Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP (No 9)

I published my principal judgment in these proceedings on 10 December 2019. [1]

A number of matters continued to divide the parties. I dealt with those matters in my judgment of 13 August 2020. [2]

These reasons assume familiarity with those judgments. I will use the same abbreviations.

In my 13 August 2020 judgment I dealt with a dispute as to when Coverforce should pay Resilium OpCo the amount of the Account. [3] The Kitchin Parties contended the amount should be paid immediately. The Angelis Parties and Pemba contended it should be paid in May 2021, at which time Resilium OpCo is to repay the Loan. I held that Coverforce should pay Resilium OpCo the amount of the Account by 24 May 2021. The Angelis Parties and Pemba had agreed that, in that event, they would cause Coverforce to provide an unconditional bank guarantee to secure payment of the Account Amount. [4]

In my 10 August 2020 judgment I directed the parties to confer and agree on the orders necessary to give effect to my reasons. [5]

The parties could not agree and I received further written submissions on 9 September 2020.

In those submissions, the Angelis Parties stated that, subject to obtaining the consent of Pemba, [6] they were prepared to cause Coverforce to obtain a bank guarantee in favour of Resilium OpCo to secure repayment of the Account Amount. The Angelis Parties did not propose any time by which Coverforce provide the bank guarantee. The Kitchin Parties proposed that the bank guarantee be provided within 7 days and that if it was not, the Account Amount be payable “forthwith”. The Kitchin Parties had circulated inter partes draft orders to the same effect on 14 August 2020.

The parties agreed I should resolve their differences concerning these orders on the papers.

On 11 September 2020 I made final orders in the proceedings. I adopted the Kitchin Parties’ proposal concerning the provision by Coverforce of a bank guarantee.

Thus, I ordered:

Coverforce did not provide Resilium OpCo with an unconditional bank guarantee within the 7 day period specified by order 11, and has not yet done so.

Coverforce’s Chief Financial Officer, Mr Jitendra Dutt, explained in an affidavit affirmed on 16 October 2020:

The communication from the Angelis Parties’ solicitors, Norton Rose Fulbright, to the Kitchin Parties’ solicitors, Robertson Partners, on 17 September 2020 to which Mr Dutt referred read:

As the Kitchin Parties have pointed out, this communication did not seek any undertaking or any other response from the Kitchin Parties or Resilium OpCo.

As Coverforce did not provide Resilium OpCo with an unconditional bank guarantee within 7 days of my order of 11 September 2020 the Account Amount became payable forthwith by reason of order 11 made that day.

On 21 September 2020, without notice to Coverforce, Resilium OpCo applied for a garnishee order directed to Macquarie Bank. Such an order was issued on 28 September 2020 and served on Macquarie Bank on 29 September 2020.

On 13 October 2020 Macquarie Bank remitted $1,935.41 to Resilium OpCo.

Evidently, Resilium OpCo relies upon this as establishing a presumption that Coverforce is insolvent by reason of s 459C(2)(b) of the Corporations Act 2001 (Cth). [8]

On 14 October 2020 Resilium OpCo filed an Originating Process in the Corporations List of this Court seeking an order under s 459P of the Corporations Act 2001 (Cth) that Coverforce be wound up. That Originating Process is returnable on 16 November 2020.

Now, by Notice of Motion filed on 15 October 2020 the Angelis Parties seek [9] :

Mr Dutt deposed that:

The Court’s power to vary orders is set out in Uniform Civil Procedure Rules 2005 (NSW) Pt 36 Div 4.

Mr Knowles, who appeared on this application for the Angelis Parties, relied on UCPR r 36.16(2)(b) which provides, relevantly that:

Mr Knowles submitted that my orders of 11 September were made “in the absence” of Coverforce and that the Court’s power to vary the order was thereby enlivened.

Mr Knowles submitted that it was competent for the Angelis Parties to bring this application even though they were not the party “absent” at the time that the order was made. [10]

Coverforce is the sixth defendant. On 11 September 2020, and indeed for most of the duration of these proceedings, Coverforce has not entered an appearance nor been separately represented. It was separately represented between December 2019 [11] until 24 April 2020 and retained counsel to appear before me twice during that period.

Throughout the proceedings, the Angelis Parties and Pemba, who comprise a number of the directors of the Coverforce and together hold all the shares in Coverforce, have been active participants and effective contradictors of the Kitchin Parties.

Thus, in my 10 December 2019 judgment I said:

In my 13 August 2020 judgment I said:

In this sense, Coverforce has been very much “present” throughout the proceedings, albeit at times without separate, formal representation.

The question of whether a corporation is “absent” when an order is made affecting it, or as here, actually directing it to do something is a question of fact the answer to which may depend on more than whether or not it has a solicitor on the record or a legal representative in court at the time the order is made.

In Workers Compensation Nominal Insurer v Detailed Flooring Pty Limited [14] Barrett J said:

In that case there was no appearance for the company in question on the return of a winding up application. It is true, as Mr Knowles pointed out, that in the passage I have emphasised, his Honour was referring to the facts before him. But his Honour’s reference to a “participation” on behalf of the party whose “absence” was under consideration suggests that his Honour considered that to be a matter of potential relevance.

Whether or not that was his Honour’s intention, my opinion is that if a party or parties other than the company in question has or have appeared to argue whether an order should be made that the company do something, especially if, as here, those parties comprise directors of the company and all of its shareholders, the “participation” of those parties is relevant to the factual question of whether the company was “absent” when the order was made.

Both the Angelis Parties and Pemba have participated in these proceedings on behalf of Coverforce in the sense of advocating for a result promoting Coverforce’s position, as well as participating in the proceedings in their own rights and interests.

In relation to the orders now under consideration, the whole point of the participation by the Angelis Parties in the debate as to the form the orders should take was to advance an argument that Coverforce not pay the Account until such time as the Kitchin Parties were to repay the Loan.

As Mr Elliott SC and Mr Ratnam, for the Kitchin Parties, put in written submissions:

Coverforce was on notice of the orders the Kitchin Parties proposed and of the fact that I was to resolve the remaining debate on the papers.

In those circumstances, I do not accept that Coverforce should be seen as an “absent” party for the purposes of UCPR r 36.16(2)(b). Accordingly, I am not satisfied that UCPR r 36.16(2)(b) is engaged.

It appears that those advising Coverforce were aware of the possible consequences to Coverforce of it not providing an unconditional bank guarantee within the time specified in my order of 11 September 2020.

Thus, in a file note dated 24 September 2020, a solicitor from Norton Rose Fulbright described as “JS” is recorded as saying to an officer of Macquarie Bank:

Someone described as “SF” is recorded as having responded:

In those circumstances it would have been open to the Angelis Parties, or Coverforce, to make an application under UCPR r 36.16(3A). That and the following rules provide:

But any such application would have had to have been made within 14 days of my order, which time limit by reason of UCPR 36.16(3C) cannot be extended. No application was made under these provisions within that time, or at all.

Mr Knowles did not point to any other power available to me to vary the orders made on 11 September 2020.

Mr Knowles did make submissions concerning the Court’s power and discretion to decline to enforce its orders where it would be inequitable to do so at the time when enforcement was sought. [17] However, in oral submissions Mr Knowles accepted that unless a power to vary my order of 11 September 2020 could be identified and a basis shown to exercise that power, no stay would be separately available.

For these reasons, my conclusion is that I do not have power to grant Coverforce the relief that is sought on its behalf.

In any event, and assuming I have power to make the orders sought by the Angelis Parties, I would not exercise that power.

My orders of 11 September 2020 were final orders, made after a lengthy and closely fought case.

Although the order in question was not made by consent, it is one that the Kitchin Parties had foreshadowed well before 11 September 2020 as the order for which they would contend.

Mr Knowles submitted:

That may be so, but the submission highlights the artificiality of characterising Coverforce as an “absent” party. Coverforce, by its “management”, was well aware of the terms of the order and was taking steps to comply with it.

The file note to which I have referred at [41] and [42] shows that Coverforce was aware that the failure to provide the bank guarantee in time might cause “some delightful bomb” to come Coverforce’s “way soon”; and that Coverforce was taking a risk in simply notifying the Kitchin Parties of the fact that Macquarie Bank could not provide a bank guarantee within 7 days and, evidently, hoping for the best.

Mr Knowles also submitted that:

Again, this highlights the artificiality of characterising Coverforce as being “absent”.

Another file note produced by the Angelis Parties, evidently dated in September 2020, records Coverforce would be obliged to provide “term deposits for security”.

That suggests that one condition that Macquarie Bank proposes to impose for provision of a bank guarantee is a term deposit by Coverforce, presumably for an equal amount. That points against the proposition that Coverforce will be prejudiced by having to pay the Account to Resilium OpCo as it appears it will have to set aside the funds in any event.

Further, as I have set out above, Mr Dutt has emphasised Coverforce’s healthy financial state and before me Mr Knowles accepted that Coverforce could pay Resilium OpCo the amount of the Account now. [18]

Mr Knowles also pointed to the “credit risk” to which Coverforce will be exposed if it must pay Resilium OpCo the Account now but wait until May 2021 for the Kitchin Parties to repay it the Loan. But Coverforce will have security over the shares in the Resilium companies the meantime; and interest is accruing.

Mr Knowles also submitted that my orders of 11 September 2020 reflected “the Court’s attempt to balance the interests of the parties”, namely that the Kitchin Parties be given until May 2021 to pay the Loan and Coverforce be given a corresponding period to pay the Account and that, “because of circumstances outside the control of Coverforce, and because of the swift enforcement action taken by the Kitchin Parties, the balance sought to be due by the Court has been undermined”.

However, any “balance” reflected in my orders of 11 September 2020 was on terms: and one of those was that Coverforce provide the bank guarantee within 7 days.

Mr Knowles also submitted that the Kitchin Parties would not be prejudiced by the making of the orders sought by the Angelis Parties because, were Coverforce able to procure a bank guarantee in the next few days, the Kitchin Parties’ position, and that of the Resilium OpCo, would be restored to the position which obtained at 11 September 2020.

But that misses the point that by reason of the terms of those orders, and the failure by Coverforce to provide the bank guarantee in compliance with them, Resilium OpCo has accrued rights and is seeking to enforce those rights.

And the right that has now accrued to Resilium OpCo is to recover the value of the profit made by Coverforce from the Resilium business to which, on my findings, Coverforce had no entitlement. [19]

In any event, there appears to be some uncertainty, still, as to whether Coverforce can procure the bank guarantee as it is still “subject to formal approval”.

Overall, assuming I had power to do so, I would not have made the orders sought by the Angelis Parties.

I order that the plaintiff’s notice of motion of 15 October 2020 be dismissed with costs.