(2001) 39 ACSR 219 (2001) 19 ACLC 1401 Reported Decision : (2001) 162 FLR 404 52 NSWLR 685 [2001] NSWSC 590 [2001] ACL Rep 120 NSW 95 New South Wales Supreme Court CITATION : Brown v DML Resources No.2 [2001] NSWSC 590 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3830/00 HEARING DATE(S) : 19 April 2001 JUDGMENT DATE : 17 July 2001 Martin Russell Brown and Timothy James Cuming (P & R) DML Resources Pty Limited (In liquidation) D1) PARTIES : DML Resources (WA) Pty Limited (In liquidation) (D2) BP Australia Holdings Pty Ltd (A1) BP Australia Pty Ltd (A2) JUDGMENT OF : Austin J COUNSEL : B Coles QC with M Ashhurst (A1 & A2) C R Newlings (P & R) SOLICITORS : Carneys, Lawyers (A1 & A2) Kemp Strang (P & R) CATCHWORDS : CORPORATIONS - winding up of company - liquidator's proceedings under s 588FF to challenge unfair preference - application for extension of time - whether s 588FF(3) authorises general extension of time without reference to particular transactions or persons PRACTICE AND PROCEDURE - procedural fairness - orders made ex parte to extend time for commencement of proceedings with respect to voidable transactions under s 588FF of Corporations Law - whether orders should not have been made ex parte LEGISLATION CITED : Corporations Law s 588FF Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Annetts v McCann (1990) 170 CLR 596 Bond Brewing Holdings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445 Cameron v Cole (1944) 68 CLR 571 Commissioner of Police v Tanos (1958) 98 CLR 383 Craig v Kanssen [1943] 1 KB 257 Dahozo Pty Ltd v Oz-US Film Productions Pty Ltd (1997) 24 ACSR 739 Foss v Harbottle (1843) 2 Hare 461 Green v Chiswell Furniture Pty Ltd [1999] NSWSC 608 Grimshaw v Dunbar [1953] 1 QB 408 CASES CITED : Hoskins v Van Den-Braak (1998) 43 NSWLR 290 Kioa v West (1985) 159 CLR 550 Murray v Legal Services Commissioner (1999) 46 NSWLR 224 National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 1 ACSR 722 Oates v Attorney-General (Cth) (1998) 156 ALR 1 Re Application of Hall [1999] NSWSC 984 Re Great Eastern Cleaning Services Pty Ltd (1978) 2 NSWLR 278 Re Richard Walter Pty Ltd [1999] NSWSC 1179 Rees v Crane [1994] 2 AC 173 Sockhill v Deputy Commissioner of Taxation (2000) 178 ALR 113 Taylor v Taylor (1980) 143 CLR 1 Taylor v Woden Constructions Pty Ltd [1998] FCA 1228 DECISION : Orders made ex parte set aside THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J TUESDAY 17 JULY 2001 3830/00 MARTIN RUSSELL BROWN & ANOR V DML RESOURCES PTY LIMITED (IN LIQUIDATION) & ANOR JUDGMENT (revised on 24 July 2001 to correct typographical errors and to add postscript) 1 HIS HONOUR: The plaintiffs, Mr Brown and Mr Cuming, are the liquidators of DML Resources Pty Ltd and DML Resources (WA) Pty Ltd ('the DML Companies'). On 4 September 2000 they applied to the Court under s 477(2B) of the Corporations Law for an order granting the Court's approval to a proposed litigation funding agreement, and under s 588FF(3)(b) for an order extending the time within which to bring proceedings to challenge transactions of the DML Companies as unfair and voidable preferences. I entertained the application on an ex parte basis, but in view of the fact that the orders sought by the plaintiffs might affect creditors who may wish to appear and make submissions, I made provisions in the orders to ensure that certain specified large creditors were served and given an opportunity to appear at a later stage. 2 I made orders extending the period within which any application in respect of a voidable transaction of either of the DML Companies might be made to 24 October 2001. I made an order granting approval to a litigation funding agreement. I directed the plaintiffs to serve copies of the originating process and the supporting affidavit, and my orders, on five named corporations including BP Australia Holdings Ltd ('BP Holdings'), and I granted those corporations liberty to file and serve any application to set aside my orders within 28 days. 3 BP Holdings availed itself of that leave within the time specified. The other creditors did not. By its application filed on 4 October 2000, BP Holdings sought orders that it be joined as a defendant to the proceedings and that my orders under s 588FF(3)(b) in respect of each of the DML Companies be set aside. The application does not challenge my ex parte order granting approval for litigation funding. 4 Subsequently I made an order that BP Australia Ltd ('BP Australia') be joined as an additional applicant, on the basis that it was a creditor in the same position as BP Holdings. The fact that BP Australia was not one of the creditors listed in my orders of 4 September 2000 does not prevent it from seeking relief, in my view. As counsel for the applicants submitted, BP Australia is entitled, ex debito justitiae , to have the orders set aside if it is able to establish that the orders affect it and were made contrary to the 'fundamental principle of natural justice': Cameron v Cole (1944) 68 CLR 571, 589, per Rich J; Hoskins v Van Den-Braak (1998) 43 NSWLR 290, 293 (Mason P); Craig v Kanssen [1943] 1 KB 257, 259 (Lord Greene MR). 5 After various interim disputes about the issue of subpoenae and examination summonses, and about an apprehension of bias on my part (which I rejected: see [2001] NSWSC 250), the application by BP Holdings and BP Australia was heard by me on 19 April 2001. This judgment relates to that application. 6 The applicants based their claim to set aside my orders upon four grounds, alleging: absence of power to make the orders; failure to provide them with an opportunity to be heard; delay; and failure to establish a prima facie case. The plaintiffs contended that none of those grounds is sufficient to justify setting aside the orders of 4 September 2000. However, the plaintiffs also submitted that if the Court decided to set aside its previous orders on procedural grounds, they should be permitted to revive their original application under s 588FF(3), notwithstanding that the three years for commencement of proceedings to challenge voidable transactions has now well and truly expired. According to the plaintiffs, once the original application is revived upon the setting aside of the orders of 4 September 2000, the Court should make equivalent orders on the merits. 7 The plaintiffs' submission led counsel for the applicants to identify three stages in the process of adjudication of the application. In Stage 1, I must decide whether the applicants are entitled to have my orders of 4 September 2000 set aside on grounds not going to the merits. If the applicants are unsuccessful in Stage 1, their application fails. But if they succeed in Stage 1, then I must proceed to Stage 2, which raises the question whether the plaintiffs can revive their application for extension of time when the application has been dealt with by the making of orders which have subsequently been set aside, given that a fresh application would now be out of time. If I decide Stage 2 in favour of the plaintiffs, but not otherwise, then I must move to Stage 3, at which point I shall consider the merits of the application for extension of time on a contested basis. 8 After hearing argument on Stage 1, I decided (with the acquiescence of counsel) that I ought not to hear argument on Stage 2 until I had made my decision on Stage 1. Consideration of Stage 2 would have been too complicated - Stage 2 would assume that the applicants had succeeded in Stage 1, but in the absence of a reasoned decision on Stage 1, it would have been necessary to make artificial assumptions as to the basis of their success. Therefore the present judgment is confined to Stage 1. 9 For the purposes of Stage 1, the evidence before the Court is limited to an affidavit by the applicants' solicitor made on 28 November 2000, and the tendering by the applicants of an affidavit by Mr Cuming made on 30 August 2000 and the numerous exhibits to that affidavit. Mr Cuming's affidavit and exhibits were tendered and received into evidence only as evidence to show what material was before the Court on 4 September 2000, and not to prove the truth of the contents of any of that material. Summary of the evidence before the Court on 4 September 2000 10 I shall set out a summary of the factual matters that were placed before the Court on 4 September 2000, since it is necessary to have an appreciation of those matters for the purposes of the decision on Stage 1. Then I shall deal with the principal contentions relevant to Stage 1. It must be remembered that my summary does not constitute any findings of fact with respect to the matters summarised, other than the finding that those matters were before the Court on 4 September 2000. 11 DML Resources commenced operation in 1991 as a contract mining, earth moving, civil construction and quarrying company. It is a wholly-owned subsidiary of a New Zealand company, DML Resources Ltd, which was placed into receivership on 1 November 1997. The ultimate holding company, as a result of a corporate reconstruction of the Main Investments Ltd group carried out in August 1997, is Vermont Pty Ltd. DML Resources (WA) is a subsidiary of DML Resources. 12 The plaintiffs were appointed administrators of the DML Companies, jointly and severally, pursuant to resolutions of their respective boards of directors dated 24 October 1997. The resolutions expressed the opinion of the directors that the companies were, in each case, likely to become insolvent in the near future. In their report as administrators of DML Resources dated 2 December 1997 the plaintiffs said that their initial review of voidable transactions indicated that there were a number of transactions that could be recoverable by a liquidator, but a more detailed investigation would be required to determine the likelihood and quantum of any recovery. The report recommended that the creditors should resolve to place the company into liquidation, to facilitate the realisation of assets. The creditors followed that recommendation and consequently the plaintiffs became the liquidators of DML Resources. By that time, the plaintiffs had already been appointed liquidators of DML Resources (WA), their resolution having been passed on 20 November 1997. 13 During the first two years of the administration, DML Resources conducted a substantial piece of litigation in the Construction List of this Court in which it claimed damages for breach of contract against Hunter Valley Coal Corporation Pty Ltd. The litigation was funded by Main Investments Ltd, which had taken an assignment of the fruits of the action prior to the commencement of the voluntary administration of company. According to Mr Cuming's affidavit, the litigation involved a hearing before referees that lasted for six weeks, and was settled late in 1999. He said that the settlement sum, after payment of costs, left no money available for the unsecured creditors of the company. 14 The plaintiffs reported to the Committee of Inspection of DML Resources (WA) by letter dated 24 February 1998. They said that on preliminary estimations, a secured creditor, Esanda, was likely to suffer a shortfall of approximately $5 million under its security in respect of the DML Group. Consequently a distribution to unsecured creditors would only be likely if the liquidators were successful in recovering voidable preferences. At a meeting of the Committee of Inspection on the same day, the plaintiffs reported that their insolvency review had identified that the company was likely to have been insolvent during the six months prior to the date of commencement of the winding up (namely 24 October 1997, when they were appointed as voluntary administrators). They informed the meeting that their initial investigation showed numerous payments totalling over $1 million to creditors, which might be attacked. The plaintiffs sent a letter to all creditors of DML Resources on 13 March 1998, similar in content to their letter to the Committee of Inspection of DML Resources (WA). 15 On 20 April 1998 Mr Brown wrote to 'BP Australia' in his capacity as a liquidator of DML Resources (WA). He said that according to the company's records, payments (which he listed) totalling $ 2,042,653.25 had been made in favour of BP Australia within the six-month period to 24 October 1997. He expressed the opinion that the company was insolvent at the time the payments were made. He said he had in his possession documents showing that BP Australia was aware that the company was insolvent as early as 1996. He demanded repayment of the stated amount as a voidable preference. The solicitors for BP Australia Ltd responded by letter dated 5 May 1998, denying that any payments received by their client constituted voidable preferences and refusing to disgorge them. Mr Cuming sent a letter in similar terms to BP Australia Ltd on 12 May 1998, in his capacity as a liquidator of DML Resources. The amount of the alleged voidable preferences was $ 3,762,150.14. The solicitors for BP Australia Ltd replied on 20 July 1998, against denying that any payments received by their client constituted voidable preferences and refusing to disgorge them. 16 Mr Cuming states in his affidavit that he identified other transactions which he considered to be voidable preferences. During 1998 the plaintiffs wrote letters concerning alleged preferences to some 37 creditors of DML Resources, and to 8 creditors of DML Resources (WA). 39 replies were received. Later in the same year letters of demand were written to 13 of those creditors. 17 According to Mr Cuming's affidavit, the DML Companies have had insufficient funds for the liquidators to pursue voidable preference claims. He says that the plaintiffs have carried out investigations and prepared reports almost entirely without funding. On 7 December 1998 the plaintiffs applied for litigation funding from Bradstock GIS, but that application was rejected early in 1999. 18 On 21 May 1999 the plaintiffs made applications on behalf of the two companies to Litigation Lending Services for finance to permit proceedings to be brought for the recovery of voidable preferences. Litigation Lending Services asked them for evidence of insolvency and legal advice to support the claims. Mr Cuming prepared a substantial document entitled 'Solvency Report' in respect of DML Resources, dated February 2000. The report is in evidence but Mr Cuming says that it was prepared for the purpose of obtaining legal advice, and claims legal professional privilege in respect of it. 19 The report contended that the company was insolvent at all times during the six months prior to 24 October 1997. One of the indicators of insolvency was that BP Australia Ltd had, he said, been extremely concerned about the ability of DML to meet its payments as far back as February 1996. At that time a payment plan was agreed between the DML and BP, supported by a letter of credit, and a deed of forbearance was entered into by both DML Companies with BP Australia Ltd in January 1997. Throughout that period, said Mr Cuming, it was clear from correspondence that DML was unable to meet its commitments to BP in a timely manner if at all. Annexed to his report are copies of the documentation and correspondence between DML and BP. 20 On 10 May 2000 the plaintiffs' solicitors, Kemp Strang, provided a lengthy written advice to Litigation Lending Services, on the strengths of the plaintiffs' preference claims. Once again, this document is in evidence but Mr Cuming claims legal professional privilege. 21 Kemp Strang advised that the plaintiffs had strong grounds for pursuing preference claims against BP and other companies. They said that, although they did not have copies of all relevant documents, they had sufficient documents to commence proceedings. However, they advised that in view of the complex nature of the transactions involving BP and the size of the potential recovery, a public examination should be conducted in respect of transactions involving BP. Issues relating to a bank guarantee obtained by BP, and the availability of the 'running account' defence, should be investigated in the public examination. They referred to the possibility that BP may have other defences under s 588FG(2). They identified the evidence that would be needed in proceedings against BP. They noted that unless proceedings were commenced prior to the end of September 2000, it would be necessary to obtain an extension of time or to file the initiating process and have the proceedings stood over until the public examinations were held and concluded. 22 Kemp Strang's letter said: 'Further, it appears from correspondence from lawyers acting for BP that BP will defend any claim vigorously. It is more likely that a resolution to the claim would be reached if an examination were conducted initially.' 23 Mr Cuming says that Litigation Lending Services approved the applications on about 1 August 2000. The documentary evidence shows that they submitted their Funding Agreement to Mr Cuming in respect of DML Resources on 10 April 2000, and they submitted a similar Funding Agreement to him in respect of DML Resources (WA) on 1 August 2000. The funding was to be provided for the plaintiffs' application to extend the time limit under s 588FF(3)(b) to commence preference proceedings generally, for public examinations in respect of claims against the defendants mentioned below, and for preference actions against those defendants. In the case of DML Resources, the specified defendants are BP Holdings, Cooks Construction Pty Ltd, Marubeni Construction & Mining Equipment Pty Ltd and CBS Drill & Blast Pty Ltd. In the case of DML Resources (WA), the specified defendants are BP Holdings and CJD Equipment Pty Ltd. These five companies are the ones that I named in my orders of 4 September 2000, as the companies to whom notice was to be given. 24 On 18 August 2000 there was a meeting of the Committee of Inspection of DML Resources. The Committee resolved to authorise the liquidators to enter into the funding agreement for the purpose of pursuing creditors for the recovery of preferences within the meaning of s 588FA of the Corporations Law. A representative of BP Australia Ltd attended the meeting and voted against the resolution, but it was carried. The plaintiffs have not called a meeting of the Committee of Inspection of DML Resources (WA), because two of the three committee members are potential defendants to preference actions. Since there have been insufficient funds to call a meeting of creditors of DML Resources (WA) generally to approve the funding arrangements, the plaintiffs have sought approval by the Court under s 477(2B). 25 Mr Cuming says in his affidavit that Kemp Strang's advice suggested to him that he should conduct an examination prior to commencing any preference actions, on the basis that he had been unable to obtain sufficient evidence concerning any potential defences available to creditors whom he believed to have received unfair preferences. He says that if the examinations reveal that there are defences available to the creditors, then he does not propose to commence proceedings. Counsel for the applicants reminded the Court, in submissions, that these statements have not been received into evidence as proof of the facts asserted. Counsel submitted that Mr Cuming's statement is inconsistent with the advice of Kemp Strang, and he noted that there was no evidence of the likely attitude of the other liquidator, Mr Brown. Absence of power to make the orders 26 The orders that I made on 4 September 2000 purported to grant an extension, in respect of both of the DML Companies, of the period within which any proceedings in respect of any voidable transaction of the relevant company could be brought. By that time, according to Mr Cuming's affidavit, preference claims had been made against about 37 creditors of DML Resources and eight creditors of DML Resources (WA), but litigation funding had been obtained in respect of only four creditors of DML Resources and two creditors of DML Resources (WA). It obviously would have been possible to limit the application under s 588FF(3) to the group of creditors in respect of whom funding had been obtained, or to BP Holdings alone. But the application was for an order not limited to particular transactions or particular creditors. The applicants submitted that s 588FF(3) does not empower the Court to make so broad an order. 27 Section 588FF is part of Part 5.7B Division 2 of the Corporations Law. The structure of Division 2, so far as relevant, is as follows. The Division begins by defining the concepts of 'unfair preference' (s 588FA) and 'uncommercial transaction' (s 588FB). Section 588FC uses these concepts to build the definition of 'insolvent transaction'. Section 588FE then says that insolvent transactions are voidable if they occur within various specified times before the commencement of the winding up, the times varying depending upon such matters as the nature of the transaction and the purpose for which it was entered into. Section 588FF gives the Court statutory power to make orders with respect to a voidable transaction. 28 Relevant parts of s 588FF are as follows: '(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 of the following orders: … (3) An application under subsection (1) may only be made: (a) within 3 years after the relation-back day; or (b) within such longer period as the Court orders on an application under this paragraph by the liquidator within those 3 years.' 29 In Green v Chiswell Furniture (paragraph 14) I explained the history and purpose of the enactment of s 588FF(3) by referring to a textbook by Andrew R Keay, Avoidance Provisions in Insolvency Law (1997). At p 286 Professor Keay explained the background and purpose of s 588FF(3) as follows: 'Any court proceedings relating to bankruptcy must be initiated within six years from the date of bankruptcy. The same principle formerly applied in liquidations, that is, the limitation period was six years from the date of either the winding up order or the resolution of members to wind up. Now, under the present regime, the limitation period will usually be three years from the relation-back day. The court may grant a longer period if the liquidator lodges an application within the three years. This provision follows the recommendation of the Harmer Report which accepted the correctness of many submissions that sometimes there were inordinate delays in the commencement of proceedings where voidable transactions had been entered into, and the Report acknowledged that there had been 'recent judicial observations' which had been critical of delays in the winding up of insolvent companies.' [I have omitted Professor Keay's footnotes.] 30 In my opinion, these observations provide only limited assistance towards the resolution of the issues raised in this case. Part of the legislative purpose appears to have been to protect potential defendants from late claims, but the legislature acknowledged that there will be occasions when it is appropriate to allow an extension of the three-year period. This may be contrasted, for example, with s 459G, which sets a time limit for the commencement of proceedings to set aside a statutory demand and does not allow for any extension of time. Another aspect of the legislative purpose appears to have been to protect creditors generally from delays in administration of the winding up of the debtor company, but it would be a subversion of that purpose to construe s 588FF(3) in a manner that had the effect of depriving the liquidator of adequate time to pursue recoveries for their benefit. 31 The applicants submitted that s 588FF(3) provides only for an extension of time to commence an application under subsection (1). Subsection (1) refers to the Court granting specific relief against particular persons. It does not, in the applicants' submission, allow for general orders of the type that I made in these proceedings. 32 As far as I have been able to discover, the applicants' point has not been considered in decided cases. The application of s 588FF(3) was considered by Finn J in Taylor v Woden Constructions Pty Ltd [1998] FCA 1228 (23 September 1998), and, in turn, judges of this Court the subsection in Green v Chiswell Furniture Pty Ltd [1999] NSWSC 608 (23 June 1999, a decision by me), Re Application of Hall [1999] NSWSC 984 (7 September 1999, Hamilton J) and Re Richard Walter Pty Ltd [1999] NSWSC 1179 (2 December 1999, Santow J). In Taylor the orders were limited to a specific application, whereas in Green , Hall and Richard Walter the orders were in general terms similar to the orders made by me in the present case. However, the issue now raised by the applicants was not expressly considered in any of those cases. 33 In my opinion the applicants' submission places an unduly restrictive interpretation on s 588FF(3). The statutory language does not literally require the construction that they advance. It is true that subsection (1) speaks of a particular application concerning a single transaction, and the opening words of subsection (3) refer to the specific application identified by subsection (1). But subsection (3) refers to the application under subsection (1) only in order to say that such an application must be made within the period of time that subsection (3) sets. Subsection (3) does not say, as it might readily have said if the applicants' contention were correct, that the application under subsection (1) may only be made within a longer period than three years if the Court allows that application to be brought later. Instead, it sets the time limit for making an application under subsection (1) as three years after the relation-back day, or such longer period as the Court orders on an application under subsection (3) - that is a different application whose purpose is only to extend the time period. Consistently with the wording of subsection (3), the application to extend the time limit can be an application to extend the time limit within which a particular subsection (1) application can be made, or a broader application that applies to the particular subsection (1) application under consideration and to other applications as well. I see no reason why the other applications cannot be described by category rather than in specific terms, provided that the description is clear. 34 The construction for which the applicants contended would, in my opinion, unnecessarily hamper the work of liquidators for no good reason. I accept the applicants' submission that a purpose of the statutory reform that produced s 588FF was to prevent liquidators from relegating the recovery of voidable preferences to the end of their work programs. The investigation of voidable transactions should generally be conducted concurrently with their other liquidation work. Nevertheless, there will be some cases where, notwithstanding the most diligent of efforts, the liquidator is so far short of completing his or her investigations towards the end of the time limit that it is impossible to identify particular transactions in respect of which orders for extension of time could be made. 35 In some cases, this could be because of the size and complexity of the business and affairs of the company and the volume of work required to administer the insolvency. Re Application of Hall is an example of such a case, and Re Richard Walter Pty Ltd is also a case of complex administration, with the additional fact that the liquidator had to wait for the determination of tax litigation involving the company that would materially affect the course of administration. In other cases, the problem may arise because the three year period is defined (under Part 5.6 Division 1A) by reference to the relation-back day, and can commence to run well before the liquidation of the company actually begins. Green v Chiswell Furniture was such a case, because there the relation-back day was 1 May 1996, the day when the plaintiff was appointed administrator of the company; but he became the liquidator, and was consequently placed in a position to consider voidable transactions comprehensively, only on 21 January 1999, when the creditors resolved that the company be wound up after a deed company arrangement had been in operation, unsuccessfully, for an extended period. Consequently, the liquidator had only a few months to consider whether there were any voidable transactions that were open to challenge. 36 In circumstances such as these, the liquidator may not be in a position, through no fault of his or her administration, to specify within the statutory time limit each transaction that should eventually be challenged as a voidable transaction. If the Court cannot make orders under s 588FF(3) except in respect of specific transactions, it will be unable to extend time in such cases. The consequence would be to defeat the interests of creditors. The statutory wording does not require such a restrictive construction of the section, and such a construction would be contrary to the purposes for which Part 5.7B Division 2 was enacted. The Court is required by s 109H to prefer a construction that would promote the purpose or object underlying the Corporations Law over a construction that would not promote the purpose or object. The relevant purpose or object is the protection of the interests of creditors by allowing the liquidator to pursue recoveries in respect of voidable transactions, where the Court considers that commencement of proceedings for that purpose would be warranted after the expiration of the statutory time limit. 37 The applicants described a general order of the kind made in this case as an order reflecting an 'ambit claim' by the liquidators. To make such an order, they said, would mean that no one who had had commercial dealings with the company before commencement of the winding up could be sure that he or she was beyond the liquidators' reach, even though the statutory time limit would have expired if the order had not been made. In my opinion this submission identifies a matter that the Court should take into account in the exercise of its discretion to grant or refuse the application for an extension of time. It is undesirable to leave creditors in a state of uncertainty as to the validity of their transactions with the company for an extended time, and the Court should therefore be careful not to grant an unwarranted extension or an extension for an unwarranted period. But sometimes the exigencies of the case warrant an extension notwithstanding that commercial uncertainty will be continued for the period of the extension (or to the point of commencement of proceedings against the creditor within the extended period). 38 My conclusion is that the orders made on 4 September 2000 were of a kind authorised by s 588FF(3). Failure to provide the applicants with an opportunity to be heard 39 The applicants submitted that the plaintiffs knew, prior to commencing the present proceedings, that the applicants would be adversely affected by the orders that the plaintiffs sought. As a matter of procedural fairness, therefore, the plaintiffs should have served the applicants with the originating process, or at least notified the applicants that they had commenced those proceedings prior to the ex parte hearing. There being no governing statutory provision or rule of Court, the applicants rely on general principle. The general principle 40 The importance of the audi alteram partem rule of natural justice, especially in curial proceedings, can hardly be overstated. In Cameron v Cole (1944) 68 CLR 571, 589 Rich J described it as a 'fundamental principle', and in Commissioner of Police v Tanos (1958) 98 CLR 383, 395 Dixon CJ and Webb J referred to it as a 'deep-rooted principle of law'. The question in the present case is whether this fundamental principle entitles a person who is affected by a general order not specifically directed to him, to insist on notice of the application for the order before it is made. 41 Some of the decided cases are about failure to serve or notify a party to the proceedings before an order is made. Since the question involves someone who is already a party to the proceedings, it is unnecessary for the Court to determine how far the principle extends beyond non-parties: see, generally, Taylor v Taylor (1980) 143 CLR 1, 4. Thus in Grimshaw v Dunbar [1953] 1 QB 408 the question was whether a judge should have ordered a retrial when the defendant gave a plausible explanation for his absence at the earlier hearing at which orders were made against him. Jenkins LJ said (at 416) that 'a party to an action is prima facie entitled to have it heard in his presence', and that 'if by some mischance or accident a party is shut out from that right and an order is made in his absence, then common justice demands, so far as it can be given effect without injustice to other parties, that the litigant who is accidentally absent should be allowed to come to the Court and present his case - no doubt on suitable terms as to costs …'. Similar issues arose in Cameron v Cole , where Rich J said that 'a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case'. The applicants in the present case fall outside the ambit of the principle described by Jenkins LJ and Rich J, for they are neither parties to the present proceedings nor persons against whom a claim or charge is made in the present proceedings. 42 However, it is clear from Commissioner of Police v Tanos that the principle of natural justice in curial proceedings is not confined to parties or persons against whom claims or charges are made. In that case a regulation authorised an application to declare premises a disorderly house to be made to a judge in private chambers, and empowered the judge to make the declaration immediately and ex parte, or to direct that the owner or occupier of the premises be served with the documents before an order was made. One of the questions before the High Court was whether an ex parte order made under these provisions had been properly made. Dixon CJ and Webb J began (at 395) with the 'deep-rooted principle of the law that before any one can be punished or prejudiced in his personal property by any judicial or quasi-judicial proceeding he must be afforded an adequate opportunity of being heard'. In their Honours' view, the principle extended to any case where a person could be punished or prejudiced, regardless of whether that person was a party or someone against whom a claim or charge was made in the proceedings. Beginning with that proposition, their Honours reasoned that the regulation should not be interpreted as abrogating the basic principle and leaving the question to the judge's discretion at large. They construed the regulation as meaning that, prima facie, notice should be given to the owner or occupier, and only in exceptional or special cases should an immediate declaration be made (at 396). They acknowledged (at 396) that the principle of natural justice can be ousted by legislation. Although an intention to do so 'must satisfactorily appear from express words of [sic] plain intendment', 'exceptional cases may be imagined in which because of some special hazard or cause of urgency an immediate declaration is demanded'. 43 Mason J gave an even broader formulation of the ambit of the principle in Kioa v West (1985) 159 CLR 550. His Honour said (at 582): 'It is a fundamental rule of the common law doctrine of natural justice expressed in traditional terms that, generally speaking, when an order is to be made which will deprive a person of some right or interest or the legitimate expectation of a benefit, he is entitled to know the case sought to be made against him and to be given an opportunity of replying to it. … The reference to 'right or interest' in the formulation must be understood as relating to personal liberty, status, preservation of livelihood and reputation, as well as to proprietary rights and interests. The reference to 'legitimate expectation' makes it clear that the doctrine applies in circumstances where the order will not result in the deprivation of a legal right or interest. …' 44 The notion that a duty of procedural fairness arises because the power involved is one which may destroy, defeat or prejudice a person's rights, interests or legitimate expectations, was reinforced and confirmed by the High Court in Annetts v McCann (1990) 170 CLR 596, 598 (per Mason CJ, Deane J and McHugh J) and Ainsworth v Criminal Justice Commission (1992) 175 CLR 564, 576-7 (Mason CJ, Dawson, Toohey and Gaudron JJ). In Oates v Attorney-General (Cth) (1998) 156 ALR 1 the Full Federal Court applied the concept of 'legitimate expectation' to the ministerial discretion under s 1316 of the Corporations Law to consent to a prosecution outside the five-year period stipulated by that section. The Full Court held that s 1316 gave the accused either a conditional right to rely on the time limit by way of defence, or a legitimate expectation that he would be given the opportunity to comment before his immunity from prosecution was removed. The minister's decision was not merely a decision to prosecute, which would not affect any legal right, interest or expectation. It was a decision that removed a bar to prosecution, and once made, the decision need not be revisited during the course of the prosecution. It was therefore no answer to the accused's complaint of lack of procedural fairness that he would have the opportunity to put his case at his trial. 45 As the ambit of the principle has expanded into administrative decision-making affecting expectations, the content of the duty of procedural fairness has become less rigid. Cases on administrative law recognise that, in some circumstances, the duty of procedural fairness can be discharged by giving the affected person the opportunity to make submissions after the initial decision has been taken. The general position was described by Lord Slynn of Hadley, who gave the opinion of the Privy Council, in Rees v Crane [1994] 2 AC 173, a case concerning a procedure for removal of a judge from office, which involve three stages. His Lordship said (at 191-192): 'It is clear from the English and Commonwealth decisions which have been cited that there are many situations in which natural justice does not require that a person must be told of the complaints made against him and given a chance to answer them at the particular stage in question. Essential features leading the courts to this conclusion have included the fact that the investigation is purely preliminary, that there will be a full chance adequately to deal with the complaints later, that the making of the inquiry without observing the audi alteram partem maxim is justified by urgency or administrative necessity, that no penalty for serious damage to reputation is inflicted by proceeding to the next stage without such preliminary notice, that the statutory scheme properly construed excludes such a right to know and to reply at the earlier stage. But in their Lordship's opinion there is no absolute rule to this effect even if there is to be, under the procedure, an opportunity to answer the charges later. As Professor de Smith puts it in de Smith's Judicial Review of Administrative Action , 4th ed (1980) at 199: 'Where an act or proposal is only the first step in the sequence of measures which may culminate in a decision detrimental to a person's interest, the courts will generally decline to accede to that person's submission that he is entitled to be heard in opposition to this initial act, particularly if he is entitled to be heard at a later stage.' (Emphasis added.) In considering whether this general practice should be followed the courts should not be bound by rigid rules.' 46 If anything, Australian courts may be less inclined than the English courts to regard an opportunity to be heard after an initial decision has been taken as sufficient compliance with the duty of procedural fairness. In Commissioner of Police v Tanos Dixon CJ and Webb J said (at 242) that 'the older authorities ever recur to the lines from Seneca's Medea … : Quicunque aliquid statuerit, parte inaudita altera, Aequum licet statuerit, haud aequus fuerit …', which their Honours described as 'the general principle' that had been restated by later courts, including the High Court. Seneca's proposition implies that justice will not be done, though the decision be correct, unless the decision-maker hears both sides before the decision is made. 47 Lord Slynn's observations were quoted with approval by Sheller JA (with whom Priestley and Stein JJA agreed) in Murray v Legal Services Commissioner (1999) 46 NSWLR 224, but the decision in Murray's case amounts to a warning about the application of Professor de Smith's observation. The warning is to the effect that, not infrequently, the first step in a sequence of measures may itself be sufficiently detrimental to a person's interests and legitimate expectations that an opportunity to be heard before the first step is taken will be required. 48 In Murray's case the Commissioner conducted an investigation into a complaint against a legal practitioner. There the question was whether the Commissioner was required to give the legal practitioner an opportunity to be heard, and consequently access to a copy of the complaint, before making a decision under s 155 of the Legal Profession Act 1987 (NSW) to institute proceedings or take some other steps. The Court gave an affirmative answer. Section 155 required the Commissioner to be 'satisfied' of certain matters, and Sheller JA said (at 247) he found it hard to imagine that the Commissioner could reach the required level of satisfaction without taking into account the legal practitioner's response to the complaint made against him or her. He also drew attention to the serious consequences to the legal practitioner of an adverse decision. He concluded that these considerations gave the legal practitioner a legitimate expectation that he would be heard before the Commissioner made a decision under s 155. Company law cases 49 In the field of company law, the general approach of the courts (subject to the rules of court) has been to apply the principle of natural justice unless there is special reason for not doing so. Where, for example, an application is made for the reinstatement of a company, there is no absolute requirement to join or notify everyone who may be affected by the reinstatement, but if an identified person will be affected by the order, the Court will normally require notification of that person before the application is determined. Thus, in Re Great Eastern Cleaning Services Pty Ltd (1978) 2 NSWLR 278 the company had incurred a liability to pay unremitted group tax to the Commissioner of Taxation, who therefore commenced proceedings for personal recovery against the person who was operating the company. The reinstatement of the company would cause the Commissioner's proceedings against that person to fail in limine. It was held that, although the Corporate Affairs Commission had appeared as a respondent to the application, the Commissioner of Taxation was entitled to appear in opposition to the application for reinstatement. The question before the Court was whether, under the Supreme Court Rules, the Commissioner was entitled to appear, but Needham J's reasoning implies that in the case before him, his Honour regarded notification to the Commissioner as an essential step. He said (at 281): 'The Court, in determining whether a company's name is to be restored to the register, should, before exercising its discretion to make or refuse such an order, take into account what effect such an order could have, not only on the applicant, but on other persons. It seems to me that the Commissioner is in a position to put before the Court matters which could be relevant to the exercise of the discretion. There is no one else who has been shown to have any interest in putting forward such matters. The respondent Commission is interested only to see that an order for restoration is accompanied by orders or undertakings which will ensure that the company will operate in accordance with the requirements of the law. It appears to be an inevitable conclusion that the Commissioner is one whose 'joinder as a party is necessary to ensure that all matters in dispute in the proceedings may be effectually and completely determined and adjudicate upon'.' 50 In Dahozo Pty Ltd v Oz-US Film Productions Pty Ltd (1997) 24 ACSR 739 the plaintiffs were shareholders of a defunct company. They wanted the company to take proceedings against one Mr Heath, and had earlier tried to take those proceedings as representatives of the company, by way of exception to the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189, but those proceedings were dismissed. They applied to the Court for orders reinstating the company and appointing a new liquidator, so that the company in liquidation could take the proceedings. They named the company as sole defendant, notwithstanding that it was defunct. Both the Australian Securities Commission and the previous provisional liquidator (a liquidator never having been appointed) indicated that they did not wish to be respondents to the application. 51 Bryson J held that Mr Heath should be joined as a respondent to the application for reinstatement. His Honour said (at 741-2): 'A first principle for the exercise of the powers of courts is that the persons affected should be heard before a judicial decision is made against them. Audi alteram partem . For most applications there are procedural rules requiring service of notice of the application on the persons affected. There are rare instances of statutory provisions authorising the courts to act without such notice. Otherwise courts do not act in those circumstances, or if they do, the persons adversely affected are entitled to obtain reconsideration by the Court of the order if they apply reasonably promptly after they learn of the order. Lawsuits are usually brought against a defined number of defendants so that it is easy to see who should have notice before proceedings are commenced. When an application is made to reinstate a company to the register the persons whose interests might be adversely affected by the reinstatement cannot always be identified readily or immediately, and there could be many circumstances in which the impact on some person of action taken on the basis that the company was off the register could not be perceived by the applicant or by the court. Whether or not the court's order reserved liberty to persons so affected to apply to set the order aside, it will be open to the person who was not a party to the application to apply later to set it aside if that person had grounds on which the court should reconsider whether the court is satisfied that it is just that registration of the company be reinstated. However when it is known to the court that some person has an apparent interest in a reinstatement application, the court would ordinarily make a direction which would enable that person to resist, such as requiring service of notice of the application on a person, making the person respondent to the application or allowing the person to intervene. The absence of any provision in the rules of court dealing with this is not an indication that notice of an application is not necessary; it is to be explained rather by the court's ordinarily acting in accordance with the audi alteram partem rule.' 52 Bryson J first heard the application six days before the expiry of the limitation period for commencement of the proceedings against Mr Heath, on one view of the facts. Noting that the controversy had existed in various forms for nine years or more, he found that this consideration should not override the ordinary requirement that notice of the application be given to an affected person. He rejected the notion that the Court should make the reinstatement order immediately while making provision for Mr Heath to apply later to set it aside, saying (at 743): 'Review of the cases to which counsel has referred me has confirmed my view that the Court does not and should not adopt any practice in which notice to persons affected is treated as unimportant or the burden is put on such persons of applying to set aside an order after it has been made.' 53 The Corporations Law contains a very large number of judicial discretions to modify ordinary outcomes. A substantial proportion of the matters in the Corporations List of this Court are applications for the exercise of such discretions. Many of those applications are by liquidators or voluntary administrators who need an order of the Court to facilitate some aspect of the insolvent administration of the company. Common examples are applications for approval to enter into agreements for a term of more than three months (s 477(2B), applications for directions (s 479(3)), applications for the termination of a winding up (s 482) and applications for an extension of time to convene a meeting (for example, under s 439A). Applications to which the applicant does not propose to join any party as a respondent are almost an everyday occurrence in the area of insolvent administration of companies. 54 Frequently the making of the order on such an application has an effect of some kind on the interests of persons who have not received notice of the application. For example, where a voluntary administrator applies to extend the convening period for the second meeting of creditors under s 439A, the order will extend the moratorium during which the rights of chargees, lessors, employees and other creditors, and litigants against the company, are suspended under Part 5.3A. It is not, as I understand the position, the normal practice of this Court to require notification of the application to all such affected persons on every occasion. On the other hand, the cases mentioned above show that the audi alteram partem rule is just as relevant to applications under the Corporations Law as it is to proceedings of any other kind. 55 In my respectful opinion, the distinction between Corporations Law cases where notification of the application is to be given to affected persons, and cases where the application can proceed on ex parte basis, is to be drawn by following the approach of Bryson J in the Dahozo case. A similar approach may be found in the bankruptcy context ( Sockhill v Deputy Commissioner of Taxation (2000) 178 ALR 113 (Dowsett J)), and in other commercial contexts: Bond Brewing Holdings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445, 457 and National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 1 ACSR 722 at 724. At one extreme, there will be cases where it is plain that the application seeks relief against a person, and therefore that person should be a respondent to the application. At the other extreme, there will be cases where the Corporations Law gives the court a discretion to permit an administrative step to be taken which would otherwise be prohibited, but there is no need to join any respondent to the application or give notice to affected persons for one or more of several reasons. Those reasons may relate to such matters as the large number of affected persons, difficulty in identifying them, or the relatively insignificant effect of the order upon them. But even where it is not feasible to notify all affected persons, there may be one or a small number of identified persons who have an interest in the application or a legitimate expectation to be consulted before the order is made. Thus, on the facts before him it was clear to Bryson J that Mr Heath had a strong interest in the application to reinstate the company, and so it was appropriate to require that he be joined as a respondent. The present case 56 In the present case the plaintiffs did not apply for relief 'against' the applicants, in any sense that would make the applicants natural respondents to the application. The position may have been different if, on its proper construction, s 588FF(3) had required the application for an extension of time to relate to particular proceedings against identified defendants, but I have held that the subsection permits an order to be made extending the time for taking proceedings generally. Given that construction of the subsection, there will be cases where, applying Bryson J's approach, the Court will not require the application to be notified to anyone. In my view, this will be an appropriate procedure in cases where, for good reason, the liquidators have not been able to identify specific targets for unfair preference proceedings and are seeking additional time for investigations. The question is whether the same approach is justified where it is evident that the liquidators, although they seek a general order, have identified specific transactions and defendants before the application for an extension has been made. 57 The applicants say that they have an interest or legitimate expectation because they would be adversely affected by the making of the orders. The plaintiffs challenge this claim, contending that there is no evidence before me that the applicants were relevantly prejudiced by the orders made by me on 4 September 2000. 58 I disagree with the plaintiffs' submission. There is an analogy between the present circumstances and the facts of the Oates case. The orders of 4 September 2000 exposed the applicants to potential preference claims in circumstances where, otherwise, such claims would be statute barred; in the Oates case, the accused had an immunity from prosecution unless the minister granted leave to prosecute. They were cases where the exercise of a discretion extinguished what would otherwise have been statutory rights, rather than merely deferring the assertion of rights. In both cases it can be said that the person affected by the exercise of discretion had a legitimate expectation to be consulted. Moreover, the making of the orders of 4 September 2000 made it possible for the plaintiffs to proceed to examine officers of the applicants under Part 5.9 of the Corporations Law. There is a sense in which examinations of this kind do not affect rights, but are rather part of a process of investigation that may, or may not, lead to proceedings in which the defendants will have an opportunity to vindicate their position. But the question whether the strict rights of the present applicants were affected by the examination procedure is not the correct question to ask. The issue is whether their exposure to the examination process as a consequence of the making of the orders gave them an interest or legitimate expectation to be consulted. I infer that examination of corporate officers who were senior enough to be involved in the large transactions between the applicants and the DHL Companies would have involved some disruption of the ordinary business and affairs of the applicants. That circumstance reinforces my conclusion that they had an interest or legitimate expectation with respect to the making of the orders. 59 The plaintiffs submit that if there was any prejudice to the applicants, they were unaware of it. The evidence of Mr Cuming is that he concluded that the BT transaction was likely to be a preference and obtained legal advice to the effect that he should conduct examinations prior to commencing any proceedings. His view was that if the examinations revealed that there were defences available to creditors (including the applicants) then he would not commence proceedings. It follows from that evidence, according to the plaintiffs, that the orders sought and made on 4 September 2000 did not necessarily adversely affect BP at all. But apart from the question whether I am in a position to accept Mr Cuming's evidence as proof of the liquidators' attitude, given the limited basis upon which that evidence was tendered and received, my view is that the making of the orders did prejudice the applicants in the ways that I have just described, and that the plaintiffs were well aware of these matters. They were aware that the orders would take away the protection of the three-year time limit, and that they would expose the applicants to the inconvenience and disruption of the examination process. 60 The plaintiffs submitted that if, as they contended, a liquidator is entitled to obtain a general order to extend the time to commence proceedings, not limited to specified proceedings, it is nonsensical to suggest that every person who may have had a dealing with the company would be prejudiced by the order. While I agree with the plaintiffs' construction of s 588FF(3), and I accept that not everyone who has had a dealing with the company must be notified of the application, there is nothing nonsensical in the proposition that a person who has been specifically identified as a proposed defendant to unfair preference proceedings, and with whom the liquidators have had a substantial and contentious correspondence, has a legitimate expectation of being notified before the order for extension of time has been made. 61 Bryson J's approach does not require liquidators to give notice of their application under s 588FF(3) to every person who has had dealings with the company during the relevant period, nor even to every creditor whose transaction with the company might be challenged as an unfair preference if the extension of time is given. In some cases, in my view, it will be justifiable for the Court to proceed without notice to the creditor, taking into account such factors as the size of the transaction, the extent of communication between the liquidators and the creditor, the creditor's likely attitude to the liquidators' claim, and the issues in dispute between them. Some of the 37 creditors to whom the liquidators wrote in this case did not reply, and in some cases there was no extended correspondence. It was not contended, and I do not suggest, that all 37 creditors should have been notified of the plaintiffs' application. But the applicants were in a different and special position. The liquidators' claim against them is for a very large sum of money. Of all of the creditors who are potential defendants to unfair preference claims, the applicants are clearly the most significant in money terms. The liquidators believed on the basis of their legal advice that they had a strong claim. They were made well aware by the applicants that the claim would be strenuously resisted. It is these specific factual circumstances that lead me to conclude that the applicants had an interest and a legitimate expectation to be notified of the plaintiffs' application before the orders were made. 62 The plaintiffs submitted that if there was any entitlement of the applicants to be given notice and to be heard, that entitlement was adequately satisfied by the procedure in fact adopted. Although I made orders on 4 September 2000, I directed that notice be given to a number of creditors including one of the applicants, who were accordingly able to make the present application and the present their arguments. The plaintiffs submitted that my orders were more than adequate to comply with any requirement of procedural fairness. If correct, this submission only applies to BP Holdings, and is no answer in the case of BP Australia. However, I disagree with it. The cases show that an opportunity to apply to set aside orders may be sufficient to comply with the requirements of procedural fairness where the orders are a preliminary step and the person affected by them will have an opportunity to be heard at a later stage. However, on many occasions procedural fairness demands that the person who will be affected by the orders be given the opportunity to make representations before the orders are made. In my opinion this was required in the present case, in view of the history of correspondence between the liquidators and the applicants and the size and importance of the liquidators' claim. Delay and prima facie case (and improper purpose) 63 These reasons for judgment relate, as I have said, to Stage 1 of potentially 3 stages for determining the applicants' challenge to my orders of 4 September 2000. There is a question, left in a somewhat uncertain state at the end of submissions, as to precisely what is to be included in Stage 1. I heard substantial submissions on the questions of delay and 'prima facie case' (and the arguably separate ground that the application for extension of time was made for an improper purpose) before I decided to consider Stage 1 separately from and before hearing evidence and submissions on Stage 2 and (if appropriate) Stage 3. The submissions on these topics could be taken to be relevant to Stage 1, in the sense that if there was no adequate explanation for the plaintiffs' delay in the materials put before me on 4 September 2000, or the materials showed an improper purpose or lack of a prima facie case, then the orders should be set aside without further inquiry. 64 If, however, the orders are set aside on grounds of procedural fairness, as I believe they should be, and I decide after hearing evidence and submissions on Stage 2 and Stage 3 to deal with the questions of delay and prima facie case 'on the merits' (that is, by making factual findings after full evidence is adduced), I shall have to revisit many of the issues canvassed in submissions already made on those matters. That being so, it seems to me undesirable, and potentially confusing, for me to express any views on these subjects in the context of Stage 1. I shall therefore not enter into the questions of delay and prima facie case (and the argument about improper purpose), each of which depend upon significant questions of fact, in these reasons for judgment. Conclusions 65 I have decided that the applicants should have been given notice of the plaintiffs' application for an extension of time under s 588FF(3), and therefore an opportunity to be heard, before the plaintiffs' application was heard. The applicants have been denied natural justice. I shall therefore set aside orders 3 and 4 of the orders made by me on 4 September 2000. 66 The next step is to hear the applicants and the plaintiffs with respect to Stage 2. I shall ask counsel to consider whether Stage 2 should be determined separately and before consideration of Stage 3. It seems to me appropriate that, in the meantime, costs be reserved. Postscript 67 When this matter came before me on 24 July 2001 for the making of orders, counsel drew my attention to an ambiguity in paragraph 65 above, which could imply that orders 3 and 4 would be set aside for all purposes, with respect to all creditors. My intention, in fact, is to set aside the relevant orders only so far as they affect the applicants. My reasoning relies on facts some of which are specific to the applicants. I have not sought to determine the position of any other creditor. * * * * * * * * * Last Modified: 07/26/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.