Australia: Court of Appeal allows liquidators to amend pleadings to recover preference payments outside time limit

Last Updated: 14 December 2016
Article by Gary Koning
Services: Banking & Finance, Restructuring & Insolvency
Industry Focus: Financial Services

What you need to know

  • The NSW Court of Appeal recently confirmed that liquidators who bring a claim for preference payments within the three year time period prescribed by the Corporations Act may amend that claim to include additional preference payments that are otherwise out of time.
  • In reaching its conclusion, the Court commented on policy considerations underlying liquidators' ability to seek relief, and clarified that the three year time limit is concerned with the time within which proceedings for recovery payments must be commenced (not the time within which liquidators must amend pleadings in proceedings that are underway).
  • The decision is a sensible one, since an alternative finding might have brought about a result that would be impractical for both liquidators seeking to recover preference payments as well as the courts hearing their claims.

Liquidators often find themselves uncovering additional preference payments months or even years after an initial preference payment recovery claim has commenced.

On 29 November 2016, the NSW Court of Appeal released a decision1 affirming that the liquidators involved were entitled to amend their statement of claim to include additional preference payments, notwithstanding that those payments were to be added outside the three year time limit prescribed by section 588FF(3) of the Corporations Act 2001 (Cth).

This decision will likely be welcomed by liquidators who know how easily they might find themselves in a similar position to those in this case, seeking to recover amounts that were unknown when the initial claim was made.

Context

Cardinal Group Pty Limited (Cardinal) and its liquidators brought preference payment recovery proceedings against Sydney Recycling Park (SRP) in the NSW Supreme Court on 11 December 2014. The liquidators sought recovery of payments made by Cardinal between 17 June and 2 December 2011 in the amount of $280,000.

In September 2015, the liquidators sought leave to amend the claim to include a further $214,000 in alleged preference payments.

Issue – recovering payments out of time

SRP opposed Cardinal's application for leave, on the grounds that the additional payments the liquidators sought to recover were outside the three year time limit prescribed by section 588FF(3) of the Corporations Act. The relation-back day was 15 December 2011, meaning the three year time limit prescribed by the Corporations Act had expired on 15 December 2014.

The liquidators relied on a line of authorities, including Rodgers v Federal Commissioner of Taxation (1998) 88 FCR 61, to argue that a claim brought within the time prescribed by the Corporations Act may be amended to include additional transactions that would otherwise be out of time. This proposition has been widely adopted and accepted by liquidators, particularly when their ongoing inquiries uncover additional potential preference payments after proceedings have been commenced.

SRP submitted to the Court that these authorities were no longer applicable, following recent High Court judgments in Grant Samuel Corporate Finance Pty Ltd v Fletcher 2and Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher.3

In the Grant Samuel case, the High Court emphasised that the commencement of preference proceedings within the time limit under section 588FF(3) was a precondition to the Court's jurisdiction under 588FF. The High Court held that section 588FF prevailed over State law, such that an extension of time could not be supplemented or varied by procedural rules of the Court in which the application was brought.

The Supreme Court's decision

Justice Black of the NSW Supreme Court found that the liquidators were entitled to amend their claim to include the additional preference payments.

In doing so, Justice Black noted section 64 of the Civil Procedure Act 2005 (NSW) (CPA), which provides that at any stage in proceedings the Court may order that a party be granted leave to amend any document in the proceedings. Section 65 of the CPA further provides that a plaintiff may, with leave, amend their claim to add a new cause of action, together with a claim for relief, which, in the Court's opinion, arises from the same or substantially the same facts as those giving rise to an existing cause of action. An amendment made under section 65 is taken to have had effect from the date on which the proceedings were commenced.

Justice Black noted that the application brought by the liquidators would have placed SRP:

"on notice that preference claims were made against it, at least to the extent of those pleaded, and potentially to the extent of any further claims which might properly be introduced by reason of further investigation, evidence or discovery, by the amendment process permitted by the Civil Procedure Act. An approach that determined whether such an application was brought by reference to each individual transaction does not seem to me to be required by the policies identified by the High Court, where the bringing of the application will place the defendant on notice of those matters, and commercial certainty also does not seem to me to require that the content of that challenge then be fixed, at the point that the proceedings are commenced, so as to shut the liquidator and creditors out of, for example, any amendment that may later be necessary to take account of evidence led or discovery given in the proceedings".4

Justice Black determined that the Court should not treat the Grant Samuel decision as:

"overruling longstanding decisions, including two appellate decisions, that relate to the different question of the conduct of the proceedings after the application is brought, where no adverse reference was made to those decisions in the High Court's judgment and the High Court did not address the question whether the approach that they adopted was inconsistent with s 588FF of the Act or the policies to which the Court referred".5

Justice Black also found that the liquidators sought the proposed amendment in good faith and for a proper purpose, in a relatively timely way where it was foreshadowed within several months after commencement of the proceedings. Further, SRP did not demonstrate that any commercial decision would have been made differently had the additional payments been included in the original claim.

Additionally, Justice Black held that it should not be open to individual defendants in preference proceedings to say that the claim against them is of little significance to creditors, where the total of all claims against all such defendants may well be significant. Further, even where proceedings had been initiated to recover liquidators' costs or funding devoted to the conduct of the proceedings, both would constitute a proper purpose. Liquidators would less readily accept appointment, and litigation funders would less readily fund proper proceedings, if liquidators could not recover their remuneration or funders could not recover the funding they provided.

SRP appealed Justice Black's decision to the NSW Court of Appeal.

The Court of Appeal's decision

The matter was heard by Justice Bathurst (Chief Justice of the Supreme Court), President Beazley (President of the Court of Appeal), Justice Bergin (Chief Justice in Equity), Justice Ward and Justice Payne.

SRP's appeal was unanimously dismissed.

The Court of Appeal held:

  1. The scheme of the Corporations Act leaves the procedural conduct of an 'application' for orders under section 588FF(1) to the rules of the relevant State or Territory.
  2. The 'application' referred to in section 588FF(1) need not particularise each 'transaction' in respect of which it is made.
  3. The policy considerations underlying section 588FF do not support the construction of the three year time limit in section 588FF(3) as applying to each 'transaction' in respect of which relief is sought. Such a construction would have the effect of denying the amendment of applications commenced within time.
  4. The time limit in section 588FF(3) is concerned with the time for the making of an application for orders under section 588FF(1) – that is, the time for the commencement of proceedings. Section 588FF(3) is not concerned with the amendment of pleadings in proceedings that have been commenced within time.
  5. There is no inconsistency between sections 64 and 65 of the Civil Procedure Act, which provide for the amendment of existing proceedings, and section 588FF(3) of the Corporations Act, which prescribes the time for the commencement of proceedings.

President Beazley noted with approval Justice Black's observation that:

"where an application commenced within time has put the defendant on notice that orders under section 588FF(1) are sought, it does not seem to me that the policies identified by the High Court require that the liquidator be shut out from challenging additional transactions by amendment when they come to light".6

Key takeaways

The case upholds the authority that a claim brought within the three year time limit prescribed by the Corporations Act may be amended to include additional transactions that are otherwise outside of the three year period.

The decision appears to be a sensible one. If the Court had reached an alternative conclusion, one consequence would be that in the interests of prudence, any section 588FF applications brought by liquidators within time would invariably need to be accompanied by an application for an extension of time under section 588FF(3), preserving their position to bring a further application if additional payments came to light during the course of the proceedings. Such an outcome would be an unnecessary burden on liquidators and an unnecessary restriction on the courts' ability to apply established procedural principles to properly commenced proceedings.

DibbsBarker acted for the liquidators of Cardinal Group Pty Ltd.

Footnotes

1 Sydney Recycling Park Pty Ltd v Cardinal Group Pty Ltd (in liquidation) [2016] NSWCA 329

2 [2015] HCA 8; (2015) 89 ALJR 401

3 [2015] HCA 10; (2015) 89 ALJR 425

4 At [27]

5 At [28]

6 At [148]

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.