FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE– application for leave to appeal – company in liquidation pursuant to resolution of creditors – application that Group Tax payments to Commissioner be set aside as voidable transactions - money be repaid to company – whether Court has power to permit amendment and expansion of existing application –whether Court can include claims for additional payments otherwise statute barred – whether Federal Court Act and Rules empower Court to grant leave to amend a document where effect of amendment is to override another statute – language of the Federal Court Rules – legislative intent – whether additional claims arise out of same or substantially same facts – pattern of conduct over a period.

Corporations Law - s 588FF

Federal Court Act 1976 -  s 59

Federal Court Rules – Order 13

Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514 referred to

Weldon v Neal (1887) 19 QBD 394 referred to

PETER DAVID RODGERS V

COMMISSIONER OF TAXATION

NG 3130 of 1997

JUDGES:       WILCOX, TAMBERLIN AND EMMETT JJ

PLACE:          SYDNEY

DATE:            16 OCTOBER 1998

on appeal from a single judge

of the federal court of australia

THE COURT ORDERS THAT:

1.         Leave to appeal be granted.

2.                  The appeal be allowed and the orders of Branson J set aside.

3.                  The proceedings be remitted to her Honour for  further determination.

4.                  The respondent Commissioner of Taxation pay the costs of the appeal.

5.                  The costs of the hearing before Branson J be reserved to her Honour for determination.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE

OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

THE COURT:  Before the Court is an application for leave to appeal from a decision of Branson J.  Her Honour refused an application in a proceeding brought under s 588FF (1) of theCorporations Law (“the Law’).  In that proceeding the applicant, Peter David Rodgers, liquidator of Sands & Mcdougall Wholesale Pty Limited (in Liquidation) (“the Company”), sought a direction that the Commissioner of Taxation (“the Commissioner”) repay to the Company moneys paid to the Commissioner, on the ground the payments were voidable transactions pursuant to s 588FE of the Law.  The application refused by her Honour was for leave to amend the Application and Statement of Claim by adding claims in respect of additional moneys that had been paid to the Commissioner more than three years before the application for amendment.  Her Honour held she had no power to grant leave.  She did not deal with the question how she should exercise her discretion, if there was power.

The question sought to be raised before us, if leave to appeal is granted, is whether the Court has power to permit such an amendment.  As this is an important question, in relation to the powers of the Court and the operation of the Law, leave to appeal should be granted.

The facts

The Company was placed into liquidation on 12 September 1994, pursuant to a resolution of creditors.  The date of commencement of the winding up was 20 June 1994.

On 19 June 1997, the liquidator filed an application in this Court, pursuant to s 588FF(1) of the Law, for orders that Group Tax payments made to the Commissioner, totalling $382,192.90, be set aside as voidable transactions and the moneys repaid to the Company.  The payments were made between December 1993 and May 1994.  The liquidator was not then aware of two further payments.  The first of these payments ($8,190.00) was in respect of Group Tax penalties and made on 1 June 1994.  The second was a Group Tax payment of $77,481 made on 15 June 1994.

The motion for leave to amend the application was based on Order 13 rule 2 of the Federal Court Rules (“FCR”).  It was filed on 16 January 1998 in the following terms:

“1.       that the Applicant have leave to amend the Application filed in these proceedings so that order 1 sought in that Application reads as follows:

            ‘1.        An order that the Respondent pay the sum of $467,864.72 to the Applicant.’

2.         an order that the Applicant have leave to amend the Statement of Claim filed in these proceedings by adding the following particulars to the particulars to paragraph 5 of the Statement of Claim:

            Cheque date               Date presented           Cheque no.     Amount

                                                                                                              ($)

            20 May 1994               1 June 1994                 066454            8,190.80

            7 June 1994                 15 June 1994               19272              77,481.02

…”

The substance of the motion was that the amount sought to be recovered was to be amended by including claims in respect of the two further payments.

Her Honour dismissed the motion because she thought this would override the prohibition contained in s 588FF(3) of the Law.   That subsection requires any application under s 588(1) to be made within a three year period after the relation back day; in this case 20 June 1994.  Her Honour held s 59(3) of the Federal Court Act 1976 (Cth) (“FCA Act”) prevented O 13 r 2 being given an effect which would frustrate this prohibition. Furthermore, she considered the requirements of par (7) of O 13 r 2 were not satisfied; the new claims did not arise out of substantially the same facts as those pleaded to support the original claims for relief.

Relevant provisions

Order 13 r 2 was made in its present form in 1994.  Relevantly it provides:

“(1)     Subject to the following provisions of this rule, the Court may, at any stage of a proceeding, on application by any party or of its own motion, order that any document in the proceeding be amended, or that any party have leave to amend any document in the proceeding, in either case in such manner as the Court thinks fit.

(2)       All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.

(3)       Where an application to the Court for leave to make the amendment mentioned in subrules (4), (5), (6) or (7) is made after any relevant period of limitation current at the date of commencement of the proceeding has expired, the Court may, nevertheless, grant such leave in the circumstances mentioned in that subrule if it thinks it is just to do so.

…

(7)       An amendment may be made notwithstanding that the effect of the amendment will be to add or substitute a new claim for relief or another foundation in law for a claim for relief if the new claim for relief or foundation in law for that claim arises out of the same facts or substantially the same facts as those already pleaded to support existing claims for relief by the party applying for leave to make the amendment.” (Emphasis added)

Similar provisions are to be found in the Rules of the Supreme Courts of the States.

The Court’s rule making power is found in s 59 of the FCA Act. That section relevantly provides:

“Rules of Court

 (1)      The Judges of the Court or a majority of them may make Rules of Court, not inconsistent with this Act, making provision for or in relation to the practice and procedure to be followed in the Court (including the practice and procedure to be followed in Registries of the Court) and for or in relation to all matters and things incidental to any such practice or procedure, or necessary or convenient to be prescribed for the conduct of any business of the Court.

(2)       …

(2B)     The Rules of Court may make provision for :

            (a)        the amendment of a document in a proceeding; or

            (b)        leave to amend a document in a proceeding:

even if the effect of the amendment would be to allow a person to seek a remedy in respect of  a legal or equitable claim that would have been barred because of the expiry of a period of limitation if the remedy had originally been sought at the time of the amendment.

(3)       Rules of Court under this Act have effect subject to any provisions made by another Act, or by rules or regulations under another Act, with respect to the practice and procedure in particular matters.”

Section 588FF of the Corporations Law  relevantly provides:

“(1)     Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:

            (a)        an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;

…

(3)       An application under subsection (1) may only be made:

            (a)        within 3 years after the relation-back day; or

            (b)        within such longer period as the Court orders on an application under this paragraph made by the liquidator within those 3 years.”

Legislative history

The legislative history of s 59 of the FCA Act and O 13 sheds light on the Court’s power to allow amendments to existing applications.

In Weldon v Neal (1887) 19 QBD 394, the plaintiff commenced an action for slander.  After expiry of the Statute of Limitations, he sought to amend his Statement of Claim so as to add claims in respect of other causes of action.  The Court of Appeal acted on what it described as “the settled rule of practice”, that amendments are not permissible that would prejudice the rights of the opposite party existing at the date of the proposed amendment.  The court held that, if the proposed amendments were allowed, they would “relate back” to the date of the writ, at which date the proposed new causes of action were not barred; so their effect would be to take from the defendant a defence available to him under the Statute of Limitations; that would unjustly prejudice the defendant.

The “relation-back principle” is that an amendment takes effect from the date of the document it amends, not the date when it is made: see Baldry v Jackson [1976] 2 NSWLR 415 at 419; Warner v Sampson [1959] 1 QB 297.

On 28 October 1992, the High Court delivered judgment in Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514.  Toohey J at 561-562 said, in relation to O 13 r 2 in its then form:

“When the Federal Court is faced with an application to amend a statement of claim by introducing allegations that, though they may relate to a time after the relevant limitation period has expired, do no more than expand a cause of action already pleaded, there is no difficulty in treating O 13, r 2 as wide enough to permit such an amendment.  But when, as here, the proposed amendment introduces an admittedly new cause of action, the position is quite different.  Section 82(2) [Trade Practices Act (Cth) 1975] presents a statutory barrier to any new cause of action; to this barrier, reference to express, implied or incidental powers provides no answer.”

Deane J (at 545) indicated his general agreement with these observations.

Subsection (2B) was inserted into s 59 of the FCA Act in 1994.  The Explanatory Memorandum circulated by the Attorney-General in respect of that amendment is in the following terms:

“Clause 41 – Rules of Court

112      Clause 41 will amend section 59 of the Act by inserting new subsection 59(2B).  Section 59 of the Act deals with the matters in which the Court may make rules.

113.     New subsection 59(2B) will enable the Rules of Court to make provision for –

            •           the amendment of a document in a proceeding; or

            •           leave to amend a document in a proceeding

            even if the effect of the amendment would be to allow a person to seek a remedy in respect of a claim that is out of time at the time of the amendment.

114.     The proposed amendment is necessary to overcome the operation of the rule in Weldon v Neal (1887) 19 QBD 394.  That case held that leave to amend will not be granted to enable a plaintiff to raise a new cause of action if that cause would, if proceedings in relation to it were then started for the first time, be barred by the expiry of a period of limitation.  The amendment would not enable Rules to be made to allow a person to amend a claim so as to seek relief which was not available at the time the action was commenced because the action was commenced out of time.

115.     Comments made by the Hon. Justice Toohey of the High Court in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 have raised some doubts whether the Federal Court currently has the power to make such rules.  This amendment will overcome that doubt.” (Emphasis added)

Case law

In the course of submissions, counsel for the parties referred to a number of authorities.  However, they are of limited assistance in considering the present question.  There are important differences between the legislation and Court Rules considered in those cases and the FCA Act and FCR.  For example, some of the authorities are decisions of  the Court of Appeal of New South Wales.  But s 6 of the Supreme Court Act 1970 (NSW) provides:

“6.       Any Act in force immediately before the commencement of this Act which is inconsistent with the rules shall be superseded to the extent of such inconsistency and while such inconsistency continues to exist.”

There is no corresponding provision in the FCA Act.

Nevertheless, it is helpful, as a general guideline, to bear in mind the observations of Glass JA in McGee v Yeomans [1977] 1 NSWLR 273.  In that case, speaking of the nature and purpose of Pt 20 r 4, which is substantially similar to O 13 r 2(3) of the FCR in its present form, his Honour said at 280:

“I am driven to the conclusion that the Supreme Court Rules, upon their proper construction, displace the settled rule of practice laid down in Weldon v Neal (1887) 19 QBD 394 and all the finespun distinctions which it engendered.  In its place there has been substituted a general discretion to allow an amendment, notwithstanding that it raises as a barred cause of action, whenever justice so requires.  The exercise of the discretion is unfettered by any rules of practice.”

His Honour’s approach was applied in subsequent New South Wales decisions including Proctor v Jetway Aviation Pty Limited [1984] 1 NSWLR 166, to which reference was made in submissions.

In Fernance v Nominal Defendant (1989) 17 NSWLR 710, the Court of Appeal considered an application outside the limitation period to join a new defendant to a proceeding instituted within time.  The relevant rule was Part 8 r 11 of the Supreme Court Rules.  However, the members of  the Court made reference to Part 20 r 4, the subject of consideration in McGee’s case.   Gleeson CJ (at 719) cited the remarks of Glass JA referred to above.  Clarke JA adverted to the distinction between a situation where a proceeding has been commenced within the required time period and an amendment is sought in that proceeding outside the time period and a situation where it is sought to commence a new proceeding outside the permissible time period.  He said at 733:

“          In my opinion there is a clear distinction between a case in which a defendant is added and a case in which an additional cause of action is raised against an additional defendant.  In the latter instance a party who is put on notice of proceedings before the expiry of the limitation period is required to widen the ambit of his defence whereas in the former a person may be brought into the proceedings years after the expiry of the relevant limitation period without any prior notice.  This distinction is, I think, recognised in Pt 8, r11(3), which leaves it open to any defendant who is joined pursuant to an order … to defend the action upon the basis that the relevant limitation period had expired before he was joined.  Alternatively it provides the person who is sought to be joined as a defendant with the argument that no useful purpose would be served in making an order joining him.

            Part 20 does not, however, contain a provision dealing with the time at which an amendment made pursuant to an order under the Part takes effect.  It assumes the Baldry principle applies to all amendments made pursuant to the powers contained within it.” (Emphasis added)

The “Baldry principle” is a reference to the New South Wales Court of Appeal decision in Baldry v Jackson (supra) to a pleading or application which applies the relation-back principle referred to earlier.

In support of the submission that s 588FF(3) governed this case, counsel for the Commissioner referred to the High Court decision in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265.  That case concerned a time limitation on the making of a statutory demand.  More precisely, the question was whether s 1322 of the Law authorises an extension of time for compliance to be granted in circumstances where no application had been made within time.  Section s 459G(2) of the Law stipulates an application for an order setting aside a statutory demand may only be made within 21 days after the demand is served.  Section 1322 of the Law empowers the Court to make an order extending the period for taking any proceeding under the Law or in relation to a corporation even where the period expired before the extension application was made.  Gummow J, with whom all other members of the Court agreed, said (at 277):

“The force of the term ‘may only’ is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G.  An integer or element of the right created by s 459G is its exercise by application made within time specified.”(Emphasis added)

This statement establishes an application first made outside the prescribed time is ineffective; it says nothing about an application to amend.

In Harris v Western Australian Exim Corporation (1994) 56 FCR 1, Hill J adverted to the operation of O 13 r 2 in its amended form.  He decided the Court had power to permit an amendment to pleadings in order to raise, for the first time, a claim against a respondent based on a breach of the Fair Trading Act 1987 (NSW) (“FTA”).  The application originally alleged only a breach of s 52 of the Trade Practices Act 1974 (Cth)(“TPA”).   When the amendment application was made, a fresh proceeding seeking relief pursuant to the FTA would have been statute barred, although it would not have been barred when the proceeding was commenced.  His Honour held the Court had power to permit the amendment pursuant to O 13 r 2.  He said the limitation imposed by s 79(2) of the FTA was procedural rather than substantive in nature; an amendment to the pleading would operate retrospectively to the date of the original pleading, thereby satisfying the limitation requirement.  Hill J said (at 9):

“Another way of looking at the matter is to say that all s 79(2) requires is that the action … be commenced within three years of the cause of action accruing. An action has, in the present circumstances, been commenced.  True, that action was based on another cause of action but an amendment to the pleading operates, as I have said, retrospectively to the date of the original pleading… .”

The present case

The 1994 amendments, which included the insertion of s 59(2B) into the FCA Act and the amended FCR O 13, were made in response to the observations of Toohey J in Wardley and for the purpose of removing doubt as to the extent of the Court’s power to permit amendments to pleadings.

The language of O 13 r 2 draws no distinction between “substantial” and “procedural” amendments, nor between elements of a claim and elements of a defence to a claim.  The rule regulates the position after a proceeding has been commenced.  In that situation, O 13 r 2(3) enables the Court to allow an amendment notwithstanding expiry of a relevant limitation period.  The word “nevertheless”, in par 3, reflects an appreciation that there might previously have been an obstacle to the grant of leave to amend.  Leave can only be granted if the Court thinks it is “just” to do so.

This provision is to be contrasted with s 588FF(3), which is concerned with the making of an application to the Court; that is, the commencement of the proceeding itself.  Section 588FF(3) is not directed to an amendment of an existing claim; at least if that amendment does not involve a new cause of action:  see Quick v Stoland (Branson, Emmett and Finkelstein JJ, 25 September 1998, not yet reported).  There is no inconsistency between O 13 r 2 and s 588FF(3).  One is concerned with making an amendment to a pleading in an existing proceeding; the other is concerned with the commencement of a proceeding.

Paragraph (7) of O 13 r 2 extends the power conferred by par (2) so as to include the addition or substitution of a new claim, where the new claim arises out of substantially the same facts as those already pleaded.  The term “notwithstanding” in par (7) is a further indication that the drafters of the amended rule appreciated the constraints which earlier applied and intended to lessen those constraints.

The Commissioner submitted, and her Honour accepted, that s 59(3) of the FCA Act supported the conclusion that s 59(2B) was not intended to authorise the making of rules which enabled a statutory time limit to be extended.  It was said such a time limit is not procedural in character but “substantive”; indeed possibly a “condition precedent” to the Court’s jurisdiction.

Several observations may be made about this submission.  First, s 59(2B) draws no distinction between a procedural and “substantive” time limit.  Second, s 588FF(3) of the Law cannot accurately be described as “a provision of another Act with respect to the practice and procedure in particular matters”, within the meaning of s 59(3) of the FCA Act.  The expression “with respect to the practice and procedure in particular matters” qualifies both the reference to “another Act” and the expression “or by rules and regulations under another Act”.  It is concerned to ensure there is no conflict between the Rules of the Court and statutory provisions prescribing matters of practice and procedure.  However, as we have pointed out, there is no inconsistency between O 13 and the Law; s 588FF(3) is not a provision concerning the practice and procedure of the Court in particular matters.  Third, the legislative intention underlying the insertion of s 59(2B) was to remedy the possible limitation on the Court’s power to amend perceived by two members of the High Court in Wardley.  Being remedial legislation, s 59(2B) should be given a wide meaning directed to enabling it to achieve that purpose.  If s 59(3) were to be read in such a way as to require s 59(2B) to give way to any statutory provision that imposed a time limitation on the commencement of a proceeding, s 59(2B) would be otiose.

We do not accept the further submission that s 59(2B) is only capable of having an operation in circumstances where the limitation in question is of a “procedural nature” only.  There is nothing in either the legislative history or language of s 59(2B) which lends support to such a reading of the subsection.

Accordingly, we reject the submission that s 59(3) subordinates s 59(2B) to s 588FF(3) of the Corporations Law.  The two provisions operate by reference to different circumstances.

Order 13 , r 2(7) – arising out of the same or substantially the same facts.

The expression “substantially the same” in relation to pleadings and particulars has received attention in the authorities.

In Burford v Clifford (1932) 2 Ch 122 at 138 Lord Hanworth MR said:

“… the words ‘substantially the same’ relate to the facts which have to be examined for the purpose of ascertaining what is the relief or remedy to which the parties are entitled.  ‘Substantially’ must have been put in order to embrace something which was not exactly a repetition of the relief or remedy or asked for. … where the same facts have to be conned over in order to ascertain the liability and to give some relief to one or other of the parties, in such a case the rule now provides that it is unnecessary to have separate actions and some separate proceedings, but that a third party may be served.”

In Chatsworth Investments Ltd v Amoco (UK) Ltd (1968) 1 Ch 665 at 674, Cross J considered Burford’s case and explained it as applying to cases where substantially the same facts will have to be gone over to ascertain liabilities arising under different claims.

In the High Court of New Zealand, in Dairy Containers Ltd v The NZI Bank Ltd (1993) 1 NZLR 160 at 164, Smellie J held that, although causes of action in conversion and negligence were different in nature, the question of apportionment should be determined in one proceeding.  He considered pleas of contributory negligence to both causes of action brought into focus the effectiveness of internal and external audits; the issues were “substantially the same” and could  conveniently be dealt with at the same time.

The present Statement of Claim alleges the Company was, on 20 June 1994, placed into voluntary administration.  On 12 September 1994, pursuant to a resolution of creditors, it was placed into liquidation and a liquidator was appointed.  The winding up of the Company commenced on 20 June 1994.  The Commissioner of Taxation, at all material times, was a creditor of the Company.  The Statement of Claim further alleges that, on eight specified dates at approximately monthly intervals, the Company made Group Tax payments to the Commissioner  totalling $382,192 and, when each of the payments was made, the Company was not able to pay its debts as and when they became due and payable.  As a consequence, it is alleged, the Commissioner received from the Company more than he would have received if the payments were set aside and he proved the debts in the winding up.  Accordingly, it is alleged each of the payments was a voidable transaction.

The eight payments challenged in the original application were made pursuant to a pattern of regular remittance by the Company to the Commissioner of moneys payable under s 221F of the Income Tax Assessment Act 1936 (Cth). The two payments in respect of which the amendment is sought were also made in respect of Group Tax and, if it matters, in the same financial year as the original eight payments.  The evidence discloses the liquidator did not became aware of the two additional payments until about 19 November 1997 when his partner found records of the payments whilst preparing the liquidator’s discovery documents. This was five months after the proceeding had been commenced and the Statement of Claim filed.  The records of the Company comprised approximately 1300 boxes of documents and there were limited sources of information in relation to particular cheques.  On 15 February 1998, the appellant filed his notice of motion for leave to amend.

As mentioned, the additional two payments were made pursuant to the recurring liability of the Company to pay Group Tax.  They were part of a pattern of regular remittances.  The allegations sought to be made in respect of these payments are identical to those set out in the original application.  It is alleged that, when each of the payments was made, the Company was not able to pay all its debts as and when they became due. Determination of the question whether the Company was insolvent during any particular period will, of course, call for consideration of the Company’s financial affairs before and after that period.

No doubt it is correct to say each payment amounted to a separate transaction; nonetheless we consider these additional claims arise out of substantially the same facts as those pleaded to support  the original claims.   The additional claims are said to be part of  a pattern of conduct extending over a period of approximately eight months and involve allegations identical in form to those of the earlier claims.  The additional payments were both made within five weeks of the date of the last payment specified in the original application.  The requirements of O 13 r 2(7) are satisfied in respect of these two payments.

Conclusion

The appeal should be allowed and the orders of Branson J be set aside. The motion should be remitted to her Honour for further determination.  The Commissioner must pay the costs of the appeal.  The costs of the initial hearing of the motion should be reserved for consideration by her Honour.

Associate:

Dated:              16 October 1998