New South Wales Supreme Court CITATION : Hirlian & Ors v Rodgers [2005] NSWSC 295 HEARING DATE(S) : 1 April 2005 JUDGMENT DATE : 1 April 2005 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Originating Process dismissed. CATCHWORDS : CORPORATIONS - WINDING UP - LEAVE TO PROCEED - leave to proceed against a company in liquidation should not be given where the claim as formulated is doomed to failure - the court should not adjourn the leave application while the Plaintiff determines whether to bring some other claim. LEGISLATION CITED : Corporations Act 2001 (Cth) - s.471B Frederich Archak Hirlian - First Plaintiff Alison Gibson - Second Plaintiff Grant Harvey - Third Plaintiff PARTIES : Ian Gordon MacIntosh - Fourth Plaintiff Graham Dibden - Fifth Plaintiff Roger Sager - Sixth Plaintiff Peter D. Rodgers, official liquidator of Harrington Management Services Pty Ltd (In liq) - Defendant FILE NUMBER(S) : SC 5219/04 J. Miller - Plaintiff COUNSEL : M.D. Wyles - Defendant Dennis & Co - Plaintiff SOLICITORS : Gray & Perkins - Defendant LOWER COURT JURISDICTION : Ex tempore 1 This is an application by the Plaintiffs under s.471B of the Corporations Act 2001 (Cth) for leave to proceed with a case which they have commenced in the District Court. The Statement of Claim, filed on 24 June 2004, names as Defendant "Peter D. Rogers, the official liquidator of Harrington Management Services Pty Ltd (In Liquidation)". The Plaintiffs say that in reality it is not Mr Rogers personally they wish to sue in the District Court but rather the company of which he is liquidator ("HMS"). Because the company is in liquidation the Plaintiffs need leave to proceed it. I am informed that that point was taken in the District Court proceedings when it was intimated by the Plaintiffs that it was the company in liquidation and not Mr Rogers personally who was intended to be the defendant. 2 The difficulty which has presented itself on this application is that the Statement of Claim in the District Court does not reveal any proper cause of action against the company in liquidation nor, for that matter, against Mr Rogers personally. The circumstances in which the problem arises may be very briefly described for the purposes of this judgment. 3 HMS was controlled by a Mr Wheeler, who persuaded a number of people to invest funds with HMS upon trust for investment. There are two such investment funds, called the 3001 Unit Trust and the 4001 Unit Trust ("the Trusts"). To cut a long story short, it appears that Mr Wheeler has fraudulently misappropriated most of the funds of the Trusts and cannot now be located. 4 Under the trust deeds of the Trusts the office of trustee was immediately and ipso facto vacated by the winding up order made against HMS. The Trusts have been without a formally appointed trustee since October 2002. The liquidator on behalf of HMS has been endeavouring to collect the assets of the company as well as the assets of the Trusts and to ascertain exactly what has happened. In so doing, the liquidator has incurred substantial costs to third parties. 5 HMS, as trustee, had entered into a contract for the purchase of an investment property. The contract was rescinded by the vendor and a deposit of some $150,000-odd was repaid by the vendor to the liquidator of HMS. The refunded deposit recovered by HMS was, clearly enough, held by it as constructive trustee upon the same terms as are contained in the trust deeds. 6 The Plaintiffs claim to be beneficiaries of the Trusts. They disagree very strongly with the way in which the liquidator has applied the deposit which he has recovered from the vendor of the property. They wish to commence proceedings against HMS seeking payment to them of as much as can be recovered from the refunded deposit. 7 Mr Miller, who appears for the Plaintiffs, has very fairly and properly conceded that the Statement of Claim which has been filed in the District Court does not disclose any appropriate cause of action to achieve the end which the Plaintiffs desire. In effect, the present Statement of Claim simply claims against the company in liquidation repayment of the whole of the amount of the refunded deposit as money had and received. 8 I do not need to elaborate upon the difficulties in that formulation which render the claim, as pleaded, doomed to failure. The Plaintiffs are only some of the beneficiaries of the Trusts and cannot be entitled to payment of the whole of the trust funds, as they claim. As unitholders, they are entitled only to compel due administration of the Trusts. If, after due administration, any of the trust funds remain, the Plaintiffs are entitled to such proportion as their units entitle them to receive under the terms of the trust deeds. 9 The insuperable difficulties in the formulation of the Statement of Claim have been pointed out by Mr Wyles, who appears for the Defendant, in his written submissions. I do not need to repeat them. What does appear very clear at the moment is that to give leave under s.471B of the Corporations Act to the Plaintiffs to proceed with the claim as presently formulated in the District Court proceedings would be futile because those proceedings would be doomed to failure. 10 Mr Miller seeks an adjournment of these proceedings in order that the Statement of Claim in the District Court proceedings may be totally re-cast. Mr Wyles, for the liquidator, opposes an adjournment. He says that it would not be a simple matter either to re-cast the Statement of Claim or for the liquidator to properly consider the reformulated claim. 11 Further, he points out that as a result of the Plaintiffs reconsidering their legal position, it may well be that the District Court proceedings are not continued but some other relief is sought. I must say that, as presently advised, I agree that this course of action is, indeed, a distinct possibility. There are other and more direct means for the Plaintiffs to obtain any relief to which they are entitled than proceedings in the District Court seeking payment of a liquidated sum. 12 Finally, Mr Wyles says that the administration of HMS is almost complete and that the suspension of these proceedings in mid-air while so many difficulties are resolved would unduly prolong the administration. He proffers an undertaking by the liquidator not to complete the administration of the company for a period of three months, within which time the Plaintiffs will have the opportunity of taking such further proceedings against the company as they may be advised. 13 It seems to me that an adjournment of the present proceedings would confer relatively little benefit on the Plaintiffs and would unduly prolong the administration of the company. I say 'would confer relatively little benefit on the plaintiffs' because I would order as a condition of the adjournment that the Plaintiffs pay the costs of these proceedings thrown away by reason of the amendment to the Statement of Claim which they propose to make. Those costs, it seems to me, would almost inevitably encompass the entire costs of the proceedings to date incurred by the Defendant. I think that the proper course is to refuse the adjournment and to deal with the Originating Process now. 14 The Plaintiffs will, of necessity, have to consider their legal position and will need to consider what other reformulated proceedings they wish to bring. I think that neither the liquidator nor the Court should be expected to guess what the nature of those proceedings might be. Both the Court and the liquidator should deal with such reformulation as and when it is brought forward by the Plaintiffs. 15 For those reasons, I conclude that it would be futile to grant leave to the Plaintiffs as sought in the present Originating Process. I dismiss the Plaintiffs' application. I think it follows from what I have said that the Defendant's costs will be paid by the Plaintiffs. Exhibits may be returned. – oOo – 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.