Federal Court of Australia

Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) v Badenoch Integrated Logging Pty Ltd [2024] FCA 97

ORDERS

THE COURT DECLARES AND ORDERS THAT:

1.    To the extent that this proceeding seeks an order that the defendant be wound up in insolvency pursuant to Pt 5.4 of the Corporations Act 2001 (Cth), it is taken to have been dismissed pursuant to s 459R(3) on 12 May 2021.

2.    Any application by the plaintiffs for leave to amend the originating process together with any affidavits in support is to be filed and served by 4 pm on 8 March 2024.

3.    The proceeding is adjourned for submissions as to consequential orders, including costs, and case management to 2.15 pm on 13 March 2024.

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

REASONS FOR JUDGMENT

MCELWAINE J:

1    The plaintiffs were appointed as joint and several administrators of Gunns Ltd, and its subsidiaries (jointly, the Gunns Group), on 25 September 2012. They were later appointed as the liquidators. They obtained judgment against the defendant, Badenoch Integrated Logging Pty Ltd on 30 July 2020, in the amount of $2,072,832.04 plus pre-judgment interest of $505,848.21, in proceedings brought to recover unfair preferences within the meaning of s 588FA of the Corporations Act 2001 (Cth) and in relation to insolvent transactions within the meaning of s 588FC of the Act: Bryant, in the matter of Gunns Ltd (in liq) (receivers and managers appointed) (No 2) v Badenoch Integrated Logging Pty Ltd (No 2) [2020] FCA 1081; 284 FCR 5901 (Davies J). In these reasons, each reference to a statutory provision is to the Act unless stated otherwise.

2    Badenoch pursued an appeal to the Full Court. On 10 May 2021, the Full Court allowed the appeal, in part: Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Ltd (in liq) (receivers and managers appointed) [2021] FCAFC 64; 284 FCR 590 (Middleton, Charlesworth and Jackson JJ). On 24 June 2021, final orders were made by the Full Court by which the judgment debt was reduced to $1,200,633.68 plus pre-judgment interest in the amount of $314,062.90: Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Ltd (in liq) (receivers and managers appointed) (No 2) [2021] FCAFC 111.

3    The plaintiffs obtained special leave to appeal from the High Court on 18 March 2022. On 1 April 2022, the plaintiffs filed their notice of appeal in the High Court. On 8 April 2022, Badenoch filed a notice of cross-appeal in the High Court. The appeal and cross-appeal were heard by the High Court on 18 October 2022. On 8 February 2023, the High Court dismissed the appeal and the cross-appeal: Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2; 275 CLR 463.

4    Badenoch has not paid the judgment debt. Within the timeframe of this series of events, on 13 November 2020, the plaintiffs commenced an originating proceeding in this Court for orders that Badenoch be wound up in insolvency pursuant to s 459A or alternatively pursuant to s 461(1)(c). The proceeding is yet to be determined. The background as to why is central to the interlocutory application of Badenoch dated 5 September 2023 which seeks relief in the form of a declaration that the proceeding has been dismissed pursuant to s 459R(3) or alternatively, an order that the proceeding be dismissed as an abuse of process or for want of prosecution. The plaintiffs resist the application.

5    For the reasons that follow I have concluded that the proceeding, to the extent to which it seeks a winding up order in insolvency, has been dismissed by operation of s 459R(3) but the interlocutory application otherwise fails.

Relevant background

6    When the proceeding was commenced, the plaintiffs did not rely on non-compliance by Badenoch with a statutory demand served pursuant to s 459E. Rather, as explained in the supporting affidavit of the plaintiffs’ solicitor, Mr Paul Buitendag, made on 13 November 2020, the plaintiffs rely on non-payment of the judgment debt and evidence of insolvency as set out in an affidavit from Badenoch’s solicitor, Ms Amanda Harrington, made on 19 October 2020, in connection with the appeal to the Full Court. In reliance on it, the plaintiffs contended that Badenoch did not have sufficient assets to meet its liability under the judgment debt. The affidavit also sets out the particulars of a request made by the plaintiffs that Badenoch give security for costs of the appeal and the response thereto. These facts were contended as raising “serious concerns” that Badenoch was then unable to satisfy the judgment debt, and on that basis, it was said that “the plaintiffs have grave concerns” that Badenoch is insolvent. On those facts, the plaintiffs sought orders for the winding up in insolvency of Badenoch.

7    In two further paragraphs, Mr Buitendag set out the facts relied upon by the plaintiffs in support of its application that Badenoch be wound up, in the alternative as provided for at s 461(1)(c), because it had suspended its business for a whole year. That application rested upon that which was said to be an admission made by Ms Harrington in her affidavit to the effect that Badenoch had not traded since March 2018.

8    Badenoch resisted the winding up orders sought in the proceeding. On 18 December 2020, Judicial Registrar Allaway relevantly ordered that:

The further hearing of this proceeding be adjourned to a date to be fixed, not prior to the hearing and determination of the defendant’s appeal (the Appeal) in proceeding SAD 121 of 2020 against the judgment and orders of her Honour Justice Davies in proceeding SAD 341 of 2015 delivered on 27 May 2020 and 30 July 2020 respectively.

9    Following the making of this order, on 22 April 2021, the plaintiffs’ solicitors sent email correspondence to Badenoch’s solicitor as follows:

Many thanks for taking my call a short while ago.

As discussed, an important matter which needs to be addressed shortly (given the ongoing stay of the winding up application as per order 1 of the attached orders made by Judicial Registrar Allaway on 18 December 2020) is that under s 459R of the Act, the winding up application needs to be determined within 6 months after it was made (namely, by 12 May 2021). Obviously, this will not be possible given the effect of the stay.

Consequently, we seek your client’s consent to an order in the winding up proceeding that the period within which the winding up application is to be determined be extended to a date to be fixed, such date to be not prior to 6 months after the determination of the appeal. A proposed draft minute of consent order to this effect is attached. We consider that the proposed order is entirely reasonable and necessary in the circumstances (particularly given the effect of the stay and the likelihood that the winding up application cannot be determined by 12 May 2021, even if judgment on the appeal is delivered prior to that date). We also note that the proposed order does not prejudice your client’s right to oppose the substantive winding up application when it is ultimately heard.

I look forward to hearing from you at your earliest convenience.

10    The belief that there was an ongoing stay was incorrect. The hearing of the application had simply been adjourned to a date to be fixed. In any event, Badenoch’s solicitor responded on 23 April 2021, and attached a signed version of the proposed orders. On 23 April 2021, Judicial Registrar Allaway made a second order by consent (April 2021 order):

Pursuant to section 459R(2) of the Corporations Act 2001 (Cth) (the Act), the period within which the plaintiffs’ application in this proceeding be determined (as required by section 459R(1) of the Act) be extended to a date to be fixed, such date to be not prior to 6 months after the determination of the defendant’s appeal (the Appeal) in proceeding number SAD 121 of 2020 against the judgment and orders of her Honour Justice Davies in proceeding number SAD 341 of 2015 delivered on 27 May 2020 and 30 July 2020 respectively.

11    No other order has been made extending time pursuant to s 459R(2). It is relevant to note that the April 2021 order did not contemplate that there may be a further application to the High Court of Australia, from the final orders that were yet to be made by the Full Court, in that on its terms the extension was confined to determination of the Full Court appeal.

12    On 2 May 2022, the plaintiffs’ solicitors corresponded with Badenoch’s solicitor, referenced the order made on 18 December 2020 and the April 2021 order and relevantly stated:

We note that Proceeding Number SAD 121 of 2020 (Appeal Proceeding) has been heard and determined. That being said, a date has not been fixed for the further hearing and determination of the Winding Up Proceeding and accordingly a relevant date for the purposes of s 459R of Corporations Act 2001 (Cth) has not been fixed pursuant to Order 1 of the April Orders.

Accordingly, our clients consider that the Winding Up Proceeding remains stayed, as a date has not been fixed as contemplated by the December and April orders. Please confirm whether your client agrees with that position.

On the condition that your client agrees that the Winding Up Proceeding remains stayed on the basis set out above, our clients do not propose to take further action in respect of the Winding Up Proceeding until after High Court Proceeding Number A10 of 2022 has been heard and determined.

13    The response of 10 May 2022 was noncommittal – that instructions would be sought and a response provided in due course. No response was ultimately forthcoming. Ms Harrington explained her reasoning as to why in her affidavit made on 5 September 2023, in support of the interlocutory application, where it is simply said that:

…I did not have instructions to agree that the Winding Up Proceeding remained stayed, and [the plaintiff’s solicitor] did not correspond with me regarding this proceeding again until 2023, after the High Court judgment was delivered.

14    It will be recalled that the High Court pronounced orders and published reasons on 8 February 2023. Shortly thereafter, on 15 February 2023, the plaintiffs’ solicitor corresponded with Badenoch’s solicitor and demanded that Badenoch pay $1,514,696.58 being the amount of the judgment debt, plus post-judgment interest of $210,039.54, in total $1,724,736.12. The demand required that payment be made within seven days to a nominated bank account. The correspondence further stated that the judgment debt should be paid, even though the question of costs remained outstanding. The final two paragraphs provide:

We note that the judgment sum arising from the trial at first instance is the subject of the winding up application in Federal Court of Australia Proceeding Number VID 729 of 2020 (Winding Up Proceeding). The parties agreed that no action would be taken in respect of the Winding Up Proceeding until after the determination of the application for special leave to appeal to the High Court of Australia in Proceeding Number A27 of 2021.

Given the High Court Appeal has now been determined and the outcome has not reduced Badenoch’s liability to the Liquidators (rather, that liability has increased), the Liquidators intend to take steps to re-list the Winding Up Proceeding should Badenoch fail to pay the Revised Liquidated Debt in accordance with this letter and any subsequent liability in respect of the Liquidators’ costs.

15    The demand was not met. Badenoch’s solicitor responded on 20 February 2023, to the effect that Badenoch considered the proceeding to have been dismissed by operation of s 459R and that the plaintiffs “should consent to an order confirming that the winding up application has been dismissed, and that [the plaintiffs] should pay our client’s costs of the proceeding.”

16    The plaintiffs did not agree. Further correspondence ensued between the solicitors without resolving the impasse. On 24 August 2023, the plaintiffs issued a statutory demand by post to the registered office of Badenoch together with an accompanying verifying affidavit. There is no dispute that the statutory demand was served, no application was made to set it aside and that Badenoch failed to comply with it by paying the amount of $1,777,586.01 due pursuant to the judgment debt, including interest calculated thereon.

17    The plaintiffs rely upon non-compliance with the statutory demand as evidence of insolvency. They foreshadow, in the event the interlocutory application is dismissed, that leave will be sought to amend the originating process to plead, in the alternative, non-compliance with the statutory demand to establish the presumption of insolvency of Badenoch: s 459C(2)(a).

Has the proceeding been dismissed?

18    Section 459R is a component of Pt 5.4 of the Act which is concerned with winding up in insolvency, the central provision of which is s 459A:

On an application under section 459P, the Court may order that an insolvent company be wound up in insolvency.

19    A failure to comply with a statutory demand gives rise to the insolvency presumption at s 459C(2)(a). There are other grounds which engage the presumption at s 459C(2)(b)-(f). The presumptions have the effect only for the purposes of winding up applications under any of ss 234, 459P, 462 or 464 or for an application for leave to make an application under s 459P. Within the scheme of Pt 5.4, s 459R provides:

Period within which application must be determine

(1)    An application for a company to be wound up in insolvency is to be determined within 6 months after it is made.

(2)    The Court may by order extend the period within which an application must be determined, but only if:

(a)    the Court is satisfied that special circumstances justify the extension; and

(b)    the order is made within that period as prescribed by subsection (1), or as last extended under this subsection, as the case requires.

(3)    An application is, because of this subsection, dismissed if it is not determined as required by this section.

(4)    An order under subsection (2) may be made subject to conditions.

20    Mr Gronow KC submits for Badenoch that the April 2021 order failed to specify a “period” with the consequence that the period within which the proceeding was required to be determined was not extended. In consequence, the proceeding was dismissed by operation of s 459R(3), on 13 May 2021.

21    Mr Tennant for the plaintiffs submits that the statutory period was effectively extended by the April 2021 order in that the extension applied to a date to be fixed, with that date being not prior to 6 months after the determination of the appeal. The reference to extending “the period” does not require that any extension granted by the court must have a specified pre-determined timeframe. If that were the intent of the provision, then it would have been differently drafted.

22    It is also emphasised that the April 2021 order was made by consent, and that I should infer that it was intended to give effect to the parties’ intention that the proceeding be put to one side until determination of the appeal, including ultimately the appeal to the High Court. Mr Tennant further emphasises that s 459R(2) does not impose a fetter on how the discretion of the court is to be exercised to extend time and expressly may be made subject to conditions: s 459R(4). Further, the submission is put that Badenoch has fundamentally altered the agreed position by now asserting that the order was not effective to extend time. However, when I questioned Mr Tennant during oral argument as to whether this submission engages an estoppel argument, he eschewed it.

23    Finally, Mr Tennant submits that even if the submission for Badenoch is accepted, s 459R does not affect that part of the application which relies on s 461(1)(c). That ground arises under Pt 5.4A- Winding up by the Court on other grounds where there is no express time limit within which an application must be determined. In answer to that point, Mr Gronow draws attention to s 459C(1) which has effect for the purposes of, amongst others, s 462 which concerns persons who have standing to apply for a winding up order “on a ground provided for by section 461” and s 464 which permits ASIC to apply where the affairs of a company are subject to a statutory investigation. Mr Gronow also submits that in substance the proceeding is to wind up Badenoch in insolvency.

24    Section 459C is not in terms a difficult provision in meaning or application. In Amorin Constructions Pty Ltd v Kamtech Electrical Services Pty Ltd [2008] NSWSC 285; 73 NSWLR 627, Hammerschlag J refused an application under a slip rule provision to amend an earlier order by including an extension of the period for determination of a winding up application pursuant to s 459R(2). At [17]-[18] his Honour observed:

The three significant features of s 459R are that:

a.    the Court may only extend the period if it is satisfied that special circumstances justify it;

b.    the extension order must be made within the six-month period or as last extended by the Court;

c.    if the winding up application is not determined within the period concerned it is, by operation of statute, dismissed.

The power given to the Court to extend the period under s 459R(2), if it is satisfied that special circumstances justify it, undoubtedly involves the exercise by the Court of an independent discretion.

25    Mr Gronow accepts that special circumstances existed when the April 2021 order was made in that the debt was disputed and Badenoch relied on legal arguments that were viable until the High Court determined the appeal.

26    The research of counsel did not identify any guiding authority on what is required by an order to validly extend the period at s 459R(2). Mr Gronow calls in aid the ordinary dictionary meaning of period, being, “[a] length of time, esp. one marked by the occurrence of a phenomenon”: Oxford English Dictionary online. Caution should usually be exercised in reaching for dictionary definitions to resolve questions of statutory construction in that the search is for the legal meaning of the words used by Parliament: South Western Sydney Local Health District v Gould [2018] NSWCA 69; 97 NSWLR 513 at [78]-[83] (Leeming JA, Bastan and Meagher JJA agreeing generally). The settled approach to statutory interpretation requires focus on the statutory text, read in context and having regard to purpose: SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; 262 CLR 362 at [14] (Kiefel CJ, Nettle and Gordon JJ).

27    The power conferred by s 459R(2) is to extend the six month period within which an application for a company to be wound up in insolvency is to be determined, subject to meeting the two conditions precedent for exercise of the power at s 459R(2)(a) and (b). Five points may immediately be made about this power. First, it is to extend a fixed and definite period commencing on the day on which the application is made, that is filed. Second, it is the statutorily prescribed period commencing on the day that the application is made that is capable of extension. Third, it is within any further period as extended that the application must be determined. Fourth, the period is capable of extension more than once, but only if the order is made within the first six month period or within such further period as last extended in exercise of the power to extend. Fifth, if the application is not determined within the six month period or as extended, the defendant company is entitled to the benefit of statutory dismissal of the application: Western Suburbs Electrical Supplies Pty Limited v Russell Electrical Services Pty Ltd (1994) 52 FCR 194 at 199 (Lindgren J).

28    In context it is uncontroversial that the power to extend sits within a statutory scheme premised on the assumption that winding up applications must be dealt with swiftly, including the period within which it is open to apply for a statutory demand to be set aside: Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2008] HCA 9; 232 CLR 314 (Aussie Plant Hire) at [17]-[19] (Gleeson CJ, Hayne, Crennan and Kiefel JJ). That statutory objective supports a construction that requires an extension order to specify a definite period limited to one that accommodates the identified “special circumstances” which justify the extension.

29    In my view, an effective exercise of the power at s 459R(2) requires that the period as extended be one that is definite, measured by a period of time. That period may be fixed by a stipulated date or determined by a number of days or months. That construction accords with the ordinary meaning of the text in that the order is one that extends the definite period of six months. It is not a period fixed by reference to the occurrence of an event. This construction is consistent with the statutory objective that a winding up application in insolvency is to be determined quickly.

30    The April 2021 order did not fix an extended period in that way. The issue is not whether the order having been made in accordance with s 35A of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and taken to have been made by a superior court, is valid until set aside on appeal. Rather, it is whether it was effective in extending the statutory period according to its terms. It is the order itself which is to be construed objectively to ascertain its meaning read with the application and other material upon which it was made: see generally in the context of consent orders the discussion in Kirkpatrick v Kotis [2004] NSWSC 1265; 62 NSWLR 567 at [38]-[45] (Campbell J).

31    All that is known upon the hearing of the interlocutory application is that on 18 December 2020 (within the six month period), the hearing of the proceeding was adjourned to a date to be fixed. Then on 22 April 2021, there was a conversation between the solicitors followed by the email from the plaintiffs’ solicitor to Badenoch’s solicitor. The email establishes that the plaintiffs’ solicitor was conscious that the six month period would expire on 12 May 2021, the proceeding could not be determined before then and in consequence sought consent from Badenoch to a further order to the effect that the period be extended to a date to be fixed, being not less than six months from determination of the appeal. That proposal was accepted by Badenoch when its solicitor signed and provided the consent memorandum on 23 April 2021. I put to one side as irrelevant the subsequent correspondence between the solicitors that expresses subjective beliefs as to the agreement which resulted in the execution of the consent memorandum as the basis for making the April 2021 order.

32    There is no ambiguity in the April 2021 order. The extension of time to “a date to be fixed”, not earlier than determination of the appeal to the Full Court, was not in my view effective to extend the time for determination of the proceeding as required by s 459R(2) because, as I have explained, exercise of the power requires that the period be fixed and definite. It follows by operation of s 459R(3) that the application must be taken to have been dismissed upon expiry of the six month period on 12 May 2021.

33    As I have mentioned, the proceeding seeks an order that Badenoch be wound up in insolvency pursuant to s 459A and further or in the alternative, that it be wound up pursuant to s 461(1)(c). Section 459R is within Pt 5.4 which is concerned with winding up in insolvency. In contrast, s 461 is within Pt 5.4A which is concerned with winding up by the court on other grounds where insolvency is not the basis for the making of a winding up order, although it may inform the exercise of the discretion to make an order. Thus, it is clear from the statutory text and arrangement of the provisions that s 459R is limited in application to a proceeding for winding up in insolvency commenced by an eligible applicant pursuant to s 459P and where the order is sought pursuant to s 459A. It does not apply to other applications to wind up brought by an applicant who has standing under s 462 for an order on one or more of the grounds in s 461.

34    That construction appears to have been implicitly accepted by Mitchell and Vaughan JJA in Barboutis v Kart Centre Pty Ltd [2019] WASCA 184 at [15]-[16]. It is one that accords with the statutory purpose that winding up in insolvency is to be quickly determined (Aussie Plant Hire at [17]-[18]) where the jurisdiction is invoked for “the benefit of the public in general, and for creditors who cannot get paid, in particular. The public interest ordinarily requires that an insolvent company be wound up to prevent it from incurring further debts”: Low v Joondalup Golf Management (Aust) Pty Ltd [2023] WASCA 33 at [62] (Buss P and Murphy J). Those considerations do not ordinarily apply to a winding up application based on the other grounds set out at s 461.

35    There is nothing in the statutory scheme that prevents a plaintiff from seeking a winding up order in reliance upon alternative grounds for an order pursuant to ss 459A or 461. In my view where that is done and where the grounds are not interwoven (and therefore indivisible), the effect of s 459R(3) is limited to the winding up in insolvency component brought in reliance on s 459P for an order pursuant to s 459A. I reject Mr Gronow’s submission that the proceeding in substance and form is one to wind up Badenoch in insolvency or put another way, that the grounds are indivisible. That submission is inconsistent with the express terms of the relief sought in the alternative at paras 1 and 2 of the originating process in Part A and the specification of the alternate grounds at paras 1 and 2 in Part C.

36    I also reject the related submission that the decision in Devmin International Pty Ltd v Belconnen Developments Pty Ltd [2022] QSC 186; 12 QR 170 assists the argument. There, Cooper J determined a winding up application by dismissing it, relevantly pursuant to s 461(1)(c) because, inter alia, his Honour was not satisfied that it was appropriate to exercise the discretion in favour of a creditor, rather than a shareholder: [34]-[49]. That reasoning, assuming it to be correct, does not assist Badenoch because the proceeding has not advanced to that stage. It provides no support for dismissal of the proceeding without determining the merits.

37    It follows that the declaration sought by Badenoch at para 1 of the interlocutory application fails, but it is clearly appropriate that a declaration be made to the effect that so far as the proceeding seeks a winding up order in insolvency, it was dismissed by operation of s 459R(3) on 12 May 2021.

Abuse of process and want of prosecution

38    The factual basis for these alternative contentions of Badenoch is the same. Accepting that the plaintiffs believed, and had a proper basis for believing, that the April 2021 order was effective, the following dates are relevant: six months after the determination of the appeal by the Full Court was 24 December 2021, six months after the special leave application was 18 September 2022 and six months after the High Court decision was 8 August 2023. The plaintiffs took no step in the proceeding to further extend time as contemplated by the April 2021 order, assuming it to be effective. On its face that order required an application to be made to fix the date within six months of determination of the Full Court appeal.

39    To the extent that delay is relevant, Mr Gronow in written submissions contended that the special circumstances ended on 24 June 2021, when the Full Court made final orders in the appeal. The plaintiffs took no step thereafter, and within the six month period required by the April 2021 order, to have the proceeding fixed for hearing, despite that on 8 October 2021, Badenoch’s solicitor in correspondence requested the plaintiffs’ solicitor to advise whether any date had been fixed pursuant to the April 2021 order, and if so what date and when it was fixed. There was no response to that question. Rather, on 13 October 2021, the plaintiffs’ solicitor demanded payment from Badenoch. The basis for the demand was disputed in correspondence from Badenoch’s solicitor of 19 October 2021, the failure to respond to the query in the letter of 8 October 2021 was also noted and a response was requested. A response was provided on 20 October 2021, simply that “no date has yet been fixed”.

40    The next relevant event is that on 2 May 2022, well after the grant of special leave on 18 March 2022, the plaintiffs’ solicitors sent the correspondence that I have extracted above, and the content of which was not accepted by Badenoch. Mr Gronow further emphasises that despite Badenoch’s solicitor stating in clear terms on 20 February 2023, that the proceeding had been dismissed by operation of s 459R(3), the plaintiffs did not respond. No step was taken until 24 August 2023, when the statutory demand was issued, sent to the registered office of Badenoch and a copy was provided to its solicitor.

41    In oral submissions, Mr Gronow accepted that until the High Court decision there “could have been” special circumstances explicable of the plaintiffs’ inactivity to February 2023. When further pressed by me, Mr Gronow stated that Badenoch relies upon delay since February 2023.

42    Mr Craig Crosbie, who is one of the plaintiffs, in an affidavit dated 5 February 2024, provides this evidence as to matters relevant from February 2023:

In the period following the Defendant's response on 20 February 2023 and prior to the issue of the Statutory Demand on 24 August 2023, the Plaintiffs needed to consider the utility and risk involved in taking any further steps to prosecute this proceeding and to enforce the Judgment Debt. We considered the following matters, amongst others, when determining whether it would be in the best interests of creditors of Gunns and Alpine, having regard to our duties as liquidators:

the Defendant's unwillingness and refusal to date to pay the Judgment Debt, particularly:

in light of the protracted history of litigation between the Plaintiffs and the Defendant in relation to the payments subject of the Judgment Debt; and

where the Judgment Debt had been finally determined by the High Court Appeal and was and is due and payable;

the probability that we would recover the Judgment Debt from the Defendant. The Plaintiffs were, and are, aware of a number of matters that caused us serious concern as to the Defendant's solvency and ability to pay the Judgment Debt, including the following:

statements made in open court by Senior Counsel for the Defendant to the effect that the Defendant would not be able to meet a debt effectively the size of the Judgment Debt and that if such a debt were due then the Defendant would not otherwise be able to pay its debts as and when they fell due; and

the suspension of the Defendant's business activities and trade from March 2018;

the benefit to the creditors of Gunns and Auspine of recovering the Judgment Debt, being in the order of $1,798,013.21, which would significantly increase the funds available to pay creditors in the winding up of Gunns and Auspine;

As agents for Gunns and Auspine, which are insolvent themselves, the Plaintiffs would necessarily have to source funding for court proceedings to enforce the Judgment Debt either from a third party funder or effectively reduce the pool of funds available to creditors in the winding up. I was therefore of the view that it was important to minimise any legal costs, weighed against the prospects of a recovery from the Defendant.

the risk of there being further protracted litigation between the Plaintiffs and the Defendant and the utility of involving Gunns and Auspine in further court proceedings, which would have the effect of further delaying the winding up and would be costly and time-consuming;

relatedly, the merit of the Defendant's view that it considered this proceeding had been automatically dismissed caused further concern to the Plaintiffs as an indication this proceeding would be defended aggressively.

In assessing these considerations, I have had regard to:

my experience as an accountant and registered liquidator;

the affairs of Gunns and Auspine generally (noting I was appointed liquidator on 25 September 2012); and

the history of the proceedings between Gunns and Auspine and this Defendant specifically (with proceedings having been commenced on 21 September 2015).

Having regard to these matters, the Plaintiffs ultimately considered that issuing the Statutory Demand would be a cost effective first step to enforce the Judgment Debt and that, given the potential recovery of the Judgment Debt, prosecuting this proceeding would be in the interest of creditors.

43    There was no application to cross-examine Mr Crosbie. In several respects his evidence does not satisfactorily respond to Badenoch’s contentions. The evidence that the plaintiffs needed to consider the “utility and risk” in prosecuting the application does not explain why those matters resulted in no step being taken between 8 February 2023 and 5 September 2023, save for issuing the statutory demand on 24 August 2023. There is no evidence that explains the effluxion of time by reference to particular steps and considerations. There is no explanation of why the “serious concern” held by the plaintiffs about Badenoch’s solvency prevented the taking of steps to wind it up. There is no cost analysis of the likely costs to be incurred in bringing the application to a conclusion, in the context of funds then held by the plaintiffs and funds spent on securing the judgment debt and in conducting the appeals. No explanation is offered as to what was considered and when to “source funding” to continue the proceeding. No detail is provided about the risk assessment that was undertaken concerning “further protracted litigation”, how that may delay the conclusion of the plaintiffs’ administrations, or why prosecuting the application to conclusion would be “costly and time-consuming”, particularly in light of the fact that a decision was taken to issue the statutory demand, but no step was taken thereafter in consequence of non-compliance. Finally, the concluding paragraph is elliptical. Mr Crosbie’s experience and the history of litigation with Badenoch does not explain why issue of the statutory demand “would be a cost effective first step to enforce” the judgment, when the plaintiffs had on foot an unresolved application to achieve the same result and why that step was likely to “minimise any legal costs”.

44    An explanation for the decision to issue the statutory demand is to be found in the affidavit of the plaintiffs’ solicitor Mr Buitendag made on 24 November 2023. If Badenoch is wound up in the proceeding, whether or not it is amended to plead non-compliance with the statutory demand, the relation back day is 13 November 2020. The plaintiffs have a concern about potential phoenix activity related to cessation of Badenoch’s business in March 2018 and seek to maintain that relation back day to preserve the ability of a liquidator to consider recovery proceedings pursuant to s 588FE, which perceived advantage will be lost if a new application to wind up is commenced in consequence of non-compliance with the statutory demand, or any future demand - noting that the three month period for commencement of a further application has expired: s 459C(2). Mr Buitendag further deposes that the plaintiffs seek orders that the application be timetabled for determination, though no timetable is suggested.

45    In a later affidavit made on 22 December 2023, Mr Buitendag deposes to correspondence with Badenoch’s solicitor, commencing 13 December 2023 wherein consent was sought, but refused, to a proposed form of amendment to the originating process to include in Part C reliance on non-compliance with the statutory demand. Despite foreshadowing an application to amend, no application has been made.

46    Badenoch’s application is premised on the broad assumption that the general principles applicable to abuse of process apply to the winding up regimes at Pts 5.4 and 5.4A of the Act. At least in the case of Pt 5.4, where winding up relies on the presumption of insolvency at s 459C(2), abuse of process is confined to establishing that the process of the Court has been invoked or continued for an improper purpose: Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (receivers and managers appointed) [2011] HCA 18; 244 CLR 1 at [16]-[17], [29]-[33] (the Court); A G Coombs Pty Ltd v M & V Consultants Pty Ltd [2018] VSC 468; 55 VR 513 at [45]-[51] (Sloss J) and in Re Kornucopia Pty Ltd (No 4) [2020] VSC 7 at [80]-[109] (Sifris J). As I have determined that the Pt 5.4 application to wind up in insolvency has been dismissed by operation of s 459R(3), and because there can be no dispute that the judgment debt is owing and enforceable, it is open to Badenoch to more broadly cast the abuse of process argument.

47    Badenoch’s arguments rest on three interrelated contentions: (1) prosecution of the application for an improper purpose; (2) delay coupled with a failure to take procedural steps to conclude the application; and (3) necessity to protect the administration of justice and integrity of the processes of this Court.

48    The principles that apply are not in dispute. The High Court has very recently resolved the controversy about whether the exercise of a power (in this Court one that is incidental to the jurisdiction to determine matters) to stay a proceeding as an abuse of process involves the exercise of discretionary power. It does not: GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32 (GLJ). Those principles are set out in several well-known High Court decisions: Williams v Spautz (1992) 174 CLR 509(Williams); Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; 226 CLR 256 (Batistatos) at [9]-[15] (Gleeson CJ, Gummow, Hayne and Crennan JJ); Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; 256 CLR 507 at [24]-[27] (French CJ, Bell, Gageler and Keane JJ) and Victoria International Container Terminal Ltd v Lunt [2021] HCA 11; 271 CLR 132 (Lunt) at [18]-[22] (Kiefel CJ, Gageler, Keane and Gordon JJ).

49    It is not necessary to essay those principles in any detail, because I have concluded that the evidence relied on by Badenoch and its submissions in support fail to establish that in this case the circumstances are exceptional to justify dismissal for abuse of process: GLJ at [3].

50    I reject the submission that the proceeding has been prosecuted for an improper purpose. It is by no means apparent why the fact that the plaintiffs seek to maintain the relation back day in the proceeding, rather than on a future date in the event that a new winding up application is made, amounts to an abuse of process. As correctly submitted by Mr Tennant, the relation back day is simply a function of the operation of the Act. As explained in Lunt at [18] the question is whether the “conduct of the moving party is such that the abuse of process on its part may prevent or stultify the fair and just determination” of the proceeding, and further as was stated by the plurality (Mason CJ, Dawson, Toohey and McHugh JJ) in Williams at 526:

To say that a purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept. The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event.

51    That passage was approved in Lunt at [23]. Badenoch’s arguments rise no higher than the bare contention that seeking the advantage offered by an earlier relation back day is of itself an improper purpose. The submission fails to grapple with why that is improper in this statutory scheme and on the facts of this case.

52    Delay is the next matter relied on. Whilst there has been delay in prosecuting the proceeding by the plaintiffs, and which has not been satisfactorily explained, as properly conceded by Mr Gronow, that delay is only to be assessed since 8 February 2023, when the High Court determined with finality Badenoch’s liability. Whilst delay is “capable of constituting an abuse of the processes of the court” (Batistatos at [15] quoting McHugh J in Rogers v The Queen (1994) 181 CLR 251 at 286), it must be viewed in context. The litigation concerns payments made to Badenoch between March and September 2012. The Gunns Group was placed into voluntary administration on 25 September 2012 and the creditors resolved to wind up each group company on 5 March 2013, when the plaintiffs were appointed as liquidators. The proceeding which led to the judgment debt was commenced in this Court in 2015. The winding up proceeding was commenced on 13 November 2020, and Badenoch did not insist that it be prosecuted with alacrity because it disputed its liability until the High Court finally resolved it. In context, the delay since February 2023 is not significant. Badenoch does not assert prejudice by reason of this delay: only that the plaintiffs have failed to prosecute it with diligence.

53    The fact is that Badenoch has not paid the judgment debt despite the statutory demand and there is evidence that it has no capacity to do so in the form of a concession made by its counsel when this proceeding was mentioned before a registrar on 18 December 2020. Moreover, there is evidence from Badenoch’s solicitor that it has not traded since March 2018, with the consequence that delay cannot have impacted on decision-making of the directors in the conduct of business activities. In my view, the delay in this case falls well short of constituting an abuse of process.

54    I also reject the generalised submission that dismissal of the proceeding is necessary to protect the administration of justice and the integrity of this Court’s processes in determining the proceeding. No specific matter beyond the submissions of improper purpose and delay is relied on. Badenoch fails to address why dismissal of the proceeding will not work an injustice to the plaintiffs in circumstances where they have the hard-won benefit of a substantial judgment that has not been paid, that Badenoch has no capacity to pay and where it has not traded for a considerable period. As explained in GLJ at [3]:

If a court refuses to exercise its jurisdiction to hear and decide cases in other than exceptional circumstances and as a last resort to protect the administration of justice through the operation of the adversarial system, that refusal itself will both work injustice and bring the administration of justice into disrepute.

55    For these reasons, I am not satisfied that Badenoch has made out its abuse of process contention, individually or cumulatively.

Want of prosecution

56    Badenoch’s point is that the plaintiffs have failed to advance the proceeding, the delay since February 2023 is unexplained and the attempt to take advantage of an earlier relation back day impermissibly undermines the policy of the Act in determining specified time limits for voidable transaction and other recovery claims. Emphasis is placed on the overarching purpose at ss 37M and 37N of the FCA Act, particularly that disputes are required to be determined according to law, quickly, inexpensively and efficiently, though curiously it is submitted that this Court has inherent jurisdiction to dismiss for want of prosecution. In part, the delay is characterised as inordinate and inexcusable.

57    These contentions do not withstand scrutiny. First, this Court does not have inherent jurisdiction. This is a common error that is often seen in submissions. It is a statutory Court, created by s 5 of the FCA Act. It does, however, possess incidental powers, expressly or by implication for the effective exercise of its jurisdiction: Western Australia v Ward (1997) 76 FCR 492 at 498 (Hill and Sundberg JJ). There is clearly incidental power to dismiss a matter for want of prosecution, or expressly pursuant to s 37P(6) of the FCA Act, if an applicant fails to prosecute a matter consistently with the overarching purpose and or case management orders made to that end.

58    Second, the delay must be inordinate or inexcusable: Green v Healthscope Ltd t/as The Hills Private Hospital [2015] NSWCA 325 at [26] (Gleeson JA). As explained, that is not so in this case.

59    Third, it is usual to inquire whether an asserted want of prosecution has or will likely cause prejudice to a respondent being an inability to participate in a fair trial: RV Investments (Aust) Pty Ltd v ACN 110 769 929 Pty Ltd [2014] VSCA 210 at [9] (Neave and Tait JJA). No prejudice of that type is asserted by Badenoch.

60    Fourth, the power is to be exercised cautiously and in the clearest cases: Davidova v Murphy [2009] FCA 601 at [33]-[36] (Flick J). There is no aspect of this proceeding which so qualifies.

61    For these reasons, I reject the want of prosecution contention of Badenoch.

Conclusion

62    Badenoch has been partly successful. Case management is clearly required to bring this matter to a conclusion. I declare and order as follows:

Associate:

Dated:    20 February 2024