BHG Nominees Pty Ltd v Ellis Young Investments Pty Ltd & Ors [1998] FCA 1019

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 336 of 1998

BETWEEN: BHG Nominees Pty. Ltd (acn 073 195 025)

Applicant

AND: ELLIS YOUNG INVESTMENTS PTY LTD (acn 055 198 055)

First Respondent

COLIN ALAN ELLIS

Second Respondent

I L WOLLERMANN PTY LTD (ACN 005 645 134)

Third Respondent

IAN LAURIE WOLLERMANN

Fourth Respondent

JUDGE: WEINBERG J

DATE: 14 august 1998

PLACE: MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT There is before the Court a motion brought on notice on behalf of the applicant, BHG Nominees Pty Ltd, in which orders are sought: 1. That it have leave nunc pro tunc to commence this proceeding against the firstnamed respondent in accordance with s 471B of the Corporations Law of Victoria; 2. That the name of the firstnamed respondent in the proceeding be amended to read "Ellis Young Investments Pty Ltd (In Liquidation) [ACN 055 198 055]." Section 471B of the Corporations Law provides as follows: "471B While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes." The effect of this provision is to stay the initiation or prosecution of proceedings against a company which is in the process of being wound up, or which has been wound up, without the leave of the Court. This stay is designed to allow the liquidator to avoid the inconvenience and expense of litigation, and to leave creditors to their claims against the company in the winding-up by proving to the liquidator that those claims are enforceable. The background to the present application is as follows. The firstnamed respondent, Ellis Young Investments Pty Ltd was, prior to 18 March 1996, the proprietor of a Tattersalls agency and card and stationery sales business known as "Ellis's Highpoint Lucky Lotto" conducted from leased premises at the Highpoint City Shopping Centre in Maribyrnong in Melbourne. In or about June 1995 it engaged the third and fourth respondents through a business entity as its agents to find a purchaser for the business. By a contract of sale executed on or about 16 March 1996 the first respondent sold the business to the applicant. The applicant contends that certain representations were made by the first respondent in order to induce the applicant to enter into and complete the contract. The applicant also contends that other representations were made by or on behalf of the third and fourth respondents which also were made in order to induce the applicant to purchase the business. The applicant claims that it acted on the faith of the representations, and that it has since discovered that the representations were false. It claims that the making of the representations by the first respondent constituted conduct which was misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974, and that the second respondent aided, abetted, counselled and/or procured those contraventions. It makes similar claims against the third and fourth respondents. The present application was instituted on 21 July 1998, and is accompanied by a statement of claim dated 20 July 1998. In an affidavit sworn by the applicant's solicitor, it is deposed that he caused a company search to be conducted at the then Australian Securities Commission regarding the corporate status of the first respondent. The search returns which were provided on or about 16 July 1998 led him to understand that the first respondent had been the subject of a winding-up order made by the Court on 16 June 1998 and that a Mr Keith Laurence Sutherland had been duly appointed by the Court as the liquidator. The affidavit continues: "Notwithstanding the fact that I knew after 16 July 1998 that the firstnamed Respondent had been placed in liquidation, I saw fit to cause the Applicant's Application and Statement of Claim to be filed in the Court on 20 July 1998. I did so because of my concern that the Applicant's claims against the Respondents under the Trade Practices Act not become statute barred." It should be noted that claims brought under Part V of the Trade Practices Act must be instituted within three years of the date upon which the cause of action is said to have accrued – see s 82. In the present case, the limitation period arguably would have expired in or about August 1998. The first respondent was served with a copy of the notice of motion returnable on 14 August 1998, but in a letter addressed to the Registrar of the Court, and dated 11 August 1998, Mr Sutherland, the liquidator, stated as follows: "Dear Sirs, RE: ELLIS YOUNG INVESTMENTS PTY LTD (IN LIQUIDATION) A.C.N. 055 198 055 FEDERAL COURT PROCEEDING 1998 NO. VG336 The abovenamed company was wound up by Order of the Federal Court of Australia on the 16th June 1998 and I was appointed Liquidator. Since being placed into liquidation the company has been served with a Notice of Motion, returnable on the 14th August 1998, to commence a proceeding against the company in liquidation. Based on the Report as to Affairs that has been submitted by the directors and my enquiries to date it appears the assets of the company will not be sufficient to pay the applicant creditors costs in respect of the winding up proceeding. Accordingly I advise that the company will not be represented before Court on the 14th August 1998. Yours faithfully, K.L. SUTHERLAND OFFICIAL LIQUIDATOR" Accordingly, when the motion was argued before me, the first respondent was not represented. However, Mr Gillies who appeared on behalf of the second respondent sought leave to be heard in opposition to the motion. Mr Furnell who appeared on behalf of the third and fourth respondents also sought leave to be heard in opposition to the motion. There being no opposition to the grant of leave by Mr Moore, who appeared on behalf of the applicant, I heard from each of the respondents present in Court in opposition to the orders sought by the applicant. Mr Moore contended that I should grant leave to the applicant nunc pro tunc to commence proceedings against the first respondent. He advanced three arguments in support of this contention: (a) Although the liquidator had formed a preliminary view that there were unlikely to be any assets available for distribution to any creditors, that view may ultimately turn out to have been erroneous. The claim for damages should proceed to judgment, and should not proved as a claim pursuant to s 553 of the Corporations Law which the liquidator would not, in any event, be likely to accept. (b) The first respondent may be a necessary party to the proceeding. The liability of the second respondent is ancillary in nature, and it might be argued that without primary liability having first been established, the applicant must fail in making good a case based upon aiding and abetting. Permitting the first respondent to be joined by making the orders sought would forestall any difficulties which might otherwise arise in relation to that issue. (c) Having the first respondent named as a party would facilitate discovery. In particular, it would avoid the additional expense and complications of having to seek orders for non-party discovery. Any key documents were likely to be in the possession of the liquidator. Mr Moore submitted that it would be open to the applicant to lodge a proof of claim in the winding up if it were minded to do so. Such a claim would be treated by the liquidator as a contingent liability. The liquidator would need to obtain appropriate legal advice were such a claim to be lodged, and would be obliged to investigate the claim thoroughly. The liquidator might well, if he admitted the claim, refer the question of its value to the Court – see s 554A of the Corporations Law. There was therefore unlikely to be any additional expense or prejudice to the position of the creditors of the first respondent if the orders sought were made. Mr Gillies, in opposing the motion, submitted that the applicant's legal representatives had chosen to institute proceedings against the first respondent though it was known that the company was in liquidation. He accepted that there was power to make an order granting leave nunc pro tunc of the type which the applicant was seeking – see Murray & Murray v United Pacific Transport Pty Limited & Marnock Gardner [1960] QWN 20. There Townley J granted leave to the plaintiffs nunc pro tunc in circumstances where an action had been commenced without leave against a company in liquidation. During the course of argument before his Honour, Thomson v Mulgoa Irrigation Co Ltd [1894] 4 NSW BC 33 was cited as authority for the proposition that the Court had power to grant such leave. Moreover, in Re Gordon Grant and Grant Pty Ltd (1982) 1 ACLC 196 the relevant principles were analysed by Master Lee QC (as his Honour then was) who granted leave nunc pro tunc to proceed with an action notwithstanding that it had been commenced after the appointment of a provisional liquidator, and after the making of a winding-up order. Leave was granted, in that case, subject to an undertaking that any judgment obtained would not be enforced without leave of the Court. Master Lee QC summarised the principles which are relevant where an order is sought for leave to proceed against a company being wound up. These principles are set out at p 199 of the judgment and appear to be well established. They were cited with approval by White J in Re Coastal Constructions Pty Ltd (in liq) (1994) 13 ACSR 329 at 331-2. They are as follows: "1. An application for leave nunc pro tunc to commence any action or to continue any action which was commenced without obtaining leave may be given if good cause is shown on the merits: Australian Company Law and Practices (Wallace and Young) p. 654. 2. Section 230(3) ensures that assets of the company in liquidation will be administered in accordance with the Act and that no person obtains an advantage to which, under the Act, he is not properly entitled. It enables the Court effectively to supervise all claims brought against the company: Re Sydney Formworks Pty. Ltd. (in liq.) (supra). 3. There must be no prejudice to the creditors or to the orderly winding-up of the company if the action is allowed to proceed: Re Sydney Formworks Pty. Ltd. (supra); Re A.J. Benjamin Ltd. (in liq.) and The Companies Act (supra). 4. The applicant's claim must be of a type which should proceed by action to judgment, rather than one which is capable of being dealt with in an ordinary way by proof of winding-up: Century Mercantile Co. v. Auckland Provincial Fruitgrowers Society (1929) N.Z.L.R. 272: Batterson v. Miella Constructions Pty. Ltd. (sic) (1967) V.R. 349. 5. Leave is more likely to be granted where there is an insurance company standing behind the company to pay any judgment which the plaintiff might obtain against it. If successful, such an action is unlikely to prejudice the creditors or the company:Re Sydney Formworks Pty. Ltd. (in liq.) (supra); Re A.J. Benjamin (in liq.) (supra); the section is not designed to protect an insurer.