Body Corporate Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd
[2017] VSC 435
•31 July 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2017 00885
IN THE MATTER of BODY CORPORATE REPAIRERS PTY LTD (ACN 068 589 408)
BETWEEN
| BODY CORPORATE REPAIRERS PTY LTD (ACN 068 589 408) | Plaintiff |
| v | |
| OAKLEY THOMPSON & CO PTY LTD (ACN 092 053 239) | Defendant |
---
JUDGE: | Randall AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 June 2017 |
DATE OF JUDGMENT: | 31 July 2017 |
CASE MAY BE CITED AS: | Body Corporate Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2017] VSC 435 |
---
CORPORATIONS – Corporations Act 2001 (Cth), s 459G – Statutory demand – Application to set aside – Costs order – Judgment debt – Whether defective by reason of failure to serve accompanying affidavit – Whether creditor has standing to serve – Costs orders obtained against debtor – Quantifying an off-setting claim – Only support is the director’s contention as to quantum attributable to costs orders – Action to set aside underlying judgment by reason of fraud – Summary dismissal in favour of creditor – Appeal pending – Claim against principal proponent of fraud continuing – Off-setting claim – Some other reason – Corporations Act 2001 (Cth), s 459J – Abuse of process – Cross examination in s 459G applications – Recusal.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Levine | Templeton Fox Rothschild Lawyers |
| For the Defendant | Mr J Vagg | Oakley Thompson & Co Pty Ltd |
HIS HONOUR:
This is an application to set aside a statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Corporations Act’) on the basis that there is a genuine dispute or that the plaintiff has an offsetting claim.
The Statutory Demand
The statutory demand dated 22 February 2017 seeks payment of the sum of $233,588.68. The description of the debt for that amount is referred to in the schedule as:
Judgment debt – orders made in the Supreme Court of Victoria Costs Court at Melbourne on 11 & 13 November 2015 (copies attached).
Two orders were attached made by Judicial Registrar Gourlay. The first was made on 11 November 2015. That order was in the following terms:
1.Pursuant to the order of his Honour Justice Elliott made on 24 July 2015 Oakley Thompson is added as the second respondent.
2.…
3.The costs of the applicant pursuant to the orders of his Honour Justice Elliott made 24 April 2014 and 4 September 2013 and the orders of her Honour Associate Justice Daly made 9 April 2012 and 15 November 2012 are taxed and allowed in the sum of $289,988.68.
4.After deducting the part payment received by the second respondent, the first respondent is to pay the second respondent the sum of $233,988.68 pursuant to the orders made by his Honour Justice Elliott on 24 July 2015 in this proceeding and in proceeding S CI 2014 05814.
A number of matters were noted in ‘other matters’ in the order made by the Judicial Registrar. Relevantly it was set out:
On 6 August 2014 an Order was made for payment of an interim sum of $70,000 by the First Respondent. This sum was partly satisfied by payment from Funds in Court on 11 September 2014 of the sum of $56,400 being moneys paid by the First Respondent as security for costs of the Applicant in proceeding S CI 2015 09071. The Second Respondent agreed that the taxed sum should be reduced by the sum in the order for payment made at the conclusion of the taxation.
The second order attached to the statutory demand was that of Judicial Registrar Gourlay made 13 November 2015. That order corrected the quantum of the sum referred to in Order 4 and in lieu of the amount referred to as $233,988.68 the amount was referred to and should read as $233,588.68.
The plaintiff submits that the statutory demand be set aside or, if not, the further hearing of the application be adjourned to after 4 August 2017.
The grounds relied upon by the plaintiff to set aside the statutory demand were as follows:
(a) The demand was defective as it was not accompanied by an affidavit verifying that the amount was due and that there was a dispute with respect of the same;
(b) The plaintiff has applied to set aside the costs judgment that was made in favour of the defendant’s former client on 13 September 2013 and is awaiting the Supreme Court to list the hearing for summary judgment against the defendant’s former client, Mr Anunizato Enzo Maisano (‘Maisano’);
(c) The plaintiff’s application for leave to appeal against the defendant’s successful application for summary judgment in Supreme Court Proceeding S CI 2016 02044 will be heard on or about 4 August 2017;
(d) The plaintiff has filed an application for the leave to appeal the defendant’s successful summary judgment application in County Court CI-16-03922 by application number SAPCI0076 issued by the Court of Appeal Registry on 26 June 2017;
(e) The plaintiff has filed an application for special leave to appeal to the High Court by application M35 of 2017 and M36 of 2017 filed on 8 June 2017;
(f) The costs orders do not create a debt that is owing to the defendant as claimed in the statutory demand:
The defendant’s statutory demand that had been previously served upon the plaintiff on the basis that the costs orders was set aside by the Supreme Court on 5 July 2016 (Hargrave J) because there was no debt due and owing to the defendant pursuant to the Costs Orders.
It was put that I was bound by that decision or ought to follow the same.
(g) The costs orders only relate to any amounts that remain due and owing:
(i) The Defendant has written off the amounts allegedly due and owing for taxation purposes. I ought not to be satisfied that the defendant has verified that there is any amount due.
(h) The plaintiff submits it has offsetting claims in relation to the following:
(i) Firstly, that the plaintiff has an offsetting claim by reason of costs orders paid by it in relation to County Court Proceedings in the sum of $102,000 and in relation to two costs orders in the Supreme Court in favour of Oakley Thompson in the sums of $20,000 and approximately $25,000. Accordingly, there needs to be an investigation as to what is due and owing;
(ii) Secondly, the plaintiff has two offsetting claims for costs ordered by Hargrave J on 5 July 2016 and on 16 September 2016. The director estimated those costs on information and belief as being $30,000 to $40,000 and $20,000 to $30,000 respectively;
(iii) Thirdly, the plaintiff has an offsetting claim against the defendant. The offsetting claim arises from Supreme Court proceedings S CI 2016 02044 and County Court proceedings CI-16-03922. Although each of those proceedings insofar as they are related to the Oakley Thompson & Co Pty Ltd (‘Oakley Thompson’) were the subject of summary judgment applications on behalf of the Oakley Thompson defendants, appeals have been filed. The appeals were arguable in that it was contended that Riordan J had misdirected himself as to the test to be applied. In those circumstances, it was submitted that that fact alone constituted a reason to set aside the statutory demands;
(iv)Finally, the plaintiff has an offsetting claim against the defendant’s former client, Maisano. The two outlined proceedings in the Supreme and County Courts are still current insofar as they relate to Maisano and, if successful, will result in the decision of Elliott J being set aside. It is submitted that if Elliott J’s decision is set aside the substratum for costs orders also disappears. That ultimate result is conceded by Oakley Thompson but, in opposition, it is contended that that outcome is by no means assured;
(i) Oakley Thompson seeks to have the costs paid to its trust account and it represents trust moneys due and owing to the former client of Oakley Thompson and not to Oakley Thompson directly;
(j) Serving the statutory demand while proceedings S CI 2016 02044 and CI-16-03922 have been issued constitutes abuse of process.
In support of the plaintiff’s application to set aside statutory demand, counsel for the plaintiff sought to cross-examine Julian Vagg of Oakley Thompson. The plaintiff’s practitioner provided notice requiring attendance for cross-examination.
History
In 2002, the plaintiff, Bodycorp Repairers Pty Ltd (‘Bodycorp’), commenced proceedings against Maisano, in the Federal Court alleging breach of a franchise agreement and inducing breach of contract (the ‘Bodycorp proceeding’).
In 2005, the Bodycorp proceeding was transferred to the Supreme Court of Victoria. Oakley Thompson acted for Maisano in the Bodycorp proceeding between 2004 and 2010. After ceasing to act for a period, Oakley Thompson recommenced acting for Maisano in the Bodycorp proceeding in March 2012 until the completion of trial.
Bodycorp was unsuccessful.[1] Maisano obtained orders for costs against it. An appeal to the Court of Appeal was dismissed,[2] and an application for special leave to the High Court was refused.[3]
[1]Bodycorp Repairers Pty Ltd v Maisano [No 8] [2013] VSC 472 (Elliot J).
[2]Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd [2015] VSCA 73.
[3]Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd [2016] HCASL 24.
Pursuant to the cost orders made by Elliot J in the Bodycorp proceeding, Maisano commenced proceedings in the Costs Court in order to tax the costs (the ‘Taxation proceedings’). During this time, Maisano terminated Oakley Thompson’s retainer following a dispute over outstanding legal fees.
Oakley Thompson issued proceedings against Maisano seeking a declaration that it had an equitable lien over the costs judgment made against Bodycorp in favour of Maisano and that Oakley Thompson was entitled to have those costs taxed (the ‘Declaratory proceedings’). On 30 June 2015, Elliot J found in favour of Oakley Thompson and held that Oakley Thompson was entitled to have those costs taxed and granted relief that would enable Oakley Thompson to prosecute the taxation in the Costs Court.[4] His Honour also found that Oakley Thompson was not entitled to pursue the taxation of costs on Maisano’s behalf because to do so would be contrary to the instructions of Maisano.[5]
[4]Oakley Thompson & Co Pty Ltd v Maisano [No 2] [2015] VSC 210 [4].
[5]Ibid [117]-[118].
Elliott J made formal orders to the following effect on 24 July 2015 (the ‘Declaratory Orders’):
1.The plaintiff (‘Oakley Thompson’) has an equitable right over the costs judgment awarded in favour of the first defendant (‘Maisano’) in the order of Court made 4 September 2013 (‘the costs order’) in the proceeding, such right being security for payment to Oakley Thompson by Maisano of all costs and disbursements of, and incidental to, legal services rendered by Oakley Thompson to Maisano in the proceeding, being costs and disbursements due and remaining unpaid.
2.[Oakley Thompson] is entitled to have the costs, ordered in favour of Maisano in a costs order, taxed.
3.The taxation assessments completed by the Costs Court in the costs proceeding in the hearings of 5 and 6 August 2014 are not invalid by reason of Oakley Thompson appearing at those hearings on behalf of [Maisano].
4.[Maisano and Bodycorp] jointly pay Oakley Thompson’s costs of this proceeding, including any reserve costs…
5.…
I will omit reference to the plethora of other applications made on behalf of Bodycorp.
The Declaratory Orders outline the undertaking given by Oakley Thompson during the Declaratory proceeding, as the following (the ‘Undertaking’):
[Oakley Thompson] undertakes that it agrees that any amount that [Bodycorp] is ordered to pay in this proceeding is to be paid into court and that it will not seek payment of any such amount to itself except by order of the court or with [Maisano’s] consent.
Relevantly, Bodycorp sought to stay the Declaratory Orders and was unsuccessful.[6] Osborn JA, with whom Tate JA agreed, held that:
…there are no special circumstances justifying departure from the presumption that an appeal should not ordinarily deprive a successful litigant of the fruits of litigation by operating as a stay of execution.[7]
Application for leave to appeal the decision in the Declaratory Proceeding to the Court of Appeal was subsequently refused.[8]
[6]Bodycorp Repairers Pty Ltd v Oakley Thompson & Co [2016] VSCA 19 (Osborn and Tate JJA).
[7]Ibid [18].
[8]Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [2017] VSCA 23 (Warren CJ, Tate JA, McLeish JA).
Subsequent to the orders made by the Judicial Registrar on 11 November 2015 and 13 November 2015, Bodycorp and Maisano filed an application for review on 25 November 2015. The appeal was dismissed by Wood AsJ on 11 March 2016.[9]
[9]Maisano v Bodycorp Repairers Pty Ltd[No 2] [2016] VSC 92.
On 23 November 2015, Oakley Thompson served a statutory demand based upon the two orders made by the Judicial Registrar (‘the First Demand’). Bodycorp made application and was successful in setting aside that statutory demand.
Hargrave J relevantly said:
[7]As the transcript of proceedings before Justice Elliott on 24 July 2015 clearly demonstrates, that undertaking was given to protect the interests of Mr Maisano in respect of any residual entitlement he may have to the costs recovered under the costs order made in his favour in the original proceeding – after payment of Oakley Thompson’s unpaid costs. The existence of such an entitlement is not fanciful, as Oakley Thompson have already been paid out at least $80,000 on account of their costs of acting on behalf of Mr Maisano and another $56,000 was recovered from the security for costs amount paid into court by Bodycorp.
…
[9]Accordingly, as matters presently stand, the Costs Court, on review by an Associate Justice, has interpreted the Costs Court order as requiring Bodycorp to the pay the costs amount ordered by Judicial Registrar Gourlay directly into Court. That interpretation is inconsistent with the existence of a debt due by Bodycorp to Oakley Thompson for that sum pursuant to the costs orders.
…
[11]In my opinion there is therefore a sufficiently plausible contention, requiring investigation and final decision, that Oakley Thompson is not a creditor of Bodycorp under the Cost Court order and thus a genuine dispute as to the existence stated in the statutory demand. It is not for the Court to determine the dispute on an application to set aside the demand. Accordingly, the statutory demand should be set aside under s 459H(3) of the Corporations Act 2001 (Cth) …[10]
[10]Bodycorp Repairers Pty Ltd v Oakley Thompson & Co (Unreported, Supreme Court of Victoria, Hargrave J, 5 July 2016).
On 16 September 2016, the Court ordered in the lien proceedings (Declaratory proceedings) that the respective entitlements, if any, of Oakley Thompson and Maisano to any moneys paid or payable by Bodycorp under the costs judgment be referred to the Costs Court for hearing and determination.[11]
[11]Anuniziato Enzo Maisano v BodyCorp Repairers Pty Ltd; Oakley Thompson & Co Pty Ltd (Unreported, Supreme Court of Victoria, Hargrave J, 16 September 2016).
Wood AsJ held on 1 December 2016 that the entitlements of Oakley Thompson and Maisano to the amount of the costs judgment are $148,853.68 for Oakley Thompson and $84,735 for Mr Maisano respectively.
On 13 February 2017, Hargrave J released Oakley Thompson from the undertaking. At [21] Hargrave J said:
For the avoidance of doubt, in my opinion, the effect of releasing the undertaking will be that the costs judgment given by Gourlay JR will no longer require payment into court, but will instead require payment to Oakley Thompson directly and will be enforceable by Oakley Thompson directly against Bodycorp as if it were the sole person entitled to the costs order of Mr Maisano in the main proceeding.[12]
[12]Oakley Thompson & Co Pty Ltd v Maisano (No 5) [2017] VSC 52 [21].
Bodycorp sought a solicitor/client taxation between Oakley Thompson and Maisano prior to any requirement to pay the party/party costs. Hargrave J rejected that submission.
Bodycorp also cavilled with issues in relation to the entitlement to costs and quantum of costs notwithstanding the taxation and the review by Wood AsJ. Hargrave J did not accept any of those contentions.
In the same judgment, Hargrave J released Oakley Thompson from the undertakings subject to the following conditions:
(a)…
(b)any amount recovered from [Bodycorp] pursuant to any such enforcement process be paid into [Oakley Thompson’s] trust account on trust for itself and for [Maisano].
(c)any distributions from those trust moneys be applied first to [Oakley Thompson’s] reasonable and necessary costs of recovery proceedings, and then in pro rata proportions to [Maisano] and [Oakley Thompson] in accordance with the entitlements fixed by Associate Justice Wood on 1 December 2016 in proceeding S CI 2014 5814.
2. …[13]
[13]Ibid [31].
This decision has not been appealed by Bodycorp.
Since that judgment, Bodycorp sought leave to appeal the decision of Elliott J dealing with the issue of the fruits of costs judgment in Oakley Thompson’s favour.[14] The Court of Appeal noted that Bodycorp had made a submission to Elliot J that the original judgment was vitiated by fraud. Reliance was placed upon an affidavit sworn by Maisano sworn 17 November 2014. The Court of Appeal also noted that Bodycorp had made a submission to the trial judge that as Oakley Thompson’s accounting records indicated Maisano owed only an amount of $145.85 it could not have any outstanding claim beyond that amount.[15]
[14]Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [2017] VSCA 23.
[15]Ibid [34].
In the appeal, Bodycorp argued inter alia that the trial judge erred in holding that a solicitor with an equitable fruits of litigation lien was entitled by virtue of that lien to enforce it. That argument was rejected and the application for leave to appeal was refused.
Was the Statutory Demand defective?
Counsel for the plaintiff submits that an affidavit accompanying the statutory demand was required by section 439E(3) of the Corporations Act. It was submitted that that omission constituted a defect in the demand. Counsel relied upon Fitness First Australia Pty Ltd v Dubow as follows:
The purpose of the requirement for a verifying affidavit is to enable the Court to be satisfied that there is a solid basis for the claim as to the existence of the debt. The exemption for the requirement for such an affidavit in the case of judgment debts is to be understood in that light…[16]
[16][2011] NSWSC 531 at [98].
Counsel for the plaintiff also took me to the observations by Master Sanderson in Four Seasons Construction Pty Ltd v Eastern Metropolitan Regional Council (‘Four Seasons’),[17] Wildtown Holdings Pty Ltd v Rural Traders Co Ltd,[18] and Anderson Formrite Pty Ltd v CASC Hire Pty Ltd,[19] where Siopis J said:
The rationale for exempting a statutory demand for the very sum of the judgment from the need for verification by an accompanying affidavit is apparent. The judgment speaks for itself as to the amount which is due and payable and, prima facie, also in relation to the absence of a genuine dispute.
However, once the statutory demand is for a sum different from the sum in the judgment the rationale for the exemption from the verification no longer applies because extraneous events or circumstances have intervened. There is then the need to identify the amount claimed by reference to the extraneous intervening events or circumstances. Further, these intervening events or circumstances are capable of giving rise to disputes as to the amount of an outstanding debt and, also, as to the continuance of the debt…in those circumstances the same considerations which underline the introduction of the legislative requirement for verification of statutory demands for amounts that were never the subject of a judgment, apply equally to demands for amounts different from the sum in respect of which a judgment was given. It follows, in my view, that a narrow construction should be given to the words judgment debt in s 459E(3) of the Act so that the exemption is confined to demands for the very amount in respect of which judgment was obtained, and not for any different amount.
[17](2000) 35 ACSR 716.
[18](2002) 172 FLR 35 at [62]-[63].
[19](2005) 147 FCR 379, [62]–[63].
Counsel for the plaintiff submitted that the order made by the Judicial Registrar was merely a reflection of the underlying order by Elliott J which required an assessment of what already had been received by Oakley Thompson. He pointed to various references in the judgments to the receipt of $56,400.00 being moneys paid by Bodycorp as security for costs and to the receipt of $80,000.00 from Maisano.
I do not accept that these authorities support the plaintiff’s case in the way that counsel contends. There exists in Fitness First a key factual distinction to that of the present case. In Fitness First, no reference was made in the statutory demand to the orders or any judgment arising in relation to the filing or registration of the costs certificates.[20] Whereas, in the present case, the statutory demand specifically points out the judgment debt, refers to and attaches the order.
[20]Fitness First Australia Pty Ltd v Dubow (2011) NSWSC 531 [92].
Furthermore, it would seem that the reason Ward J made reference to Four Seasons Construction Pty Ltd v Eastern Metropolitan Regional Council and Wildtown Holdings Pty Ltd v Rural Traders Co Ltd[21] was due to the fact that the statutory demand included a $78.00 fee as part of the debt schedule that was not part of the original judgment debt.[22] Had it not been for the addition of the $78.00 fee, the cost certificates themselves would have be classified as judgment debts and there would be no need for an affidavit.[23]
[21](2002) 172 FLR 35 at [39]-[40].
[22]Ibid [94].
[23]Ibid [96].
There is no definition of ‘judgment debt’ provided for in the Corporations Act. However, Ward J referred in Fitness First to Pearl Bay Corp Pty Ltd v Lodur Pty Ltd[24] which held that ‘the date upon which his Honour handed down his reasons and pronounced judgment, there was in existence ‘a judgment debt.’[25] In essence, there is no need for a judgment to be formally entered or ‘taken out’ and the judgment will ordinarily take effect on the date that the judge has pronounced the judgment.[26]
[24][2000] WASC 315.
[25]Ibid [6]-[9].
[26] See also Alternative Engine Technologies Pty Ltd v Kruger Ventures Pty Ltd (No 2) [2010] SASC 60 [11].
Moreover, the Federal Court of Australia has held that the exemption from the requirement to accompany a statutory demand with a verifying affidavit is limited to circumstances where the statutory demand made an identical demand to the amount of the judgment debt.[27]
[27]Anderson Formrite Pty Ltd v CASC Hire Pty Ltd (2005) 147 FCR 379. See also Wylkian Pty Ltd ACN 008 624 379 v Australian Capital Territory [2006] FCA 1815.
The defendant submits that no genuine dispute can exist in respect of a judgment debt and the judgment as the source of a payment obligation cannot be disputed unless and until the judgment has been set aside. Reliance was placed on Innovision Developments Pty Ltd v Martorella[28] and Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd.[29] I accept these authorities generally support those submissions.
[28][2012] VSC 390.
[29][2011] NSWSC 466.
The order made by Judicial Registrar Gourlay on 11 November and on 13 November 2015 is made pursuant to r 63.56 and r 36.07 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic). That order is authenticated and filed in accordance with r 60. Upon that occurrence, the orders of the Judicial Registrar were of full force and effect.
The statutory demand sought no more or less than what was set out in the orders made. Accordingly, an accompanying affidavit was not required.
Therefore, the statutory demand was not defective in accordance with s 439E(3) of the Corporations Act.
Do the cost orders constitute a debt that is owing to the defendant as claimed in the demand?
The plaintiff submits that the costs orders do not create a debt that is owing to the defendant as claimed in the statutory demand. The plaintiff refers to the defendant’s previous statutory demand served upon the plaintiff which was set aside by the Supreme Court on 5 July 2016 because ‘there was no debt due and owing to the defendant pursuant to the costs orders.’
Counsel for the plaintiff referred to the order made by Wood AsJ as to the apportionment between Oakley Thompson and Maisano. It was submitted that the effect of that order was that only the sum of $148,853.68 was recoverable by Oakley Thompson.
Furthermore, counsel for the plaintiff submitted that I was bound by or in any event ought to follow the earlier decision of Hargrave J in disposing of this statutory demand.[30] I do not accept this submission. In making that submission counsel for the plaintiff failed to sufficiently draw my attention to what transpired after the 5 July 2016 judgment. Further, in making the submission that I ought to be bound by Hargrave J’s decision, counsel failed to have regard to what transpired thereafter in formulating such submissions.
[30]Bodycorp Repairers Pty Ltd v Oakley Thompson & Co (Unreported, Supreme Court of Victoria, Hargrave J, 5 July 2016).
The defendant submits that any ‘alleged uncertainty’ related to the costs order of Judicial Registrar Gourlay were ‘put to rest by Justice Hargrave’ when his Honour stated:
For the avoidance of doubt, in my opinion, the effect of releasing the undertaking will be that the costs judgment given by Gourlay JR will no longer require payment into court, but will instead require payment to Oakley Thompson directly and will be enforceable by Oakley Thompson directly against Bodycorp as if it were the sole person entitled to the costs order of Mr Maisano in the main proceeding.[31]
[31]Oakley Thompson & Co Pty Ltd v Maisano (No.5) [2017] VSC 52, [21].
I accept the defendant’s submission. An analysis of the judgment of Hargrave J in Oakley Thompson & Co Pty Ltd v Maisano (No 5)[32] leads to the conclusion that Oakley Thompson was specifically authorised to recover the full sum set out in the Judicial Registrar’s order, subject to its obligations to account to Mr Maisano, as set out in the order. Relevantly, Hargrave J recognised that the undertaking had the:
...effect of preventing both Mr Maisano and Oakley Thompson from enforcing the costs judgment against Bodycorp…While the costs judgment remains affected by the undertaking…a barrier to enforcement proceedings remains. This is an unintended blot on justice.[33]
[32]Ibid.
[33]Oakley Thompson & Co Pty Ltd v Maisano (No.5) [2017] VSC 52, [19].
Accordingly, the cost orders do constitute a debt that is owing to the defendant as claimed in the statutory demand.
In the alternative, if the obligation to account as set out in Hargrave J’s order imposes a trust obligation upon Oakley Thompson, which was not conceded, then I note that r 16.02 of Chapter 1 of the Supreme Court (Civil Procedure) Rules 2015 (Vic) specifically authorises a trustee to bring suit without the necessity to join a person having a beneficial interest…under the trust. Furthermore, r 54.02 provides that trustees may approach the court to determine questions or matters relating to: the ascertainment of, and rights or interests of, parties to the trust; the furnishing of particular accounts; and the payment into court of trust funds.[34] This rule confers the court with very broad powers, enabling a trustee ‘to seek an order of the court either to approve a transaction or to direct that an act be done in the execution of the trust.’[35]
[34]Supreme Court (Civil Procedure) Rules 2015 (Vic) sub-paras (2)(b)(i).
[35]Ballard v Attorney-General (2010) 30 VR 397 at [41] (Kyrou J). Right at general law also exists: Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547 at 548 (Young J).
It follows that Oakley Thompson, if it has any trustee status, is the appropriate party to make demand.
Does the plaintiff have an off-setting claim?
The plaintiff submits it has a genuine off-setting claim in relation to the following:
(a) arising from the costs orders paid by it in relation to County Court Proceedings in the sum of $102,000 and in relation to two costs orders of the Supreme Court in the sums of ‘approximately’ $25,000 (Offsetting Claim 1);
(b) two off-setting claims in relation to Hargrave J’s orders (Offsetting Claim 2);
(c) pending proceedings against defendant (Offsetting Claim 3);
(d) pending proceedings against defendant’s former client, Maisano (Offsetting Claim 4).
Offsetting Claim 1
Counsel for the plaintiff submits that the amount of the offsetting claim be reduced by the amount/s previously paid to Oakley Thompson for costs in the County Court and Supreme Court proceedings. I do not accept this submission. The payments of $102,000.00, $20,000.00 and approximately $25,000.00 were made with respect to separate obligations to meet cost orders. Accordingly, those payments are not relevant to my consideration.
The submission in relation to Offsetting Claim 1 fails.
Offsetting Claim 2
In the 21 day affidavit, the plaintiff identified two costs orders made in its favour (among the many costs orders that were made) being the order of Hargrave J dated 5 July 2016 and of Hargrave J dated 16 September 2016. The plaintiff’s director set out:
I have been informed and variably believe that a proper estimate of the costs order dated 5 July 2016 is in the vicinity of $30,000 to $40,000 and the costs order dated 16 September 2016 is in the vicinity of $20,000 to $30,000.
I assume that the information and belief is based upon advice given to the plaintiff by its legal practitioners but that is not altogether clear. I further note that the practitioner for the plaintiff swore affidavits of service but did not swear any affidavit which would assist me in calculating a range of quantum for each of the cost orders. Nothing is produced to aid with this assessment, such as a bill, even if it were not in taxable form. Counsel for the plaintiff did not even seek to advise what his brief fee was from the Bar table. In any event, it is common ground that such costs have not been taxed.
Oakley Thompson responded that there was a multitude of costs orders in its favour in addition to that relied upon in the statutory demand. It was submitted that those orders would more than ‘balance out’ the costs orders made by Hargrave J. I rejected that argument on the basis that taking into account any costs orders made in favour of Oakley Thompson which were not referred to in the statutory demand would have the effect of amending the amount claimed in the statutory demand to increase it to an indeterminate sum. However, the defendant further submitted that the offsetting claim has not been sufficiently quantified, as there has been no draft bill prepared, no costing and no costing estimate to assist in calculating the offsetting amount. I accept those submissions for the reasons below.
Notwithstanding that the plaintiff did not provide evidence to aid in calculating the offsetting amount, it was held by Lehane J in Federico’s Restaurant Pty Ltd v Warwick Entertainment Centre Pty Ltd (‘Federico’s),[36] that it was not permissible to simply ‘throw up’ his hands and say that the task of calculation was impossible.[37] The approach in Federico’s has been endorsed by the Full Court of the Supreme Court of South Australia in Genesis Management Services Pty Ltd v Soniclean Pty Ltd.[38]
[36](1995) 18 ACSR 702.
[37]Ibid 709.
[38][2005] SASC 224 at [53]-[55]. Federico’s has also been applied in Climate Air Control & Energy Centres Pty Ltd v Climate Technologies Pty Ltd [2006] SASC 166.
However, other authority indicates that the applicant must adduce evidence to establish the existence of the genuine claim that would warrant subsequent adjudication.[39] Moreover, having regard to all of the circumstances of the case and drawing inferences as to the quantum of the claim, such as the court outlined in Federico’s, are likely to appear only in exceptional cases.[40] Furthermore, the Western Australian Court of Appeal held in Re Infratel Networks Pty Ltd,[41] that an affidavit must include ‘sufficient material indicating the nature of the off-setting claim and the way in which it is calculated to enable the statutory exercise under the Corporations Act 2001 (Cth), s 459H(2) to be carried out by the Court.’ Simply annexing a statement of claim is not sufficient to establish quantum.[42] Although there is no need for meticulous detail to be presented, something at least material must be adduced to allow the court to make a reasonable assessment as to the amount.[43]
[39]JJMMR Pty Ltd v LG International Corp [2003] QCA 519 at [4].
[40] 185L6 Pty Ltd v Strata Corporation 07176 Inc [2011] SASC 94 at [19].
[41] [2012] NSWSC 943.
[42]Endeavour Film Management Pty Ltd v Fox Studios Australia Pty Ltd [2003] NSWSC 831 [13].
[43]Royal Premier Pty Ltd v Taleski [2001] WASCA 48 [57]; Deancreat Nominees Pty Ltd v Nixon [2007] WASC 304 (Newnes J).
Specifically in relation to an order for costs, as is the case before me, such an order can constitute an offsetting claim, even where those costs have not been taxed.[44] However, a closer analysis of these authorities reveals that evidence still must be adduced to assist with the quantification of the amount. These authorities stand in direct opposition to the present case, where the plaintiff has deposed to a belief without providing any foundation for such an assertion.
[44]Dream Money Pty Ltd v Bernhard [2016] WASCA 193. G S Technology Pty Ltd v GSA Industries (Aust) Pty Ltd [2007] FCA 1895 (‘G S Technology’); Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2010] NSWSC 1017 (‘Metro Chatswood’).
In G S Technology Pty Ltd v GSA Industries (Aust) Pty Ltd (‘G S Technology’),[45] the Federal Court of Australia found that the plaintiff had an offsetting claim as the defendant had become liable for an order for costs and by reason of the defendant’s discontinuance of its action. In this case, the evidence adduced to assist with the quantification of the amount of the offsetting claim included a cost assessor’s letter that outlined an assessment of costs by law firm Hickey & Garrett; an estimate of costs that presented the sum total; an outline of solicitor’s professional fees and outlays; and the fees of the senior and junior counsel.[46] The court held that the offsetting claim was sufficiently established by this costs letter as to the amount they calculated would be allowed on taxation.
[45][2007] FCA 1895.
[46]G S Technology [43]-[44].
Similarly, the New South Wales Supreme Court in Metro Chatswood v CRI Chatswood Pty Ltd (‘Metro Chatswood’)[47] considered an application to set aside a statutory demand on the basis of an offsetting claim, which included a claim in the form of an order that the defendant pay 80% of its costs of certain proceedings. In that case, a bill of costs had not been prepared nor had the parties agreed to the costs amount. Instead, Barrett J considered the evidence adduced by the plaintiff to assist with quantifying the amount of the offsetting claim by reference to a memoranda of costs and disbursements from the plaintiff’s solicitors.[48] Notwithstanding some of the difficulties associated with the costs in four out of the ten costs memoranda, the amount of the offsetting claim was calculated as 80% of two-thirds of the profit costs billed and 80% of the whole of the disbursements billed.
[47]Metro Chatswood [2010] NSWSC 1017.
[48]Metro Chatswood [2010] NSWSC 1017, [25].
Therefore, in relation to costs orders, what can be gleaned from these authorities in terms of ascertaining the quantum of an offsetting claim, is that evidence is needed to assist the courts in assessing the likely amount of the costs orders. For example, this evidence could be in the form of a costs assessment letter, or a memorandum of costs. In the present case, the plaintiff has simply stated an approximation of the costs orders, without deposing to the basis of his belief or submitting any additional evidence that would help quantify his claims.
Although the courts encourage a ‘pragmatic approach’ to the quantification of the amount of an offsetting claim,[49] the authorities appear to constrain me from setting an amount based solely on my years of experience in these types of matters. Whilst it is not disputed that the defendant is liable to pay those costs orders, failure to adduce sufficient evidence means I am required to ascribe a nominal value to the offsetting claim.[50]
[49]Karimbla Constructions Services Pty Ltd v Alliance Group Building Services Pty Ltd [2003] NSWSC 617 at [28] (Barrett J).
[50]Torrens Aloha Pty Ltd v San Modern Painting Pty Ltd [2001] NSWSC 227 [35]; Jesseron Holdings Pty Ltd v Middle Eastern Trading Consultants Pty Ltd (1994) 13 ACSR 455 at 463.
Accordingly, the offsetting claim must fail beyond a nominal $1 for each costs order. I will vary the demand to that effect.
Offsetting Claim 3
Bodycorp filed proceedings in S CI 2016 02044 against Maisano and others including the Oakley Thompson parties, senior counsel for the AAMI defendants and All State Insurance in the original proceeding, AAMI parties and All State Insurance. That proceeding seeks inter alia that Elliot J’s original judgment be set aside on the basis of fraud and also seeks damages. A similar proceeding was commenced in the County Court in CI 16-03922. That proceeding seeks like relief against Maisano, Oakley Thompson and others. Again, the cause of action is based on fraud and in particular the evidence given by Maisano.
In the Supreme Court proceeding, Riordan J summarily dismissed the proceeding as against the Oakley Thompson parties and the AAMI parties. The claims against the third, sixth and seventh defendants were discontinued. The first defendant, Maisano, has not appeared in the proceeding and the proceeding still subsists as against him.
Counsel for the plaintiff submits that Riordan J misdirected himself in the summary judgment application with respect to the principles of causation.
At paragraph [47] Riordan J outlined the principles set out by Kirby P in Wentworth v Rogers (No.5),[51] as adopted by the Victorian Court of Appeal in Karam v Palmone Shoes Pty Ltd.[52]Those principles included:
The claimant must establish that the new facts are so evidenced and so material that it is reasonably probable that the action will succeed…
[51](1986) NSWLR 534.
[52][2014] VSCA 148.
At [48(c)], Riordan J set out:
Causation: it must be established that the fresh facts are so material (by themselves or in combination with other facts) that, if proven, the applicant’s case will succeed.
Counsel for the plaintiff submits that the test set out was too onerous and ought to have included the words ‘reasonably probable that the action will succeed.’
Counsel for the plaintiff further submits that given the application for leave to appeal Riordan J’s decision is due to be heard on 3 or 4 August, it was inappropriate that I decide the issue so close to that hearing. However, I am not convinced that Riordan J misdirected himself. Particularly, as Riordan J applied the principles applicable on a summary judgment application. After considering the issues raised on submission, his Honour concluded:
The above analysis considers the prospects of Bodycorp’s claim to set aside the judgment in the original proceeding. For reasons expressed, I do not consider that any of the grounds have any real prospect of success. Further, I do not consider the grounds in combination have any greater prospect of success.[53]
[53]Bodycorp Repairers Pty Ltd v Maisano (No 11) [2016] VSC 645 [85].
The defendant submits that the plaintiffs appeal has no better prospect of success than its claim in the proceedings related to fraud, given the outcome of the summary judgment by Riordan J.
Principles relating to pending actions or appeals
As a general proposition, when a statutory demand is based on a judgment debt, the fact that the judgment is under appeal when the s 459G application is heard cannot constitute a genuine dispute.[54] However, even though not specifically raised by the plaintiff in relation to the offsetting claims, s 459J of the Corporations Act relevantly states:
[54]See generally, Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1039; Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235; Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1995) 16 ACSR 213.
Setting aside demand on other grounds
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2)Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect
Given that the present case concerns a statutory demand issued on the basis of a judgment debt that cannot constitute a genuine dispute, I intend to consider the plaintiff’s submissions regarding the offsetting claim as if such were also made in relation to s459J.
To this end, it has been held that the pendency of an appeal or action to set aside judgment would not of itself, without additional circumstances, provide ‘some other reason’ why the demand should be set aside under s 459J(1)(b).[55]
[55]Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235.
White J in Quarter Enterprises Pty Ltd v Allardyce Lumber Co Ltd[56] has provided a useful summary of the relevant law in this area:
Where it is shown that there are arguable grounds of appeal, the court’s discretion may be enlivened under s 459J(1)(b) to set aside the demand on the grounds that there is some other reason why the demand should be set aside. Some cases have stressed that there will not be some other reason for setting aside the statutory demand if to do so will have the practical effect of granting a stay of the judgment when the plaintiff ought to have sought a stay. A fortiori, if a stay has been sought but refused, or has been granted on conditions that have not been met, then (at least prima facie) there will not be some other reason why the demand should be set aside. However, there is no rigid rule that can confine the scope of the power under s 459J(1)(b). That is not to say that under that section the Judge can do simply what he or she considers to be fair. The power must be exercised on a good reason relevant to the purposes for which the power exists (Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746 at 757). But it is consistent with the purposes of Pt 5.4 for a court to set aside a statutory demand based upon a judgment debt if satisfied that there are arguable grounds of appeal. Typically in such cases the demand is set aside on the condition that the debt claimed is secured by payment into court or by other means (see Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235 at 239–240; Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824 ; (1998) 84 FCR 454 at 462; Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759 ; (2007) 25 ACLC 1038 at [35]–[36]; Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9 at [56]–[60]; and Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [25]–[26]).[57]
[56][2011] NSWC 1031.
[57]Ibid [9].
More recently, in Re John Farlow Pty Ltd,[58] the New South Wales Supreme Court has reiterated this position and outlined the relevant factors to be considered when faced with the question of setting aside a statutory demand in situations where there is a pending appeal from or to set aside a judgment.[59] Relevantly, these include whether:
[58][2015] NSWSC 939.
[59]Ibid [15].
(a) reasonable and arguable grounds for the application to set aside the judgment or for the appeal have been shown;
(b) a stay is available and, if so, has been sought or refused; and
(c) there has been an offer to pay into court the amount of the demand pending the outcome of the application or appeal.
In relation to the question of whether a stay has been sought or refused, the court in Re John Farlow Pty Ltd did not deem absence of this to be fatal to an application to set aside a creditor’s statutory demand. However, his Honour did state ‘that where a stay has not been sought or where a stay has been refused, that is a highly influential and often decisive consideration.’[60] His Honour then went on to explain the strong policy reasons behind this position:
… namely that is that it [sic] is for the court in which the judgment has been given — or, sometimes, a court in which an appeal from which that judgment has been brought — to determine whether the merits of any appeal and other relevant discretionary considerations are such as to justify staying enforcement of the judgment pending the outcome of the appeal. It is undesirable that a third court, neither the trial court nor the appellate court, has to undertake separately that examination. An application to set aside or extend time for compliance with a creditor’s statutory demand, like an application to set aside or extend time for compliance with a bankruptcy notice, is not an alternative to an application for a stay. Companies who wish enforcement of judgments against them to be stayed pending an appeal must understand that their proper course is to apply for a stay, rather than to wait until a creditor’s statutory demand is issued and then apply to have it set aside. The court readily entertains applications to set aside demands where a stay has been granted, even after the creditor’s statutory demand has been served, because while such a stay does not otherwise deprive the demand of effect at the date it was made, it indicates that the proper court has decided that it is appropriate that it not be enforced in the meantime.[61]
[60]Re John Farlow Pty Ltd [2015] NSWSC 939 [16].
[61]Ibid.
Given the nature of the proceeding in S CI 2016 02044, which in effect seeks to set aside the judgment upon which the costs order was made, I inquired of counsel for the plaintiff as to whether or not any stay application had been made. The response was to the effect that it was inappropriate, given that judgment against the first defendant would have the effect of unravelling all the cost orders.
However, in Bodycorp Repairers Pty Ltd v Oakley Thompson,[62] Bodycorp sought a stay of orders made by Elliott J pending the determination of an application for leave to appeal and if leave was granted, a proposed appeal against such orders. Counsel for the plaintiff did not draw my attention specifically to this decision.
[62][2016] VSCA 19.
Osborn JA, with whom Tate JA agreed, determined that there were no special circumstances justifying departure from the presumption that an appeal should not ordinarily deprive a successful litigant of the fruits of litigation by operating as a stay of execution.[63] The Court of Appeal refused the application for the stay of Elliott J’s determination set out in the orders on 24 July 2015. In addition, the Court of Appeal ordered that Bodycorp provide security for Oakley Thompson’s costs of the application for leave to appeal and if leave is granted, the appeal itself.
[63]Ibid [28].
In these circumstances further adjourning the application to set aside the statutory demand as the plaintiff contends or even setting aside the statutory demand would constitute a defacto stay, which has previously been applied for and refused.
In relation to ascertaining whether there are reasonable and arguable grounds for the appeal, the plaintiff debtor should place before the court sufficient material to allow the court to formulate a view as to the prospects of success of the appeal.[64] The Federal Court of Australia in Stack v Elster Metering Pty Ltd[65] had to consider whether a possible application for special leave to appeal to the High Court, after it has been previously refused for a second statutory demand, was sufficient to amount to ‘some other reason’ to set aside the statutory demand. The court held that the prospects of ‘receiving any monetary award for the infringement of any patent’ was highly speculative and contingent and the court refused to set aside the demand on that basis.
[64] See Ford Motor Co of Australia Ltd v Tristar Steering & Suspension Australia Ltd [2003] FCA 596 at [43]; Stack v Elster Metering Pty Ltd [2005] FCA 231 at [75].
[65][2005] FCA 231.
In Ford Motor Co of Australia Ltd v Tristar Steering & Suspension Australia Ltd,[66] the Federal Court of Australia held that the fact that an appeal has been lodged, and was accompanied by the contents of the notice of appeal, was not sufficient to warrant the statutory demand be set aside. This was largely due to the lack of argument by the plaintiff addressing the reasons for the trial judge’s decision and the nature and substance of the extensive grounds of appeal.[67]
[66][2003] FCA 596.
[67]Ford Motor Co of Australia Ltd v Tristar Steering & Suspension Australia Ltd [2003] FCA 596, [43].
I turn now to the present case, and the submission by the plaintiff that Riordan J erred in his application of the principles of setting aside a judgment on the basis of fraud. An analysis of the decision in Bodycorp Repairers Pty Ltd v Maisano (No 11)[68] reveals no obvious errors of law that would be fatal to the outcome. In the seminal case of Wentworth v Rogers (No 5),[69] Kirby P outlines the relevant test for ascertaining whether a judgment should be set aside on the basis of fraud. The plaintiff submits that Riordan J erred in his application of the causation element by failing to include the words ‘reasonably probable that the action will succeed.’ However, his Honour has included reference to the entirety of Kirby P’s test and provided a summation of the essential elements at [48]. Specifically, Kirby P outlines:
Secondly, it must be shown, by the party asserting that a judgment was procured by fraud, that there has been a new discovery of something material, in the sense that fresh facts have been found which, by themselves or in combination with previously known facts, would provide a reason for setting aside the judgment… [70]
[68][2016] VSC 645.
[69] (1986) 6 NSWLR 534, 534.
[70]Ibid 538 (emphasis added).
In my opinion, Riordan J provided a summation of the relevant elements outlined by Kirby P by reference to each of the steps. As can be seen in the above paragraph, the causation element referred to by Riordan J was a summary of the second step outlined by Kirby P. It does not follow that his Honour failed to apply the test in its entirety, as the plaintiff contends. Moreover, Riordan J has applied the principles applicable on a summary judgment application. After considering the issues raised on submission, his Honour concluded:
The above analysis considers the prospects of Bodycorp’s claim to set aside the judgment in the original proceeding. For reasons expressed, I do not consider that any of the grounds have any real prospect of success. Further, I do not consider the grounds in combination have any greater prospect of success.[71]
[71]Bodycorp Repairers Pty Ltd v Maisano (No 11) [2016] VSC 645, [85].
It can be seen that Riordan J applied an overall rigorous test to his consideration. It follows that the summary judgment application would not have been granted if there was ‘any real prospect of success.’ Further, in addition to identifying the test pursuant to s 62 of the Civil Procedure Act 2010 (Vic), Riordan J also considered the test under s 63 of that Act. His Honour noted that a claim ought to be dismissed as an abuse of process on the ground that it was hopeless, untenable, bound to fail or could not possibly succeed. If there were anything but a fanciful chance of success the claim would not have been summarily dismissed. The statement with respect to causation at [48(c)] must also be read in that light.
In any event, the New South Wales Supreme Court has held that even where there are arguable grounds for appeal, this of itself is not sufficient to justify setting aside the demand where no stay has been sought and there has been no offer to pay the judgment amount into court.[72]
[72]Re ACES Sogutlu Holdings Pty Ltd [2014] NSWSC 140 [20], [22]: ‘In this case let it be accepted, although I am far from convinced, that there are at least arguable grounds of appeal. The fact is that no stay has been sought and there is no offer to pay the amount of the judgment into Court. In those cases, on the authorities, I am bound to hold that no sufficient other reason to set aside the demand has been established.’ See also: Tripod Funds Management Pty Ltd v Arkbay Investments Pty Ltd [2014] NSWSC 1908.
In the present case, there has been no indication by the plaintiff of funds being paid into court as security. For these reasons, the offsetting claim in relation to the pending appeal of Riordan J’s summary dismissal has not been made out. In any event, I refer to what I have set out under ‘Offsetting claim 4’.
Offsetting Claim 4
Counsel for the plaintiff submits that it has another offsetting claim in relation to the defendant’s former client, Maisano, in the Supreme Court of Victoria (S CI 2016 02044) to have the decision in Bodycorp Repairers Pty Ltd v Maisano [No 8][73] set aside. It is submitted that if the original decision by Elliot J were set aside on the basis of fraud then the platform for the costs orders, and in particular, the order made by Judicial Registrar Gourlay, may fall away. Counsel for Oakley Thompson concedes this point.
[73][2013] VSC 472.
However, counsel for the defendant submits that whilst the original decision by Elliot J stands, Bodycorp’s statement of claim in relation to the fraud lacks sufficient factual particularity to succeed. Furthermore, counsel contends that these matters have already been subject to comprehensive judicial review by Riordan J in Bodycorp Repairers Pty Ltd v Maisano (No 11)[74] when summarily dismissing Bodycorp’s claim against Oakley Thompson (and the other applicants).
[74][2016] VSC 645.
There are also pending proceedings against Maisano (amongst others) in the County Court of Victoria (CI 16 03922) seeking to set aside the judgment in the County Court of Victoria (07955 of 2000) and for damages, on similar grounds to the fraud proceedings. These proceedings have been summarily dismissed against Oakley Thompson (and the other applicants).[75]
[75]Bodycorp Repairers Pty Ltd v Maisano [2017] VCC 631. The court considered substantially the same factors as Riordan J however, did not directly consider the action against Maisano, as Oakley Thompson and the other defendants were not proper parties for action to be set aside on the basis of fraud.
Further, in the 21 day affidavit the plaintiffs deposed:
The plaintiff is in the process of issuing an application against Michael Maisano, because he has not filed an appearance or taken any step in the proceeding. If the application is successful the orders upon which the defendant relies upon for the existence of the debt will be set aside.
Notwithstanding what was said in the previous paragraph, counsel for the plaintiff conceded that although a summary judgment application was provided to the Supreme Court Registry, there is no record of that occurrence. As of today there is no summary judgment application on foot.
I also note that Maisano appears to be ‘in the camp of the plaintiff’ at this time. Since the original judgment, he has provided various affidavits to be relied upon by the plaintiff and, apart from contending that Oakley Thompson was not entitled to any costs, has not participated in any further proceeding. The Plaintiff’s counsel also submitted that it was unlikely that Maisano would appear in or defend the fraud proceedings.
Analysis
In line with the discussion in relation to Offsetting Claim 3, I will consider the plaintiff’s submissions pursuant to s 459 J of the Corporations Act. As stated above, the pendency of an appeal or action to set aside judgment would not of itself without additional circumstances provide ‘some other reason’ why the demand should be set aside under s 459J(1)(b).[76] Other circumstances deemed to be relevant to this assessment are whether (a) an application for stay has been made (b) the prospects of success of the claim (c) whether there has been any payment of security into court for the judgment debt. As outlined above, a stay has not been sought of Judicial Registrar Gourlay’s orders.[77]
[76] Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235.
[77]Transcript of proceedings, Body Corporate Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd (Supreme Court of Victoria, S CI 2017 0885, Randall AsJ, 29th June 2017) 45.
The Supreme Court of New South Wales has considered a somewhat analogous case to the present in Re JKAM Investments Pty Ltd,[78] which concerned an application to set aside a statutory demand when it was claimed inter alia that the original judgment, upon which the debt was based, was the product of fraud in those proceedings. Black J pointed to the evidence before the court of such allegations, which his Honour deemed to be indirect, and whilst the plaintiff asserted that a false document had been made, it did not identify the matters said to give rise to the relevant claim with sufficient particularity.[79]
[78][2015] NSWSC 2032.
[79]Ibid [12].
After a consideration of the relevant authorities, his Honour held:
It seems to me that the position here is, in truth, analogous to the position where there is a challenge to a judgment, on the basis that it is incorrect, the reason for that incorrectness here being an allegation that a backdated document was put before the Court, and an allegation that that had an impact on the findings made by Darke J. It is, of course, well-established, in that situation, a creditor’s statutory demand will not generally be set aside without payment of the amount of the judgment debt into Court: Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9; Timberland Property Holdings Ltd v Schindler Lifts Australia Pty Ltd above at [26]. The reason for that approach is, as is the case here, that it is not inconsistent with the structure of Part 5.4 of the Corporations Act for a party which in fact has the benefit of a judgment debt, which has not been stayed or set aside, to rely on it for the presumption of insolvency that arises from service of a statutory demand and the failure to make payment in response to that demand. That point should be emphasised here because, even if Mr McDonald had persuaded me of more than that JKAM advanced allegations of fraud in respect of the evidence led before Darke J, it remains that this application to set aside the Demand could not and would not have in fact brought about the setting aside of the judgment of Darke J, or a stay of that judgment, which would have remained in full effect. Where that judgment remains in effect, and continues to bind the parties, then an additional factor is necessary to give rise to some other reason to set aside the demand, as Ward J recognised in Cranney Farm above, namely that the party who has served the statutory demand has been otherwise secured, for example by a payment into court, so that no need for a presumption of insolvency or earlier relation back date arising from the failure to comply with the Demand exists.
There is also a second reason why, as a matter of discretion, a court is unlikely to set aside a creditor’s statutory demand, where a judgment remains in place and has not been stayed or set aside, by reason of the allegations of fraud here raised by JKAM. That is because, even if a presumption of insolvency arises from non-compliance with the Demand, the Court will still have a discretion whether to proceed to a winding up application, or to adjourn that application, pending the determination of the application to set aside the underlying judgment: Adamopoulos v Olympic Airways SA(1990) 95 ALR 525; Handberg v MIG Property Services Pty Ltd [2012] VSCA 126; Re Amy Holdings Pty Ltd; Re Land Enviro Corp Pty Ltd [2014] NSWSC 1176; Re DCT Projects Pty Ltd [2015] NSWSC 1696. In those circumstances, it is not necessary to set aside a creditor’s statutory demand, merely because allegations that the judgment is incorrect, or is here affected by the backdating of the document are made, where it will be open to JKAM to rely on those matters, and on the state of any proceedings which it may have brought to set aside the judgment, in opposition to the winding up application.[80]
[80]Re JKAM Investments Pty Ltd [2015] NSWSC 2032, [17]–[18].
His Honour held that the alleged fraud in respect of the underlying judgment ‘had not and could not be established on its merits in the summary application’ and therefore the statutory demand could not be set aside on this basis.[81]
[81]Ibid [19].
The evidence put before this court by the plaintiff of the alleged fraud substantially includes reference to inter alia an amended statement of claim that lists the ‘fresh’ evidence sought to be relied upon;[82] an affidavit by Mr Maisano dated 17 November 2014; and transcripts of a proceeding where the defendant cross-examines Mr Maisano about ‘lying’ under oath. Of significance in relation to the prospects of success, is that Riordan J had before him all of this material in Bodycorp Repairers Pty Ltd v Maisano (No 11) and held that the plaintiffs claim had no prospect of success, viewed in isolation or collectively.[83] Albeit, Riordan J did not decide on the claim against Maisano, his Honour made some key findings:
[82]Annexure ‘AM7’ [38].
[83][2016] VSC 645 [85].
(a) In relation to the statutory declaration claim, it was deemed that this evidence was not ‘fresh’ in terms of setting aside judgment for fraud and further, that there was no real prospect that admission of that statutory declaration would have procured a different result;[84]
[84]Ibid [63].
(b) Concerning the claim of Maisano’s false evidence, his Honour assumed that the false evidence contained in the affidavits of the 17 November 2014 and 5 October 2016 were correct but found that these affidavits did not have any role in inducing the franchisees to breach their respective contractual obligations; holding that this ‘fresh evidence’ would not have caused a different result:
In my opinion, this fresh evidence could not cause a different result. The fresh evidence could no more constitute an inducement to breach contractual obligations than the statements that Elliot J accepted were made to franchisees.[85]
[85]Ibid [69].
(c) In relation to the false evidence about receiving the letter from AAMI, including the evidence of cross-examination of Maisano by Oakley Thompson, the letter did not influence Elliot J’s decision:
The effect of Maisano’s evidence appears to be that he gave evidence based on a belief that he had received the letter; but later doubted that he did receive the letter. To the extent that the answer he gave about receiving the letter from AAMI dated 14 August 1998 was false, I note that no reference was made to this letter in the Trial Reasons. I do not consider that the issue of whether he received the letter could have influenced the decision of Elliot J.[86]
[86]Ibid [74].
Given the material before this court, it is difficult to conceive how this court could come to a different conclusion than Riordan J in relation to the claim’s prospects of success, or lack thereof. Notwithstanding my observation about Mr Maisano’s role since the orders made by Elliott J, it does not follow that the plaintiff will be successful in the proceedings to set aside, even if each were undefended. Given Riordan J’s observations that the prospects of Bodycorp’s claim to set aside the judgment in the original proceeding did not have any real prospect of success, I cannot conclude that prosecution of each of those proceedings can be categorised as a genuine offsetting claim, nor can it be set aside for ‘some other reason.’
Abuse of Process
The plaintiff submits that due to the fact the defendant has issued a statutory demand whilst the plaintiff has filed an application to appeal the summary judgments of the Supreme and County courts, this constitutes an abuse of process. It is submitted that it would be an abuse of process for the statutory demand proceedings to be heard until the aforementioned proceedings have been concluded. No authority was specifically put towards this submission.
It has generally been accepted that the court retains a residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of an abuse of process.[87] The Western Australian Court of Appeal in Createc Pty Ltd v Design Signs Pty Ltd (‘Createc’),[88] is authority for making an express finding that the statutory demand issued by the creditor in that case was an abuse of process. The court applied the criterion from Williams v Spautz,[89] suggested by Gummow J in David Grant & Co Pty Ltd,[90] that:
there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers — such as the application of pressure to compel payment of the disputed debt.[91]
[87]See eg, House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527 at 528; SMEC International Pty Ltd v CEMS Engineering Inc (2001) 38 ACSR 595 at 603 [35]; Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] 208 ALR 532 at 547, 550 (‘Roberts’) and State Bank of New South Wales v Tela Pty Ltd (No 2) [2002] 188 ALR 702 [5]. In Roberts, the jurisdiction was exercised on the grounds of impropriety of purpose, and a winding-up application was dismissed with costs. Similarly, in Old Kiama Wharf Co Pty Ltd v DCT [2005] NSWSC 929: an application to set aside a statutory demand was upheld because the court concluded that the process was being used to ‘attempt to apply pressure to a taxpayer to force payment of a debt’ as cited in Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602, 611.
[88] (2009) 71 ACSR 602.
[89](1992) 174 CLR 509.
[90]David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265.
[91]Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602, 611.
In Createc, there was clear indication from the creditor’s evidence that the purpose for issuing the statutory demand was ‘improper,’ by way of using the statutory demand process to enforce payment of a debt that it knew to be genuinely disputed.[92] In the court’s view, this constituted an abuse of process.
[92]Ibid [2] (Martin CJ with whom Owen and Miller JJA agreed); See also, Repforce International Pty Ltd v Master Lease Properties Pty Ltd [2003] NSWSC 970: where the statutory demand was being used as a lever for gaining payment of a debt which was bona fide disputed and found to constitute an abuse of process.
However, in Re Amy Holdings Pty Ltd,[93] the New South Wales Supreme Court held that it was not an abuse of process for a creditor to issue a demand in respect of a debt under a judgment that has not been stayed, notwithstanding that an appeal from the judgment was pending.[94] The court held that the statutory demands did not constitute an abuse of process and upheld the earlier decision of A.C.E.S Sogutlu Holdings, which stated:
Let me say at the outset that it cannot be contended that, by seeking to enforce a judgment that has not been stayed, notwithstanding that an appeal is pending, a judgment creditor thereby engages in an abuse of process or unconscionable conduct. To the contrary, prima facie a judgment creditor, even pending an appeal, is entitled to the fruits of the judgment, and a judgment debtor that wishes to procure a different position is bound to apply to the Court in which the judgment was given, or its appellate division, for a stay of the judgment pending appeal. No such application has been made in this case.[95]
[93] In the matter of Amy Holdings Pty Ltd; In the matter of Land Enviro Corp Pty Ltd [2014] NSWSC 1176.
[94]Ibid [38].
[95]Re A.C.E.S Sogutlu Holdings Pty Ltd [2014] NSWSC 140 at [16].
Turning to the present case, the statutory demands were issued pursuant to orders for costs in favour of the defendants, which they were entitled to execute after Bodycorp failed to satisfy them. There has been no evidence adduced that indicates that the purpose of issuing the statutory demand was done for an ‘improper purpose’ or seeking a ‘collateral advantage’ beyond what the law offers. The fact that the plaintiff has issued further proceedings does not of itself constitute an abuse of process.
The submission that the statutory demands constitute an abuse of process is without foundation.
Cross-examination of Mr Vagg
Counsel for the plaintiff sought leave to cross-examine Mr Vagg of Oakley Thompson. Notice to attend for cross-examination had been provided. The grounds relied upon for leave to cross-examination included:
(a) examination about the trust account and as to what was presently owed;
(b) the amount owed by Maisano;
(c) amounts paid on behalf of Maisano;
(d) the accuracy of the trust ledger;
(e) a proper accounting in accordance with the judgment of Elliott J;
(f) cross-examination with respect to the original judgment being fraudulently obtained;
(g) issues relating to Maisano lying;
(h) the allocation of $80,000;
(i) the proceedings in the Supreme Court to set aside the Supreme Court proceeding and separate proceedings to set aside the County Court proceeding;
(j) issues relating to the summary judgment applications;
(k) whether it was a joint debt; and
(l) it was otherwise unfair as there was no affidavit verifying the amount due, that the sum of $80,000 had not been considered and that it was generally unclear what was due and owing.
The application for leave to cross-examine was refused. It was refused on the basis that the order by Judicial Registrar Gourlay was a judgment of this Court, and it was not to be disturbed until set aside. Re-agitation of the issues subsumed by the judgment could not lead to a genuine dispute.
I should add that in any event, it is uncommon to permit cross-examination in a statutory demand proceeding. As referred to by counsel for the plaintiff, in Edge Technology Pty Ltd v Lite-On Technology Corporation,[96] Barrett J said:
The threshold presented by the test to set aside a statutory demand does not however require of the plaintiff a rigorous and in-depth examination of the evidence relating to the plaintiff’s claim, dispute or offsetting claim. That is why cross-examination in contested statutory demands proceedings is limited: Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia…
[96](2000) 34 ACSR 301 at [45].
Counsel for the plaintiff also drew my attention to Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd, where the Court of Appeal said:
Whilst cross-examination is not to be the norm in the application brought under s 459G there are occasions where cross-examination may be permitted, if directed to whether there is a plausible basis for an offsetting claim, as distinct from the merits of any such dispute or claim: Mibor Investments Pty Ltd v Commonwealth Bank of Australia (citations omitted). [97]
[97] [2013] NSWCA 344 at [67].
The Supreme Court of New South Wales has further held that embarking upon ‘an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute’ should be reserved for extreme cases.[98] This approach was endorsed by the Western Australian Court of Appeal in Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd.[99]
[98] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. (‘Eyota’)
[99][2014] WASCA 132. His Honour referred to many authorities that cite that passage from Eyota: See Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344 [46]; First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) [2013] FCAFC 108 [21]; Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602, 604 [4] (Martin CJ; Owen & Miller JJA agreeing); TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd(2008) 66 ACSR 67, 78 [64] (Dodds-Streeton JA; Neave & Kellam JJA agreeing); Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306, 314 [22] (Parker J; Anderson & Scott JJ agreeing); Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360 [18] (Wallwork J; Steytler J & Pidgeon AUJ agreeing); Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 [11].
In light of these authorities, it was not open to re-agitate the order made by the Judicial Registrar nor was the cross-examination directed at establishing ‘a plausible basis for an offsetting claim’. Through further submissions by counsel for the plaintiff it became readily apparent that the basis for seeking leave to cross-examine was to re-ventilate issues already put before previous courts, including the Court of Appeal, and rejected by such courts.
Application for Recusal
Upon giving the ruling refusing leave to permit cross-examination, counsel for the plaintiff immediately turned to someone giving him instructions from the body of the Court and within a few seconds turned back to the bench and made an application that I recuse myself. When I asked for the grounds, counsel for the plaintiff submitted that it was because I had already decided the case. I refused his recusal application. I had only made a ruling with respect to whether leave to cross-examination ought to be given.
I note that counsel for the plaintiff has requested another judge of this court to recuse themselves in a related proceeding.[100] In that proceeding, it was submitted that Riordan J had a previous professional relationship with one of the litigants. That application was also refused. In further related proceedings, Hargrave J noted that Elliot J had been asked on a number of occasions to recuse himself and all such applications have been refused.[101]
[100] Bodycorp Repairers Pty Ltd v Maisano (No 10) [2016] VSC 599.
[101]Bodycorp Repairers Pty Ltd v Oakley Thompson & Co (Unreported, Supreme Court of Victoria, Hargrave J, 5 July 2016) [14]-[15].
In this case, the application for recusal arose after a determination that leave for cross-examination would not be granted.
The well-established test for disqualification for bias was enunciated in the High Court case of Johnson v Johnson,[102] which held:
It has been established by a series of decisions of this Court that the test to be applied in Australia in determining whether a judge is disqualified by reason of the appearance of bias (which, in the present case, was said to take the form of prejudgment) is whether a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is required to decide.[103]
[102](2000) 201 CLR 488.
Of significance to the present case was the High Court’s finding that:
judges are not expected to wait until the end of a case before they start thinking about the issues, or to sit mute while evidence is advanced and arguments are presented.
To the contrary, it was held that judges:
…will often form tentative opinions on matters in issue, and counsel are usually assisted by hearing those opinions, and being given an opportunity to deal with them.[104]
[104]Ibid 493.
Moreover, it is not appropriate for a judge to accede to a disqualification application that appears to be motivated by a party’s preference that ‘their case [be] tried by someone thought to be more likely to decide the case in their favour.’[105]
[105]Bodycorp Repairers Pty Ltd v Maisano (No 10) [2016] VSC 599 (Riordan J) referring to Re Renaud; Ex parte CJL (1986) 60 ALJR 528, 532 (Mason J).
Accordingly, a fair minded lay observer would reasonably apprehend that a refusal to permit leave to cross-examine about issues that have already been the subject of extensive judicial proceedings and do not go to substantiating issues in this proceeding was the result of bringing an impartial and unprejudiced mind to the resolution of the question as it was an exercise of appropriate discretion.
Duties of counsel
As members of the legal profession, it is important that we remain mindful of duties to the Court and to the administration of justice, as trite as it may seem. Towards this duty, each member of the legal profession must conduct themselves with integrity, provide competent assistance to the courts and promote public confidence in our court system. At the heart of these duties is of course the fundamental and well-established principle that counsel owe a duty to the court; a duty that takes precedence over the duty owed by counsel to the client.[106]
[106] Giannarelli v Wraith (1988) 165 CLR 543, 556–557 (Mason CJ) and 578–579 (Brennan J).
As we well-know, there are codes of conduct that have been developed to enshrine these fundamental principles.[107] Principally, a barrister must act with independence in the interests of the administration of justice.[108] To this end, a barrister must not act as the mere mouthpiece of the client.[109] Members of the legal profession must be mindful not to act solely as a ‘hired gun’ for a client but rather exercise independent judgment.[110]
[107]See, eg, Legal Profession Uniform General Rules 2015; Legal Profession Uniform Conduct (Barristers) Rules 2015 (‘Barrister Rules’); Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (‘Solicitor Rules’).
[108]Barrister Rules, r 23.
[109]Ibid r 42.
[110]Regina v Ulcay [2008] 1 WLR 1209 at [27] Sir Igor Judge P (‘The advocate is not a tinkling echo, or mouthpiece, spouting whatever his client ‘instructs’ him to say’).
Moreover, the advocate owes a duty to the court to inform it of legal authorities that ‘bear one way or the other upon matters under debate.’[111] The duty applies ‘quite irrespective of whether or not the particular authority assists the party which is so aware of it.’[112] Most fundamentally, lawyers (and barristers) must not misrepresent the law to the court.[113] Further, members of the legal profession must eschew statements or conduct that are half-truths, or otherwise leave the court with an incorrect impression.[114] These responsibilities coincide with a barrister’s duty to act with competence and diligence to both the court and to the client.[115]
[111]See Glebe Sugar Refining Co Ltd v Greenock Harbour Trustees [1921] SC (HL) 72, 74 as cited in D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1, 41 (McHugh J).
[112]Ibid: The obligation to refer the court to all relevant case law, irrespective of whether the authority advances or detracts from the advocate's position. See also Barrister Rules, r 29, 31 and 33.
[113]See Sutanto Henny v Suriani Tani [2004] SGHC 7: where a solicitor was remiss in failing to inform the judge that English dictum referred to had been disapproved in a later case; See also, Barrister Rules, r 25: ‘A barrister must take all necessary steps to correct any misleading statement made by the barrister to a court as soon as possible after the barrister becomes aware that the statement was misleading’.
[114]See eg, Meek v Fleming [1961] 2 QB 366.
[115] Lanphier v Phipos (1838) 8 CAR & P. 475.
These duties have been eloquently articulated in the oft-cited observations of Sir Frank in Ziems v Prothonotary of the Supreme Court of NSW:
It has been said before, and in this case the Chief Justice of the Supreme Court has said again, that the Bar is no ordinary profession or occupation. These are not empty words, nor is it their purpose to express or encourage professional pretensions. They should be understood as a reminder that a barrister is more than his client's confidant, adviser and advocate, and must therefore possess more than honesty, learning and forensic ability. [The barrister] is, by virtue of a long tradition, in a relationship of intimate collaboration with the judges, as well as with … fellow-members of the Bar, in the high task of endeavouring to make successful the service of the law to the community. That is a delicate relationship, and it carries exceptional privileges and exceptional obligations.[116]
[116](1957) 97 CLR 279, 298.
McHugh J also discussed the duties of counsel in the High Court decision of D’Orta-Ekenaike v Victoria Legal Aid, relevantly as follows:
Despite being in a relationship of confidence with a lay client, the first duty of the barrister is not to the client but to the court in which the barrister appears. The duty to the instructing solicitor or the lay client is secondary. Where the respective duties conflict, the duty to the court is paramount. That duty to the court imposes obligations on the barrister with which the barrister must comply even though to do so is contrary to the interests or wishes of the client. Thus, the barrister can do nothing that would obstruct the administration of justice by: deceiving the court; withholding information or documents that are required to be disclosed or produced under the rules concerned with discovery, interrogatories and subpoenas; abusing the process of the court by preparing or arguing unmeritorious applications; wasting the court's time by prolix or irrelevant arguments; coaching clients or their witnesses as to the evidence they should give; using dishonest or unfair means or tactics to hinder an opponent in the conduct of his or her case.[117]
[117]D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1, 41.
Whilst these principles are not relevant to the issues before this court today, suffice to say, these duties should be the centrepiece of every court proceeding. No member of the legal profession should need reminder of the duties so integral to the foundations of our legal system.
For the reasons outlined, the statutory demand is upheld, subject to a variation of $2.00.
Accordingly, I make the following orders:
(a) The admitted total is $233,588.68.
(b) The offsetting total is $2.00.
(c) Substantiated amount of the demand is $233,586.68.
(d) The plaintiff pay the defendant’s costs of the proceeding including reserved costs on a standard basis.
[103]Ibid 492.
58
0