Burns Philp Hardware Ltd v Eastcoast Holdings Ltd

[1993] FCA 602

6 0 2      9 3

JUDGMENT No. .,.-,.,I arn,m,mc.

IN THE FEDERAL COURT OF AUSTRALIA	)
VICTORIA DISTRICT REGISTRY	) NO. VG3184 of 1993
GENERAL DIVISION	)

IN THE MATTER OF SECTION

4 6 0 ( 2 ) ( a ) 0 F T H E

CORPORATIONS LAW

and

IN THE MATTER OF EASTCOAST - - - -

HOLDINGS LIMITED A.C .N. 006

715 797

BETWEEN:  BURNS PHILP HARDWARE
LIMITED

Applicant

m:  EASTCOAST HOLDINGS LIMITED

Respondent

-

CORAM:  Jenkinson J.

PLACE	:	Melbourne
W:	1 September, 1993

FEDERAL COURT OF

AUSTRALIA PRINCIPAL

MINUTES OF ORDER REGISTRY

NOTE:	Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

THE COURT ORDERS THAT:

1.        The proceeding be dismissed.

2.        Consideration of each party's costs of the proceeding (including the costs of the motions of which notice was filed on 29 July 1993 and costs reserved) be adjourned to a date to be fixed by either party on reasonable notice to the other.

IN THE - FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY	) No. VG3184 of 1993
GENERAL DIVISION	1

IN THE MATTER OF SECTION

CORPORATIONS LAW	4 6 0 ( 2 ) ( a ) 0 F T H E
and
IN THE MATTER OF EASTCOAST HOLDINGS LIMITED A. C .N. 006 715 797

BETWEEN:  BURNS PHILP HARDWARE
LIMITED

Applicant

m:  EASTCOAST HOLDINGS LIMITED

Respondent

m:	Jenkinson J.
PLACE :	Melbourne
W:	1 September, 1993

REASONS FOR JUDGMENT

Motion for an order that an application for winding-

up of the respondent be dismissed or alternatively an order
that publication of notice of the application be restrained.

The application, filed 13 July 1993, is grounded on the allegation that the respondent ("Eastcoast") is unable to pay its debts, and the allegation is made in reliance on Eastcoast's failure to comply with a demand served, before the commencement of s.57 of the Corporate Law Reform Act 1992, under paragraph 460(2)(a) of the Corvorations Law. Section 1383(4) of the Cor~orations Law provides that in those circumstances Part 5.4 as in force before that commencement continues to apply "for the purposes of:

(a)	making that commencement, in reliance on the demand, an application for the Court to order the winding up of the company on the ground provided for by subsection 460(1); and
(b)	determining, or otherwise disposing of, an application of that kind so made; and
(c)	winding up the company under an order of the Court made on an application of that kind so made."

The requirement of the demand, served in the first - - - -

days of June 1993, was that Eastcoast pay the applicant ("Burns Philp") "the sum of $238,472.38 now due to it being the amount owing by you to it as at the 2nd June 1993 being monies owing pursuant to a Deed of Guarantee dated 30th September 1992 wherein you granted to Burns Philp Hardware

Limited of all monies in excess of the sum of $100,000.00 Limited the due and punctual payment to Burns Philp Hardware

owing by Federal Building Industries Pty. Ltd. to Burns Philp

Hardware Limited from time to time". Federal Building Industries Pty. Ltd. ("F.B.I.") was until the last days of June 1993 a wholly owned subsidiary of Eastcoast. At relevant times F.B. I. was engaged in the construction of buildings in at least two States in eastern Australia. Burns Philp was at relevant times conducting in those two States a business of selling plumbing materials under the business name Tradelink Plumbing Supplies Centres ("Tradelink"). Running accounts had been maintained in both Victoria and Queensland between F.B.I. and Tradelink in respect of the numerous purchases of plumbing materials by F.B.I. from Tradelink. The guarantee by Eastcoast was of the indebtedness of F.B.I. in excess of $100,000 and accordingly the demand is in respect of an alleged indebtedness on that account by F.B.I. of $338,472.38. Delivery of materials purchased by F.B.I. from Tradelink was sometimes to an F.B.I. employee at one of Tradelink's depots, sometimes at a building site. Materials purchased were returned for various reasons. Although both F.B.I. and Tradelink had recording and accounting systems designed to ensure accurate accounting of their many transactions,

-.

differences as to the balance owing to Tradelink occurred from time to time. In support of its motion Eastcoast adduced evidence designed to show (a) that very much less than the amount clalmed to be owing by F.B.I. was owing, and (b) that for most of the past year Eastcoast's staff had' been writing and talking to Burns Philp's staff about the errors alleged to

be in Tradelink's statements of the account. Burns Philp	adduced evidence designed to show (a) that $338,472.38 was
owing and (b) that whenever complaint was made by Eastcoast's staff about the account the disputed item was either shown to the apparent satisfaction of Eastcoast's staff to be correct or was deleted from the account. One of the deponents was cross-examined, but counsel for the parties responsibly abstained from attempting an exhaustive canvassing of the very many issues of fact which the conflicting affidavits raised.
Mr. Houghton of counsel for Burns Philp submitted that, even if I were to take a view of the conflicting evidence least favourable to Burns Philp, there could be no reasonable doubt that at least $310,000 was at relevant times and now is owing by F.B.I., in which case at least $210,000 was at relevant times and now is owing by Eastcoast.
The evidence before me shows a very strong probability that not less than $150,000 was at relevant times and now is owing by Eastcoast, but shows also that more than $20,000 of the claimed debt is genuinely disputed on substantial grounds. Upon those findings Burns Philp is to be recognised as a creditor entitled to institute the proceeding for winding-up and the appropriate- order on the motions will be that which an exercise of discretion indicates.
The first question for determination is whether this court should in the proceeding for winding-up itself determine the dispute as to what is owing. A discretion to take that
N.L. (1986) 4 A.C.L.C. 227; Nickel Rim Mines Ltd. v. Horizon course is available to the court : Brinds Ltd. v . Offshore Oil
Pacific Ltd. (1991) 9 A.C.L.C. 709. The parties adduced evidence in a mode apt for determination of the question as to whether, and to what extent, the claimed debt was genuinely disputed, not for determination of the dispute. Further, I find on the evidence before me that Eastcoast is solvent, and I have not found that Eastcoast is unlikely to be able to pay the amount claimed by Burns Philp to be owing, if and when that indebtedness is judicially determined to exist. In those circumstances I do not consider that the dispute as to the amount of the debt should be determined in the proceeding for winding-up.
Turning again to the motion, I consider that the proceeding should be dismissed rather than stayed. A solvent debtor the amount of whose debt is the subject of bona fide dispute has a substantial claim to have the commercial embarrassment of a pending proceeding for winding-up - even a proceeding which is stayed until further order - extinguished while the amount of the debt is judicially determined. I find that the pendency of this proceeding will embarrass Eastcoast in its dealings with its banker, to which it is substantially indebted. It was submitted that Eastcoast should be required to pay into court a substantial part of the claimed debt as a condition of relief. But I think that is a subject which should be left to the court in which Burns Philp sues to recover the debt. I think that the proceeding for winding-up
should be dismissed.
I have concluded that Burns Philp was entitled to institute this proceeding for winding-up. It is possible that time will reveal more of the truth about the dispute between these parties and about the solvency of Eastcoast than I could glean on the hearing of the motion. There will be an order that consideration of each party's costs of the proceeding be adjourned to a date to be fixed by either party on reasonable

notice to the other.

I certify that this and the 5

preceding pages are a true copy of the Reasons for Judgment of the Honourable Mr. Justice Jenkinson.

Dated: 1 September, 1993

Counsel for the Applicant	Mr. W. Houghton
Counsel for the Respondent	Mr. P. Bornstein
Solicitors for the Applicant	Cornwall Stodart
Solicitors for the Respondent	George Schif ter,
Johannson & Co.
Date of Hearing	20 August, 1993

JUDGES' CHAMBERS

FEDERAL COURT OF AUSTRALIA
450 LITTLE BOURKE STREET

MELBOURNE. 3000

1 September, 1993

Ms. Jan Costello,
Principal Registry,
Federal Court of Australia,
Level 16,
Law Courts Building,
Queens Square,

SYDNEY. N.S.W. 2000.

Dear Ms. Costello,

Re: Computerised Leaal Information Retrieval Svstem

I enclose the following word processing disk (judgment included) for inclusion in the data base of Federal Court Judgments.

1.    In the matter of Eastcoast Holdings Limited A.C.N. 006 715 797 Burns Philp Hardware Limited v. Eastcoast Holdings Limited - VG3184 of 1993 - Single Judge - Jenkinson JJ - Melbourne - 1 September, 1993.

Please return the disk when finished with for further use.

Yours faithfully,

Lois Bendall

Secretary to Mr. Justice Jenkinson