Federal Court of Australia

Water Efficiency Labelling and Standards Regulator v Renaissance Traditional Bathrooms Pty Ltd [2020] FCA 1757

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 500(2) of the Corporations Act 2001, the applicant have leave to proceed nunc pro tunc against the second and third respondents.

2.    The liquidator of each of the second and third respondents and the fifth respondent pay the applicant’s costs of the interlocutory application filed on 15 June 2016.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

RARES J:

1    This is an application by the Water Efficiency Labelling and Standards Regulator for leave to proceed under s 500(2) of the Corporations Act 2001 (Cth) against two of the respondents each of which is in a creditors’ voluntary winding up. The respondents comprise four companies, namely, Renaissance Traditional Bathrooms Pty Limited, Traditional Taps.com.au Pty Limited (In Liquidation), Castironbaths.com Pty Limited (In Liquidation), Belfast Sinks.com.au Pty Limited and an individual, Andrew Shaw, the director and sole shareholder of each of the companies.

2    The Regulator filed the interlocutory application seeking leave to proceed nunc pro tunc on 15 June 2020. Each of Traditional Taps and Castironbaths went into liquidation on 28 February 2020 and Clifford Rocke was appointed its liquidator by special resolutions under s 491 of the Corporations Act. Mr Rocke and Mr Shaw oppose the Regulator’s application for leave to proceed. Mr Shaw has funded both the liquidator’s opposition to the application for leave to proceed and that of himself, which he first made apparent as an active opponent yesterday by filing submissions in opposition to the grant of leave.

The alleged contraventions of the Water Efficiency Labelling and Standards Act 2005 (Cth)

3    The central issues in the proceedings are whether each of Traditional Taps and Castironbaths contravened each of ss 33 and 34 of the Water Efficiency Labelling and Standards Act 2005 (Cth) (the WELS Act) by advertising online the supply of WELS products. WELS products are defined as water use products or water saving products in respect of which the Minister had made a determination under s 18 of the WELS Act. Each of ss 33 and 34 created a contravention of the Act if a person supplied a WELS product and either, the applicable WELS standard required it to be registered for the purposes of the supply and it was not (s 33), or, it was required to be registered for the purposes of the supply and it had not been labelled with an appropriate label (s 34).

4    Each section created, first, a criminal offence of strict liability, which has not been charged, and, secondly, liability to the imposition of a civil penalty. Under s 33(5), a person who wished to rely on the registration of a WELS product at the time of a supply as a defence to an allegation of contravention of s 33 had the evidential burden to establish that fact. Section 44M provided:

44M Ancillary contravention of civil penalty provisions

(1) A person must not:

(a)    attempt to contravene a civil penalty provision; or

(b)    aid, abet, counsel or procure a contravention of a civil penalty provision; or

(c)    induce (by threats, promises or otherwise) a contravention of a civil penalty provision; or

(d)    be in any way, directly or indirectly, knowingly concerned in, or party to, a contravention of a civil penalty provision; or

(e)    conspire with others to effect a contravention of a civil penalty provision.

Note: Section 44Q (which provides that a person’s state of mind does not need to be proven in relation to a civil penalty provision) does not apply to subsection (1) of this section.

Civil penalty

(2)    A person who contravenes subsection (1) in relation to a civil penalty provision is taken to have contravened the provision.

5    Next s 44N(2) provided:

(2)    A person who contravenes a civil penalty provision that requires an act or thing to be done:

(a)    within a particular period; or

(b)    before a particular time;

commits a separate contravention of that provision in respect of each day during which the contravention occurs (including the day the relevant civil penalty order is made or any later day).

(emphasis added)

6    Under s 44Q, in a proceeding for a civil penalty order against a person, other than as an accessory under s 44M(1), it was not necessary for the Regulator to prove the person’s intention, knowledge, recklessness, negligence or any other state of mind in order to establish the contravention.

7    Here, the Regulator claims that each of the four companies committed contraventions over a considerable period of time. I have taken the periods of time of the alleged contraventions from the originating application which has not yet been amended to conform with the periods alleged in the amended statement of claim.

8    In the case of Traditional Taps, the allegations involved contraventions of s 33 between 27 March 2017 and 10 September 2018, and of s 34 between 2 February 2017 and 10 September 2018, by advertising a total of 71 tap, shower and lavatory products on its website on a daily basis.

9    In the case of Castironbaths, the allegations involved a variety of contraventions of ss 33 and 34 during the period between 22 May 2018 and 10 September 2018, by it advertising approximately 110 products on its website on a daily basis. In addition, the Regulator alleged that it contravened s 33 on 5 June 2015 by the sale of one tap, one shower and one lavatory product.

10    The alleged contraventions by each of the other two companies involved far fewer instances of contravening conduct.

11    The Regulator alleged that Mr Shaw contravened s 44M(1)(b) of the WELS Act as an accessory by aiding and abetting each of the contraventions alleged against each of the four companies.

Background

12    This is the first occasion since the enactment of the Act in 2005 that the Regulator has brought proceedings for civil penalties. The Regulator herself, Mary Colreavy, made an affidavit on 22 June 2020 in which she explained that the existence of non-compliant suppliers operating in the market harmed industry confidence in the scheme to which the Act, and legislative instruments under it, gave effect. She said that this would occur particularly if there were a perception that the legislative requirements were not being consistently enforced or that instances of non-compliance were not being adequately addressed. She said that a loss of industry confidence would result in lower compliance rates and less access for consumers to reliable water efficiency information.

13    Mr Rocke said in his affidavit of 13 August 2020 that the creditors of each of Traditional Taps and Castironbaths had resolved under s 75-40 of the Insolvency Practice Schedule (Corporations) in Sch 2 of the Corporations Act that his remuneration from the time of his appointment should be approved in a sum capped at $20,000 plus GST for each company. He said that at the date of his affidavit his expenses exceeded $30,000 for each of Traditional Taps and Castironbaths and that each company had just under $20,000 in its bank account. He formed the view that while the two companies may have incurred debts when each was insolvent, the value of any claim, if established, either against Mr Shaw or the holding company, would be negligible, if not nil, and that it would be uncommercial to pursue or continue any investigation of such a claim in the absence of funding. He said that the only creditors of the companies that he had identified were the Commissioner of Taxation and the companies’ related entities. He said that, accordingly, there was no prospect of any distribution being made to creditors of either Traditional Taps or Castironbaths. He also asserted that if the current application were refused, he would proceed to finalise the winding up of each company and use the funds in its bank account to pay his costs and expenses, so that it would then be deregistered under s 601AB of the Corporations Act.

14    Mr Rocke said that as the funds available to meet his expenses in the winding up were limited, he had not investigated whether or not either company had engaged in any conduct that might have contravened the Act and was not in a position to do so. He also said that he understood s 33(5) provided that each company would bear an evidential onus in relation to whether the WELS products in question were registered at the time of the alleged contraventions of s 33. He said that if leave to proceed were granted, he would not have access to funds to enable him to cause the companies to discharge that evidential burden, nor would he be able to participate meaningfully in their defences of the proceeding by undertaking such expensive actions as giving discovery, preparing and filing evidence, considering the Regulator’s evidence, obtaining legal advice, and retaining lawyers to defend the proceedings because, he said, “There are simply no assets available to fund the Companies’ participation in the proceedings”.

15    Mr Rocke said that if leave to proceed were granted, he would be prevented from finalising the winding up of the companies until judgment was delivered. He was aware that, on around 1 July 2020, Mr Shaw had engaged and also caused Renaissance and Belfast to engage, new solicitors who were considering making amendments to their defences. He noted that, currently, there are no orders for any of the respondents to file evidence or give discovery and no trial date has been set. He expected that the proceeding would not be ready for trial until at least next year and that any judgment would take longer than that, causing significant delay in his finalisation of the companies’ liquidations which he said:

will increase the expenses that I will be personally liable for as liquidator (even leaving aside the cost of participating in the Proceeding). Those expenses include the costs and fees associated with lodging documents with ASIC and providing notices to creditors under section 70-5 of the IPSC, keeping records under sections 70-10 and 70-35 of the IPSC, responding to any requests for information under sections 70-40, 70-45 and 70-55 of the IPSC. Further, under the ASIC Supervisory Cost Recovery Levy Regulations 2017 (Cth), each company to which I remain appointed as liquidator increases the amount of the graduated levy component that I am obliged to pay to ASIC each year.

16    Mr Rocke said that he had no ability to recover those additional costs and they would be borne by him and his firm. He said that as a registered liquidator he was conscious of his duties as an officer of the Court to consider the public interest as well as that of creditors. He asserted that the general and specific deterrent effects of an appropriate penalty that might be imposed in respect of the allegations could still be served if the proceeding did not continue against Traditional Taps and Castironbaths but only against the other corporate respondents and Mr Shaw.

Mr Rocke’s submissions

17    Mr Rocke argued that the availability of findings against Mr Shaw, as an accessory, would suffice for the purposes of establishing any relevant general deterrence, and that it was not necessary to grant leave to proceed against each company in liquidation.

18    Mr Rocke pointed to factors that courts have taken into account in determining whether to grant leave to proceed in such situations, including whether or not there was a serious question to be tried, (which he accepts to be the case here) the stage to which the proceeding had progressed; the fact that an applicant chose to make claims against directors or officers for aiding and abetting conduct complained of against the company in liquidation, and, in cases where a regulator sought leave to proceed, the public interest in enforcing the legislation; the available resources of the company to defend the proceedings and the effect of having to do so on their resources.

19    Mr Rocke argued that granting leave to proceed would conflict with the objects of s 545 of the Corporations Act and have the effect of destroying its statutory protection for the liquidator from being liable to incur costs. He contended that a grant of leave might discourage liquidators from accepting appointments to companies with meagre assets and that would also be itself against public interest. He submitted that because the liquidation was close to being finalised, the grant of leave would delay the winding up being completed. He contended that the facts that both Renaissance and Belfast have remained as solvent and are active corporate respondents in the proceeding, and were defending the Regulator’s allegations of similar contraventions, suggested that it was unnecessary to grant leave here. In particular, he submitted, the Regulator was also alleging that Mr Shaw had accessorial liability for any contraventions that Traditional Taps or Castironbaths, as well as the other two companies, may have committed. He contended that declarations and penalties against Mr Shaw, as a natural person, might work a greater general deterrent effect than against the insolvent companies with no capacity to make any payment of penalties.

20    Mr Rocke also argued that the grant of declaratory relief or civil penalties against either Traditional Taps or Castironbaths would not benefit any members of the public who may have had dealings with either company unlike in other cases. He contended that the Regulator had urged him, including immediately before commencing her application for leave to proceed, to agree to file something called an “admitting defence”, despite his lack of funds to enable him properly to consider whether he should do so, on the basis that would be an appropriate exercise of his discretion as liquidator in the management of each company’s affairs. She had prepared a draft of such a document for his consideration, which he submitted would not have any utility.

21    He argued that, were I to be persuaded that it was appropriate to grant leave, s 545 supported the imposition of the following conditions on the Regulator:

(1)    within 21 days of the date of the order, the Regulator file and serve a written undertaking to the Court, to indemnify Traditional Taps and Castironbaths and him as liquidator of each of them in respect of all costs and expenses (including legal costs), and remuneration of the liquidator incurred after the date of the order, except to the extent they have been unreasonably incurred or are unreasonable in amount, relating to:

(a)    their winding ups; and

(b)    steps the companies are compelled (by Court order or as required by any rules) to perform in this proceeding, irrespective of the ultimate outcome of this proceeding; and

(2)    the Regulator not take any step to enforce against the companies any amount of money, whether by way of penalty, costs or otherwise, without further leave of the Court.

22    The liquidator argued that such an outcome would be in keeping with the protections afforded under s 545 and ought be the “price” of any grant of leave to proceed. He contended that the mere fact that this was the first occasion on which the Regulator had brought proceedings for a civil penalty ought not be seen as a panacea. Mr Rocke submitted that there would be other cases where appropriately funded respondents were available that could be used to set appropriate precedents so that there was no need to grant leave to proceed in this case.

Mr Shaw’s submissions

23    Mr Shaw noted that Traditional Taps had made profits before tax of about $56,000 on a turnover of $326,000 in the financial year ended 30 June 2017 and almost $401,000 on a turnover of $845,000 in the year ended 30 June 2018. He said that Castironbaths had made a loss of about $27,000 on a turnover of $479,000 in the 2017 financial year and a loss of about $216,000 on a turnover of $382,000 in the 2018 financial year. However, Mr Shaw argued that there was no reason to think that those turnovers or, in the case of Traditional Taps, its profits, were necessarily connected, in whole or part, to the alleged contravening conduct.

24    Mr Shaw said that he had been trying to close down of each of his companies for some time prior to, as I understood it, May 2018 when he said that he was in Dubai having spinal surgery. He said that six months before she commenced this proceeding on 4 June 2019, the Regulator had applied to the Australian Securities and Investments Commission to prevent each of the companies being deregistered. Mr Shaw argued that the Regulator was wrong to have submitted that his funding of the liquidator in opposing the grant of leave under s 500(2) of the Corporations Act was specifically linked to the liquidator’s submission that leave should only be granted on terms that included Mr Rocke’s indemnification for the remainder of the proceeding. Mr Shaw contended that, by seeking leave to proceed, the Regulator was attempting to obtain a forensic advantage from the liquidation of both Traditional Taps and Castironbaths.

25    Mr Shaw also submitted that because the Regulator was proposing that leave to proceed be granted on condition that she did not seek to enforce, without further leave, any pecuniary orders against Traditional Taps or Castironbaths, there was, in effect, no controversy that called for the Court’s exercise of judicial power. He contended that the Regulator’s stated purpose of seeking to obtain declarations of contravening conduct and civil penalties, which she was not intending to enforce, meant that there was no relevant or immediate right, duty or liability to be established by the Court’s determination and that the declarations, accordingly, were they granted, would be “divorced from any attempt to administer that law” in the sense explained in the reasons of Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ in In re Judiciary and Navigation Acts (1921) 29 CLR 257 at 266.

26    He argued that there was no substantive public interest in leave being granted so that the proceeding could continue against the two companies in liquidation. Mr Shaw contended that this was because the companies would not be able to defend themselves and would therefore be at greater risk of being found liable without ever having actively participated in opposing the Regulator’s claims. Mr Shaw’s counsel said that, although his client was funding the liquidator in resisting this application, his instructions were that Mr Shaw had no intention to fund the liquidator were leave to proceed granted. Mr Shaw argued that there would be no foreseeable consequences for the parties from the grant of leave and relied on the remarks of Mason J, with whom Jacobs and Murphy JJ agreed, in Gardner v Dairy Industry Authority of New South Wales (1977) 18 ALR 55 at 69.

Consideration

27    Mr Shaw has been sued as an accessory to each of the same contraventions that the Regulator has alleged against each of his four companies, including Traditional Taps and Castironbaths. If that liability of Mr Shaw were established at the trial, on one view such a finding could achieve a greater deterrent effect on directors and others involved in the operations of a contravener or company subject to the WELS Act’s regulatory scope than the determination of contraventions and civil penalties against the two hopelessly insolvent corporations that could not meet the liability.

28    However, that view leaves out of account what Lee J explained in the Trade Practices Commission v Manfal Pty Ltd (No 3) (1991) 33 FCR 382 at 388. There, his Honour refused the Commission leave to discontinue against a company that had gone into liquidation during the trial. Lee J said:

The trading entity with which the public has been involved is Manfal. Any judgment against the individual respondents is unlikely to convey to the public that errant behaviour on the part of Manfal has been duly identified and redressed and only those with special knowledge of the matter would be aware that discontinuance against the corporation was not a finding or representation of belief that Manfal’s conduct was acceptable and not a contravention of s 52A of the Act as previously alleged. The proceedings are entirely grounded upon the allegation of the contravention of the Act by Manfal and in no sense can it be said the joinder of Manfal has become inappropriate.

(emphasis added)

29    Each case involving the Court making a determination of whether or not to grant leave to proceed against a company in liquidation turns upon its own particular facts. In exercising its powers under the Corporations Act to grant leave to proceed, the Court is able to take into account any matters that it considers to be relevant subject to the subject-matter, scope and purpose of the Act as a whole: The Queen v Australian Broadcasting Tribunal, Ex parte 2 HD Pty Ltd (1979) 144 CLR 45 at 49 per Stephen, Mason, Murphy, Aickin and Wilson JJ.

30    The scheme of the Corporations Act reflects the prima facie position that an insolvent company in liquidation should be wound up and its assets distributed to its creditors and, if sufficient, in accordance with the statutory priorities and order of payment. Regulatory proceedings for recovery of civil or criminal penalties fall outside the ordinary scope of a winding up in the sense that, ordinarily, they focus upon past conduct of a corporation when it was trading and any civil penalties or fines imposed on it are not provable debts.

31    Ordinarily, the public interest will be a significant consideration in the exercise of the Court’s discretion to grant leave to proceed against an insolvent corporation that is otherwise entitled to a stay or prohibition of proceedings under a provision such as s 500(2). The identity of a party seeking such leave may be important, particularly if it is a Government or statutory regulator seeking to establish an entitlement to civil penalty or other enforcement relief. However, such a party is not entitled as of right to a grant of leave. In Phoenix Institute of Australia Pty Ltd v Australian Competition and Consumer Commission [2017] FCAFC 155 at [154], Perram, Yates and Wigney JJ said:

The respondents’ claims of misleading or deceptive conduct, and of unconscionable conduct, raise complex questions of fact and evaluation that are appropriate for determination by the Court rather than under a proof of debt procedure. Indeed, this is necessarily so in light of the fact that declarations of contravention and pecuniary penalties are sought. Only the Court can grant that relief. It follows, inexorably, that the respondents’ claims must be determined by the Court. This stands as a cogent reason why leave to proceed should be granted.

(emphasis added)

32    Nonetheless, in an appropriate case, that consideration will not rule out the court refusing leave to proceed, as Bennett J discussed in Australian Competition and Consumer Commission v Link Solutions Pty Ltd [2008] FCA 1790, especially at [12]–[19].

33    I reject the argument by the liquidator that the grant of leave would, or should be, conditioned on the Regulator giving an undertaking to the effect that he sought. As the liquidator acknowledged in argument, there is no case to which he could point in which a Court had imposed such condition. Nor is there any sensible possibility here that the liquidator would have to take any steps in the proceeding that would require him or either Traditional Taps or Castironbaths to incur any costs. Ordinarily, where the liquidator has no funds, and the company no assets, the proper course for the liquidator to take is neither to consent nor oppose the orders that the Court might make at the trial, subject to the imposition of the usual condition in cases where leave to proceed is granted (and which the Regulator properly seeks be made here) that no orders for the payment of money, including costs, be enforced against the company without leave of the Court.

34    There was an air of unreality in the liquidator’s evidence that he would have to bear any expense of substance as he asserted in the paragraph of his affidavit that I have quoted at [15] above. That paragraph was notable for the absence of any attempt at quantification of what those liabilities might be. Nor did he make any reference to the provisions in rr 70-15(2)(d) or 70-55 of the Insolvency Practice Rules (Corporations) 2016.

35    Rule 70-15(2)(d) dealt with the right of an individual creditor to request information from an external administrator, such as a liquidator, in a member’s voluntary winding up. It provided that it was not reasonable for an external administrator to comply with a request to give information, provide a report or produce a document for a creditor if, acting in good faith, the external administrator was of the opinion that there was not sufficient available property to comply with the request. That is, the rule relieved an external administrator (such as the liquidator here) from having to comply with a request to provide a creditor with information of a report if the company has insufficient assets to pay the cost of doing so. However, under r 70-15(5), if the creditor agrees to bear the cost of the external administrator complying with his, her or its request, then it will be reasonable for the external administrator to so comply.

36    A similar position obtains in respect of an external administrator’s obligation to provide the Commonwealth with information under r 70-55. That requires the Commonwealth to bear the costs of provision of information for a report sought under s 70-55(2) of the Insolvency Practice Schedule (Corporations) in Sch 2 of the Corporations Act if, in the opinion of the external administrator, there is not sufficient property available to comply with the request.

37    As the Regulator pointed out, the only substantive expense that the liquidator might be required to incur, were leave to proceed granted (and accordingly, the companies not deregistered), would be to the payment of a levy in the order of $101 under the ASIC Supervisory Cost Recovery Regulations 2017 for each company for each financial year in which the proceedings remained on foot. That is a trivial sum in comparison to the spectre which the liquidator chose to raise without any specification in his affidavit.

38    In my opinion, the liquidator’s conduct in raising such spectres was not in accordance with his duties to the Court or as a party under s 37N of the Federal Court of Australia Act 1976 (Cth). There is no reason to impose a condition such as that which the liquidator sought or to refuse the grant of leave.

39    Every liquidator, in accepting an appointment to take responsibility for liquidation of an insolvent company, is aware that at some point or another there is a risk that the company may not have funds for him or her to meet statutory liabilities of a liquidator to make payments or provide reports concerning the administration of the liquidation or the winding up. There will be windings up that are profitable and others that are unprofitable. However the kinds of regulatory charges to which an external administrator in the position of the liquidator here will be liable, as a result of the grant of leave to proceed against a company with no substantive assets that does not take an active role in the proceedings, are trivial.

40    Nor does s 545 have any relevance to the liquidator’s position in this proceeding. As s 545(3) provides, the section does not relieve a liquidator of any obligation to lodge a document, including a report with ASIC under any provision of the Act, by reason only that he or she would be required to incur expense in order to perform that obligation. Far from supporting the liquidator’s position, the legislative policy evinced in s 545(3) is that a liquidator must always provide such a document or report to ASIC, even if he or she, personally, will be out of pocket or incur any expense that is not recoverable.

41    In my opinion there is a public interest in granting leave to proceed in the present case for the reason expressed by Lee J in Manfal 33 FCR at 388. Here, the public dealt with Traditional Taps and Castironbaths as companies operating on the internet using their own corporate names when, for over a considerable period of time, they advertised products that the Regulator alleges did not comply with the law. Thus, if final orders establish any of the contraventions alleged, members of the public and others in the industry will be made aware that the businesses that traded under the names of Traditional Taps and Castironbaths, did so in contravention of the Act (as the Regulator seeks the Court to find). If the Regulator’s position is vindicated following a trial, the judgment of the Court that does so will establish that those who engage in similar conduct will be likely to receive condign pecuniary penalties.

42    The purpose of the Parliament in providing that a contravention of the Act attracts liability to a pecuniary penalty for each of the principal and any accessorial contravenor, is to promote compliance. Here, it may be possible that the Regulator will succeed in her allegations of contravention against one or both companies in liquidation but fail to prove that Mr Shaw knew, or was recklessly indifferent as to the existence of, each of the essential facts of one or more or all of those contraventions: see Yorke v Lucas (1985) 158 CLR 661 at 670 per Mason ACJ, Wilson, Deane and Dawson JJ. If that occurred, and leave to proceed were not granted, the fact that Mr Shaw was a party would not be capable of producing a useful result in relation to the alleged conduct of each of the companies because there would be no findings against them. But his involvement may also be able to lead to a finding that each of the two companies either was or was not in contravention of the legislation as the Regulator alleged.

43    I also reject the arguments of Mr Shaw, that, effectively, there would be a risk of an unfair trial because of the imposition of the evidentiary burden of proof in s 33(5). In my opinion, the fact that the companies in liquidation may not be able to discharge that evidential burden has no bearing on the ability of a professional judge hearing proceedings against multiple respondents together to distinguish the position of a company with that evidentiary obligation from the position of a person alleged to be an accessory. That is because s 44Q(1) specifically excepts an alleged accessory under s 44M(1) from being subject to the evidential burden that would otherwise apply.

44    Nor am I persuaded that there is an absence of any relevant foreseeable consequences for the parties in the relief that the Regulator seeks against Traditional Taps or Castironbaths. The situation in these proceedings is distinguishable from that discussed by Mason J in Gardner 18 ALR at 69. First, his Honour was dealing there with a different situation to the present. There, the legislative arrangement allegedly contravened was no longer in operation and his Honour was discussing whether, as an alternative possible finding, the Court might have made a declaration of contravention. Secondly, his Honour rejected the appellant’s argument that if a declaration were made, the executive might, in some undefined way, initiate administrative or legislative action which would improve the lot of the appellants and persons in their position. He said (18 ALR at 69):

It is one thing to say that declaratory relief will be granted against the Executive or a statutory authority in relation to existing rights and transactions. It is quite another thing to say that it should be granted in respect of past transactions under legislation which has been repealed or amended when the court's declaration will produce no foreseeable consequences for the parties.

(emphasis added)

45    That is a far cry from the position here. The Regulator commenced this proceeding to enforce the current law and to have the Court exercise its judicial power to determine whether past acts occurred that amounted to a contravention of the Act and, if so, what penalties ought be imposed. The mere fact that a company is in liquidation and without funds does not mean, necessarily, that there will be no useful result arising from the Court considering whether the acts or conduct alleged occurred that amounted to a contravention and, if so, the pecuniary penalty that should be imposed.

46    As I have said, each case in which leave to proceed against a company in liquidation is sought must be determined on its own facts. In this case, the conduct alleged against Traditional Taps and Castironbaths continued for well over a year and involved multiple products in circumstances where there is no current decision of the Court identifying how the Act operates or identifying what consequences might flow for a contravener were a contravention established at a trial. This is not a case involving any of the principles discussed in In Re Judiciary and Navigation Acts 29 CLR at 265-266. Here, there is an immediate right, duty or liability to be established as to whether either company in liquidation contravened the Act when trading, despite the likelihood that neither Traditional Taps nor Castironbaths will defend the proceeding through lack of funds.

47    The Court will be able to make a declaration of right that is directly connected to the actual facts proved in evidence before it. The proceeding is not capable of being characterised as the provision of an advisory opinion. Nor is it material that the Regulator has indicated that she will not seek to enforce payment of any sum awarded as a pecuniary penalty or order for costs without further leave of the Court (which is unlikely because of the lack of funds). Her position reflects the ordinary principle that the Court will impose such a condition on a party seeking leave to proceed against a company in liquidation. If occasion arises, after liability is established and a penalty has been imposed or a monetary award has been made, the successful party will need to satisfy the Court as to whether it is appropriate to enforce the judgment and, if so, how that should be done having regard to the legislative scheme for the distribution of the insolvent’s assets.

Conclusion

48    For these reasons, I am of opinion that I should grant the Regulator leave to proceed under s 500(2) on condition that she not take any step to enforce any order for the payment of money against Traditional Taps or Castironbaths without further leave of the Court.

Costs

49    In my opinion, each of the liquidator personally and Mr Shaw should pay the Regulator’s costs of this application.

50    On 10 June 2020, the liquidator wrote to the Regulator’s solicitors, rejecting her proposals that he file an “admitting defence” on behalf of each company. He wrote “I will not be participating in the Proceedings”. He should have adhered to that position. Instead, the liquidator chose to embark on a course of substantive opposition to the application for leave, where he knew neither company had any resources to conduct that opposition and he was funded by Mr Shaw to do so. I infer that the liquidator’s reason for opposing was to achieve a purpose of Mr Shaw. Mr Shaw recently took similar steps to oppose the grant of leave to proceed.

51    In my opinion, this is not an appropriate situation in which to order that the Regulator’s costs be her costs in the proceedings. Each of the parties to a proceeding in this Court has a duty, under s 37N of the Federal Court Act, to conduct the proceeding in a way that is consistent with the over-arching purpose of the civil practice and procedure provisions, namely to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible.

52    The liquidator advanced spurious arguments. He asserted, without any substantiation, that he could be exposed to significant amounts of costs under various provisions of the Corporations Act, which on examination, had no substance. Mr Shaw advanced no coherent basis on which he could intervene to oppose the grant of leave to proceed. The grant of leave is unlikely to result in any substantive difference in the costs of the proceeding that Mr Shaw may need to bear. This is since it would be necessary for the Regulator not only to establish that each of Traditional Taps and Castironbaths was liable for contraventions alleged against it based on the objective facts. However, those objective facts would not, of themselves, establish Mr Shaw’s liability as an accessory, because the Regulator will have to establish under s 44M(1) and 44Q(1), his state of mind at the time of each of the contraventions by the relevant company, namely that he knew, or was recklessly indifferent as to the existence of, each of the essential facts constituting each contravention: Yorke 159 CLR at 670. The Regulator’s burden of proof will require her to prove that he was aware of all relevant essential facts at the time of the respective contravention.

53    Accordingly, no substantive costs are likely to be added to those that, in any event, Mr Shaw would have to bear by reason of the continuation of the proceeding against the two companies in liquidation. In my opinion, Mr Shaw’s opposition was again, contrary to the duty he had as a party under s 37N(1) of the Act.

54    Mr Shaw argued that he only became an active party in the application yesterday, when he filed his opposing submissions and appeared via counsel today and that costs ordered against him should be limited to the extra costs incurred by reason of his very recent participation. In the particular circumstances of this case however, Mr Shaw funded the liquidator to oppose a grant of leave throughout the proceeding. The liquidator had no funds to make the opposition on his own part.

55    I see no reason why the reality of Mr Shaw’s conduct in the shadows should be ignored in making a costs order. I will not limit that order in the way that Mr Shaw sought.

56    The Regulator seeks that the costs be payable forthwith. In my opinion, that order is not appropriate. The circumstances may well be that, at the end of the trial, some or all of the Regulator’s claims will have failed and it would then be necessary to make adjustments to the burden of the costs order that I will make.

57    For these reasons, I am of opinion that each of the liquidator personally and Mr Shaw should pay the costs of the Regulator’s application for leave to proceed.

Associate:

Dated:    8 December 2020

SCHEDULE OF PARTIES