Federal Court of Australia

Sydney Subdivision Pty Ltd (in liq) v Chow (No 3) [2024] FCA 644

ORDERS

THE COURT ORDERS THAT:

1.    Sydney Subdivision Holdings Pty Ltd be joined as the third respondent.

2.    Save to the extent provided for in order 3, the applicants' application to amend dated 28 July 2023 seeking leave to amend in terms of the amended originating application and amended statement of claim annexed to submissions filed on 17 April 2024 is dismissed.

3.    There be leave to the applicants to amend the originating process to confine the relief sought as to the HWWB Loan Scheme to the amount of $116,379.06 plus interest and to amend the statement of claim in the terms proposed in respect of paragraphs 1 to 65.

4.    On or before 21 June 2024, the applicants do file and serve an amended originating process and an amended statement of claim pursuant to the leave given in order 3.

5.    The respondents' application for summary dismissal dated 20 November 2023 is dismissed.

6.    On or before 28 June 2024, the second applicant do file and serve his foreshadowed interlocutory application for appointment as a receiver together with any further affidavit material to be relied upon in support of the application.

7.    On or before 28 June 2024, the first and second applicants do file and serve a minute of proposed further amended originating process and a minute of proposed further amended statement of claim setting out any and all amendments to be sought by them if the application for appointment as a receiver is successful.

8.    On or before 5 July 2024, the parties shall each propose directions for an interlocutory hearing of the application for appointment of the liquidator as a receiver and to determine whether leave should be given to amend in terms of the proposed minutes.

9.    Costs of the interlocutory applications referred to in orders 2 and 3 be reserved.

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

REASONS FOR JUDGMENT

COLVIN J:

1    On 11 March 2020, Sydney Subdivision Pty Ltd (in liq) (SSPL) and its liquidator commenced proceedings in this Court against the former directors of SSPL, namely Mr Benjamin Chow and Ms Roberta Chow. SSPL is the former trustee of the Benjamin M J Chow Family Trust (Trust). By those proceedings SSPL and its liquidator sought (a) declarations that Mr and Ms Chow had breached their duties as directors of SSPL; (b) an amount of about $2.6 million for 'unpaid tax, penalties and interest'; (c) a sum of about $2.5 million in 'unpaid director's loans'; and (d) alternatively, damages. The proceedings were brought using the form of originating process for claims brought under the Federal Court (Corporations) Rules 2000 (Cth) but on alleged facts as set out in a statement of claim (Claim) filed with the application.

2    A dispute has arisen as to whether SSPL should be allowed to amend the Claim as well as the relief sought by the originating process. In addition to objecting to the proposed amendments, Mr and Ms Chow also say that much of the Claim should be summarily dismissed.

3    For the following reasons both interlocutory applications should be dismissed.

The Claim as currently advanced by SSPL and the liquidator

4    The Claim pleads that SSPL was the trustee of the Trust and that the Trust was a trading trust which provided 'investment consultancy services and medical services'. Broadly speaking, it alleges that SSPL had been party to a scheme to limit the personal income tax liability of Mr and Ms Chow. It claims that Mr and Ms Chow breached their duties as directors of SSPL by causing SSPL to enter into the scheme which is alleged to have been to their personal benefit. Their conduct is said to have exposed SSPL to the risk of tax audit and to liability for tax (of about $2.6 million) which was assessed by the Commissioner to SSPL. Those facts are alleged as the basis for a claim against Mr and Ms Chow of breach of their duty as directors of SSPL (Duty Case).

5    There is a separate claim that an amount of about $2.5 million was advanced by SSPL to Mr and Ms Chow as unsecured loans and that despite demand by the liquidator of SSPL the loans have not been repaid (Loan Case).

6    Most of the Claim is devoted to pleading the basis for the Duty Case. However, towards the end of the Claim, the Loan Case is pleaded in the following terms:

Between the period 2004-2012 Benjamin Chow and Roberta Chow were the sole directors of [SSPL] and were responsible for all decisions made on behalf of [SSPL] and keeping of the books and records of the company.

At the end of financial year 2004, the financial statements of [SSPL] recorded unsecured loans from the Trust to Benjamin Chow and Roberta Chow in the amount of $2,223,340.16.

Between 2004-2012 Benjamin Chow and Roberta Chow continued to borrow monies from the Trust by way of unsecured loans.

[Particulars omitted]

As at the date of the appointment of the Liquidator, the financial statements of [SSPL] disclosed that there were outstanding, unsecured loans owed by Benjamin and Roberta Chow for the amount of $2,551,330.00 [(the Loans)].

…

On 19 October 2015, [the liquidator of SSPL] issued a demand to Benjamin Chow and Roberta Chow for repayment of the unsecured loans owed by Benjamin Chow and Roberta Chow to [SSPL].

On or about 2016, [the liquidator of SSPL] made a further demand for the repayment of the unsecured loans owed by Benjamin Chow and Roberta Chow to [SSPL].

Despite the demands, Benjamin Chow and Roberta Chow have failed and or refused or neglected to repay the unsecured loans to the Liquidator [of SSPL] on behalf of [SSPL].

7    It is apparent that, by the Loan Case, SSPL and the liquidator seek to recover loans that are alleged to have been made 'from the Trust', that is to say from the monies being administered by SSPL acting as trustee of the Trust.

8    Accordingly, there is an important difference between the Duty Case and the Loan Case. The Duty Case appears to be a claim advanced by SSPL in its own right on the basis that the costs of the tax audit and the associated tax liability fell upon SSPL. Even though it may have been participating in the scheme as trustee of the Trust, it was the party that was audited and it was also the party obliged to pay any tax assessed based upon the audit. Any claim that SSPL would have as against monies in the Trust arising from the tax liability would be by way of reimbursement (sometimes termed recoupment) or exoneration. Given the nature of the Duty Case being advanced by SSPL against its directors, issues may arise as to whether it would be entitled to any such indemnity. But the Duty Case being made by SSPL against its former directors is a claim by SSPL in its own right to recover an amount that it had a liability to meet.

9    However, the Loan Case is different. As presently formulated in the Claim, it is an action that seeks to recover property which subsists in the form of the chose in action comprising the contractual claim to a liquidated sum (or a debt) said to be owed to SSPL as trustee being monies loaned to Mr and Ms Chow that are due to be repaid. That is to say, the Loan Case is formulated as an action to recover an asset of the Trust. There is no plea in the Claim to the effect that SSPL or the liquidator seeks to recover as the holder of a proprietary interest in the chose in action based upon a right of exoneration or reimbursement. A claim of that kind takes priority over the claims of the beneficiaries to the assets of the Trust and may be enforced in the same way as an equitable charge: Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 at [49]-[50]. However, the holder of an equitable charge has no self-help remedy and 'an equitable charge can only be enforced by judicial order for sale or receivership of the charged property': Morris Finance Ltd v Brown [2017] FCAFC 97; (2017) 252 FCR 557 at [38]-[39] (Beach, Markovic and Moshinsky JJ); see also The Property Investors Alliance Pty Ltd v C88 Project Pty Ltd (in liq) [2023] NSWCA 291 at [71]-[77] (White JA), [126] (Kirk JA), [153] (Griffiths AJA). Although exercisable in the same manner as an equitable charge, the proprietary interest of a trustee in the assets of the trust (described somewhat interchangeably as an equitable charge or equitable lien) arises not by way of security but as a direct interest in the property being administered and as an incident of the office of trustee: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524 at [32] (Kiefel CJ, Keane and Edelman JJ), [83] (Bell, Gageler and Nettle JJ), compare [131]-[139] (Gordon J).

10    A trustee is also entitled to indemnity out of the trust estate for liabilities incurred as trustee in respect of which the trustee has a right to reimbursement or exoneration. By reason of the existence of that right, the trustee may resort to monies being administered as part of the trust fund to effect reimbursement or exoneration. However, it appears that sale of the assets of the trust for that purpose may require judicial order, unless expressly authorised by the trust instrument: Carter Holt Harvey at [32] (Kiefel CJ, Keane and Edelman JJ), [82]-[83] (Bell, Gageler and Nettle JJ).

11    Issues as to priorities between claims by successive trustees in the exercise of the rights just described may arise where a former trustee asserts claims against trust property in the hands of a successor trustee or as to the duties owed by the successor trustee to the former trustee: Jaken Properties Australia Pty Ltd v Naaman [2023] NSWCA 214; (2023) 112 NSWLR 318; and Francis (Trustee), in the matter of Fotios (Bankrupt) v Helios Corporation Pty Ltd (No 3) [2023] FCA 251.

12    Finally, it is now clear that a trustee's rights of reimbursement or exoneration and the associated right of indemnity as well as the proprietary interest akin to an equitable charge can be enforced by creditors of the trustee by way of subrogation and pass to a liquidator: Carter Holt Harvey at [34] (Kiefel CJ, Keane and Edelman JJ), [85]-[87] (Bell, Gageler and Nettle JJ), [132] (Gordon J). It is relatively common for a liquidator to seek to be appointed as a receiver of such claims on behalf of a company in liquidation that acted as the trustee of a trading trust at the time that the relevant liabilities to those creditors were incurred: Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 at [48]-[51] (Moshinsky J). However, SSPL and the liquidator have pursued the Loan Case without seeking any authority as receiver to do so.

13    The main point to be made for present purposes is that the Loan Case as advanced by the Claim does not resort to any of these principles. Rather, it appears to be advanced on the basis that the liquidator is simply taking action to recover property of a company in liquidation (SSPL) by demanding repayment of the alleged loans to SSPL and then bringing proceedings on the basis that the demand has not been met. There is no engagement with the issues posed by the fact that, on the case as pleaded, the chose in action constituted by the loan is property of the Trust.

The defence filed by Mr and Ms Chow

14    A defence has been filed by Mr and Ms Chow to the Claim. By the defence it is alleged, amongst other things, that SSPL was trustee of the Trust until 29 August 2018, but ceased to be trustee on that day because Sydney Subdivision Holdings Pty Ltd (SS Holdings) had been appointed as trustee. As to the Loan Case, the defence pleads, amongst other things, the following:

'[Mr and Ms Chow] deny that the liquidator of [SSPL] has a right to claim the debt as the powers of the trustee were terminated upon liquidation and [SSPL] became a bare trustee. Further, the Trust assets were transferred and the right to claim the loan is held by the incoming trustee. The liquidator of [SSPL] has no claim for title or standing to maintain this cause of action.

15    Therefore, there is an explicit claim in the defence to the effect that SSPL has no authority to bring the Loan Case because SSPL is no longer the trustee of the Trust. This has been the position since November 2020.

16    The defence also pleads, in the alternative, that 'the liquidator cannot maintain the cause of action as it is limited by section 14 of the Limitation Act 1969 to a period of six years'. Relevantly for present purposes, s 14 of the Limitation Act 1969 (NSW) provides that an action on a cause of action 'founded on contract (including quasi contract) not being a cause of action founded on a deed' is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues 'to the plaintiff or to a person through whom the plaintiff claims'.

17    As to the Loan Case, there is a further plea in para 64 of the defence as follows:

In further answer to [the paragraphs pleading the Loan Case], being the claim to recover directors' loans as debts owed by [Mr and Ms Chow] to [SSPL], [Mr and Ms Chow] say the following:

64.1.    Any loans to Benjamin Chow and Roberta Chow were advanced by [SSPL] in its trustee capacity and the debt receivables formed part of the trust estate of the [Trust].

64.2.    At all times under Clause 15 of the deed of the [Trust], the Appointor has had the power to replace the trustee of the Trust.

64.3.    At all times Benjamin Chow has been the Appointor of the [Trust].

64.4.    [SS Holdings] is an Australian private company, capable of suing and being sued.

64.5.    On or about 29 August 2018 Benjamin Chow and [SS Holdings] executed a deed styled as 'Deed Appointing a New Trustee of the [Trust]'.

64.6.    The effect of the deed was to remove [SSPL] as trustee of the [Trust] with immediate effect and make [SS Holdings] the trustee.

64.7.    Any debt receivables held by [SSPL] in respect of [Mr and Ms Chow] vested in [SS Holdings] immediately upon execution of the deed on or about 29 August 2018.

64.8.    By reason of the matters pleaded above [SSPL] does not have any entitlement to repayment in respect of debts owed by [Mr and Ms Chow].

18    The defence also pleads a limitation defence to the Duty Case. It relies upon s 1317K of the Corporations Act 2001 (Cth).

Previous application by SSPL and the liquidator to amend the Claim

19    By interlocutory application brought in October 2022, SSPL and its liquidator, sought to amend the Claim by expanding the Duty Case. I determined that the application to amend must be dismissed but that there should be leave to make a further application: Sydney Subdivision Pty Ltd (in liq) v Chow [2023] FCA 8.

Further interlocutory applications by SSPL and the liquidator

20    After quite some delay, SSPL and the liquidator brought a fresh interlocutory application to amend the originating process and the Claim. Then, when the application came on for hearing, they sought an adjournment to propose different amendments. The adjournment was given and on 17 April 2024 they provided new proposed documents. By the amendments as now proposed, they seek to reduce the amount claimed on the basis of the Duty Case (for unpaid tax, penalties and interest) to $116,379.06. Otherwise, they seek to focus the proceedings upon the Loan Case (that is, the claim to recover alleged unpaid loans of $2.5 million). They also seek to add a claim that the failure by Mr and Ms Chow to repay the loans has been in breach of fiduciary duties and directors' duties owed by them to SSPL (New Duty Case).

21    Somewhat strangely, the proposed amendments to the originating process also seek to introduce a claim to an order that SS Holdings be joined as a respondent to the proceedings. They also propose the addition of a claim to relief appointing the liquidator as receiver of the property of the Trust.

22    I say somewhat strangely because:

(1)    The proposed amendments would not add SS Holdings as a party to the proceedings but instead contemplate a final hearing at which one of the issues is whether SS Holdings should be joined as a party. The argument to support the proposed amendment was based upon an alleged need to joint SS Holdings as a proper party. Therefore, what is proposed is that this Court conduct a final hearing of proceedings in which SS Holdings is not a party but then make SS Holdings a party if the action against Mr and Ms Chow is successful. It appears to be proposed on the basis that SS Holdings could decide whether it wants to participate in the proceeding given that an order is ultimately sought joining it as a party if the claim is successful. It seems to be a very odd way of proceeding given that SSPL and the liquidator are proceeding on the basis that SS Holdings is a necessary and proper party.

(2)    SSPL and the liquidator seek to conduct the proceedings (including the Loan Case) without anyone being appointed as a receiver (with authority to conduct the proceedings) but the liquidator seeks to be appointed as a receiver if the liquidator is successful. This aspect of the application is odd because it appears to accept the need for the appointment of a receiver but only contemplates the liquidator becoming a receiver of the property of the Trust (including the chose in action which is the foundation for the Loan Case) after having pursued the Loan Case to final determination.

23    Further, the proposed amendments to the Claim would add a plea that SSPL 'has rights of indemnity and exoneration against the assets of the Trust' and 'is entitled to be indemnified for so much of the [tax liability of $2.6 million] as [is] equal to the amount of [its] liability in relation to [the alleged scheme, being $116,379.06]'. However, they do not assert the basis for any right on the part of SSPL or the liquidator to bring the Loan Case in circumstances where SSPL is not alleged to be the current trustee (and now is not even alleged to have been the trustee when the Claim was brought) and, as has been explained, 'rights of indemnity and exoneration' do not authorise a trustee taking steps to enforce the chose in action which is the foundation for the Loan Case.

24    On the contrary, the proposed amendments to the application seek an order by way of judicial advice to the effect that the liquidator is justified in treating the property of the Trust as being held by SSPL as bare trustee with proceeds of that property to be distributed to creditors of the Trust. That is to say, it appears that by the amendments the liquidator now seeks to conduct the Loan Case on the basis that SSPL is a bare trustee of the chose in action. If the Loan Case is being advanced as bare trustee, then it appears to be on the basis that a bare trustee who is a former trustee of a trust can get in and resort to trust property for exoneration purposes (even in the face of there being a new trustee) and then distribute those proceeds for the benefit of creditors of SSPL: see the consideration of the authorities in Queensland Nickel Sales Pty Ltd v Park in his capacity as liquidator of Queensland Nickel Pty Ltd (in liq) [2023] FCAFC 150; (2023) 299 FCR 169 at [174]-[187] (Markovic, Banks-Smith and Halley JJ). However, as will emerge, the notion that SSPL can proceed with the Loan Case on the basis that it is a bare trustee must confront the difficulty that SS Holdings is now the legal holder of the chose in action. SSPL and the liquidator advanced no submission that dealt with that aspect of the current circumstances.

25    Finally, the contentious aspects of the proposed amendments to the Claim also include proposed pleas to support a case that Mr and Ms Chow are not entitled to rely upon the benefit of any statutory limitation period.

Opposition to the proposed amendments by Mr and Ms Chow

26    Mr and Ms Chow oppose the proposed amendments concerning the joinder of SS Holdings. They also oppose any amendment to include a claim that the liquidators be appointed as receivers. They say that any such claim raises a 'completely new case' and that any application for appointment of a receiver to the assets of the Trust should be brought in a new proceeding. At the hearing of the interlocutory application, counsel for Mr and Ms Chow made clear that any separate application for the appointment of the liquidator as a receiver of the assets of the Trust would be opposed because, at the least, there would be an issue as to whether any liabilities said to have been incurred by SSPL when it was trustee were properly incurred such that they may give rise to an indemnity.

27    Mr and Ms Chow also oppose the pleading to the effect that they cannot advance limitation defences. They do so on the basis that the proposed plea fails to plead any proper basis for a claim of that kind having regard to the terms of the relevant statutory provisions. They also say that there is prejudice because of the passage of time since the events occurred that are sought to be relied upon in support of the proposed plea.

28    The introduction of the proposed New Duty Case is also opposed, primarily on the basis that it is said to disclose no reasonable cause of action.

29    Mr and Ms Chow also have other objections to the proposed amendments which reduce to complaints about delay and the prejudice to Mr and Ms Chow in the form of the ongoing burden of litigation. They point to the absence of any real explanation for what is said to have been considerable delay by SSPL and the liquidator.

Summary dismissal application by Mr and Ms Chow

30    Mr and Ms Chow also bring their own interlocutory application in which they seek summary dismissal of the application insofar as it relies upon the Loan Case. They say that the Loan Case is statute barred.

Findings as to the relevant chronology

31    The affidavit material before the Court for the purposes of the present applications establishes for interlocutory purposes the following sequence of relevant events:

(1)    the Loan Case is brought on the basis that the loans to Mr and Ms Chow were made between 2004 and 2012;

(2)    the amount of the loans the subject of the Loan Case is based upon the figure recorded in the accounts for the Trust as at 30 June 2012;

(3)    SSPL went into liquidation on 13 July 2015;

(4)    the trust deed for the Trust contains an ipso facto clause which provides that the office of the trustee of the Trust shall be determined and vacated if the trustee 'being a company shall enter into liquidation' and in consequence since its liquidation SSPL has been a bare trustee of the property of the Trust, including any chose in action that arose from any outstanding director's loans to Mr and Ms Chow;

(5)    having regard to the express terms of the Trust, the fact that SSPL's status as trustee of the Trust had come to an end upon the liquidation of SSPL ought to have been apparent to any competent liquidator and no reason is advanced as to why that would not have been so in the present case;

(6)    on 19 October 2015, the liquidator of SSPL (purportedly) demanded repayment of the loans from Mr and Ms Chow;

(7)    on 29 August 2018, Mr Chow executed the deed appointing SS Holdings as trustee of the Trust;

(8)    shortly after 29 August 2018, the solicitor acting for both SSPL and the liquidator in these proceedings was notified of the appointment of SS Holdings as trustee of the Trust;

(9)    on 18 March 2020, proceedings were commenced by SSPL and the liquidator and by those proceedings the matters set out in the Claim were advanced against Mr and Ms Chow;

(10)    for reasons that are disputed as between the parties (and about which it is not necessary to make findings for present purposes), the significance for the Claim of the notification of the appointment of SS Holdings as trustee of the Trust was not addressed at the time of preparing the originating application and the Claim;

(11)    on or about 11 November 2020, the deed purporting to appoint SS Holdings as trustee of the Trust was filed with the Registrar General in New South Wales;

(12)    on 18 November 2020, Mr and Ms Chow filed their defence raising the limitation defences and also relying upon the status of SSPL as a bare trustee as well as the appointment of SS Holdings as trustee of the Trust by way of defence to the Claim;

(13)    on 25 July 2022, Mr and Ms Chow filed an application for summary judgment in which reliance was placed upon the appointment of SS Holdings as a complete defence to the Loan Case and also upon a claim that there was no arguable basis for much of the amount claimed by way of compensation based upon the Duty Case;

(14)    on 11 October 2022, SSPL and the liquidator filed an application to amend in terms of a proposed new statement of claim;

(15)    the application to amend sought to address the matters raised by Mr and Ms Chow in support of their application for summary judgement insofar as it concerned the Duty Case (implicitly acknowledging that there may be merit in that aspect of the summary judgment application);

(16)    on 13 January 2023, the application to amend was refused with leave to re-plead;

(17)    on 28 July 2023, SSPL and the liquidator sought leave to file a further draft amended statement of claim (which was prepared on the basis that SS Holdings would be added as a respondent) and on 20 November 2023, Mr and Ms Chow sought summary judgment dismissing the Loan Case;

(18)    the leave sought to amend extended to adding a plea that the liquidator be appointed as receiver of the assets of the Trust (later explained as being sought to secure SSPL's right of indemnity against assets of the trust and on the basis that SS Holdings (being controlled by Mr Chow) was likely to be in a position of conflict of interest in continuing to pursue Mr and Ms Chow in relation to the losses of SSPL);

(19)    by letter dated 18 September 2023 responding to a request for particulars of loss claimed, SSPL and the liquidator appear to have accepted that the Duty Case can only give rise to compensation of the order of $120,000 rather than the $2.6 million as originally claimed;

(20)    on 21 February 2024, Mr and Ms Chow filed written submissions in support of their summary judgment application which claimed that the Loan Case was statute barred;

(21)    by written submissions filed on 6 March 2024, Mr and Ms Chow raised a number of concerns with the way in which amendments were proposed having regard to the appointment of SS Holdings as the trustee of the Trust in August 2018. They submitted expressly that the reason for seeking a revision to the Loan Case was 'because it is unlikely [SSPL] still has standing to sue [Mr and Ms Chow] for recovery of the Director Loans' and '[SSPL] is no longer the trustee of the [Trust]';

(22)    the two interlocutory applications were listed for hearing on 8 March 2024, at which time SSPL and the liquidator sought (and were granted) an adjournment to formulate a further revised draft amended statement of claim;

(23)    on 17 April 2024, SSPL and the liquidator filed a new version of the proposed amended statement of claim and a proposed amended application, together with further submissions;

(24)    on 7 May 2024, Mr and Ms Chow filed detailed written submissions opposing those aspects of the new version of the statement of claim and the amended application that sought to amend the Loan Case, introduce the New Duty Case, add a claim that SS Holdings be joined as a respondent and appoint the liquidator as receiver; and

(25)    on 17 May 2024, SSPL filed detailed written submissions in reply.

The issues for determination

32    Some of the proposed amendments to the Claim are not opposed. Mr and Ms Chow confined their opposition to the proposed amendments to paras 66-82 which concern the Loan Case, the proposed New Duty Case and the proposed pleading to the effect that Mr and Ms Chow are not entitled to the benefit of any statutory limitation period.

33    All of the proposed amendments to the originating application were opposed save for the reduction of the amount claimed pursuant to the Duty Case.

34    Having regard to the matters I have explained concerning the applications, the following issues arise for determination:

(1)    Should leave be given to amend the originating application to add the proposed relief appointing the liquidator as a receiver of the property of the Trust?

(2)    Should leave be given to amend the originating application to add a claim that SS Holdings be joined as a respondent?

(3)    Should there be leave to introduce the proposed pleading to the effect that Mr and Ms Chow cannot rely upon any statutory limitation period?

(4)    Taking account of the answer to Issue (3), should the application be dismissed insofar as it seeks to advance the Loan Case on the basis that it is clearly statute barred?

(5)    If no to Issue (4), should leave be given to allow the proposed amendments to the Loan Case?

(6)    Should leave be given to amend the Claim insofar as it pleads the New Duty Case?

General principles to be applied on applications for leave to amend

35    I dealt with the general principles concerning applications to amend a statement of claim in my earlier decision in these proceedings: see Sydney Subdivision Pty Ltd (in liq) v Chow [2023] FCA 8 at [49]-[50]. Similar principles apply to the exercise of the discretion whether to allow an amendment to an originating application.

A preliminary matter concerning the effect of the appointment of SS Holdings

36    When SS Holdings was appointed as trustee of the Trust, SSPL as the former trustee did not have a right to retain the assets of the Trust as security for an accrued right of indemnity, although it did have a right to insist upon SS Holdings dealing with the property of the Trust in a manner that recognised the proprietary interest that arose from SSPL's right of exoneration: Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550 at [50] (Brereton J). As has been noted above, the interest of a trustee that arises by reason of the right to exoneration and reimbursement is not a form of security interest. It is a distinct form of equitable interest in the property being held and administered as trust property that is an incident of the role as trustee.

37    Further, upon registration of the deed of appointment of SS Holdings as trustee of the Trust, the chose in action on which the Loan Case was based became vested in SS Holdings by operation of s 9 of the Trustee Act 1925 (NSW): Lemery Holdings at [52]-[53]. Therefore, from the date of registration SSPL no longer held any right to pursue Mr and Ms Chow to recover the loans the subject of the Loan Case. Up until then one or other may have claimed to be a bare trustee of the chose in action constituted by the right to recover the loans. However, after that time, the only rights which SSPL or the liquidator could assert was the proprietary interest in the nature of an equitable charge or lien that SS Holdings as the successor trustee was bound to recognise. Those rights survived the transfer of assets to SS Holdings as the successor trustee and equity will grant relief to protect them: Ridge Estate Pty Ltd v Fairfield Pastoral Holdings Pty Ltd [2024] FCAFC 17 at [60]-[63] (Banks-Smith J, O'Sullivan and Feutrill JJ agreeing)

Issue (1): Should leave be given to amend the originating application to add the proposed relief appointing the liquidator as a receiver of the property of the Trust?

38    The justification for the proposed amendment to add an application for relief appointing the liquidator as receiver of the property of the Trust is said to be found in Buckle at [50]. The submission made was to the effect that it was appropriately a matter for trial to consider what happens thereafter in relation to the collection and application of the assets of the Trust.

39    The difficulty with that submission is that it fails to engage with the fact that the proceedings themselves involve SSPL and the liquidator exercising the rights associated with the chose in action that is the basis for the Loan Case, namely the loan to Mr and Ms Chow of $2.5 million that is said to form part of the property of the Trust. The proceedings are not confined to seeking relief as to whether the alleged right to recover the loan from Mr and Ms Chow forms part of the property of the Trust and, if so, whether the liquidator should be allowed to recover the loan as receiver acting in the interests of creditors claiming rights of subrogation in respect of SSPL's right to resort to property of the Trust by way of exoneration for the liabilities incurred to those creditors.

40    What the liquidator is now seeking to do is pursue the Loan Case in the interests of creditors with subrogated claims to the proprietary right in the nature of an equitable charge which is said to be held by SSPL. Perhaps the Commissioner of Taxation is the only such creditor so issues do not arise as to competing subrogation claims between creditors, but the position remains that neither the liquidator nor SSPL is the holder of the chose in action on which the Loan Case is based.

41    Ultimately, in the course of oral submissions, senior counsel for SSPL and the liquidator expressed a preference for dealing with the appointment of the liquidator as receiver and then to 'get on with the case'. That preference was expressed recognising that there was a need to deal with who should have control of the assets of the Trust (particularly the chose in action upon which the Loan Case was founded) in circumstances where it is alleged that the Loan Case is property to which SSPL can resort by way of exoneration and that the creditors of SSPL are entitled to be subrogated to the rights of SSPL to do so.

42    The hearing of the interlocutory applications then proceeded on the basis of a foreshadowed application by the liquidator to be appointed as receiver of the assets of the Trust. Counsel for Mr and Ms Chow accepted that it was possible to proceed in that way whilst reserving their position in relation to costs.

43    Therefore, in the result, the application to amend the originating application was not pressed insofar as it sought to add relief in relation to the appointment of a receiver. Instead, the balance of the interlocutory applications were addressed on the basis of the foreshadowed application to appoint the liquidator as receiver.

Issue (2): Should leave be given to amend the originating application to add a claim that SS Holdings be joined as a respondent?

44    Insofar as the interlocutory application by SSPL and the liquidator raised issues as to the joinder of SS Holdings, ultimately it was approached on the basis that it was an application for an order joining SS Holdings as a respondent with immediate effect. The contentions advanced in opposition to the making of that order appeared to be directed to a concern that it would somehow enable the Loan Case to be treated as if it had been commenced with appropriate authority or would allow SSPL and the liquidator to overcome the defences that had been raised based upon the appointment of SS Holdings as trustee of the Trust.

45    However, the application to join SS Holdings was made on the basis that it was a necessary party in circumstances where it was now the trustee of the Trust and the legal holder of the chose in action the subject of the Loan Case. That position must be correct. At the very least, there is the potential for SS Holdings to maintain, like Mr and Ms Chow, that SSPL had no authority to bring the proceedings, at least insofar as the Loan Case is concerned. The failure to join SS Holdings would mean that the current trustee may not be bound by any decision as to that issue.

46    In those circumstances, I am persuaded that SS Holdings is a necessary and proper party. It has a sufficient interest in the subject matter of the proceedings that it should be joined. Joinder will mean that the whole of the dispute insofar as it concerns the Loan Case will be resolved as against all interested parties.

47    Therefore, there should be an order joining SS Holdings as a respondent. The joinder will take effect from the date of the order: see Amaca Pty Ltd v Cremer [2006] NSWCA 164; (2006) 66 NSWLR 400 at [83] (McColl JA), [152]-[153] (Brereton J); and Ethicon Sàrl v Gill [2018] FCAFC 137; (2018) 264 FCR 394 at [47] (Allsop CJ, Murphy and Lee JJ).

48    A separate issue may arise as to whether claims may now be made against SS Holdings given the limitation issues raised by Mr and Ms Chow. However, that will only be the case if and when claims of that kind are sought to be pursued.

Issue (3): Should there be leave to introduce the proposed pleading to the effect that Mr and Ms Chow cannot rely upon any statutory limitation period?

49    It is convenient at this point to set out the full extent of the proposed new plea that is objected to by Mr and Ms Chow. That is because, to deal with the remaining issues, it is necessary to understand the whole of the proposed new plea.

50    The proposed new plea that is objected to by Mr and Ms Chow is expressed in the following terms:

On 29 August 2018 Benjamin Chow appointed [SS Holdings] as the Trustee of the Trust by Deed of Appointment dated 29 August 2018 (Deed of Appointment) without notice to the [liquidator] and notwithstanding that the liquidation commenced on 13 July 2015 and [SSPL and the liquidator] had been in office and conducting the affairs of [SSPL] and entitled to the assistance of [Mr and Ms Chow] since that date.

On 11 November 2020 the Deed of Appointment was registered, whereupon the property of the Trust vested in SS Holdings, of which event no notice was given by [Mr and Ms Chow] or alternatively received by [SSPL and the liquidator], notwithstanding that the liquidation commenced on 13 July 2015 and [SSPL and the liquidator] had been in office and conducting the affairs of [SSPL] and entitled to the assistance of [Mr and Ms Chow] since that date.

The purpose of the appointment of SS Holdings as Trustee and the subsequent registration of the Deed of Appointment was to alienate from [SSPL] its property in the Loan Cause of Action, notwithstanding [Mr and Ms Chow's] ongoing duties to assist the liquidator to identify and recover the assets of [SSPL].

As the former trustee of the Trust, [SSPL] has rights of indemnity and exoneration against the assets of the Trust.

As such [SSPL] is entitled to be indemnified for so much of the ATO Debt as is equal to the amount of their liability in relation to the HWWB Loan Scheme.

[An existing plea in the Claim to the effect that on 19 October 2015, the liquidator issued a demand to Mr and Ms Chow for repayment of the Loans to SSPL is retained]

[An existing plea in the Claim that despite demand Mr and Ms Chow have refused or neglected to repay the Loans to the liquidator on behalf of SSPL is retained. However there is an amendment proposed to add that the failure to pay has been 'notwithstanding their duties as directors to [SSPL] and their duties to assist [the liquidator]'].

In failing to repay the Loans, Benjamin Chow and Roberta Chow have breached their fiduciary duties and their directors’ duties to [SSPL].

Further, [Mr and Ms Chow], as directors of [SSPL], failed, following the commencement of the winding up of [SSPL] to discharge the duties imposed upon them by s 497(5) of the Act to give to the Liquidator, in good faith and in the best interests of the Trustee, a truthful and accurate statement about the Trustee’s business, property, affairs and financial circumstances.

51    There are many obscurities in this proposed plea. First, the alleged purpose of the appointment of SS Holdings as trustee of the Trust as being 'to alienate from [SSPL] its property in the Loan Cause of Action' seems to indicate a claim that it must have been improper for steps to be taken to appoint a new trustee of the Trust in circumstances where there was no trustee by reason of the operation of the ipso facto clause. Precisely why that would be so is not articulated. An earlier version of the amendments sought by SSPL and the liquidator raised claims as to why the appointment of SS Holdings is not valid. The inclusion of those allegations as part of the amendments is no longer pursued.

52    The plea about purpose also suggests that the appointment of SS Holdings as the new trustee of the Trust would somehow 'alienate' from SSPL its proprietary right in equity to be exonerated from the property of the Trust. Again, how that would be the case is not apparent. As has been explained, the appointment of SS Holdings as successor does not extinguish the claims of SSPL as the former trustee and equity will intervene to protect those claims.

53    These aspects of the proposed plea manifest a confused understanding of the nature of the rights held by SSPL as trustee when it comes to the chose in action which is the basis for the Loan Case and the consequences for those rights of the appointment of a new trustee. As to the nature of the right to exoneration, changing the trustee does not alienate the extent of any proprietary interest associated with that right: Cremin at [48]. It remains property of the former trustee and, upon the liquidation of that trustee, is part of the property that is administered by the liquidator. It is a form of property interest that ordinarily takes priority over the claims of beneficiaries (and the successor trustee administering the trust property on their behalf), but equitable principles of priorities may affect that position.

54    Second, the proposed plea appears, in terms, to confine the extent of the rights of indemnity and subrogation claimed by SSPL to liability that arises from the Duty Case (which claim relies upon the alleged existence of what is defined as 'the HWWB Loan Scheme' as the basis for liability). If that is so, then the extent of the exoneration based claim is the amount of $116,379.06, yet the relief sought extends to the whole of the $2.5 million amount the subject of the Loan Case. Precisely how those aspects are to be reconciled is not apparent.

55    Third, there is a plea proposed to the effect that the failure by Mr and Ms Chow to repay 'the Loans' is a breach of their duties to SSPL (that is, the New Duty Case). This plea appears to be founded upon a claim that all directors have an unqualified duty as directors to repay any loans that have been extended to them by the company. Significantly, there is no plea that the making of the loans was a breach of duty. The precise basis for the duty as proposed by the amendment is not identified. No authority was advanced to support the existence of a duty of that kind.

56    Fourth, the proposed plea to the effect that Mr and Ms Chow have failed to give a truthful and accurate statement about 'the Trustee's business, property, affairs and financial circumstances' is obscure in a number of respects. The use of the term 'Trustee' at this point seems to be a reference to duties that Mr and Ms Chow had as directors of SSPL as a trustee company. Yet the duties that are pleaded concern the provision of information to the liquidator at a time when, leaving to one side whether it was a bare trustee, SSPL was certainly no longer the duly appointed trustee of the Trust by reason of the operation of the ipso facto clause.

57    It may be that the claim being made is to the effect that the statutory responsibilities of Mr and Ms Chow as former directors of the trustee of a trading trust include assisting the liquidator by providing information about the extent of the right to exoneration and, consequently, about assets of the Trust, but these aspects are obscured by the use of the undefined term Trustee. The material facts as to the nature of the alleged failure appear to be pleaded in the next paragraph. They, in turn, appear to be confined to a plea to support the subsequent paragraphs to the effect that '[i]n all the circumstances' Mr and Ms Chow are not entitled 'to the benefit of any statutory limitation period running in their favour' because that would be a continuing breach of a duty 'to assist the Trustee and its Liquidator in the winding up of the Trustee' and 'would be unconscionable'. None of that is certain because of the very general way in which the duty is expressed and the fact that it is not linked to any particular claim.

58    However, what is apparent from the existing terms of the Claim (to be retained) is that the liquidator says he that he has been aware of the Loans since 19 October 2015 because that is when the liquidator says he issued a demand for repayment of the Loans. Therefore, on the case as advanced by the liquidator, he has been aware for many years of the Loans and has been seeking to recover them on the basis that SSPL is entitled to do so (though, as has been explained, at least until recently, the liquidator appears to have been proceeding on the basis that the Loans are simply an asset which SSPL and the liquidator can pursue even though it forms part of the property that had been administered by SSPL as trustee prior to its liquidation).

59    Therefore, precisely how the alleged breaches of duty might be said to have had any consequence for the pursuit of the Loan Case is not apparent from the proposed plea. Nor is it apparent how the alleged conduct of Mr and Ms Chow might provide some basis for a claim that the limitation period did not commence to run in their favour at least from 19 October 2015 when the liquidator says he demanded repayment of the Loans.

60    Fifth, as has been indicated, it is hard to work out from the proposed plea concerning the limitation period precisely what cause of action that might otherwise be statute barred is said not to be barred because of the matters proposed to be pleaded. On the face of it, it appears to be a general claim that any limitations point that might be raised by Mr and Ms Chow whether it concern the Duty Case, the Loan Case or the proposed New Duty Case is met by the matters proposed to be pleaded. It means that the pleading does not expose in any real way what the case is when it comes to the different causes of action.

61    Sixth, the precise purpose of the plea that reliance upon the statutory limitation period would be 'unconscionable' is not apparent.

62    With those matters in mind (which also bear upon the determination of later issues), I turn to the precise terms of Issue (3).

63    Mr and Ms Chow point to the terms of s 55 of the Limitation Act. It deals with claims where a cause of action is said to have been fraudulently concealed. Relevantly for present purposes it provides that in cases of fraudulent concealment, the limitation period for the cause of action commences to run when the person having the cause of action discovers, or may with reasonable diligence discover, the concealment. They say that SSPL was aware of the Loans when they were made and also seek to invoke principles by which the knowledge of Mr and Ms Chow should be imputed to SSPL. They assert that there can be no 'serious suggestion' that they were defrauding SSPL when they borrowed money from SSPL as trustee of the Trust.

64    In submissions for SSPL and the liquidator in support of the proposed amendments, reliance is placed upon underlying features of the scheme in which Mr and Ms Chow are said to have participated through SSPL. It is said that the scheme resulted in them not being liable to pay a considerable amount of personal income tax and in taxation liabilities falling upon SSPL which does not have the funds to pay the tax because, it says, the relevant funds have been advanced to Mr and Ms Chow.

65    The liquidator made submissions concerning s 1317K of the Corporations Act. It provides that proceedings for a compensation order as provided for by the legislation 'may be started no less than 6 years after the contravention'. In oral submissions it was put that 'one answer to the limitation question may simply be the statutory duty infraction provision'. This seemed to be a reference to the plea that Mr and Ms Chow had breached their duties as directors by not disclosing their own indebtedness to SSPL when providing their statement of affairs in 2015. It seemed to be advanced as an answer to a contention by Mr and Ms Chow that the Loan Case has been brought out of time because it accrued, at the latest, in February 2014 but proceedings had not been commenced until March 2020 (see Issue (4) below).

66    In all the circumstances, it seems to me that the proposed limitation plea should not be allowed. It is too obscure to really be able to understand what it means. In part this is because it is anticipatory; that is to say it seeks to anticipate the manner in which Mr and Ms Chow may plead limitation points in answer to the claims to be introduced if the amendments are allowed. In part it is because the limitation points are different in respect of the various causes of action yet the proposed plea does not engage with each cause of action and explain the case as to why no limitation point can be raised as to the cause of action. In part it is because the precise nature of the point being raised is not evident from the very general terms in which the proposed plea is expressed. In part it is because the purpose of the reference to 'unconscionable' is unclear.

67    For those reasons, leave to introduce the proposed pleading to the effect that Mr and Ms Chow cannot rely upon any statutory limitation period should be refused. However, that conclusion would not prevent SSPL and the liquidator proposing some other form of pleading as to limitation points (to the extent it is consistent with other aspects of these reasons). It may be that the appropriate way to do so is by way of reply.

Issue (4): Taking account of the answer to Issue (3), should the application be dismissed insofar as it seeks to advance the Loan Case on the basis that it is clearly statute barred?

68    In this Court, proceedings (or part of them) may be summarily dismissed where the Court is satisfied that the party bringing the proceedings has no reasonable prospect of successfully prosecuting the proceeding: s 31A(2)(b) of the Federal Court of Australia Act 1976 (Cth). It is not necessary for the case to be shown to be hopeless or bound to fail, but the power ought be exercised with caution: see Spencer v Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118 at [22]-[24] (French CJ and Gummow J), [52]-[60] (Hayne, Crennan, Kiefel and Bell JJ). I gratefully adopt the summary of the principles to be applied in determining whether an application has no reasonable prospect of success as set out by Jackson J in Quach v Commissioner of Taxation [2019] FCA 1729 at [12].

69    Mr and Ms Chow contend that the Loan Case is statute barred because the loans were repayable from the date of advance which they say is more than six years before the proceedings were commenced. In the alternative, they say that at the latest the loans are repayable from the date of demand made by the liquidator on 19 October 2015. Although the proceedings were commenced well within six years of that date (March 2020), Mr and Ms Chow maintain that there was no authority for those proceedings to be commenced as to the Loan Case because SSPL had been removed as trustee. On their case, it is now necessary for the present proceedings to be properly constituted and any amendment will not take effect retrospectively.

70    On the evidence before me I accept that it has been demonstrated that the relevant loans were made prior to 11 February 2014, that is more than six years before the commencement of the proceedings. However, for the following reasons, I am not persuaded that the Loan Case has no reasonable prospects of success by reason of limitation issues.

71    First, it is not suggested that there were any express terms agreed at the time that the relevant loans were made to Mr and Ms Chow.

72    Second, on the evidence available on the interlocutory application the description of the loans in the balance sheet for the affairs of the Trust is as a 'Non-Current Receivable', that is, not an asset that is immediately recoverable.

73    Third, on the evidence relied upon by SSPL and the liquidator, Mr and Ms Chow were the source of the funds that were advanced to them and a requirement for those funds to have been immediately repaid would have been fundamentally inconsistent with the scheme for which SSPL was alleged to have been used, part of which involved extending the loans to Mr and Ms Chow.

74    Fourth, factual matters of the kind referred to above have led the court to conclude that a loan in a particular case is not due to be repaid from the time of advance. In In re Brookers (Australia) Ltd (in liquidation); Brooker v Pridham (1986) 41 SASR 380, King CJ said at 382:

It is trite to say that where there is a simple loan of money, the debt is due and payable immediately and from day to day from the time of the making of the loan, and that the cause of action therefore arises immediately upon the loan of the money. This position is unchanged by the fact that there is an express agreement making the loan repayable on demand, on request or on call; the debt is nevertheless due and payable immediately … If, however, the agreement between the parties is that the loan is repayable only upon the happening of a certain event or upon compliance with a condition precedent to liability, the debt is not immediately due and payable and the cause of action does not arise until the happening of the event or compliance with the condition … The agreement may provide that the amount of the loan is not repayable until a demand is made, in the sense that the making of an actual demand is to be a condition precedent to liability to repay, and in that case the cause of action will not arise until the demand has been made … An agreement that liability to repay does not arise until an actual demand is made may be express or implied or may be inferred from the circumstances and the conduct of the parties; it may be implied from their relationship …

(citations omitted)

75    Appling those principles, King CJ (Muir J agreeing) reasoned on the facts in that case, by reference to evidence of matters that included the context in which the loans came to be advanced, the way in which the amounts were shown in the accounts of the company, the purpose served by the funds that were provided to the company and what might be termed the reasonable commercial view, as to whether there would be an immediate liability to repay in the circumstances. Olsson J reasoned to a similar conclusion.

76    Fifth, although in VL Finance Pty Ltd v Legudi [2003] VSC 57 Nettle J concluded that time began to run for limitation purposes on the date that the debts were created (at [39]-[40]), his Honour went on to consider the authorities as to the circumstances that may lead to a different conclusion, including Brooker v Pridham, and concluded that they did not lead to a different conclusion in the circumstances of the particular case (at [41]-[58]). However, the reasoning of Nettle J shows that facts of the kind pointed to by SSPL and the liquidator in the present case provide a reasonably arguable foundation for a conclusion that a loan is not repayable from the date of advance in the circumstances of the present case. Even if one approaches Brooker v Pridham as an exception to a 'normal rule' or a 'default position' favouring a conclusion that, in the absence of an express term to the contrary, a loan is repayable from the date of advance (as to which, see LQ Quarries Pty Ltd v Barraport Investments Pty Ltd [2015] VSC 191 at [22]-[25] (Efthim ASJ); and In the matter of Italasia Pty Ltd [2017] NSWSC 811 at [17] (Brereton J)), the significant point for present purposes is that there are facts which provide an arguable basis for a departure from any such normal rule or default position. All will depend upon the facts as ultimately determined and there is a sufficient basis for a triable issue as to whether there are such facts.

77    Sixth, if it is concluded that the relevant loans to Mr and Ms Chow were repayable upon demand, then the liquidator says he made demand on 19 October 2015. At that time, SSPL had been removed as trustee but SS Holdings had not been appointed as the new trustee. The demand may have been the valid action of a bare trustee. If not, then there is no evidence of any further demand. On either view, the proceedings as presently constituted are within time.

78    Seventh, issues as to whether the action can continue to be advanced by the liquidator in the exercise of rights as a receiver and in circumstances where SS Holdings is now the holder of the property of the Trust (and has been for some time) will depend upon the outcome of the foreshadowed application for the liquidator to be appointed as a receiver.

79    For those reasons, the application for summary dismissal must be dismissed.

Issue (5): If no to Issue (4), should leave be given to allow the proposed amendments to the Loan Case?

80    The proposed amendments to the Loan Case would see the claim pleaded in the following terms:

As the former trustee of the Trust, [SSPL] has rights of indemnity and exoneration against the assets of the Trust.

As such, [SSPL] is entitled to be indemnified for so much of the ATO Debt as [is] equal to the amount of [the liability of Mr and Ms Chow] in relation to the HWWB Loan Scheme.

On 19 October 2015, [SSPL] issued a demand to Benjamin Chow and Roberta Chow for repayment of the Loans to [SSPL].

Despite the demands and not withstanding their duties as directors to [SSPL] and their duties to assist [the liquidator] Benjamin Chow and Roberta Chow have failed and or refused or neglected to repay the Loans to the Liquidator on behalf of [SSPL].

81    A plea in that form would indicate reliance upon SSPL's 'rights of indemnity and exoneration' as the basis upon which the Loan Case is pursued. However, as has been explained, those rights, of themselves, do not entitle SSPL or the liquidator to simply pursue the recovery of the loans against Mr and Ms Chow in circumstances where SSPL was removed as trustee upon the appointment of the liquidator and subsequently SS Holdings has been appointed as trustee. It may be that there was authority for the proceedings to be commenced as bare trustee, but for reasons that have been given any such authority came to an end when the deed of appointment of SS Holdings was registered. At that point, it was necessary for SSPL or the liquidator to take some action which ensured it had ongoing authority to be able to advance the Loan Case.

82    Further, respectfully, the terms of the proposed second paragraph as quoted above make it difficult to understand how that provides a basis to advance the whole of the alleged Loan Case.

83    As the liquidator now seeks to be appointed as receiver in order to advance the Loan Case, the appropriate course is for the liquidator to propose a new form of pleading that it will seek to pursue if it is successful. It will then be possible to consider whether there is a proper basis, having regard to the outcome of the application for appointment as receiver, for SSPL and the liquidator to continue the Loan Case.

84    As matters presently stand, for reasons that have been given in dealing with Issue (3), the proposed amendments are confused and difficult to understand. If allowed they would be liable to be set aside for failing to fairly and concisely disclose the nature of the case that is sought to be made when it comes to the Loan Case.

85    For those reasons, leave to make the proposed amendments to the pleading of the Loan Case is refused.

Issue (6): Should leave be given to amend the Claim insofar as it pleads the New Duty Case?

86    As has been explained, the proposed New Duty Case takes the form of a bare allegation that the failure to repay the Loans by Mr and Ms Chow is a breach of their fiduciary duties and directors' duties to SSPL. A claim in those terms which relies solely upon the failure by directors to repay personal loans made to them by the company could only succeed if every director had a duty of a kind that was always breached if a loan was not repaid. That is to say, it amounts to a case that every time a director fails to repay a loan extended to the director by the company, whatever the circumstances, there is a breach of duty. SSPL and the liquidator made no attempt to articulate any real basis for a claim of that kind. I can see no basis for a claim based upon such a broad formulation. For that reason alone, the proposed amendment must be refused.

87    I also observe that any claim that a failure by Mr and Ms Chow to repay the Loans in the specific circumstances that pertained amounted to a breach of duty would appear to be a claim that could have been formulated and advanced at any time after the demand for repayment of the Loans was made by the liquidator without payment being made by Mr and Ms Chow, that is at any time since late 2015. It is now 2024. Save for some submissions to seek to explain that time was taken by the liquidator to secure funding from the Commissioner of Taxation to bring proceedings against Mr and Ms Chow there was no attempt to explain the very considerable delay in formulating a claim of the kind now proposed. That is a further reason that counts against allowing an application to introduce a new cause of action at this stage of the proceeding. Any further application to introduce some form of new cause of action will need to address the question of delay and whether the claim arises out of the same facts such that it can be treated as an amendment that relates back to the time of commencement of the proceedings.

Summary of outcome, including as to costs

88    For reasons that have been given, there will be an order joining SS Holdings as the third respondent to the proceedings. SSPL and the liquidator will need to arrange service on SS Holdings. Save to the limited extent that the application to amend was not opposed, the application must be dismissed. The application for summary dismissal must be dismissed. There should be case management directions requiring the liquidator to file his foreshadowed application for appointment as a receiver together with any further affidavits in support of the application. It seems to me that in order to determine whether the liquidator should be appointed as a receiver of property that includes the chose in action that is the basis for the Loan Case and, if so, on what terms, it will be necessary to understand the way in which SSPL and the liquidator propose to prosecute the Loan Case as receiver given the events which have occurred up until this time. Therefore, I will also order that by the same date SSPL and the liquidator shall file a minute of proposed amended originating process and a minute of proposed amended statement of claim setting out any and all amendments sought by them if the application for appointment as a receiver is successful. Upon the filing of those papers, the parties shall each propose directions as to the hearing of the application for appointment of the liquidator as a receiver and whether leave should be given to amend in terms of the proposed minutes. Given the considerable delay by SSPL and the liquidator in formulating its case and the fact that these proceedings concern events that occurred a considerable time ago it is appropriate for clear time limits to be imposed for these steps to be taken.

89    As to costs, I propose to reserve them until the outcome of the foreshadowed application is known because, in my view, that event will be a matter that will be relevant in determining the appropriate costs order.

Associate:

Dated:    17 June 2024