Adplan Pty Ltd v Gerblich

[2011] SASC 118

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

ADPLAN PTY LTD v GERBLICH

[2011] SASC 118

Reasons of Judge Lunn a Master of the Supreme Court

22 July 2011

CORPORATIONS

Statutory demand – defendant serving statutory demand under Corporations Act 2001 on plaintiff – plaintiff instituted this action seeking to set aside that statutory demand – defendant subsequently serving a further statutory demand on the plaintiff for a different debt – plaintiff filing an interlocutory process in the existing action seeking to set aside that demand.

Held – the interlocutory process was not “interlocutory” to the relief sought in the originating process and thus could not be filed under Rule 2.2(1)(b) – interlocutory process dismissed.

ADPLAN PTY LTD v GERBLICH
[2011] SASC 118

JUDGE LUNN:

Reasons on plaintiff’s interlocutory application to set aside a second statutory demand

1. On 17 March 2011 the plaintiff instituted this action under s 459G of the Corporations Act 2001 (“the Act”) seeking to set aside the statutory demand dated 23 February 2011 which had been served on it by the defendant. That statutory demand was for $298,652 which was claimed to be various unpaid loans made by the defendant to the plaintiff between 21 November 2007 and 18 December 2008. On 11 July 2011 I dismissed the originating process on the basis that it was not filed and served within 21 days of the service of the demand dated 23 February 2011, as required by s 459G of the Act. I published ex tempore reasons for this decision.

2. On 12 April 2011 the plaintiff had filed an interlocutory process in the action, FDN5, seeking to set aside another statutory demand dated 22 March 2011 which had been served by the defendant on the plaintiff.  This second statutory demand was for an amount of $2,072, which it was claimed was another unpaid loan which had been made on 22 October 2007.  The interlocutory process was served within 21 days of its issue.

3. Upon my dismissal of the originating process, counsel for the defendant applied that I also dismiss FDN5.  This was opposed by the plaintiff.  It was agreed that the point should be dealt with on written submissions.

4. The plaintiff’s case that FDN5 is still alive for determination after the dismissal of the originating process is dependent upon it being an interlocutory process which was properly filed in this action under Rule 2.2 of the Corporations Rules 2003 (South Australia).[1]  For the reasons which follow, I accept the defendant’s contention that FDN5 is not an interlocutory process which could be properly filed in this action, and accordingly it must be dismissed.[2]

   [1]    It is quoted in [6] of the reasons for Smart World Enterprises Pty Ltd & Ors v Gerblich & Anor (No 5) below.

   [2]    My decision rests on this point alone.  It would be dismissed even if the originating proceeding had not been dismissed.

5. I dealt with the question of what can be an interlocutory process for the purpose of proceedings under the Act recently in Smart World Enterprises Pty Ltd & Ors v Gerblich & Anor (No 5)[3] where I said:

   [3]    12 May 2011.  Fortuitously, the same solicitors and counsel represented the parties in that action as in this action.

   5 Section 459G(1) of the Act provides that a company may apply to the Court for an order setting aside a statutory demand. The Act does not provide how that application is to be made.

   6      Rule 2.2 of the Corporations Rules 2003 (South Australia) provides:

   2.2(1) Unless these Rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court:

   (a)if the application is not made in a proceeding already commenced in the Court – by filing an originating process and

   (b)in any other case – by filing an interlocutory process

   (2)Unless the Court otherwise directs, a person may make an application to the Court in relation to a proceeding in respect of which final relief has been granted by filing an interlocutory process in that proceeding.

   7 Here the plaintiff seeks to justify its application as being an interlocutory process under r 2.2(1)(b). It qualifies under sub-r (1) insofar as there is already a proceeding in the Court under the Act brought as an originating process under the Corporations Rules which involves, inter alia, the parties to the interlocutory application.

   8      Most of the authorities on what constitute interlocutory applications and orders focus on the difficult distinction between proceedings which result in interlocutory orders and those which result in final orders.  However, that it is not the issue here.

   9      The word “interlocutory” is also a word of limitation.  It means that not every application seeking orders as between the parties to it can be an interlocutory application.  It imposes a restriction that there must be some real connection between the subject matter of the application and the proper determination of the ultimate issues in the action by the Court.

   10    In Savings and Investment Bank Ltd v Gasco Investments Netherlands Valassakis (No 2) the English Court of Appeal held that an interlocutory application was one which was ancillary to the issues raised in the action and where its true purpose was to enable the proper conduct of the trial and the final resolution of the issues between the parties.  The classic definition of an interlocutory application is that of Cotton LJ in Gilbert v Endean[5] where he said:

   [5] (1878) 9 Ch D 259 at 269.

   … [the application] is made for the purpose of keeping things in statu quo til the rights can be decided or for the purpose of obtaining some direction of the court as to how the cause is to be conducted, as to what is to be done in the progress of the cause for the purpose of the enabling the court ultimately to decide upon the rights of the parties.

   However, implicit in what was said there is that it is limited to the determination of the rights of the parties as defined by the pleadings in the action and not any other rights.  In ERS Engines Pty Ltd v Wilson[6] Young J, as he then was, held that interlocutory relief must be in aid of the final relief sought in the initiating process.  There he refused an application by a liquidator for the directors of the company to surrender their passports because it was not sufficiently related to the other relief claimed by the company against its former directors.   More recently Kourakis J, giving the judgment of the Full Court of this Court in Hardel Pty Ltd v Burrell & Family Pty Ltd, [7] said that interlocutory was to be regarded as procedural or adjectival.

   [6]    (1994) 35 NSW LR 193 at 199-200.

   [7] (2009) 103 SASR 408 at [34].

   11    From being adjectival, the interlocutory proceedings have to be related to some other proceeding to which they were subsidiary and connected.

   12 Hence to qualify as an interlocutory application under Rule 2.2(1)(b) the application has to be adjectival and ancillary to the determination of the issues joined on the pleadings. Counsel for the plaintiff submitted that there was the necessary relationship here because the plaintiff was claiming in the action damages against the defendant for improperly acting as its director and thereby causing it loss. This was an offsetting claim under s 459H of the Act which the plaintiff was raising as one of the grounds on which it contended the statutory demand should be set aside. Hence he submitted, if there was such a requirement of an adjectival relationship, it was satisfied in this matter.

   13 I do not accept this submission. The vital question is how might the outcome of the present application be adjectival or ancillary to a determination in this action of what damages are payable by the defendant to the plaintiff. There is no such connection. Whether the demand succeeds or fails will not make any difference to how the Court will decide the issue on the pleadings about what damages are payable by the plaintiff to the defendant. The application is directed toward a different issue of whether the plaintiff is to be presumed to be insolvent under s 459C of the Act and thus is liable to be wound up. That is irrelevant for the determination of the issues raised on the pleadings in this action.

   14    This point is neatly encapsulated in the following quotation from the judgment of Kourakis J in Hardel Pty Ltd (above) at [39]-[41] where he said:

   …Applying the principles I have identified to an action of the nature here in question, I am of the opinion that an order made on an application to set aside a statutory demand is procedural and interlocutory.  The relevant statutory provisions inextricably link proceedings to set that demand aside to proceedings to wind up the debtor company.

   Those statutory provisions show that, although the service of a statutory demand and the proceeding in which it can be set aside precede an application to wind up a company, their only legal effect is in the subsequent winding up proceedings, should they ever be brought.  Proceedings to set aside a statutory demand are therefore analogous to other pre-action proceedings, like applications for leave to proceed and applications for pre action discovery.

   Applications to set aside a statutory demand are pre-action procedures which affect, and only affect, the proceedings on the winding up.  Service of statutory demands, orders dismissing applications to set them aside and orders varying them do not determine or affect in any way the underlying controversy about the alleged debtor’s liability to pay the debt.  If the creditor wishes to prove the debt and obtain an order for its payment, it must take separate proceedings for that purpose.  Even orders made on the winding up proceedings cannot settle the controversy over the debt.  The substantive right in question in the winding up proceedings is the right of the company to its corporate personality and to the exercise of the rights, powers and privileges that go with it.

   [Underlining added.]

   15    In this matter the present application is in a current action.  However, if “interlocutory” did not have the limiting effect as stated above, it would seem that sub-r 2.2(2), quoted above, would allow any application between the same parties to be made in the action even after the relief initially sought had been disposed of.  For instance, that would mean that a successful defendant to proceedings to set aside a statutory demand could seek the winding up order by filing an interlocutory process in the proceedings for the setting aside of the statutory demand.  What prevents that occurring is that the application for winding up is not interlocutory as it is not ancillary to the application to set aside the statutory demand. [8]

   16    Counsel for the defendant also submitted that this use of the application by the plaintiff was contrary to Rule 2.4A and to the definition of “plaintiff” in Rule 1.5.  In view of the conclusion which I have reached, it is not necessary for me to deal with those arguments.

   17    What I have decided is inconsistent with the decision of Master Macready, as he then was, in New South Wales in Freihart Pty Ltd v Dexplain Pty Ltd[9] where he held on a Rule not materially different from Rule 2.2 that the equivalent of an interlocutory application could be used as a vehicle to set aside a statutory demand.  However, the meaning of “interlocutory” which I have adopted above was not put to him. 

   18    There is also a good reason in public policy for not allowing a liberal use of Rule 2.2(1)(b).  Under the present fee regime in this Court a substantial fee  is payable by a plaintiff on the filing of an originating process.  No fee is payable on the filing of an interlocutory application.  By utilising an interlocutory application instead of instituting a new action, a party saves a substantial filing fee.  In former days fees were payable for the filing of various documents in an action, but for administrative convenience the fee regulations were changed so that a more substantial fee was payable initially and no fees were then charged until the first day of any trial.  The intention clearly was that the fees previously payable for interlocutory steps in the action would be subsumed into the initial filing fee.   However, as filing fees are needed to finance indirectly the running of the Court, the Court should not allow an excessively liberal interpretation of the Rules which would enable parties to avoid paying filing fees which would otherwise be payable if a fresh action had to be instituted. 

   [8]    The true position is the reverse: the application to set aside the demand is ancillary to the proceedings for winding up.

   [9] 8 March 2001, [2001] NSWSC 137.

6. It was not established by the plaintiff how the outcome of FDN5 could be adjectival or ancillary to the determination of the originating process.  While the numerous transactions between the parties which are the subject of the first and the second demands have a common background, each allegation of a loan by the defendant must turn on its own particular facts and succeed or fail on those facts.  There is nothing to suggest that if the plaintiff was successful on FDN5, that could affect in any way the determination of the originating process.  Hence, FDN5 is not interlocutory to the originating process.

7. The plaintiff relied upon the decision of Barrett J in Golden Plantation Pty Ltd v TQM Design & Construct Pty Ltd.[10]That was a different case in that the plaintiff there by its originating process sought to set aside two statutory demands, each from different creditors.  In that case there was no attempt to use an interlocutory process to set aside either demand.  Although the originating process there was dismissed because the plaintiff sought a single order to set aside both demands, Barrett J in dicta recognised the possibility that the procedure may have been permissible if the originating process had sought separate relief against each creditor.  However, that goes no further than possibly justifying a single originating process in respect of two statutory demands:  it does not address the situation in this case of the originating process seeking to set aside one demand and a subsequent interlocutory process seeking to set aside a second demand.

   [10] 4 November 2010, [2010] NSWSC 1279.

8. In the final paragraph of the quotation above from the reasons in Smart World Enterprises Pty Ltd v Gerblich (No 5) I sought to bolster my decision by a factor of public policy.  That factor is of much less weight in this case.  If the plaintiff had instituted a second action to set aside the second demand, it would have had to have paid a filing fee of $1,798,[11] which is out of all proportion to the sum of $2,072 which was the subject of the demand.  While the Court may well have penalised the defendant in costs for forcing the plaintiff to institute two actions when apparently the claim in the second demand could have been included in the original demand, the plaintiff would still have had to make the substantial outlay for the filing fee.  However, this factor cannot overcome the conclusion of law that the procedure adopted by the plaintiff is not permitted by the Rules.

   [11]   Now $2,126.

9. I have today made the following orders:

   1FDN5 dismissed.

   2Costs of FDN5 as agreed or adjudicated to be paid by the plaintiff to the defendant.

   
   

[4] [1988] 1 All ER 975.