made “as agent for Spec FS SA in relation to the Business Activity Statement and/or Pay As You Go taxation liabilities of Spec FS SA”. It is implicit in this that the Liquidator alleges that Spec FS SA was indebted to the Commissioner. Nonetheless, there is much to be said for the proposition that the pleading should clearly and explicitly allege that Spec FS SA relevantly owed an unsecured debt to the Commissioner and provide proper particulars of the nature and amount of the debt.
49 The second deficiency is more significant. Any amended statement of claim should provide proper particulars or specification of the nature of the alleged taxation liability of the relevant companies. That is particularly important because the liability of Messrs Willett and Wentworth to indemnify the Commissioner pursuant to s 588FGA of the Corporations Act only arises if, relevantly, the payment to the Commissioner was in respect of a liability under Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 (Cth). The proposed amended statement of claim would not enable Mr Willett and Mr Wentworth to ascertain whether any of the relevant liabilities claimed were in respect of a liability under Subdivision 16-B in Schedule 1 to the Taxation Administration Act. That has direct relevance to their potential liability to the Commissioner under s 588FGA.
50 During the hearing, counsel for the Commissioner was requested to provide particulars of the taxation liabilities that the Commissioner says the relevant payments were applied towards. Some particulars were in due course provided. The particulars provided during the hearing were not, however, complete or comprehensive. Proper particularisation by the Commissioner of the nature of the taxation liabilities should enable the Liquidator to properly plead and particularise the nature of the relevant taxation liabilities in the proposed amended statement of claim. The Liquidator accepted during the hearing that proper particulars would enable him to properly plead this aspect of the matter. This is a matter that should be attended to prior to the grant of leave to amend the statement of claim.
51 A related complaint is that the proposed amended pleading does not properly identify the relevant “transactions” for the purpose of s 588FA(1). It is not sufficient, it is submitted, for it to be pleaded that the payments were made “in relation to” the tax liabilities of the specified companies. It appears to be implicit in the proposed pleading that the relevant transactions are the payments by the paying companies to the Commissioner to be applied towards the taxation liabilities of companies within the Spectrum Fire group. What needs to be made clear is how it is alleged the payments were applied in the particular way they were. As is pointed out on behalf of Mr Willett, if the payments were applied in this way as a result of the unilateral actions of the Commissioner, the Liquidator’s case may fail because there may be no relevant transaction to which the company whose tax liability was paid was a party. If the Liquidator’s case is that the company whose tax liability was paid was a party to the relevant transaction because the payment was made by the company’s agent with authority, that should be clearly and explicitly pleaded. Whilst the Liquidator’s case in relation to the allocation may be circumstantial and rely on inferences, the pleading must identify the relevant transaction the subject of the claims and plead material facts that provide the basis of the claims. Further clarity in the pleadings is required in this regard.
52 In relation to the third complaint, counsel for the Liquidator submits that the allegation of agency in the pleading is based on an inference that can be drawn from the nature and circumstances of the relevant payments and how they were applied by the Commissioner. In such circumstances, it is submitted that it is not possible to plead or particularise any further material facts that support the allegation of agency. Nonetheless, in my opinion the proposed amended statement of claim should identify all material facts relied on by the Liquidator from which it is alleged agency can be inferred or implied. It is not enough to merely assert agency without specifying in any way the facts from which that agency is said to arise. The pleading should provide proper particulars of the nature of the agency that it is alleged can be inferred from those facts and the legal basis of the agency said to arise. The Commissioner and Messrs Willett and Wentworth are entitled to know the full particulars of the case they are required to meet in relation to the agency allegations.
53 In relation to the complaint that the proposed amended pleading does not make it clear whether or not it is alleged that the payments that were made on behalf of the additional companies where made with the authority of the additional companies, in my opinion there is a lack of clarity in the pleadings. It appears from the Liquidator’s written and oral submissions that the lack of clarity arises because the Liquidator uses the expressions “as agent for” and “authorised by” interchangeably. In the proposed amended pleading, alternative allegations are made where it is alleged the payments were made “as agent for” the additional companies and where it is alleged the payments were not made as agent for those companies: see paragraphs 18 and 19 of the proposed amended statement of claim. In the Liquidator’s written submissions, however, these alternative claims are explained in terms of whether the payments were or were not authorised: see paragraph 26 of the Liquidator’s written submissions. In oral submissions, the Liquidator explained his position as being that if the payments were made as agent for one of the additional companies, they must have been authorised by that company. The position may not, however, be that simple. As pointed out by Senior Counsel for Mr Willett, this ignores, for example, the possibility of a payment being made without authority by an agent but subsequently ratified by the principal. The lack of clarity in the proposed pleadings in this respect should be remedied before leave is granted. If it is the Liquidator’s case that the payments that are alleged to have been made as agent for the additional companies (or in some cases as agent for other paying companies) were made with the authority of the additional companies (or other paying companies) and those payments that were not made as agent were not made with authority, that should be clearly and explicitly pleaded.
54 During the hearing, the parties were asked what course should be taken if the only issue that precluded the grant of leave to amend the statement of claim concerned deficiencies in the proposed amended statement of claim that could possibly be remedied by the Liquidator. In such circumstances, it would seem to be contrary to the quick, inexpensive and efficient resolution of the proceedings to dismiss the interlocutory application and effectively require the Liquidator to file a further application for leave to amend based on a new proposed amended pleading. None of the parties suggested that would be an appropriate course. Counsel for the Liquidator suggested that leave to amend should be granted on terms requiring the amended pleading to address certain matters. Senior Counsel for Mr Willett and Mr Wentworth submitted that the appropriate course would be to refuse leave to amend, but provide for a process where the Liquidator would be required to serve a further draft amended statement of claim, with provision for relisting the matter for further argument if there remains an issue about the adequacy of the proposed pleading. I propose to adopt a course similar to that proposed on behalf of Messrs Willett and Wentworth. I note that whilst it is not submitted that there are deficiencies in the proposed amended originating application, objection is taken to those paragraphs that correspond with the impugned paragraphs of the proposed amended statement of claim. It may be necessary to make changes to the proposed amended originating application if further amendments are made to the proposed amended statement of claim to remedy the deficiencies that have been identified.
Discretionary considerations
55 Senior Counsel for both Mr Willett and Mr Wentworth submit that there are a number of considerations that militate against the exercise by the Court of its discretion to grant leave to amend. Those considerations include the fact that the effect of the proposed amendments is to circumvent the three year limitation period in s 588FF of the Corporations Act and effectively introduce four new plaintiffs. These matters have been addressed in the context of the application of r 8.21, but are also said to be discretionary considerations. It is also submitted that the amendments would mean that new issues would arise that would need to be addressed by the parties, for example the solvency of the additional companies. Senior Counsel for Mr Willett submits that it is apparent from the affidavit of Mr Brabant that the new claims, particularly insofar as they are based on the allegation of agency, are founded on nothing more than speculation.
56 Whilst the matters advanced on behalf of Messrs Willett and Wentworth may be relevant considerations in the exercise of the discretion to grant leave to amend, they are not of sufficient weight to warrant the refusal of leave to amend. The power to grant or refuse leave must, by virtue of s 37M(3) of the Federal Court of Australia Act 1976 (Cth) be exercised in the way that best promotes the overarching purpose of the civil practice and procedure provisions of the Act and the Rules: Bowen Energy Ltd v 2KD Drilling Pty Ltd [2012] FCA 275 at [8]. That purpose is to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible. As Edmonds J said in SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd (No 4) [2007] FCA 1035 at [14] the “starting point is that all of such amendments should be made [and allowed] as are necessary to enable the real questions in controversy between the parties to be decided”. The new claims for relief, or the new foundations in law for the claims, arise out of substantially the same facts as those already pleaded. The essential facts are that certain payments were made by companies within the Spectrum Fire group to the Commissioner. Those payments are attacked on the basis that they are voidable transactions. The claims in the proposed amended pleadings attack the same payments. All that has changed is that because it now appears that some of the payments were allocated or applied by the Commissioner towards the taxation liabilities of the additional companies, the Liquidator seeks to attack the payments on different and alternative legal bases. To the extent that the amendments rely on the allegation of agency, it is not correct to label the allegation as mere speculation. The allegations of agency are based on inferences that are said to flow from the fact that the payments were applied to the tax liabilities of the additional companies. Whether those inferences can and should be drawn is a matter for the final hearing.
57 In the absence of any real prejudice to the Commissioner or Messrs Willett and Wentworth that cannot be cured by a costs order, amendments should be allowed so as to ensure that the real questions in the proceeding are properly agitated. None of the parties suggested that they would be prejudiced in any way that could not be remedied by an appropriate award of costs.
Conclusion and orders
58 Subject to the Liquidator remedying the defects in the proposed amended statement of claim (currently annexed as “PTB2” to the affidavit of Peter Thomas Brabant dated 29 August 2013), the Plaintiff should be granted leave to amend the statement of claim and leave to amend the originating application (in the form annexed as “PTB1” to the same affidavit). I do not, however, propose to dismiss the Liquidator’s interlocutory application. The better course is to refuse leave to amend the originating application and statement of claim in the form of the annexures PTB1 and PTB2 and make directions in relation to the furnishing of particulars by the Commissioner and the service of a further draft amended statement of claim (and if necessary a further draft amended originating application), together with provision for further submissions in the event that there is any further dispute concerning the adequacy of the proposed amended statement of claim. That is not intended to encourage further technical arguments about the proposed amendments, particularly if those further arguments really turn on matters that can be resolved by further particulars. If the Liquidator is able to remedy the deficiencies that have been identified in a way that enables the Commissioner and Messrs Willett and Wentworth to know the case they have to meet, leave to amend should be granted.
59 No order for costs will be made at this stage. If leave to amend is ultimately granted, subject to hearing further from the parties, the appropriate costs order would appear to be that the Liquidator pay the costs of the Commissioner and Messrs Willett and Wentworth thrown away by reason of the amendments, and that costs of the application to amend be costs in the cause. If the parties are unable to agree on the appropriate costs order, I will in due course entertain further submissions in relation to costs.
I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney. |
Associate:
Schedule
Company Name | Appointee 1 | Appointee 2 |
| Spec FS NSW Pty Ltd (Formerly Spectrum Fire and Security (NSW) Pty Ltd) ABN 99 096 173 125 | Philip Patrick Carter | Christopher Clarke Hill |
Spec F Pty Ltd (Formerly Spectrum Fire Pty Ltd) ABN 33 117 906 322 | Philip Patrick Carter | Christopher Clarke Hill |
Spec FS QLD Pty Ltd (Formerly Spectrum Fire and Security (QLD) Pty Ltd) ABN 82 010 630 967 | Philip Patrick Carter | Grant Dene Sparks |
Spec FS SA Pty Ltd (Formerly Spectrum Fire and Security (SA) Pty Ltd ) ABN 99 117 907 034 | Philip Patrick Carter | Daniel Matthew Bryant |
On-Line Pro Pty Ltd (Formerly On-Line Fire Protection Pty Ltd) ABN 92 050 207 175 | Philip Patrick Carter | Daniel Matthew Bryant |
Spec FS VIC Pty Ltd (Formerly Spectrum Fire and Security (VIC) Pty Ltd) ABN 73 105 992 265 | Philip Patrick Carter | Stephen Graham Longley |
