New South Wales Supreme Court CITATION : SCHOELLER AUSTRALIA PTY LTD (in liquidation) & Anor v GARRY LISSA & ORS [2002] NSWSC 790 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 3310/98 HEARING DATE(S) : 30/08/2002 JUDGMENT DATE : 4 September 2002 PARTIES : Schoeller Australia Pty Ltd & Anor v Garry Aaron LISSA & Ors JUDGMENT OF : Acting Master Berecry at 1 Mr J.K. Chippindall - Plaintiff COUNSEL : Mr P. Dowdy - 1st Defendant Mr A. Justice - 2nd Defendant Mr N. Cotman SC - 3rd Defendant M.D. Nikolaidis & Co - Plaintiff Deacons - 1st Defendant SOLICITORS : Mr Tim Weissel - 2nd Defendant MBP Legal McCrohon Bergseng Partners - 3rd Defendant CATCHWORDS : Pt 31 Supreme Court Rules - matters for consideration - is the preliminary question critical to disposition - likelihood of real savings - multi defendants - are there discrete issues? LEGISLATION CITED : ss 588M & 588H of the Corporations Law Pt 31 r2 of the Supreme Court Rules Everett v Ribbands [1952] 2 QB 206 at 198 CASES CITED : Carl Zeiss Stiftung v Herbert Smith & Co & Ors (1969) 1 Ch 93 at 98 Printing and Kindred Industries Union of Australia v Clark (unreported; Needham J, 17 September 1976) CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 at 606 DECISION : 1. Notice of Motion be dismissed.; 2. The third defendant pay the costs of the plaintiff and the first defendant. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ACTING MASTER BERECRY WEDNESDAY, 4 SEPTEMBER, 2002 3310/98 - SCHOELLER AUSTRALIA PTY LIMITED (in liquidation) v ANDREW HUGH JENNER & ORS JUDGMENT 1 MASTER: On the 17th January 1997 the first plaintiff had an administrator appointed to it. Subsequently, on the 27th August 1997 the second plaintiff was appointed as liquidator of the company. The liquidation was a voluntary liquidation. 2 The plaintiff had commenced proceedings against the defendants pursuant to s.588M of the Corporations Law. It is alleged by the plaintiffs that the defendants, as directors of the first plaintiff have failed in their duty as directors to prevent the first plaintiff from trading whilst insolvent. 3 It is alleged in the Statement of Claim that the first defendant was a director of the first plaintiff between 27th November 1996 and 23rd December 1996. The first defendant asserts that he was a director up till the 3rd December 1996. The plaintiffs allege that the second defendant was a director from 27th November 1995 until 22nd November 1996. The second defendant admits that he was a director during that period. It is alleged that the third defendant was a director of the first plaintiff from 12th April 1991 to 28th October 1996. In his defence to the Amended Statement of Claim the third defendant denies this allegation and says that he was a non-executive director of the first plaintiff between 11th October 1995 and 23rd October 1996. The plaintiffs allege that from about 1st July 1996 until 31st October 1996 the first plaintiff incurred debts in excess of $1 million. 4 In reliance on s.588H the defendants assert that at the time the debts were incurred they had reasonable grounds to expect and did expect that the company was solvent and would remain solvent notwithstanding that it had incurred those debts. By Notice of Motion filed 28th February 2000 the third defendant sought an order under Pt 31 r 2 of the Supreme Court Rules. The Notice of Motion sought determination of four separate questions. Firstly, whether as at 30th June 1996 the first plaintiff was insolvent. Secondly, at the date of the deposits referred to in the Statement of Claim was the company insolvent or likely to become insolvent. Thirdly, whether there were reasonable grounds for suspecting that the company was insolvent and fourthly, whether there were reasonable grounds for suspecting that the company was insolvent at the time those debts were incurred. The third defendant informed the Court at the beginning of the application that only the first two grounds for separate determination would be pursued. Therefore, the third defendant whose position is supported by the second defendant seeks to have determined as a preliminary point, the question of solvency of the first plaintiff. 5 The third defendant relies on the affidavit of Christine Louise Perry sworn 17th June 2002. That affidavit sets out the history of the proceedings since the first return date of the Notice of Motion. It will be noted that the Notice of Motion is now some two and a half years old. However, it is not the case that the third defendant has delayed in bringing the application. Initially, the Notice of Motion was returnable before Master Macready on 14th March 2000. There is no transcript of the proceedings before the Master on that day. However, notes have been attached to Miss Perry's affidavit. It must be mentioned here, however, that the parties were not in agreement as to the accuracy of those notes. What was agreed, however, was that directions were made for further conduct of the Notice of Motion. There is no need to go into the history of the proceedings since that date which is set out quite compendiously in Miss Perry's affidavit. 6 It is submitted on behalf of the third defendant that the last two and a half years have been devoted solely to the issue of solvency and that all parties were progressing towards having solvency determined as a preliminary issue. It is said on behalf of the third defendant that if solvency is not to be determined as a separate issue the third defendant will be prejudiced. The prejudice arises in this way. It is said that the hearing would be significantly longer, that there are discrete issues between the plaintiff and the various defendants but if the matter was to go to trial on all issues considerable costs would be incurred in putting on evidence in relation to the defences. It is said that the involvement of the third defendant in these proceedings is minor compared to the involvement of the other two defendants. 7 Counsel for the third defendant submitted that there are two discrete issues to be determined in these proceedings. The first issue goes to the question of solvency of the first plaintiff. The second question goes to matters that will be relied upon in respect of the defences. It is said on behalf of the third defendant that if the question of solvency is determined as a separate issue, if that is determined in favour of the defendants, more particularly the third defendant, then the proceedings will be either at an end or will be greatly reduced. 8 Counsel for the third defendant submitted that as his client resigned on 23rd October 1996 a significant amount of the debt incurred during the relevant period cannot be apportioned to the third defendant's duty as a director. I was informed that some experts' reports conclude that the question of solvency may arise in late September 1996. On that view it was submitted liability of the third defendant would be further reduced to the extent that the possible liability of the third defendant in the plaintiff's Statement of Claim would amount to no more than $130,000.00. It is said because this amount is a small portion of the overall claim, the question of solvency should be determined as a preliminary point. 9 The first defendant, who was supported by the plaintiff, opposes the application. It was submitted by counsel for the first defendant that the two issues namely the solvency and the defences are intertwined and therefore cannot be determined separately. It was submitted that there is also another matter which bears on the question of solvency. In paragraph 7 of the third defendant's defence reference is made to an investor, Stephen Kong injecting $1 million capital into the first plaintiff. It was said on the present application that an affidavit has been sworn by Mr Kong denying that he invested money in the first plaintiff. There is a document which has the purported signature of Mr Kong but this is denied by him and there are allegations of fraud. The question of whether or not Mr Kong signed the agreement to purchase the shares for $1 million is a relevant factor in determining when, if at all, the company was insolvent during the relevant period. 10 If the Court finds that the first plaintiff was insolvent at some time prior to September 1996 then it will be necessary to consider the defences relied on by the defendants pursuant to s.588H. It would seem to me that regardless of the possible quantum all defendants are going to be required to put on evidence in defence of their position. 11 The third defendant must establish the following matters to obtain an order under Pt 31:- 1. There is some preliminary question of fact or law that is critical to the disposition of the proceedings. That is a preliminary question is critical to a disposition of the proceedings. 2. The making of such an order is likely to offer some real savings of convenience and expense. It is not necessary to show that there are special circumstances. 12 There are a number of authorities that deal with matters that need to be established for an order to be made. In Everett v Ribbands [1952] 2 QB 206 at 198 Romer L.J. said: "Where you have a point of law which, if decided in one way, is going to be decisive of litigation, the advantage ought to be taken of the facilities afforded by the rules of Court." 13 This view was followed in Carl Zeiss Stiftung v Herbert Smith & Co & Ors (1969) 1 Ch 93 at 98. In Australia the Court has followed the English authorities. In Printing and Kindred Industries Union of Australia v Clark (unreported decision of Needham J of 17 September 1976) his Honour said:- "A preliminary question for separate determination should only be ordered if the proceedings are likely to be finally determined by the separate question." 14 In CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 at 606 Kirby P said as follows:- "Care must be taken in utilising the procedures now available for determination of preliminary points to avoid such determination in cases which are not ripe for treatment. A matter is ripe for separate and preliminary determination where it is a central issue in contention between the parties, the resolution of which will either obviate the necessity of litigation altogether or substantially narrow the field of controversy." 15 Although I was not taken to the experts' reports, it would seem from submissions from the Bar table that at least some of the defendants' experts formed the opinion that the company may have been insolvent by late September 1996. If that evidence is accepted by the Court it will follow that there still will be a further hearing of the matters in contention between the parties. 16 In my view, it is not clear that a separate determination on the issue of solvency would, in fact, save expense or be more convenient to the parties. Nor do I think that such a course is likely to produce a finding which would be critical to the disposition of the proceedings. In my view, the matter is not one that is ripe for a preliminary determination. It may well be that a preliminary point might somehow reduce the costs of the third, and perhaps the second defendants, but it would seem to me that as the three defendants were directors during the relevant period, that each will be involved in running the defences under s. 588H. There will, of course, be additional expense for the liquidator should the insolvency question be dealt with as a preliminary matter and then, if the defendants are unsuccessful on the insolvency question, the matter would then run on the defences. It would seem to me that has the potential to increase the length of the hearing of the proceedings, and may therefore create unnecessary costs for the liquidator. Therefore, I make the following orders: 1. Notice of Motion be dismissed. 2. The third defendant pay the costs of the plaintiff and the first defendant. ************** Last Modified: 09/06/2002 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.