FEDERAL COURT OF AUSTRALIA

Murphy v Astute Projects Pty Ltd [2018] FCA 2118

ORDERS

THE COURT ORDERS THAT:

1.    The application for leave to proceed against the first respondent be dismissed.

2.    Costs reserved.

3.    The first respondent is to file and serve an outline of submissions, of not more than 5 pages, in support of its application for costs, on or before 18 January 2019.

4.    The applicant is to file and serve an outline of submissions in response, of no more than 5 pages, together with such affidavits, if any, upon which he intends to rely in relation to the costs application, by 1 February 2109.

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

REASONS FOR JUDGMENT

(Revised From Transcript)

LOGAN J:

1    This case illustrates how a degree of artificiality can attend, at times, the division of the Court’s various jurisdictions into what have been called “National Practice Areas”.

2    In form, the present is a proceeding under the Fair Work Act 2009 (Cth) (Fair Work Act), in which the applicant, Mr Michael James Murphy seeks declaratory relief, the imposition of pecuniary penalties and the making of orders for compensation against a corporate respondent and two named individuals, Mr Paul Gregory Chapple and Mr Bradley Kane Hook, but the corporate respondent, Astute Projects Pty Ltd (subject to a deed of company arrangement), is, as its corporate title necessarily highlights, presently subject to a deed of company arrangement.

3    In order for proceedings to be begun and continued against it, it is necessary for Mr Murphy to secure an order pursuant to s 444E(3) of the Corporations Act 2001 (Cth) (Corporations Act), granting leave nunc pro tunc to begin and continue the proceeding as against Astute Projects. Thus, in terms of the Court’s National Practice Areas, the case bridges jointly the Fair Work and Corporations Areas.

4    It is not merely a matter of form as an understanding of the nature and purpose of the civil penalty regime under the Fair Work Act that is a material consideration in relation to whether or not to grant leave under the Corporations Act, hence the opening on summation. However that may be, it would be inappropriate in what is an industrial case, for the Court to embark upon a demarcation process as to who, within its ranks, ought to exercise the Court’s jurisdiction.

5    In relation to the subject of whether or not to grant leave, the question is always fact-specific: see in this regard, Ogilvie-Grant v East (1983) 7 ACLR 669 at 672, per McPherson J. Referring to that case in Attard v James Legal Pty Ltd [2010] NSWCA 311 (Attard v James Legal Pty Ltd), the New South Wales Court of Appeal stated:

At 126-127 his Honour quoted at length from the judgment in McPherson J (again a highly experienced corporations law judge), with whom Wanstall CJ and Sheahan J agreed, in Ogilvie-Grant v East (1983) 7 ACLR 669 at 672; 1 ACLC 742 at 744 where he relevantly observed:

As a matter of history, a winding up by the Court was and remains today an administration conducted by the Court ... Both because of this ... it was inevitable that there should be restrictions on the bringing of proceedings, whether at common law or otherwise, during the course of that administration. What is substituted for litigation in the ordinary form is a procedure by which a claimant lodges a verified proof of debt with the liquidator, who admits or rejects it wholly or in part, and from whom an appeal lies to a Judge, who determines that appeal de novo primarily on affidavit material ... There can be no doubt that ordinarily such a procedure is, and is designed to be, much more expeditious and less expensive than ordinary proceedings by way of action. If this means that it occasionally has the consequence that the attainment of perfect justice is sacrificed to expedience, it may be justified by the circumstance that on appeal it is possible that under modern rules of procedure for the Judge in appropriate cases to make orders for discovery and even for the delivery of pleadings where it appears necessary or desirable to do so.

The question whether a claimant should be permitted to proceed by action, or should be required to submit his proof of debt and, if dissatisfied, appeal to a judge, is therefore reduced largely to one of choosing between alternative forms of procedure. The effect of [the section] is to require the claimant to adopt the course of lodging proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute ... It, of course, follows that it is quite impossible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate, but in the past they have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed.

[Emphasis added]

6    An example of leave being granted to proceed against a company in administration is offered by Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (Administrator Appointed)(No 3) [2011] FCA 348. In that case, North J made the following observation at para 5 with which I respectfully agreed:

A number of authorities have attempted to set out a shopping list of factors which courts generally take into consideration in such applications. These lists are not intended to be mandatory, nor complete; however, their existence often provokes litigants to seek to fit their case within the shopping list cases when their case would be more appropriately considered on its own facts.

7    One therefore approaches, with all due respect, the following summary offered by the New South Wales Court of Appeal in Attard v James Legal Pty Ltd at page 146, with a degree of caution in terms of treating it as a “shopping list”. The Court of Appeal regarded the following as factors to take into account:

(a)    Whether there are good reasons for allowing a creditor to depart from the general intention of Pt 5.3A, which is that a creditor ought not to be able to take action against the company in such circumstances.

(b)    Whether the applicant will suffer any disadvantage if leave is not granted.

(c)    Whether the claim has a solid foundation and gives rise to a serious dispute.

(d)    What funds the company has available to defend against litigation.

8    An even more comprehensive summary of relevant considerations was offered by Perry J in Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (2016) 116 ACSR 353 at [84] – [89]:

84    First, where leave to proceed is sought under s 444E of the Corporations Act , the applicable principles are those applied in determining applications for leave under s 471B of that Act in relation to liquidations: Meehan v Stockmans Australia Café (Holdings) Pty Ltd (1996) 22 ACSR 123 at 125 (Lehane J) (Meehan); Easey v Grosvenor Constructions (NSW) Pty Ltd [2005] NSWSC 878; (2005) 54 ACSR 820 (Easey) at 821 [4] ; Young v Brachdale Pty Ltd (Subject to Deed of Company Arrangement) [2010] VSC 654 (Brachdale) at [16].

85.    Secondly, it was not in dispute that the onus lies upon the applicants to establish that the ordinary procedure established by the DOCA should be displaced, namely, that the continued pursuit of this litigation should be substituted for the procedure whereby a claimant lodges a verified proof of debt with the deed administrators who admit or reject it wholly or in part and from whom an appeal lies to a court:  Meehan at 127 (Lehane J). As, for example, Rein AJ explained in JF Keir Pty Ltd v Priority Management Systems Pty Ltd (Administrators Appointed) [2007] NSWSC 748 at [8] (quoted with approval recently in Re Pool & Spa Buildings (Aust) Pty Limited (Subject to Deed of Company Arrangement) [2013] NSWSC 185 at [20]), relevant factors include:

…Whether there are good reasons for allowing a creditor to depart from the general intention of Part 5.3A which is that a creditor ought not be able to take action against the company in such circumstances.

86.    Thirdly, the question of whether leave should be granted turns upon the exercise of discretion.  In this regard, each application must turn upon its own particular facts and the question cannot be approached as a “shopping list” of factors: Australian Competition and Consumer Commission v ACN 135 183 372 (Administrators Appointed) (formerly known as Energy Watch Pty Ltd) [2012] FCA 586 (Energy Watch) at [5] (Marshall J). As Hammerschlag J held in Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1305; (2011) 285 ALR 207 (Larkden) at 215 [40]:

Every application must be considered on its own circumstances. There are infinite possible scenarios. There may be a flurry or a dearth of meritorious applications. Those circumstances need have no particular quality of rarity.

87.    Fourthly, the exercise of discretion is informed by previous decisions as to the relevant factors to be considered and by the purposes of the ordinary rule in s 444E(3) of the Corporations Act prohibiting a creditor from pursuing litigation including that “without the relevant restriction, a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well in some cases as unnecessary”:  Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 313 (Re Gordon Grant) at 316 (McPherson J (Campbell CJ and Sheahan J agreeing)) with respect to the equivalent provision dealing with companies in the process of being wound up under the then Companies Act 1961-1979 (Qld)); see also Secretary, Department of Health and Ageing v Prime Nature Prize Pty Ltd (In Liq) [2010] FCA 597 (Prime Nature Prize) at [15] (Stone J). Similarly, James LJ in Re David Lloyd & Co (1877) 6 Ch D 339 at 344 in a passage relied upon by the respondents in their submissions, said with respect to the relevant English Companies Act:

These sections in the Companies Act, and the corresponding legislation with regard to bankrupts, enabling the Court to interfere with actions, were intended, not for the purpose of harassing, or impeding, or injuring third persons, but for the purpose of preserving the limited assets of the company or bankrupt in the best way for distribution among all the persons who have claims upon them. There being only a small fund or a limited fund to be divided among a great number of persons, it would be monstrous that one or more of them should be harassing the company with actions and incurring costs which would increase the claims against the company and diminish the assets which ought to be divided among all the creditors.

(cited with approval in JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (in liq) (1986) 11 ACLR 224 at 226 (Rowland J))

88.    Reference has also been made to the “deeply rooted principle of company law” that the Court should not assist creditors to improve their position vis a vis other creditors:  see at [78] above.

89.    Finally, the intention that the promotion and enforcement of the standards prescribed by the ACL are matters in the public interest is evident from the object of the Competition and Consumer Act 2010 (Cth) in s 2, being “to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection”:  Energy Watch at [6] (Marshall J). It follows, as North J held in Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (Administrator Appointed) (No 3) [2011] FCA 348 (Advanced Medical) at [5]-[6], that a tension arises in cases such as the present between the public interest in the enforcement of the standards prescribed by the ACL by the ACCC as the independent regulator, on the one hand, and the regime applicable to the administration of companies (or in this case, the administration of a DOCA), on the other hand. The existence of that tension is not resolved by the admonition relied upon by Phoenix and CTI in Patrick Stevedores at 36 [43] that general laws (in that case, the Workplace Relations Act) should not be construed as intended to affect or modify the regime in Part 5.3A which affects the interests of third parties. In the exercise of the discretion to grant leave, plainly the public interest in enforcing contraventions of the ACL is a relevant consideration and the weight to be afforded to it will turn upon a consideration of all of the circumstances of the particular case.

9    In the later appeal or in the later application for leave to appeal and consequential appeal, that particular summary was not the subject of disputation: Phoenix Institute of Australia Proprietary Limited v Australian Competition and Consumer Commission (2017) FCAFC 155 at [15]. In the result leave to appeal was granted, the appeal itself was dismissed in that case.

10    I do not consider that Mr Martin, who appeared for Mr Murphy, sought to engage in a shopping list approach; rather, he addressed particular subjects and, with commendable forensic discernment, highlighted the factor which, in his submission, was most telling in favour of the grant of leave. To these subjects, I shall return shortly.

11    First, it is necessary to set out something of the factual background against which the application for leave arises. Astute Projects once operated in the building and construction industry from premises at Albion in Brisbane. It is necessary to put that in the past tense because Astute Projects ceased trading earlier this year.

12    On 1 August 2018, acting under s 436A of the Corporations Act, Astute Projects appointed those who have come to be deed administrators as its joint and several administrators. In early September, the administrators furnished their report to the creditors of Astute Projects’ business. On 6 September 2018 at the second meeting of Astute Projects’ creditors, the creditors resolved, pursuant to s 439C(a) of the Corporations Act that Astute Projects execute a deed of company arrangement. This was executed on 20 September 2018. The solicitors acting for Mr Murphy were provided with a copy of the deed for administration on 3 October 2018.

13    The present proceeding was commenced on 1 November 2018 in the absence of a grant of leave. In fairness, it should be recorded on the face of the originating application, interlocutory relief by way of a grant of leave nunc pro tunc is sought. There is no doubt that it is possible to grant such leave nunc pro tunc.

14    The following day, on 2 November 2018, Mr Murphy lodged with the deed administrators, a formal proof of debt in the amount $308,409.70. The overall amount of that proof of debt corresponds with the total, save, of course, for pecuniary penalties of the various components of Mr Murphy’s claim as against the respondents.

That claim is detailed in Mr Murphy’s nicely pleaded statement of claim. It comprises:

    alleged underpayment of wages;

    alleged non-payment of superannuation contributions;

    alleged non-payment of annual leave;

    alleged non-payment in lieu of notice;

    alleged non-payment of an amount in respect of redundancy; and

    alleged non-payment of long-service leave entitlements.

15    Messrs Chapple and Hook, the individual respondents, are said to have had knowledge of all of the facts pleaded, such that in terms of s 550 of the Fair Work Act, they were involved or concerned in or party to each of Astute Projects contraventions of ss 44, 45, 357, 535 and 536 of the Fair Work Act.

16    Mr Murphy has made an affidavit from which it emerges that in or about August 2010, he commenced employment with Astute Projects as a site supervisor, pursuant to a written employment agreement. That agreement, at least prima facie, came to an end in or about February 2011, at which time Mr Murphy signed another agreement with Astute Projects. It is a moot point, and one unnecessary to resolve, as to whether, as alleged in the statement of claim, the second agreement was, in terms of s 357 of the Fair Work Act, a sham contract. It is enough for present purposes to proceed on the basis that Mr Murphy has, at least, an arguable case that he was engaged continuously in employment by Astute Projects from 2010 until he ceased work (and I use “work” advisedly, rather than “employment”) in June this year.

17    In the event that leave is not granted, it would be for the deed administrators to decide whether and to what extent to admit Mr Murphy’s proof of debts. The proof of debt is predicated upon a continuance of an employment relationship. Of course, to state that is to highlight one factor which is relevant to take into account in relation to whether to grant leave; that is, that in some instances, there can be something of a choice as to whether to grant leave and so allow a case to progress to judicial determination; or not to grant leave but, nonetheless, see the case, have to proceed to judicial determination upon an application for the review of a decision in respect of a proof of debt.

18    As yet, the deed administrators have not made a decision in respect of the proof. It is said that an inference might be drawn from their report, wherein, relevantly, it is stated that all of Astute Projects’ entitlements have been paid, that it is likely that a decision in respect of the proof will be adverse to Mr Murphy. I am not prepared to draw such an inference. That is because there is a decision and the administrators are now seized with comprehensive affidavit evidence from Mr Murphy against which it will be their duty to make their decision. One should not presume that deed administrators will do otherwise than make their decision on the facts as presently known to them, as opposed to such facts as were known to them at the time when they furnished their report at the end of August this year. The present proceedings are as yet at the very earliest of stages. No statement of claim has been filed. No other pleadings have yet been filed.

19    To defend this case, if so disposed, would be exhaustive, in my view, of much of the funds likely to be available to the deed administrators in respect of the costs of administration as well as distribution to creditors. There is some evidence of the costs to date incurred which, with all due respect to those acting for the deed administrators, I find somewhat startling in terms of the range of costs to date incurred. An estimate, up to and including today, but exclusive of GST offered by Mr Fielding who is a registered liquidator and one of the deed administrators jointly and severally appointed - the other being Ms Helen Mirrim - is that the costs are between $49,319.50 and $56.219.50.

20    Of course there is always a difference between party/party and solicitor/client costs including outlays. Even so I used the term startling advisedly in respect of an interlocutory application. Even allowing for the somewhat conservative reaction the funds which are in prospect of availability to the deed administrators are on any view likely to be less than $200,000. Perhaps rather closer on the evidence to half that. In terms of likely length of trial the estimate offered on behalf of Mr Murphy was three days. It may be less but it is unlikely to be more than that. That being so having regard to costs to date and even being conservative, it is not difficult to see how the available funds would be depleted to a large extent if not more so.

21    At the time of their report to creditors at the end of August this year the deed administrators estimated that return to ordinary unsecured creditors of Astute Projects under the deed of company arrangement would be between 1.53 and 7.88 cents in the dollar. The nature of the claims made in Mr Murphy’s proof of debt including, as they do, employee entitlements means that he would rank higher than an ordinary creditor in terms of priorities in respect of a distribution of funds under the deed of company arrangement. A particular factor which was not just influential but determinative in ACCC v Advanced Medical Institute in relation to the granting of leave was that the company concerned was still being traded by the administrators and there was a considerable public interest in stopping, if it were proved as alleged, unconscionable trading.

22    There is no such public interest aboard here. That does not mean, as was highlighted on behalf of Mr Murphy, that there is no public interest at all. Many applications for leave to proceed against companies in liquidation or under administration where public interest is found to be influential, if not determinative, are those brought by regulators. For example, in the context of a successful application by a regulator to proceed against a company in liquidation: Commissioner of Taxation v International Indigenous Football Foundation (Australia) Pty Ltd (in Liquidation) (2017) FCA 538. Here the Fair Work Act concedes to private individuals an ability to institute proceedings in respect of the recovery of pecuniary penalties.

23    That role is shared with public officials and also industrial organisations. In relation to the imposition of pecuniary penalties an overwhelming rationale for that imposition is deterrence: see Commonwealth of Australia v Director Fair Work Building Industry Inspectorate (2015) 258 CLR 482 and Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640. In the latter, case at para 66 in their joint judgment French CJ and Crennan, Bell and Keane JJ approved a statement by the Full Court of this Court in Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR at 265, paras 62 and 63, that a civil penalty for a contravention of the law, “must be fixed with a view to ensuring that the penalty is not such as to be regarded by the offender or others as an acceptable cost of doing business.”

24    Here there is no need to dissuade Astute Projects that such contraventions, if proved, are a just and acceptable cost of doing business. It is no longer in business. That does not mean, of course, that general deterrence ends would not be served by the imposition of pecuniary penalties on Astute Projects if the contraventions alleged are proved but I rather suspect that an even greater deterrent effect is likely to be found in the event that contraventions are proved by the imposition of pecuniary penalties on the individuals who are also respondent parties to the present proceedings. Companies may come and go phoenix-like but those who are disposed to cause a phoenix to rise may well be deterred if it is brought home to them that they can be penalised individually with all of the potential consequences in terms of insolvency in the event that pecuniary penalties are not paid.

25    Mr Murphy seeks an order that any pecuniary penalties imposed be paid to him. That is an order which is often made in recognition of the public interest served by an individual in instituting a proceeding. The individuals though, are likewise amenable to the making of such an order. The presence of individuals as parties to a corporate contravention makes at the reference on behalf of the deed administrators to an observation made by Lehane J in Meehan v Stockmans Australian Café Holdings Pty Ltd (1996) 22 ASCR 123 at page 129:

The other matter is the claim against the second respondent under the Trade Practices Act.  It is true that that claim, if it is pursued, is likely to require litigation of substantially the issues which would be litigated against the first respondent, in relation to the claim against it under that Act, if leave to proceed against it were granted.  There is no doubt that the applicants will suffer inconvenience, and no doubt additional expense, if they are required to pursue separately, by different procedures, their claims against the two respondents.  In my view, however, the fact that, in a case such as the present, an applicant choses to claim against a director or officer of a company for aiding and abetting conduct in respect of which a claim is made against the company should not of itself require that leave be given to proceed against the company if it is wound up or executes a deed of company arrangement.  Whatever prejudice the applicants in this case suffer by being deprived of the opportunity to proceed concurrently against both respondents seems to me, in the circumstances as I have described them, clearly to be outweighed by the prejudice likely to be suffered by creditors generally if the trial of the action against the first respondent were to proceed.  The applicants relied, in this context on Sandtara, but that was a rather different case from this: there leave was sought to proceed against a principal debtor in liquidation in order to establish a foundation for recovery against a substantial guarantor whose liability was, of course, strictly derivative or secondary.  Such a case gives rise to considerations which do not arise here.

26    One might, in my view, paraphrase and apply in the circumstances of this case the following from the passage just cited. Whatever prejudice Mr Murphy in this case suffers by being deprived of the opportunity to proceed concurrently against both Astute Projects as well as Messrs Chappell and Hook seem to me, in the circumstances, clearly to be outweighed by the prejudice likely to be suffered by creditors generally if the trial of the action against Astute Projects were to proceed. Were I to allow the proceeding against Astute Projects to continue, in effect, no creditor would receive anything in my view. Further, it would elongate an administration contrary to what is in the ordinary course, the envisaged position in respect of an administration under Pt 5.3A of the Corporations Act. The public interest which is abroad here is in my view adequately served by Mr Murphy’s continuation, if so disposed, of the proceeding as against the individual respondents. What is entailed is a balancing exercise that the public interest to which I’ve referred does not, in my view, outweigh both the delay in administration and the prospect of no return at all to creditors.

27    As to the question of whether inevitably or whether there will be in all likelihood a challenge to a proof and thus litigation in any event, whether there exists an employment relationship is largely a question of fact.

28    It is true that the subject of sham is rather more sophisticated and that does tend in favour of a grant of leave but the position which nonetheless would obtain is the likely exhaustion of funds available to creditors. So while I take that into account it does not persuade me to grant leave.

29    For these reasons the application will be dismissed.

30    At that case management hearing the applicant and remaining respondents are to show cause why the proceeding should not be remitted to the Federal Circuit Court for further hearing and determination.

Associate:

Dated:    6 February 2019