Australian and New Zealand Banking Group Ltd v Pinehurst Stud Pty Ltd
[1996] FCA 56
•16 Feb 1996
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION No VG 3565 of 1995
IN THE MATTER OF PINEHURST STUD PTY LTD
AUSTRALIAN COMPANY NO 005 395 737
AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED
Applicant
PINEHURST STUD PTY LTD
Respondent
Coram: Olney J
Place: Melbourne
Date: 16 February 1996.
REASONS FOR JUDGMENT
This is an application pursuant to s 459P of the Corporations Law for the respondent company to be wound up in insolvency. The applicant, a creditor of the respondent, relies on a failure by the respondent to comply with a statutory demand.
It is common cause that on 2 August 1995 the applicant caused a statutory demand to be served on the respondent requiring payment of the sum of $3,794.80 owing to the applicant being legal costs ordered to be paid by the respondent in Supreme Court of Victoria proceeding 8947 of 1994. The respondent did not comply with the demand within the prescribed period of 21 days after service nor did it make application to have the statutory demand set aside or varied. The winding up application was made on 29 September 1995.
By reason of the foregoing facts and circumstances the Court must in this application presume that the respondent is insolvent (s 459C(2)(a)) and that presumption operates except so far as the contrary is proved for the purposes of the application (s 459C(3)).
The respondent opposes the application on the grounds that:
a)the respondent is solvent;
b)the respondent has tendered the moneys owing;
c)the application is an abuse of process.
The test of solvency is whether the respondent is able to pay all of its debts as and when they become due and payable (s 95A).
The respondent may not, without the leave of the Court, oppose the winding up application on a ground that it could have relied upon had it made an application to set aside the statutory demand (s 459S(1)) and the Court is not to grant leave unless it is satisfied that the ground is material to proving that the respondent is solvent (s 459S(2)).
It will appear from what follows that grounds b) (tender) and c) (abuse of process) are not matters that could have been relied upon on an application to set aside the statutory demand and accordingly leave is not required for those grounds to be now raised in opposition to the winding up application. Matters which the respondent now seeks to rely upon in support of its opposition based upon the assertion that the company is solvent could have been raised on an application to set aside the statutory demand but as the presumption arising under s 459C(2)(a) operates only to the extent that the contrary is proved, I am of the view that leave should be given.
The facts in relation to ground b) are these. At the date the winding up application was made the respondent was indebted to the applicant on a judgment in the sum of $3,794.80 plus statutory interest in respect of an order for costs made against the respondent in the Supreme Court of Victoria on 22 March 1995. Interest continues to accrue on the judgment debt. On or about 2 November 1995 the applicant's solicitors received from the respondent's then solicitor a cheque drawn by Mrs D.M. McDonell (Mrs McDonell), a director of the respondent, for the sum of $3,795.00. After taking legal advice the applicant declined to accept the cheque on the grounds that:
the payment did not include statutory interest;
ii)the respondent is otherwise insolvent;
iii)the payment did not include the costs of this proceeding, although an offer to pay such costs was made;
iv)the applicant was not satisfied that the cheque would be cleared;
the respondent is otherwise indebted to the applicant for more than $160,000.
The cheque was returned to the respondent's solicitor.
On or about 9 November 1995 the applicant's solicitors received from the respondent's then solicitor a bank cheque in the sum of $3,795.00. This cheque was also not accepted and returned for the same reasons (other than reason (iv)) as are mentioned above.
On 22 November 1995 the respondent's present solicitors forwarded to the applicant's solicitors a bank cheque for $4,014.38 said to be the amount of the judgment debt with interest. The cheque was returned on 27 November 1995.
Central to this proceeding is the claim by the applicant that the respondent is indebted to it in a sum exceeding $160,000. If the respondent is in fact liable for such a sum (and has no off-setting claim) then the refusal of the tender of the amount of the judgment debt, even with the interest added, could hardly be thought to be unreasonable. It is necessary therefore to explore further the assertions made by each party concerning the claimed further debt. In doing so the facts relevant to the question of solvency will be exposed. The following summary of the facts is based upon the affidavit evidence filed in the proceeding. None of the various deponents was cross-examined and I am unable to form any view as to their credit except to the extent that uncontested objective facts provide some indication of the weight to be given to their evidence.
The applicant relies upon the evidence of Brian Douglas Hilditch, a senior manager employed by the applicant, contained in affidavits sworn 4 December 1995 and 6 February 1996, and the evidence of Michael Geoffrey Rees Gronow, a solicitor employed by the applicant's solicitors, contained in affidavits sworn 10 November 1995, 21 December 1995 and 6 February 1996. The respondent objected to the admission of Gronow's affidavit of 21 December 1995 on the ground that it contains evidence of a conversation which the respondent says took place on a without prejudice basis but I am satisfied that no such restriction applied to the conversation in question and that in any event, any right the respondent may have had to object was waived by not objecting to precisely the same evidence being given in previous proceedings in the Supreme Court of Victoria. The evidence in question relates to admissions said to have been made by the respondent's then solicitor concerning the liabilities of the respondent which differs from the evidence given in this proceeding. At the end of the day, I do not think that the admissions have any significant bearing upon the ultimate resolution of the matter now before the Court.
The respondent relies upon the evidence of Mrs McDonell contained in affidavits sworn on 28 November 1995, 11 December 1995 and 1 February 1996.
The real dispute between the parties involves the twin issues of whether the respondent is indebted to the applicant in a sum of the order of $160.000 under a mortgage executed by the respondent in favour of the applicant in 1987 and whether the respondent has a claim for damages against the applicant in an amount equal to or exceeding its liability to the applicant under the mortgage.
The respondent's version of the facts giving rise to its dispute with the applicant over the mortgage is set out in paragraph 28 of Mrs McDonell's affidavit of 28 November 1995 in the following terms:
(a)Biztole Pty Ltd is a company in which my husband was an employee and investor. As a repayment for monies invested, work done and the sale of our previous property to pay off Biztole's debt to the Commonwealth Bank the company purchased Springmead for my husband and myself. Biztole purchased Springmead in the name of Pinehurst, the trustee of our family trust.
(b)Unknown to my husband and I Biztole financed the purchase with a loan taken out by Pinehurst. However, as director of Pinehurst I was unaware that this had occurred. I again refer to paragraph 4 of Mr Hilditch's affidavit sworn 10 November 1995. Mr Hilditch says that the alleged debt of $160,000.00 arose in respect of a loan made to Pinehurst. I deny categorically that Pinehurst borrowed any monies whatsoever from the ANZ Bank.
(c)I was asked to sign a mortgage over Springmead in the name of Pinehurst. This occurred in a meeting with Brian Nanscawen, whom I believe was acting as solicitor and agent for the ANZ Bank. I refused to sign the mortgage but was told that the purchase could only go through if I did so. I was told that Biztole was waiting for the next draw down of funds from the ANZ Bank, which would occur in the next few weeks, and that the mortgage would be fully paid out by Biztole when this occurred. I was also told by Brian Nanscawen that the directors of Biztole, Mr Steven McLean and Mr Jim Charge, would provide a guarantee to the ANZ Bank in respect of the purchase. This representation, which I now know to be false, led me to sign the mortgage and to procure Pinehurst to sign the mortgage. The mortgage was executed on 17 August 1989.
(d)Biztole apparently did not pay out the mortgage in three weeks but it was not until early 1993 that the ANZ Bank demanded repayment by Pinehurst of the amount allegedly outstanding under the mortgage. Pinehurst was obviously unable to raise the money to pay out the mortgage and as a consequence the ANZ Bank succeeded in recovering the land pursuant to the terms of the mortgage (although Pinehurst will strenuously prosecute its claim for damages against the ANZ Bank).
In 1994 the applicant commenced proceedings against Mr & Mrs McDonell to obtain possession of the property known as Springmead pursuant to a mortgage in favour of the applicant registered against the title to the property which was registered in the name of the respondent. The proceeding was action 8947 of 1994 in the Supreme Court of Victoria. Terms of settlement were agreed which resulted in an order being made by consent on 16 January 1995 to the effect that the applicant recover possession of the property and that there be no order for costs. The terms of settlement involved undertakings by the applicant first, not to execute any order or judgment in the proceeding before 4.00pm on 31 January 1995; second, that in the event that by 4.00pm on 31 January 1995 -
a)the McDonells pay the applicant $220,000;
b)the McDonells execute a formal release releasing and discharging the applicant from all claims they might otherwise have arising out of the mortgage and any guarantee given to the applicant in respect of the indebtedness of the present respondent, any advance to the respondent or the conduct of affairs of Stephen McLean or any company with which he is associated (including certain named companies in the Biztole group);
c)the respondent (which at that time had been struck off for failure to file annual returns) being reinstated and execute a release in similar terms to those referred to in b)
the applicant would discharge the mortgage and release the McDonells and the respondent from all claims arising out of the mortgage and any guarantee in respect of the respondent's indebtedness to the applicant.
The respondent was duly reinstated on 20 January 1995, but the sum of $220,000 was not paid by the agreed date or at all. Nor were any of the contemplated releases executed. In the period intervening between the date of the consent order (16 January 1995) and 31 January 1995 the claimed without prejudice conversion took place between the respondent's then solicitor (one Conlan) and Gronow. In that conversation and in subsequent correspondence it was indicated that the McDonells were not prepared to pay the sum referred to in the terms of settlement but rather were prepared to pay $190,000 and threatened that in the event that the applicant did not agree to accept the lesser sum proceedings would be instituted against the applicant in the Supreme Court. On 15 February 1995 the applicant caused a warrant of possession to be issued. On the same day the respondent commenced proceeding 4509 of 1995 in the Supreme Court of Victoria claiming, inter alia, a declaration that the mortgage is and was void and of no effect as a security and damages.
On 22 and 23 March 1995 the respondent made application in the Supreme Court of Victoria to stay execution on the warrant of possession but the application was unsuccessful and the respondent was ordered to pay the applicant's costs. The costs were subsequently taxed and the judgment so obtained is the judgment relied upon in the statutory demand.
In her affidavit of 28 November 1995 Mrs McDonell says at paragraph 30 that she fears that the applicant "desires to have the respondent wound up to stymie its attempt to pursue it in the Supreme Court and to ascertain the truth behind the taking of the mortgage and the allegation that (the respondent) was the borrower (as alleged by Mr Hilditch) of the moneys from (the applicant)". This assertion is the basis of the ground of opposition relating to abuse of process.
It seems to be common cause, although it has not been specifically deposed to, that the applicant obtained possession of the Springmead and that at some subsequent date the applicant exercised its power of sale under the mortgage. The evidence of Hilditch is that the sale of the property was settled on 31 January 1996 and that the purchase price was $280,000. The applicant received net proceeds of $269,808.04 but is still liable for legal costs and commission amounting in all to about $8,600. There is also evidence that as at 1 December 1995 the respondent's liability to the applicant was $471,026.13. There would therefore be a balance in excess of $200,000 still owing in respect of the mortgage debt.
There is no evidence before the Court as to what progress has been made in the Supreme Court proceeding other than the exhibiting to Mrs McDonell's affidavit of 28 November 1995 copies of the statement of claim, a defence and counter-claim and further and better particulars of the statement of claim. In view of the subsequent exercise by the applicant of its power of sale under the mortgage it would seem that the pleadings in the proceeding will require amendment in that it would seem that the only effective relief now available to the respondent would be damages. And it is this claim for damages which the respondent relies upon as an asset sufficient to establish its solvency.
The evidence is singularly silent as to the circumstances in which Springmead was acquired by the respondent. The Court has not been told what amount was owing by Biztole to Mr McDonell, what was the cost of acquiring Springmead and the circumstances under which it was purchased and by whom. No evidence has been proffered from Mr McDonell whom one would think would be in a position to quantify the liability said to have been due to him by Biztole nor has any explanation been forthcoming to explain the absence of any such evidence. The Court is left in the dark as to the real nature of the transaction which resulted in the respondent acquiring title to Springmead. There is no basis upon which even the most rudimentary assessment can be made as to the amount the respondent may recover from the applicant in the event that its action is entirely successful.
The respondent concedes that its only asset is its right of action in proceeding 4509 of 1995. Nothing has been put before the Court to suggest that that right of action has any specific value and certainly it cannot be asserted that its value exceeds the value of any counterclaim that the applicant may press in that proceeding. In the circumstances of the case the respondent has not proved facts which would displace the presumption of insolvency arising by virtue of s 459C(2) of the Corporations Law. Nor has the respondent demonstrated any basis for the Court exercising its discretion in the respondent's favour. The refusal of the several tenders made by the respondent must be viewed in the context of the overall relationship between the parties. It was not unreasonable for the applicant to refuse the sums proffered in circumstances where the applicant was genuinely pressing another claim against the respondent. And whilst it may be that the winding up of the respondent will stymie (as Mrs McDonell put it) the respondent's action against the applicant, there is no reason to conclude that the applicant's conduct in making the winding up application in any way amounts to an abuse of process.
The applicant has satisfied all of the requirements of the Corporations Law relating to an application to wind up the respondent in insolvency. No reason has been demonstrated to justify the Court concluding that the making of an order for winding up is other than entirely appropriate in the
circumstances of the case. The Court accordingly orders that the respondent be wound up.
I certify that this and the preceding 11 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated:
Heard: 7 February 1996
Place: Melbourne
Judgment: 16 February 1996.
Appearances:
Mr R. Berglund (instructed by Blake Dawson Waldron) appeared for the applicant.
Mr G.T. Bigmore QC (instructed by J.M. Smith & Emmerton) appeared for the respondent.
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