Liquidators, unfair preference claims and extending time

The decision made in BKA Practice Co Pty Ltd allows liquidators to apply to the Court to rectify mistakes, even when the three-year limitation period set by the Corporations Act 2001 (Cth) has passed. More precisely, the case extends the time within which voidable transaction proceedings can be brought under section s588FF of the Corporations Act.

Why the liquidator of Viking Group Holdings Pty Ltd (In Liquidation) brought an application for an extension of time to bring voidable transaction proceedings:

The action was originally commenced by the liquidator of Viking Group Holdings Pty Ltd (In Liquidation) one week before expiration of the limitation period. The liquidator had instructed its solicitors to prepare and commence proceedings against Belleli King & Associates to recover moneys as an unfair preference under s588FE of the Act. To bring proceedings within time, the solicitors worked promptly to determine the proper defendant and complete the originating process and supporting affidavit material. To establish the correct name of the defendant, the solicitors conducted a number of relevant company searches and inspected appropriate invoices. The solicitors named the defendant as a company “trading as Belleli King & Associates” but should have named the defendant as the partnership “trading as Belleli King & Associates”. (On appeal Hargrave J noted that the solicitors ought, as a matter of prudence, to have commenced proceedings against both the company and partnership.

The solicitors discovered they had named the wrong defendant in the proceedings after the limitation period had expired. The liquidator then applied to the Court for an order correcting the mistake in the name of the defendant, under r 36.01 of the Supreme Court (General Civil Procedure) Rules 2005 – ‘[t]his was a mistake in the name of the proper defendant only’.

The question for the Court: could r 36.01 apply to extend the time within which an application for relief made under s 588FF(1), despite the period for making an application for extension of time under s 588FF(3) having expired?

At first instance this application was heard by Efthim AsJ who concluded “the correct name was not used because of a mistake” and ordered the name of the defendant to the proceeding to be amended to the properly intended name, referring to r 36.01 which allows a court to substitute the correct description of a legal entity where there is no doubt about what entity was intended to be sued, and the principles as stated by the High Court in Bridge Shipping Pty Ltd v Grand Shipping S.A.

In Bridge Shipping, McHugh J (Brennan and Deane JJ agreeing) stated that r 36.01(4) is a remedial rule which should be interpreted beneficially, giving it:

the widest interpretation which its language will permit. It should be interpreted to cover not only cases on misnomer, clerical error and misdescription but also cases where the plaintiff, intending to sue a person he or she identifies by a particular description, was mistaken as to the name of the person who answers that description.

The Appeal – the parties agreed Efthim AsJ’s exercise of discretion in relation to the application made under r 36.01(4) was correct, but…

The appellants argued Efthim AsJ had “fundamentally misconstrued the source and scope of the Court’s power on hearing of the application”, and that the issue was whether the amendment was allowable if its effect was to commence a fresh proceeding against a newly added defendant outside the time allowed by s 588FF(3)(b) of the Corporations Act.

Hargrave J found Section 588FF does not deal with mistakes in the names of parties made within time under s 588FF(1), and does not ‘otherwise provide’ within the meaning of s 79 of the Judiciary Act, and r 36.01(4) applies to any application made under s 588FF(1) in this Court. Hargrave J confirmed any application under r 36.01(4) should be determined according to the principles stated in Bridge Shipping (as above), and as it was agreed by the appellants that Efthim AsJ’s exercise of discretion on that basis was correct, the appeal was dismissed with costs.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation. 

Published May 4, 2016

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