Case: Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484
Outcome: followed
for the respondents has submitted that the relevant principles which should guide me in considering his clients' application were summarised by Lee J in Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484. In that case, his Honour said: Section 500(2) of the Corporations Law requires the leave of the Court to be obtained before an action may be commenced against a company in liquidation. The purpose of such a provision is to prevent a company in liquidation being subjected to actions that are expensive and, therefore, carried on at the expense of the creditors of the company and, perhaps, unnecessarily: Fielding v Vagrand Pty Ltd (In Liquidation) (1993) 11 ACLC 172 at 174; Ogilvie Grant v East (1983) 1 ACLC 742 at 744; Maher v Taylor (1984) 8 ACLR 931 at 934; Re A J Benjamin Ltd (In Liquidation) (1969) 90 WN (Pt 1) (NSW) 107 at 110. In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate, in respect of a particular claim, to proceed by way of action: Fielding v Vagrand at 174; Ogilvie Grant v East at 744; Stewart v Intercity Distributors Limited (1960) NZLR 944 at 946. For leave to be granted, it must be shown that there is a serious or substantial question to be tried: Oceanic Life v Insurance &amp; Retirement Planning Services Pty Ltd (In Liquidation) (1993) 11 ACLC 1157 at 1159; Olgilvie Grant v East at 744; and a real dispute between the parties: Fielding v Vagrand at 175; Zempilas v J N Taylor Holdings Ltd (In Provisional Liquidation) (No 4) (1991) 9 ACLC 297 at 298; Capita Financial Group Ltd v Rothwells Ltd (No 2) (1989) 7 ACLC 634 at 637. Leave will not be granted where the applicant does not have a genuine claim or where the claim would be futile. Hence, leave has been refused where the claim has been for unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust, on the basis that by virtue of the joint application of s 82(2) Bankruptcy Act 1966 (Cth) (" Bankruptcy Act ") and s 553(2) of the Corporations Law (or equivalent provisions), such a claim would not be provable in the winding up of an insolvent company unless judgment had been entered prior to the order for winding up: Re Autolook Pty Ltd; O'Brien v Bills (1984) 2 ACLC 30 at 33, Re A J Benjamin Ltd (In Liquidation) at 110; Page v Commonwealth Life Assurance Society Ltd (1935) 36 SR (NSW) 85 at 99; In re Southern Cross Coaches Ltd (1932) 49 WN 230; Cutten and Harvey v Mount (1989) 50 SASR 81 ; Fielding v Vagrand at 176-177; cf Re Berkeley Securities (Property) Ltd [1980] 3 All ER 513. As a result of amendments to the Corporations Law in 1992 (see ss 553 and 553E), s 82(2) of the Bankruptcy Act is no longer imported into the Corporations Law , and a claim for damages against Nericon would no longer be futile for that reason. However, nonetheless it may be inappropriate in all the circumstances to grant leave in respect of such a claim. The orderly winding up of Nericon and the interests of Nericon's existing unsecured creditors must also be taken into account: Oceanic Life Ltd v Insurance and Retirement Planning Services Pty at 1159. In a situation such as the present, where the liquidator has no funds to conduct a defence and there is little prospect of funds becoming available and the company is not insured against the damages sought, there is strong reason for refusing leave: Maher v Taylor at 934; Re A J Benjamin at 109-110. Furthermore, claims against Nericon cannot be sustained unless CALM succeeds in its claims against the first and second respondents. With respect to the declaratory and injunctive relief, it is a factor in favour of granting leave that the relief cannot be obtained otherwise than by a successful application to the Court: Vagrand Pty Ltd (In Liquidation) v Fielding (1993) 11 ACLC 411 at 414; Fielding v Vagrand at 177; Wyley v Exhall Coal Mining Co Ltd (1864) 33 Beav 538. The real purpose of the application to join Nericon is to obtain orders that will bind it in the event that the claims against the first and second respondents are made out. Another matter to consider in granting leave is that the joinder would enable the liquidator to participate in the mediation process provided by this Court and being used by the existing parties. However, these purposes can be achieved without Nericon actively participating in the proceedings as a respondent. It is likely that the declaratory and injunctive relief sought by CALM against Nericon could be obtained by consent, if CALM succeeded against either the first or the second respondent. On the material before the Court it is apparent that at least the second respondent will contest the applicant's claims. In view of the undertaking given by the liquidator, CALM's position is protected as far as Nericon is concerned and no interlocutory proceeding against Nericon is required. If circumstances change CALM may apply to vary the order I propose to make. Meanwhile, if it considers it appropriate CALM may lodge a proof of debt with the liquidator. A grant of leave can be made subject to conditions directed at minimising interference with the orderly winding up of the company in liquidation: Oceanic Life Ltd v Insurance and Retirement Planning Services Pty Ltd at 1159. In the present case, it is appropriate in all the circumstances that leave be granted to join Nericon to the proceedings, the proceeding against Nericon being restricted to claims for declaratory and injunctive relief and not to include a claim for damages or account of profits. In addition, Nericon will not be required to participate in the proceeding by filing a defence or taking any other step. In essence, the applicant for leave must satisfy the Court that there is a serious or substantial question to be tried and that the interests of justice (including the balance of convenience) would be best served by the applicant for leave being permitted to proceed. The fact that a money judgment may not be ordered is not determinative. The prospect of making declarations may justify the grant of leave. One matter which is often important is whether the applicant for leave should be left to pursue his claim by lodging a proof of debt. In the present case there will almost certainly be difficulties in the respondents successfully lodging a proof of debt in the liquidation of Bedrock. However, this is not a significant matter in this case, since there is no prospect that any funds will be available to meet such a proof in any event. Although initially I had some reservations about granting the leave which the respondents seek, the respondents have now satisfied me that it is appropriate, in the present case, to make an order in the terms of the usual order made in cases such as this. I am prepared to make those orders because the subject matter of the contraventions alleged against Bedrock is serious and involves an important matter concerning the regulation of workers' safety and should, therefore, receive the consideration of the Court in the way contemplated by the reasoning of Lee J in Ringfab Environmental Structures Pty Ltd [1997] FCA 1484 , notwithstanding the fact that the Court may not order any monetary judgment in favour of the respondents against Bedrock and notwithstanding the fact that Bedrock has no assets. For these reasons I propose to make the orders sought. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate: Dated: 21 September 2009 Counsel for the Applicant: Mr D Stewart Solicitor for the Applicant: Clinch Long Letherbarrow Pty Limited Counsel for the Respondents: Mr CD Freeman Solicitor for the Respondents: HopgoodGanim Lawyers Counsel for Mr John Howard Austin: Mr MJ Heath Solicitors for Mr John Howard Austin: Norman Waterhouse Lawyers Date of Hearing: 17 September 2009 Date of Judgment: 17 September 2009 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2009/1054.html