Federal Court of Australia

Connelly (liquidator), in the matter of CIMC Rolling Stock Australia Pty Ltd (in liq) v One Rail Australia (FLA) Pty Ltd [2021] FCA 946

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 500(2) of the Corporations Act 2001 (Cth), the Cross-Claimant be granted leave nunc pro tunc to proceed against the First Cross-Defendant.

2.    The Cross-Claimant’s and First Cross-Defendant’s costs of the interlocutory application filed 2 August 2021 be those parties’ costs in the cause.

3.    By 4:00 pm on 20 August 2021, the First Cross-Defendant is to file and serve its defence to the Cross-Claimant’s cross claim.

4.    By 4:00 pm on 20 August 2021, the Cross-Claimant to file any application for substituted service on the Second and Third Cross-Defendants.

5.    Order 3 of the orders of Justice Derrington made on 24 May 2021 is vacated.

6.    By 4:00 pm on 31 August 2021, the Plaintiffs are to file and serve an expert report as to the solvency of the Second Plaintiff.

7.    By 4:00 pm on 3 September 2021, the Fourth Cross-Defendant is to file and serve its defence to the Cross-Claimant’s cross claim.

8.    The matter be listed for a case management hearing at 2:30 pm on 13 September 2021.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    This was an application by the cross-claimant, One Rail Australia (FLA) Pty Ltd (formerly Freightliner Australia Pty Ltd) ACN 122 522 123 (Freightliner), for leave to proceed against a company in liquidation pursuant to s 500(2) of the Corporations Act 2001 (Cth) (the Act). Leave is sought nunc pro tunc in order to prosecute its cross-claim against the first-cross defendant, CIMC Rolling Stock Australia Pty Ltd ACN 083 334 696 (in liquidation) (CIMC).

Background

2    By an action commenced on 28 April 2021, the liquidators of CIMC sought to recover from Freightliner certain payments and assets which it is alleged to have received as unfair preferences.

3    In very general terms, CIMC had entered into two agreements with Freightliner in 2014. By the first agreement, CIMC leased to Freightliner some 45 container wagons which were rolling stock. By the second agreement, CIMC agreed to manufacture and sell to Freightliner 42 grain wagons which were also rolling stock (the Sale Contract).

4    Pursuant to the Sale Contract, Freightliner paid to CIMC amounts totalling USD$2,651,250. Unfortunately, by 30 September 2015, an issue arose as to the quality of the wagons which CIMC had manufactured for Freightliner. As a result, on 4 August 2016, Freightliner gave notice to CIMC terminating the Sale Contract. For present purposes, it seems that CIMC accepts that Freightliner was entitled to serve that notice.

5    There is some variation in the way in which CIMC and Freightliner characterise the consequences of the termination of the Sale Contract. CIMC alleges that this gave rise, inter alia, to an obligation to reimburse Freightliner for the sum paid pursuant to the Sale Contract. Freightliner alleges that the relevant payments were held on trust by CIMC and did not constitute a debt owed to it upon its termination of the Sale Contract. In the alternative, it alleges that, upon termination, CIMC was obliged to reimburse it for the amount paid.

6    It is apparent that the parties were involved in some disputation which extended to engaging in arbitral proceedings. Nevertheless, on 22 December 2017, CIMC and Freightliner entered into a settlement deed (the Settlement Deed). By that deed, CIMC agreed to transfer to Freightliner approximately 50 wagons of rolling stock together with other equipment. It also agreed to pay approximately $400,000 to Freightliner. Those terms were carried out from about 22 December 2017 to 30 April 2018.

7    The liquidators allege that CIMC was insolvent immediately prior to entering into the Settlement Deed and, inter alia, that the transfer of assets and payment of money under it constituted a transaction which was an unfair preference. It also alleges that it was an uncommercial transaction and, therefore, a voidable transaction.

8    In the liquidators’ action, declarations are sought that the Settlement Deed was void and further orders are sought pursuant to s 588FF(1)(c) of the Act requiring Freightliner to pay to the liquidators the sum of approximately A$5,379,000. An alternative claim is made for the return of the assets which were transferred under the Settlement Deed.

9    By a defence filed on 1 July 2021, Freightliner denies that the transaction resulted in any unfair preference to it or that the transaction was an uncommercial transaction. It denies that it is liable to the liquidators as claimed. By way of purported set-off, Freightliner asserts that, if the Settlement Deed was void as alleged, it is entitled to recover the amount of USD$2,641,250 which was owing to it under the Sale Contract. It specifically claims to be entitled to set-off that amount against the liquidators’ claim by the operation of s 553C of the Act.

10    On 1 July 2021, Freightliner as cross-claimant filed a notice of cross-claim against CIMC, two of its directors and one of its other officers.

11    In its statement of cross-claim, Freightliner alleges that it is entitled to recover from CIMC the amount due to it under the Sale Contract. It makes an alternative claim that the amount is held on trust for it by CIMC.

12    It further asserts that, as a result of certain representations made by CIMC when entering into the Settlement Deed, CIMC is liable to it for loss and damage consequential upon breaches of certain warranties contained in the deed.

13    Those representations are also relied upon as supporting a claim against CIMC for damages for misleading or deceptive conduct and claims are made against the two directors and an officer of CIMC on the basis that they were knowingly involved in misleading or deceptive conduct engaged in by CIMC.

14    Freightliner did not seek leave to commence the cross-claim against CIMC and now seeks that leave, if necessary, by way of an order nunc pro tunc.

Consideration

15    As CIMC was the subject of a resolution for voluntary winding up, the relevant provision regulating the commencement of actions against it during the liquidation process is s 500(2) of the Act. That provides:

After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

16    Freightliner initially submitted that it is not obliged to apply for leave in order to pursue a cross-claim and relied upon what it said was a line of authority supporting the proposition that a defendant may cross-claim against a plaintiff insolvent company in liquidation without the leave of the Court: Mersey Steel & Iron Co v Naylor, Benson & Co (1882) 9 QBD 648; Langley Constructions (Brixham) Ltd v Wells [1969] 2 All ER 46; Mine & Quarry Equipment International Ltd v McIntosh (2005) 54 ACSR 1 [4] – [6]. However, those authorities deal with a situation where the company in liquidation pursues a debtor in respect of a debt owed to the company. That is not the present case. Here, the action brought by the liquidators is in their own names and is one vested in them pursuant to the provisions of Pt 5.7B of the Act. Wholly different considerations apply in such circumstances.

17    In support of a construction of s 500(2) that leave is not required in the present circumstances, it was submitted that the object of the section is to prevent a multiplicity of proceedings against the company in liquidation when creditors may advance their entitlements through the process of lodging of a proof of debt, and that object is not undermined when the creditor is the subject of a claim by the liquidator and merely seeks to advance a cross-claim.

18    Although Freightliner’s submissions in relation to this issue are not compelling, I do not propose to reach any final conclusion as to it. The application is more appropriately dealt with on the basis that Freightliner does require leave pursuant to s 500(2) of the Act.

19    It ought to be observed that none of the cross-defendants opposed the grant of leave. Neither, however, did they consent to the making of such orders.

20    Prior to the hearing, I raised with the parties through correspondence from my Chambers whether the application gave rise to a question of whether a statutory set-off pursuant to s 553C of the Act can be raised as a defence to an unfair preference action brought by a liquidator. No party sought to agitate that issue on the application for leave. That specific question has been stated to the Full Court and the question will be argued in the coming weeks. These reasons should not be taken as expressing a view on that matter either way.

21    The matters relevant to the exercise of the Court’s discretion to grant leave under s 500(2) are well established: see Leasing Centre (Aust) Pty Ltd v Shepard [2011] FCA 443 [50]: and include:

(a)    whether the claim has a solid foundation and gives rise to a serious dispute;

(b)    the degree and complexity of the legal and factual issues involved;

(c)    the prospects that a proof of debt will be rejected; and

(d)    the stage to which the proceedings, if commenced, may have progressed.

22    In relation to the above matters, it can be accepted that Freightliner has an arguable cause of action. An affidavit prepared by Mr Cowling, a partner of the firm of King & Wood Mallesons, deposes to that issue. It was not objected to and, for the purposes of this application, can be accepted.

23    Secondly, it also can be accepted that the allegations made in the cross-claim are founded on representations which might be difficult for the liquidator to accommodate in the proof of debt process. That is not to say that it would be impossible or that the liquidator might not act with legal support. Nevertheless, the resolution of such a claim is far from straightforward in that context. Conversely, however, claims founded upon allegations of misleading or deceptive conduct are part of this Court’s “running-down” jurisdiction.

24    It can be added that the claim sought to be advanced is not complex and is founded upon alleged written representations such that the scope of the factual matters relevant to liability will not be substantial in the context of the curial process.

25    A further issue supporting the granting of leave is that the cross-claim is derivative upon the success of the liquidator’s claim and, to some extent, there is an overlap of evidence particularly in relation to the solvency of CIMC.

26    It can also be accepted that the liquidators have commenced the main proceeding which, on present indications, is strongly defended. Whilst there can be no doubt that the inclusion of the cross-claim will involve additional work of a not insignificant nature, the fact that the liquidator is already involved in litigation with Freightliner is relevant. On present indications, it is not likely that the liquidators will be unreasonably distracted from their own litigation or the administration of CIMC generally.

27    In the circumstances, and particularly in the absence of opposition by the respondent parties, I am satisfied that the matters referred to above support the exercise of the discretion to grant leave under s 500(2) of the Act to proceed against CIMC.

28    The Court may grant leave nunc pro tunc: Oceanic Life Ltd v Insurance & Retirement Services Pty Ltd (in liq) (1993) 11 ACSR 516; Ong v Lottwo Pty Ltd (in liq) (2013) 116 SASR 280 [59]; Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers Appointed); In the Matter of Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471 [21].

29    Although I am prepared to grant leave, the form of pleading leaves something to be desired. In particular, the claim against the second, third and fourth cross-defendants might be more appropriately articulated. It may be that the allegations made in that respect do not sufficiently comply with the requirements to plead such a serious claim against those respondents and, before the cross-claim proceeds, suitable amendments may be necessary: Stefanovski v Digital Central Australia (Assets) Pty Ltd (2018) 368 ALR 607 at 627 [70]; Wyzenbeek v Australasian Marine Imports Pty Ltd [2017] FCA 1460 [96]; Australian Rail, Tram and Bus Industry Union v Railtrain Pty Ltd [2019] FCA 1740 [12].

30    In the result, leave is granted pursuant to s 500(2) of the Act, nunc pro tunc, for the cross-claimant to proceed against the first cross-defendant.

Costs

31    Each party sought an order for costs in their favour in respect of the application. Some of that disputation arose consequent upon communications between the solicitors for CIMC and Freightliner close to some two years ago. Further, on 24 May 2021, timetabling orders were made in this Court with the consent of the liquidators for Freightliner to file its defence and any cross-claim. It was only after the filing of the cross-claim that the solicitors for the liquidators, Thomson Geer, wrote to Freightliner’s solicitors, King & Wood Mallesons, advising of the requirement for leave.

32    Although it is correct that Freightliner carried the onus of establishing why leave should be granted, that is not to say it should necessarily bear the costs of the application. On the other hand, here the liquidators took the very appropriate approach of not opposing or consenting to the orders sought to be made. In the result, the costs of the application ought to form part of those general costs which will be dealt with in accordance with the usual rule. Therefore the appropriate order is that the costs of the application for leave be each parties’ costs in the cause.

Associate:

Dated:    10 August 2021

SCHEDULE OF PARTIES