Associate Justice Randall in FF (R & D) Pty Ltd v Australian Securities and Investments Commission [2017] VSC 482  considered the principles in granting leave nunc pro tunc to proceed in a proceeding and the exercise of discretion under section 500 of the Corporations Act.

FACTS

The Plaintiff’s originating process sought :

• order pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (‘the Corporations Act’) directing Australian Securities and Investments Commission (‘ASIC’) to reinstate the registration of Fuji Fuels Pty Ltd (In Liq).
• leave pursuant to s 471B granting leave, nunc pro tunc, to proceed under the generally endorsed writ dated 13 September 2016 and the County Court application CI-16-04119 filed on 14 September 2016.

On 6 October 2010 an explosion occurred at Fuji Fuels’ premises.  The Plaintiff alleges that the resulting fireball and debris encroached upon it’s premises causing loss and damage [3]. Zurich Australian Insurance Ltd was the plaintiff’s insurer.  It indemnified the plaintiff and has been subrogated to the plaintiff’s claim [4] which resulted in Zurich to prosecuting the proceeding in the County Court in the name of the plaintiff . Newline Underwriting Management Ltd is the insurer of Fuji Fuels [5].

On 17 February 2012, voluntary administrators were appointed to Fuji Fuels [7] with liquidators appointed on 26 March 2012 pursuant to a creditors’ voluntary winding up [8].  On 2 July 2012, Zurich made demand of Fuji Fuels, specifically referring to its insurance to cover the loss suffered [9]. On 18 October 2013, Zurich’s solicitors wrote to Paul Quinn of McLardy McShane, Fuji Fuels insurance broker [10]. On 27 October 2014, Zurich’s solicitors wrote to Newline’s solicitors seeking a response or payment of $300,000 within seven days [11]. By letter dated 28 November 2014, Newline’s solicitors advised Zurich’s solicitors that Fuji Fuels was not liable and sought withdrawal of the claims and on 29 May 2015, Newline’s solicitors advised Zurich’s solicitors that Newline denied liability and questioning the quantum [13].  On 10 August 2015, Zurich’s solicitors advised Newline’s solicitors why Fuji Fuels is liable and how the sum of $300,000 was arrived at and threatened to commence recovery proceedings [14] which it did on 14 September 2016 with a generally endorsed writ filed in the County Court prior to the limitations period expiring on 6 October 2016, the limitation period as set out in s 5 of the Limitation of Actions Act 1958 (Vic) expired. On 7 January 2017, Fuji Fuels was deregistered [17].

On 27 January 2017, Newline’s solicitors wrote to the plaintiff’s solicitors which noting the limitation period has expired [20].  On 8 February 2017, Newline’s solicitors wrote to the plaintiff’s solicitors stating that if the leave of the Court has not been obtained to issue, then the Writ was a nullity [21].

DECISION

At [2] the Court stated that the key question for determination is whether the Court is satisfied that it is just to reinstate the company’s registration and that required consideration of:

(a) whether the plaintiff is a ‘person aggrieved by the deregistration’ for the purposes of s 601AH(2)?

(b) whether leave should be granted, nunc pro tunc, pursuant to s 500(2) of the Corporations Act in order for the plaintiff to pursue the County Court proceeding against Fuji (if reinstated)?

(i) whether the plaintiff’s claim is statute barred?

(ii) whether the court should exercise its discretion to grant leave in these circumstances?

Reinstatement

The Court identified, at [33], two main issues in an application under s 601AH to reinstate:

1.  whether the application is made by ‘a person aggrieved’; and
2.  whether the Court is satisfied that ‘it is just’ to reinstate the company’s registration.

Given the plaintiff suffered damage as a result of the explosion of Fuji Fuels’ premises it was a ‘person aggrieved’ to the extent that it has a claim against Fuji Fuels for recompense [34].

In assessing whether ‘it is just’ to reinstate the Court noted that it had a wide discretion citing Australian Competition and Consumer Commission v Australian Securities and Investments Commission which set out the relevant, non exclusive factors the court takes into account as:

• the circumstances in which the company came to be dissolved;
• whether, if the order were made, good use could be made of it; and
• whether any person is likely to be prejudiced by the reinstatement. 

 

• questions of public interest

At [36] his Honour cited Chalker v Clark in support of the proposition that  if the application for reinstatement was a device to escape the application of a limitation period, to protect the defendants against litigation being commenced too long after the events the subject of the litigation a court would not allow an application under s 601AH(3). The determination of whether leave nunc pro tunc should be granted is relevant to the assessment of whether the company’s registration should be reinstated [38].

Nunc pro tunc, pursuant to s 500(2) of the Corporations Act 

The first question for the court to determine was whether the plaintiff’s claim was statute barred pursuant to s 5 of the Limitation of Actions Act 1958 (Vic) with prima facie the limitation period expiring on 6 October 2016 [39].

The plaintiff submitted, at [40], that the limitation period ceased to run either:

1. on 20 February 2012, which was when Fuji Fuels was placed into administration; or
2. on 26 March 2012, when Fuji Fuels was wound up by resolution of the creditors.

The plaintiff relied on Pagnon to support an alternative argument that it might have a claim pursuant to s 601AG of the Corporations Act with the relevant time for determining a liability pursuant to this section is at or immediately before deregistration [40].  The Court rejected those submissions because:

• the claim in Pagnon was not statute barred at the time of deregistration, but instead it had expired at the time of the s 186(1) action. Here the claim was statute barred prior to the deregistration of the company [43]
•  the circumstances in Pagnon did not give rise to the unexplained delay by the plaintiff in the present case [44].
• the cases relied upon by the plaintiff  was that the commencement of the winding up, namely the date of the presentation of the petition, is the date at which to determine the creditors and at which to adjust their rights [46] and a debt which is statute barred prior to the commencement of the winding up is not provable in the liquidation & a debt which was not barred at the commencement of the winding up may still be proved in the liquidation, even if it is proved after the debt would ordinarily be statute barred (that is, irrecoverable by action) [47]

Exercise of discretion to grant leave?

In determining whether to grant leave pursuant to s 500(2) of the Corporations Act the court referred, at [54] & [55],  to Derham AsJ’s  decision in TimberCorp Finance Pty Ltd (In Liq) v Vivian where the following factors were identified:

…….

(d) there is.. a presumption in favour of leaving those with claims against companies in liquidation to the ordinary proof of debt procedure which is, generally speaking, a cheaper and more efficient way of resolving their claims;

(e) the starting point is that a claimant must lodge a proof of debt unless that person can demonstrate there is good reason to depart from that procedure;

(f)..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 their claim by lodging a proof of debt with the liquidator. ..the onus is on the applicant to demonstrate why it is more appropriate, to proceed by way of action;

(g) there must be a serious or substantial question to be tried and the claim must not be futile. ..There must be evidence establishing the basis for the existence of a serious question to be tried. Mere assertion, which is unsupported by a solid foundation, will not suffice. However, an applicant is not required to adduce evidence of every element of its claim because to impose that burden would be to shut out many meritorious claims;

(h) claims for unliquidated damages for misleading or deceptive conduct, for breach of contract or for tort are admissible to proof in a liquidation; and

(i) … in determining whether leave to proceed should be granted, generally relevant factors will include:

(iv) the amount, nature and seriousness of the claim;

(v) the degree of complexity of the legal and factual issues involved;

(vi) whether the relief is not otherwise available to the applicant except by application to the Court;

(vii) the stage to which the proceedings, if already commenced, may have progressed;

(viii) in the case of a counterclaim (or cross-claim), whether it arises out of the same factual matrix as the claims made in the primary proceedings;

(ix) whether there is a risk that the same issues would be re-litigated if the claims were to be the subject of a proof of debt;

(x) whether the proceedings will result in prejudice to the creditors;

(xi) whether the company has a policy of insurance from which any judgment will be paid;

(xii) whether the claim is in the nature of a test case for the interest of a large class of potential claimants;

(xiii) whether the grant of leave will unleash an ‘avalanche of litigation’;

(xiv) whether the cost of the hearing will be disproportionate to the company’s resources;

(xv) delay; and

(xvi) whether pre-trial procedures, such as discovery and interrogatories, are likely to be required or be beneficial.

Where there is an insurance company standing behind the company to pay any judgment which the claimant may obtain, that is a factor strongly favouring the grant of leave.

In this case the Court found, at [58], that:

• nothing was put to seriously challenge the expiry of the limitation period or any basis upon which it might be extended.
• there was no submission advanced to adequately explain the reason for the plaintiff’s delay in pursuing the action.

Regarding an order  nunc pro tunc the authorities provided:

• Because the power to extend time affected rights and liabilities it was essential for the Court to keep itself within the powers expressed by the statute
• whereas in certain circumstances where only procedural rights are affected, an order or an action may be deemed by a court to have taken place at an earlier time, the Court cannot make an order which deems something to have been done at an earlier time if the substantive rights of the parties preclude the later making of such an order [65]
• ^reliance upon a limitation defence is a substantive right and a court  cannot make an order which deems something to have been done at an earlier time if the substantive rights of the parties preclude the later making of such an order [64]
• the practice of the courts in giving judgments or in making orders nunc pro tunc, effectively by antedating them, whether pursuant to the rules or under their inherent jurisdiction, cannot deem something to exist which does not exist and cannot deem something to have remained in existence which no longer remains in existence [67].

In the the present case his Honour stated, at [68] & [69]:

• the limitation period expired after the commencement of the County Court proceeding and before application for leave was filed.
• granting leave nunc pro tunc  would therefore deny the defendant of its right to the limitation defence.
• as a matter of policy, the Court should not utilise the power to grant a nunc pro tunc order pursuant to s 500(2) to interfere with the right created by parliament in the Limitations of Actions Act 1958 (Vic) .
• the plaintiff has known or should have known of Fuji Fuels’ winding up since October 2013 at the latest.
• no explanation other than ‘oversight’ was proffered for the failure to seek leave either immediately before or at the time of filing the County Court proceeding
• it is doubtful that there is any residuary discretion to permit an order nunc pro tunc once substantive rights accrue.
• the leave application seems to have been actuated because of the deregistration rather than the need to regularise the proceeding.

His Honour refused to great leave nunc pro tunc.

Should the court grant reinstatement of the company, if leave nunc pro tunc is refused?

The court found, at [70], that given that leave nunc pro tunc is refused , it would follow that reinstatement of the company’s registration in these circumstances would be futile.

Other factors weighing against reinstatement were:

• the unexplained delay of the plaintiff, which resulted in the claim becoming statute barred [70]
• prejudice to the defendant by reason of the passage of time and the death of a witness [72].

ISSUE

The court undertook a very useful examination of the broad discretionary principles in granting leave under section 500 and granting leave nunc pro tunc.  The case also highlights the importance of providing a very comprehensive factual picture and explanation of obvious issues, such as the delay factor in this case.  That requires very careful drafting of affidavits.  Here there were the usual letters exhibited but not as much focus on why there was a delay.  A half a day in conference with a client asking these sometimes difficult question is better than having no clear explanation before the court.