FEDERAL COURT OF AUSTRALIA

Commonwealth of Australia v CTC Resources NL; In the Matter of CTC Resources NL [2016] FCA 112

ORDERS

THE COURT ORDERS THAT:

1.    The application for an adjournment of the winding up application be refused.

2.    The defendant be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).

3.    Peter McCluskey of Ferrier Hodgson, Level 43, 600 Bourke Street, Melbourne, Victoria be appointed official liquidator of the defendant.

4.    The plaintiff’s costs be costs in the liquidation of the defendant.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FOSTER J:

1    By its Originating Process, the plaintiff, the Commonwealth of Australia (Commonwealth) seeks an order pursuant to s 459A and s 459P of the Corporations Act 2001 (Cth) (Act) winding up the defendant, CTC Resources NL (ACN 009 061 036) (CTC), in insolvency and consequential relief. The Commonwealth relies upon the failure on the part of CTC to comply with a creditor’s statutory demand dated 22 December 2014 issued by it under s 459E of the Act and served upon CTC on 22 December 2014. The amount claimed in that statutory demand was $12,715,615.17.

2    On 12 January 2015, CTC filed an application under s 459G(1) of the Act in the Supreme Court of Victoria in which it sought an order setting aside the statutory demand. On 29 May 2015, Associate Justice Efthim dismissed that application with costs (CTC Resources N/L v Commonwealth of Australia [2015] VSC 238 (CTC No 1). On 29 June 2015, pursuant to s 459H of the Act, his Honour reduced the amount claimed in the statutory demand from $12,715,615.17 to $11,915,856.31.

3    The decision in CTC No 1 had the following consequences for the Commonwealth’s application to wind up CTC:

(a)    First, the Court must presume that CTC is insolvent except so far as the contrary is proven for the purposes of the present application (s 459C of the Act);

(b)    Second, CTC may not, without the leave of the Court, oppose the Commonwealth’s claim that it be wound up on a ground that:

(i)    CTC relied on for the purposes of the application which it made in CTC No 1 (s 459S(1)(a)), or

(ii)    CTC could have so relied on but did not so rely on for the purposes of that application (s 459S(1)(b)); and

(c)    Third, the Court is not to grant leave under s 459S(1) of the Act unless it is satisfied that the ground sought to be relied upon by CTC in opposition to the Commonwealth’s claim is material to proving that CTC is solvent.

4    The amount claimed by the Commonwealth against CTC in the statutory demand was founded upon two judgments and two sets of orders of the Supreme Court of the Australian Capital Territory (ACT Supreme Court) in proceeding No SC 75 of 1999 (Commonwealth v Davis Samuel Pty Ltd (No 7) (2013) 282 FLR 1 delivered on 1 August 2013) (the principal judgment) and Commonwealth v Davis Samuel Pty Ltd (No 8) [2014] ACTSC 312 delivered on 21 November 2014 (the second judgment)). In that proceeding, CTC was the sixth defendant. There were thirty defendants in total and one third party. As I have already mentioned, the amount of the judgment ordered by the ACT Supreme Court against CTC was $12,715,615.17.

5    On 23 December 2014, twelve of the defendants filed a Notice of Appeal against the principal judgment and the second judgment and the orders made by the Court to give effect to those judgments (ACTCA 67 of 2014) (the appeal). CTC is the second appellant in that appeal. There are 88 Grounds of Appeal in the Notice of Appeal. Many of the grounds are relied upon by all appellants. By its appeal, CTC seeks orders setting aside the judgment at trial as well as the consequential costs orders. It also seeks to overturn the trial judge’s decision to dismiss a Cross-Claim to which it was a party/cross-claimant.

6    The present application was first returned before a Registrar of the Court on 11 November 2015. On that occasion, the proceeding was referred to a judge. It was subsequently docketed to me. The proceeding was first listed before me on 4 December 2015 when I fixed it for final hearing before me on 5 February 2016. On 4 December 2015, I also made appropriate case management directions in order to ensure that the application would be ready for hearing on 5 February 2016.

7    When the matter was called on before me on 5 February 2016, Counsel for CTC applied to have the hearing of the Commonwealth’s winding up application adjourned until the resolution of CTC’s appeal in the ACT Court of Appeal. Alternatively, CTC sought an adjournment for a shorter period of time (until shortly after 11 April 2016) in order to enable this Court to gain a clearer picture of the likely future progress of CTC’s appeal.

8    I informed Counsel for the parties that I was minded to hear and determine CTC’s application for an adjournment at the same time as hearing and determining the Commonwealth’s winding up application because most, if not all, of the matters raised in support of CTC’s request for an adjournment were also relevant to its opposition to the making of a winding up order (assuming that its application for an adjournment were to be refused and assuming that I were to grant leave to CTC to argue certain grounds of opposition under s 459S).

9    Counsel for CTC responded to my suggestion by submitting that he would wish to have a little time to consider his client’s position were I to refuse CTC’s application for an adjournment of the Commonwealth’s winding up application. I informed Counsel that I was not prepared to grant such time as he should have been in a position to deal immediately with the Commonwealth’s winding up application since that application had been listed for final hearing for some time and he should have proceeded upon the basis that there was no guarantee that the hearing would be adjourned. Counsel accepted this but then submitted that, in addition to the arguments which he had put in writing, he would wish to contend that the Commonwealth’s application was an abuse of process. I shall return to this argument later in these Reasons. Counsel conceded that he did not wish to put on further evidence in support of this additional argument. I then proceeded to hear CTC’s adjournment application and the Commonwealth’s winding up application.

10    By these Reasons for Judgment, I determine CTC’s adjournment application (which I propose to refuse) and the Commonwealth’s winding up application (to which I intend to accede).

The Commonwealth’s Case in Chief

11    The Commonwealth read five affidavits in chief. By those affidavits, the Commonwealth proved:

(a)    Service of the statutory demand on CTC on 22 December 2014 and the terms of the judgment of the ACT Supreme Court upon which that demand was based;

(b)    The dismissal of CTC’s application to set aside the statutory demand and the reduction of the amount claimed therein;

(c)    CTC’s failure to pay the reduced amount claimed in the statutory demand;

(d)    The amount due under the ACT Supreme Court judgments as at 6 October 2015 (viz $11,908,285.45 plus interest);

(e)    Service of the Originating Process and all supporting affidavits on CTC;

(f)    Notification on 7 October 2015 to Australian Securities and Investments Commission (ASIC) of the filing of the Commonwealth’s winding up application;

(g)    The consent of Peter McCluskey of Ferrier Hodgson to act as liquidator of CTC dated 10 July 2015 and service of the formal document recording Mr McCluskey’s consent upon CTC on 28 October 2015; and

(h)    Publication on 27 October 2015 on ASIC’s website of notice of the Commonwealth’s application to wind up CTC.

12    The above matters comprise all of the matters which the Commonwealth was required to prove in chief in order to establish a prima facie entitlement to the relief which it claims.

13    CTC did not contend that the Commonwealth had failed to prove those matters. Its case was that the Court should adjourn the proceeding or, in the alternative, if its application for an adjournment is refused, that the Court should decline to make a winding up order on discretionary grounds.

14    CTC read and relied upon two affidavits sworn by Peter Cain, its solicitor. It did not file any Notice of Grounds of Opposition to the making of a winding up order against it.

The Relevant Facts

15    CTC is a public company with 70,075,000 ordinary shares on issue. It has approximately 1200 members. CTC does not currently trade. It has not traded since January 1999 when the ACT Supreme Court initially granted freezing orders over certain assets of CTC.

16    CTC has no assets. Its liabilities comprise the judgment debt to the Commonwealth and a secured debt of approximately $1 million owed to a related party, Kamanga Holdings Pty Ltd (Kamanga). Kamanga is not presently pressing for repayment of its loan. The only Financial Statements of CTC tendered in evidence before me were the statements for the year ended 30 June 2002. These were the last such statements ever prepared by CTC.

17    CTC submitted that:

… the only remaining value in [CTC] is in its appeal rights in the ACT Proceedings, including its potential claim for damages as a result of [the making of certain freezing orders against it on 19 February 1999].

18    The freezing orders granted against CTC on 19 February 1999 restrained it from dealing in any way with any part of the moneys the subject of the ACT Supreme Court proceeding No SC 75 of 1999, namely

(a)    The sum of $6,000,000 remitted by the Reserve Bank of Australia to CTC on or about 17 April 1998 (the April Funds); and

(b)    The sum of $2,725,000 remitted by the Reserve Bank of Australia to Davis Samuel Pty Limited, the first defendant, on or about 22 September 1998 (the September Funds).

19    Those orders also restrained CTC “from dealing with or dissipating in value any asset acquired by [CTC] through the use of any part of the April Funds or the September Funds”.

20    Those orders were made by consent. They were interlocutory. The Commonwealth gave the usual undertaking as to damages in support of the making of those orders.

The Impugned Conduct

21    In 1996, the Commonwealth decided to sell certain government owned businesses. As part of the process of closing those businesses, trust accounts were established to receive income and meet expenses. These accounts were administered by the Department of Finance.

22    In 1998, the Department of Finance engaged Callform Pty Ltd (Callform) to provide “accrual accounting services” and “Financial and Management Accounting Services” for some of these accounts. Callform in turn engaged David Muir to provide those services.

23    On 17 April 1998, Mr Muir used stolen computer access details to cause the improper transfer of $6 million of Commonwealth funds from these accounts to CTC. Following receipt of these moneys, CTC made a series of transfers of the moneys to various persons and entities associated with CTC. These transfers were for the private benefit of the Endresz family and their associates. They were used for (inter alia) the purchase of real and personal property. Some moneys were also paid to the benefit of Mr Muir.

24    On 24 September 1998, Mr Muir caused the further improper transfer of $2,725,000 to Davis Samuel Pty Ltd. Most of these funds were used to acquire a listed mining company, TNG Limited (TNG). TNG is the second respondent in the appeal. $60,000 of the funds was transferred to CTC.

The ACT Supreme Court Proceedings

25    On 29 January 1999, the Commonwealth commenced proceeding No SC 75 of 1999 in the ACT Supreme Court against thirty defendants, including CTC.

26    On 19 February 1999, the freezing orders to which I have referred at [18]–[20] above were made by the Court. In effect, those orders were a continuation of orders made earlier, in January 1999.

27    The principal cause of action pleaded by the Commonwealth against most of the defendants (including CTC) was that Mr Muir and Callform breached their fiduciary duties to the Commonwealth and, as a consequence, the defendants (including CTC) were liable under one or both limbs of Barnes v Addy (1874) LR 9 Ch App 244. The Commonwealth also pleaded four additional causes of action, namely that:

(a)    Mr Muir and Callform breached their equitable duties of confidence which they owed to the Commonwealth;

(b)    The April transfer of funds and the September transfer of funds were both made ultra vires;

(c)    The April transfer of funds and the September transfer of funds were paid under an operative mistake; and

(d)    The conduct of Mr Muir amounted to misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth).

28    Various defendants (including CTC) cross-claimed against the Commonwealth for damages arising from the making of the freezing orders against those defendants. These damages claims were framed as actions for breach of an alleged contract made in April 1998 in relation to the April funds transfer, negligence in the supervision of Mr Muir and breaches of s 52 of the Trade Practices Act. The amount claimed was $127.4 million. As I have already noted, his Honour dismissed the Cross-Claim with costs.

29    The trial judge found CTC, and other defendants, liable on both the first and second limbs of Barnes v Addy in respect of the moneys that were transferred to them. His Honour also found CTC and others liable for moneys had and received upon the basis that the money was received pursuant to a mistake and was ultra vires. Thus, his Honour gave judgment against CTC for the amount which he ordered upon the basis that CTC was liable to the Commonwealth on all of the causes of action pleaded against it.

30    These findings were ultimately reflected in the orders made on 1 August 2013 and on 21 November 2014.

31    In finding for the Commonwealth on the additional cause of action to which I have referred at [27(b)] above, the trial judge relied upon the principles explained by the Privy Council in Auckland Harbour Board v The King [1924] AC 318 (Auckland Harbour Board).

32    CTC has never applied for a stay of the enforcement of the ACT Supreme Court judgment ordered against it. Rather, it has confined its response to the principal judgment and the second judgment to the filing of the Notice of Appeal to which it is a party on 23 December 2014.

The Appeal in the ACT Court of Appeal

33    In their Notice of Appeal, the appellants have raised many challenges to the primary judgment and to the second judgment. The appeal will inevitably be fact intensive.

34    It should be noted for present purposes that the Notice of Appeal as filed does not include any ground of appeal challenging the correctness of Auckland Harbour Board and thus the correctness of his Honour’s reasons and orders founded upon that case. CTC submitted that it was taking steps to amend its Notice of Appeal so as to raise a fresh ground of appeal in which it will challenge the correctness of Auckland Harbour Board.

35    The appeal has not been pursued expeditiously. As at late 2015, the only step of any moment taken by the appellants was to file a draft Index for the Appeal Books. That Index has not yet been finalised although CTC submits that it will be finalised by 29 February 2016, as directed by the ACT Court of Appeal.

36    On 26 November 2015, the Commonwealth filed an Application for an order that the appellants show cause as to why the appeal should not be dismissed for want of prosecution. TNG has foreshadowed a similar application.

37    On 16 December 2015, following a series of defaults on the part of the appellants and the filing of the Commonwealth’s Application seeking the dismissal of the appeal for want of prosecution, Murrell CJ listed the appeal in the May 2016 sittings in order to deal with a discrete application foreshadowed by the appellants. Her Honour did not list the appeal itself for hearing in those sittings. The Application listed by her Honour concerns a discrete claim not found in the present grounds of appeal to the effect that the trial judge lacked jurisdiction to determine many of the causes of action that he purported to determine in the matter because, while leave had been granted to bring those causes of action, they were not incorporated into the Originating Application but were merely disclosed in the pleadings. This point was never taken at trial. The foreshadowed application has not yet been filed. In any event, it does not affect CTC as appropriate relief was claimed against it in the Originating Application.

38    On 16 December 2015, Murrell CJ also provisionally set down the Commonwealth’s Show Cause Application and TNG’s foreshadowed Show Cause Application for hearing on 11 April 2016. It appears that those Applications were listed provisionally in order to accommodate the possibility of further defaults on the part of the appellants.

39    The appellants have expressed a desire that the current Notice of Appeal be amended. There is some evidence suggesting that Counsel has been briefed to advise on and draft appropriate amendments. There was no evidence that Counsel have been retained generally to conduct the appeal. On 16 December 2015, Murrell CJ ordered that the appellants file any Amended Notice of Appeal by 29 February 2016. That leave did not authorise an amendment to raise a ground of appeal by which CTC challenged the Auckland Harbour Board principle or the trial judge’s conclusions based upon the application of that principle.

Some Other Matters

40    CTC placed before me evidence of a number of other related matters which have distracted its controllers from diligently attending to the prosecution of the appeal. It is not necessary to explain these other matters in any detail. It is sufficient for present purposes for me to record that, during 2015, the individual appellants who stand behind CTC have had to attend to a number of other significant sets of proceedings (including bankruptcy proceedings) which have occupied their time and sapped their financial resources and individual energies.

41    The Commonwealth read and relied upon an affidavit sworn by Zita Maree Rowling on 4 February 2016. Ms Rowling is the AGS lawyer with the conduct of this matter on behalf of the Commonwealth. At pars 10 to 17 of that affidavit, Ms Rowling explains those steps which remained to be carried out by the parties to the appeal before the appeal would be ready to be listed for hearing. At pars 15 to 17, Ms Rowling said:

15.    Based upon the breadth of issues in the grounds of appeal as filed, and the length, complexity, volume of material and range of issues at first instance, it is my opinion that any appeal is likely to require in excess of 5 days to hear.

16.    Further, given the above requirements, it would in my opinion take some months of preparation after the Notice of Appeal is finalised for the matter to be ready to be listed for hearing.

17.    Having regard [sic] those matters, to the state of the listings for the May 2016 sittings of the ACT Court of Appeal and to the fact that the ACT Court of Appeal sits for only 2 weeks each sitting (held in February, May, August and November of each year), I believe that there could be no hearing of the ACT Appeal before some date in 2017.

CTC’s Submissions

42    CTC submitted that, if successful on appeal, it would not only be relieved of its liability to the Commonwealth but would also have a valuable claim against the Commonwealth for damages under the undertaking for damages given by the Commonwealth in support of its application for the freezing orders granted against CTC in January and February 1999. CTC accepts that this claim would only arise at all if the ACT Court of Appeal decides that the freezing orders granted against CTC should never have been granted. For all practical purposes, the Court of Appeal would not come to that view unless it were satisfied that the trial judge erred in ordering the judgment which he ordered to be entered against CTC.

43    The foreshadowed claim on the undertaking as to damages is a claim which is made in addition to the claims for damages made by CTC and others in their Cross-Claim. The Cross-Claim was dismissed by the trial judge. The dismissal of the Cross-Claim is challenged on appeal. It was submitted that CTC’s prospects in overturning the trial judge’s decision on the Cross-Claim are at least arguable.

44    The particular loss claimed by CTC on the undertaking as to damages is the difference between the true value of a claim which it argues it had against Australian Securities Exchange for wrongfully delisting it in 1991 and the amount for which it settled that claim years later ($500,000). The Exchange had delisted CTC because it took the view that it was not authorised by or under the listing arrangements which applied to it to conduct a lottery bonds business in which it was then interested. The proposition is that CTC was forced to compromise that claim by the making of the freezing orders against it and that the compromise was $127 million less than the true value of the claim.

45    CTC advanced five reasons as to why the Court should adjourn the Commonwealth’s winding up application until the determination of the appeal. These reasons were:

(a)    CTC is no longer trading nor does it have any assets. In those circumstances, the usual rationale for the judicial reluctance to adjourn a winding up application is not applicable;

(b)    CTC has no assets and its only prospect of acquiring any value is by pursuing its rights of appeal in the ACT Court of Appeal. There is no benefit to the Commonwealth in winding up CTC and any prejudice caused by an adjournment is minimal;

(c)    The prejudice to CTC if the winding up application is not adjourned may well be significant. It may be shut out of its appeal;

(d)    CTC is challenging the judgment debt in good faith and with relative diligence in the circumstances; and

(e)    The grounds of appeal relied upon by CTC are arguable and the appeal cannot be characterised as inarguably hopeless.

46    CTC placed specific reliance upon the provisions of s 467(1)(b) of the Act as providing the relevant source of power to grant the adjournment which it seeks.

47    CTC advanced detailed submissions made both in writing and orally in support of the five reasons which it had articulated as reasons justifying an adjournment of the Commonwealth’s Application.

48    I will address those submissions as necessary when I come to consider both the adjournment application and the Commonwealth’s application that CTC be wound up.

The Commonwealth’s Submissions

49    The Commonwealth made the following submissions in opposition to the grant of any adjournment:

(a)    No stay of the enforcement of the judgment debt has been sought from the ACT Supreme Court;

(b)    There is no evidence to support any of the grounds of appeal raised in the Notice of Appeal or to support CTC’s consequential claim under the undertaking as to damages;

(c)    At present, there is no ground of appeal sufficient to raise a contention challenging the findings of the trial judge based upon the Auckland Harbour Board principle. Even if, in due course, leave to raise such a contention is granted, the point is hopeless. Unless CTC has an arguable case in respect of this foreshadowed ground, its appeal will fail;

(d)    The appeal has not been pursued expeditiously;

(e)    CTC is effectively moribund and should be removed from the Register. It has not traded for over 15 years and, apart from its highly speculative claim on the undertaking as to damages provided by the Commonwealth in the ACT Supreme Court proceeding, has no assets;

(f)    If there is merit in CTC’s appeal, those who stand to gain from success in that appeal should fund it. Those persons are already themselves appellants in the appeal so that the additional cost of funding CTC would be minimal; and

(g)    The appeal against the trial judge’s dismissal of CTC’s Cross-Claim is hopeless. The causes of action are fanciful and were never likely to succeed. The appeal against his Honour’s detailed findings dismissing the Cross-Claim is hopeless.

Consideration and Decision

50    The Commonwealth is entitled to rely upon the presumption of insolvency created by CTC’s failure to comply with the Commonwealth’s statutory demand. CTC’s attempt to have that demand set aside was unsuccessful. For the purposes of the Commonwealth’s winding up application, the Court must presume that CTC is insolvent except so far as the contrary is proved for the purposes of the winding up application. For reasons which I will explain later in these Reasons, I consider that CTC has not proved that CTC is solvent.

51    The provisions of s 459S of the Act then fall for consideration. That section provides:

459S    Company may not oppose application on certain grounds

(1)    In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a)    that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b)    that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2)    The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.

52    In the present case, CTC submits that it has lodged an appeal from the principal judgment and the second judgment, that that appeal is being pursued on genuine grounds, that that appeal has been and continues to be prosecuted with relative diligence and that its prospects are arguable. CTC accepts that, because it raised these matters in support of its application to set aside the statutory demand, it requires leave under s 459S(1) in order to traverse these matters again at the hearing of the winding up application. Its contention is that the existence and strength of the appeal are matters which are critical to assessing CTC’s solvency. This last submission is correct. Therefore, to the extent that leave is required, I grant leave to CTC to re-agitate these matters for the purposes of the hearing before me.

53    The evidence led by CTC as to its financial position was as follows:

(a)    As at 30 June 2002, it was not trading at all. It had a deficit of assets over liabilities of $6,146,902 with unpaid trade creditors owed $202,490 and total assets of $55,588; and

(b)    As at late 2015 and also at the present time, I infer, it is not trading (having not traded at all since 1999) and has no assets. Its only liabilities are the balance of the judgment debt owed to the Commonwealth (almost $12 million plus interest) and approximately $1 million owed to the secured creditor Kamanga. Kamanga is not pressing for payment of the debt owed to it.

54    It is obvious from the circumstances described at [53] above that CTC is insolvent unless it succeeds in its appeal against the principal judgment and the second judgment and also recovers damages under the undertaking as to damages given to the Court by the Commonwealth in order to support the freezing orders made against CTC and others in January and February 1999 or under its Cross-Claim, the dismissal of which is under appeal in the appeal.

55    Thus, my assessment of the strength of CTC’s appeal is critical to my determination as to whether CTC has adduced sufficient evidence to rebut the presumption of insolvency raised by s 459C.

56    In addition, it seems to me that my assessment of the strength of CTC’s appeal, my findings concerning CTC’s conduct of the appeal and my findings as to when that appeal is likely to be heard are also critical factors in the exercise of my discretion in relation to the adjournment of the Commonwealth’s winding up application.

57    Counsel for CTC addressed the strength of its case on appeal under four headings:

(a)    Delay;

(b)    Barnes v Addy;

(c)    Auckland Harbour Board; and

(d)    Mistake.

58    The principal judgment is 543 pages long and comprises 2,394 separate paragraphs. The second judgment is 121 pages long and comprises 527 separate paragraphs together with several pages of schedules.

59    The grounds of appeal grouped under subpars (a), (b) and (d) in [57] above are fact intensive. The trial before the trial judge occupied three months of court time. There are thousands of pages of transcript and many exhibits. The Commonwealth submitted that CTC had not supported any of its grounds of appeal with evidence. It submitted that, for this reason, the fact intensive grounds of appeal cannot be assessed.

60    I am prepared to assume, for the purposes of my consideration of the matters presently before the Court, that the fact intensive grounds of appeal are not unarguably hopeless. However, I wish to make clear that I do not intend to convey by making that assumption that I have evaluated those grounds at all.

61    The Commonwealth submitted that, for CTC to succeed in its appeal, it was required to succeed in overturning the trial judge’s conclusions in respect of all causes of action relied upon by the Commonwealth. Success in relation to some, but not all, of those causes of action would not be sufficient. In particular, the Commonwealth submitted that, in order for CTC to overturn the judgment entered against it in the ACT Supreme Court, it was obliged to overturn the trial judge’s conclusion that the judgment could be supported on a stand-alone basis because of the reasoning in Auckland Harbour Board, which was adopted and followed by his Honour. This much was, I think, accepted by Counsel for CTC.

62    The Commonwealth went on to submit that, at the present time, CTC had not raised any challenge to his Honour’s reasoning based upon that decision. Nor has it sought leave to amend its Notice of Appeal in order to raise such a contention. The Commonwealth also submitted that, as a matter of substance, any argument to the effect that the reasoning of the trial judge based upon Auckland Harbour Board is erroneous would be bound to fail.

63    The principle followed by the trial judge in the present case as stated in Auckland Harbour Board is conveniently encapsulated in the following passage (at 326–327 of the report)

… it has been a principle of the British Constitution now for more than two centuries, a principle which their Lordships understand to have been inherited in the Constitution of New Zealand with the same stringency, that no money can be taken out of the consolidated Fund into which the revenues of the State have been paid, excepting under a distinct authorization from Parliament itself. The days are long gone by which the Crown, or its servants, apart from Parliament, could give such an authorization or ratify an improper payment. Any payment out of the consolidated fund made without Parliamentary authority is simply illegal and ultra vires, and may be recovered by the Government if it can, as here, be traced.

64    In Commonwealth v Crothall Hospital Services (Aust) Ltd (1981) 54 FLR 439 (Crothall), the Full Court adverted to the possibility that s 64 of the Judiciary Act 1903 (Cth) had the effect of destroying the Commonwealth’s cause of action for the recovery of money based upon the Auckland Harbour Board principle. In Crothall, Ellicott J said that the better view is that the section does not have this effect. He went on to say that, given that he had concluded that the principle had no operation in the case with which he was dealing, it was unnecessary to express a concluded view on the matter.

65    Blackburn and Deane JJ agreed with Ellicott J.

66    The Auckland Harbour Board principle was endorsed by Newton J in Commonwealth v Burns [1971] VR 825 (Burns) at 827.

67    The effect of s 64 and Burns was approved by the High Court in British American Tobacco Australia Ltd v Western Australia (2003) 217 CLR 30 at 65 [82]–[83] per McHugh, Gummow and Hayne JJ with whom Callinan J agreed at 90 [172].

68    In its submissions, CTC submitted that public policy did not require a broad operation of the Auckland Harbour Board doctrine. CTC went on to articulate arguments in support of that general proposition.

69    However, the present state of the law is squarely against the submissions made by CTC on this point. In particular, the High Court judgment in British American Tobacco Australia Ltd v Western Australia stands as firm authority against the arguments raised by CTC.

70    CTC also argued that the transfer of funds effectuated by Mr Muir were in fact authorised in any event. This contention runs counter to specific findings made by the trial judge at [1741]–[1742] of the principal judgment. As presently advised, I see no arguable basis for upsetting that finding.

71    It seems to me tolerably clear that, in the circumstances of the present case, Parliament only allowed appropriation for a purpose designated by the Minister. If the purpose for which the funds were used was not designated by the Minister, it follows ipso facto that the funds were not appropriated for a proper purpose.

72    Specific reliance was placed upon a decision of the Supreme Court of Queensland in Commonwealth v Hamilton [1992] 2 Qd R 257. That case is distinguishable because the defendant in that case brought himself within the parliamentary authorisation notwithstanding his fraudulent actions. In the present case, there was no specified purpose for which the funds could have been paid to CTC, whether by deception or otherwise.

73    CTC has not yet raised a challenge to the Auckland Harbour Board principle. Were it to try to do so, it would meet significant opposition at the leave stage and, ultimately, in the event that leave were granted, would have no real prospect of succeeding in the arguments which it has foreshadowed in support of the proposition that the principle has no application in Australia. Given that, in order to succeed in its appeal, CTC must successfully challenge the trial judge’s acceptance of the Auckland Harbour Board principle, I have come to the conclusion that CTC has no real prospect of succeeding in its appeal. It is not necessary to consider other grounds of appeal.

74    If that be the case, for obvious reasons, there is no substance in the foreshadowed claim for damages under the undertaking as to damages given by the Commonwealth in support of the freezing orders which it obtained against CTC.

75    It necessarily follows from these conclusions that, contrary to submissions made on its behalf, CTC is insolvent. That being so, ordinarily it should be wound up unless there is good reason not to wind it up at all or, at least, not to wind it up now.

76    At [2227]–[2314] of the principal judgment, the trial judge addressed the Cross-Claim made by various defendants including CTC. His Honour comprehensively rejected all causes of action relied upon by the cross-claimants. His Honour found that there was no contract as pleaded and, even if such a contract had been made, the Commonwealth had not breached it. His Honour also found that there was no duty of care as alleged and no loss or damage as alleged. The latter finding was, in part, based upon a conclusion that the report of Profin Consulting relied upon by CTC at the trial had no evidentiary value or foundation. Without that report, there was no evidence at all of loss or damage flowing from the causes of action pleaded in the Cross-Claim. His Honour held that, even if the other hurdles which stood in the way of CTC’s Cross-Claim could be overcome, there was simply no evidence of any loss. For similar reasons, his Honour rejected the cross-claimants’ claim under the Trade Practices Act.

77    On appeal, CTC will have to confront all of these findings, including the finding that there was no evidence of loss or damage.

78    In argument before me, Counsel for CTC focussed upon CTC’s claim under the undertaking as to damages rather than its prospects of appeal in relation to the Cross-Claim which his Honour had dismissed. At times, I rather thought that Counsel had fairly much abandoned that Cross-Claim as a lost cause.

79    Doing the best I can on the evidence before me and the submissions made to me, I am of the view that CTC’s prospects of overturning the trial judge’s decision in relation to its Cross-Claim are very poor indeed. I do not consider CTC’s appeal in relation to that Cross-Claim to be arguable.

80    I now turn to address the other discretionary factors raised by the parties in relation to the two applications with which I am dealing.

81    CTC is almost certainly insolvent as a matter of fact. In any event, the Commonwealth is entitled to rely upon the presumption of insolvency which arises under s 459C of the Act. There is no actual barrier to CTC resuming trading if its directors see fit. There is no undertaking from the directors or the shareholders to take steps to ensure that CTC does not trade. During argument, Counsel for CTC mentioned that he may be able to secure undertakings from the directors of CTC to the effect that they will ensure that it does not trade. However, no such undertakings have been proffered. CTC is insolvent with a substantial deficit of assets over liabilities. It has long since ceased to trade. These factors weigh heavily in favour of its being wound up.

82    It does not necessarily flow from the circumstance that a winding up order is made that CTC’s appeal will be stultified. Mr Cain, the solicitor for CTC, has sworn an affidavit in which he said that CTC’s appeal was currently being funded by those associated with it. The funders were not identified. Those persons (whoever they are) have not given evidence before me. There is no reason, at the moment, why I should conclude that those persons will cease funding CTC if it is wound up. Furthermore, if the liquidator appointed to CTC forms the view that the appeal should be pursued, then there is no reason why it would not be pursued if appropriate funding was forthcoming. Of course, should the liquidator form the view that the appeal should be abandoned for lack of merit or for lack of funds or that the grounds to be relied upon should be truncated substantially, these are outcomes which are worthy and which ought not be regarded as undesirable. In this regard, the Commonwealth emphasised that it was in the interests of all parties to the appeal that the appeal be run efficiently and in respect of only those grounds which had some arguable prospect of success.

83    The appeal has not been prosecuted with any diligence. The reasons proffered by CTC go some way to explaining the delay although they do not fully do so. Further, it is quite clear that, if the appeal survives the current want of prosecution applications, a hearing date will not be allocated for quite some considerable time and certainly not until next year (2017).

84    I do not put much weight on the submission advanced on behalf of CTC that the Commonwealth has nothing to gain by winding up CTC and the prejudice to CTC may well be significant. The matters which I have discussed at [82]–[83] above satisfactorily answer these contentions.

85    I am conscious that the Act requires a winding up application to be determined within six months after it is made (s 459R(1)) unless that period is extended under s 459R(2). Before granting an extension, the Court must be satisfied that there are special circumstances justifying the extension. No such circumstances exist here. In any event, the authorities make clear that the Court should not ordinarily adjourn the hearing of a winding up application let alone do so for any extended period of time.

86    Counsel for CTC also submitted that it was an abuse of process for the Commonwealth to seek to wind up CTC in the circumstances of this case. He submitted that there was no utility in a winding up order being made and that the Commonwealth was pursuing the winding up of CTC in order to stultify the appeal. For reasons already explained, I reject these submissions. The Commonwealth is entitled to seek to wind up CTC. Such action is a legitimate use of the Court’s processes in the circumstances of this case.

87    Finally, much was made in CTC’s submissions of the decision of the Full Federal Court in Endresz v Australian Securities and Investments Commission (No 2) (2015) 228 FCR 334, the decision of the Supreme Court of Victoria in Shmee Pty Ltd v Bresam Investments Pty Ltd [2009] VSC 657 and the decision of Drummond J in Jekos Holdings Pty Ltd v Australian Horticultural Finance Pty Ltd [1996] FCA 619.

88    Each of these cases provides an example of the way in which, depending upon all relevant circumstances, a court might exercise its discretion in relation to the adjournment of a winding up application. Critical to the reasoning of those decisions in which the Court allowed adjournments were the circumstances that the company was diligently pursuing its appeal, that the appeal was brought on genuine grounds, that the appeal was not inarguably hopeless, that a winding up order had no utility, that the true objective of the applicant was probably to seek to terminate the appeal proceedings and that funding for the appeal was in place. For the reasons which I have explained, most, if not all, of these considerations are not present in this case. The observations made by Burchett and Gummow JJ in Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 (Adamopoulos) at 531–532 provide useful guidance as to the considerations which the Court should take into account when considering an application to adjourn a bankruptcy proceeding and thus a winding up proceeding. In that case, their Honours said that a bankruptcy court should not proceed to sequestrate the estate of a debtor if an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds. In the present case, I have concluded that the appeal is not likely to succeed. Adamopoulos is distinguishable for that reason.

Conclusion

89    For all of the above reasons, I have decided to refuse CTC’s application for an adjournment. In light of that decision, there is no reason not to wind up CTC. I will therefore make a winding up order.

90    There will be orders accordingly.

Associate:

Dated:    17 February 2016