Favelle and ANOR v FFC Realisations Pty Ltd and ANOR S54/1998 [1998] HCATrans 324 (11 September 1998)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S54 of 1998

B e t w e e n -

EDWARD HASTINGS FAVELLE and WILLIAM DORDOY

Applicants

and

FFC REALISATIONS PTY LTD (In liquidation Martin Russell Brown and Barry Raymond Cook)

First Respondents

GEOFFREY McDONALD

Second Respondent

Application for removal pursuant to section 40 of the Judiciary Act 1903

GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 SEPTEMBER 1998, AT 9.53 AM

Copyright in the High Court of Australia

MR N. PERRAM: May it please the Court, I appear with my learned friend, MS K.A. REES, for the applicants. (instructed by I.S.P. Law) I understand there is to be no appearance for the respondents.

GAUDRON J: I hold a certificate from the Registrar who certifies that she has been informed that the respondents do not oppose this application for removal and do not propose to file and serve a summary of argument in response to your application.

MR PERRAM: May it please the Court. The application is a short one. Order 7 at page 2 of the application book - - -

GAUDRON J: Yes, I understand the application. But it was almost two years after the order in question had been made before you made any application to the Federal Court, was it not?

MR PERRAM: That is so, and that is because the directors, who were never parties to the original winding up, had no interest in doing so before they were pursued.

GAUDRON J: That is right. Now, the next question is, is it clear that they have standing to make the application which you seek to have removed?

MR PERRAM: In the absence of the Commercial Division proceedings it would be clear that they probably did not. However, the fact that someone, particularly the person appointed by order 7, now seeks some many millions of dollars from them gives them an acute interest in the - - -

GAUDRON J: It may give them an acute interest in the issue, but orders of superior courts of record stand unless set aside on appeal. Clearly your clients had standing to appeal, I think that much has been settled, but it is not at all clear to me, at any rate, either that your application in the Federal Court is competent or that your clients have standing to make it.

MR PERRAM: With respect, they either have standing to pursue all applications or they have standing to pursue none. If they have standing to pursue an appeal to the Full Federal Court, they have standing to put on the notice of motion seeking to set aside the winding-up order.

GAUDRON J: The question is, is it competent? Is the application competent?

MR PERRAM: In my submission, it is. It is competent because - - -

GAUDRON J: We need something a bit more than your submission.

MR PERRAM: The short reason is it would not have been competent prior to the Commercial Division proceedings being commenced because they would have had no legitimate interest in the outcome of the proceedings However - - -

GAUDRON J: That is not necessarily a question of standing. The question of competence goes beyond standing. Certainly it is clear that directors have standing to pursue an appeal about a winding up. What you say suggests that they may not have standing to pursue an application of this kind. However, the question is whether an order of a superior court can be set aside in collateral proceedings.

MR PERRAM: Look at it this way: there was no winding-up order in these Federal Court proceedings. There was, therefore, no appeal of the type to which your Honour has referred to. The order made was not a winding-up order. That had happened pursuant to provisions of the Corporations Law in the first place. The order made was the appointment of a liquidator.

GAUDRON J: So this company will remain wound up no matter what happens?

MR PERRAM: It will be rather like a chicken without a head, one imagines. It will be wound up but without a liquidator.

GAUDRON J: Certainly one can be appointed, I should imagine.

MR PERRAM: In the Supreme Court, yes. That might be thought to rob the proceedings of any efficacy. That is not so because if the proceedings by Mr McDonald were struck out, as they would inevitably be if he was removed as liquidator, he would be unable to recommence because the three years provided for in pursuit of the relief he seeks would have expired, the relation back period being back in 1995. So the proceedings are not without utility.

If I could just turn briefly to your Honour's remarks about whether it is competent.

GAUDRON J: You say it is not without utility, but look, there is already a matter in this Court, as you well know, raising precisely the same issue.

MR PERRAM: It is not precisely the same issue. It is the validity of the - - -

GAUDRON J: It is the validity of the cross-vesting legislation.

MR PERRAM: Precisely. This, of course, raises a different scheme, although the mechanics of the scheme are the same, it is true. It would be a convenient vehicle for deciding the validity of the corporations cross-vesting scheme as distinguished with the general cross-vesting scheme.

GAUDRON J: Why cannot this matter stand in the Federal Court list to await the outcome of what happens in the matter that is in the Court?

MR PERRAM: It could, but any holding by this Court in the McNally matters, being about the validity of the Jurisdiction of Courts (Cross-Vesting) Act would, of course, not strictly speaking bind the Federal Court in relation to the corporations cross-vesting scheme. It would be convenient if this Court dealt with both sets of cross-vesting schemes in the one hearing. If I could just say this: it is not likely that it would extend the hearing time by any great length for the very reason that, as your Honour indicates, the issues raised are very similar. Nevertheless, there could be no doubt that the Full Court of the Federal Court would not be bound, one would have thought, to uphold the validity of the corporations cross-vesting scheme just because this Court had upheld the validity of the general cross-vesting scheme. For that reason it is a proper matter for removal.

Your Honour made a remark about is it competent to attack the order of a superior court in a collateral proceeding. My submission is, in an appropriately framed vehicle, yes, but that is not what is done in this proceeding. It is the very reason that the notice of motion has been filed in the proceedings in which the order was made.

GAUDRON J: And filed nearly two years after the order was made.

MR PERRAM: Very shortly after the time where the interest became obvious to those who now seek the relief that they did. There can be no suggestion that they sat on their hands. It would have been purposeless and they would have had no - - -

GAUDRON J: It became clear that they were going to be sued.

MR PERRAM: It became clear that they had been sued. It would be an odd thing to do to seek to set aside the appointment of someone who was not doing anything to you prior to the time at which that person decided to move, in my submission. Indeed, it is exactly the sort of thing which happened in Re Ganalanja, when you seek some form of declaratory relief prior to any real interest being demonstrated to exist. It would have been a commercially futile application, in one sense, prior to the commencement of the Commercial Division proceedings.

GAUDRON J: Speaking for myself, I would still need to be satisfied that the proceeding was a competent one.

MR PERRAM: If it were a collateral attack, there could well be an argument about competency, but it is not a collateral attack. It is a notice of motion filed in the proceedings - - -

GAUDRON J: Filed under what? Filed under a provision of the Corporations Law? Is there a provision of the Corporations Law which says you can do this?

MR PERRAM: No, no, but - - -

GAUDRON J: Is there a provision of the Federal Court Act which says you can do it?

MR PERRAM: There is an analogous rule which does not apply strictly which provides where parties who never had notice of the application or who are not parties to it are affected by orders, they may move to set them aside. And that is just a consequence of the principles of natural justice. It would be an abomination if an order could be made, particularly an order in rem which has a third party effect, but the third parties, although bound by the effects of the order are left without a remedy. That is the short submission.

GAUDRON J: They had standing to mount an appeal when the order was made, did they not?

MR PERRAM: Yes, they did. But they had no reason to appeal.

GAUDRON J: They had the same reason as they now have. They were thereby exposed to the possibility of personal liability in respect of their stewardship as directors.

MR PERRAM: In Wardley v Western Australia 175 CLR at about 520 there is a passage where this Court specifically adverted to the unsatisfactory state of affairs which obtained where a party commences speculative litigation on the possibility that something in the future might happen. In my respectful submission, an appeal like that would have suffered from precisely the same difficulty, namely it would have sought to answer something which might happen in the future. It would have been a most improper vehicle for the resolution of the issues which the application now raises because it simply may have been the case where the liquidator decided for his own commercial reasons not to pursue them. At the moment it became clear that there was a real and substantive reason to bring the application, the application was brought. It cannot be the case that the standing issue of the notice of motion falls at the same on whether the proposition that the appeal is competent or could have been brought is determined. That is the short submission, may it please the Court.

GAUDRON J: Given that the order in question in this case was made 21/2 years ago and that no question was raised as to its validity until nearly two years after it was made, it is not appropriate that the matter be removed into this Court. Accordingly the application for removal is refused.

MR PERRAM: May it please the Court.

AT 10.02 AM THE MATTER WAS CONCLUDED