Edge, in the matter of Eco Panels Australasia Pty Ltd (in liq) [2007] FCA 30 (29 January 2007)

Edge, in the matter of Eco Panels Australasia Pty Ltd (in liq) [2007] FCA 30

CORPORATIONS – company in administration – resolution to wind up – resolution out of time – time extended

PRACTICE & PROCEDURE – parties – distinction between indispensable, necessary and proper parties

Corporations Act 2001 (Cth), ss 439A, 446A, 447A

Attorney General v Wyburgh (1719) 1 P Wms 599
Cockburn v Thompson (1809) 16 Ves 321
Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966
D’Aranda v Whittingham (1728) Mosely 84
Ford v Lear (1675) 73 Seld Soc’y 217
Greenville v Deincourt (1675) 73 Seld Soc’y 304
Grosvenor v Permanent Trustee Co of NSW Ltd (1966) 40 ALJR 329
Heath v Percival (1720) 1 P Wms 682
King v Rothwell (1674) 73 Seld Soc’y 108
Labrune v Casteel (1676) 73 Seld Soc’y 293
Lukin v Midleton (1676) 73 Seld Soc’y 340
News Ltd v Australian Rugby Football League Ltd (1996) 139 ALR 193
Pegang Mining Co Ltd v Choong Sam [1969] 2 Malayan Law Journal 52
Quintine v Yard (1702) 1 Eq Ca Abr. 74
Scaife v Butler (1675) 73 Seld Soc’y 166
State of Victoria v Sutton [1998] HCA 56; (1998) 195 CLR 291
Walley v Walley (1687) 1 Vern 484

Calvert on Parties 2nd ed, 1847
Story, Equity Pleadings, 10^th ed, 1892

IN THE MATTER OF ECO PANELS AUSTRALASIA PTY LTD (IN LIQUIDATION)

ROBERT JOHN EDGE (in his capacity as liquidator or former administrator of ECO PANELS AUSTRALASIA PTY LTD (IN LIQUIDATION))

VID 725 of 2006

FINKELSTEIN J
29 JANUARY 2007
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 725 of 2006

BETWEEN:	ROBERT JOHN EDGE (in his capacity as liquidator or former administrator of ECO PANELS AUSTRALASIA PTY LTD (IN LIQUIDATION)) Plaintiff

JUDGE:	FINKELSTEIN J
DATE OF ORDER:	15 AUGUST 2006
WHERE MADE:	MELBOURNE

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 725 of 2006

BETWEEN:	ROBERT JOHN EDGE (in his capacity as liquidator or former administrator of ECO PANELS AUSTRALASIA PTY LTD (IN LIQUIDATION)) Plaintiff

JUDGE:	FINKELSTEIN J
DATE:	29 JANUARY 2007
PLACE:	MELBOURNE

1 The relief earlier granted on the application of Mr Edge, the liquidator of Eco Panels Australasia Pty Ltd, to regularise a deficiency in the steps taken to have the company placed in liquidation was uncontroversial. There were nonetheless two features of the case that required me to give reasons, which I said I would in due course provide.

2 To put matters into context I will begin with a thumbnail sketch of the facts. Mr Edge was appointed administrator of Eco Panels on 26 October 2005. At the time the company was hopelessly insolvent, having few assets and sizeable debts. Mr Edge’s appointment as administrator was confirmed at the first meeting of creditors held on 2 November 2005. Before the second meeting it had been proposed that a deed of company arrangement be entered into between Eco Panels and its creditors. By notice dated 21 November Mr Edge convened the second meeting for 28 November 2005. The meeting should have been held before 15 November 2005: Corporations Act 2001 (Cth), s 439A. It was contemplated that the second meeting be adjourned to 21 December 2005, at which time the proposed deed would be considered. In the event, no deed was put forward and, in accordance with the administrator’s recommendations, the creditors resolved that Eco Panels be wound up. Mr Edge became the liquidator for the winding up by reason of s 446A. He informed me that he had all but completed his duties when it was discovered that the second meeting had not been convened within the required time and so there was no valid resolution to wind up the company.

3 In my view this was a compelling case to make an order under s 447A to extend the time within which to convene the second meeting. Realistically there was no alternative to a winding up of Eco Panels. If the faulty attempt to wind up the company were not regularised it was inevitable that it would in short order be wound up either by members or creditors.

4 At one point I thought there was a stumbling block. I was of the tentative view that the application which had been brought on ex parte should not proceed without a defendant and that perhaps a representative shareholder should be joined. In the end I was persuaded to make the order sought ex parte, but I did so on terms that, first, a copy of the order be served on each shareholder and, second, there be a reservation to any shareholder of liberty to apply to vary or discharge order.

5 I will explain why those terms were imposed. This requires a brief discussion of the murky topic of parties and, in particular, the rules regarding when a person must, or may, be joined in an action.

6 Prior to the Judicature Acts, the common law courts required the joinder of all persons "directly and immediately interested in the subject-matter of the suit, and whose interests are of a strictly legal nature.": Story, Equity Pleadings, 10^th ed, 1892, 77. These persons were described as "indispensable parties" for without them the action could not proceed. Some judges said that in the absence of an indispensable party there was no jurisdiction to make any order. Conversely, persons with only an indirect interest in the outcome of the proceedings were not permitted to be joined.

7 Meanwhile, in Chancery a more flexible doctrine was developing and it is from here that most of the modern rules derive. Parties were divided into "necessary" and "proper". The classic rule with regard to necessary parties was stated by Lord Eldon in Cockburn v Thompson (1809) 16 Ves 321, 325-6; 33 ER 1005, 1007:

8 The necessary party rule was developed by Lord Nottingham in a series of cases that are best described in his own manuscript notes published by the Seldon Society. The cases involved joint obligees (Scaife v Butler (1675) 73 Seld Soc’y 166), joint obligors (Greenville v Deincourt (1675) 73 Seld Soc’y 304), actions against sureties (Labrune v Casteel (1676) 73 Seld Soc’y 293) and enclosure actions (King v Rothwell (1674) 73 Seld Soc’y 108) among others. The bases for the necessary party rule was the avoidance of multiplicity of actions, the avoidance of inconsistent decisions, the efficient use of court time and the need for adequate presentation of the issues and the tendering of all relevant evidence: Lukin v Midleton (1676) 73 Seld Soc’y 340; Scaife v Butler supra; Lebrum v Casteel supra; Ford v Lear (1675) 73 Seld Soc’y 217.

9 The necessary party rule was flexible, up to a point. If it were impossible, inconvenient or unduly burdensome to join a necessary party then non-joinder could be excused. For example, if a party was outside the jurisdiction (Walley v Walley (1687) 1 Vern 484; 23 ER 609; Quintine v Yard (1702) 1 Eq Ca Abr. 74; 21 ER 886) or outlawed (Heath v Percival (1720) 1 P Wms 682; 24 ER 570) or if the absent defendants were so numerous that it would be difficult to bring them to court (Attorney General v Wyburgh (1719) 1 P Wms 599; 24 ER 534) or if the absentee person was evading service (D’Aranda v Whittingham (1728) Mosely 84; 25 ER 285) joinder was not required.

10 The two principles upon which these decisions were based are explained in Calvert on Parties 2nd ed, 1847. The first principle was a "principle admitted in all Courts of Justice in this country, upon questions affecting liberty, or life, or property; namely, that no proceeding shall take place with respect to the rights of anyone except in his presence." The second principle was "that when a decision is made, it shall provide for all the rights, which different persons have in the matters decided. For a Court of Equity, in all cases, delights to do complete justice, and not by halves; to put an end to litigation, and to give decrees of such a nature, that the performance of them may be perfectly safe to all who obey them.": Calvert at 2-3.

11 As the jurisdiction of the Chancery courts extended to the grant of declarations and injunctions which, by their nature, could affect the rights or obligations of third parties, it was necessary to provide for the joinder of persons in addition to the necessary parties. These persons were called "proper parties".

12 A proper party is a person who has sufficient connection to the controversy that he might appropriately be joined, but whose absence will not affect the constitution of the action. A commonplace example is a person who has no direct interest in the controversy between the plaintiff and defendant but who may be adversely affected by an order that is sought, such as the grant of an injunction or the appointment of a receiver. Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966 contains an example of such a person.

13 Since the Judicature Acts, the equitable rules, to the extent that they differ from the common law rules, have prevailed. For the most part those rules are now embodied in formal rules of court. The general rule that now governs proceedings in the Federal Court is that all persons "whose joinder as a party is necessary to ensure that all matters in dispute ... may be effectually and completely determined and adjudicated upon" should be joined in the proceeding: Federal Court Rules O 6, r 8(1); Grosvenor v Permanent Trustee Co of NSW Ltd (1966) 40 ALJR 329. In Pegang Mining Co Ltd v Choong Sam [1969] 2 Malayan Law Journal 52, Lord Diplock, speaking for the Judicial Committee of the Privy Council, discussed the rule on which O 6 r 8 is based. He said:

See also State of Victoria v Sutton [1998] HCA 56; (1998) 195 CLR 291, 316-8 per McHugh J.

14 Now, it occurred to me that shareholders of Eco Panels, while not necessary parties, could have been joined as proper parties as their interests would be indirectly affected by a winding up. An alternative basis for their joinder may have been the need for a contradictor. In the end I decided no-one need be joined. None of the shareholders was to be factually affected by the order. Their presence may have been desirable, but it was not necessary. This notwithstanding, the shareholders had a sufficient interest in the subject matter of the application that they were entitled to notice of it in case one of them wished to be heard. It was for that reason I made the additional orders.

15 The second matter that requires mention is the conduct of Mr Edge. In his first affidavit in support of the application Mr Edge deposed that he had not received any complaint in relation to his actions as administrator or liquidator of the company and that it was not until quite late in the piece that he discovered the second meeting had not been convened within time. These statements were inaccurate. Complaints have been made about Mr Edge’s conduct so much so that an application is currently before the Supreme Court of Victoria for him to be removed from office. As well, he had been advised of the problem about the second meeting quite some time ago. When these inaccuracies were pointed out by the Australian Securities and Investments Commission, Mr Edge filed a second affidavit providing an explanation. In the end, it was not necessary for me to go into the matter as it had no direct bearing on the application and, in any event, would be dealt with by the Supreme Court.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Counsel for the Plaintiff:	Mr J Evans

Solicitor for the Plaintiff:	Madgwicks Lawyers

Counsel for the Intervenor – Australian Securities & Investments Commission:	Mr T Woodward

Solicitor for the Intervenor – Australian Securities & Investments Commission:	Australian Securities & Investments Commission

Date of Hearing:	15 August 2006

Date of Judgment:	29 January 2007

Federal Court of Australia

Edge, in the matter of Eco Panels Australasia Pty Ltd (in liq) [2007] FCA 30 (29 January 2007)