Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd

[2007] NSWSC 966

Reported Decision: 213 FLR 450

New South Wales

Supreme Court

CITATION:	Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 966
HEARING DATE(S):	28 June 2007
JUDGMENT DATE :	31 August 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	White J
DECISION:	1. Order that the defendant’s interlocutory process filed on 25 May 2007 be dismissed; 2. order that the costs of that interlocutory process be the plaintiff’s costs in the proceedings; 3. The exhibits may be returned after 28 days.
CATCHWORDS:	CORPORATIONS – Winding up in insolvency – Application for stay or summary dismissal of winding-up application – Whether pursuit of winding-up proceedings constitutes abuse of process – Whether petitioner has standing to bring winding-up application pursuant to assignment of debt – Whether standing as creditor to bring winding-up application lost by debtor’s tender of moneys and debtor’s payment into court of amount due – Continued willingness to tender payment and payment into court does not eliminate debt – Unreasonable refusal by creditor to accept payment to be weighed in court’s exercise of discretion to make winding-up order – Held that inappropriate in application for summary dismissal to determine whether winding-up application should be dismissed on ground of proffered tender and payment into court. - PRACTICE AND PROCEDURE – Abuse of process – No abuse of process where proceedings brought for purpose of pursuing proceedings to conclusion to obtain benefit or entitlement the law provides upon successful outcome – Where predominant purpose of bringing winding-up proceedings is to cause company to cease carrying on business and to obtain a tactical advantage in another dispute from the making of a winding-up order – Held that pursuit of winding-up proceedings does not constitute abuse of process.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) Corporations Act 2001 (Cth)
CASES CITED:	Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 392 Re Steel Wing Co Ltd [1921] 1 Ch 349 Re Allebart Investments Pty Ltd (1969) 92 WN (NSW) 726 Rohan Trading Co Pty Ltd v Glengor Pastoral Co Pty Ltd [2003] NSWSC 1265 Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177 Deputy Commissioner of Taxation v Sun Heating Pty Ltd [1983] 2 NSWLR 78 DMK Building Materials Pty Ltd v CB Baker Timbers Pty Ltd (1985) 2 NSWLR 711 De Montfort v Southern Cross Exploration NL (1987) 17 NSWLR 468 Braams Group Pty Ltd v Miric (2002) 171 FLR 449; (2002) 44 ACSR 124 Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 116 FLR 314; (1994) 14 ACSR 580 Deputy Commissioner of Taxation v Visidet Pty Ltd [2005] FCA 830 Deputy Commissioner of Taxation v Barroleg Pty Ltd (1997) 25 ACSR 167 Roberts v Wayne Roberts Concrete Constructions Pty Ltd (2004) 50 ACSR 204 Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 54 ACSR 228 Chitty on Contracts, General Principles, 27th ed (1994) Sweet & Maxwell, London Dixon v Clark (1848) 5 CB 365; 136 ER 919 Young v Queensland Trustees Ltd (1956) 99 CLR 560 Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399 Alcatel Australia Ltd & Anor v PRB Holdings Pty Ltd (1998) 27 ACSR 708 Re Bond Corporation Holdings Ltd (1990) 1 ACSR 488 Occidental Life Insurance Company of Australia Ltd v Life Style Planners Pty Ltd (1992) 9 ACSR 171 Nationwide v Franklins (2002) 20 ACLC 309; [2001] NSWSC 1120 Varawa v Howard Smith Co Ltd (1911) 13 CLR 35 In Re a Company [1894] 2 Ch 349 Roberts v Wayne Roberts Concrete Constructions Pty Ltd (2004) 208 ALR 532 Equity Australia Corporation Pty Ltd v Falgat Constructions Pty Ltd (2005) 54 ACSR 813 Williams v Spautz (1992) 174 CLR 509 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) 25 ACLC 230 L & D Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 1 ACLC 536 Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 Mann v Goldstein [1968] 1 WLR 1091; [1968] 2 All ER 769
PARTIES:	Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd
FILE NUMBER(S):	SC 2039/07
COUNSEL:	Plaintiff: D Allen Defendant: J Kewley
SOLICITORS:	Plaintiff: Catalyst Legal Pty Ltd Defendant: Kemp Strang
LOWER COURT JURISDICTION:	Compensation Court

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

WHITE J

Friday, 31 August 2007

2039/07 Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd

JUDGMENT

1 HIS HONOUR: This is an application for the stay or summary dismissal of the plaintiff’s winding-up application. The defendant claims that the plaintiff is not a creditor entitled to maintain the winding-up application and that the application is an abuse of process.

2 The plaintiff, Australian Beverage Distributors Pty Ltd (“ABD”) has the same shareholder and directors as Liquor National Wholesale Pty Ltd (“Liquor National”). The defendant, The Redrock Co Pty Ltd (“Redrock”) is a defendant to proceedings in this court commenced by Liquor National on 6 March 2007. In those proceedings, Liquor National seeks orders, amongst others, restraining Redrock from conducting any soft-drink distribution business under the name Redrock Beverages, Redrock Distributors, Redrock Company or similar names. It also seeks a declaration that Redrock holds on a constructive trust for Liquor National any business or undertaking carried on for the distribution of soft-drinks in New South Wales. Liquor National also sought the appointment of a receiver to the business which it alleges was operated prior to 23 February 2007 by it and after 23 February 2007 by the Redrock Company under the business names Redrock Distributors and Redrock Beverages.

3 The dispute arose from an agreement between Liquor National and Redrock in September 2005 to commence from 1 October 2005 in relation to the sales and distribution of soft-drinks. Up to that point, the business had been undertaken by Redrock. The Heads of Agreement provided for the establishment of a new company, to be called Redrock Distributors Pty Ltd, to carry out such activities. The shares in the new company were to be allocated 49% to Redrock and 51% to Liquor National. No such company was incorporated. In its Statement of Claim, Liquor National alleges that it commenced using the trading name Redrock Beverages and Redrock Distributors; that it built up goodwill and a reputation in the distribution market for soft-drinks under those names; that it purchased the plant and equipment of the Redrock Company and paid it substantial moneys pursuant to the alleged agreement.

4 On 21 February 2007, Liquor National advised that, to the extent there was an agreement between the parties, it terminated that agreement. That advice was accepted by Redrock. The parties were then at issue as to who was entitled to carry on the Redrock business. That issue has not been resolved.

5 In a judgment dealing with Liquor National’s application for an injunction to restrain the Redrock Company from carrying on the business and for the appointment of a receiver, Brereton J held that both parties had an arguable case so far as final relief was concerned, but that Liquor National, at least on one of its alternative claims, appeared to have a somewhat stronger position. His Honour said that it was not possible to determine on the interlocutory application who was likely to be ultimately successful. His Honour determined the interlocutory proceedings on the balance of convenience. His Honour declined to appoint a receiver and declined the injunctive relief sought by Liquor National. His Honour ordered Redrock to maintain verified accounts of its conduct of the business. His Honour granted an interlocutory injunction restraining Liquor National from carrying on any soft-drink distribution business under the names Redrock Beverages or Redrock Distributors (Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 392). Notwithstanding this decision, on 24 April 2007, Liquor National filed a notice of motion for the appointment of a receiver to the business operated by Redrock from 23 February 2007 under the business names Redrock Distributors and Redrock Beverages. That application was initially returnable on 17 May 2007. No receiver had been appointed at the time of the hearing of the application for summary dismissal of the winding-up proceedings.

6 As I have said, Liquor National commenced its proceedings on 6 March 2007. The application for interlocutory relief before Brereton J was determined on 19 March 2007. At that time, Redrock owed Doulman Industries Pty Ltd $2,113.66 for repair works carried out on two motor vehicles. On 26 March 2007, ABD and Doulman Industries Pty Ltd entered into a deed whereby Doulman Industries Pty Ltd assigned the debt to ABD. The assignment was said to have been given in consideration of the payment of the sum of $2,113.66. The assignment was for value. Although there was no direct evidence that the payment had been made, it might be inferred from the terms of the deed that the payment had been received. In any event, if the payment had not been received by the time the assignment was executed, there was an implied promise by ABD to pay $2,113.66 as the stated consideration for the assignment. The argument proceeded on the basis that the deed was effective in equity to assign the debt.

7 As at 28 March 2007, the registered office of Redrock was recorded as “Plus Consulting (Sydney) Pty Ltd ‘BT Tower’ Unit 703, Level 7, 1 Market Street, Sydney NSW 2000”. On 28 March 2007, Mr David Brooks, who describes himself as a manager employed by ABD and responsible for the management of its legal affairs, delivered two letters addressed to the directors of Redrock to an empty suite on Level 7 at 1 Market St Sydney. The letters gave notice of the assignment of the debt. There was no office marked unit 703 or suite 703. No suite was occupied by Plus Consulting. The letters giving notice of the assignment of the debt were left under the door of a vacant suite. The letters were also delivered to an office of a firm called “Plus Advisory” in Bathurst Street, Sydney. This was an address familiar to Mr Brooks as one at which documents in the proceedings between Liquor National and Redrock had been served on Redrock. After delivering copies of the letters to that address, Mr Brooks proceeded to the Supreme Court registry where he filed the originating process and supporting affidavit for the winding-up of Redrock and an interlocutory process for the appointment of a provisional liquidator. He then delivered those documents to the empty suite on level 7 at 1 Market Street, Sydney and to the office of Plus Advisory in Bathurst Street. ABD did not deliver the documents to the business address of Redrock or to its directors.

8 On 3 April 2007, ABD sent copies of the originating process seeking orders for the winding-up of the Redrock Company, the interlocutory process seeking an order for the appointment of a provisional liquidator, and supporting affidavits, to Westpac Banking Corporation. Westpac is Redrock’s bank. They also sent a copy of those documents to a company called Bertshell Pty Ltd. Counsel for Redrock said that Bertshell Pty Ltd was its bottler, and although there was no evidence of this, I did not understand that fact to be in dispute. The existence of the winding-up application came to the notice of the directors of Redrock on their being given copies of the documents by Westpac.

9 Redrock tried to deal with the application by paying the debt of $2,113.66. On 11 April 2007, its solicitors forwarded a letter to the solicitors for ABD enclosing a bank cheque in the amount of $2,113.66 in payment of the debt. The cheque was returned the following day. ABD’s solicitor said “Our client rejects tender of those moneys on the basis that your client is clearly insolvent.” On 4 June 2007, Redrock sought and was given leave to pay the sum into court. The moneys were paid into court on 8 June 2007.

ABD’s Purpose in Making the Winding-Up Application

10 Mr David James (“Mr James”) is recorded on the company search of ABD as being one of two directors. The other director was shown as being Mr John James. However, Mr James said that at the date of hearing this application he was the sole director and sole beneficial shareholder of ABD. In an affidavit sworn on 29 May 2007, Mr James deposed that he caused the winding-up proceeding to be commenced because he believed Redrock to be insolvent and that it was becoming more insolvent. He said that the purpose of commencing of the winding-up proceedings was to have the defendant wound up in insolvency. He also said that he made a decision to pay out debts, and to take assignments of debts, in order to preserve the reputation of Liquor National and associated companies.

11 In cross-examination, Mr James admitted that one of his reasons for taking an assignment of Doulman Industry’s debt was to afford him another opportunity to cause Redrock to become embroiled in a further piece of litigation. He admitted that one of his purposes of commencing the winding-up proceedings was to give his companies another opportunity to litigate against the Redrock Company. He also said that he was trying to protect “my asset which is at risk”. He was asked:

“ Q. Do you say that one way of protecting your asset is to commence this proceeding?
A. I am saying to protect my asset I need a receiver appointed to their business. ”

12 He admitted that he was actively seeking to obtain other assignments of debts.

13 Mr James gave oral evidence that he took the assignment of Doulman Industry’s debt because it provided repair services to ABD’s vehicles, and he wished to protect ABD’s credit in the future in his dealings with Mr Doulman.

14 I do not accept that ABD’s motivation in taking an assignment of the debt was to preserve its reputation with a company with which it did business. It took an assignment of the debt in order to give it standing as a creditor to bring a winding-up application. It provided no opportunity to Redrock to pay the debt to it.

15 I accept that it is Mr James’ intention to pursue the winding-up application to a conclusion. One of his purposes is also to create difficulty for Redrock by embroiling it in litigation, thereby causing it to incur costs and use up executive time. Mr James is motivated to do that by the dispute between Redrock and Liquor National. However, I do not find that the dominant purpose of ABD’s bringing the winding-up proceeding is to embroil Redrock in litigation. Mr James perceives that the dispute between Liquor National and Redrock will be resolved favourably to Liquor National if Redrock is wound up. In Mr James’ view, this would “protect my asset”. He did not elaborate on that evidence. I can infer that he considered that Liquor National’s “asset” would be protected by Redrock being wound up because it would be required to cease to carry on the business to which Liquor National lays claim, except as may be necessary for the beneficial disposal of that business. Liquor National would also be in a good position to negotiate a resolution of the existing proceedings with a liquidator. It is consistent with this objective that Mr James wishes to pursue the winding-up proceedings to a conclusion.

Grounds for Summary Dismissal

16 Redrock contends that the originating process should be summarily dismissed because:

(a) when the proceedings were commenced, ABD was not a creditor of Redrock because no express notice in writing of the assignment of the debt had been given to Redrock;

(b) the tender of the debt, coupled with its payment into court, meant that the plaintiff lost its status as a creditor. Alternatively, the Court would not permit a creditor to proceed with a winding-up application if it could accept payment in full, but chooses not to do so in order to press ahead with the winding-up application; and

(c) because the winding-up proceeding is an abuse of process.

ABD’s Status as a Creditor when the Proceedings were Commenced

17 There is much to be said for Redrock’s submission that notice of the assignment of the debt had not been given in accordance with s 12 of the Conveyancing Act 1919 (NSW) at the time the winding-up proceedings were commenced. Notice was not given in any of the ways contemplated by s 170 of the Conveyancing Act. Nor did the evidence establish that the notice of assignment was left at the company’s registered office in accordance with s 109X(1)(a) of the Corporations Act 2001 (Cth). Mr Brooks deposed, without objection, that he was told by the receptionist of an office which bore the plaque “Tenant 1” that she thought Plus Consulting had occupied the office next door. Assuming that she was referring to the vacant suite next to her office (although Mr Brooks gave no evidence from which such an inference should be drawn) that evidence is insufficient to establish that the vacant office at which the document was left had been the registered office of Redrock.

18 It would not be appropriate to resolve this disputable question of fact on a summary application. In any event, ABD’s standing to commence the winding-up proceedings does not depend upon whether there had been an effective legal assignment of the debt prior to the commencement of the proceedings. An equitable assignee of a debt is a creditor within the meaning of s 459P(1)(b) entitled to apply for a winding-up order (Re Steel Wing Co Ltd [1921] 1 Ch 349; Re Allebart Investments Pty Ltd (1969) 92 WN (NSW) 726; Rohan Trading Co Pty Ltd v Glengor Pastoral Co Pty Ltd [2003] NSWSC 1265 at [14]).

Consequences of Refusal of the Tender of Payment

19 Counsel for ABD submitted that a creditor need only have standing at the time it files the application for winding-up. He also submitted that a creditor who has brought a winding-up application can reject the tender of payment of the debt, and does not lose its status as a creditor, even if the debtor company remains ready to pay the debt and pays the full amount of the debt into Court.

20 Counsel for ABD also submitted that the issue of ABD’s standing could not be determined on a summary basis because, if it had standing when proceedings were commenced, even if it does not maintain its status by having rejected the tender of payment of the debt, it will still have standing to obtain a winding-up order if it purchases another debt by the time the application is heard.

21 In Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177, Menzies J said (at 194-195):

“In the course of argument upon this appeal, reference was made to the consequence of a petitioning creditor being paid off between the presentation of the petition and the making of an order. That circumstance would not, in my opinion, put an end to the petition nor would it affect the jurisdiction of the court to hear and determine the petition although, of course, in such circumstances proceedings might not be continued and, if they were, the court could, in the exercise of its discretion, refuse to make a winding up order upon the petition of a person not then a creditor.”

22 The payment off of a petitioning creditor does not preclude another creditor being substituted (Deputy Commissioner of Taxation v Sun Heating Pty Ltd [1983] 2 NSWLR 78; DMK Building Materials Pty Ltd v CB Baker Timbers Pty Ltd (1985) 2 NSWLR 711). In De Montfort v Southern Cross Exploration NL (1987) 17 NSWLR 468, Needham J said (at 470-471) that he was aware of no case in which a creditor who had issued a notice under s 364 of the Companies (NSW) Code, but had been paid out, was then entitled to continue the proceedings on the basis of other debts owed by the defendant to the plaintiff which had not been the subject of the notice. His Honour said (at 471):

“ I should have thought that, while the effect of the s 364 notice
undoubtedly continues so as to allow another creditor to become substituted for the original plaintiff, that principle could not possibly apply to a case where it is the plaintiff itself who claims to continue the proceedings after being paid out the only amount which he has claimed in those proceedings. It would, I think, be quite unacceptable for a creditor to serve a notice upon a debtor specifying a sum in that notice, then, when the debtor failed to comply with that notice, take proceedings, be paid the full amount claimed, and then seek to wind the defendant up nonetheless.
Whether the principles relating to s 364 and the deemed insolvency of companies applies to such a situation or not, I would not, in the exercise of my discretion, permit the creditor to proceed with the claim for winding up in those circumstances. ... ”

23 His Honour said that the principle stated by Menzies J in Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) and the principles stated in Deputy Commissioner of Taxation v Sun Heating Pty Ltd and DMK Building Materials Pty Ltd v CB Baker Timbers Pty Ltd applied to creditors who sought substitution.

24 The above passage quoted from De Montfort v Southern Cross Exploration NL was approved by Ipp JA (with whom Mason P agreed) in Braams Group Pty Ltd v Miric (2002) 171 FLR 449 at 461 [77]; (2002) 44 ACSR 124 at 135 [77]. A different view was taken by Zeeman J in Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 116 FLR 314 at 319-320; (1994) 14 ACSR 580 at 585, and by Gyles J in Deputy Commissioner of Taxation v Visidet Pty Ltd [2005] FCA 830 at [5]-[6]. In both cases, the winding-up application was dismissed as a matter of discretion.

25 In Deputy Commissioner of Taxation v Barroleg Pty Ltd (1997) 25 ACSR 167, Young J (as his Honour then was) ordered an insolvent company to be wound up on the suit of a creditor where the company had tendered payment of the debt which had been the subject of a statutory demand some hours after the filing of the summons for winding-up, which tender was not accepted.

26 In Roberts v Wayne Roberts Concrete Constructions Pty Ltd (2004) 50 ACSR 204 at 208 [12], Barrett J said that if the debt claimed in the statutory demand is paid after the 21-day period has expired, it would not then be open to the plaintiff to maintain and pursue the winding-up application as it would cease to be a creditor. In Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 54 ACSR 228, his Honour said that that proposition may have been too broadly expressed as it did not cater for the possibility that the plaintiff may have recaptured the status of creditor by the time the winding-up application is heard (at 231 [11]). In Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd, Barrett J said (at 232 [15]) that the matter of standing is to be judged initially at the time the winding-up application is initiated:

“ Thereafter, the proceeding remains extant for the benefit of any creditor the court sees fit to allow to pursue it. If the only person seeking to pursue it by the time it eventually comes before the court for determination is the original plaintiff but that plaintiff is not then a creditor, the application will be dismissed. If any person who is a creditor at that time (whether the plaintiff or someone else) then has the ability and standing to press for the making of a winding-up order, the court will entertain the application and may make the order. But that outcome will not be capable of being seen to be the correct outcome until the time fixed for determination of the winding-up application has arrived. ” (At 232 [15].)

27 Counsel for ABD submitted that tender, accompanied by payment into court, may be a defence to an action in debt, but it is only a defence in the sense that, by paying the money into court and proving the tender and the defendant’s continued willingness to pay the debt since tender, the defendant may bar any claim for interest or damages after the tender, and the creditor will be liable to pay the debtor its costs of the action on the ground that the action should not have been brought. Tender itself does not discharge the debt (Chitty on Contracts, General Principles, 27th ed (1994) Sweet & Maxwell, London at [21-070]). This is an accurate statement of the effect of the defence of tender to an action in debt (Dixon v Clark (1848) 5 CB 365 at 377; 136 ER 919 at 923-924; Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 568).

28 Hence it was submitted that, as the current proceedings are not an action for the recovery of a debt, the refusal of the proffered tender, even where the proffered tender was accompanied by payment into court, does not affect the plaintiff’s status as a creditor.

29 I do not accept that the principles relating to the defence of tender to an action for debt have no application to determining whether a creditor can obtain an order for winding-up if the company tenders payment of the debt and makes payment into court. In Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399, Meagher JA with whom Samuels and Priestley JJA agreed, said (at 403):

“ If a valid tender be made, a refusal of that tender (whether for good or bad reason, or for no reason at all) does not eliminate the debt in question. The relationship of creditor and debtor still subsists. The tender is no answer to a claim for the debt unless (as did not happen here) there is a continued readiness to pay, coupled with an actual payment into court. ”

30 In Alcatel Australia Ltd & Anor v PRB Holdings Pty Ltd (1998) 27 ACSR 708, Santow J (as his Honour then was) (at 713) summarised Meagher JA’s conclusion as being that “a valid tender, though it may be proffered without admissions, must be unconditional; but valid or not, its refusal does not eliminate the debt in question, unless there be both readiness to pay and payment into court.” The principle was stated in the same terms in Re Bond Corporation Holdings Ltd (1990) 1 ACSR 488 at 490.

31 However, I think counsel for ABD is correct in submitting that Meagher JA did not hold that a continued willingness to tender payment of the debt coupled with a payment into court eliminates the debt. That would not be consistent with the principles on which tender coupled with payment into court may be relied on as a defence to an action in debt: it is not because the debt is eliminated by tender and payment into court, but because the creditor cannot claim interest or damages and should not have his costs.

32 There are cases in which it has been held that a creditor was justified in refusing to accept proffered payment because the moneys paid would be liable to be disgorged if a winding-up order were made on the application of a substituted creditor (Australian Mid-Eastern Club Ltd v Yassim at 403; Occidental Life Insurance Company of Australia Ltd v Life Style Planners Pty Ltd (1992) 9 ACSR 171 at 172; but compare Nationwide v Franklins (2002) 20 ACLC 309 at 311 [8]-[9]; [2001] NSWSC 1120 at [8]-[9]).

33 It does not follow that the Court will make a winding-up order at the instance of a creditor who unreasonably refuses to accept payment. The better view of the authorities, particularly Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) per Menzies J at 194-195 and De Montfort v Southern Cross Exploration NL at 470-471, is that the Court’s jurisdiction to wind up a company in insolvency is enlivened where the application is made by a person having the status of a creditor under s 459P(1)(b), and the Court is satisfied that the company is an insolvent company (s 459A). However, the power to make a winding-up order is discretionary. Where the winding-up application relies on the presumption of insolvency arising from non-compliance with a statutory demand, the Court may, in the exercise of its discretion, refuse to permit a creditor to proceed with a claim for winding-up where the debt claimed in the statutory demand has been paid, albeit that payment outside the allowed 21-day period does not oust the statutory presumption of insolvency (De Montfort v Southern Cross Exploration NL at 471; Braams Group Pty Ltd v Miric at 461 [77]-[79]; 135 [77]-[79]). Even if the winding-up application does not rely on a presumption of insolvency, a winding-up order may be refused as a matter of discretion if, at the time of the making of the winding-up order, the petitioner is not then a creditor (Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) at 194-195). Equally, the discretion could be exercised against an applicant who unreasonably refused to accept the proffered tender of the debt where the tender was accompanied by a payment into court. I prefer the view that, if a person has standing as a creditor at the time the application is made, the question whether a winding-up order will be made if the plaintiff is not a creditor at the time of the hearing is a matter of discretion rather than power.

34 It follows that an application for summary dismissal is not the appropriate vehicle for determining whether ABD’s winding-up application should be dismissed on the ground of the proffered tender and payment into court. That conclusion also follows from the fact that it may be open to ABD to become a creditor by purchasing other undisputed debts of ABD prior to the hearing.

Abuse of Process

35 Counsel for Redrock submitted that the winding-up proceedings were an abuse of process because:

(a) it is a stalking horse designed to place pressure on the defendant in another proceeding: Varawa v Howard Smith Co Ltd (1911) 13 CLR 35;

(b) it is not presented in good faith and for a legitimate purpose and should be stopped because its continuance is likely to cause damage to the defendant: In Re a Company [1894] 2 Ch 349;

(c) it improperly seeks to achieve an end other than to which the process is directed: Roberts v Wayne Roberts Concrete Constructions Pty Ltd (2004) 208 ALR 532;

(d) it is brought in order to thwart the defendant’s defence and cross-claim in another proceeding: Equity Australia Corporation Pty Ltd v Falgat Constructions Pty Ltd (2005) 54 ACSR 813;

(e) the proceedings were brought to obtain a collateral and improper end and are not bona fide as a means of obtaining payment.

36 The concept of abuse of process in the law of winding-up has a wider field of operation than the “technical sense” in which the term is used as explained in Williams v Spautz (1992) 174 CLR 509 at 518-522, 532-537 (David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 279; Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) 25 ACLC 230 at 238-240 [47]-[57]). Thus, in L & D Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 1 ACLC 536, McLelland J said (at 538):

“ Proceedings by a person as creditor for the winding up of a company on the ground that it is unable to pay its debts will ordinarily be held to be an abuse of process:
(1) if the winding up proceedings are bound to fail eg if it is clear that the applicant will not be able to prove that he is a creditor within the meaning of s 363(1)(b) of the Code, or will not be able to prove that the company is unable to pay its debts within the meaning of s 364(1)(e);
(2) if the application is made for some improper purpose eg if the applicant is seeking to use the winding up proceedings to coerce a company into paying an alleged debt without affording the company a reasonable opportunity to ascertain or have it established that the debt is properly payable; or
(3) if issues will arise in the winding up proceedings of a kind inappropriate for determination in such proceedings eg a substantial contest as to the existence or enforceability of a debt relied on by the applicant, which should properly be resolved in separate proceedings brought for that purpose. ”

37 However, in this case, the claim that the winding-up application is an abuse of process relies on the principles considered in Williams v Spautz. There, it was held that it is an abuse of process to institute proceedings for the predominant purpose of obtaining a collateral advantage outside the proper purpose for which the proceedings are designed. However, it is not an abuse of process to bring proceedings for the purpose of pursuing them to a conclusion to obtain whatever entitlement or benefit the law provides if the proceedings terminate in the plaintiff’s favour.

38 In Williams v Spautz, the Court approved of the majority decision of the High Court in Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509. That case has similarities to the present. The respondent, the Colonial Mutual Life Assurance Society Ltd, had been subjected to libellous comments in pamphlets distributed by Mr Dowling. It had a judgment for costs against Mr Dowling, but in an amount which was insufficient to found a sequestration order. It took an assignment of another judgment debt owed by Mr Dowling so as to give it the standing to commence bankruptcy proceedings. Its purpose in bringing the bankruptcy proceeding was to obtain a sequestration order against Mr Dowling’s estate in order that he could be examined to ascertain who stood behind him in his distribution of the libellous comments. This was not a purpose for which bankruptcy proceedings were designed. Griffith CJ said (at 518) that:

“It may be that such an attempt would have been unsuccessful, but that does not affect the character of the purpose. In my opinion the use of the process of the Court of Insolvency for such a purpose is an illegitimate use, and is such an abuse of its process as calls upon the Court to exercise its discretion by dismissing the petition.”

39 However, Griffith CJ was in dissent. Isaacs J, who delivered the leading majority judgment, held that there was no abuse of process because no fraudulent means were employed and the Society intended to pursue the proceedings to their conclusion. It would have been different if the bankruptcy proceedings had been brought as a threat in an endeavour to obtain the names of those who stood behind Mr Dowling. But that was not the position. Isaacs J said (at 524):

“ Now, in the present case, there is no doubt the petitioning creditor wishes to use the process – that is, to attain by its means the very object for which it is designed by law, namely, sequestration, and this, notwithstanding there is a desire to use the sequestration afterwards for a certain purpose. But that subsequent purpose can only be reached, and is only intended by the creditor to be reached, if reached at all, by the act of the Court itself in compelling an answer to the questions put. ... If the facts had been different, if, for instance, it had been shown that the Society had simply threatened Dowling that unless he did what they had no right to demand from him, namely, give up certain names, they would proceed to sequestration, and they had proceeded accordingly, there would have been in law an abuse of the process.
But nothing of that kind took place. ... All that can be said is, at most, that the power to inquire as to any persons behind him with respect to the pamphlet is not contemplated by the Insolvency Act . If so, they would not obtain the information. But the desire to get the information is no breach of law or equity. ”

40 In Williams v Spautz, the High Court held (at 526) that the principle formulated by Isaacs J in Dowling was:

“ ... an attempt to achieve a formulation which keeps the concept of abuse of process within reasonable bounds. To say that the purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept. The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event. ”

41 The decision in Dowling shows that this may be so, even though the purpose the litigant hopes to achieve by bringing the proceedings to a successful conclusion is outside the purpose for which the proceedings were designed. (See also Williams v Spautz at 526.)

42 In the present case, one of Mr James’ purposes, and hence one of ABD’s purposes, is to obtain a collateral advantage for which the proceedings are not designed, namely, to put pressure on Redrock by embroiling it in litigation thereby causing it to incur expense and to consume executive time. However, the proceedings can only be dismissed as an abuse of process on this ground if that purpose is the predominant purpose (Williams v Spautz at 529). It was not put to Mr James that this was his main or predominant purpose. I do not think it was. In my view, Mr James regarded that as a desirable feature of the proceedings, but his predominant purpose was to crush Redrock by putting it into liquidation. If he is successful in that course, he considers that Liquor National will be able to achieve its goal of running the business currently being conducted by the defendant, but which Liquor National contends properly belongs to it. The company will not be able to continue in business and the liquidator may be unable or unwilling to continue to contest the proceedings against Liquor National. In this way, his “asset” will be secured.

43 The first of these outcomes, namely that Redrock cease to carry on its sales and distribution business, except so far as necessary for the beneficial disposal or winding-up of that business, would be the outcome which the law prescribes as a result of an order being made for the winding-up of a company (Corporations Act, s 477(1)(a)). It is not an abuse of process to seek a winding-up order to achieve that outcome.

44 The second of these outcomes, namely that Redrock may cease to contest the proceedings against Liquor National, is not an outcome which a winding-up order is intended to secure. The practical effect of making a winding-up order may be to stultify a company’s pursuit of an arguable claim, but that is not its purpose. If a winding-up order were made against Redrock, Liquor National’s proceedings against it would be stayed unless leave to proceed were given. Without pre-empting any such application, it would be at least arguable that the nature of the proceeding, involving, as it does, a claim for a constructive trust over the business and assets of the company, may be a claim in respect of which a grant of leave is likely. Whether a liquidator could or would defend the proceedings is another matter. The tactical advantage which a winding-up order could give ABD is not within the intended scope of such an order. But Spautz v Williams and Dowling v Colonial Mutual Life Assurance Society Ltd show that that does not make the proceeding an abuse of process.

45 The authorities cited by counsel for Redrock do not affect this conclusion. In Varawa v Howard Smith Co Ltd, Isaacs J identified (at 91) a case brought merely as “a stalking horse to coerce the defendant in some way actively outside the ambit of the legal claim upon which the court is asked to adjudicate” as one in which “the process is employed for some purpose other than the attainment of the claim in the action.” The passage cited by Counsel for Redrock from In re a Company (at [35]) describes a case where the petition was “not presented in good faith and for the legitimate purpose of obtaining a winding-up order, but for other purposes ...” (at 351). In Roberts v Wayne Roberts Concrete Constructions Pty Ltd, the winding-up proceedings involved matrimonial property which were the proper concern of proceedings pending in the Family Court. In Equity Australia Corporation Pty Ltd v Falgat Constructions Pty Ltd, the proceedings were brought for the dominant purpose of coercing the company into paying a sum which it was entitled to set off against a larger sum due by the petitioning creditor and to stifle a claim by the company against the petitioning creditor in another court.

46 In concluding that the present proceedings have not been shown to be an abuse of process, I should not be taken in any way to condone ABD’s conduct. To the contrary, the way in which the assignment of debt and the service of the originating process and accompanying documents was effected, and then delivered to persons with whom the Redrock Company had business dealings, was at least sharp practice. (No point was taken on the application that the originating process had not been properly served prior to being published to Westpac and to the credit manager at Bertshell Pty Ltd.) Nor do I condone the malicious intent of using the proceedings to subject Redrock to the cost and trouble of additional litigation. However, malicious intent, not amounting to a predominant purpose and not accompanied by the use of fraudulent means, does not render the proceedings an abuse of process. As Ungoed-Thomas J said in Mann v Goldstein [1968] 1 WLR 1091 at 1095; [1968] 2 All ER 769 at 772:

“ ... to pursue a substantial claim in accordance with the procedure provided and in the normal manner, though with personal hostility or even venom and from some ulterior motive, such as the hope of compromise or some indirect advantage, is not an abuse of the process of the court or acting mala fide but acting bona fide in accordance with the process.”

47 I say nothing as to whether the intentions and tactics of ABD will be relevant to the exercise of the discretion to make a winding-up order, if the grounds for doing so are established at the hearing of the winding-up application.

48 For these reasons, the proceedings should not be summarily dismissed. I order that the defendant’s interlocutory process filed on 25 May 2007 be dismissed. I order that the costs of that interlocutory process be the plaintiff’s costs in the proceedings. The exhibits may be returned after 28 days.

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