Supreme Court New South Wales Medium Neutral Citation: In the matter of Denham Constructions Pty Limited [2016] NSWSC 768 Hearing dates: 30 May 2016 Decision date: 30 May 2016 Jurisdiction: Equity - Corporations List Before: Black J Decision: Order that the Deputy Commissioner of Taxation, Workers Compensation Nominal Insurer and any other party that seeks to be substituted as creditor in the winding up of Defendant, file and serve any application for substitution and all affidavit evidence on which it relies by 4pm, 14 June 2016. Stand over application of A Murray & Sons Pty Ltd to be substituted as applicant in the winding up application to the Corporations Motions List at 9.45am on 20 June 2016. Stand over Interlocutory Process filed by Defendant, in the event that no application for intervention is granted, to the Corporations Motions List at 9.45am on 20 June 2016. Catchwords: PRACTICE AND PROCEDURE — Application by company to set aside winding up application under s 61(3)(a) of the Civil Procedure Act 2005 (NSW) and r 12.7 of the Uniform Civil Procedure Rules 2005 (NSW) – where the Court had previously ordered that any party seeking substitution as creditor in the winding up application file its application by a certain date which did not occur – where several creditors intervened in application opposing company's application to dismiss the winding up application – whether the winding up application should be dismissed having consideration to the just resolution of the proceedings and interests of public policy – whether the Court should make an order extending the time for parties to file an application for substitution as creditor in the winding up application. PROCEDURE — Costs – where company was unsuccessful in application to dismiss winding up application – where company had brought application in circumstances where no creditors had filed an application seeking substitution in the winding up application prior to the date specified in the Court's directions – whether in the relevant circumstances costs orders should be made against the unsuccessful applicant. Legislation Cited: - Civil Procedure Act 2005 (NSW), s 56–58, 61 - Uniform Civil Procedure Rules 2005 (NSW), r 12.7 - Corporations Act 2001 (Cth), s 465A, 465B Cases Cited: - In the matter of Denham Constructions Pty Ltd [2016] NSWSC 567 Category: Procedural and other rulings Parties: CSR Building Products Limited (Plaintiff) Denham Constructions Pty Limited (Defendant) Representation: Counsel: D Robertson (Defendant/Applicant) A Hack (Workers Compensation Nominal Insurer – Supporting Creditor) Ms Wong (Deputy Commissioner of Taxation – Supporting Creditor) P Hunt (5G Capital SPV27 Pty Ltd - Creditor) H Collins (A Murray & Sons Pty Ltd – Supporting Creditor) Solicitors: KWS Legal (Defendant/Applicant) Mason Black Lawyers (Workers Compensation Nominal Insurer – Supporting Creditor) Deputy Commissioner of Taxation (Supporting Creditor) Moisson Lawyers (5G Capital SPV27 Pty Ltd – Creditor) Colin Biggers & Paisley (A Murray & Sons Pty Ltd – Supporting Creditor) File Number(s): 2016/56330 Judgment – ex tempore 1. By Interlocutory Process filed on 24 May 2016 the Defendant, Denham Constructions Pty Limited ("Company") applies under s 61(3)(a) of the Civil Procedure Act 2005 (NSW) and r 12.7 of the Uniform Civil Procedure Rules 2005 for an order dismissing these proceedings. 2. Section 61(3) of the Civil Procedure Act provides that if a party to whom a direction has been given fails to comply with the direction, the Court may by order take several steps, one of which is to dismiss the proceedings. As will emerge below, that section potentially has application to one of the three parties which have sought to intervene in the proceedings, but not to the other two parties, which were not party to the proceedings at the time the relevant direction was given. That section is of course to be applied having regard to ss 56–58 of the Civil Procedure Act and, in particular, the overriding purpose of the Act, in its application to civil proceedings, namely to facilitate the just, quick and cheap resolution of the real issues in the proceedings. 3. The other provision on which the Company relies is r 12.7(1) of the Uniform Civil Procedure Rules which relevantly provides that, if a plaintiff does not prosecute proceedings with due despatch, the Court may order that the proceedings be dismissed or make such other order as it thinks fit. In the present case, it is clear that the Plaintiff has not prosecuted the proceedings with due despatch, and has no intention of doing so, since it has made clear that it does not seek to pursue the winding up application. 4. However, it must also be recognised that s 465B of the Corporations Act 2001 (Cth) provides for the substitution of creditors in a winding up application, and is directed to the situation where a plaintiff in a winding up application does not propose to pursue that application, either diligently or at all. The existence of that section reflects a difference between civil proceedings generally and a winding up application, namely that a winding up application has a public interest component, such that other creditors are given the opportunity to intervene before an application is dismissed by reason of a plaintiff's default. 5. It should be noted, at this point, that the provisions in s 465B of the Corporations Act have, to say the least, not operated smoothly in this case. That appears to have largely arisen because, as I noted in my judgment delivered on 6 May 2016 ([2016] NSWSC 567), the Plaintiff's solicitors had given an undertaking that, inter alia, it would not advertise the winding up application under Rule 5.6 of the Supreme Court (Corporations) Rules 1999 (NSW). I had noted in my earlier judgment that that undertaking was contrary to the statutory obligations imposed on the Plaintiff, so far as it sought a winding up order, since s 465A of the Corporations Act requires that, within 14 days after the application is made, the applicant must serve a copy of it on the company and cause a notice setting out the prescribed information about the application to be published in the prescribed manner. 6. It seems to me that much of the difficulty which has arisen, in these proceedings, at least so far as the Deputy Commissioner of Taxation's late application for intervention is concerned, is likely to be attributable to the fact that the application was not advertised as the Corporations Act requires. I should emphasise, even more strongly than I had done in my earlier judgment, that undertakings should not be sought, or given, that involve a noncompliance with the obligation to advertise a winding up application under the Corporations Act, in a manner that has capacity to frustrate the provisions for substitution of creditors under s 465B of the Corporations Act. 7. Turning now to the basis of the application, the Company relies on two affidavits of Mr Tiago Da Silva dated 24 May 2016, which sets out the history of the matter, including referring to an order that I made on 6 May 2016, following the delivery of my earlier judgment, that any party that seeks to be substituted as a creditor in the winding up, file and serve any application for substitution and all affidavit evidence on which it relies by 20 May 2016, all such applications to be made returnable in the Corporations Registrar's List on 30 May 2016. The Company also relies on a second affidavit of Mr Morris dated 27 May 2016, which refers to steps which had been properly taken, also by the Company, in accordance with another direction that I had made, to give notice of the directions to parties who had filed a notice of appearance other than those who were present in court when my judgment was delivered. In particular, Mr Morris gives evidence, and it is common ground, that notice of the direction I had made was given to the solicitors acting for A Murray & Sons Pty Limited ("A Murray & Sons") in the proceedings, who were aware of that direction at least from 6 May 2016. 8. The position is complicated by the fact that three parties now seek, in the case of one of them, to be substituted as creditor today under s 465B of the Corporations Act, in the case of the second and third, to have the time for an application for substitution extended. I will deal with the position of those three parties in turn. 9. First, the Deputy Commissioner of Taxation, which is represented by Ms Wong, indicates that it was not aware until late last week of this winding up application, and contends that it is owed a debt in excess of $1,750,000 by the Company, and that it seeks an extension of time to file an application for substitution. I will proceed on the basis that what I have been told from the bar table is accurate, and the Deputy Commissioner of Taxation has only recently become aware of the matter. That is by no means surprising in circumstances that, as I have noted, the application has not been published in accordance with s 465A of the Corporations Act. 10. I am conscious of the fact that, as Mr Robertson who appears for the Company submits, a winding up application should not be unduly prolonged. The same proposition is put by Mr Hunt, who appears for 5G Capital SPV27 Pty Limited which was given leave to be heard under Rule 2.13 of the Supreme Court (Corporations) Rules. The Deputy Commissioner of Taxation initially sought an extension of four weeks in which to file an application for substitution. It seems to me that an extension of that time should not be given, where that would unduly extend the period in which the Company is exposed to that risk. Having said that, it seems to me that the just resolution of these proceedings, and the interests of public policy that are reflected by s 465B of the Corporations Act, would not be served by making an order today dismissing the proceedings, where that would have the practical effect of shutting out the Deputy Commissioner of Taxation, which it has put only recently became aware of the proceedings, of any practical opportunity to exercise the statutory right to be substituted which s 465B of the Corporations Act provides. In those circumstances, it seems to me that there is a compelling case either to dismiss the interlocutory process, or possibly to stand it over, for a further period, to allow the Deputy Commissioner of Taxation the opportunity to intervene. 11. The second creditor which foreshadows a possible intervention, although it has not yet committed to intervening, is the Workers Compensation Nominal Insurer. It is in a different position from the Deputy Commissioner of Taxation, since it fairly concedes that it became aware of the application some time ago, although it indicates that it has been seeking to determine the amount of the debt which it contends is owed by the Company to it. It seems to me that, in the present case, it is not necessary to determine whether the Workers Compensation Nominal Insurer would have had a sufficient basis to support an extension of time, if it alone had applied for it, because there is no relevant disadvantage to the Company in extending the time for the Workers Compensation Nominal Insurer to file a substitution application, where the Deputy Commissioner of Taxation has established its case for such an extension. In making that observation I proceed on the basis that the only relevant disadvantage to the Company is the extension of the time on which it is exposed to the risk of a winding up order, which will occur, in any event by reason of the position of the Deputy Commissioner of Taxation. I do not consider that the fact that the Company will be exposed to a hearing on the merits, as to the application for substitution by a particular creditor or as to the making of a winding up order, is a relevant disadvantage. That is, to the contrary, an essential aspect of the just determination of the proceedings contemplated by s 56 of the Civil Procedure Act. It follows that, contrary to the submission which was put by the Company in the course of the hearing today, there is no relevant disadvantage to the Company because, hypothetically, it is exposed to a risk that the Workers Compensation Nominal Insurer may ultimately succeed in a substitution application or a winding up application, as distinct from its having the opportunity to avoid that result by dismissal of the proceedings without a hearing on the merits. 12. Finally, A Murray & Sons has today filed an Interlocutory Process, by leave, by which it seeks to be substituted as applicant in the winding up proceedings under s 465B of the Corporations Act. That application is supported by an affidavit of Mr Murray dated 27 May 2016 which points to a judgment debt in favour of A Murray & Sons against the Company in the order of $129,885 given by the District Court of New South Wales in February 2016. A Murray & Sons is in one respect in a weaker position, because it had previously filed a notice of intention to be substituted, and was given notice, as I noted above, of the directions that I have made and had not complied with them. Mr Murray explains its delay by reference to the fact that A Murray & Sons seeks to make a claim on its trade credit insurance, and needed to consult with its insurers as to the costs of intervention, and of the substitution application, before it was in a position to instruct its solicitors to make this application. On the other hand, A Murray & Sons is in a stronger position in another respect, so far as it is in a position to proceed today, rather than require a further extension of time in order to do so. It has sensibly accepted that, if other parties are to be granted an extension of time for their applications for substitution, it is preferable that its application be deferred so that it may be determined at the same time as other parties' applications. 13. On balance, if the application of A Murray & Sons stood alone, I would have heard that application today, notwithstanding that it had been filed ten days outside the period provided by the direction that I had made, and extended the time for it to file that application, nunc pro tunc, for that to occur. I would have done so because, in the relevant circumstances, it seems to me that the delay of ten days, explained in the manner to which Mr Murray refers, would be of little weight when balanced against the public interest in the determination of this application on its merits. In expressing that view, I also note that, contrary to the submission put by Mr Robertson on behalf of the Company, it seems to me that the relevant time is preferably measured, not by when these proceedings were commenced, but by the period since my judgment was delivered, on 6 May 2016, and that I had then allowed a relatively short period, of only two weeks, for intervention by parties in any event. 14. On balance, it seems to me that the preferable course is to make an order extending the time for parties which seek to do so to file an application for substitution, for a period of two weeks; to make such an application returnable in the Corporations List, before the Corporations Judge, in three weeks' time; to stand over the application of A Murray & Sons for substitution to that time; and also to stand over the Interlocutory Process filed by the Company to that date. I would be inclined to take that course because, if at that time, other parties do not seek be substituted, then there will be a strong case at that point to make an order of the kind that the Company seeks. 15. My preliminary view is that, quite apart from the fact that I am inclined to make those orders, there should be no order as to the costs of today. While the Company has not been successful in its application to dismiss the proceedings, that application has been brought by reason of a noncompliance with the directions, albeit that only one of the parties to the proceedings was strictly bound by them. In those circumstances, it seems to me that the application was reasonably brought, not least because it might well have been granted had there been no further application by other parties today and does not warrant an order for costs against the Company. However, the other parties should not be ordered to pay the cost of the proceedings, where they reasonably sought to extend the time for, or in A Murray & Sons' case to bring an application for substitution. I will, however, hear the parties if they have a different view before I make orders to give effect to my judgment. 16. In this matter I make the following orders: 1. The Deputy Commissioner of Taxation, Workers Compensation Nominal Insurer and any other party that seeks to be substituted as creditor in the winding up, file and serve any application for substitution and all affidavit evidence on which it relies in respect of that application by 4pm, 14 June 2016, all such applications to be made returnable in the Corporations Motions List at 9.45am, 20 June 2016. 2. Stand over the application by A Murray & Sons Pty Ltd to be substituted as applicant in these proceedings under s 465B of the Corporations Act to the Corporations Motions List at 9.45am on 20 June 2016. 3. Stand over the Interlocutory Process filed by Denham Constructions Pty Ltd for dismissal of the proceedings, in the event that no application for intervention is granted, to the Corporations Motions List at 9.45am on 20 June 2016. 4. No order as to the costs of today. ********** 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. Decision last updated: 14 June 2016