Botany Bay v Permtree Botany Bay v BAS Botany Bay v Jazabas

[2009] NSWSC 896

CITATION:	Botany Bay v Permtree Botany Bay v BAS Botany Bay v Jazabas [2009] NSWSC 896
HEARING DATE(S):	09/06/09; 12/06/06 Judgment reserved 27/07/09
JUDGMENT DATE :	31 August 2009
JURISDICTION:	Equity Division
JUDGMENT OF:	Macready AsJ at 1
CATCHWORDS:	CORPORATIONS - winding up - winding up in insolvency - oppression or abuse of process. - PROCEDURE - costs –security for costs order subject of statutory demand – defendants entered costs order as a judgment debt and successfully applied to registrar to pay debt by instalments – clerical error meant first instalments were not paid - whether winding up proceedings could continue – whether present procedure is a way of avoiding statutory stay – proceedings dismissed.
PARTIES:	Botany Bay City Council v Parmtree Pty Ltd Botany Bay City Council v BAS Developments Pty Ltd Botany Bay City Council v Jazabas Pty Ltd
FILE NUMBER(S):	SC 4553/08; 4552/08; 4549/08
COUNSEL:	Mr G McNally SC for plaintiff Mr PE King for defendants
SOLICITORS:	Houston Dearn O'Connor for plaintiff Cropper Parkhill for defendants

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

ASSOCIATE JUSTICE MACREADY

Monday 31 August 2009

4553/08 Botany Bay City Council v Parmtree Pty Ltd
4552/08 Botany Bay City Council v BAS Developments Pty Ltd
4549/08 Botany Bay City Council v Jazabas Pty Ltd

JUDGMENT

1 His Honour: In this matter the plaintiff has sought an order to wind up the three defendants in insolvency under s 459E of the Corporations Act 2001 (Cth). The applications are made based upon service of a contentious statutory demand dated 4 July 2008 in the sum of $46,251.82. The matters have been heard together with the evidence in one being the evidence in others. Reference to the defendants is a reference to all three defendants in each action.

2 A further amended notice of appearance was filed by the defendants in relation to matter number 4549 (Jazabas) which opposes the plaintiffs application for winding up for the reasons that the judgment debt is not due and payable, the defendant is solvent, the application to wind up was brought for a collateral purpose and are an abuse of process, and further, that the plaintiff has failed to comply with the requirements of the Corporations Act and Regulations, particularly Corporations Regulations 5.4 and 5.6 and sections 465A and 470(1) of the Act.

3 There is also a notice of motion filed by the defendant in each proceeding on 7 November 2008 seeking to have the proceedings dismissed as an abuse of process.

4 The parties have provided detailed submissions which I have incorporated with amendments.

Background

5 The plaintiff is a local government authority that administers an area in south eastern Sydney.

6 The defendants are each corporations. Jazabas and Permtree have been engaged in residential property development and BAS Developments Pty Ltd builds the Jazabas and Permtree developments. The three corporations have as their managing director Mr Stephen Haigh. The defendants contend that Permtree is no longer active, its only asset being an unresolved chose in action against the plaintiff.

7 In 1994 Jazabas purchased land in Hillsdale. They sold the land in 1997, after the plaintiff disclosed the existence of toxicity risks to nearby land.

8 It appears that in 1983 the Council conducted a Risk Assessment Study and in an unpublished report identified a “risk reduction zone” which identified the Hillsdale land as being within that zone. A later report published in 1985 did not include the Hillsdale land within the zone (see Jazabas Pty Ltd & 2 Ors v Haddad & 2 Ors [2006] NSWSC 880 per Simpson J at [7]).

9 In 1998, Jazabas brought proceedings against the Council for negligent misrepresentation on the ground that the Council stated in a section 149 certificates that there was no Council policy with respect to such hazards.

10 Rolfe J, in Jazabas v Botany Council [2000] NSWSC 58 held that Council was negligent in failing to advise the Jazabas of its policy in relation to the Risk Assessment Study and the Risk Reduction Zone.

11 The decision was reversed by the Court of Appeal in City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 and the High Court refused special leave to appeal.

12 In June 2006, Simpson J delivered an interlocutory judgment in Jazabas Pty Ltd v Haddad [2006] NSWSC 559 which was a fresh set of proceedings in respect of the same subject matter. The judgment concerned applications made by the Sam Haddad, the State of NSW and the City of Botany Bay Council for an order for security for costs. Her Honour signified an intention to make an order in favour of the Council for $100,000 and an order for $100,000 in respect of Mr Haddad and the State of NSW. Her Honour directed the parties to bring in short minutes.

13 The parties were unable to agree on the form of the order reflecting the Simpson J’s conclusions. In the decision of 26 July 2006 (Jazabas Pty Ltd and 2 Ors v Haddad and 2 Ors [2006] NSWSC 880) her Honour made the order as proposed by each of the defendants in the sum of $100,000. An order was also made that the plaintiffs in the matter pay the costs of each application, with a rider that payment be made forthwith. Simpson J stated that the very circumstances that give rise to the order for security for costs also support an order that the costs incurred in pursuing that application should be paid before further costs are incurred.

14 The defendants (Jazabas and others) appealed this decision to the Court of Appeal, which granted leave to appeal and dismissed the appeal (see Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291).

15 The defendant s (Jazabas and others) then filed a notice of motion seeking that the order made by Simpson J staying the proceedings be removed or lifted. The motion was dismissed by Associate Justice Harrison in Jazabas v Haddad [2008] NSWSC 593. Her Honour decided that the plaintiffs were to pay the defendants’ costs as agreed or assessed.

16 The defendant’s submissions state that the order made by Harrison AsJ is current waiting a hearing date for appeal.

17 On 15 March 2008 a cash assessment was made in a sum of $46,251.82 in respect of costs of the hearing before Simpson J.

18 On or about 8 July 2008 the plaintiff Council served a creditor’s statutory demand dated 4 July 2008 for payment under the Corporations Act 2001 (Cth), section 459E (2)(e), on the three defendants. The description of the debt in the demand was as follows:

“SCHEDULE
DESCRIPTION OF THE DEBT AMOUNT OF THE DEBT

Costs assessed under the Legal Profession
Act 1987 $45,060.72
by Stephen John Lancken, Costs Assessor,
and evidenced by Certificate of
Determination of Costs of Costs Assessment
Dated 15 March 2008 in Assessment
Number 304 of 2008 in the
Supreme Court of New South Wales

Costs of Costs Assessment $1,182.10
Assessed under the Legal Profession

Act 1987 by Stephen John Lancken
Costs Assessor, and evidenced
By Certificate of Determination of
Costs Assessment
Dated 15 March 2008 in Assessment
Number 304 of 2008 in the Supreme
Court of New South Wales
TOTAL: $46,251.82

Dated 4 July 2008”

19 The debt was not then a judgment but it became one on 15 July 2008 when the defendants entered it as a judgment. This was done no doubt so that an application could be made by them to pay by instalments.

20 On 24 July 2008, the defendants applied for an order to pay the plaintiff’s judgment debts by instalment.

21 The defendant’s application was successful and they were ordered to pay the judgment debt by monthly instalments of $1,500. The first payment was due on 4 August 2008. However, it appears that the parties did not get the orders from the Registrar until 12 September 2008 when they made enquiries of the Court. The defendants’ submissions suggest that the order was made on 11 September but dated 20 August 2008. There is no evidence to this effect but the evidence is clear that the defendants first became aware of the orders on 12 September 2009 or shortly thereafter. As a result, the defendants did not pay the first two instalments.

22 The plaintiff filed an application on 4 September 2008 under s 459P of the Corporations Act to wind up the defendants on the ground of insolvency. Reliance was placed on the defendant’s failure to comply with the statutory demand served on or about 8 July 2009.

23 Ms Maria Linkenbagh, a solicitor, wrote a letter on 12 September 2008 on behalf of Houston Dearn O’Connor, the firm acting for the plaintiff, requesting that the Registrar’s order be reviewed pursuant to UCPR 36.17 to correct the irregularities in the order. The letter was copied to Cropper Parkhill Solicitors, acting for the defendants and stamped, presumably as being received, with the date 15 September 2008. The following reasons were provided:

“Our reasons are:
1. The Court has not been served with a Certificate of the Judgment.
2. The Notice of Motion seeking the Order was filed on 24 ^th July, 2008, and the Order was made on 20th August, 2008. UCPR 37.2(c) was not complied with by the Court.
3. The Order was received by us on behalf of the Judgment Creditor, on 12 ^th September, 2008. UCPR 37.3(2)(a) was not complied with by the Court.
4. It is not possible for either party to exercise the right to object under UCPR 37.3(3).
5. The Order is ambiguous on its face, in that it purports to order three companies to pay $1,500.00 monthly. The debtors are jointly and severally liable for the debt, but the instalment procedure presupposes that each debtor should make a separate application, and that an Instalment Order should be in respect of a single debtor. It is our view that it is not open to the Court to make an Order against three debtors jointly, and that the Notice of Motion for the Order was defective in this regard and should not have been accepted for filing by the Court.
6. The debtor(s) have made no payments at all. Therefore, UCPR 37.7 would operate to cause the Order to cease to have effect, but for the fact that the Order requires the first payment to be made before the date of the Order, and is therefore ambiguous.
This matter is urgent and significant consequences may flow. The creditor has commenced winding up proceedings against all three companies (Court Nos. 4549 of 2008, 4552 of 2008 and 45530 of 2008) which are returnable on 7th October, 2008. We have sent a copy of this letter to the Solicitor for the judgment Debtors.”

24 On 16 September 2008, the defendant’s solicitors responded, stating they did not agree with much of what was contained in the letter (above) and that they were arranging for their clients to pay the August and September instalments.

25 On the same day Mr Haigh paid the instalments for 4 August and 4 September over the counter at the Council by Visa card. However, after the Council clerk completed the transaction, Mr Bulock, the Council insurance officer, asked that the payments be credited back to Mr Haigh. Mr Haigh would not produce his Visa card to have the payment reversed.

26 On 17 September 2008, Mr Haigh wrote to the Council’s solicitor confirming the payments and the intention of the defendants to continue making the payments now that the Court had provided the instalment order and notice.

27 In a letter dated 18 September 2008, the Council’s solicitor responded to the defendant’s solicitor stating that the winding up proceedings would continue and if the defendants wished to make a voluntary repayment to Council they were free to do so.

28 A letter sent on 7 October 2008 the Council’s solicitor stated as follows:

“We refer to the grounds of opposition to winding-up of the 3 companies. We note that, leaving aside the issue of insolvency of the 3 companies, the grounds depend upon the Instalment Order made 20 August 2008.
We note that the Applications are on the grounds of insolvency, provided by non-compliance with the Statutory Demands issued pursuant to Para 459E of the Corporations Act 2001 which were served on or about 8 July 2008.
An Instalment Order made after service of the Statutory Demand does not affect the right of the Creditor to proceed on the basis of non-compliance with the Statutory Demand. Section 107 Civil Procedure Act 2005 therefore does not apply.”

29 The defendants brought a notice of motion to vary the Registrar’s orders of 20 August 2008 before Justice Hoeben. On 11 November 2008, his Honour did not set aside the order but varied it to require the first two payments under it to be made commencing on 16 September.

30 The plaintiff subsequently commenced an application to review and set aside the instalment orders. On 12 December Rothman J rejected that application and ordered the plaintiff to pay the costs of the instalment proceedings.

31 At present, the defendants state they are currently paying the debt outstanding to the plaintiff within a reasonable time.

Submissions

32 The defendants have argued their case on various grounds. These can be dealt with as follows.

1. The form of the statutory demand and affidavit verifying. In particular:
(a) The demand was not in the prescribed form and as such was not a demand.
(b) There was no evidence of the authority of the deponent of the affidavit, see the instalment order may have been some other reason for setting aside the demand.


2. Defects in the advertisement and notification process.

3. There was no debt due at the time of commencement of the originating process.

4. That the proceedings are an abuse of process in that:

(a) They are intended to defeat a meritorious cross-claim.

(b) That at the time of filing of the proceedings the plaintiff knew that the debt had been stayed.
(c) That the plaintiff knew that it was impossible to comply with the back dated instalment order.

(d) The effect of the stay and the circumstances surrounding it.

33 On the hearing no evidence was admitted on the question of solvency other than the service of the statutory demand to raise the presumption of the insolvency.

The form of the demand and the affidavit verifying

34 The defects in the demand were that after paragraph 5 of the demand it did not have inserted in it the following warning:

“ A failure to respond to a statutory demand can have very serious consequences for a company. In particular, it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company. “

35 The demand arguably did not contain note 5 which was a reference to transitional provisions which are now otiose. It was suggested that for this reason the demand was not a demand at all and reference was made to Topfelt v State Bank of New South Wales (1993) 47 FCR 226. In my view this ground is not seriously arguable as the omission is minor and the form of the demand still carries enough references to its basis for there to be no mistake as to what it is.

36 I will return shortly to whether the defect can now be raised.

37 I turn to the question of the affidavit. Rule 5.4 of the Corporations Rules provides that the affidavit must be made by “the plaintiff or by a person with the authority of the plaintiff or plaintiffs.” Under Rule 5.2 the affidavit must be in accordance with form 7 and state the matters mentioned in that form. Paragraphs 2 and 3 of form 7 indicate the following matters that should be inserted in compliance with that directive.

2. [ If the deponent is not the creditor, state the facts entitling the deponent to make the affidavit, eg 'I am authorised by the creditor(s) to make this affidavit on its/their behalf ].
3. [ State the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt or each of the debts, eg 'I am the person who, on behalf of the creditor(s), had the dealings with the debtor company that gave rise to the debt', 'I have inspected the business records of the creditor in relation to the debtor company's account with the creditor' ].

38 The affidavit in question had the matters required by s 2 but it did not deal with the matters referred to in paragraph 3.

39 Under s 459J(1)(b) where it is sought to set aside a demand for defect in an affidavit it is not necessary to demonstrate substantial injustice. The section is as follows:

“459J 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.”

40 However, whatever might be the merits of any application to have the demand set aside as a result of a defect in the demand or the affidavit in support the time to do that has now passed. Section 459S of the Corporations Act provides as follows:

“Section 459S states,
“459S Company may not oppose application on certain grounds
(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.”

41 I have earlier indicated that there was no application to set aside the statutory demand but instead the debtor took the course of registering the certificate as a judgment and making application to pay by instalments. Neither of these two matters go to the question of solvency and accordingly they cannot now be raised on this application.

42 The other matter to which reference was made was that the instalment order might also have been some other reason for setting aside the demand under 459J(1)(b). There is no doubt that the existence of an instalment order may in an application to set aside a demand be a ground for setting aside the demand.

43 The full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, held that where s 459J(1)(a) was concerned with defects "in the demand," s 459J(1)(b) included defects "in relation to" the demand. This was confirmed by Crispin P, Gray and Marshall JJ in Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3:

“[25] As a Full Court of the Federal Court said in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 459, the ‘other reason’ referred to in s 459J(1)(b) must be a reason other than a defect in the demand.
[26] Accordingly, what the appellant must put in evidence is conduct on the part of the respondent, or circumstances, which enliven the Court’s discretionary power but which do not relate to a defect in the demand itself. That the conduct of the respondent is productive of substantial injustice may be a powerful ground for exercising the discretion: Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 295 at 300. However, it is not a necessary element for granting relief under s 459J(1)(b).
[27] What is contemplated by s 459J(1)(b) is a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice: Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317 to 318.“

44 It is not necessary to consider the relationship between s 459J(1)(a) and (b), except to note that the Court may exercise the discretion conferred by section 549J(1)(b) without reference to section 459J(1)(a): Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682 at 697. Justices Black, Einfeld and Sackville in Hoare Bros also illustrated (at [28]) a circumstance that might constitute an appropriate reason for setting aside a statutory demand as, “the situation in which a creditor unreasonably refuses the company's offer to meet the debt.”

45 Cases where the existence of a stay has led to the setting aside of a demand are referred to later in this judgment.

46 There is one insuperable problem in this matter and that is of course that the defendants only became aware of the stay after the time had expired to raise the matter in an application to set aside the demand. It cannot now be raised for this purpose although it may be relevant on the question of abuse of process.

Advertisement and notification of proceedings

47 There are two problems which have occurred here. The first is that under s 465A it is necessary to lodge with ASIC and serve on the company a copy of form 519 advising of the commencement of the proceedings. The relevant forms were lodged with ASIC on 4 September 2008 the day the application was filed but they were not served on the company. Given that the company received notice of the application by service of the summons there is no prejudice that has been suffered in respect of this breach. Accordingly, under 467(3)(b) I would be prepared to dispense with the requirements to serve notice required under the rule on the defendants.

48 The second matter concerns the advertisement of the presentation of the petition. The advertisement in the form required under rule 5.6 was published on 9 October 2008. Rule 5.6(2)(b) requires that the notice must be published at least three days after the originating process is served on the company and at least seven days before the date fixed for hearing of the application.

49 The return date of the originating process was 7 October and accordingly there was non-compliance with the requirements of rule 5.6 in that the publication was after the date fixed for hearing and not at least seven days before the date fixed for hearing. On 11 October when the matter was first in the list it was stood over until 28 October. Nothing of substance happened on that day.

50 Fortunately the relevant advertisement which was inserted showed as the hearing date the adjourned date and, accordingly, there would have been sufficient notice for persons if they decided to appear on that occasion. In these circumstances I do not think as was submitted by the defendants that there has been prejudice in that it denied the defendants’ notice to the community of the applications which if the case did involve a matter of public interest may have been a matter of great concern. Certainly people have had the opportunity to appear before any substantive step was taken in the proceedings.

51 Having regard to the lack of prejudice I would be prepared to dispense with the requirement under s 467(3) of the rules.

Whether any debt was due to the plaintiff at the time of filing the originating process?

52 In order to be a creditor it is necessary that the applicant be a person to whom the company owes a valid debt which has not been paid at the time of the presentation of the winding up application. See Fire and All Risks Insurance Company Ltd v Southern Cross Exploration NL (No 1) (1983) 1 ACLC 971. It is not necessary that the plaintiff continue to be a creditor at the time the application is heard although discretionary defences may be available in such a case. See Motor Terms Co Ltd v Liberty Insurance Ltd (1967) 116 CLR 177 at 194-5 and Deputy Commissioner of Taxation v Sun Heating Pty Ltd (1983) 1 ACLC 1,141.

53 The defendants’ submissions are as follows

(a) there is no evidence of any debt due to the plaintiff or to any other person that might offset the debt claimed in the statutory demand, nor is there evidence of a dispute regarding the debt that would be material to proving solvency. The debt, which is the subject of the proceedings, has disappeared. This is as a consequence of the following events:

(i) The defendants filed cost certificates with the Supreme Court prior to the service of the statutory demands and then applied for the debt to be paid by instalments.

(ii) The debt merged in the judgment of 15 July 2008 upon filing the costs certificates in the Registry.

(iii) On 20 August 2008, the Court made orders for instalments, commuting the debt from the sum of $41,751.82 to 39 debts of $1,500.

(iv) The judgments of 15 July 2008 and of 20 August 2008 have not been set aside.

(v) Orders were made by Hoeben J on 11 November 2008, which treated the 16 September 2008 payments as if they were paid on 4 August 2008 and 4 September 2008.

(vi) At 4 September 2008, the day of filing the wind up proceedings, the debt had disappeared, and there was no debt upon which the plaintiff could commence the proceedings, including no debt in existence of the type referred to in the statutory demand.

(b) a section 459G application under the Corporations Act 2001 (Cth) was arguably not available to the plaintiffs in circumstances where there was an unresolved application before the Court for payment of the debt by instalments, which neither party could reasonably have known would be resolved before the expiry of the demand.

54 The plaintiff submits that the proposition that the debt the subject of the proceedings has “disappeared” is incorrect.

55 The defendants’ submissions, it was said, proceed on the mistaken premise that the filing of the application or the order by the Court to pay by instalments deprives the plaintiff of its right to proceed with winding up the defendants. The existence of a stay of execution brought about by an instalment order does not directly preclude operation of the statutory demand process. The plaintiffs point to Justice Barrett’s decision in Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055 at [25] in support:

“[25] I return, therefore, to the s 459J(1)(b) question, which is to be considered by reference to the reality that the defendant is, as things now stand, precluded by statute from proceeding to execute the judgment from which the judgment debt arises. That circumstance brings to the fore the considerations discussed in Scope Data Systems Pty Ltd v BDO Nelson Parkhill (2003) 199 ALR 56. A stay of execution of a judgment does not deprive the judgment debt of its character and quality as a debt; it merely denies the judgment creditor access to the means of proceeding to execution of the judgment. Service under Pt 5.4 of the Corporations Act of a statutory demand based on a judgment debt is not a means of executing the relevant judgment. The stay therefore does not operate in any direct way to preclude resort to or continuation of the statutory demand process. The real question is one of analogy, that is, whether a creditor who is precluded from proceeding to execute his or her judgment should nevertheless be allowed to use it as a basis for causing to arise a statutory presumption of insolvency which may be asserted in winding up proceedings, thereby affecting where the onus of proof in those winding up proceedings is to be taken to lie.“

56 It is worth noting the two paragraphs that follow, not identified by the plaintiffs. His Honour refers to his earlier judgment Scope Data Systems Pty Ltd v BDO Nelson Parkhill [2003] NSWSC 0137. In that case his Honour considered whether a statutory stay of execution gives rise to some other reason why a demand should be set aside, or whether upon the initiation of an appeal a genuine dispute arises:

“[26] In the Scope Data case, I considered some of the earlier decisions about s 459J(1)(b), notably Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 19 ACSR 125; Moutere Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 533 and Re Softex Industries Pty Ltd (2001) 187 ALR 448:
‘[22] The nature of the jurisdiction created by s 459J(1)(b) was referred to by the Full Federal Court in Hoare Bros Pty Ltd v DCT (1996) 135 ALR 677 at 691; 19 ACSR 125 at 139. The breadth of the jurisdiction was confirmed by the court:
Whatever view is taken of the relationship between s 459J(1)(a) and (b), the court has a discretion in a case which does not involve a defect in the demand to set aside the demand, if some appropriate reason is shown. The discretion may be exercised in favour of a company, even without a showing that substantial injustice would otherwise be caused …
The court considered it `unwise to attempt to mark out the limits of the jurisdiction conferred by s 459J(1)(b).
[23] An example of circumstances in which the court may exercise the power given by s 459J(1)(b) was given by Austin J in Moutere Pty Ltd v DCT (2000) 34 ACSR 533 at 543 [54]–[55]:
The policy underlying s 459H is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. A statutory demand is not an instrument of debt collection. By analogy, the commissioner should not use the statutory demand procedure to apply coercive pressure to a taxpayer who genuinely objects to the commissioner's decision. To do so would be to take unfair advantage of those provisions of the taxation legislation (such as ss 14ZZM and 14ZZR of the TAA) which say that an amount owing in consequence of the commissioner's decision is recoverable, notwithstanding that an objection has been lodged against the decision.If the commissioner decides not to await the outcome of the objection, the proper course will often be for him to take proceedings for recovery of the debt rather than to summon up the spectre of liquidation by issuing a statutory demand. If the court forms the view that the commissioner has acted oppressively or unfairly by issuing a statutory demand in such circumstances, the appropriate course is for the court to set the demand aside under s 459J(1)(b). By doing so the court does not deny that the debt is recoverable although an objection has been made, but it thereby insists that the statutory demand procedure should not be used to apply pressure for payment of an amount which might ultimately be found not to be payable.
[24] Reference may also be made to the decision of Mullins J in Re Softex Industries Pty Ltd (2001) 187 ALR 448 which concerned a statutory demand which included a sum on account of disputed tax in respect of which there had been a hearing before the Administrative Appeals Tribunal. The tribunal's decision was reserved. Her Honour said ‘it was oppressive for the respondent to serve a statutory demand incorporating that disputed sum’. On that basis, the statutory demand was set aside.’

[27] I then referred to the particular significance, in the s 459J(1)(b) context, of a stay of execution of a judgment where the statutory demand is based on a judgment debt:
‘[25] If, in the present case, a stay of execution of the Local Court orders is in force by operation of s 107 of the Justices Act, reliance upon the statutory demand to produce a statutory presumption of insolvency as a basis for seeking a winding-up order will entail for the plaintiff consequences of a serious and adverse kind. The defendant, as a judgment creditor to whom the remedy of execution upon the judgment is expressly denied pending determination of the appeal to this court, will nevertheless be permitted to rely on the judgment as a basis for bringing to bear the pressure for payment and threat of serious and adverse consequences inherent in a statutory demand and a winding-up petition, notwithstanding the legislative policy that precludes direct resort to execution. That legislative policy would thereby be circumvented.
[26] If parliament sees fit to provide that, where a certain type of appeal is initiated in respect of a judgment debt, the judgment creditor is not to be allowed to exercise ordinary judgment creditor remedies by proceeding to execute the judgment, it would, in my view, be inconsistent with the position parliament has striven to create if the judgment creditor could nevertheless proceed with impunity to initiate winding-up proceedings on the basis of the mere existence (even though technically not subject to ‘genuine dispute’) of that judgment debt. Such a course would, in my view, be oppressive in the sense referred to by Austin J in Moutere and by Mullins J in Softex . The circumstances would therefore warrant an order under s 459J(1)(b) setting aside the statutory demand, even though the initiation of action towards winding up was not technically within the black letter operation of s 107 of the Justices Act: cf Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337.’
[28] I am of the opinion that the present case attracts the operation of the principles set out at paras 25 and 26 of Scope Data and that the stay of execution presently in operation by virtue of s 107(2) of the Civil Procedure Act provides, in terms of s 459J(1)(b) of the Corporations Act, “some other reason” why the statutory demand should be set aside. There will be an order accordingly.”

57 Other aspects of the Tatlers case are important. In contrast to this matter, Tatlers involved a situation where the stay of execution was issued after the instalment order was entered. That instalment order was not complied with due to a mistake on the part of the judgment debtor and the Registrar made a second instalment order. In the meantime a statutory demand had been served. The judgment creditor objected to the Registrar’s decision on the second instalment order. At the time of the judgment that matter had not been resolved. This had the effect that at the time of issue and service of the statutory demand some of the total judgment debt had been paid while no instalment order was in force, but, by the time the originating process was filed, the position had changed to the extent that a new instalment order was in force.

58 Barrett J considered (at [11]) whether the timing on which “a s 459G applicant relies must be seen to have existed when the statutory demand was served or whether regard is to be had to the position that exists when the court comes to consider the s 459G application.” His Honour decided that the second approach was the correct one, stating, “when s 459J(1)(b) is invoked, the court is called upon to decide what will best serve the statutory purpose at the time it considers the question.”

59 His Honour stated at [13]:

“… If there was some sound basis for failure to pay, distinct from genuine dispute as to the amount or existence of the debt or the existence of an offsetting claim, then the situation is one in which the policy of the legislation will be subverted if the presumption of insolvency is allowed to arise.”

60 His Honour then referred to a number of authorities which confirmed the proposition that a court may have regard to events occurring after the service of a statutory demand when considering a case pursing a s 459G application based on s 459J(1)(b). His Honour stated at [16],

“The last case to be mentioned is of particular relevance to the present circumstances. It is the decision of Master Macready in Detail Rock Tools Pty Ltd v Kleenkut Pty Ltd [2003] NSWSC 643. That case, like this, involved a situation where a judgment debtor had obtained an order for payment by instalments. The order in that case was an order made by the Local Court in respect of a Local Court judgment. Under the Local Court (Civil Claims) Rules 1998, the order, while in force, operated as a stay of enforcement of the judgment. The order was made after service of the statutory demand. After deciding that the existence of a stay represented “some other reason” within s 459J(1)(b), Master Macready made particular observations at para 10 of his judgment:
‘Although the stay was not in force at the time of the issue of the demand, it did come into effect within twenty-one days after the date of issue. I do not see why that would make any difference. It is apparent the application was made promptly and only a month after the judgment. It was no doubt done as a response to the service of the demand. That does not detract from the clear legislative provision which allows applicants to pay debts by instalments. For those reasons I would propose to set aside the demand but I will briefly refer to the other matters.’ ”

61 The provisions that create the stay are twofold. Part 37.5 of the UCPR provides:

“37.5 Stay of execution pending determination of application for instalment order
(1) Execution of the judgment to which an application for an instalment order relates is stayed:
(a) from the time the application is made until the time the application is determined, and
(b) if the application is refused by an order under rule 37.3 (1) (b) and an objection against the order is filed under rule 37.3 (3), from the time the objection is filed until the time the objection is determined.
(2) Subrule (1) does not apply if the applicant has previously made an application under this rule with respect to the same judgment debt.”

62 Further, as this Court has made an instalment order, section 107 of the Civil Procedure Act 2005 provides:

“107 Deferred payment and payment by instalments
(1) A court in which judgment has been entered may, subject to and in accordance with the uniform rules, make an order allowing for:
(a) payment of the judgment debt within such time as is specified in the order, or
(b) payment of the judgment debt by instalments, payable in such amounts and at such times as are specified in the order.
(2) Subject to section 119, execution of a judgment for the payment of money is stayed while the judgment is the subject of an order in force under this section.”

63 Having regard to the terms of the section and the reasons of his Honour at paragraph 25 it is plain that for the purposes of this question, the plaintiff was a creditor if the situation was, which it appears to be, that there was a stay at the time of the commencement of proceedings on 4 September 2008. The other paragraphs of his judgment to which I have referred will be important when considering the further matters I have to consider in this judgment.

Has there been an abuse of process in order to defeat a meritorious cross-claim?

64 The defendants have argued that Jazabas' unresolved chose in action against the plaintiff is the company’s most valuable asset and it is a bona fide chose in action. They submit that they have evidence of a claim by against the plaintiffs for general damages, which provides a relevant defence to the proceeding and value of that claim exceeds the debt owed. They suggest that this claim is a cross-claim that they could not have raised in answer to the demand under section 459H, hence the appropriate time to raise it is at final hearing: per Flick J in Massih v Esber [2008] FCA 1452.

65 Further the defendants submit that if the companies were wound up, the chose in action is likely to go to waste as:

(a) It has been acknowledged by the Court of Appeal that it would be unlikely for the choses in action to be continued by the liquidators if the companies are wound up, because the liquidators would not give personal undertakings.
(b) If the defendants are wound up, the builder's warranty insurance on the dual occupancy development at Matraville being constructed by BAS will not be issued and the dual occupancy properties will not be able to be sold. This will not only affect BAS, but also the party that engaged BAS to construct the development.

66 The plaintiff has submitted that they do not know the source of the assertions made at (a) and (b) and those assertions are disputed. The evidence does not support this. They argue that defendant’s have overstated their claim: it has been stayed for 3 years since the decision of Simpson J on 9 June 2006 and the defendants could have sought to raise their chose in action in answer to the demand under s 459H.

67 Massih v Esber is distinguishable to the facts of the present case. Massih concerned the Bankruptcy Act 1966 (Cth) and in particular the provisions of s 40(1)(g) of that Act. That section requires a counter claim that could have been set up in the action or proceeding in which the judgment or order was obtained. In Massih, Flick J held that because the counter claim could not have been set up as such in the costs assessment proceedings, such a counter claim did not fall within the provisions of s 40(1)(g). There is no such requirement under the Corporations Act in order to set aside a notice of statutory demand. However, if the purpose of these proceedings is to stultify a genuine counter claim there may be an abuse of process.

68 The parties did not put evidentiary material before me to demonstrate the merits but made reference to what had been said in previous proceedings.

69 One of the major defences which the plaintiff proposes to run in relation to the defendants’ claim is a res judicata or an Anshun estoppel alleging that the present claim is simply an attempt to re-litigate the defendants’ earlier unsuccessful claim. The plaintiffs have argued that Associate Justice Harrison recognised this in her judgment Jazabas Pty Ltd v Haddad & Ors [2008] NSWSC 593 at [57].

“ [57] Botany Council submitted that as its costs in prior proceedings have not been paid, this is a further basis that the stay should remain in place. As previously mentioned these outstanding costs are substantial and the only attempt at repayment is a recent offer by Jazabas of $500 per month, that is, $6000 per year. The amount outstanding is $969,309.91. Realistically this offer can in no way meet Botany Council’s costs that have been incurred in the prior proceedings. It is my view Jazabas, as a common plaintiff to both proceedings, has commenced these proceedings for substantially the same cause of action and for substantially the same relief. I accept that this is another reason why a stay should remain in place so far as Botany Council is concerned.”

70 The Court of Appeal proceedings, Jazabas Pty Ltd v Haddad & Ors [2007] NSWCA 291, Basten JA dealt with the merits of the defendants’ claims at [30] to [31]. His Honour stated:

“ Merits of claims
[30] There is no doubt that the bona fides of the claim and its merits, at least to the extent that it must be reasonably arguable, are material factors, as stated by French J in Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514:
‘Where there is a claim prima facie regular and disclosing a cause of action, I see no reason why the court would, in the absence of evidence, proceed on the basis that the claim was otherwise than bona fide with a reasonable prospect of success.’
[31] In the present case, it is clear that the primary judge was not willing to characterise the claim in this way. She was “unpersuaded that [the plaintiffs] have as yet established any real likelihood that they will ultimately be successful”: at [52]. Although this language departs from that usually adopted, it does not reveal error. Her Honour thought that this claim was not on its face regular and reasonably arguable. Her reason for reaching that conclusion was that the factual basis of the pleading “does not emerge with any degree of clarity from the amended statement of claim, or from the evidence” — at [6] — and that the pleading required “radical surgery”: at [50]. Her Honour also noted that to pursue their claim against the Council, the plaintiffs would need to overcome questions of estoppel arising from earlier failed proceedings against the Council and based on the principles stated in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. Her Honour accepted that neither BAS Developments Pty Ltd nor Permtree Pty Ltd were directly affected by those principles: however, as Permtree Pty Ltd appears to have been involved only as a shareholder in Jazabas, the earlier litigant, it is not clear that it would escape from any estoppel arising against Jazabas. BAS Developments Pty Ltd was apparently the builder used by Jazabas in relation to its residential developments: whether it had a significant independent claim may have been open to doubt. In any event, these factors led her Honour to a lack of satisfaction that there was shown to be “any real likelihood” of success. While I accept, as explained by McClellan CJ at CL, that there may be causes of action available to the plaintiffs — see [82] below — I am not persuaded that her Honour’s assessment of the prospects of success was based on any relevant error. It was not contended that this assessment was irrelevant to the exercise of the discretionary power.’ ”

71 The defendants referred to [55] of Jazabas Pty Ltd and Ors v Haddad and Ors [2007] NSWCA 291 in support of their claim that they have a bona fide chose in action. At [55] McClellan CJ stated:

“[55] Evidence was accepted by her Honour going to the strength of the claimants’ case. This included a transcript of an interview with the Mayor of the Council, Mr Hoenig on ABC Radio National’s program “Background Briefing” in June 2002, when he was recorded as saying:
‘Well the ’83 document [the 1983 Risk Assessment Study] was never a public document. The ’83 document was the first time, basically at the Council and community’s request, that they underwent proper hazard studies, and on completion of the ’83 document, they then wanted to know what to do with it in terms of how they released it to the public or whether it should be released to the public. There was some concern about whether or not the population would panic, would not understand the material they had collated, not understood the risk assessment numbers, and I advocated to the Department at the time, they needed to release the document, and the ’85 document was the document modified for public consumption, to avoid public panic.’ ”

72 However, the plaintiffs have alleged that the defendants’ above reference to the Mayor’s comments is mischievous in that those submissions had failed to include the fact that the Mayor’s views were his alone and not held by other Council officers or the Council’s lawyers.

73 The Court of Appeal would have been aware of this omission as the relevant omitted words had previously been extrapolated by Simpson J in Jazabas Pty Ltd v Haddad & Ord [2006] NSWSC 559 at [43]. Her Honour Harrison AsJ in Jazabas v Haddad [2008] NSWSC 593 reproduced a substantial section of the transcript in question and held there was a relevant public interest in the litigation being heard:

“[41] Since the earlier decision by his Honour Justice Rolfe, there have been public admissions by the Mayor of Botany Council of negligence. These are referred to in the earlier judgment by Simpson J and are set out in the later judgement by McClellan CJ at CL at [55]–[59]. They are worth repeating:

“55 Evidence was accepted by her Honour going to the strength of the claimants’ case. This included a transcript of an interview with the Mayor of the Council, Mr Hoenig on ABC Radio National’s program “Background Briefing” in June 2002, when he was recorded as saying:
Well the ’83 document… [as quoted at [38] above]

56 Later, Mr Hoenig was recorded as saying:
We were stuck between the devil and the deep blue sea. Do we tell 4,000 or 5,000 residents in Hillsdale that your land’s worthless, or alternatively do we try and encourage the removal of this one plant that had been undertaken to be removed. And we decided on the latter.

57 Later still, the compare of the program was recorded as saying the following:
Surprisingly, Botany Mayor Ron Hoenig says he thinks the Council was negligent in all this. Here is a reading of comments by Councillor Hoenig in a closed Council meeting in 1998.

In reality, the fact is that this Council was aware and its planning officers were aware, and should have been aware at all times, that there is a risk assessment lying over the Hillsdale area.


Councillor Hoenig went on to say that it was ‘nothing short of negligence’ that the Council didn’t consider the recommendations of the 1985 study.
In his office at Eastgardens, Mayor Hoenig said he hasn’t changed his mind.

58 Immediately after Mr Hoenig was recorded as saying:
That was my view. It still is. It still is. The Council was very poorly advised in respect of even allowing that Jazabas site. That was parkland, or it belonged to APM that the Council really didn’t want to give development approval, and was advised at the time there was no basis to prevent it. Now we accept responsibility, or I accept responsibility for that. As a result of that advice, certain things were put in train and the quality of the advice is now substantially improved because there is a change in personnel.
59 Mr Hoenig was then asked:
(Q) But if you concede that that decision was negligent, then why take the developer to court, put him through the wringer to their considerable personal and financial expense?
(A) Well firstly it was my view, not the view of Council, of the Council lawyers, and not conceded by Council officers, and not agreed to by the Council.’ “

74 The defendants claim the public admissions by the Mayor and the findings of Simpson J, McClelland CJ and Harrison As J, demonstrate a causative link between the fact that the plaintiff had not told Jazabas that the land could not be developed for residential purposes and the loss they suffered in developing the land. An unresolved chose in action is valuable property: see Smith v ANL Ltd [2000] 204 CLR 493 per Gummow and Gaudron J.

75 As has been said it is a claim which is contentious but in view of the history of all the proceedings it may not succeed. The real question is the purpose for bringing the proceedings and this will be considered further below.

The effect of the stay and other associated matters

76 The defendants submit that the plaintiff is using the present proceedings for debt collection or to accelerate the payment of the debt not otherwise payable and that is an abuse.

77 Further, they submit that if issues arise in the wind up which are not appropriate for determination in the proceedings, such as the enforceability of the debt relied on by the applicant or the unresolved chose in action, it will be an abuse of process (per McLelland J in L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd supra at page 183).

78 The defendants also referred to the comments of Rolfe J in Jazabas v Botany Council [2000] NSWSC 58 at [63] in support of their case,

“[63] On 3 February 1999 the present solicitors for the Council wrote to the solicitors for the plaintiff referring to some discussion which had taken place. The letter stated, inter alia:-
"The only prospects of the Plaintiff realising that asset if the Supreme Court proceedings fail is by having the building refusal reversed.
Notwithstanding his Honour's general remarks and some of the concepts behind them, we advise that in the event that your client adopts a 'submitting' position in relation to the appeal and if our client's current application fails for the reasons raised by Bignold J on the point of a proper contradictor our client will raise in the Supreme Court proceedings your client's opposition to the appeal by way of defence based on the plaintiff's failure to mitigate its loss.
In the event that the orders in the appeal are granted and the Court was minded to remit the Building Application for re-hearing it would be open to the Council to approve the application at that stage and we would be strongly advising it to do so based on the information which has been furnished of and incidental to your client's Building Application. If, however, your client is now of the strong view that its Building Application should never have been pursued we would prefer to receive that information sooner rather than later."
The Council was thus bringing pressure to bear on the plaintiff for the sole purpose of reducing its potential liability for damages and without any apparent regard to the position in which occupants of the development may find themselves if the risk materialised into reality.”

79 They suggest that these findings and the principal findings of fact in the underlying matter were not set aside by the Court of Appeal in City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94. However, this is not material to the present proceedings as we are concerned with whether the bringing the present proceedings is an abuse.

80 The defendants accuse Ms Linkenbagh of being materially involved in the abuse of process. They suggest Ms Linkenbagh must have known that an instalment order for a judgment debt, made either before or after the date of the statutory demand, would render the demand for the full debt invalid and the reason Ms Linkenbagh commenced the proceedings was because she was attempting to avoid the operation of the instalment rights of judgment creditors.

81 They provide a number of facts and circumstances as evidence for their complaint. For coherency, these claims will be broken up into three sections, with the plaintiff’s relevant responses to the allegations set out at the each block. The first set is as follows:

(i) Ms Linkenbagh prepared the statutory demand under the Corporations Act (section 459E(3)).

(ii) During cross-examination Ms Linkenbagh agreed she was and remains well aware of UCPR Part 37, which provides that if an instalment order is made it stays the operation of the judgment debt and treats each instalment as if it were a separate and smaller debt. This knowledge is detailed in letter she signed dated 12 September 2008 to Registrar Bradford of this Court (reproduced at [19] above), which requested a review of the instalment order dated 20 August 2008 by Senior Deputy Registrar Musgrave.

In the cross-examination of Ms Linkenbagh before me on 12 June 2009, Mr King for the defendants proceeded in the following way,

“KING.

Q. Is it fair to say in July and August of last year you were very familiar with the procedures under the Civil Procedure Act and Rules relating to the obtaining of instalments for payments in respect of judgements entered in the Supreme Court, the District court and the Local Court?
A. The answer is yes. The question was not very well put, but I am familiar with the instalment procedure.

…

Q. You were aware that once an application is made to the Court Registry, supported by an affidavit as provided for in the Rules, that the Court Registry or the Registrar of the Court examines the affidavit and then makes a decision about instalments?
A. I don't think that is the same question you asked me before, but yes, the Registry deals with the application, yes.

…

Q. (shown exhibit C) Would you look at the letter dated 12 September 2008 written to Registrar Bradford in that bundle?
A. Yes.

…

Q. One of the reasons you give in that letter is that 37.2 (c) had not been complied with, do you see that?
A. Yes.

Q. Do you know what 37.2 (c) says?
A. Not off the top of my head.

Q. Are you sure of that. You have a close familiarity with the Rules in relation to instalments?
A. I don't have the wording or the Rule in my head. When I want to know what a rule looks like I look at it on the screen.”

(ii) In the transcript of proceedings before Rothman J on 12 December 2008, his Honour asked Ms Linkenbagh on 12 December 2008 at page 6 line 40:

“ Rothman J: Your interest, that is you being the City of Botany Bay, is to get your debt paid, is that right?
A. Yes.
His Honour : Is there any other interest?
A. To get the paid within a reasonable time”

(iii) The Council’s application to set aside the instalment order dated 20 August 2008, predated the wind up proceedings. Ms Linkenbagh told Rothman J (transcript page 5 from line 38), that she opposed the instalment orders, because two of the companies had no assets to pay the instalment debt,

LINKENBAGH: Your Honour, what happens is that the information that’s files in support of the capacity to pay or the appropriateness of the amount of the order is attached to the affidavit of Mr Haig sworn on 22 July. That attaches some documents called “Financial Statement” in respect of each of the three companies. Jazabas Pty Limited shows that it has no estimated gross income, it has $39 in the bank and no liabilities. BAS Developments has an estimated gross income of $36,428 and $6,375 worth of assets and liabilities of $20, 112. Ferntree has no income, assets or liabilities.
HIS HONOUR: This point is raised because?
LINKENBAGH: Even is BAS Developments was said to have some income and resources out of which these orders can be paid, the other two companies don’t.
HIS HONOUR: Doesn’t that mean they can’t afford the instalment notice that’s been made?
LINKENBAGH: Exactly, that’s my point.
HIS HONOUR: So you want me to cancel the instalment notice, as a consequence of which, on your submission, they will be rendered bankrupt and Botany council will receive nothing; is that right?
LINKENBAGH: There are current winding up proceedings in this court in respect of all three companies, your Honour.”

(v) The Council rejected the defendants’ offers to pay the instalments in varying amounts, including on 15 October 2008, the full amount. Some of these instalments were examined in proceedings before his Honour Rothman J (transcript page 8),

“HIS HONOUR: On 16 September 2008 $30,000 was paid. On 3 October $1,500. The council said, “We will not…the instalment order”. Is that the evidence to which you are now referring?
LINKENBAGH: Yes.
HIS HONOUR: Can you tell me, Ms Linkenbagh, why the council is not in contempt?
LINKENBAGH: Your Honour, the order as made in the beginning, the order was made--
HIS HONOUR: Ms Linkenbagh, do you deny that there was an order of this court by which the judgment could be paid in instalment, the instalment was offered and the council refused to accept it? Is that right?
LINKENBAGH: The order that was made was irregular, your Honour, and that was remedied.
HIS HONOUR: Ms Linkenbagh, let me tell you this and understand this and do no put this submission again to any officer of this court: an order of the Supreme Court of New South Wales is valid until set aside and can be prosecuted for contempt until set aside. Do you understand that?
LINKENBAGH: Yes, I do.
HIS HONOUR: It is a fundamental basis of a superior court of record. Do not come to this court and say I have disobeyed an order of this court because the order was made irregularly. If an order of this court is made you obey it. Do you understand that?
LINKENBAGH: Yes of course your Honour. Your Honour, all together there have been six amounts of $1,500 paid. They have been paid by Mr Haigh himself. They have not been paid by the companies. The effect of that is that Mr Haig is paying the instalment order and the companies are incurring a debt to Mr Haigh which they are obliged to repay him. The court cannot in those circumstances in my view have any confidence that the companies have the capacity to pay these instalments on an ongoing regime.”

82 According to the defendants the reason the Council pursued the application to set aside the instalment orders and winding up proceedings, was not to achieve the payment of the debt, nor the winding up of the companies, but to frustrate and destroy the Court actions brought by the defendants. The defendants argue that the plaintiff’s actions create an implied admission that the defendants’ chose in action against the plaintiff had strength and is well founded. It is not so much an implied admission but whether an inference should be drawn from the relevant facts.

83 The plaintiff has responded to these allegations in the following way:

(i) Ms Linkenbagh could not have known that if an instalment order was made in respect of a judgment debt either before or after the date of the demand that would render the statutory demand for the full debt invalid because that proposition is contrary to the law as has been provided in Tatlers at [25].

(ii) The knowledge Ms Linkenbagh did have, would have informed her that the existence of the stay of execution brought about by the instalment order did not have a direct effect on the statutory demand process. Ms Linkenbagh’s evidence demonstrates that she was aware that the application to pay by instalments was “irrelevant” to the right to bring or continue the winding up application. In the cross-examination before me by Mr King of Ms Linkenbagh on 12 June 2009 the following was stated, Transcript page 17),

“Q. I will put the question again. The debt that was referred to in the statutory demand that you had prepared you knew as of 25 July was the subject of an instalment application, didn't you?
A. No. There is a distinction there. The debt was owing to the Council because of the costs assessment certificates.

Q. Yes?
A. The debtor registered the debt, those certificates, and that the debt then became a judgement debt. The application to pay by instalment is in respect of that a judgement debt, the enforcement of that judgement.

Q. With that qualification?
A. Just let me finish?.

Q. Yes?
A. The instalment application operates to do that. It does not operate for all purposes. It is about the ability of the creditor to take enforcement action under the Court Rules to issue a writ or examination of the judgement debtor or whatever you want to do. Once the application is filed you can't do anything. It is irrelevant as far as the statutory demand is concerned.”


(iii) The Council was entitled to be paid its the full amount, plus interest, plus any costs. Such an offer was never forthcoming from the defendants and it is not an abuse of process to seek the appointment of a liquidator.

(iv) There is no implied admission that any chose in action claimed by the defendant has strength and was well founded. The defendants’ proceedings brought in the common law division are misconceived and a re-agitation of earlier proceedings they have lost.

(v) Tatlers overrules the defendant’s submission that the plaintiff used the proceedings for debt collection. It provides that if, as a result of an order being made for the winding up of a company, a company ceased to carry on business, it is not an abuse of process to seek a winding up order to achieve that outcome. They referred to Australian Beverage Distributors Pty Ltd v The Red Rock Co Pty Ltd [2007] NSWSC 966 at [44] per White J:

“[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.”

84 The second set of facts and circumstances which allegedly point to an abuse of process by the plaintiff have been submitted by the defendant as follows:

(i) The defendants on 15 July 2008, after service of the demands approached the court and had the debts entered as judgments of the Court. That had the consequence that the debts merged in the judgment.

(ii) Houston Dearn O’Connor only communicated the contact they had with Court in regard to the date on which the Registrar made the instalment orders to Cropper Parkhill on 15 September 2008 when Cropper Parkhill received a copy of the Houston Dearn O’Connor letter of 12 September to Registrar Bradford. (pages 25 to 26 transcript 12 June 2009)

(iii) By that time Mr Bulock, the Council insurance officer and Ms Linkenbagh knew the defendants had not complied with the instalment orders of 20 August 2008 [see paragraph 11 of the affidavit of Ms Linkenbagh of 11 June 2009].

(iv) The plaintiff stated that the wind up application was filed on 4 September 2008 because the defendants had not paid any instalments to the Council. The defendants argue that this evidence [see paragraph 11 of the affidavit of Ms Linkenbagh of 11 June 2009] should not be believed because the Court had not made the instalment by 4 September 2008. Therefore, it was impossible for the conversation Ms Linkenbagh alleged occurred to have occurred.

(v) In the alternative, the defendants submit the evidence can only be accepted on the basis that Ms Linkenbagh had discovered from the Court that an instalment order had been made, but that it had not been communicated to the parties as required by the UCPR 37.3. Ms Linkenbagh denied this allegation in cross-examination.

(vi) A second alternative alleged by the defendants is that somehow Ms Linkenbagh knew of the intention of the Court to backdate the order.

(vii) When the defendants attempted to pay the first two instalments at Council on 16 September, Mr Bulock did not tell Mr Haigh that he knew the instalment order had been made. The defendants allege that in cross-examination Mr Bulock untruthfully claimed not to know if an order had been made. They suggest this allegation is supported by Ms Linkenbagh’s evidence in which she said Mr Bulock had spoken to her before issuing the process and complained that the defendants had not paid any instalments. In proceedings of 9 June 2009, under cross-examination by Mr King, Mr Bullock stated the following (transcript pages 5 to 6):


“EXHIBIT #2 - BUNDLE OF OFFICIAL RECEIPTS TENDERED, ADMITTED WITHOUT OBJECTION

Q. Is it correct that you spoke to Mr Haigh after the payments had been made and asked him to give to you his Visa card so you could reverse the payments?
A. Yes.

Q. And you said, did you, "I made that payment because of this notice of motion" referring to the instalments arrangement and they are funds due to you in terms of the order. He said, “ I will not give you my Visa card", did he say words to that effect?
A. Yes, he did but he did not show me the document you are referring to.

Q. I beg your pardon?
A. Yes, he did but he did not show me the document you are referring to, he just referred to it.

Q. But you had no doubt what he was referring to?
A. Yes, I did have doubt as to what he was referring to.

Q. But you knew about the instalments application and the order?
A. Not until long afterwards.

Q. Long afterwards?
A. Yes.

Q. How long afterwards?
A. Well many weeks afterwards.

Q. How many?
A. By asking their solicitor at the Houston Dearn O’Connor firm to explain that to me.

Q. You are aware, are you not, that shortly after that date, that is shortly after 16 September, in fact the next day, Mr Haigh personally wrote to Houston Dearn O'Connor in terms of the letter but if you would have a look at the bundle in front of you and the letter is dated 17 September. Did you see that letter on or shortly after this date?
A. I have seen that letter.

Q. But on or shortly after this did you see that letter?
A. After that date but how shortly after that date, I am not sure.

Q. Did you see the letter dated 3 October 2008 written by Mr Haigh to the general manager of the council at the time, a copy of which I ask the officer to show you, it is annexure D to the affidavit of Mr Haigh sworn 28 October. Did you see that letter on or shortly after it was made?
A. Yes, the letter speaks to a complex issue involving Mr Haigh's wish to make the payment and my understanding after that seeking advice from the Houston Dearn O'Connor law firm.

Q. Don't tell us the advice you received, just answer my question, if you would?
A. Yes.

Q. Did you see that letter on or shortly after you got it or the council manager got it?
A. Well, after that date, yes.”

(viii) On 7 October 2008, in a letter from the plaintiff to Cropper Parkhill, the plaintiff stated they intended to proceed with the windup application (see except at [24] above). The letter made several erroneous assertions as to the effect of Civil Procedure Act 2005 section 107 and as to the effect of the instalment application made on 25 July 2008. The latter assertion is contrary to their effect of the letter to the Court made on 12 September 2008.

85 The plaintiffs have responded to these allegations in the following way:

(i) Australian Beverage Distributors Pty Ltd v The Red Rock Co Pty Ltd [2007] NSWSC 966 (excerpted above) provides a complete answer.

(ii) The affidavits of Mr Mathers and Ms Linkenbagh make it clear that they did not know of the instalment order having been made until after the defendants’ solicitors notified them. They did not receive the order until 12 September 2008. The affidavit of Paul Mathers dated 11 September 2002 para 5 shows that the plaintiff’s solicitor did not become aware of the instalment order until after the applications to wind up were filed. Mr Mathers was not cross-examined. The enquiry made of Mr Bulock in relation to whether $1,500 was paid on 15 August 2008 reflects the fact that that was the amount and date referred to in the notice of motion filed. It does not mean that the plaintiff’s solicitor was aware of an order in the terms of the motion having been made.

(iii) The defendants do not read paragraph 11 of Ms Linkenbagh’s affidavit of 11 June 2009 correctly. Ms Linkenbagh contacted the Registry and was informed that the application to pay by instalments had not been dealt with. What she discussed with Mr Bulock, according to paragraph 11, was the effect of the instalment application on the Council’s ability to proceed, not the effect of any decision on that instalment application (which in any event had not been made by that time). Reference to no payment having been made is not a reference to the fact that a payment could be made under an instalment order, but that as a fact, no payment in reduction of the debt on any basis had been made nor had any payment been made in accordance with the date referred to in the Motion. Whether any monies had been paid was relevant to the amount to be inserted into the application to wind up and enquiry was made for that purpose.

(iv) The actions of the council officer, in attempting to reverse payments, are of no relevance, particularly in circumstances when there was uncertainty at the time as to whether or not there were any effective instalment orders in place. Indeed, the defendants’ submissions acknowledge that at that very time the whole debt was due and payable owing to the fact that the first instalment amount had not been (and could not have been) paid (see paragraph 26 of defendants’ submissions).

86 I had the opportunity of seeing Miss Linkenbagh cross-examined and one thing that became apparent that she was a very precise person and this was reflected in the way she gave her evidence. I agree with the plaintiff’s submission on the effect of paragraph 11 of her affidavit dated 11 June 2009. Having regard to her evidence, the evidence of Mr Mathers who was not cross-examined, and the evidence of Mr Bulock, I am satisfied that the Council did not know of the making of the instalment order before the commencement of the proceedings. Plainly any information conveyed by a court officer to Mr Mathers on 5 September 2008 was wrong having regard to the circumstances now known. There is nothing to suggest that either of the solicitors adverted to the fact that UCPR 37.5 created a stay on lodgement of the instalment application.

87 The third and remaining set of facts and circumstances the defendants point to as an abuse of process are as follows:

(i) The plaintiff did not serve the usual public notices required by s 5.3A of the Corporations Regulations until 7 October 2008 when it was futile to do so. At no stage has it served the defendants with the relevant notices. Generally see the concessions in paragraphs 29, 33 and 37 of the plaintiffs submissions dated 12 June 2009, and the Act sections 459E(2)(e), 465A(a),(b) and (c), and Corporations Rules 5.6 and forms 9, 519 and 509H.

This has prejudiced the defendants in a number of ways:
(a) It denied the defendants of notice to the community of the applications, which in a case involving the public interest, is a matter of grave concern.
(b) Supporting persons opposing the application on rational grounds have had no opportunity to appear.
(c) White J in Australian Beverage Distributors Pty Ltd v The Redrock Pty Ltd [2007] 213 FLR 450, found notices may be some evidence of abuse of process. Confirmed by the Court of Appeal decision, Australian Beverage Distributors v The Redrock Co [2008] NSWCA 200.


(ii) Mr O'Connor of Houston Dearn O’Connor, to whom the defendants made the offers to increase the amount of the instalment payments, was not called to give evidence. In the circumstances, having regard to the rule in Jones v Dunkel (1959) 101 CLR 298, the court should accept that his evidence would not have assisted the plaintiffs case.

(iii) Mr Bulock conceded in cross-examination that the plaintiff’s purpose in bringing the proceedings was to frustrate and expunge, without any determination on the merits, the claims against the plaintiff.

(iv) This allegation should be considered in connection with the fact that the plaintiff claims the Court had made a slip under UCPR 36.27 in making an instalment order [see Exhibit C] and in connection with the consideration that, when the Court registry refused to act unilaterally, the plaintiff then sought orders permitting it to expunge the order [the plaintiff's notice of motion of 11 November 2008].

88 The plaintiff has responded in the following way:

(i) There has been no prejudice suffered by the defendants in relation to any failure by the plaintiff to serve notices. The community has been notified of the applications by publication, which are evidenced by publication in the Sydney Morning Herald on 9 October 2004. I have already dealt with the matter earlier and there is no suggestion that the advertisement was delayed deliberately.

(ii) The content of the without prejudice correspondence is not in issue. There was no reason to call Mr O’Connor and no adverse inference can be drawn from any failure to call him. The plaintiff has at all times been entitled to have the full amount of its debt paid together with any interest and any costs that had been incurred up to the time of any offer. At no time have the defendants ever offered to pay the full amount of the debt plus interest plus costs.

(iii) The plaintiff repeats that even if its purpose in bringing the proceedings was to obtain the appointment of a liquidator, that is not an abuse of process: Australian Beverage Distributors Pty Ltd v The Red Rock Co Pty Ltd . Indeed, if the defendants chose in action is a good one, then the liquidator may well decide to proceed with it. The defendant also misinterprets Mr Bulock’s evidence in cross-examination.

89 It is plain that Mr Bulock did not make the concession referred to in the defendants’ submission.

90 Although I have grouped the claims into several categories it is necessary to have regard to all the matters which have been established when deciding whether the present proceedings constitute an abuse of process.

91 It seems to me that it is unlikely that the purpose for bringing the proceedings is to thwart the cross-claim because the Council has effectively achieved that objective for the last three years as a result of their claim for security for costs. If security cannot be offered after three years one would think that would be unlikely to be offered in the next few years. What is more likely is that the Council wishes to recover what may be possible having regard to the enormous amount due to the Council which may become due in the earlier proceedings now that it has the leave of the Court to assess those costs.

92 The real question is whether the effect of what is sought to be done should be allowed having regard to the various principles which are set out in paragraphs 25 and 26 of Scope Data Systems the contents of which I have set out earlier and which are as follows:

“[25] If, in the present case, a stay of execution of the Local Court orders is in force by operation of s 107 of the Justices Act, reliance upon the statutory demand to produce a statutory presumption of insolvency as a basis for seeking a winding-up order will entail for the plaintiff consequences of a serious and adverse kind. The defendant, as a judgment creditor to whom the remedy of execution upon the judgment is expressly denied pending determination of the appeal to this court, will nevertheless be permitted to rely on the judgment as a basis for bringing to bear the pressure for payment and threat of serious and adverse consequences inherent in a statutory demand and a winding-up petition, notwithstanding the legislative policy that precludes direct resort to execution. That legislative policy would thereby be circumvented.

[26] If parliament sees fit to provide that, where a certain type of appeal is initiated in respect of a judgment debt, the judgment creditor is not to be allowed to exercise ordinary judgment creditor remedies by proceeding to execute the judgment, it would, in my view, be inconsistent with the position parliament has striven to create if the judgment creditor could nevertheless proceed with impunity to initiate winding-up proceedings on the basis of the mere existence (even though technically not subject to ‘genuine dispute’) of that judgment debt. Such a course would, in my view, be oppressive in the sense referred to by Austin J in Moutere and by Mullins J in Softex . The circumstances would therefore warrant an order under s 459J(1)(b) setting aside the statutory demand, even though the initiation of action towards winding up was not technically within the black letter operation of s 107 of the Justices Act: cf Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337.”

93 Those reasons are powerful reasons and the present procedure is a way avoiding the statutory stay.

94 The cases where these principles have been applied have been ones where the demand was to be set aside under s 459J(1) (b) for some other reason. Here we are concerned with whether it is an abuse of process. The concept is a wide one which is not susceptible to precise definition.

95 The High Court in Williams v Spautz stated that proceedings brought for an improper purpose will constitute an abuse of process where the purpose of bringing the proceedings was not to obtain relief within the scope of the remedy, but to use the proceedings to obtain an advantage beyond the scope for which they were intended or for some collateral purpose.

96 The majority of the High Court (Mason CJ, Dawson, Toohey AND McHugh JJ) provided the following example at page 10:

“In our view, the power must extend to the prevention of an abuse of process resulting in oppression, even if the moving party has a prima facie case or must be assumed to have a prima facie case. Take, for example, a situation in which the moving party commences criminal proceedings. He or she can establish a prima facie case against the defendant but has no intention of prosecuting the proceedings to a conclusion because he or she wishes to use them only as a means of extorting a pecuniary benefit from the defendant. It would be extraordinary if the court lacked power to prevent the abuse of process in these circumstances.”

97 Their Honours state at pages 16 to 17:

“In his dissenting judgment in Goldsmith v Sperrings Ltd , Lord Denning MR was of the view that to issue a writ for an improper purpose constitutes without more an abuse of process. His Lordship appears to have regarded the cases on the tort of collateral abuse of process, including Grainger v Hill , as supporting this proposition. In this respect, Lord Denning may well have been incorrect. However, his Lordship was right in treating the comments of Lord Evershed MR, when he delivered the judgment of the Court of Appeal in In re Majory [1955] Ch , as supporting the proposition. There, Lord Evershed referred ( at 623-624) to a general rule:

"that court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused".
In our view, that is a correct statement of the principle.”

98 Further Brennan J points out at pages 25 to 26,

“There is no impropriety of purpose (whatever may be said of motive) when a plaintiff commences or maintains a proceeding desiring to obtain a result within the scope of the remedy, even though the plaintiff has an ulterior purpose - or motive - which will be fulfilled in consequence of obtaining the legal remedy which the proceeding is intended to produce. To amount to an abuse of process, the commencement or maintenance of the proceeding must be for a purpose which does not include - at least to any substantial extent - the obtaining of relief within the scope of the remedy. As Isaacs J said in Varawa v Howard Smith Co Ltd 76 : "the term 'abuse of process' connotes that the process is employed for some purpose other than the attainment of the claim in the action. If the proceedings are merely a stalking-horse to coerce the defendant in some way entirely outside the ambit of the legal claim upon which the Court is asked to adjudicate they are regarded as an abuse of process for this purpose".
Putting to one side, then, the cases where the plaintiff intends to obtain relief within the scope of the remedy, the problematic cases arise when the plaintiff's purpose is to obtain some benefit, to impose some obligation or to affect some relationship otherwise than by verdict, by order or by compromise of the particular claims made in the proceeding. These are cases where the plaintiff's objective lies outside the relief which, if the proceeding were prosecuted to completion, might be obtained by verdict or by order. The general principle applicable when a plaintiff intends to obtain a result outside the scope of the remedy was stated by Lord Evershed in In re Majory 77 : "court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused."

99 The actual order for instalments was made on 20 August 2009 after the period for making application to set aside the demand. Although the defendants could have made an application to set aside the stay, under UCPR 37.5 within time, they did not do so. There is no evidence to suggest they knew they could have made an application to set aside the stay and the matter seems to have been characterised by both parties waiting in limbo for the result of the application.

100 In the circumstances it seems to me that there is an abuse as the plaintiff will be able to achieve a result which the legislation did not intend to occur when it enacted the provision to which I have referred and, accordingly, the proceedings should be dismissed.

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