Federal Court of Australia Project Noah Holdings Pty Ltd (in liq) v Jacka [2022] FCA 778 File number: QUD 16 of 2022 Judgment of: DERRINGTON J Date of judgment: 14 April 2022 Catchwords: INSOLVENCY – liquidator's action to recover property of the company in liquidation – recovery sought under Part 5.7B of the Corporations Act 2001 (Cth) – claims relating to insolvent trading, uncommercial transactions and unreasonable director-related transactions PRACTICE AND PROCEDURE – application for judgment in default of pleading – defendants all failed to file a defence or notice of address for service – allegations in statement of claim and evidence from liquidator established plaintiffs' entitlement to relief Legislation: Corporations Act 2001 (Cth) Federal Court Rules 2011 (Cth) Cases cited: Chamberlain Group, Inc v Giant Alarm System Co, Ltd (No 2) [2019] FCA 1606 Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 32 Date of hearing: 14 April 2022 Solicitor for the Plaintiffs: Mr C Hagon of Enyo Lawyers Counsel for the Defendants: The Defendants did not appear ORDERS QUD 16 of 2022 BETWEEN: PROJECT NOAH HOLDINGS PTY LTD (IN LIQUIDATION) ACN 624 277 149 First Plaintiff CHRISTOPHER JOHN BASKERVILLE IN HIS CAPACITY AS THE LIQUIDATOR OF PROJECT NOAH HOLDINGS PTY LTD (IN LIQUIDATION) ACN 624 277 149 Second Plaintiff AND: SHAUN JACKA First Defendant FREMANTLE GOURMET PTY LTD ACN 169 451 923 Second Defendant GRUMPY FARMER NEW ZEALAND LTD COMPANY NUMBER 640 3992 (and another named in the Schedule) Third Defendant order made by: DERRINGTON J DATE OF ORDER: 14 APRIL 2022 THE COURT ORDERS THAT: 1. The defendants have leave to file and serve any application by 4.00pm on 5 May 2022 to establish why the judgments referred to in Order 2 below should not be entered. 2. In the absence of any application of the type referred to in Order 1 hereof being filed and served by 4.00pm AEST on 5 May 2022, the plaintiffs have judgment against the defendants as follows: (a) The first defendant: (i) pay the first plaintiff the sum of $172,647; (ii) pursuant to s 588M(2) of the Corporations Act 2001 (Cth), pay the second plaintiff the sum of $830,601; and (iii) pursuant to s 588FF(1)(c) of the Corporations Act 2001 (Cth), pay the first plaintiff the sum of $210,289. (b) The second defendant: (i) pay the first plaintiff the sum of $223,761.00. (ii) pursuant to s 588FF(1)(c) of the Corporations Act 2001 (Cth), pay the first plaintiff the sum of $13,484.30. (c) The third defendant, pursuant to s 588FF(1)(c) of the Corporations Act 2001 (Cth), pay the first plaintiff the sum of $17,112.45. (d) The fourth defendant, pursuant to s 588FF of the Corporations Act 2001 (Cth), pay the first plaintiff the sum of $67,406. (e) The defendants pay the plaintiffs' costs of the proceedings as agreed or taxed. 3. In the event that the defendants make an application of the type referred to in Order 1, the matter be listed for a further case management hearing at 9.00am on 9 May 2022. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DERRINGTON J: Introduction 1 The interlocutory application before the Court is made by and on behalf of Project Noah Holdings Pty Ltd (in liquidation) (Project Noah), and its liquidator, Mr Christopher John Baskerville. It is an application for judgment against four defendants in default of each of them filing a defence to the proceedings. It is made pursuant to r 5.23 of the Federal Court Rules 2011 (Cth) (the Rules) against Mr Shaun Jacka, who is the first defendant, Fremantle Gourmet Pty Ltd, the second defendant, Grumpy Farmer New Zealand Ltd, the third defendant, and Ms Christine Jacka, the fourth defendant. The evidence suggests that Mr Jacka has a degree of control over the second and third defendants. 2 When the matter was called on for hearing at 10.00am on 14 April 2022, being the scheduled time of the hearing, none of the defendants appeared, either in-person or via the video link connection or telephone number which had been made available. The evidence discloses some correspondence had occurred between the plaintiffs' solicitors and the defendants, or some of them, in relation to the proceedings. It should be noted that Mr Jacka sent correspondence to my Chambers, in which he has indicated an awareness of the proceedings. He had indicated his intention to appear by telephone because he apparently lives in New Zealand. 3 As appears from these reasons, the plaintiffs established their entitlement to judgment as claimed. After the giving of ex tempore reasons and whilst the Court was pronouncing the orders, Mr Jacka appeared by video link from New Zealand. That necessitated amending the orders which deferred the granting of judgment against the defendants for a period of time to allow them to defend the proceedings. Judgment in default – Rule 5.23 4 The application is made pursuant to r 5.23 of the Rules which provides as follows: 5.23 Orders on default (1) If an applicant is in default, a respondent may apply to the Court for an order that: (a) a step in the proceeding be taken within a specified time; or (b) the proceeding be stayed or dismissed for the whole or any part of the relief claimed by the applicant: (i) immediately; or (ii) on conditions specified in the order. (2) If a respondent is in default, an applicant may apply to the Court for: (a) an order that a step in the proceeding be taken within a specified time; or (b) if the claim against the respondent is for a debt or liquidated damages—an order giving judgment against the respondent for: (i) the debt or liquidated damages; and (ii) if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or (c) if the proceeding was started by an originating application supported by a statement of claim, or if the Court has ordered that the proceeding continue on pleadings—an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or (d) an order giving judgment against the respondent for damages to be assessed, or any other order; or (e) an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order. Note 1: The Court may make any order that the Court considers appropriate in the interests of justice—see rule 1.32. Note 2: An order or judgment under this Division may be set aside or varied. 5 The principles by which this rule is applied were helpfully set out by Yates J in Chamberlain Group, Inc v Giant Alarm System Co, Ltd (No 2) [2019] FCA 1606 [13] – [14] whose observations I gratefully adopt: 13 The power to give judgment against a defaulting party is undoubtedly discretionary. The discretion must be exercised cautiously. Where the defaulting party is a respondent to a pleaded claim, the giving of judgment for final relief on the application will deliver complete success to the applicant without investigation of the merits of the pleaded claim: ACOHS Pty Ltd v Ucorp Pty Ltd [2009] FCA 577 at [27]. There is no requirement that the act or acts of default be intentional or amount to contumelious conduct. There is no requirement that the act or acts of default result in inordinate or inexcusable delay. That said, such features, if present, will be relevant to the exercise of the Court's discretion. So too will conduct that persuades the Court that the defaulting party is manifesting an inability or unwillingness to cooperate with the Court and the other party or parties to the proceeding. 14 Rule 5.23(2)(c) requires the Court to be satisfied that the applicant is entitled to the relief claimed in the statement of claim. This requirement has been interpreted as meaning that the Court must be satisfied that "on the face of the statement of claim" the applicant is entitled to the relief that is claimed. It is not a requirement that the applicant prove its claim by way of evidence. Put another way, the facts alleged in the statement of claim are taken to have been admitted: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146; 161 FCR 513 at [42]. If, on inspection of the statement of claim, the Court is satisfied that the applicant would be entitled to the relief sought then this requirement of r 5.23(2)(c) will be met: CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd (No 2) [2011] FCA 1170 at [18] – [19]; Speedo Holdings B.V. v Evans (No 2) [2011] FCA 1227 at [23]. The Court may permit further evidence to be adduced, but not evidence that would alter the pleaded case: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427; 236 ALR 665 at [45], [48] – [50]; United Broadcasting International Pty Ltd v Turkplus Pty Ltd (No 2) [2010] FCA 1413 at [42] – [44]; Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352; 195 FCR 1 at [62] – [63]. Consideration 6 The affidavit evidence filed in these proceedings identified that each of the defendants have been served with the originating application, the statement of claim and the genuine steps statement. Service of those documents in relation to each occurred in or about early to mid-February 2022. 7 There is no doubt that none of the defendants have filed and served any defence in response to the statement of claim. They did not file any within the 28 day period provided for in accordance with r 16.32 of the Rules, or at all. 8 It should be mentioned that between 11 and 22 March 2022, the plaintiffs' solicitors wrote to the defendants on a number of occasions foreshadowing the making of the application for judgment, to which no satisfactory response was received. The application together with supporting affidavits, was filed on 29 March 2022, and on 8 April 2022 those documents were sent to the defendants by email, although only by being sent to Mr Jacka's email address. 9 In any event, the defendants did not file any notice of address for service in accordance with r 11.06 upon being served with the originating application nor, as has been mentioned, have they filed a defence to the originating application and statement of claim, as required by r 16.32. 10 For these reasons, which are supported by the filed affidavit material, the Court can be satisfied that the defendants have been properly served and have been given appropriate notice of the application. It is also apparent that each of them is in default under the Rules. Relief sought 11 By the originating application, the plaintiffs seek several forms of relief against each of the defendants. As against the first defendant, Mr Jacka, they seek the payment of several amounts said to be owing, being: (a) $172,647, said to be a debt payable by Mr Jacka to Project Noah; (b) $830,601, claimed as an amount owing to the liquidator pursuant to s 588M(2) of the Corporations Act 2001 (Cth) (Corporations Act); being the amount of the loss suffered by Project Noah as a result of its insolvent trading; and (c) $210,289, said to be payable to Project Noah pursuant to s 588FF(1)(c) of the Corporations Act as an unreasonable director-related transaction within the meaning of s 588FDA. 12 In relation to the second defendant, Fremantle Gourmet Pty Ltd, the claims are for: (a) the sum of $223,761 said to be a debt payable by that company to Project Noah; and (b) $13,484.30, as an amount payable to Project Noah pursuant to s 588FF(1)(c) of the Corporations Act by reason of the payment of that amount by Project Noah to Freemantle Gourmet Pty Ltd being an uncommercial transaction. 13 As against the third defendant, Grumpy Farmer New Zealand Pty Ltd an amount of $17,112.45 is claimed by Project Noah pursuant to s 588FF(1)(c) of the Corporations Act, also on the basis that the payment to it of a similar sum was an uncommercial transaction. 14 The claim against the fourth defendant, Ms Christine Jacka, is for $67,406 and it is made in reliance on s 588FF of the Corporations Act on the basis that the payment to her of an equivalent amount was an unreasonable director-related transaction within the meaning of s 588FDA. The legislative provisions 15 A number of the above causes of action arise under the following sections of the Corporations Act: 588FB - Uncommercial transactions (1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. 588FDA - Unreasonable director-related transactions (1) A transaction of a company is an unreasonable director-related transaction of the company if, and only if: (a) the transaction is: (i) a payment made by the company; or (b) the payment, disposition or issue is, or is to be, made to: (i) a director of the company; or (ii) a close associate of a director of the company; or (iii) a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and (c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (i) the benefits (if any) to the company of entering into the transaction; and (ii) the detriment to the company of entering into the transaction; and (iii) the respective benefits to other parties to the transaction of entering into it; and 588FE - Voidable transactions (1) If a company is being wound up: (a) a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; and (b) a transaction of the company may be voidable because of subsection (6A) if the transaction was entered into on or after the commencement of the Corporations Amendment (Repayment of Directors' Bonuses) Act 2003 ; and (c) a transaction of the company may be voidable because of subsection (6B) if the transaction was entered into on or after the commencement of that subsection. (2A) The transaction is voidable if: (a) the transaction is: (i) an uncommercial transaction of the company; or (ii) an unfair preference given by the company to a creditor of the company; or (iii) an unfair loan to the company; or (iv) an unreasonable director-related transaction of the company; and (b) the company was under administration immediately before: (i) the company resolved by special resolution that it be wound up voluntarily; or (ii) the Court ordered that the company be wound up; and (c) the transaction was entered into, or an act was done for the purpose of giving effect to it, during the period beginning at the start of the relation-back day and ending: (i) when the company made the special resolution that it be wound up voluntarily; or (ii) when the Court made the order that the company be wound up; and (d) the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of, the administrator of the company. (3) The transaction is voidable if: (a) it is an insolvent transaction, and also an uncommercial transaction, of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day. … (6A) The transaction is voidable if: (a) it is an unreasonable director-related transaction of the company; and (b) it was entered into, or an act was done for the purposes of giving effect to it: (i) during the 4 years ending on the relation-back day; or (ii) after that day but on or before the day when the winding up began. 588FF - Courts may make orders about voidable transactions (1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; … (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; … (3) An application under subsection (1) may only be made: (a) during the period beginning on the relation-back day and ending: (i) 3 years after the relation-back day; or (ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company; whichever is the later; or (b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period. (4) If the transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under subsection (1) only for the purpose of recovering for the benefit of the creditors of the company the difference between: (a) the total value of the benefits provided by the company under the transaction; and (b) the value (if any) that it may be expected that a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c). 588G – Director's duty to prevent insolvent trading by company (1) This section applies if: (a) a person is a director of a company at the time when the company incurs a debt; and (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and (d) that time is at or after the commencement of this Act. … (2) By failing to prevent the company from incurring the debt, the person contravenes this section if: (a) the person is aware at that time that there are such grounds for so suspecting; or (b) a reasonable person in a like position in a company in the company's circumstances would be so aware. 588M - Recovery of compensation for loss resulting from insolvent trading (1) This section applies where: (a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and (b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and (d) the company is being wound up; whether or not: (e) the director has been convicted of an offence in relation to the contravention; or (f) a civil penalty order has been made against the director in relation to the contravention. (1A) This section also applies if: (a) a person (the director ) has contravened subsection 588GAB(1) or (2) or 588GAC(1) or (2) relating to disposition of property by a company; and (b) one or more creditors of the company have suffered loss or damage because of the disposition and the company's insolvency; and (c) the company is being wound up. This section applies whether or not the director has been convicted of an offence relating to the contravention or a civil penalty order has been made against the director for the contravention. (2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage. (3) The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage. (4) Proceedings under this section may only be begun within 6 years after the beginning of the winding up. 16 In general terms, and for the purposes of the claims made to recover amounts of money as voidable transactions, the following can be said: (a) a transaction is a non-commercial transaction for the purpose of s 588FB of the Corporations Act if the company would not have entered into it having regard to the respective benefits and detriments of it; (b) a transaction is an unreasonable director-related transaction for the purposes of s 588FDA of the Corporations Act if it was a payment made by the company to a director or close associate of the director and it may be expected that the company would not have entered into it having regard to the benefits and detriments of the transaction; and (c) for the purpose of s 588G of the Corporations Act, a director of a company is liable if the company incurs a debt at a time when it was insolvent and the director suspected, or ought to have suspected, that the company was insolvent. The plaintiffs have made out their entitlement to recover the amounts claimed 17 On an application such as the present, the Court is entitled to give judgment against a defaulting party as is appropriate given the claims advanced in the statement of claim or other document supporting the originating application. It is also entitled to, and often does, consider additional material which might support the existence of the claims or the exercise of the court's discretion whether to accede to the application for judgment. 18 In the first instance it can be observed that the allegations in the statement of claim justify the granting of judgment in that they are sufficient to support the causes of action on which the plaintiffs rely. It is, nevertheless, appropriate to set out the background and facts relating to the payments claimed as well as those relating to the company's solvency. 19 It is noted that Mr Jacka was appointed as the sole director of Project Noah on 7 February 2018. The second, third, and fourth defendants are close associates of Mr Jacka for the purposes of s 588FDA of the Corporations Act. 20 On 14 April 2021, Mr Baskerville was appointed liquidator of Project Noah pursuant to a creditor's resolution to wind the company up. By reason of the operation of ss 9 and 91 of the Corporations Act, the "relation-back day" is 1 March 2021. 21 The substance of the allegations in the statement of claim are evidenced in an affidavit from Mr Baskerville in his capacity as Project Noah's liquidator. Mr Baskerville's evidence establishes the claims to, at least, a prima facie level. The reference to "a prima facie level" should not be taken as any disparagement of the quality of the evidence. It is simply to signify that his evidence has not been tested or contradicted in any way. However, his evidence is somewhat compelling and it establishes that Project Noah was, from at least 31 October 2018, insolvent within the meaning of s 95A of the Corporations Act. This is based on a number of reasons, being: (a) Project Noah's net cash flow was negative at all times from 31 October 2018 to the date of Mr Baskerville's appointment; (b) the "current ratio position" of Project Noah since 31 October 2018, was consistently below 1; (c) from 31 October 2018 to March 2020, a number of Project Noah's major creditors were not paid on time or at all; (d) Project Noah was apparently unable to raise any further capital. That inference can be drawn from the fact that it did not raise capital for the purposes of meeting its financial needs and nor did it attempt to do so; and (e) very significantly, Project Noah had a history of overdue Commonwealth tax lodgements and payments, which is often a signifier that a company has at least very dire liquidity issues if it is not insolvent. 22 In these circumstances, the evidence establishes that Project Noah exhibited the integers of insolvency and Mr Baskerville's evidence establishes the allegations made in the statement of claim that Project Noah was in fact insolvent on and from 31 October 2018. 23 The debts of Project Noah are not insignificant. They include unpaid employee entitlements in an amount of $18,488. It has an unpaid secured creditor in the form of the National Australia Bank, the indebtedness to which is in an amount of $782,624. Further, it has unsecured creditors whose claims against the company total approximately $1.5 million. 24 As at the date of the appointment of Mr Baskerville, Mr Jacka was indebted to the company in the amount of $172,647 and Fremantle Gourmet was also indebted to it in an amount of $223,761. A number of demands have been made upon those defendants for repayment of those amounts but, to date, those demands have remained unsatisfied. The evidence establishes that those parties are indebted to Project Noah in the amounts identified, and that Project Noah is entitled to recover those amounts as debts due to it. The evidence also establishes that the debts were not current assets of Project Noah which might be relied upon to establish solvency. 25 In relation to the insolvent trading claims the evidence establishes that, between the date of insolvency being 31 October 2018 and 25 March 2020 and between the dates of 1 January 2021 to the date of Mr Baskerville's appointment, Project Noah incurred debts in the sum of $830,601. During this period it was insolvent. Mr Jacka was the sole director of the company and, on the allegations made in the statement of claim and on the extensive evidence produced by Mr Baskerville, he was aware or ought to have been aware of the insolvency during that period. At the very least he was aware or ought to have been aware that it would become insolvent if it entered into the transactions which it did. The claim against Mr Jacka for the amount of $830,601 is established. 26 In relation to the claims of unreasonable director related transactions and uncommercial transactions, the following is relevant. From 1 May 2018 to 1 March 2021, Project Noah made a number of payments to the following persons. They include: (a) the sum of $210,289 to Mr Jacka; (b) the sum of $13,484.30 to Fremantle Gourmet; (c) payments in the amount of $17,112.45 to Grumpy Farmer New Zealand; and (d) payments of $67,406 to Ms Jacka. 27 On the allegations made and the material produced, the plaintiffs have established that the payments made to the first and fourth defendants, Mr Jacka and Mrs Jacka, were unreasonable director-related transactions, whilst the payments to the second and third defendants were uncommercial transactions. There was no commercial justification for these payments and, indeed, it appears that Mr Jacka merely used Project Noah for the dispersal of funds to related persons and entities regardless of his obligations to the company of which he was the sole director. The plaintiffs are entitled to judgment 28 As a result of the foregoing and in the circumstances where the defendants have all failed to file a defence to the statement of claim, and failed to adequately respond to the correspondence from the solicitors and/or liquidators, and/or failed to respond to the application for default judgment, it can be concluded they are each relevantly in default within the meaning of r 5.22, subparagraph (a) and subparagraph (d). 29 In relation to the observations of Yates J in Chamberlain Group Inc v Giant Alarm System Co, Ltd (No 2) [2019] FCA 1606 at [13] which have been set out above, this is not a case where the defendants were unaware of the proceedings or have some inability, or some apparent inability, to respond on the material. They have simply expressed an unwillingness to engage with the litigation or preferred to ignore it as best they can. In those circumstances, the relief sought in the draft orders should be made. Late appearance of the defendants 30 In the course of delivering the foregoing ex tempore reasons, Mr Jacka appeared on the application by video link. He informed the Court that he had miscalculated the time difference between New Zealand and Australia, which provided a reason for his non-appearance when the matter was called on. That explanation for not appearing at the appointed time might be accepted. 31 He indicated, although without evidence, that he, and it is assumed the other defendants, were trying to attend to the issues raised by the liquidators. He further asserted that he did not dispute that moneys were owing, but said that he wished to challenge the actual amounts due. In the absence of any evidence at all it was inappropriate to deny relief on the plaintiffs' application. That was especially so given the substantive weight of the evidence in the affidavit of Mr Baskerville. 32 In those circumstances, Mr Jacka was treated as applying for the deferral of the entry of judgment for a limited period of time during which he and the other defendants might file evidence demonstrating why the plaintiffs should not have the default judgments they claim. Albeit with reluctance, that request for a period of grace should be acceded to and the giving of judgment should be deferred for a period of three weeks. If by the expiration of that time the defendants have not made the applications referred to supported by evidence, the plaintiffs should be entitled to enforce the judgments given. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. Associate: Dated: 14 April 2022 SCHEDULE OF PARTIES QUD 16 of 2022 Defendants Fourth Defendant: CHRISTINE JACKA