Australia: Avoid a slip up - the applicability of the slip rule to the time limits imposed on a winding up application

The Supreme Court of Western Australia recently handed down its decision in Soil and Contracting Pty Ltd v Boban Pty Ltd [2014] WASC 402 which confirmed that, notwithstanding the operation of s 459R of the Corporations Act, the slip rule is available to extend the time limit within which a winding up application may be determined.

SECTION 459R

Section 459R(1) provides that "an application for a company to be wound up in insolvency is to be determined within 6 months after it is made". Pursuant to s 459R(2), an order extending this time period may only be made if the court is satisfied that special circumstances justify the extension and the order is made within the 6 month period prescribed by the section.

Failure to determine the application within the time period results in the winding up application being dismissed (s 459R(3)).

WHAT IS THE SLIP RULE?

The slip rule is a power available to the court which enables it to correct a mistake or error arising from an accidental slip or omission.

WHAT HAPPENED IN THIS CASE?

By application filed on 12 February 2014, Soil and Contracting Pty Ltd sought to wind up Boban Pty Ltd due to Boban's failure to comply with a statutory demand.

At the directions hearing on 5 August 2014, the winding up application was listed for trial commencing 27 October 2014. However, no application was made to extend the 6 month time limit which expired on 12 August 2014.

By application dated 24 October 2014, Soil and Contracting sought an order pursuant to the slip rule to correct the orders made on 5 August 2014 to include an order extending the time for determining the application.

Acting Master Gething granted the order. In doing so, he identified 3 relevant issues for consideration:

DOES THE LANGUAGE OF S 459R EXCLUDE THE SLIP RULE?

First, Acting Master Gething considered whether s459R(2) excluded the operation of the slip rule entirely, given it requires any order for an extension to be made within the initial 6 month period.

In determining this question, the Acting Master had regard to the Full Court of the Federal Court's decision in Ellyard Corp Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385. In considering an equivalent provision, the court found that, in the interests of avoiding injustice, the slip rule was available to correct any error notwithstanding the application being made outside the statutory time period.

COULD THE SLIP RULE BE USED TO EXERCISE A DISCRETION?

Section 459R(2) requires the court to exercise a discretion as it must be satisfied that special circumstances exist before it orders an extension.

The availability of the slip rule in these circumstances has been questioned on the basis that its purpose is to correct an error, rather than to allow a court to exercise an independent discretion not in the contemplation of the parties when the order sought to be corrected was made.

Although the Acting Master considered cases in which the availability of the slip rule had been questioned, he found that he was bound to follow the decision in Ellyard which had been recently reaffirmed in Flint v Richard Busuttil & Co Pty Ltd (2013) 305 ALR 522.

In Flint the court observed that, while there was logical force in the argument that the slip rule should not operate where an independent discretion must be exercised, there were difficulties in accepting that position.

The court held that if the surrounding circumstances are such that it can conclude that, had the application been made in time, it could only have resulted in the discretion being exercised in one way, the slip rule should apply in the same way that it would if the discretion had been exercised and there had been a mere failure to record it.

SHOULD THE DISCRETION BE EXERCISED?

The Acting Master found that, in this case, the surrounding circumstances were such that the court would have exercised the discretion and therefore applied the slip rule to grant the extension requested.

Unless it can be demonstrated that the parties had turned their mind to seeking the order for extension, but had omitted to do so, the key question is whether the court can infer, from all the circumstances, that had the error not occurred, the court could only have exercised the discretion in one way.

COMMENT

The provisions relating to winding up applications in the Corporations Act establish strict time limits on the basis that there is a public interest in such applications being dealt with promptly. Notwithstanding these limitations, this case has confirmed that the slip rule is available in certain circumstances. While this case provides some comfort that a winding up application might not be dismissed for a failure to seek an extension, caution should be taken to ensure all time limits are strictly adhered to.

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