Federal Court of Australia

Mulvaney (liquidator), in the matter of Skymax Group Pty Ltd (in liq) v Wen [2021] FCA 1644

ORDERS

THE COURT ORDERS THAT:

1.    Paragraph 4 of the orders made on 20 July 2021, as varied on 17 August 2021 and 4 November 2021, be further varied such that the plaintiffs are to file and serve the documents referred to in that order on or before 13 September 2021.

2.    Judgment be entered in favour of the plaintiffs against the first and second defendants jointly and severally in the sum of $15,719,637.70 calculated as follows:

(a)    judgment in the sum of $14,588,793.61; and

(b)    pre-judgment interest calculated pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) from and including 23 January 2020 up to and including 11 November 2021 in the sum of $1,130,846.09 as set out in Schedule 1.

3.    The first and second defendants are to pay the plaintiffs’ costs fixed in the sum of $9,738.84.

4.    These orders be served on the first defendant by pre-paid post at 12 Lipook Court, Warrnambool VIC 3280 and at Midfield Meat International, McMeekin Road Warrnambool VIC 3280 on or before 17 November 2021.

5.    These orders be served on the second defendant by pre-paid post at A207, 1 Glen Street EASTWOOD NSW 2122 on or before 17 November 2021.

6.    The time by which the defendants may make an application for leave to appeal from the order in paragraph 2 be extended so as to expire 21 days following the publication of written reasons for judgment in respect of the orders made today.

7.    The plaintiffs are to serve the defendants with the written reasons for judgment, such service to be effected by delivering the written reasons by pre-paid post to the addresses specified in paragraphs 4 and 5. Such correspondence is to be dispatched not later than seven days following publication of the written reasons for judgment.

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

REASONS FOR JUDGMENT

CHARLESWORTH J

1    On 24 January 2014, this Court made an order that the first plaintiff Skymax Group Pty Ltd (in liquidation) be wound up in insolvency. The second plaintiff was appointed Liquidator of Skymax on the same day. These proceedings were commenced by the Liquidator on 23 January 2020.

2    On 11 November 2021, the Court entered default judgment in favour of the plaintiffs against the defendants jointly and severally in the sum of $15,719,637.70. The Court has extended the time by which the defendants may apply for leave to appeal, having regard to an anticipated delay in publishing these written reasons for judgment.

Relief sought in the proceedings

3    The Liquidator alleges that the first and second defendants contravened s 588G(2) of the Corporations Act 2001 (Cth). Section 588G relevantly provides:

588G Director’s duty to prevent insolvent trading by company

(1)    This section applies if:

(a)    a person is a director of a company at the time when the company incurs a debt; and

(b)    the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c)    at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d)    that time is at or after the commencement of this Act.

…

(2)    By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a)    the person is aware at that time that there are such grounds for so suspecting; or

(b)    a reasonable person in a like position in a company in the company’s circumstances would be so aware.

…

4    A company is solvent if, and only if, the company is able to pay all of its debts as and when they become due and payable:  Corporations Act, s 95A(1). A company that is not solvent is insolvent:  s 95A(2).

5    Section 588M of the Corporations Act applies where a person (director) has contravened s 588G(2) in relation to the incurring of a debt by a company and the person (creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency (being a debt that was wholly or partially unsecured when the loss or damage was suffered) and the company is being wound up. Section 588M(2) provides that the company may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.

6    In an amended statement of claim (ASOC) filed on 3 September 2021, the facts pleaded against the defendants giving rise to the alleged contraventions of s 588G and the claim for relief under s 588M were to the following effect (omitting particulars):

(1)    the first defendant Ms Wan Fan Wen (Ms Wen) was a director of Skymax from 8 July 2010 to 24 January 2014 (Relevant Period);

(2)    the second defendant, Mr Zu Neng Shi (Mr Shi) acted in the position of a director of Skymax in the Relevant Period and so falls within the statutory definition of a director;

(3)    from 8 July 2010 each of the directors had full knowledge of Skymax’s business affairs, financial position and performance, expenses and income, cash at hand and ability to pay its debts;

(4)    Skymax was insolvent throughout the Relevant Period;

(5)    Skymax incurred debts to creditors within the meaning of s 588G(1) of the Corporations Act totalling $14,588,793.61 (Company Debts);

(6)    each of the Company Debts is unsecured and remains unpaid;

(7)    at the time that the debts were incurred, there were reasonable grounds for suspecting Skymax was insolvent or, alternatively, would become insolvent by incurring the Company Debts and;

(a)    each of the defendants was aware at that time that there were such grounds for so suspecting;

(b)    further or in the alternative, a reasonable person in like position to each of the defendants in a company in Skymax’s circumstances would be so aware.

(8)    it is unlikely that there will be a return to unsecured creditors in the liquidation of Skymax; and

(9)    because of Sykmax’s insolvency the creditors have suffered loss or damage in relation to the Company Debts to the extent that the Company Debts remain unpaid.

7    The relief sought on the face of the originating application is expressed as follows:

A.    An order pursuant to section 588M(2) of the Act that the defendants pay to Skymax, as a debt due to Skymax, an amount equal to the amount of the loss or damage suffered by the Creditors in relation to the Company Debts owed to them by Skymax, because of the insolvency of Skymax;

B.    Interest pursuant to statute;

C.    Costs; and

D.    Such further or other orders as this Honourable Court deems fit.

8    The amount sought on the interlocutory application includes an amount equal to the amount of the loss or damage pleaded in the ASOC.

The application for default judgment

9    By an amended interlocutory application dated 3 September 2021 the plaintiffs sought an order pursuant to r 5.23(2)(b) and/or r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) (FC Rules) in the following terms:

Judgment be entered against the first and second defendants in the sum of $15,364,032.86 calculated as follows:

(a)    judgment in the sum of $14,588,793.61; and

(b)    pre-judgment interest calculated pursuant to section 51A of the Federal Court of Australia Act 1976 (Cth) from and including 23 January 2020 up to and including 3 September 2021 in the sum of $1,017,772.95

10    Rule 5.22 and r 5.23 of the FC Rules relevantly provide:

5.22    When a party is in default

A party is in default if the party fails to:

(a)    do an act required to be done, or to do an act in the time required, by these Rules; or

(b)    comply with an order of the Court; or

(c)    attend a hearing in the proceeding; or

(d)    prosecute or defend the proceeding with due diligence.

5.23    Orders on default

…

(2)    If a respondent is in default, an applicant may apply to the Court for:

…

(b)    if the claim against the respondent is for a debt or liquidated damages—an order giving judgment against the respondent for:

(i)    the debt or liquidated damages; and

(ii)    if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or

(c)    if the proceeding was started by an originating application supported by a statement of claim or an alternative accompanying document referred to in rule 8.05, or if the Court has ordered that the proceeding continue on pleadings—an order giving judgment against the respondent for the relief claimed in the statement of claim or alternative accompanying document to which the Court is satisfied that the applicant is entitled; or

(d)    an order giving judgment against the respondent for damages to be assessed, or any other order; or

…

11    The FC Rules apply to a proceeding commenced under the Corporations Act to the extent that they are relevant and not inconsistent with the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules):  Corporations Rules, r 1.3(2). I am satisfied that the provisions of the FC Rules referred to in these reasons have application in this proceeding.

12    As can be seen, the discretion to make an order under r 5.23(2) of the FC Rules may only be exercised in circumstances where a respondent party is in default as defined in r 5.22.

Default

13    The Liquidator invited the Court to find that the defendants were in default by reason of their failure to file a notice of address for service and a defence and by reason of their failure to attend at hearings in relation to the proceeding. The plaintiffs’ submissions did not clearly delineate between those obligations arising under the Corporations Rules and those arising under the FC Rules. Both will be considered.

14    In accordance with r 2.2 of the Corporations Rules, an application required or permitted to be made by the Corporations Act must be made to the Court by filing an originating process in accordance with Form 2. Unless the Court otherwise directs, the originating process must be accompanied by an affidavit stating the facts in support of the originating process:  Corporations Rules, r 2.4. Rule 2.9(1)(a)(i) of the Corporations Rules provides that a party who intends to appear before the Court at the hearing of an application must, before appearing, file a notice of appearance in accordance with Form 4. It seems that under the Corporations Rules a notice of appearance need only be filed if the party intends to appear.

15    Rule 5.02 of the FC Rules provides:

5.02    Parties to file notice of address for service before return date

A respondent who has been served with an originating application must file a notice of address for service, in accordance with Form 10, before the return date fixed in the originating application.

…

16    In respect of the obligation to file a defence, the FC Rules provide:

16.31    Application of Division 16.3

This Division applies if a proceeding is started by an originating application supported by a statement of claim or the Court has ordered that the proceeding continues on pleadings.

16.32    Defence to application

A respondent must file a defence, in accordance with Form 33, within 28 days after service of the statement of claim.

Procedural history

17    This proceeding has been characterised by multiple deferred hearings, principally to provide the plaintiffs with opportunities to serve the defendants with documents, including documents relating to the application for default judgment.

18    For the purposes of r 5.23(2)(c) of the FC Rules, the originating process (hereafter the originating application) was accompanied by a supporting affidavit of the Liquidator sworn on 9 April 2021 (First Liquidator Affidavit). The commencement of the proceeding in that way was in accordance with the Corporations Rules identified above. In his affidavit, the Liquidator deposed to an intention to apply for an order that the action proceed on pleadings and for leave to file a statement of claim. A draft statement of claim was annexed to the supporting affidavit contained a claim for monetary relief against the defendants in the amount of $4,581,443.48 plus interest and costs.

19    No return date was endorsed on the face of the originating application. At the plaintiffs’ request, a first case management hearing was fixed for 20 July 2020. At that hearing, Counsel for the plaintiffs informed the Court that the defendants had not been served. An adjournment of about three months was sought. At the plaintiffs’ request, there were further deferrals of the case management hearing. Counsel for the plaintiffs next appeared at a case management hearing on 3 February 2021. The plaintiffs filed a statement of claim (SOC) on 12 February 2021 in accordance with an order made on that day. The monetary relief claimed in the SOC, as then filed, was $4,581,443.48 plus interest and costs. The order that the plaintiffs file a statement of claim meant that Div 16 of the FC Rules applied.

20    On 9 April 2021, the plaintiffs filed an interlocutory application seeking judgment against the plaintiffs in the sum of $15,364,032.86, including “damages to be assessed” at $14,488,793.61. A supporting affidavit of the Liquidator sworn on 9 April 2021 (Second Liquidator Affidavit) explained that the Company Debts had been assessed by him in that amount. The interlocutory application was set down to be heard on 23 June 2021.

21    Again at the plaintiffs’ request, by an order made administratively, the hearing of the interlocutory application was deferred to 20 July 2021. On that day, the Court identified that the amount of “damages” sought on the interlocutory application for default judgment was different from the amount sought by way of the claim for relief in the SOC in the form that it then took. The Court ordered that the hearing of the interlocutory application be adjourned to a date to be fixed. The Court ordered that there be a further case management hearing at 9.30am on 31 August 2021, to be conducted by web conference. The plaintiffs were granted leave to amend their interlocutory application and to file and serve an amended pleading to reflect the calculation of monetary relief sought in the proceeding. The Court ordered that the ASOC be filed on or before 17 August 2021. By an administrative order, that date was extended to 7 September 2021 and later extended again to reflect a delay in service.

22    The ASOC was filed on 3 September 2021. The amended interlocutory application was filed on the same day, supported by an affidavit of the Liquidator sworn on 3 September 2021 (Third Liquidator Affidavit).

23    On 22 September 2021, the Court set down the interlocutory application for a resumed hearing to be conducted on 4 November 2021. The hearing proceeded on that day and continued on 11 November 2021. The defendants did not attend at either day of the hearing.

Rules as to Service

24    Whether the defendants are in default, as alleged by the plaintiffs, depends upon the application of rules in relation to the service of documents, particularly of the originating application and the First Liquidator Affidavit filed in support of it. Rule 2.7(1) of the Corporations Rules outlines the requirements for valid service of an originating process as follows:

2.7    Service of originating process or interlocutory process and supporting affidavit

(1)    As soon as practicable after filing an originating process and, in any case, at least 5 days before the date fixed for hearing, the plaintiff must serve a copy of the originating process and any supporting affidavit on:

(a)    each defendant (if any) to the proceeding; and

(b)    if the corporation to which the proceeding relates is not a party to the proceeding—the corporation.

25    Rule 8.06 of the FC Rules provides:

8.06    Service of originating documents

The applicant must, as soon as practicable and at least 5 days before the return date fixed in an originating application, serve a copy of the following personally on each respondent named in the originating application:

(a)    the originating application;

(b)    each other document required to accompany the application by rule 8.05 or any other rule of the Court.

26    Rule 10.01 of the FC Rules provides that a document that is to be served personally on an individual must be served by leaving the document with that individual.

27    The Court may order that a document is taken to have been served on a person on a date mentioned in the order if the conditions in r 10.23 of the FC Rules are satisfied. However, the plaintiffs have not sought an order for deemed service under r 10.23 and it is unnecessary to consider whether its requirements are fulfilled.

28    The FC Rules otherwise make some provision for an originating application to be served on an individual other that personally. Relevantly r 10.22 and r 10.28(1) provide:

10.22    Acceptance of service by lawyer

(1)    A lawyer may accept service of an originating application for a respondent if:

(a)    the lawyer has authority to accept service of an originating application for the respondent; and

(b)    the lawyer endorses a note on a copy of the document that the lawyer accepts service of the document for the respondent.

(2)    A document that is endorsed by a lawyer under paragraph (1)(b) is taken to have been served personally:

(a)    on the date that the endorsement is made; or

(b)    if personal service on the respondent is proved on an earlier date—on the earlier date.

…

10.28    Service under agreement

(1)    If a respondent in a proceeding has agreed that an originating application or other document in the proceeding may be served on the respondent, or on another person for the respondent, in a way or at a place mentioned in the agreement, the document may be served in accordance with the agreement.

…

29    The rules as to service of documents of a kind that are not required to be served personally are those contained in Div 10.3 of the FC Rules. Rule 10.31 and r 10.32 are as follows:

10.31    Ordinary service

A document that is not required to be served personally may be served in any of the following ways:

(a)    by serving the document personally, in accordance with Division 10.1;

(b)    by sending the document by pre-paid post addressed to the person at the person’s proper address;

…

(d)    if the person has filed a notice authorising service by electronic communication—by sending the document to the email address;

(e)    at a party’s lawyer’s email address if:

(i)    the party is represented by a lawyer; and

(ii)    the lawyer has filed a notice of address for service that conforms with rule 11.01.

30    The phrase “proper address” is defined in the Dictionary as:

 (a)    the person’s address for service; or

(b)    if the person has no address for service—the person’s usual or last-known business or residential address.

Provision of documents to Mr Shi

31    The plaintiffs are represented in this proceeding by Craddock Murray Neumann Lawyers (CMN). On 1 February 2021, CMN sent an email to a solicitor known to act for Mr Shi in a separate public examination proceeding, Mr Chang Liu. The email referred to this proceeding and asked Mr Liu to advise whether he had instructions, or could obtain instructions, to accept service of documents in it. Mr Liu replied by email later that day stating “we are instructed to accept service”. CMN then emailed to Mr Liu “by way of service” (relevantly) the originating application, the First Liquidator Affidavit and orders made in this proceeding on 15 December 2020. By those orders, the Court set down the matter for a further case management hearing at 9:00am on 3 February 2021, to be conducted by web conference. Later that day, CMN emailed to Mr Liu the orders that would be sought at the case management hearing. The email stated “On the assumption that you are acting for both defendants, if your clients are agreeable to the proposed orders, could you please sign and return to us so that we can seek the orders are made in chambers by consent”. On the morning of 3 February 2021, CMN sent to Mr Liu the information and links necessary to facilitate Mr Liu’s attendance at the case management hearing.

32    By email on 5 February 2021, CMN requested that Mr Liu endorse the documents that had been sent on 1 February 2021 for the purposes of r 10.22 of the FC Rules (extracted above). No response was received. A repeat request was made on 11 February 2021.

33    On 11 February 2021, Mr Liu sent an email to CMN relating to the examination proceedings advising of a new residential address for Mr Shi in Eastwood, New South Wales (Eastwood Address).

34    On 12 February 2021, a solicitor employed by CMN had a telephone conversation with Mr Liu in which the following exchange occurred:

CMN:    We have called to discuss a few things because we have not received a response to any of our emails and correspondence to you.

 Liu:        Ok

CMN:    Are you instructed by either of the defendants in the Federal Court proceedings?

Liu:    I am instructed to act in the examination proceedings. I was instructed to accept service of documents by Mr Shi but I do not have instructions to file a notice of appearance. When I am instructed I will file a notice of appearance. I have served you with a notice of change of address for Mr Shi in the examination proceedings.

 CMN:    Do you want us to serve the statement of claim on you or your client’s directly?

   Liu:        Please serve on my clients directly.

  CMN:    Ok, we will also send a copy to you for your reference and will serve it on your client’s directly. It would be useful if you obtained instructions to file a notice of appearance, otherwise our clients will be in a position to file an application for default judgment if there is also no notice of address for service.

    Liu:        Yes.

35    CMN then sent a further email to Mr Liu confirming that the SOC would be “served on the defendants directly”. The SOC was sent to Mr Shi by post to the Eastwood Address dispatched on 22 February 2021.

36    On 24 February 2021, CMN sent a letter to Mr Shi at the Eastwood Address enclosing a copy of the orders made on 24 February 2021 and advising of the next hearing date, and another letter on 28 March 2021 enclosing the orders fixing a further adjourned hearing date, in each case providing details to facilitate his attendance by web conference.

37    On 12 April 2021 CMN sent an email to Mr Liu attaching the interlocutory application and affidavit in support. The email continued:

We note your previous indication that you act for both the first and second defendant in this matter, that you were going to meet with both defendants, but did not previously have instructions to file a notice of appearance.

Could you please confirm:

1.    Both defendants were served with the Originating Process;

2.    Whether you are still not instructed to file a notice of appearance.

38    On the same day Mr Liu sent a reply stating “We don’t have instructions to act for this matter”.

39    On 13 April 2021, CMN sent to Mr Shi at the Eastwood Address (relevantly) the interlocutory application filed on 9 April 2021 and the Second Liquidator Affidavit. On 5 July 2021, CMN sent a letter to Mr Shi at the Eastwood Address attaching orders of the Court, notifying him of the hearing date for the interlocutory application and providing details to facilitate his appearance by web conference. On 8 September 2021, CMN caused the following additional documents to be delivered to Mr Shi by express post to the Eastwood Address:

(1)    a letter dated 8 September 2021 notifying Mr Shi of the new hearing date for the interlocutory application, provided information to facilitate his attendance by web conference and informing him of the order that was sought;

(2)    the ASOC filed on 3 September 2021;

(3)    the amended interlocutory application filed on 3 September 2021;

(4)    the Third Liquidator Affidavit;

(5)    orders made on 20 July 2021; and

(6)    orders made on 17 August 2021.

40    The letter to Mr Shi sent on 8 September 2021 wrongly asserted that he had been personally served with the originating application on 18 June 2021. It was otherwise in relevantly the same terms as a letter sent to Ms Wen, a portion of which is extracted at [48] below.

41    Notification of the change of hearing time was sent to Mr Shi by post to the Eastwood Address.

Provision of documents to Ms Wen

42    Following the telephone conversation with Mr Liu, CMN sent letters to Ms Wen on 12 February 2021, 24 February 2021 and 18 March 2021 providing her with a copy of the SOC and advising her of orders setting the matter down for case management hearings and providing details to facilitate her attendance by web conference. Those letters were sent to an address in Liebig Street in Warrnambool (Liebig Street Address).

43    The plaintiffs engaged a process sever (Mr David Shiels) to effect service on Ms Wen. Mr Shiels first deposed to having personally served Ms Wen on 27 January 2021. However, that attempt was not successful, Mr Shiels having provided the documents to a male person who plainly was not Ms Wen.

44    My findings (based on the remainder of Mr Shiels’ evidence) are as follows:

(1)    the plaintiffs supplied Mr Shiels with a photograph of Ms Wen;

(2)    at 12:30pm on 18 June 2021 Mr Shiels attended at the premises of a meat processing business trading as Midfield Meat International in Warrnambool Victoria where it was believed Ms Wen was working;

(3)    Mr Shiels was met at reception and taken into a private room where he was met by a female person who he recognised as the same person depicted in the photograph. I am satisfied that person was Ms Wen.

(4)    Mr Shiels states that he was also met by a male person whom he was “advised” was an interpreter provided by Midfield Meat to assist. For the purpose of this interlocutory application I am satisfied that the male person was in attendance for the stated purpose and that he said the words attributed to him by Mr Shiels.

(5)    Mr Shiels asked “Are you Wang Feng Wen and is this you in the photograph?” Through the interpreter, Ms Wen replied “Yes, that’s me. I don’t know what this is about?”. Mr Shiels said “I have documents” and showed the documents to Ms Wen. Through the interpreter Ms Wen said that she recognised the name of Mr Shi as her brother in law but had not heard of Skymax. Mr Shiels handed the documents to Ms Wen which she placed on the table in front of her. Mr Shiels said “you have been served”.

(6)    When Mr Shiels asked Ms Wen to provide him with her current address, Ms Wen replied that she “did not know”. Mr Shiels then recited a street address in “Lipook Street”, Warrnambool. Ms Wen said “Yes”. Ms Wen then pushed the documents away and said that she did not want to accept them. Mr Shiels said “You have been legally served”.

(7)    The documents provided to Ms Wen on that day included:

(a)    a letter from CMN dated 4 May 2021;

(b)    the originating application;

(c)    the First Liquidator Affidavit;

(d)    the interlocutory application filed on 9 April 2021;

(e)    the Second Liquidator Affidavit; and

(8)    the documents provided to Ms Wen did not include a copy of the SOC.

45    On 5 July 2021, CMN sent a letter to the address of Midfield Meat directed to Ms Wen attaching orders of the Court relating to the hearing and providing details to facilitate her attendance. A copy of the SOC was sent to the address of Midfield Meat directed to Ms Wen on 14 July 2021.

46    As discussed below, the address referred to by Mr Shiels during his meeting with Ms Wen is that of a property in Warrnambool shown in the evidence to be owned by Ms Wen’s husband (Lipook Court Address).

47    On 3 September 2021, the plaintiffs caused the following documents to be sent to Ms Wen by way of registered post to the Lipook Court Address:

(1)    a letter from the plaintiffs’ solicitor dated 3 September 2021 together with a certified Mandarin translation of its content;

(2)    the ASOC;

(3)    the amended interlocutory application;

(4)    the Third Liquidator Affidavit; and

(5)    orders made in this proceeding on 20 July 2021 and 17 August 2021.

48    The letter to Ms Wen (including a certified translation in Mandarin) contained the following information:

Appearance and default judgment

We note that pursuant to rules 5.02 and 11.06 of the Federal Court Rules 2011 (Rules) you are required to file and serve a notice of address for service and/or appear.

We confirm that since service of the originating process on you personally on 18 June 2021, no notice of address for service has been filed by you as required.

Our client is therefore, now seeking default judgment be entered against you. This means that if you do not file and serve a notice of address for service and/or appear in court our client will proceed with the application and judgment may be entered against you in the sum of $15,364,032.86.

It is important that you file and serve a notice of address for service and/or appear if you wish to defend the Liquidator's claim.

We further note that pursuant to rule 16.32 if [sic] the Rules, you must file a defence to the Amended Statement of Claim within 28 days after service of the Amended Statement of Claim.

We highly recommend you seek legal advice with respect to the above and the proceedings.

49    The letter to Ms Wen stated that she may attend the hearing of the plaintiffs’ application for default judgment at 9:30am ACDT on 23 September 2021 to be conducted by web conference. The letter provided details to facilitate her attendance at the hearing.

50    On 22 September 2021, the plaintiffs sent a further letter to Ms Wen by registered post addressed to the Lipook Court Address, informing her that the case management hearing listed for 23 September 2021 had been vacated and the matter adjourned until 10:00am ACDT on 4 November 2021 as well as providing the details to facilitate her attendance at the hearing by web conference.

Conclusions as to default

51    The Corporations Rules impose no express requirement that an originating process and supporting affidavit be served personally on a defendant who is an individual. However, the plaintiffs’ arguments before me proceeded from the premise that it was necessary that those documents be either served personally as required by r 8.06 of the FC Rules or otherwise fulfil the requirements for service of documents of that kind as provided for in the FC Rules. I will proceed on that assumption.

52    I have accepted the plaintiffs’ evidence as to the fact of the provision of documents at the times, places and in the manner specified above.

53    In respect of Ms Wen, I am satisfied that she was personally served a bundle of documents that included the originating application and First Liquidator Affidavit at the premises of Midfield Meat on 18 June 2021. The circumstance that service of the documents did not occur within the time frame specified in r 2.7 of the Corporations Rules does not, in and of itself, render service of the documents invalid:  In the Matter of Tiaro Coal Ltd (in liq) [2018] NSWSC 828 (at [48]); Choy v Tiaro Coal Ltd (in liq) (2018) 98 NSWLR 493 (at [36]).

54    I am also satisfied that Ms Wen was notified of the hearing dates in the proceeding by service of additional documents permissibly served on her by ordinary or express post directed to the Lipook Court Address. On the basis of the evidence contained in the Third Liquidator Affidavit, I am satisfied that the property situated at the Lipook Court Address is owned by Ms Wen’s husband. In conjunction with the evidence of Mr Shiels, I am satisfied that the Lipook Court Address is Ms Wen’s usual or last known place of business or residence and so is her “proper address” for the purposes of r 10.31 of the FC Rules. To the extent that documents were also delivered by post to Ms Wen at the Midfield Meat premises, I am satisfied that address is also a “proper address” (being her last known place of business) but I do not consider anything of moment turns on that finding.

55    For the purposes of the FC Rules, whilst there was no first return date fixed on the face of the originating process, it remains that Ms Wen has not filed a notice of address for service in advance of any one of the hearings she was notified of in the correspondence and orders served upon her. I am satisfied that Ms Wen is in default, either because she has not filed a notice of address for service as required by the FC Rules or, if I am wrong in concluding that any such obligation arose, because she has failed to attend any hearing in the proceeding, having been notified of the hearings by documents validly served upon her:  FC Rules, r 5.22(c).

56    The obligation to file a notice of appearance in accordance with the Corporations Rules only arises in respect of a party who intends to appear at a hearing. Accordingly, if I am wrong in concluding that there was an obligation to file a notice of address for service under the FC Rules, I would in any event conclude that Ms Wen is in default by virtue of her non-attendance at all hearings referred to in the documents served upon her.

57    I am also satisfied that Ms Wen is in default of the requirement arising under r 16.43 of the FC Rules that she file a defence. The relevant default for present purposes is the failure to file a defence to the ASOC which, I find, was validly served upon her. As at 4 November 2021, the time by which Ms Wen was to file a defence had expired on any view of the facts.

58    By reference to the same underlying facts I conclude that Ms Wen has not diligently defended the proceeding and is in default for that additional reason:  FC Rules, r 5.22(d)

59    I am satisfied that each of the abovementioned defaults is sufficient in and of itself to enliven the Court’s discretion and to justify the relief sought.

60    As to Mr Shi, the plaintiffs do not contend that he has been personally served. It is therefore necessary to identify the means by which he has been validly served in accordance with the FC Rules. I am satisfied that Mr Liu was instructed (and therefore authorised) to accept service of the originating application and the First Liquidator Affidavit on Mr Shi’s behalf. In so concluding, I am mindful that the present application is interlocutory in nature, such that Mr Shi’s assertion that he had instructions to accept service of those documents may be admitted as evidence of its truth. However, I am not satisfied that Mr Liu endorsed the documents he received in accordance with r 10.22(1)(b) of the FC Rules, such that service of the documents on Mr Shi was not validly achieved under that rule.

61    On the material before me, I am nonetheless satisfied that the exchange of correspondence between CMN and Mr Shi (through the agency of his lawyer Mr Liu) on 1 February 2021 evidenced the existence of an agreement that Mr Shi could be served with documents by way of sending the documents to Mr Liu. The provision of documents attached to CMN’s email to Mr Liu (which included the originating application and the First Liquidator Affidavit) constituted valid service for the purposes of r 10.28 of the FC Rules. It matters not that Mr Liu may subsequently have been instructed not to file a notice or appearance, nor that he was not instructed to act generally in the proceeding. The circumstance that CMN later asked Mr Liu to confirm whether the defendants had been served with the originating application and First Liquidator Affidavit does not change my view that there was an agreement that the documents be served by their provision to Mr Liu. The query was unnecessary. The relevant agreement had been performed before Mr Liu informed CMN that he was not instructed to act for either defendants in the proceeding more generally.

62    I am satisfied that subsequent documents delivered by ordinary post to the Eastwood Address constituted valid service of those documents on Mr Shi. On the basis of the communication from Mr Liu to CMN, I am satisfied that Mr Shi’s last known or usual residential address was the Eastwood Address, being his “proper address” for the purpose of the FC Rules.

63    I am satisfied that Mr Shi is in default for the same reasons I have given in relation to Ms Wen, each of which is sufficient in and of itself to enliven the discretion and (as discussed below) to justify the relief sought.

Discretion

64    I am satisfied that the claim against the defendants is a claim for a debt within the meaning of r 5.23(2)(b) of the Rules. In accordance with s 588M of the Corporations Act, the relief claimed is in the nature of a debt owed by the defendants to the Company. I am satisfied that the Court has the power to give judgment against the defendants for that debt and, if appropriate, interest and costs in the exercise of its discretion under r 5.23(2)(b).

65    There is a separate source of power in r 5.23(2)(c). For the purposes of that rule, I am satisfied that the Court has the discretion to grant the relief claimed in the ASOC to which I am satisfied that the plaintiffs are entitled. In Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 Flick J said the discretionary power is to be exercised cautiously (at [20]). His Honour went on to observe:

23.    … the requirement imposed is not that an applicant prove by way of evidence the claim sought to be advanced; the requirement is that the Court needs to be ‘satisfied’ on the face of the statement of claim that the applicant is entitled to the ‘relief’ claimed …  The facts as alleged in the statement of claim are deemed to have been admitted by a respondent:  Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2007] FCAFC 146 at [42], 161 FCR 513 at 523 per Moore, Dowsett and Greenwood JJ.  …

24    … to be satisfied that an applicant ‘is entitled’ to the relief claimed in the statement of claim, the Court needs to be satisfied that ‘each element of the relevant civil wrong involved is properly and discretely pleaded in the statement of claim’:  Macquarie Bank Ltd v Seagle [2005] FCA 1239 at [24], 146 FCR 400 at 406 to 407 per Conti J …

25    … in addition to the facts alleged in a statement of claim, the Court may permit recourse to limited further evidence. But it may not admit evidence which would alter the case as pleaded.

(emphasis in original)

66    I am satisfied that each element of the contravention of s 588G(2) of the Corporations Act is properly and discretely pleaded in the ASOC, including an allegation that the relevant causal connection between the creditors’ loss and damage and Skymax’s insolvency exists. The relief claimed on the amended interlocutory application is the same as that claimed in the ASOC and is consistent with the more generalised claim for relief on the face of the originating application. The calculation of interest is correct and the quantification of costs is appropriate. I draw the same conclusion by reference to the First Liquidator Affidavit as updated by the Second Liquidator Affidavit, when read together with the originating application.

67    I bear in the mind that the quantum of the debt alleged by the plaintiffs (and thus the relief sought against the defendants) is a large amount and that the grant of relief may be financially ruinous for each of the individual defendants. However, in and of itself, the quantum of the monetary remedy is not a sufficient basis to withhold relief. The quantum of the relief reflects the trading activities of Skymax, as alleged.

68    The power to award judgment by default is an aspect of the Court’s practice and procedure provisions. Section 37M(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) provides that the overarching purpose of the provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Section 37M(2) provides:

Without limiting the generality of subsection (1), the overarching purpose includes the following objectives:

(a)    the just determination of all proceedings before the Court;

(b)    the efficient use of the judicial and administrative resources available for the purposes of the Court;

(c)    the efficient disposal of the Court’s overall caseload;

(d)    the disposal of all proceedings in a timely manner;

(e)    the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

69    The Court must interpret and apply the civil practice and procedure provisions (and exercise any power conferred or duty imposed by them) in the way that best promotes the overarching purpose:  FCA Act, s 37M(3). The parties to the proceeding must conduct the proceeding in a way that is consistent with the overarching purpose:  FCA Act, s 37N(1).

70    It is not unjust to enter default judgment in a case where the proceeding has come to the attention of a defendant party who has not attended at any hearing or otherwise sought to articulate any defence to the claim.

71    It is convenient to repeat what I said of s 37M in Prodata Solutions Pty Ltd v South Australian Fire and Emergency Services Commission (No 3) [2020] FCA 1210 (at [90]):

…  In order for the command in s 37M to have any utility, the ‘overarching purpose’ must be understood as conveying a singular objective that is capable of being best promoted by a decided outcome, relative to other outcomes that might otherwise be open to the Court were it not for the enactment of s 37M(1). As such, I do not consider it appropriate to characterise the requirement in s 37M(1) as a consideration capable of being outweighed by other countervailing considerations. Nor is it to be understood as merely listing a variety of countervailing factors to be weighed in the balance in the exercise of the power in question. Rather, s 37M(1) conditions the manner in which all powers conferred by the Court’s practice and procedure provisions are to be interpreted and exercised. It confines the latitude that might otherwise be available to the Court in the exercise of those powers:  given a choice between outcomes, the Court must choose the outcome that best promotes the overarching purpose. The task of identifying the manner of exercising a power that ‘best promotes’ the overarching purpose involves evaluative elements, but the task itself is mandatory. And the Court must exercise its powers according to the outcome of it.

72    In exercising the power, I take into account that Ms Wen may have little understanding of the English language. However, I give that consideration little weight for two reasons. First, it is a matter of record that Ms Wen was a director of Skymax and so obliged to familiarise herself with the requirements of the Corporations Act in respect of her functions and duties. Second, there is no general duty on the part of a liquidator to provide a director, or former director, in Ms Wen’s position with interpretation or translation services to assist her to understand her obligations under Australian law. The Liquidator in any event caused to have critical correspondence translated to Mandarin, including a passage that plainly put Ms Wen on notice of the application for default judgment and the consequences of failing to attend at a hearing in the proceeding and failing to file a defence. The provision of documents relating to Skymax on Ms Wen on 18 June 2021 ought to have alerted her to the need to make enquiries about their content.

73    The Liquidator is charged with duties and responsibilities under the Corporations Act and there is no proper reason to delay the resolution of the claims against each defendant for the ultimate benefit of the creditors of Skymax. The Liquidator has elected to invoke the procedure under r 5.23 of the FCR Rules rather than proceed to have the claim substantively determined in the defendants’ absence.

74    I am satisfied that the preconditions for the exercise of the powers under one or both r 5.23(2)(b) and r 5.23(2)(c) are fulfilled and that the discretion may and should be exercised in the plaintiffs’ favour on either basis. In all of the circumstances, the overarching purpose is best served by granting the relief sought.

75    The Court’s order is interlocutory in nature and may be set aside. It may also be the subject of an application for leave to appeal. As mentioned at the outset of these reasons, the Court extended the time by which the defendants may make an application for leave to appeal, so as to calculate the time from the date of these reasons are published.

76    Given the impending Christmas period, I consider it appropriate to make a further order fixing the date on which the exercise of appellate rights will expire.

Associate:

Dated:    24 November 2021