Bungey v Magnate Projects

[2006] NSWSC 734

CITATION:	Bungey v Magnate Projects [2006] NSWSC 734
HEARING DATE(S):	4 May, 28 June, 3 July 2006
JUDGMENT DATE :	21 July 2006
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Proceeding stayed. See paragraph 2.
CATCHWORDS:	CORPORATIONS - winding up - discretion under s 467 - agreement between defendant in Commercial List proceeding and creditor of plaintiff, under which creditor took proceeding to wind up plaintiff prior to hearing of Commercial List case - relevant considerations
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW), s 14 Corporations Act 2001 (Cth), ss 459C, 459G, 467 Supreme Court (Corporations) Rules, 1999, r 5.4
CASES CITED:	BP Australia Ltd v Brown (2003) 58 NSWLR 322 Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699 Re Chapel House Colliery Company (1883) 24 ChD 259 Re St Thomas' Dock Company (1876) 2 ChD 115
PARTIES:	John Alfred Bungey trading as John Bungey Real Estate (P) Magnate Projects Pty Ltd (D)
FILE NUMBER(S):	SC 1297/06
COUNSEL:	B Gillard (Solicitor) (P) D A Allen (D)
SOLICITORS:	Gillard Consulting Lawyers (P) Proctor & Associates (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

FRIDAY 21 JULY 2006

1297/06 JOHN ALFRED BUNGEY TRADING AS JOHN BUNGEY REAL ESTATE V MAGNATE PROJECTS PTY LTD

JUDGMENT

1 HIS HONOUR: These are my reasons for judgment on the hearing of the application of the plaintiff (Mr Bungey) to wind up the defendant company ("Magnate"), and Magnate's application to enjoin Mr Bungey from proceeding with the winding up application. The hearing of these matters took place on 4 May and 28 June 2006. The hearing was then adjourned to 3 July 2006. On that occasion, with the consent of the parties, I announced my decision and made orders, reserving my reasons for judgment. I did so because Magnate is the plaintiff in a Commercial List proceeding set to begin on 24 July 2006, a proceeding that would obviously be disrupted if I made a winding up order. I thought it important to let the parties know where they stood so that Magnate could prepare for the Commercial List proceeding and not lose the hearing dates.

2 My orders were as follows:

1. Proceeding No 1297/06 ("the present proceeding") is stayed until the entry of judgment in proceeding No 50049/04 between the present defendant as plaintiff and Youma Constructions No 2 Pty Ltd as defendant.

2. Liberty to either party to restore the present proceeding to the list before the Corporations Judge on 3 days' notice after the entry of judgment as aforesaid.

3. Order under s 459R of the Corporations Act that the period within which the application in the present proceeding for the defendant to be wound up is to be determined, be extended until 31 December 2006.

4. Costs reserved.

5. Note that the publication of the court's reasons for these orders is reserved.

6. Further note that the existing undertakings of Mr Luu are extended until the entry of judgment in proceeding No 50049/04.

3 These are my reasons for judgment for the making of those orders.

The present litigation

4 By an originating process filed on 6 February 2006, Mr Bungey sought an order for the winding up of Magnate on the ground of insolvency. The originating process relied on a statutory demand for payment of the sum of $18,050.57, described as a sum due as a judgment debt in accordance with a Certificate of Judgment issued by the Local Court in Liverpool St Sydney (File No 8367/04). The evidence shows that the amount for which judgment was entered was the amount of assessed costs payable pursuant to a costs order of this court.

5 According to the evidence, the demand was served by Mr Bungey by personal delivery to Magnate's registered office on 12 January 2006. No application was made to set aside the demand within the time allowed under s 459G of the Corporations Act, or at all.

6 Save in one respect, the procedural and formal requirements for the winding up of a company have been proved by appropriate affidavit evidence. Magnate submitted that Mr Bungey had failed to comply with rules 5.4(2) and 5.4(4) of the Supreme Court (Corporations) Rules 1999. Those sub-rules require that the affidavit in support of an originating process for winding up in reliance on failure to comply with a statutory demand must verify service of the statutory demand, and must be made within 7 days before the originating process is filed. In the present case Mr Gillard, Mr Bungey's solicitor, purported to verify service by his client. His evidence was objected to and eventually the affidavit was tendered only to prove its contents, rather than (relevantly) the truth of the contents. The requirements of rule 5.4 were not satisfied, because Mr Gillard's statement that his client had personally served the demand was not admitted to prove the truth of the assertion and therefore did not verify service. But there is no contest about the fact of service of the demand on the date to which Mr Gillard has deposed. In the circumstances, I shall dispense with the requirements of rule 5.4, to the extent that the rule has not been complied with, under the court's general power to do so conferred by s 14 of the Civil Procedure Act 2005 (NSW) (the application of which would be impliedly confirmed, if confirmation were needed, by rule 1.3(2) of the Supreme Court (Corporations) Rules).

7 The first return date for Mr Bungey's winding up application was 9 March 2006, and on that day Magnate appeared before the Registrar, by counsel, and sought time to put on a Notice of Opposition under s 465C of the Corporations Act, and supporting affidavits. Magnate's application was referred to Campbell J as duty judge. His Honour decided to give Magnate until 24 March to "put before the court such material as it could muster". He did so after receiving undertakings from Mr Dinh Luu, Magnate's only director and shareholder. As finally formulated, Mr Luu's undertakings were as follows:

(i) to ensure that the defendant does not trade except to the extent that it continues to pay legal expenses incurred in this and the Commercial List proceedings No 50049 of 2004; and
(ii) to withdraw any Notice of Opposition if the court is not satisfied that the defendant has no other creditors other than the plaintiff and Kekatos Lawyers and no other potential creditors except for Youma Constructions No 2 Pty Ltd concerning the amount the subject of the cross-claim in Commercial List Proceeding No 50049 of 2004, save that it may continue to oppose the winding up on the basis of any defect in the application for winding up and in the evidence supporting the application for winding up.

8 On the 23 March 2006 Magnate made an application, by interlocutory process, for an order enjoining the plaintiff from prosecuting the proceeding. On the same day, it filed a Notice of Appearance, which included the following "Grounds of Opposition to Winding Up":

1. On 17 November 2003, the plaintiff and defendant agreed that the plaintiff would not take any action to wind up the defendant.

2. It is an actual or implied term of the agreement that the plaintiff would allow the defendant to conclude its action against Youma Constructions No 2 Pty Ltd. The current action is in breach of that agreement. The defendant is therefore estopped or otherwise precluded from prosecuting this action.

3. Except to the extent the defendant may owe the plaintiff the amount stated in the statutory demand, the defendant is solvent.

4. The court in the exercise of its discretion ought not wind up the defendant.

5. The plaintiff is put to strict proof of all matters including compliance with the matters required by the Corporations Act, Corporations Rules and the practice and procedure of the Supreme Court of New South Wales.

9 The winding up proceeding and the interlocutory application were eventually heard by me on 4 May and 28 June, as I have said. I ordered that evidence on the interlocutory process be evidence with respect to the originating process, and that evidence with respect to the originating process be evidence on the interlocutory process.

Commercial List proceeding No 50049 of 2004

10 Youma Constructions No 2 Pty Ltd ("Youma") was the developer of a development at 1-35 Pine Street, Chippendale for the construction and sale of residential and commercial units. It entered into a deed with Magnate dated 11 February 2002 and varied on 27 February 2002. The deed provided for Magnate to be appointed as marketer for the sale of a number of units. The terms of this deed, and its effect in the events that happened, are matters before the court in the Commercial List proceeding, and it would be inappropriate for me to make any findings of fact on those matters in the present judgment. However, it is important for present purposes to have some understanding of the claims in the Commercial List proceeding.

11 In its Amended Summons in the Commercial List proceeding, Magnate alleges that it was a term of the deed that for each unit sold above a minimum set price, Youma would pay Magnate a "Selling Fee" calculated under the deed. The Selling Fee would be the contract price minus the "Minimum Unit Price" set out in a schedule to the deed, plus any GST payable. Magnate claims that it marketed units pursuant to the deed and sold them at a price above the Minimum Unit Price, and that in breach of the provisions of the deed, Youma failed to pay it the Selling Fee, in the sum of $3,077,695.89. Magnate also claims that under the terms of the deed Youma indemnified it for any commission payable to any real estate agent for the sale of units. It says it was indebted to Mr Bungey in the sum of $696,165.23 plus interest, by way of commission for the sale of units, and that in breach of the agreement Youma failed to indemnify it for that amount.

12 The evidence includes Youma's Amended Defence and Cross Claim, in draft form. According to the evidence, Youma intends to rely on this document, notwithstanding that it is in draft form.

13 In the draft Amended Defence, Youma denies that it received the "Total Minimum Unit Prices", or Magnate's GST contribution or other moneys due, so as to satisfy express conditions precedent in the deed, and therefore Youma denies that it is liable to pay Magnate's claimed Selling Fee. Youma says it was expressly agreed that any entitlement to the Selling Fee was dependent upon Magnate procuring the sale of specified units at not less than the Minimum Unit Price applicable to each lot within the "Exclusive Period", which expired on 1 April 2003, and Youma says that Magnate did not meet its obligations. It says that Magnate also failed to meet an express condition precedent to its entitlement to any Selling Fee, to the effect that Magnate would furnish a tax invoice for the Selling Fee, in the absence of which Magnate's claim was premature. Youma also denies any obligation to indemnify Magnate in respect of any commission claim, on similar grounds. It also says that Magnate was illegally carrying on the business of unlicensed real estate agent and was therefore precluded by s 42 of the Property, Stock and Business Agents Act 1941 (NSW) or s 9 of the Property, Stock and Business Agents Act 2002 (NSW) from bringing proceedings to recover any fee, and any entitlement to recover a fee is void for illegality.

14 As to Youma's Cross Claim against Magnate, for present purposes it is sufficient to rely on Magnate's Defence to Cross Claim, as filed, for a summary of the Cross Claim and Magnate's Response to it. Magnate there says that it has identified three disputes in the Cross Claim, and deals with them as follows:

"FIRST DISPUTE
The Cross Claimant alternatively claims that the Deed should be rectified, does not contain the entire agreement between the parties and should have several terms implied. The effect would be:
(i) the Cross Defendant is not entitled to the indemnity it claims in the initiating pleading;
(ii) that it was in fact agreed that the Cross Defendant would pay for the real estate commission; and
(iii) that by seeking the indemnity the Cross Defendant is in breach of the Deed, the damages for which would be the indemnity payable for real estate commission.
The Cross Defendant denies that there is any basis for rectification and the implication of terms. The Cross Defendant relies on the Deed and the indemnity provided in it.
SECOND DISPUTE
The Cross Claimant says that it was a term of the Deed that the Cross Defendant would secure the sale of all of the Lots set out in the Deed for a price above the listed minimum price. It is alleged that the Cross Defendant did not do this and that loss has resulted. The Cross Defendant says that it was under no obligation to sell all the Lots.
THIRD DISPUTE
The Cross Claimant claims that the initiating pleading itself is a breach of the term of the Deed that the Cross Defendant would sell all of the Lots. The Cross Defendant says that this does not follow."

15 The Commercial List proceeding has had what Einstein J described, in an ex tempore judgment on 9 December 2005, as "an unfortunate history". It appears that the proceeding was fixed for hearing to commence on 8 March 2005. That fixture was vacated on Youma's application on the basis that it was not ready for the hearing, and Youma was ordered to pay Magnate's costs occasioned by vacation of the hearing date. The matter was set down for a four-day hearing to begin two weeks later, on 21 March 2005, before Associate Justice Macready. Youma did not appear at the hearing, though it was found to be aware of the hearing date and had been given notice of the form of orders that the court proposed to make. His Honour found that Magnate had made out its case for an indemnity for real estate agent's commission and for payment of the Selling Fee, and he dismissed the Cross Claim.

16 Apparently the reason why Youma was not represented before Macready AsJ was that its solicitor, a sole practitioner, had suffered severe depression and had not communicated the hearing date to his client (see the ex tempore judgment of Einstein J dated 9 December 2005, para [4]). On 24 June 2005 Nicholas J set aside Macready AsJ's judgment on the basis that he was satisfied there was an arguable defence. Magnate appealed, by leave, to the Court of Appeal, which set aside the judgment of Nicholas J and re-exercised the court's discretion, setting aside the judgment of Macready AsJ on conditions (approximately) that Youma or its solicitor pay Magnate $20,000 on account of costs, and that Youma not apply for security for costs against Magnate beyond an order that could be satisfied by Mr Luu becoming personally liable for Magnate's subsequent costs.

17 The effect of the judgment of Einstein J on 9 December 2005, expressed in detailed orders made on 16 December 2005 which are in evidence, was that Youma was required to pay Magnate all the costs the court had ordered it to pay, on assessment of the plaintiff's bill of costs, and after that had happened, Mr Luu was required to undertake to the court to be liable for any costs incurred after 26 September 2005 and awarded against Magnate in the Commercial List proceeding.

18 On 23 March 2006 Magnate made an application by notice of motion in the Commercial List proceeding seeking, inter alia, judgment for the sum of $97,105.53 in relation to the orders of 16 December 2005. It appears that the notice of motion was heard by Brereton J who ordered Youma and its solicitor to pay Magnate $45,000 on account of costs. That amount was paid to Magnate on 19 April 2006 (Transcript, page 37). Mr Luu gave evidence in the present proceeding (Transcript, page 42) that he had given an undertaking in relation to costs of the Commercial List proceeding. As far as I am aware, the Commercial List proceeding is still listed for hearing commencing on 24 July 2006.

Magnate's financial circumstances

19 Mr Luu's evidence is that the $45,000 received from Youma on 19 April 2006 has been disbursed on legal costs in the Commercial List proceeding (Transcript, page 38). Magnate's only assets are its causes of action against Youma in the Commercial List proceeding and for costs awarded in that proceeding. In his affidavit, Mr Luu denied that Magnate owes any money to Youma. He said Magnate has a liability to Mr Bungey for commission of $696,165.23 plus interest. It also owes legal fees, some of which Mr Luu has been paying personally. It appears that, before receipt of the $45,000 from Youma, Magnate's solicitor was owed approximately $80,000 (Transcript, page 56). Mr Luu said in his affidavit that Magnate's solicitor is not pressing him for payment of costs.

20 Mr Luu also said that Magnate has not traded since, at least, the Commercial List proceeding commenced in 2004, except to pursue its claim against Youma. He said Magnate has not lodged tax returns for the last two financial years "due to the litigation", and that it has not done so "on the advice of its accountant". When questioned about this in cross-examination, he said Magnate was not trading during the periods when no returns were lodged (Transcript, page 38). It was suggested to him in cross-examination that the Commissioner of Taxation is a least a potential creditor, for the purposes of the undertaking he has given to the court in the present case, because Magnate has not lodged tax returns, and he replied (Transcript, page 54) that the company had no income for the relevant years, though he agreed that Magnate had rendered an invoice to Youma which the latter had rejected.

21 In my opinion Mr Luu's evidence does not disclose that the Commissioner of Taxation is a potential creditor for the purposes of his undertaking, so as to require him to abandon his grounds of opposition to the winding up application. Mr Luu's evidence, though given in lay terms, was to the effect that he would lodge income tax returns for Magnate on a receipts rather than an accruals basis, and on that basis there would be no income for the year 2003 and subsequently and therefore no tax liability. I am not in a position to reject Mr Luu's evidence on this matter. Further, it seems to me, as a matter of construction, that any future income tax liability arising directly out of Magnate's success in the Commercial List proceeding was not intended to fall within the concept of "potential creditors" for the purpose of the undertakings.

Mr Bungey's settlement with Magnate on 17 November 2003

22 It appears that during 2003, Mr Bungey pursued Magnate to recover the real estate agent's commission he claimed in respect of the Chippendale project. He commenced proceedings in this court for recovery, No 4674 of 2003, and also two applications for the winding up of Magnate, Nos 5171 and 5172 of 2003 (Transcript, pages 15-16). At about the same time a proceeding was commenced before the Consumer, Trader & Tenancy Tribunal (proceeding No Com 03/44712). All of these proceedings were settled between the parties on about 17 November 2003.

23 Evidence about the settlement was given in the affidavit of Jim Kekatos, who was Magnate's solicitor at the time. He said he had a conversation with Brian Gillard, Mr Bungey's solicitor, as follows:

"Kekatos: Brian, my client has agreed to the charge against the company and to pay your fees but you know he cannot pay you now.
Gillard: I know my client wants to keep the pressure on you to make sure you prosecute the proceedings against Youma.
Kekatos: He wants to chase the money that is not an issue, we don't need any added pressure from you.
Gillard: Provided your client pursues the matter and keeps us informed we promise not to enforce the charge or chase you for the costs.
Kekatos: OK."

24 Mr Kekatos' evidence is that he gave Mr Gillard an executed company charge and Mr Gillard gave him a handwritten letter. Both documents are in evidence.

25 The instrument of charge, dated 14 November 2003 and subsequently registered, purported to create a fixed and floating charge granted by Magnate to Mr Bungey to secure the total sum of $718,036.23 comprising a judgment debt for commission of $696,165.23 plus other monies due. The charge was said to be a fixed charge over the item specified in the schedule and a floating security as regards all other present and future assets of Magnate. The item specified in the schedule as the mortgaged asset was as follows:

"All of the Debtor's interests in the right to sue or recover monies from Youma Constructions No 2 Pty Ltd ('Youma') or any Related Corporation or Associate of Youma under a Marketing Deed between the Debtor and Youma dated 11 February 2002 or otherwise in relation to any remedy associated with that Deed and as against any other persons involved in the negotiation of that Deed."

26 By the handwritten letter, dated 17 November 2003, Mr Gillard confirmed that his client agreed to accept the sum of $240,000 in lieu of the sum of $718,036.23 on certain conditions including entry of judgment by consent in the Consumer, Trader & Tenancy Tribunal proceeding for $696,165.23, "payment of costs as awarded (in 4674 of 2003) within 14 days of assessment", and compliance with an approved timetable in relation to the Commercial List proceeding against Youma. On the same day consent orders were made in proceeding No 4674 of 2003, under which the proceeding was dismissed with Magnate ordered to pay Mr Bungey's costs. The court noted that:

· the parties had agreed to judgment being entered for sales commission in the Tribunal proceeding in an amount including the amount claimed in the Supreme Court proceedings; and

· Mr Bungey had agreed not to enforce that judgment subject to certain conditions.

27 According to the evidence of Mr Gillard, not contested on this point, the costs in proceeding No 4674 of 2003 are the costs for which judgment was entered in the Local Court, leading to the service of the statutory demand upon which the present application for winding up was made. Mr Gillard also gave affidavit evidence, that is challenged, in which he said he did not agree with Mr Kekatos that Mr Bungey would not pursue recovery of those costs. Mr Gillard pointed out in evidence that such an agreement would be at odds with the handwritten letter of 17 November 2003, in which payment of the costs is one of the conditions for Mr Bungey accepting a reduced amount for his claim.

28 Mr Gillard made a file note on 17 November, which does not shed light on his conversation with Mr Kekatos. Mr Kekatos did not make a file note, but he explained in his oral evidence that the conversation with Mr Gillard occurred outside the Downing Centre court where he was appearing in a criminal matter (Transcript, page 58). Later, the solicitors corresponded about the costs of proceeding No 4674 of 2003. Mr Gillard sent Mr Kekatos a bill of costs and Mr Kekatos said his client required the bill to be assessed. A Certificate as to Determination of Costs was issued and Mr Gillard sent Mr Kekatos a copy of his client's statutory demand on 16 August 2004. There was no mention in this correspondence of any agreement not to recover the costs. On 27 August 2004 Mr Kekatos wrote to Mr Gillard formally requesting, inter alia, that the payment of Mr Bungey's legal fees as assessed be deferred until Magnate's claim against Youma was finalised. Mr Gillard replied on 21 September 2004 indicating that his client would accept payment by instalments, but it appears that this offer was not accepted.

29 In these circumstances, I find that Mr Gillard did not give any undertaking that would restrict Mr Bungey's ability to enforce the costs order. I reached this conclusion on the following grounds:

(a) my hearing of the oral evidence of Mr Kekatos and Mr Gillard and my observation of their demeanour in the witness box;
(b) the evidence of Mr Kekatos was unclear as to the circumstances in which the undertaking was given (for example, how the solicitors came to be talking at the Downing Centre when Mr Gillard's notes show that he appeared at the Supreme Court);
(c) Mr Kekatos did not make any file note and was relying on his recollection at a time when, according to his own evidence, he was "in the middle of something else" (Transcript, page 58);
(d) finding that Mr Gillard gave an undertaking not to enforce the costs order would be inconsistent with the terms of his letter of 17 November 2003, apparently countersigned by someone on behalf of Magnate (perhaps Mr Kekatos), which stated one of the conditions of the settlement to be payment of costs as awarded within 14 days of assessment;
(e) the subsequent correspondence of the solicitors implies that there was no impediment, under the terms of the settlement, to the assessment and payment of the costs, and the process of assessment was implemented without any express reservation of the obligation to pay the amount assessed;
(f) Mr Kekatos' letter of 27 August 2004, requesting deferral of payment, implies that there was no previous agreement for deferral.

Mr Bungey's dealings with Youma

30 It appears that recovery of his claim from Magnate has been a matter of great concern for Mr Bungey, who has followed the Commercial List proceeding closely, with the assistance of Mr Gillard. Mr Gillard gave evidence that, since Magnate commenced that proceeding, he has attended the court to ascertain the status of the proceedings on numerous occasions, sometimes with Mr Bungey. They attended the hearing before Macready AsJ, the hearing before Nicholas J and the hearing in the Court of Appeal. Magnate gave Mr Gillard access to affidavits and other documents in respect of those hearings. According to Mr Gillard, his client is entitled to access to such documents under the terms of the deed of charge.

31 Mr Bungey sought advice from Mr Gillard for the purpose of recovering the amount he claimed from Magnate. He commenced winding up proceedings against Magnate on no fewer than four occasions before the present one. Two of the proceedings were settled by the arrangements of 17 November 2003. Other proceedings were allowed to lapse.

32 In November 2005 Mr Gillard gave Mr Bungey some advice concerning his options for recovery. They had a meeting with the directors of Youma and their legal advisers on 29 November 2005, during which Mr Bungey's options for recovery were considered, including the option of commencing another application to wind up Magnate. Mr Gillard gave evidence (Transcript, page 63) that Youma proposed making a payment to Mr Bungey, although no amount was agreed, and one of the options discussed was that the payment would be on condition that Mr Bungey would make a winding up application. He said the proposal had emerged from discussions between Mr Bungey and one of the directors of Youma over the period from May to November 2005.

33 Mr Gillard made a file note of the meeting of 29 November, on the first page of which the following appears:

"charge close to direct interest
stat demand
appoint liq
exercise power to settle and/or negotiation".
These words contemplate that after the service of a statutory demand, a liquidator would be appointed to Magnate and the liquidator would exercise his or her power to settle and/or negotiate with Youma.

34 The amount of Mr Bungey's claim for commission, for which judgment was entered in the Consumer, Trader & Tenancy Tribunal, was $696,165.23 plus interest. It appears that this claim was based on Mr Bungey's asserted entitlement to commission with respect to the sale of some 52 units. At the meeting with Youma on 29 November 2005, Mr Gillard was given a document which listed sales where Mr Bungey was agent and sales made before 1 April 2003 (now part of Exhibit D3). I infer that this was supplied for the purpose of assisting Mr Bungey to work out his entitlement to commission.

35 Mr Bungey gave evidence (Transcript, pages 32-34) that he and Mr Gillard attended another meeting with the representatives of Youma early in December 2005. This meeting was attended by a barrister as well as the solicitor and a director of Youma. A purpose of the meeting was to identify what properties were sold by Magnate before Mr Bungey entered into his agency agreement with Magnate, and whether any properties were sold by Youma rather than Magnate. Mr Bungey believed that those determinations would have the consequence of reducing his entitlement to commission. At the meeting a spreadsheet was used to show sales and commissions. Mr Bungey formed the view as a result of the meeting that his proper entitlement to commission was only about $200,000 (Transcript, page 31).

36 At the meeting in December, there was discussion of a proposed arrangement between Mr Bungey and Youma under which Youma would pay Mr Bungey some money and Mr Bungey would take steps against Magnate that would give Magnate the option to pay its debts, but with the prospect that Mr Bungey would proceed to seek winding up if payment was not made.

37 That proposal was developed into a formal agreement contained in a "Deed of Grant" between Mr Bungey and Youma dated 10 January 2006. By that instrument:

· Mr Bungey granted Youma the right to call for the assignment of the benefit of the costs order against Magnate and/or the judgment against Magnate in the Consumer, Trader and Tenancy Tribunal;

· Mr Bungey undertook to serve on Magnate a statutory demand for payment of the amount of the costs order and if Magnate failed to make payment, make an application for the winding up of Magnate;

· Mr Bungey agreed that, in the event that Magnate paid him the amount of the costs order (which Youma would be entitled to recover from him), he would serve another statutory demand, this time for payment of the amount of the Tribunal judgment, and if Magnate failed to pay that amount, he would make an application for winding up;

· Youma agreed to pay Mr Bungey $100,000 immediately, plus a further sum of $100,000 if either it exercised its right to call for the assignment, or Magnate went into external administration leading to liquidation.

38 Mr Gillard agreed in evidence (Transcript page 17) that Mr Bungey filed the present application to wind up Magnate, and was prosecuting it, because of his agreement with Youma, and that he would not have made the winding up application but for that agreement. In his evidence Mr Bungey agreed that the reason why he was prosecuting the winding up application was because of his obligations under the deed (Transcript, page 25). He accepted that he had received $100,000 from Youma and had used some of that money to fund the present proceeding (Transcript, page 66).

39 Mr Bungey gave evidence that he entered into the arrangement with Youma after receiving advice and documents from his solicitor, Mr Gillard, which led him to form the view that Magnate would not pay him the commission he claimed (Transcript, page 22). Mr Gillard explained the agreement by saying that Mr Bungey had "liquidated an asset" (Transcript page 17). He continued:

"He has discovered that there are parts of the case which may be fatal to your client. He does not believe that he will receive anything if this matter proceeds as currently constituted, and he liquidated the asset by obtaining a payment from the party who is able to pay and to whom that asset is worthless."

Magnate's grounds for resisting the winding up application

40 My findings that Magnate did not make any application under s 459G of the Corporations Act to set aside the statutory demand that Mr Bungey served on it, and that he made an application for the company to be wound up in insolvency within three months of the company failing to comply with the statutory demand, give rise to the statutory presumption under s 459C that Magnate is insolvent. A matter to be resolved is whether Magnate has rebutted the presumption and is solvent. A finding that, because of the settlement agreement of 17 November 2003, the costs of the Supreme Court proceeding were not to be payable until determination of the Commercial List proceeding would have implications for solvency. But under s 459S Magnate is prohibited, without the leave of the court, from opposing the winding up application on any ground that it could have relied on had it made an application to set aside the statutory demand. That section prevents the court from granting leave unless it is satisfied that the ground is material to proving the company to be solvent.

41 Magnate made three substantive submissions, namely:

(i) the application for winding up should be stayed for abuse of process, by virtue of improper purpose, oppression and maintenance;
(ii) the settlement agreement of 17 November 2003 contained an implied undertaking by Mr Bungey not to take proceedings to wind up Magnate until the Commercial List proceeding was completed, and the present proceeding is in breach of that undertaking;
(iii) the court should dismiss the winding up application, or alternatively adjourn it until completion of the litigation against Youma, in the exercise of its discretion.

42 I had the benefit of substantial written and oral submissions from both parties on these matters. Oral submissions were made on 28 June 2006, less than four weeks before the date fixed for the commencement of the hearing of the Commercial List proceeding. As I shall explain, in my view it is appropriate to infer that the making of a winding up order would be likely to cause vacation of the hearing dates. When I assessed the matter at the end of the hearing on 28 June, it seemed to me important to give the parties a decision, within days, on the question that needed to be resolved promptly, namely whether the court would make a winding up order prior to the determination of the Commercial List proceeding. It also seemed to me unlikely that I would be able to give a decision within days on all of the issues that had been canvassed in submissions. I therefore adjourned the hearing for a short time (initially to Friday 30 June, though it was necessary to postpone it again to the following Monday 3 July), to give me some brief time to consider whether I could make any orders when the hearing resumed.

43 These considerations led me to focus my attention on the discretionary issues that arise at the hearing of a winding up application under s 467. I reached the conclusion that, whatever might be the correct ruling on the other grounds advanced by Magnate, there were strong discretionary reasons for the court to defer its decision on the application for winding up until after the determination of the Commercial List proceedings. I therefore decided to make orders based on the exercise of my statutory discretion, rather than on the other grounds that had been advanced.

The court's discretion

44 Under s 467(1) of the Corporations Act, on the hearing of a winding up application (including an application for winding up in insolvency) the court has a discretion. It may dismiss the application with or without costs, even if the ground has been proved, or adjourn the hearing conditionally or unconditionally, or make any interim or other order that it thinks fit. The terms of the subsection make it clear that the applicant for winding up is not entitled to an order once the grounds are made out, and the court always has a discretion: Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699 at [57] per Campbell J. The court's attention will be directed to the public interest, which normally requires that an insolvent company be wound up to prevent it from incurring further debts. Counsel for Magnate referred me to two decisions where a winding up order was refused partly on the basis that the order would not achieve anything for the creditors, as there were insufficient funds even to pay for the costs of liquidation, although there were valuable income-producing assets (Re St Thomas' Dock Company (1876) 2 ChD 115 and Re Chapel House Colliery Company (1883) 24 ChD 259). But the circumstances of those cases were unusual. Normally the court exercises its discretion to wind up a company in insolvency once insolvency is proved or a presumption of insolvency is established and not rebutted - but nevertheless, the discretion remains and is available to be exercised in an appropriate case.

45 In the present case, there are some special circumstances that, in my opinion, justify the court's exercise of its discretion under s 467(1) to make an order other than for the immediate winding up of the company.

46 Magnate has a claim for a substantial amount of money against Youma in the Commercial List proceeding which, according to the evidence, it is prosecuting to resolution. Nothing in the evidence suggests that Magnate's claim is other than a bona fide claim, although I am not in a position to assess its prospects of success. Counsel for Magnate submitted that I should take into account the fact that his client proved its case before Macready AsJ, judgment being set aside for reasons having to do with the wrongful conduct of Youma's solicitor rather than any deficiency in Magnate's case. I take those events into account, but I do not draw from them any conclusion about Magnate's prospects of success in a fully contested hearing.

47 It seems to me that there is a public interest in the court not taking steps that would prevent litigation, which has been prepared for hearing on allocated hearing dates, from being heard. I infer that the practical effect of making a winding up order three weeks before the scheduled commencement of the hearing of substantial and complex commercial litigation would be likely to be that the hearing dates would be vacated, to give the liquidator the opportunity to assess the claim and receive advice.

48 That consideration must be balanced against any disadvantage that a stay of the winding up application would cause to present or future creditors. Here, the only persons with a direct interest in the making of a winding up order, or the deferral of the application, are Youma, Mr Bungey and Magnate's solicitor. There are no general creditors such as trade or consumer creditors. This is a consequence of the fact that Magnate is not trading and that Mr Luu has given undertakings, which he has extended, in the form required by Campbell J. To the extent that it is relevant to take into account the interests of the Commissioner of Taxation as a future creditor, Mr Luu's evidence implies that any tax payable in respect of recoveries from Youma will be the subject of tax returns when the Commercial List proceeding is determined.

49 In these circumstances the exercise of my discretion under s 467, which requires me to consider the interests of creditors, leads me to reflect on the interests of Youma, Mr Bungey and the solicitor. Mr Bungey, being a party, has had ample opportunity to make submissions as to his interest, relevantly to the exercise of my discretion. Magnate's solicitor is the solicitor on the record for Magnate in the present proceeding, in which Magnate resists the making of a winding up order, and the evidence is that he is not pressing for payment. I therefore proceed on the basis that he has no interest for me to take into account other than the interest of his client.

50 The position of Youma is more difficult. Youma is not a party and I have not received any submissions by it on discretionary issues. I have therefore given consideration to the question whether steps should be taken to give it the opportunity to be heard, so as to ensure procedural fairness, having regard to the principles enunciated in such cases as BP Australia Ltd v Brown (2003) 58 NSWLR 322. In this case Youma has the contractual arrangement with Mr Bungey that I have described, under which he is obliged to prosecute the winding up proceeding. Further, according to the evidence before me, a barrister representing Youma was in court for at least part of the hearing (Transcript, page 13). I infer that Youma, by its agent, was aware of the fact and nature of the hearing when it was taking place. It was aware, therefore, that the hearing was partly the hearing of an application for the winding up of a company in insolvency, at which the exercise of the court's discretion under s 467 would arise. Youma has made no application to be joined as a party, or to intervene in any other way. In my opinion, in the particular circumstances of this case it was permissible and appropriate for me to proceed to exercise my discretion without any formal notification of Youma or other procedural step.

51 If Magnate succeeds by recovering the full amount claimed in respect of the Selling Fee and the indemnity, there will be adequate funds for it to pay its creditors, namely Mr Bungey, its solicitors and (presumably) the Commissioner of Taxation.

52 If Magnate fails in the Commercial List proceeding, an order for costs will presumably be made against it in favour of Youma, which it has no substantial assets to pay. But Youma will have the benefit of Mr Luu's undertaking in the Commercial List proceeding with respect to security for costs after the specified time. As to costs incurred before that time, an adjournment or stay of the winding up application until the determination of the Commercial List proceeding will not of itself put Youma in a worse position than it would be in if the order were made. In the absence of a winding up order, it may be able to set off, against Magnate's liability to pay costs, any remaining obligation it has to pay Magnate's costs pursuant to interlocutory orders.

53 As far as I can see, Youma has no immediate claim and may be a debtor in respect of the balance of costs ordered in the Commercial List proceeding (the evidence is not clear on this point). It has a commercial interest in the making of a winding up order, in the sense that if the order is made, it is likely that the present hearing dates will be abandoned, and the vigorous prosecution of Magnate's claims in the Commercial List proceeding will be rendered less likely, at least in the short term. But that commercial interest is not the interest of a creditor, as such, to be taken into account as a reason for making a winding up order. It is an interest in using the winding up proceeding to stifle the Commercial List proceeding, and is not an interest that the court should advance in the exercise of its discretion.

54 If Magnate's claims in the Commercial List proceeding fail, there will be no substantial assets available to Mr Bungey, but that does not necessarily operate to his disadvantage, because the failure of the Commercial List claims would suggest that they were of no value at the present time. It is also relevant to take into account, in his case, that he has received $100,000 from Youma, and that the Deed of Grant has the effect of limiting Mr Bungey's interest in the litigation to the payment of the amounts for which the Deed provides.

55 Overall, therefore, I reached the conclusion before making my orders on 3 July 2006 that I should exercise the discretion conferred by s 467(1) by deciding not to make a decision on the winding up application until after the determination of the Commercial List proceeding. One way of achieving that outcome would have been to adjourn the winding up proceeding until a time after the determination of the Commercial List proceeding. It seemed to me, however, that the correct order was an order staying the proceeding until the determination of the other proceeding, so as to make clear the court's view that the present proceeding should not be revived until that time.

Conclusions

56 These reasons for judgment are a statement of my reasoning for making the orders that I made on 3 July 2006. Although there has been further time for reflection, this is not an occasion to add to the grounds upon which I decided to act on that day. Therefore, while I have made some relevant findings of fact, for the purposes of the decision I have reached, I have not determined Magnate's claims based on abuse of process or breach of undertaking, or the submissions made on behalf of Mr Bungey on those matters.

57 The matters that remain to be determined include whether, having regard to s 459S, the presumption of insolvency that has arisen under s 459C has been rebutted and whether, accordingly, the ground for winding up has been made out; whether Magnate has made out a case of breach of undertaking, consistently with s 459S, entitling it to relief of the kind sought in its interlocutory process; and whether the winding up proceeding should be dismissed or permanently stayed on the ground of abuse of process. I shall grant both parties liberty to apply to me upon the determination of the Commercial List proceeding, so that directions can be given for a further hearing to determine those matters remaining for decision at that time.

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