In the decision of JPMorgan Chase Bank, National Association v Fletcher; Grant Samuel Corporate Finance Pty Limited v Fletcher [2014] NSWCA 31, the Court of Appeal of New South Wales confirmed that liquidators may apply under rule 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to further extend the time within which they may bring voidable transactions proceedings.  We considered the first instance judgment in a previous TGIF article.

What was the case about?

The case involved an application brought by the liquidators appointed to Octaviar Limited for a further extension of the time within which they could bring voidable transaction proceedings.  The liquidators had already successfully obtained a time extension under section 588FF(3)(b) of the Corporations Act (Extension Order).  However, this section does not allow for a further extension on the Extension Order.  As such, the liquidators sought to obtain a further extension by varying the Extension Order pursuant to the Supreme Court’s powers under rule 36.16(2)(b) of the UCPR to vary an order it has made (Variation Order).  

The Supreme Court granted the Variation Order and, within the time period extended by the Variation Order, the liquidators commenced voidable transaction proceedings. 

What happened at first instance?

The Variation Order and the subsequent voidable transaction proceedings were challenged in an application made in the Supreme Court of NSW on the basis that section 588FF(3)(b) did not allow a further extension of time. 

The Supreme Court accepted that successive applications for multiple extensions of time were not possible under section 588FF(3)(b).  However, the Court found that it had the power to vary the Extension Order under the UCPR and that this power was distinct from the power to grant an extension under the Corporations Act.  On this basis, the Court held that the Variation Order was not a new extension application, but simply a variation of the Extension Order. 

Court of Appeal Proceedings

On appeal it was argued that in circumstances where section 588FF(3)(b) does not allow a party to make a successive extension application, a liquidator should not be able use rule 36.16(2)(b) of the UCPR to vary the original Extension Order.  Such a variation, it was argued, was effectively the same as a successive application to extend the time.

The Court of Appeal agreed with the first instance judgment and rejected this argument.  The Court held that while section 588FF(3)(b) comprehensively governs the circumstances in which an application may be made for an extension of time, an application for an order to be varied under rule 36.16(2)(b) of the UCPR is not the same as a new application under section 588FF(3)(b).

It was also argued on appeal that the ‘back door’ option to obtain a further extension under rule 36.16(2)(b) of the UCPR (a State procedural law) is inconsistent with section 588FF(3)(b) of the Corporations Act (a Federal law).  As such, it was argued that pursuant to section 79 of the Judiciary Act 1903 (Cth), the State procedural law could not apply.  Section 79 of the Judiciary Act provides that State procedural law will not apply in a case if it is inconsistent with the Federal law relevant to the case. 

On this issue, the majority of the Court held that rule 36.16(2)(b) of the UCPR was not inconsistent with section 588FF(3)(b).  It did so on the basis that section 588FF(3)(b) did not preclude subsequent applications for extension, but rather prohibited applications being made after 3 years from the date of the winding-up order.  Accordingly, the Court held that if an application had been successfully made within this 3 year period, it is not inconsistent with section 588FF(3)(b) for an order to be made on that application at a point in time after the 3 year period.  On this analysis, the majority held that the Variation Order was an order made on the original application that the liquidators filed under section 588FF(3)(b) prior to the expiration the 3 year period.

In dissent, the President of the Court of Appeal, Beazley P, did not agree.  The President considered that a favourable exercise of the Court’s power to vary an Extension Order would necessarily involve new or additional facts upon which the Court would be asked to exercise afresh the discretion to extend time.  In the President’s view, this was akin to a new application for an extension which was made outside the 3 year period.  As such, the President found that the operation of rule 36.16(2)(b) of the UCPR is inconsistent with section 588FF(3)(b) and, as a consequence, the Variation Order should not have been made.

Comment

The decision is significant in that it confirms that rule 36.16(2)(b) provides a back door option for liquidators to obtain a further extension on the time to commence voidable transaction proceedings.  It is also significant because it gives rise to the possibility of rule 36.16(2)(b) being used to obtain further extensions by way of a Variation Order on other time restrictions imposed under the law.

Having said this, in light of Beazley P’s dissenting judgment, it is possible that a special leave application will be made to appeal the decision to the High Court.  If such an application is to be made, it will likely occur within the next week pursuant to the time limitation for appeals provided under the High Court Rules.