Da Starke Pty Ltd Trading as Starke Lawyers v Yardoo Pty Ltd - [2009] SASC 90

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
DA STARKE PTY LTD TRADING AS STARKE LAWYERS v YARDOO PTY LTD
[2009] SASC 90
Reasons of Judge Withers a Master of the Supreme Court
3 April 2009
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY
Application to wind up in insolvency.
Corporations Act 2001 s 459; Legal Practitioners Act 1981 s 41 and s 42, referred to.
Powell & Anor v Fryer & Anor (2001) 37 ACSR 589; Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376; Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728; Southern Cross Interiors Pty Ltd & Anor v Deputy Commissioner of Taxation & Ors (2001) 53 NSWLR 213; Jarena Pty Ltd v Sholl Nicholson Pty Ltd 19 ACSR 425, applied.
Expile Pty Ltd v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711; Hardel Pty Ltd v Burrell & Family Pty Ltd (unreported, 25 March 2009, judgment no [2009] SASC 77); Legalese Pty Ltd v Russo & Russo (unreported, 3 August 2005, judgment no [2005] SADC 96), considered.

DA STARKE PTY LTD TRADING AS STARKE LAWYERS v YARDOO PTY LTD
[2009] SASC 90

JUDGE WITHERS. By an originating process filed on 24 June 2008 the plaintiff sought an order that the defendant company be wound up for non-compliance with a statutory demand.
The plaintiff is an incorporated legal practitioner. The solicitor in that firm authorised to provide affidavits in this matter is David Ashley Starke. The defendant is a company the shareholders and directors of which are Alfred Yard and Trevor Yard. I will hereafter refer to the plaintiff as Starke Co, to David Starke as Mr Starke, to Alfred Yard as A Yard and to Trevor Yard as T Yard. No disrespect is intended.
A copy of the statutory demand upon which the winding up application was founded is Exhibit “A” to the affidavit of Mr Starke filed on 24 June 2008 – FDN 2. That demand is for an amount of $17,031.00 for legal services in respect of the sale of a farm property known as Hawick. The supporting affidavit of Mr Starke exhibits invoices addressed to A Yard and Yardoo Pty Ltd in support of its statutory demand. The registered owner of one undivided interest in the property is Yardoo. A further one undivided interest in the property is owned by a Mr and Mrs Young.
Yardoo did not apply to have the statutory demand set aside pursuant to s 459 of the Corporations Act 2001 (“CA”). Accordingly, pursuant to s 459C(2) and within the period therein allowed the company is presumed to be insolvent unless the contrary is proved by the company pursuant to s 459C(3).
By an amended application (interlocutory process) filed on 19 August 2008 the company sought that the proceedings be stayed pursuant to s 41(4) of the Legal Practitioners Act 1981 (“LPA”) or alternatively as an abuse of process of this Court. That matter was subsequently argued before me and the application refused: see reasons delivered on 22 August 2008 (FDN 19).
In an earlier action, numbered 395 of 2008 in this Court, Starke Co had applied to wind up Yardoo on the basis of an unanswered statutory demand, again for legal fees but this time in relation to counsel fees incurred in the conduct of what are described as the Victorian proceedings. The statutory demand underpinning Action No 395 of 2008 was for the sum of $234,862.12. A supporting affidavit of Mr Starke exhibited a series of accounts from Mr G A Stevens, barrister, to Starke Co in relation to the Victorian proceedings, the total amount of which was $234,862.12.
In that particular matter the company again did not respond to the statutory demand and proceedings were instituted to wind it up. However, in that case the proceedings were issued outside of the three month’s time limit prescribed by s 459C and accordingly the presumption of insolvency does not apply. In all the circumstances, I found that the issue of a second application (this action) to wind up based on a subsequent statutory demand did not amount to an abuse of process. I also found that the plaintiff was not precluded from so doing by the provisions of the LPA which I will further address later in these reasons.
Since that time the plaintiff has issued yet further statutory demands which are not presently before the Court. One such unanswered statutory demand issued on 3 June 2008 in the amount of $159,541.58, representing legal fees invoiced to A Yard and Yardoo for services in respect of an appeal in the Supreme Court of Victoria, resulted in the institution of a further originating process seeking a winding up order in this Court in Action No 1392 of 2008. That application presently remains adjourned. It has not yet been the subject of any applications by the company in relation to any alleged abuse of process or any alleged entitlement to a stay, having regard to the nature of the claimed debts. It is presently not before the Court.
A further statutory demand was issued on 3 June 2008 for the amount of $69,106.45 evidenced by an invoice directed to A Yard for legal fees related to the Victorian proceedings.
In the present proceedings before the Court, Action No 863 of 2008, two Notices of Appearance were filed by Starke Co in the respective amounts of $69,106.45 and $159,541.58, based on the two statutory demands of 3 June 2008. Those Notices of Appearance have not had to be considered by the Court. I intimated in my reasons of 22 August 2008 at paragraph 18 that it is unlikely that the plaintiff will be given permission to appear as a supporting creditor to itself. In any event, that issue has not been argued.
Against this background and to avoid a winding up order, Yardoo is obliged to prove to the satisfaction of the Court that it is solvent to displace the presumption otherwise created by its non-compliance with the statutory demand served on it on 31 March 2008.
The Law
In considering what is meant by the “insolvency” of a company, the Full Court of South Australia in Powell & Anor v Fryer & Anor (2001) 37 ACSR 589 said (at 600-601):
(1)Whether or not a company is insolvent at a given point in time is a question of fact to be determined by the trial judge. Expert evidence may be of assistance, but it is not conclusive: Sandell v Porter (1966) 115 CLR 666 [at 670-671] (Sandell).
(2)The conclusion of insolvency must be derived from a proper consideration of the company’s financial position, in its entirety, based on commercial reality. Generally speaking, it ought not to be drawn simply from evidence of a temporary lack of liquidity: Sandell Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651. Regard should be had not only to the company’s cash resources immediately available, but also to moneys which it can procure by realisation by sale, or borrowing against the security of its assets, or otherwise reasonably raise from those associated with, or supportive of, it. It is the inability, utilising such resources as are available through the use of assets or which may otherwise realistically be raised to meet debts as they fall due which indicates insolvency: cf Sandell at 670; …
(3)...
(4)It is not appropriate to base an assessment on the prospect that the company might be able to trade profitably in the future, thereby restoring its financial position. The question is whether it, at the relevant time, is able to pay its debts as they become due – not whether it might be able to do so in the future, if given time to trade profitably: Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765 at 769 [Bank of Australasia v Hall (1907) 4 CLR 1514-1528].
The Honourable Justice Besanko in the Federal Court of Australia in Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376 cited with approval a decision of Weinberg J in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728. In that matter Weinberg J said (excluding from the citation the authorities to which he referred):
The authorities which govern the operation of s 459G of the Corporations Law seem to me to establish the following propositions:
* The respondent is presumed to be insolvent and as such bears the onus of proving its solvency: …
* In order to discharge that onus the Court should ordinarily be presented with the “fullest and best” evidence of the financial position of the respondent: …
* Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: …
* There is a distinction between solvency and a surplus of assets. A company may be at the same time insolvent and wealthy. The nature of a company’s assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency: …
* The adoption of a cash flow test for solvency does not mean that the extent of the company’s assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account: …
*The question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored: …
* It is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights: …
Besanko J noted that the foregoing statement of principles had been accepted as the relevant principles by the New South Wales Court of Appeal in Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711. He commented that where a statutory demand has been served and not answered then the company is presumed to be insolvent until the contrary is proved.
The authorities in relation to the insolvency of a company were reviewed by Palmer J in the matter of Southern Cross Interiors Pty Ltd & Anor v Deputy Commissioner of Taxation & Ors (2001) 53 NSWLR 213 where his Honour said (at [54]):
[54] In my opinion, the following propositions may now be drawn from the authorities:
(i)whether or not a company is insolvent for the purposes of the Corporations Act (Cth), ss 95A, 459B, 588FC or 588G(1)(b), is a question of fact to be ascertained from a consideration of the company’s financial position taken as a whole: Sandell v Porter, Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; … and Fryer v Powell;
(ii)in considering the company’s financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable: Sandell v Porter, Taylor v Australia and New Zealand Banking, Re Newark and Sheahan v Hertz.
(iii)in assessing whether a company’s position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency: Bank of Australasia v Hall (1907) 4 CLR 1,514 at 1,528; Re Norfolk Plumbing (at 615; 169); Taylor v Australia and New Zealand Banking (at 784; 811); Guthrie (as liq of ULT Ltd (rec apptd) (in liq)) v Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572 at 575;
(iv)the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand: Standard Chartered Bank v Antico (at 331); Hall v Press Plumbing; Melbase (at 199; 832-833); Carrier (at 253; 777-778); Cuthbertson v Thomas (at 320); Lee Kong (at 112; 1,568);
(v)in assessing solvency, the court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the court’s satisfaction, that:
•      there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or
•      there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or
•      there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors’ terms of trade or are payable only on demand:
Re Newark (at 414-415); Standard Chartered Bank v Antico (at 331); Melbase; Cuthbertson v Thomas; Fryer v Powell (at 444-445);
(vi)it is for the party asserting that a company’s contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence: Fryer v Powell (at 444-445); Melbase; Cuthbertson v Thomas.
Also at issue in this matter is the liability of a client to pay legal costs to his solicitor, and when, in what circumstances, to what extent and at what time that liability arises. This involves a consideration of s 41 and s 42 of the LPA.
Section 41 of the LPA (as amended) is in the following terms:
41—Bill of costs to be delivered
(1)A person cannot bring an action for the recovery of legal costs or appropriate money in or towards satisfaction of a claim for legal costs unless a bill specifying the total amount of those costs, and describing the legal work to which the costs relate, has been delivered to the person liable to the costs either personally, or by post addressed to the person at the person’s last known place of business or residence.
(2)The person liable to legal costs may at any time within six months after delivery of a bill of costs under subsection (1) request the person claiming to be entitled to the costs to provide a statement showing in detail how the amount of the costs to which the bill relates is made up.
(3)A person of whom a request is made under subsection (2) must comply with the request.
Maximum penalty: $750.
(4)Where the defendant to an action for the recovery of legal costs has made a request of the plaintiff under subsection (2), and the plaintiff has not complied with the request, the court must, at the request of the defendant, stay the action until the plaintiff has complied with the request.
Section 42 is in the following terms:
42—Costs
(1)     On the application—
(a)of a person claiming to be entitled to legal costs; or
(b)of a person who is liable to pay, or who has paid, any legal costs,
the Supreme Court may tax and settle the bill for those costs.
(1a)The Supreme Court’s power to tax and settle a bill of costs (but no other power of the Supreme Court under this section) may, subject to any rule, order or direction of the Court, be exercised by the Registrar of the Court.
(1b)Subject to the rules of the Supreme Court, an appeal lies to a judge against a decision of the Registrar pursuant to subsection (1a).
(2)Where an application has been made under subsection (1), the Supreme Court may—
(a)     restrain a person claiming to be entitled to the costs from commencing an action for recovery of the costs; or
(b)     stay any proceedings for recovery of the costs.
(3)     The Court may, on taxation of a bill of costs under this section—
(a)order the refund of any amount overpaid; or
(b)     where the proceedings have been instituted by the person seeking recovery of the costs—order payment of legal costs in accordance with the taxed bill.
(4)The Board may institute proceedings for the taxation of legal costs under this section on behalf of a person who is liable to pay, or has paid, the legal costs and must institute such proceedings if ordered to do so by the Tribunal.
(5)Any court in which proceedings for the recovery of legal costs have been instituted may order the plaintiff to apply to have the legal costs taxed in accordance with this section, and may adjourn the proceedings until the taxation has been completed.
(6)     A legal practitioner may make an agreement in writing with a client for—
(a)     payment of a specified amount by way of legal costs (which may—but need not—consist of a daily, hourly or other time-related rate for professional work carried out by the legal practitioner on the client’s behalf); or
(b)payment of legal costs in accordance with a specified scale; or
(c)     subject to any limitations imposed by the Society’s professional conduct rules or the regulations—payment of a contingency fee to be calculated on a basis set out in the agreement on fulfilment of a condition stated in the agreement.
(7)The Supreme Court may, in proceedings under this section, rescind or vary an agreement under subsection (6) if it considers that any term of the agreement is not fair and reasonable.
It is apparent from s 42 of the LPA that a person against whom a claim for legal costs is made may apply to this Court to tax and settle that bill of costs. No time limit is set on when such an application can be made. Subsection (5) provides that even if an action has been instituted to recover the legal costs, the Court may order the claimant to have the costs taxed in accordance with this section and adjourn those proceedings until the costs have been taxed.
There is no assertion of any costs agreement in writing between Starke Co and any of A Yard, T Yard, or Yardoo. In other words there is no written retainer.
In my view, the scheme of the LPA provides that a legal practitioner must, as a precondition to instituting an action for recovery of costs, render a bill specifying the total amount of the costs and describing the work to which the costs relates. That bill need not be in taxable form. The recipient of that bill has a right, within six months, to seek from the lawyer a statement showing in detail how the bill is comprised. When such a request is made the legal practitioner must supply a statement that enables all items of the claimed costs to be checked against the basis upon which those costs are sought to be charged be that on a specified Court scale or a retainer agreement or on some other basis. It also provides an opportunity to consider the reasonableness of the solicitor undertaking that particular activity. There is an absolute obligation on the practitioner to comply with that request, and if he or she does not so do, then the Court is obliged, at the request of the defendant, to stay the action until the solicitor has so complied.
In this case I found in my reasons delivered on 22 August 2008 that no such request had been made. Accordingly, Yardoo was not entitled as of right to a stay order pursuant to s 41(4). That finding does not preclude the company or its liquidator, if a liquidator be appointed, from seeking that the Court tax and settle the various claims for costs. The failure to respond to a statutory demand does not preclude the defendant company or its liquidator from seeking a taxation of the various claims for legal costs said to be debts of the company. What it does do is create a presumption of insolvency which will result in the company being wound up on the application of the plaintiff unless the company can prove that it is solvent – see the discussion by Kourakis J in Hardel Pty Ltd v Burrell & Family Pty Ltd (unreported, 25 March 2009, judgment no [2009] SASC 77 at [41] to [45]).

The Court was referred to the decision of his Honour Judge Chivell in Legalese Pty Ltd v Russo & Russo (unreported, 3 August 2005, judgment no [2005] SADC 96), where his Honour applied a decision of Walters J in the matter of Costello v The Law Society of South Australia (1979) 83 LSJS 304. Judge Chivell said (at [30]):
What is clear from the authorities is that unless there has been a wavier or an estoppel, strict compliance with s 41 is still necessary before a solicitor may bring an action to recover his fees.
That is so, but compliance with s 41 does not preclude either the person claiming to be entitled to the costs or the person said to be liable to pay them from applying to the Supreme Court to tax and settle the bill for those costs. All it does is create a set of conditions that must be satisfied (if sought) before a solicitor can institute and prosecute proceedings seeking to recover the costs. In my earlier reasons I found that the winding up application did not have the character of proceedings seeking to recover costs but were rather proceedings based on a failure to comply with a statutory demand creating a presumption of insolvency and thereby raising matters of public interest.
In my view, it is almost inevitable that if a solicitor issues a statutory demand for failure to pay an untaxed bill of costs, then the statutory demand will be set aside if the company challenges same by bringing an application under s 459G of the CA. In a somewhat similar situation under the Victorian legislation in the matter of Jarena Pty Ltd v Sholl Nicholson Pty Ltd 19 ACSR 425, Heerey J, in considering somewhat similar costs provisions in the Supreme Court Act 1986 (Vic) on an application to set aside a statutory demand, said (at 427):
Now it is true that there is no “proceeding to recover the costs” in this court brought by the solicitor within the meaning of s 61(4). The only proceeding in this court is one brought by the applicants to set aside the demands. Nevertheless it seems to me that I can and should, for the purpose of exercising the discretion conferred by s 459J(1)(b) of the Law, take into account the policy behind s 61 of the Supreme Court Act, which seems to me that even if a client does not avail himself or herself of the right to request a bill, nevertheless the statute provides a second line of defence should the solicitor take any proceedings. That provision was obviously enacted by the Victorian Parliament with a view to providing protection for clients against solicitors. I think it would be wrong if that protection could be effectively bypassed by utilising winding up proceedings. I will therefore set aside the demands.
The difference in that matter from this is that that was an argument advanced on an application to set aside a statutory demand. This is an application to wind up the company based on a failure to respond to a statutory demand. However, in my view, it supports the proposition that where a solicitor issues a statutory demand based on an untaxed bill of costs to a client, and an application to set aside that demand is made, the provisions of s 41 and s 42 of the LPA are such that the demand would usually be set aside.
The Court has an inherent power to control its officers and a specific statutory power and obligation to take steps to protect consumers of legal services from improper cost claims by solicitors. That involves a certain process, including taxation or adjudication and the practitioner proving any agreement between it and the particular client to provide legal services on a certain basis.
It was argued by counsel for the defendant company that in the present circumstances all that the solicitors were entitled to seek to recover against Yardoo was a quantum meruit, there being no agreement in writing between it and the solicitors. The plaintiff’s solicitors assert that there was an agreement (presumably oral) between it and A Yard, T Yard and Yardoo that it would be paid its fees calculated on the Supreme Court scale. No evidence has been put before the Court to substantiate that agreement or to support that assertion. It is an assertion that seems to be disputed, at least so far as it is suggested that each of A Yard, T Yard and Yardoo are responsible for all of the costs occasioned by the solicitor in providing services to one or other of them in relation to the Victorian proceedings.
The argument raised by the company in respect of the debt in this particular matter is that in any event it was agreed that fees would not be payable until the property Hawick was sold as this would put the company in funds to enable any proper costs due by it to be paid.
The Evidence
Yardoo relied on, and read, a number of affidavits. It also relied on the evidence of an expert, Mr P Holmes, contained in a report of 28 November 2008. Mr Holmes was cross-examined at the hearing. The affidavits relied on were as follows: an affidavit of T Yard filed on 11 July 2008 in Action No 395 of 2008 (FDN 14); an affidavit of T Yard filed on 11 July 2008 in this action (FDN 9); an affidavit of Julia Bidstrup, the present solicitor for Yardoo, filed 21 November 2008 (FDN 23); an affidavit of T Yard filed on 28 November 2008 (FDN 24); an affidavit of Julia Bidstrup filed on 1 December 2008 (FDN 25); and an affidavit of Julia Bidstrup filed on 6 February 2009 (FDN 32).
In addition to the expert report, draft financial statements for A Yard, T Yard and Yardoo for the financial year ended 30 June 2007, were tendered by the plaintiff during its cross-examination of the expert witness.
The plaintiff relied on a number of affidavits with exhibits in opposing the defendant’s assertions that it was solvent. It relied on the affidavit of Mr Starke filed on 21 July 2008 in Action No 395 of 2008 (FDN 16); the further affidavit of Mr Starke filed on 5 December 2008 in this action (FDN 27); and on his affidavit filed on 15 December 2008 (FDN 28). It relied on the cross-examination of Mr Holmes and on the lack of information provided in the 2007 financial accounts for A Yard, T Yard and Yardoo.
The Defendant’s Evidence
T Yard in his affidavit (FDN 14) in Action No 395 of 2008 attests that the accounts forming the basis of the statutory demand in that action relate to the Victorian proceedings, both up to and including the trial and the appeal. He asserts that the company disputes those accounts. There is an assertion that the solicitors provided a firm quote for the preparation and conduct of the trial and that thereafter their accounts far exceeded that amount – see paragraph 10. There is an assertion that an agreement was later entered into with the solicitors that the appeal would be conducted by them and junior counsel on a no-win, no-fee basis but that, notwithstanding that and the failure to win the appeal, the solicitors still rendered an account. He asserts that he asked why he could not be provided with more detailed accounts and that the solicitor said in response “Well it is the way I do it. It’s easier for me” – see paragraph 19.
In his affidavit in this matter filed 28 November 2008 – FDN 24 – T Yard asserts that Yardoo was not represented in either of the Victorian actions but rather only A Yard as plaintiff in one and second defendant in the other. It is apparent that Yardoo was a party to the proceedings in the appeal and a silent and unrepresented defendant in the initial action – see paragraph 11. In paragraphs 6 to 10 of that affidavit he asserts:
6.I separated from my wife Judith Lorraine Yard (“Lorraine”) in December 1997 and proceedings were commenced by her in the Family Court in July 1999 seeking a property settlement and certain maintenance orders.
7.Supreme Court of Victoria Action Number 5151 of 2001 was commenced in South Australia by my ex-wife, and was cross-vested to Victoria in early 2001. The defendants in that action included Yardoo.
8.Supreme Court of Victoria Action Number 4542 of 2001, my father sought certain declarations as to the true ownership of certain property owned by the family partnership and by Yardoo. Yardoo was a defendant in that proceeding. Action Number 5151 of 2001 was heard in conjunction with 4542 of 2001.
9.In 4542 of 2001, the initial relief sought by Lorraine was to restrain Yardoo and the family partnership (which at that stage included Lorraine, my father and me) from dealing with the assets pending the resolution of Family Court proceedings. She then amended the relief sought to include winding up of Yardoo on the just and equitable ground and division of its assets and dissolution of the family partnership and an accounting of its assets. Her claim seeking the above relief was amended prior to the cross-vesting to Victoria.
10.Both matters were heard together and the trial before the Honourable Justice Cummins took approximately 8 days. Mr Greg Stevens, barrister appeared on behalf of my father (as the plaintiff) in 5151 of 2001 and (as the second defendant) in 4542 of 2001.
In FDN 24(f) or Exhibit “TAY6” to that affidavit T Yard exhibits the invoices which he says were received from the solicitors. Those invoices are as follows: 19 February 2007 to A Yard and Yardoo re Victorian appeal $31,239.85; 6 March 2007 to A Yard and Yardoo re Victorian appeal $21,450.00; 2 February 2008 to A Yard and Yardoo re Victorian appeal $159,541.58; 3 May 2004 to A Yard re Victorian proceedings $78,691.04; 29 December 2004 to A Yard re Victorian proceedings $53,695.00; 1 March 2006 to A Yard re Victorian proceedings $71,857.50; 30 July 2007 to A Yard and Yardoo re South Australian proceedings $16,701.00. On my calculations the total of the accounts addressed in part to Yardoo is $228,932.43.
T Yard attests in paragraph 28 of FDN 24 that Yardoo is a passive landholding company with holdings at Murrayville in Victoria and near Bordertown and Keith. The holdings comprise a property Pomona at Murrayville of 1,219 hectares on four separate titles; South Blocks at Murrayville of 1,088 hectares on four separate titles; Carina near Murrayville of 189 hectares on two titles; and Hawick between Keith and Bordertown of 5,905 hectares on three titles, in respect of which property Yardoo has a half interest; and sundry other smaller allotments near Murrayville.
A Mr Wapper provided a valuation of those properties in June 2007. The plaintiff accepts Mr Wapper as a qualified expert. The valuations were as follows: Pomona $910,000.00; Carina $257,000.00; South Blocks $1,227,000.00 and Hawick $1,773,000.00 (in which the defendant had a half-interest).
Mr Wapper in a letter dated 24 November 2008 (Exhibit “TAY10” or Document 24j) revised his valuations to present circumstances. He reduced the value for Hawick to an amount $1.6 million to $1.65 million. As to the Murrayville properties (Pomona and South Blocks) he reduced the value by 10 to 15 per cent from his earlier estimate. The Carina property has been the subject of a contract of sale for $252,000.00, very close to his original $257,000.00.
Accordingly as at November 2008 Yardoo had assets valued as follows:
Pomona$   773,500.00
Carina$   252,000.00 (sold at this price)
South Blocks              $1,042,950.00
Hawick$   800,000.00 (value of half interest)
$2,868,450.00
I have reduced the 2007 values of Pomona and South Blocks by 15 per cent to reflect Mr Wapper’s November 2008 assessment.
T Yard asserted that Yardoo also had the benefit of a water licence but was in a dispute with the Grampians Wimmera Mallee Water Authority as to the amount of water that it was entitled to draw. He acknowledged that it would take quite some time for that dispute to be resolved and any extra value to be attributed to that asset cannot be taken into account for current purposes.
T Yard in FDN 24 at paragraphs 38 to 42 attests that it had been necessary to obtain orders in this Court in Action No 787 of 2007 for the sale of Hawick because of long standing disputes with the other owners M and A Young. Thereafter the property had been listed for auction but did not sell. However, after auction a contract was secured for the sale at $1.75 million which he executed on behalf of Yardoo. The Youngs refused to sign the contract as they wanted $2 million. I note that the order of this Court made on 27 July 2007 is exhibited as “TAY11” to FDN 24, or Document 24k, and that it provides for a Master to determine a sale price if the parties cannot agree same.
T Yard then attests that he and A Yard also own a property at Lobethal known as Paladin which had been earlier valued at $972,000.00 – see Exhibit “TAY9” or Document 24i.
Mr Yard attests that he and his father A Yard had secured a business loan from the Commonwealth Bank of Australia on 16 July 2007 in the amount of $1.22 million for a period of two years. Interest was payable on a quarterly basis at the rate of $10,000.00 per month. The repayment of the loan had been guaranteed by Yardoo with a first registered mortgage being placed over the properties at Carina, South Blocks and Pomona and a first registered equitable mortgage over all of Yardoo’s assets and undertakings. The primary liability was on A Yard and T Yard.
A letter from the Commonwealth Bank dated 27 November 2008 was exhibited as “TAY15” or Document 24o to the effect that the loan facility was operating within its terms. An email from the Commonwealth Bank releasing Hawick from its equitable charge was exhibited to the affidavit of Ms Bidstrup filed on 6 February 2009 as FDN 32C.
T Yard attested in paragraphs 56 to 60 of his affidavit (FDN 24) that the only unsecured debts of the company were the costs of the various legal proceedings, including the cost claims made against it by Starke Co and an intimated costs claim by the solicitors for his former wife, who had been the opposing litigant in the Victorian proceedings. He asserted that the company disputed the liability for some of the costs claimed by the solicitors. He asserted that the company was solvent and that it would be in a position to meet its debts as and when they became due.
The expert witness, Mr Peter Holmes, whose report was tendered for the defendant as Exhibit D1, was cross-examined. His expertise was in providing some evidence as to the amount that the company could expect to be able to borrow, having regard to the value of its landholdings. He described in his report various ratios for loans to assets. However, the difficulty he experienced in providing a completed opinion was that he had not been provided with satisfactory evidence as to the ability of the company or associated entities to meet ongoing payments associated with any loan. This was despite him having requested same soon after his appointment.
Mr Holmes considered the content of Exhibits P1, P2 and P3, which were the prepared draft financial statements for A Yard, a partnership A J and T J Yard, and Yardoo for the financial year ended 30 June 2007. He said that he derived no further comfort from that material that would enable him to express an opinion that by drawing on resources readily available to it the company would be able to meet loan repayments for extra loans. It appeared that A and T Yard had been able to satisfactorily meet the $10,000.00 per month payment required on the Commonwealth Bank loan.
In my view, his evidence added little to the defendant company’s case. He was unable to come to any final conclusion about the capacity of Yardoo to borrow because he lacked adequate information as to the ongoing incomes of the partnership A and T Yard and the directors and shareholders A Yard and T Yard.
It is appropriate to note that the company has not provided to the Court the “fullest and best” evidence that is generally necessary in accordance with the Ace Contracting (supra) decision. Indeed, as much was conceded by counsel for the company at the time that he sought to call T Yard, some short time after the completion of the cross-examination of the expert and after the parties had agreed three statements of fact such that he was not required for cross-examination. The expressed purpose in seeking to call T Yard was for him to provide some further evidence about accessible assets of T Yard and A Yard that had not been earlier disclosed and that would be relevant to the capacity to meet extra loan repayments. Permission to call that evidence was refused. In my view, the company and its directors had had more than ample opportunity to put forward evidence upon which it and they intended to rely to establish solvency. The hearing of the plaintiff’s application to wind up had already been adjourned on several occasions. The issue of solvency had been at the front of the parties’ minds (or should have been) since at least the middle of 2008. The calling of such evidence after the expert had departed, where that expert had been seeking precisely that sort of information from the time he was instructed to provide the report, would work an unfairness or injustice on the plaintiff which may well have necessitated a further adjournment. The application was opposed and refused. It is to be noted that the following three matters were agreed between the parties:
(1)That there are no 2007/2008 financial accounts available for Yardoo, A Yard, T Yard, and the partnership A and T Yard.
(2)That there are no current contracts for the sale of Yardoo land save that the property Carina sold for $252,000.00 with settlement in 30 days – originally valued by Mr Wapper on 15 June 2007 at $257,000.00 – see FDN 24i.
(3)That there are no current loan applications or approvals.
Having agreed those matters the plaintiff no longer sought to cross-examine T Yard.
However, notwithstanding that it is clear that the fullest and best evidence was not presented by the company, the Court must still consider the evidence that has been provided to determine whether it is satisfied that the company has established that it is solvent.
The Plaintiff’s Evidence
In his affidavit – FDN 16 – in Action No 395 of 2008 at paragraph 10 Mr Starke says:
10.Yardoo, Trevor and Gladys were defendants in the Victorian proceedings. It was agreed with Alfred that the real contest in the Supreme Court of Victoria was between Alfred and Lorraine and that Yardoo, Trevor and Gladys would abide the event. It was further agreed that Alfred, Trevor and Yardoo would be liable for Starke Lawyers costs.
No more detailed evidence was provided to support that alleged agreement.
Mr Starke then provided considerable detail as to the Victorian actions. He noted that he had acted as solicitor for the Yards since 1999 in a Family Court Action No 3875 of 1999, in the Victorian Supreme Court Action Nos 4542 of 2001 and 5151 of 2001, and in the Supreme Court of South Australia Action No 787 of 2007. This last action sought orders for the sale of the Hawick property.
The background to the Victorian actions was that A Yard asserted that he was the true owner of land registered in the name of Yardoo. A Yard commenced Action No 4542 of 2001 seeking such declarations in the Supreme Court of Victoria. Action No 1044 of 2000 had been commenced by the estranged wife of T Yard (Lorraine) in the Supreme Court of South Australia seeking entitlements to shares in the partnership and property. This action was cross-vested to Victoria where it proceeded as Supreme Court of Victoria Action No 5151 of 2001.
At paragraphs 74 to 80 of his affidavit – FDN 16 in Action No 395 of 2008 – Mr Starke makes some comments as to the solvency of Yardoo. He asserts that Yardoo was unable to pay its debts as they fell due and asserts that to be supported by the fact that invoices rendered by Starke Co had not been met in accordance with the terms of payment. He asserts that the Yards had difficulty in obtaining a loan from the Commonwealth Bank and that the only way Yardoo could meet its debts would be by selling its property.

Mr Starke asserts in paragraph 80 of FDN 16 that:
… Yardoo has the following actual, contingent and prospective creditors:
80.1.Commonwealth Bank of Australia  $1,220,000.00
80.2.Starke Lawyers, Statutory Demand 30 October 2007         $234,862.12
80.3.Starke Lawyers, Statutory Demand 31 March 2008             $17,031.00
80.4.Starke Lawyers, Statutory Demand 3 June 2008                 $69,106.45
80.5.Starke Lawyers, Statutory Demand 3 June 2008               $159,541.58
80.6.Paul Patterson (previous liquidator)     $19,474.43
80.7.Costs Lorraine Yard   $499,600.00
Total$2,219,615.58
There are additional tax invoices outstanding.
In his affidavit filed in this action on 5 December 2008 (FDN 27) Mr Starke exhibits financial statements of Yardoo and its directors for the financial years ended 30 June 2002, 2004 and 2006 – see Exhibit “DAS-1” or Document 27a.
None of that material is of particular benefit to the company or the solicitors as, in my view, it is out of date and not relevant to the company’s solvency in early 2009.
On 15 December 2008 Mr Starke filed a further affidavit in support of the plaintiff’s position – FDN 28. He sought to respond to the affidavit of T Yard filed 28 November 2008 – FDN 24. In that affidavit – FDN 28 – Mr Starke gives some of the history of the service of statutory demands. I have already traversed this aspect earlier in these reasons. Mr Starke argued in his affidavit that much of the material in Trevor’s earlier affidavit was not relevant to the issue currently before the Court in Action No 863 of 2008. He provided some further detail of the Family Court proceedings and the Victorian proceedings. He accepted that Yardoo did not enter an appearance at the trial in the Victorian action.
Mr Starke then refers in paragraph 11 of FDN 28 to a letter received from Trevor’s former wife’s solicitors claiming an amount of $499,600.00 in respect of her costs of the Victorian proceedings. A copy of that letter was exhibited as Exhibit “DAS-2” to a later affidavit of Mr Starke, being FDN 33 filed on 9 February 2009. The letter discloses a claim for $499,600.00 in relation to both Victorian proceedings including appeals, and puts forward an offer to accept $324,000.00 in full satisfaction of that claim for costs.
An affidavit of Ms Bidstrup, who is the solicitor for the defendant – FDN 25 – filed on 1 December 2008 provides evidence that on 26 November 2008 she had made enquiries of the Supreme Court Registry in respect of the Victorian proceedings and had been advised that no costs judgment or allocatur had been filed and that no bill had been submitted for taxation. The liability of Yardoo in respect of that claim for costs remains yet to be determined. As a non-participant in the original proceedings at trial it is likely to be significantly less than the amount claimed whatever the end liability of A Yard might be in respect of the costs of those proceedings.
Mr Starke argued in his affidavit – FDN 28 – that the costs claimed by the former wife are an actual contingent or prospective debt of Yardoo. I reject that assertion. The extent of Yardoo’s liability for those costs is yet to be determined and that determination is likely to take quite some time. In the circumstances the amount payable by Yardoo is likely to be significantly less than the total amount payable.
Mr Starke attests in paragraph 20 of his affidavit – FDN 28 – that the plaintiff had not received any request from the defendant pursuant to s 41(2) of the LPA to provide a statement in detail of the costs claimed. That does not preclude the defendant from requesting that the fixing of those costs be referred to the Court pursuant to s 42(6) of the LPA. A s 41(2) request was made by the solicitors for Yardoo by letter dated 26 November 2008 – see Document 24g or Exhibit “TAY7” to the affidavit of T Yard filed 28 November 2008.
Mr Starke attests in paragraph 26 of his affidavit that the plaintiff agrees that the properties referred to in paragraph 30 of T Yard’s affidavit – FDN 24 – are properties registered in the name of Yardoo but goes on to assert that each is subject to a registered security in favour of the Commonwealth Bank. That is no longer the case as the Commonwealth Bank has released Hawick from its security. The balance of the securities is by way of guarantee of the indebtedness of A Yard and T Yard to the Commonwealth Bank. He gives further evidence in relation to the water licence but that is not of relevance at the present time.
As to the sale of Hawick Mr Starke asserts that the proceeds of sale are charged to the Commonwealth Bank. That is no longer the case. He refers to difficulties experienced in selling the property. There is, however, little difficulty in identifying the cause for that difficulty. The property was sought to be sold at well over its market value. An order of this Court has already been made that the property be sold. The door has been left open for the sale price to be fixed by a Master and the company is in a position where it can readily take advantage of that order.
In a further affidavit filed on 9 February 2009, Mr Starke exhibited a letter received in relation to the former wife’s solicitors’ legal costs. He also attested that Gladys Yard, the mother of T Yard, had passed away in mid-November 2008 and the executors of her estate would have a claim for a loan repayment from Yardoo. He calculated that loan repayment to be an amount of just over $60,000.00.
As to the draft financial statements produced for Yardoo, which are exhibited to the affidavit of Ms Bidstrup – FDN 32 – filed 6 February 2009 as Exhibit “JB1” or Document 32A, I note that those statements for the year ended 30 June 2007 seem to be on an historical basis. There does not appear to be any accounting within those statements for the properties which are owned by Yardoo. They do demonstrate unsecured loans from A J Yard, G M Yard, T J Yard, J L Yard, B R and C E Yard, and G M, A J and T J Yard. It appears from the evidence that the J L Yard loan was being or had been resolved by way of the Family Court proceedings and the Victorian proceedings. Ms Bidstrup in her affidavit – FDN 32 – attests to a conversation with Mr A Yard confirming that it was not his present intention to call up his loan and there was no written loan agreement. She attests to a similar conversation with T Yard, who advised that the loan to B R and C E Yard was an interest only loan serviced by the partnership and there was a written loan agreement. He also confirmed that it was not his present intention to call up his loan and that there was no written loan agreement.
In his affidavit – FDN 24 – T Yard exhibits at “TAY7” or Document 24g a copy of a letter from his solicitors Cowell Clarke dated 26 November 2008 to the plaintiff raising various issues about the costs invoiced by the plaintiff to the defendant.
The solicitors in that letter made a request pursuant to s 41(2) of the LPA for an itemised account. Whether or not that request is within the six month timeframe set by s 41(2) of the LPA, I take the view that the company can at any time request the Court to implement an adjudication or setting of costs pursuant to s 42(6) of the LPA. That course remains open to it.
In paragraph 58 of his affidavit – FDN 28 – Mr Starke says:
I am concerned that if Yardoo is left in control of the sale process of its properties it will not proceed in a bona fide manner and that after discharge of the CBA mortgages and ASIC charge that Trevor and Yardoo will alienate any excess funds.
Relevant Facts
I find that Yardoo has proved that it is a landholding company with assets and that it has provided current valuations of those assets. Its holdings and a June 2007 valuation of same are properties known as Pomona $910,000.00; Carina $257,000.00 (subject to contract of sale for $252,000.00); South Blocks $1,227,000.00; and Hawick $1,773,000.00 (a half interest). Those valuations were revised by the same valuer in November 2008 to: Pomona $773,500.00; Carina $252,000.00; South Blocks $1,042,950.00; Hawick $1.6 million to $1.66 million. I also find that A and T Yard own property at Paladin valued at approximately $972,000.00 in November 2007. The value of Yardoo’s landholdings excluding Carina amounts to approximately $2.616 million.
A and T Yard borrowed $1.22 million from the Commonwealth Bank in July 2007. The repayment of the debt was guaranteed by Yardoo. The sale of Carina will result in a reduction of that debt by approximately $220,000.00 or thereabouts to approximately $1 million. The initial term of the Commonwealth Bank loan was a period of two years. The Commonwealth Bank has confirmed that the loan is operating within its terms. A and T Yard own a property called Paladin worth approximately $900,000.00 which also is security for the debt. The Commonwealth Bank has released Hawick from any security in relation to that loan.
I find that the property Hawick has a market value of $1.6 million to $1.66 million. I find that there was a contract for its sale for a price of $1.75 million but that the co-owner of the property refused to sign the contract. However, the order of Debelle J of December 2007 is to the effect that the property is to be sold and in the event that there is a dispute as to the sale price, the same is to be determined by a Master. Accordingly, an order for sale is already in existence. A contract was secured at its approximate market value.
There has been a holding out for an amount in excess of market value, which explains the non-sale. The company is in a position in my view to relatively speedily obtain a reserve price fixed by the Court and to thereafter effect a sale. Such a sale should produce to the company at least $750,000.00. In the event that there is some ongoing dispute with the co-owner, it should provide more than adequate funds to enable an amount to be retained in Court pending resolution of that dispute yet still provide in excess of $500,000.00 by way of available funds.
This would still leave the company with its property at Pomona and South Blocks jointly worth in excess of $1.8 million along with sundry landholdings at Murrayville.
In the company’s books there are shown to be a number of loan accounts. AYard and T Yard have attested that they will not call up any money shown to be owing to them for the time being. A further loan account debtor is G Yard, the mother of A and T Yard, who has recently died. There is a loan account debt to her estate of approximately $60,000.00. There is no evidence as to whether that loan is being called up by the estate or not at this time. Other than those debts, the company has guaranteed the borrowings from the Commonwealth Bank by A and T Yard. It is asserted that there is a debt due to a former liquidator (appointed by the Supreme Court of Victoria) of $19,474.43.
The company’s only other unsecured creditors of any note are the legal fees notified by Judith Lorraine Yard, only a portion of which is likely to attach to the company, and the legal fees claimed by Starke Co. The degree to which the company is responsible for those fees and the amount thereof are matters in dispute. The time when they will become due for payment after those disputes are resolved is in my view many months into the future.
The company had little involvement in the original Victorian proceedings, although it was an appellant. It had very little involvement in the trial. The degree to which the company is likely to be responsible for the costs of Ms Yard is as yet uncertain, as is the time when they are likely to become due for payment. In any event, those costs have not been agreed or taxed. A significant amount of time is likely to pass before that potential claim requires some payment by the company. The amount of that payment is not yet able to be determined but in my view it is likely to be a relevantly modest proportion of the claimed costs.
As to the costs claim by Starke Co, those costs are generally disputed. The company’s past reaction to these claims against it by Starke Co has been one of inaction. This has brought it to the position which it now faces. However, the company has a right to seek an adjudication of any legal costs claimed against it and it has a right to defend a claim against it for costs if it asserts that it is not responsible for some part of the claimed costs. That right exists because of the scheme of s 41 and s 42 of the LPA and flows from the inherent jurisdiction of the Court to control and discipline its solicitors and to properly protect the interests of the consumers of legal services.
There seem to me to be significant issues to be determined as to the costs payable on the appeal and as to the trial costs. There has been no taxation of costs nor determination of any agreement to pay costs. It is not possible to say whether the quantum of costs claimed by the solicitors properly reflects the application of the Supreme Court scale or otherwise. No bill in taxable form has been provided.
In my view, it will take some considerable time for the issues on costs to be resolved, which should provide adequate time for the property Hawick to be sold. For that matter it will also provide adequate time for other property to be sold, if need be. It is correct, as the plaintiff asserts, that properties have been on the market for a long time but it appears to me that there has been an attempt to sell the properties at an over-market value. Not surprisingly they have not sold. Carina was sold for an amount very close to valuation. A contract for sale of Hawick was obtained for an amount very close to valuation.
If, however, the defendant company proceeds to sell some or all of its properties at market value then, in my view, there is no reason to suppose that they will not be able to be disposed of within a reasonable period and at about the market values ascribed to them by Mr Wapper.
There is no evidence before me that satisfactorily supports any proposition that the company can borrow money to service any loans. It appears that A and T Yard have access to sufficient resources to meet their present liabilities to the Commonwealth Bank such that Yardoo’s assets are unlikely to be compromised.
In all the circumstances, I am satisfied that the company is solvent and that the application to wind it up should be dismissed.
I will hear the parties as to costs and consequential orders.
I certify fit for counsel.