Reported Decision : 77 ACSR 550 New South Wales Supreme Court CITATION : Amcus Pty Limited v Hurst Rentals Pty Limited & Ors [No 2] [2010] NSWSC 239 HEARING DATE(S) : 19 November 2009 JUDGMENT DATE : 30 March 2010 JURISDICTION : Equity JUDGMENT OF : Slattery J at 1 DECISION : No further order made. CATCHWORDS : PROCEDURE - miscellaneous procedural matters - procedure following deregistration of defendant corporation where defendant has cross claim - plaintiff applies to stand over proceedings generally - not desirable as finality is preferable - not possible for the Court to enter judgment against the dissolved corporate defendant - dismissal of cross claim not appropriate - pleading of cross claim not otherwise defective and no identified abuse of process - appropriate course is "do nothing except refrain from proceeding any further" - no need to stand proceeding over generally - proceedings already at an end - no order made LEGISLATION CITED : Corporations Act 2001 (Cth) Part 5A.1, s 601AD(1),(2),(3),(4), s 601AH Uniform Civil Procedure Rules 2005 (NSW) r12.1 CATEGORY : Consequential orders Amcus Pty Limited v Hurst Rentals Pty Limited & Ors [2009] NSWSC 1016 Astaire Pty Ltd v Cavanagh and Coope, (Supreme Court of Western Australia, Master Seaman QC, unreported, 23 February 1987, Library No 6601) Daimler Company Ltd v Continental Tyre & Rubber Company (Great Britain) Ltd [1916] 2 AC 307 Lazard Bros & Co v Midland Bank Ltd [1933] AC 289 CASES CITED : Morris v Harris (1927) AC 252 Re Morton; Ex parte Mitchell Products Pty Ltd; Morton v Vouris (1996) 21 ACSR 497 Sweeney & Vandeleur Pty Limited v BNY Australia Limited (1993) 11ACSR 356 Total Eden Pty Limited v Pipeline Properties Pty Limited (1990) 8 ACLC 1075 Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Limited [1994] 2 VR 106 United Service Insurance Co Ltd (in liquidation) v Lang (1935) 35 SR (NSW) 487 Plaintiff: Amcus Pty Limited PARTIES : First Defendant: Hurst Rentals Pty Limited Second Defendant: Alton Thomas Hurst Third Defendant: Rejendran Palany FILE NUMBER(S) : SC 3841/07 Plaintiff: Mr C Harris SC COUNSEL : First Defendant: No appearance Second Defendant: No appearance Third Defendant: Mr M J Darke Plaintiffs: Dominic Stamfords SOLICITORS : First Defendant: No appearance Second Defendant: No appearance Third Defendant: Middletons IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION SLATTERY J TUESDAY 30 MARCH 2010 3841/07 AMCUS PTY LIMITED v HURST RENTALS PTY LIMITED; ALTON THOMAS HURST & REJENDRAN PALANY [NO 2] JUDGMENT 1 HIS HONOUR: On 17 August 2009 the Court gave judgment in these proceedings in the sum of $322,767.00 for the plaintiff Amcus Pty Limited ("Amcus") against the second defendant Alton Thomas Hurst: Amcus Pty Limited v Hurst Rentals Pty Limited & Ors [2009] NSWSC 1016. Judgment was not entered against the first defendant, Hurst Rentals as it had been deregistered under Part 5A.1 Corporations Act 2001 (Cth). The Court ordered Mr Hurst to pay the legal costs Amcus incurred pursuing its claim against both Mr Hurst and Hurst Rentals Pty Limited. 2 As a result of being deregistered Hurst Rentals no longer exists: s 601AD(1) Corporations Act. The judgment left outstanding the question of the appropriate procedure following deregistration of Hurst Rentals. All the property of a deregistered company vests in the Australian Securities and Investment Commission (ASIC) on deregistration: Corporations Act s 601AD(2). Paragraphs [79] – [82] of the judgment invited Amcus to make contact with ASIC in relation to this issue. ASIC responded declining to become involved. The proceedings came before me again on 19 November 2009 when Amcus put submissions as to the appropriate procedural consequences of the Hurst Rentals deregistration. 3 Amcus submits that to obtain judgment against Hurst Rentals, Amcus would now need to make an application for the company to be reinstated under s 601AH Corporations Act. Amcus does not want to undertake what would probably be a fruitless exercise. Amcus submits that to re-register Hurst Rentals solely to enter judgment against it involves the commitment of more financial resources with little hope of their future recovery. 4 Were there not already a cross-claim brought by Hurst Rentals on the record, the appropriate step, if any further step were required, might perhaps be to allow Amcus to discontinue its claim against Hurst Rentals. Discontinuance under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 12.1 with the leave of the Court does not involve the taking of any step by or against the non-existent Hurst Rentals. But Hurst Rentals has cross-claimed against Amcus for the sum of $660,000 said to be due to it under the arrangements for vendor finance supporting the sale of the business to Amcus. Discontinuance by a plaintiff does not necessarily affect proceedings on a defendant's cross-claim: Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Limited [1994] 2 VR 106 at 210. Unless Hurst Rentals' cross-claim is dismissed it is remotely possible that someone may wish later to reinstate Hurst Rentals and pursue the cross-claim. Were that ever to occur Amcus would prefer to have its claim remain in existence to respond to such a cross-claim. Although the evidence supporting the findings of misleading and deceptive conduct already made against Mr Hurst in the principal judgment would be likely to make enforcement of the vendor finance arrangements on a revived cross-claim difficult. 5 As ASIC does not wish to be heard on the final disposition of the claims by and against Hurst Rentals the issue must now be resolved on the basis of the Amcus submissions. 6 Three options present themselves. First, the balance of the unresolved portion of the proceedings, being the possible entry of any judgment against Hurst Rentals and the disposition of its cross-claim, could be stood over generally, as Amcus now proposes. Second, Amcus could discontinue its claim against Hurst Rentals but leave the cross-claim on foot. Third, the claim and cross-claim between Amcus and Hurst Rentals could both be dismissed. Amcus submits that I should pursue the first option and stand the proceedings over generally. 7 As these reasons explain in [4] above the second option of allowing Amcus to discontinue, creates the risk for Amcus that if it is vexed by future action on the cross-claim at the suit of a reinstated Hurst Rentals, it will be deprived of a procedural response. Discontinuance is initiated by the voluntary act of a plaintiff or a cross-claimant. Because of this risk of prejudice Amcus does not wish to discontinue. This leaves consideration of options one and three. 8 The Court does not favour standing proceedings over generally. Finality is desirable. If option three is legally available it is probably the preferred course. The authorities cited below suggest that the Court cannot enter judgment against Hurst Rentals in its present dissolved status. The question now becomes whether the Court can and should dismiss the Amcus claim and the Hurst Rentals' cross-claim, or whether the proceedings must be stood over generally or some similar order should be made. In order to decide this issue it is necessary to examine the effect on these proceedings of Hurst Rentals being deregistered under Part 5A.1 Corporations Act. Operation of Part 5A.1 Corporations Act 2001 (Cth) 9 The dissolution of de-registered companies and the disposition of their assets and liabilities are relevantly dealt with under s 601AD(1),(2),(3),(4) Corporations Act which provide: "SECT 601AD - Effect of deregistration Company ceases to exist (1) A company ceases to exist on deregistration. …. (2) On deregistration, all the company's property (other than any property held by the company on trust) vests in ASIC. If company property is vested in a liquidator (other than any company property vested in a liquidator on trust) immediately before deregistration, that property vests in ASIC. This subsection extends to property situated outside this jurisdiction. …. (3) Under subsection (1A) or (2), the Commonwealth or ASIC takes only the same property rights that the company itself held. If the company held particular property subject to a security or other interest or claim, the Commonwealth or ASIC takes the property subject to that interest or claim. …. (4) ASIC has all the powers of an owner over property vested in it under subsection (2)." 10 By its letter of 10 September 2009 in response to the request whether it wished to participate in these proceedings, ASIC says that s 601AD(2) does not vest the cross-claim in these proceedings in ASIC. ASIC says that the cross-claim abates as a result of de-registration and that only the cause of action pursued in the cross-claim but not the cross-claim is vested in it: Total Eden Pty Limited v Pipeline Properties Pty Limited (1990) 8 ACLC 1075. 11 Mr Harris for Amcus points out that the Total Eden Case refers to statutory provisions that preceded s 601AD that are expressed in materially different terms to s 601AD itself. Nevertheless, he submits ASIC's contention is correct that it is only the cause of action and not the cross-claim that vest in ASIC. Mr Harris points out in his written submission that the mechanism by which this occurs is the following: "3. Section 601AD(2) provides that, on deregistration, all of the company's property vests in ASIC. "Property" is defined in section 9 [ Corporations Act ] as including "a thing in action". Any cause of action (such as is asserted in the Cross-claim) is a chose in action – a "thing in action" – and thus part of the first defendants "property", which has now vested in ASIC." 12 Mr Harris submits that upon deregistration there must have been an automatic abatement of all proceedings both by and against Hurst Rentals because Hurst Rentals has ceased to exist. He says the appropriate course is now for the proceedings to be stood over generally. He refers the Court to passages in Total Eden Pty Ltd v Pipeline Properties Pty Ltd (1990) 8 ACLC 1075, where Master Bredmeyer, followed Astaire Pty Ltd v Cavanagh and Coope, (Supreme Court of Western Australia, Master Seaman QC, unreported, 23 February 1987, Library No 6601), which had found that proceedings "abated" upon dissolution of a plaintiff, in the sense of the proceedings being extinguished or annulled. In Total Eden, the learned Master said: "I consider that I should follow Astaire's case . I am unable to distinguish it. I consider that upon the dissolution of the Company, ie, as from 16 January 1990, the action abated and cannot be continued. The cause of action, ie, the right to sue, arose before that date, in 1987-88, and it remains good. S 461(1) of the Companies Code does not vest the legal proceedings in the Corporate Affairs Commission, it vests the cause of action in it. Thus, if there was no assignment to UWL, or if that assignment was ineffective, the Commission could sue for the debt. There is no period of limitation problems. If the assignment to UWL is good, then it can sue in its name. I propose to follow Astaire's case and say that these proceedings have abated on the dissolution of the plaintiff Company and cannot now be cured by substitution of another plaintiff." 13 I agree with the analysis in Mr Harris' submission. Something like option one is appropriate. But for the reasons that follow the proper course is for the Court to make no further order. Discussion 14 The course of authority establishes that proceedings by a plaintiff company abate, in the sense of being extinguished or annulled, upon its dissolution. If in the course of an action the Court becomes aware that the plaintiff is incapable of giving any retainer at all it ought not to allow the action to proceed: Daimler Company Ltd v Continental Tyre & Rubber Company (Great Britain) Ltd [1916] 2 AC 307 at 377. This applies a fortiori when it appears that the supposed party is non-existent: Lazard Bros & Co v Midland Bank Ltd [1933] AC 289 at 296-7. In an appeal in which it appeared that there was no appellant before the Court because the appellant company had been dissolved, Jordan CJ concluded that the Court could do nothing except refrain from proceeding any further on the appeal which was a nullity: United Service Insurance Co Ltd (in liquidation) v Lang (1935) 35 SR (NSW) 487, see also Morris v Harris (1927) AC 252 at 259. 15 The principle extends to the abatement of proceedings in which a dissolved corporation is a defendant. Because the company ceases to be a legal person upon dissolution it cannot commence legal proceedings and proceedings instituted by it or on its behalf or against it before the dissolution cannot be continued: Re Morton; Ex parte Mitchell Products Pty Ltd; Morton v Vouris (1996) 21 ACSR 497, at 515. 16 The approach to the abatement of proceedings by a dissolved company that is taken in cases such as Total Eden Pty Limited v Pipeline Properties Proprietary Limited is consistent with Jordan CJ's instructive statement of applicable principle in United Service Insurance Co Ltd (in liquidation) v Lang (1935) 35 SR (NSW) 487 at 497. In the United Service Insurance Case a liquidator had brought an action in the name of a company against a defendant to recover money claimed to be due upon the allotment of shares and for calls upon those shares. At the hearing in the District Court a certificate showing that the company had been dissolved in Victoria in 1929 was put in evidence. The learned District Court Judge held that the plaintiff company had ceased to exist and returned a verdict for the defendant with costs. The company appealed on the basis that the Victorian dissolution should not be recognised in New South Wales and that it could still maintain the proceedings. The Full Court found that a company incorporated in Victoria and dissolved in Victoria must be treated as dissolved everywhere and thereafter can have no existence as a corporation in New South Wales. Jordan CJ's statements about the consequences of the dissolution for the proceedings before the full Court are relevant for present purposes. The learned Chief Justice said on that subject (at 497), "It having been ascertained that there is no appellant before us, we can do nothing except refrain from proceeding any further. The verdict for the defendant and the order for costs given by the learned District Court Judge are, of course, nullities, but in the absence of a plaintiff we have no more power to deal with them in the appeal than he had to make them in the action." 17 Jordan CJ's statement is clear that upon ascertaining that a plaintiff is dissolved and no longer exists, the court must "do nothing except refrain from proceeding any further". 18 But should the balance of the proceedings be dismissed on both sides as is contemplated by option three or should the Court adjourn the proceedings or make no order as Jordan CJ concludes? Some authorities suggest that proceedings apparently being conducted by a dissolved company can be dismissed: see for example Re Morton; Ex Parte Mitchell Products Pty Limited (1996) 21 ASCR 497 Sweeney & Vandeleur Pty Limited v BNY Australia Limited (1993) 11ACSR 356. But such dismissal should not occur here for two reasons. 19 First dismissal of the Hurst Rentals cross-claim goes further than Jordan CJ identified in United Service Insurance Co Ltd (In Liquidation) v Lang as the correct course to deal with the pleadings of a dissolved corporate plaintiff. Cases where a dismissal has occurred usually involve other factors such as defective pleadings otherwise justifying their being struck out (Re Morton; Ex Parte Mitchell Products Pty Limited (1996) 21 ASCR 497) or the sufficiently active pursuit of the case pleaded on behalf of the dissolved company that the conduct could be characterised as an a abuse of process and the pleading struck out on that ground (Sweeney & Vandeleur Pty Limited v BNY Australia Limited (1993) 11ACSR 356). Neither of those factors has been argued to be present here. 20 Second, Amcus does not propose that its own pleaded cause of action against Hurst Rentals be dismissed. Nor does it consent to such a course. Were Hurst Rentals still in existence and the Court were being asked to decide the proceedings Hurst Rentals brings against Amcus, the findings in my principal judgment would be inconsistent with the dismissal of this Amcus action. The Court should not dismiss the Amcus action. 21 Thus without a cross-claimant the Hurst Rentals cross-claim should not be dismissed. But the Amcus action should not be dismissed unless the cross-claim is dismissed. What order if any should be made? Conclusion 22 The proceedings are already a nullity to the extent that Hurst Rentals is either a defendant or a cross-claimant. Jordan CJ says that is their present status without the Court making any further order. It is not even necessary to stand over the action generally as Amcus proposes under option one. There is no proceeding for or against Hurst Rentals for the Court to stand over generally. The proceedings are at an end. The Hurst Rentals cause of action on the cross-claim remains vested in ASIC. There is no reason why the file cannot now be closed. 23 For the reasons stated the court will make no further order. ********** 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.