In Locker Group Pty Ltd v HEA Australia Pty Ltd [2015] VSC 752 the Victorian Supreme Court, per Randall AsJ, considered the authorities relating to the obligations to provide full disclosure, the failure to disclose a material fact and the consequences of not complying with an order in the service of an application resulting in late service. The Court made orders under the Civil Procedure Act relating to the very unfortunate conduct of Locker Group. The court also considered the scope of the power under the Civil Procedure Act in making costs orders encompassing costs incurred by liquidators.

FACTS

On 16 April 2014  Australia Pressure Vessel Heads (2011) Pty Ltd, the Plaintiff, filed an originating process seeking to wind up HEA Australia Pty Ltd (‘the Company’) under s 459P of the Corporations Act 2001 (Cth) (‘Corporations Act’)[2]. On 14 May 2014 the plaintiff’s counsel appeared. There was no appearance for the Company. There were negotiations the result of which was that payment was expected within seven days. A further hearing was adjourned to 21 May 2014 [3]. At that time the plaintiff’s counsel again appeared, advised that the plaintiff had been paid out and sought to be excused. Counsel for Locker Group Pty Ltd, a supporting creditor (‘Locker Group’), appeared and advised the Court that it wished to be substituted as plaintiff. At that time the Company had not filed a notice of appearance under r 2.9  of the Supreme Court (Corporations) Rules 2013 and s 465C of the Corporations Act [4].

The Court made orders directing  the supporting creditor to file and serve any interlocutory process seeking to be substituted as plaintiff by 4pm on 4 June 2014 [4].

A law clerk in the employ of  Locker Group’s solicitors, Davies Maloney, deposed in an affidavit sworn 4 June 2014 that the interlocutory process filed on behalf of Locker Group (‘Locker Group’) and supporting material were posted to the Company at its registered office in Western Australia by prepaid addressed envelope in a letterbox situated at the document exchange in Melbourne at 5.15pm on 3 June 2014 [5].  That material reached the Company’s registered office at approximately 5pm (Perth time) on 10 June 2014 [6].

On 11 June 2014 Gardiner AsJ made orders that included the winding up of the Company. Counsel appeared for Locker Group. There was no appearance for the Company [7].  That afternoon, Perth time, the material in support of the application for substituted plaintiff and for the winding up order came to the attention of the Company’s accountant [8]. Not surprisingly, on 16 June 2014, an application was made by the parent shareholder of the Company to set aside the winding up order under r 46.08 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (‘the Rules’).

His Honour, Randal AsJ set aside the winding up order together with the order sought in the interlocutory process to substitute Locker Group as the plaintiff  with the relevant portion of the orders providing:

3. The costs of Messrs Glavas and Jess of and incidental to the Interlocutory Applicant’s Interlocutory Application filed 16 June 2014 are costs in the liquidation of the Defendant.
4. Pursuant to rule 46.08 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) … the winding up order of the Defendant and the order for substitution of the Plaintiff by Locker Group … made by the Court on 11 June 2014 are set aside.

KNM Pty Ltd (‘KNM’), the second interlocutory applicant sought orders that Locker Group pay the Defendant and KNM’s costs on the basis of a breach of section 18(d) of the Civil Procedure Act.

DECISION

Termination of winding up

The difference between setting aside the winding up order pursuant to the Rules and terminating the liquidation pursuant to s 482 of the Corporations Act. is that under the latter the winding up order was validly made which is not necessarily the case under r 46.08 of the Rules [14].

Locker Group submitted:

• that there was no jurisdiction to visit the remuneration and expenses of the liquidators upon any of the parties to the application [12].
• even upon the termination of a winding up there was no statutory power to order payment of the liquidators remuneration and expenses [15].

In considering the liquidator’s interests, in particular his/her costs, in a termination his Honour stated:

• one of the questions to be taken into account is the interests of the liquidator, particularly with respect to costs [16].
• the normal course upon termination is to extract an undertaking to meet remuneration and expenses of the liquidator [17]
• on terminating the winding up a court has ordered that the company’s bank account be made available to the liquidator to make various payments including the liquidator’s proper remuneration and disbursements [18].
• The ‘price’ (being the undertaking to meet the liquidator’s remuneration and expenses) has also been utilised in cases where the winding up order is set aside [19] .
• where there was no fault on part of the petitioner and the failure of the company to appear was due to poor advice the liquidator’s costs and expenses should be secured by appropriate undertakings [23]
• where a winding up proceeds on the basis that significant matters were not disclosed to the court which may have led to a different view being taken with respect to the application for the winding up of the company which may result in the  plaintiff should be subject to the penalty of paying the costs of both the liquidation and the summons and interlocutory process [24].

it may be wrong to burden the successful applicant with costs arising from an order that should never have been made.  A balance must be struck between the rights of the appellant/applicant, against whom an order should not have been made and the party who has simply done what the Act requires him to do

[26]

.  That may involve some injustice on the latter

[28]

His Honour noted that:

• the court does not appear to have any statutory power to order the applicant for a winding up to pay the reasonable remuneration expenses of a liquidator in the event that the order is set aside or otherwise [31].
• under  s 556(de) of the Corporations Act, a liquidator is entitled to his or her remuneration in priority [31]
•  a liquidator’s remuneration is recognised as an expense of the company in liquidation to be paid with the priority afforded by s 556[32]
• under s 473(3) a liquidator in a compulsory winding up is entitled to receive remuneration [33]
• the Court has  powers to make orders in respect of the remuneration of liquidators after the liquidator convened a meeting of creditors for the purpose affixing the remuneration and giving proper details of the remuneration [34]
• a liquidator also has the right to be indemnified for ‘all proper expenses’ by the assets available in a winding up [35]
• Rule 63.02 confers upon the Court a general power and discretion as to costs under s 24 of the Supreme Court Act[36] with  Section 24 relevantly providing:

Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.

• Rule 63.02  and s 24 are confined to ‘costs’ as that expression is used in the normal course to refer to the costs and expenses of litigation. This does not extend to remuneration and expenses of a liquidation [38].

Disclosure

In describing the process adopted by the court in winding up applications [39] his Honour stated that Management of the Corporations List involves reliance upon practitioners and seeking their assurance that the material is in order and a winding up order may be made [40].  That includes a duty of candour in an ex parte application [41] & [42].

Regarding the duty of disclosure his Honour referred, at [43], to the principles set out in  Brink’s Mat Ltd v Elcombe being:

(1) The duty of the applicant is to make “a full and fair disclosure of all the material facts”: see Rex v Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 KB 486, 514, per Scrutton L.J.

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v Kensington Income Tax Commissioners, per Lord Cozens-Hardy MR at 504, citing Dalglish v Jarvie [1850] EngR 688; (1850) 2 Mac & G 231, 238, and Browne-Wilkinson J in Thermax Ltd v Schott Industrial Glass Ltd [1981] FSR 289, 295.

(3) The applicant must make proper inquiries before making the application: see Bank Mellat v Nikpour [1985] FSR 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J of the possible effect of an Anton Piller order in Columbia Picture Industries Inc v Robinson [1987] Ch 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade LJ in Bank Mellat v Nikpour [1985] FSR 87, 92–93.

(5) If material non-disclosure is established the court will be “astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure … is deprived of any advantage he may have derived by that breach of duty”: see per Donaldson LJ in Bank Mellat v Nikpour 91, citing Warrington LJ in the Kensington Income Tax Commissioners’ case [1917] 1 KB 486, 509.

(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.

(7) Finally, it “is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded:” per Lord Denning MR in Bank Mellat v Nikpour [1985] FSR 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms.

 The Court cited, [46],  Milcap Publishing Group AB v Coranto Corp Pty Ltd  where the Court observed that:

When an ex-parte order is sought, the person seeking the order must be frank and disclose to the Court all the matters which, if put before the Court, might have an effect upon the Court’s decision. The facts that should be disclosed go both to matters of liability and matters of discretion. If a fact is material in that it would be a matter to be taken into account by a Court in the making of the decision to grant an injunction or in the formulation of the order that is to be made, it is a matter that ought to be disclosed.

Regarding service by post his Honour noted that:

• Section 109X of the Corporations Act authorises the service of documents on a company by post [49].
• under  Section 160 of the Evidence Act 2008 (Vic) [50]:

It is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia or in an external Territory was received at that address on the fourth working day after having been posted.

(Emphasis added)

His Honour found, at [51], that:

service of the application to be substituted was deemed to have been effected four working days after 3 June 2014 and was in breach of the order made 21 May 2014.

Locker Group submitted that because the affidavit of service clearly set out the date of posting the breach of the order of 21 May 2014 was appropriately brought to the court’s attention there had been full disclosure[52].

His Honour did not accept that submission stating that:

• even if it is accepted that the filing of the affidavit of service somehow excused counsel from complying with the duty to make full and frank disclosure the circumstances “..had been buried in the affidavit and not otherwise brought to the court’s attention.”
• albeit that the affidavit of service of the interlocutory process for substitution also set out at the time of posting, counsel did not discharge his duty to bring the late service to the Court’s attention. If such fact had been property disclosed to Gardiner AsJ, the winding up order would not have been made [52].

The ‘overarching purpose’ of the Civil Procedure Act 2010 (Vic)

After considering the relevant provisions of the Civil Procedure Act The Court stated that:

A.  Regarding the scope of costs orders that can be made

1. there is a distinction between legal costs or other costs or expenses of any person referred to in s 29(1)(a) of the Civil Procedure Act.
2. the remuneration and expenses properly incurred by the liquidators were expenses of the company as referred to in s 556(de) of the Corporations Act.
3. as such s 29(1)(a) is sufficiently wide to give the court “..the imprimatur to order where such costs or expenses (remuneration) ought to lie” [58].

B. Regarding the operation of the Civil Procedure Act:

His Honour quoted Oswal, at [59] where the Court of Appeal stated:

[22] The Act does not merely reaffirm the existing and inherent powers of the court but provides a powerful indication of the will of the Parliament about the values sought to be achieved by the way in which cases are managed in the courts and the balances that have to be struck…

…

[24] Section 29 was considered by Dixon J in Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd (No 4), his Honour concluding that the jurisdiction has both compensatory and punitive elements where there is a finding of contravention of an obligation. A number of judges at first instance have emphasised that the Act requires the Court to be proactive and innovative in its approach to achieve its objects….

(Emphasis added)

As a consequence of the above his Honour found, at [60], that:

1. at the time of seeking to be substituted such application by Locker Group did not have a proper basis given the breach of the order with respect to service;
2. in not bringing the late service to the attention of the Court it failed to discharge its ‘paramount’ duty to the Court;
3. accordingly, the powers set out in s 29(a) of the Civil Procedure Act are enlivened;and
4. he would be proactive in his approach.

His Honour made the following orders:

1. Locker Group pay the reasonable remuneration and expenses of the liquidators.

2. To the extent that such remuneration and expenses have been paid, Locker Group reimburse the Company with respect to the same.

3. Locker Group pay the costs of an incidental to this application dealing with that issued.

ISSUE

This decision should leave little doubt as to the determination of the Court to exercise its very broad powers under the Civil Procedure Act where it finds the conduct of a party wanting.  The Court made it clear that disclosure of an important issue requires more than referencing it in an affidavit.  That is particularly so with busy lists where there is a heavy reliance on the assistance of practitioners.  It is difficult to discern how Davies Maloney could have thought that in using ordinary pre paid post at about 5.15pm on 3 June it could have effected service, from Melbourne, in Perth the next day and avoid breaching the Court’s order.  Given section 160 of the Evidence Act prescribes 4 working days for service it is a significant error. What is equally curious is that the order for service by 4 June was made on 21 May.  That is a reasonable amount of time to comply with the Courts orders.

As a result of the findings the Court made Locker Group is the subject of some significant costs orders.