Re BBY Limited (Receivers and Managers Appointed) (in liq) and BBY Holdings Pty Ltd (Receivers and Managers Appointed) (in liq) (No 2)

1. [1]

   GLEESON J: On 14 December 2020, the fourth and final day of the trial of these proceedings, the Court dealt with an amendment application by the plaintiffs seeking leave to amend the points of claim to include new paragraphs [29A] and [35A]:

2. [2]

   The evidence in support of the application was an affidavit of Mr David Greenberg sworn 9 December 2020, a solicitor employed by the plaintiffs’ solicitors. The amendment was opposed by the defendant, Ficema Pty Limited (Ficema), which relied upon an affidavit of its solicitor, Ms Kylie Anne Rae, sworn 14 December 2020. At the conclusion of oral argument, I allowed the amendment. These are my reasons for that ruling.

Background

1. [3]

   The proceedings involve a voidable transaction claim by the first plaintiffs who are the liquidators of the second and third plaintiffs, BBY Limited (BBY) and BBY Holdings Pty Limited (BBY Holdings), seeking relief under s 588FF of the Corporations Act 2001 (Cth). The proceedings were commenced by originating process filed on 15 May 2018 and the plaintiffs filed points of claim on 29 May 2018. The plaintiffs’ case includes a claim that three payments made by BBY to Ficema on 8 January 2014, 20 January 2014 and 26 May 2014, totalling $186,526.64, and a payment of $3 million made by BBY to Ficema on 24 June 2014 were unfair preferences within the meaning of s 588FA of the Corporations Act.

2. [4]

   On 15 May 2018, the liquidators of BBY commenced separate proceedings against Mr Glenn Rosewall and GARF Pty Limited (the GARF proceedings) alleging receipt of unfair preferences. Mr Glenn Rosewall subsequently became a bankrupt on 12 March 2019 and his trustee in bankruptcy, Mr Adam Shepard, indicated through his solicitors that he would not cause GARF to defend the GARF proceedings.

3. [5]

   On 1 May 2019, Rees J delivered judgment in the GARF proceedings: Re BBY Limited (Receivers and Managers Appointed) (in liq) [2019] NSWSC 1271. Her Honour found that BBY was insolvent at all times between 1 January 2014 and 17 May 2015, concluding at [30]-[31]:

4. [6]

   Section 588E of the Corporations Act relevantly provides:

5. [7]

   On the facts of this case, given the finding of insolvency by Rees J in the GARF proceedings, the effect of the presumption in s 588E(8) is that each of the payments made by BBY to Ficema referred to in [3] above will be taken to have been made at a time when BBY was insolvent, unless the contrary is proved by Ficema in the present proceedings: s 588E(9).

6. [8]

   Following the judgment in the GARF proceedings, the liquidators’ solicitors sent an email to Ficema’s solicitors on 6 August 2019, which included the following statements:

7. [9]

   On 7 August 2019, Ms Rae replied to the liquidators’ solicitors as follows:

8. [10]

   It is plain from this correspondence that Ficema was on notice that the liquidators of BBY intended to rely upon the presumption of insolvency arising under s 588E(8), given the finding of insolvency in the GARF proceedings.

9. [11]

   These proceedings were listed for hearing before Rees J to commence on 8 September 2020. In accordance with pre-trial directions, the parties exchanged respective outlines of opening submissions dated 3 September 2020.

10. [12]

    The plaintiffs’ opening submissions addressed, among other things, the issue of whether the BBY companies were insolvent in the period from 1 January 2014 onwards, and expressly relied upon the presumption of insolvency contained in s 588E(8) of the Corporations Act 2001 (Cth) in relation to BBY, stating in par [44]:

11. [13]

    Section D.1 of the plaintiffs’ submissions, headed “The presumption of insolvency and the shifting onus of proof”, referred to the presumption of insolvency under s 588E(8) of the Corporations Act, the decision of Rees J in the GARF proceedings, and the findings of Rees J at [30]-[31]. The submissions acknowledged in par [48] that the finding by Rees J was only with respect to BBY and not BBY Holdings, as only BBY was a plaintiff in the GARF proceedings. The plaintiffs’ submissions continued in par [49]:

12. [14]

    Ficema’s opening submissions made no reference to the plaintiffs’ reliance upon the presumption of insolvency arising under s 588E(8) with respect to BBY.

13. [15]

    The hearing before Rees J was adjourned on the first day (8 September 2020) after Ficema objected to the plaintiffs’ reliance upon a late affidavit sworn by Mr Vaughan. The proceedings were ultimately given a new hearing date commencing on 10 November 2020.

14. [16]

    During the plaintiffs’ oral opening on 10 November 2020, counsel referred to the plaintiffs’ reliance on the presumption arising under s 588E(8) with respect to BBY, and the judgment of Rees J in the GARF proceedings which had concluded that BBY was insolvent from 1 January 2014 onwards. The hearing proceeded over the next three days and was adjourned to 14 December 2020 due to the unavailability for cross-examination of a witness called by Ficema.

15. [17]

    Pursuant to directions given by the Court on 12 November 2020, the parties served their written closing submissions prior to the recommencement of the hearing on 14 December 2020. In Ficema’s closing submissions dated 20 November 2020, a pleading point was taken for the first time that the plaintiffs’ reliance on the presumption of insolvency arising under s 588E(8) with respect to BBY had not been pleaded in the points of claim. Following correspondence between the parties’ solicitors, the plaintiffs filed an interlocutory process on 9 December 2020 seeking leave to amend the points of claim to include new pars [29A] and [35A] as indicated above.

Submissions

1. [18]

   The plaintiffs submitted that pleading the presumption in s 588E(8) is unnecessary, as on its proper construction, the presumption operates by force of its own terms and as such does not need to be pleaded. The plaintiffs say that the two cases referred to by Ficema for the submission that the presumption must be pleaded are distinguishable: see Re Harris Scarfe Ltd (recs and mgrs apptd) (in liq); Dwyer v R-Jay Pty Ltd (2007) 97 SASR 377; [2007] SASC 115, and Kazar (in the capacity as liquidator of Frontier Architects Pty Ltd) (in liq) v Kargarian [2010] FCA 1381; (2010) 81 ACSR 158.

2. [19]

   The plaintiffs further submitted that no amendment is required because the plaintiffs’ case was plainly run on the basis that the presumption in s 588E(8) was available and was relied upon, given the pre-hearing correspondence referred to at [8]-[9] above, and the plaintiffs’ written and oral opening, to which no objection was taken by Ficema as being outside the pleaded case.

3. [20]

   Alternatively, the plaintiffs submitted that if the presumption should have been pleaded, as Ficema contended, then the amendment should be allowed to regularise the pleadings to reflect the case that was in fact run at trial. The plaintiffs further submitted that in all the circumstances the amendment would not cause any prejudice to Ficema.

4. [21]

   In opposing the amendment, Ficema submitted that it was not on notice of the case raised by the proposed amendments. Alternatively, Ficema submitted that even if it had objected to the plaintiffs’ written and oral opening as being outside the pleaded case, that would not have made any difference to how the plaintiffs ran their case because the plaintiffs still had to prove insolvency and call evidence on that issue. According to Ficema, an objection to the plaintiffs’ opening would only have led to another potential adjournment application by Ficema.

Decision

1. [22]

   Given the view I have reached as to the way the case was run at trial, it is not necessary to decide whether the presumption in s 588E(8) operates by force of its own terms and as such does not need to be pleaded.

2. [23]

   If it were necessary to decide this point, I would incline to the view taken by Flick J in Kazar v Kargarian at [86], notwithstanding that it involved the presumption in slightly different language in s 588E(4) where a company has failed to keep or retain financial records as required by s 286 of the Corporations Act. I agree with Flick J that reliance upon the presumption in s 588E should be pleaded in such a manner as to make such reliance apparent. This is necessary to avoid the potential of taking an opposing party “by surprise”, as referred to in Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 14.14(1). Although points of claim are not strictly pleadings, the same approach should be taken to points of claim; they should inform an opposing party of the case they have to meet. Further, notwithstanding the use of the imperative language “must” in s 588E(8), I agree with Debelle J in Harris Scarfe at [23] that there is no public policy ground, nor any other reason, why it is not possible for a liquidator to waive the presumption in s 588E.

3. [24]

   As to the way this case was run at trial, no pleading objection was taken by Ficema after receipt of the plaintiffs’ opening written submissions on 3 September 2020, either in correspondence or on the first day of the hearing on 8 September 2020 when an adjournment application by Ficema was granted. Nor was any objection taken by Ficema after the oral opening by counsel for the plaintiffs on 10 November 2020 which again made plain that the plaintiffs relied upon the presumption in s 588E(8) in relation to proof of insolvency of BBY.

4. [25]

   It is well-established that pleadings are not an end in themselves, rather they are a means to the ultimate attainment of justice between the parties to litigation: Banque Commerciale S.A. (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 293; [1990] HCA 11 (Dawson J), citing Isaacs and Rich JJ in Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 at 517; [1916] HCA 81; see also Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356; [2010] FCAFC 133 at [52]. A case may be decided on a basis different from that disclosed by the pleadings where the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities: Banque Commerciale at 287 (Mason CJ and Gaudron J).

5. [26]

   As to what is sufficient to inform the other party of the case it has to meet, in Harris v Harris [2021] NSWCA 329 at [73], the Court of Appeal referred with approval to Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15, where Greenwood, McKerracher and Reeves JJ said at [13]:

6. [27]

   The Court of Appeal also noted at [74] that in Thomson v STX Pan Ocean Co Ltd, their Honours cited the decision of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82; [2006] WASC 281, including at [6]-[8], where Martin CJ said that contemporary case management techniques including preparation and exchange of witness statements and hearing bundles:

7. [28]

   I find that Ficema was on notice from the pre-trial correspondence in August 2019 of the plaintiffs’ case which was run at trial, specifically that the plaintiffs relied upon the presumption arising under s 588E(8) in relation to BBY. The only response by Ficema in its pre-trial correspondence was its legal contention that reliance upon the presumption in s 588E(8) was unavailable because the GARF proceedings were undefended. That objection was misconceived and senior counsel for Ficema correctly accepted that if the amendment was allowed, then the presumption was engaged by the judgment of Rees J in the GARF proceedings, notwithstanding that those proceedings were undefended.

8. [29]

   Ficema did not object to the plaintiffs’ notified reliance upon s 588E(8) in the pre-trial correspondence, on the ground of a pleading point. That was the time to speak up if a pleading point was to be taken. Upon receipt of the plaintiffs’ written opening dated 3 September 2020 Ficema faced yet another “fork in the road”. It is too late to take a pleading point in closing submissions where no objection has been previously raised: Gould v Mount Oxide Mines Ltd (in liq) at 517. Given the acquiescence by Ficema in the departure from the pleadings from its failure to object to the plaintiffs’ notification in pre-trial correspondence and again in their written and oral opening that they relied upon the presumption in s 588E(8), strict adherence to the pleadings would be unjust or unfair to the plaintiffs: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 at [422]-[424].

9. [30]

   I reject Ficema’s submission that it would have made absolutely no difference to the way the plaintiffs ran their case, if Ficema had taken a pleading point earlier (than in its closing submissions). That submission is inconsistent with well-established authority rejecting the culture of trial by ambush and adversarial tactics: White v Overland [2001] FCA 1333 at [4] (Allsop J); Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116; [2001] NSWCA 346 at [28]-[32], [40]-[46], [127].

10. [31]

    In any event, I accept the plaintiffs’ submission that if a pleading objection had been taken by Ficema, which at the latest should have been immediately upon receipt of the plaintiffs written opening on 3 September 2020, the plaintiffs could and would have sought to amend their points of claim in opening submissions on 8 September 2020 to expressly rely upon the presumption. Additionally, the plaintiffs may well have taken a different course in relation to the evidence adduced from Mr Maharaj or Ms Yuen about particular issues relating to the indicia of insolvency, such as creditor pressure.

11. [32]

    Further, there was no evidence of prejudice to Ficema if the amendment was allowed. No evidence was adduced that Ficema would have done things differently in terms of the expert evidence it had served, but ultimately did not read at the trial, if notice of the plaintiffs’ reliance on the presumption arising under s 588E(8) in relation to BBY had been given by an amendment to the points of claim after the decision of Rees J was delivered, as opposed to in the pre-trial correspondence from the plaintiffs’ solicitors and the plaintiffs’ written and oral opening.

12. [33]

    In all the circumstances, I was satisfied that it was appropriate that the points of claim be amended to reflect the case that was in fact run at trial. Accordingly, the amendment was allowed.