Dewina Trading Sdn BHD v Ion International Pty Ltd

[1996] FCA 749

CATCHWORDS

PRACTICE AND PROCEDURE - whether winding up application is an abuse of process - service of statutory demand on registered office being an office of an accountant no longer acting for company.

CORPORATIONS - whether application to wind up company an abuse of process.

David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265
Bryanston Finance Ltd v de Vries (No 2) (1976) Ch 63
L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd (1982) 7 ACLR 180; 1 ACLC 536
Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287; 12 ACLC 5
Re J & E Holdings Pty Ltd (1995) 36 NSWLR 541
Williams v Spautz (1992) 174 CLR 509
Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559
F P Leonard Advertising Pty Ltd v K D Travel Service Pty Ltd (1993) 12 ADSR 136
Golden Orchid Pty Ltd v Comax Pty Ltd (1995) 58 FCR 113

No. NG 3348 of 1996

DEWINA TRADING SDN BHD -v- ION INTERNATIONAL PTY LIMITED

MOORE J
SYDNEY
24 SEPTEMBER 1996

IN THE FEDERAL COURT OF AUSTRALIA )
  )
NEW SOUTH WALES DISTRICT REGISTRY )      No. NG 3348 of 1996
  )
GENERAL DIVISION                 )

BETWEEN:          DEWINA TRADING SDN BHD

Applicant

AND:       ION INTERNATIONAL PTY LIMITED

Respondent

JUDGE:    Moore J

PLACE:    Sydney

DATE:     24 September 1996

ORDER OF THE COURT

THE COURT ORDERS THAT:

1. The application by ION International Pty Ltd that the winding up application by Dewina Trading SDN BHD be summarily dismissed or stayed as an abuse of process, is dismissed.

1. ION International Pty Ltd pay the costs of Dewina Trading SDN BHD of the application.

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

IN THE FEDERAL COURT OF AUSTRALIA )
  )
NEW SOUTH WALES DISTRICT REGISTRY )      No. NG 3348 of 1996
  )
GENERAL DIVISION                 )

BETWEEN:          DEWINA TRADING SDN BHD

Applicant

AND:       ION INTERNATIONAL PTY LIMITED

Respondent

JUDGE:    Moore J

PLACE:    Sydney

DATE:     24 September 1996

REASONS FOR JUDGMENT

On 4 June 1996 an application ("the winding up application") was filed by Dewina Trading SDN BHD ("Dewina") seeking an order winding up ION International Pty Limited ("Ion"). Dewina is a Malaysian corporation. The winding up application was, in terms, brought under s459P of the Corporations Law and was based on the failure of Ion to comply with a statutory demand, though that failure was not particularised in the application, see s459Q(a).

An interlocutory application made by Ion seeks to have the winding up application dismissed or stayed as an abuse of process ("the interlocutory application").  The interlocutory application is founded on the fact that the statutory demand was served on Ion's registered office, which was an office of
an accountant, and that the accountant had ceased acting for Ion some months prior to the service of the demand.  These essential facts are not in dispute but it is necessary to set out the evidence in some further detail.  It was not in issue that the registered office of Ion was, during the period October 1995 to June 1996, Suite 602, 491 Kent Street, Sydney.

Evidence was given by Mr Stephen Lee who is a chartered accountant and principal of the firm Stephen Lee and Co.  In 1995 he had been doing the accounting work for Ion for 2 to 3 years.  He conducted his practice at Suite 602, 491 Kent Street, Sydney.  In late October 1995, Lee received a letter dated 26 October 1995 from another firm of chartered accountants, McGowan & Smith, indicating that McGowan & Smith had been retained by Ion.  Lee took this to indicate that his engagement with Ion had been terminated.  The letter from McGowan & Smith sought advice as to whether Lee had any objection to that firm accepting the appointment and requested that Ion's files and records be provided to McGowan & Smith if there was no objection.  Lee responded in writing on 10 November 1995 indicating there were no professional reasons why McGowan & Smith should not accept the appointment.  The letter went on to note that the files would be made available when an outstanding account had been paid.

Lee said that it was his expectation that the new accountants would effect a change of the registered address of Ion and that to do so was standard practice.  He made no attempt to do so himself.

Lee said that when served with a statutory demand against Ion, he requested his secretary to ring the solicitors serving the demand, Gillis Delaney Brown, to inform them that his office was no longer the registered office of Ion.  It appears from unchallenged evidence led by Dewina that two statutory demands on Ion were served on the premises of Stephen Lee and Co, the first on 24 April 1996 and the second on 2 May 1996.  The oral evidence of Lee, together with language he used in an affidavit he swore, makes it unclear whether he had such a conversation with his secretary on each occasion a statutory demand was served.  His affidavit speaks of "The Creditors (sic) Statutory Demand" in the singular and what he said in it concerning his response to its service is consistent with only one demand having been served and not two.  During cross-examination he said, in essence, he asked his secretary to telephone Gillis Delaney and Brown on both the occasions a statutory demand was served.  His oral evidence was, however, equivocal.  In his affidavit he goes on to say that when the application initiating the winding up proceedings was served he again asked his secretary to contact Gillis Delaney Brown to inform them that his office was not the registered office of Ion and to collect the documents.  He said she later informed him they had refused to collect the documents.

Evidence was given by Lee's secretary, Ms Suzana Majkovska.  She said in about May 1996 she telephoned the office of Gillis Delaney Brown and informed a person to whom she spoke that the premises of Stephen Lee and Co. were not the registered office of Ion and asked that the documents that had been served on Ion be collected.  She went on to say that in June 1996 she recalls a second conversation with a person at Gillis Delaney Brown in terms almost identical to the first.

Having regard to her evidence, it is probable, in my view, that there were two conversations and not three, as suggested by Lee, between Majkovska and a person at Gillis Delaney Brown.  It is clear from Lee's evidence, and consistent with Majkovska's, that the second conversation related to the documents initiating the winding up application.  It is less clear whether the first conversation related to the first or second statutory demand or both.  The first of the statutory demands was served on 24 April 1995 and the second eight days, and six working days, later.

When giving evidence, Lee gave the clear impression of having been comparatively indifferent to the consequences on Ion of the service of the documents.  He said he did not read them in detail, did not service former clients and did not contact Ion about the matter.  I consider it likely that the first demand was served then the second demand was served and only at that time was Lee moved to do something about it.  I find that it was after the service of the second demand that Lee instructed the secretary to make the call and she did.

Mr Tony Reynolds gave evidence concerning the appointment of his firm, McGowan and Smith, as accountants for Ion.  The appointment took place in October 1995.  At that time he asked his client where it wanted its registered office to be.  He was instructed that it should be at its business premises at 20 Berry Street, North Sydney.  He completed forms necessary to effect the change of its registered office from the premises of Stephen Lee and Co.  These forms were forwarded to Ion for completion in about October 1995.  After the appointment, Reynolds sought to meet with representatives of Ion between November 1995 and April 1996 but a succession of meetings were arranged and were cancelled.

During the course of endeavouring to arrange the meeting he spoke to both Mr Geoffrey Dawes and Mr Robert Ashwood of Ion and reminded them that there were a number of documents he had sent them in October 1995 that needed to be finalised.  Ashwood was then a director of Ion.  He gave evidence that he was told of the statutory demand in late June or the first week in July 1996 and that it then had a week to run on it, that is, there remained a week within which it could be satisfied.  He said he was told this by either Dawes or Mr Mark Davidson who is a solicitor who had been instructed to act for Ion.  Davidson had, for relevant purposes, been retained in late June 1996.  An issue arose about what Reynolds was told about the demand and whether the document he discussed was the demand or the initiating process in the winding up application.  That issue has a bearing on the veracity of evidence given by Dawes.  However for reasons which will be apparent shortly, it is unnecessary to detail evidence of Dawes or Davidson or make findings in relation to it.  It is sufficient to note that there is no evidence of communications between Dawes or anyone else representing Ion, with Gillis Delaney Brown in the period between the time the second notice was served on 2 May 1996 and 23 May 1996, which was the date by which payment had been demanded, nor before the winding up application was filed on 4 June 1996.

The starting point in considering whether an order should be made dismissing or staying the winding up application is the comparatively recent judgment of the High Court in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. The leading judgment was that of Gummow J. The point in issue was whether the power to extend time conferred by s1322(4) of the Corporations Law has application to the twenty-one day period for compliance with a statutory demand found in s459G. The Court concluded it did not. In his judgment Gummow J detailed the relevant provisions of Pt 5.4 of the Corporations Law which are unnecessary to repeat. In so far as the construction of s1322(4) adopted by his Honour might operate oppressively on a company, Gummow J observed:

"No doubt, in some circumstances, the new Pt 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz (30).  However, in an appropriate case, injunctive relief may then be
available to the company in a court of general equity jurisdiction (31)."

The authorities cited by his Honour concerning the last proposition were; Bryanston Finance Ltd v de Vries (No 2) (1976) Ch 63 at 78, 79-80; L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd (1982) 7 ACLR 180 at 183; 1 ACLC 536 at 538; Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287 at 289; 12 ACLC 5 at 6-7; and Re J & E Holdings Pty Ltd (1995)36 NSWLR 541 at 547-548. It is instructive to consider each of those cases and others referred to in these proceedings.

In Bryanston Finance the defendant, a small minority shareholder, sought information from the chairman of the company concerning loans made by the company to the chairman and companies under the chairman's control.  He indicated that if he received no reply, he would present a petition, under s222(f) of the Companies Act 1948, for the winding up of the company.  The company obtained an interlocutory injunction restraining the defendant from petitioning to wind it up on the ground of failure to answer the questions, or on any related ground.  The defendant sought to have the injunction discharged.  Oliver J refused to discharge the injunction and the defendant appealed against that refusal.  Following further events which it is unnecessary to detail, the company sought an injunction restraining the defendant from petitioning for winding it up on any grounds contained in earlier affidavits filed by the defendant in the initial
proceedings.  Again an interlocutory injunction issued on the basis.  An appeal was brought against the issue of the second injunction.  In the passage of the judgment of Stephenson LJ referred to by Gummow J, his Lordship indicated that an injunction restraining the presentation of a petition to wind up a company might be granted if it could be demonstrated that the petition was bound to fail.

In L & D Audio Acoustics, a company contracted to purchase goods from the defendant.  The defendant failed to supply some of these goods.  The defendant commenced proceedings to wind up the company for non-payment of an unrelated debt and the company brought a counter-claim based on the loss suffered as a result of the non-delivery of the goods.  The company sought to restrain the commencement or prosecution of proceedings to wind up the company as an abuse of process which would be likely to cause irreparable injury to the company.

McLelland J identified three situations which might constitute an abuse of process if a creditor institutes proceedings to wind up a company on the ground that it is unable to pay its debts: firstly, the winding up proceedings are bound to fail; secondly, the application is made for some improper purpose; or thirdly, issues will arise in the winding up proceedings of a kind inappropriate for determination in such proceedings.  The plaintiff failed to demonstrate that the institution of proceedings for the winding up of the plaintiff company would be an abuse of process of the court.  As to the second situation his Honour said in L & D Audio Acoustics Pty Ltd (1982) 1 ACLC at 538:

"(2)if the application is made for some improper purpose, e.g. if the applicant is seeking to use the winding up proceedings to coerce a company into paying an alleged debt without affording the company a reasonable opportunity to ascertain or have it established that the debt is properly payable; ..."

In Pacific Communication Rentals the defendant had been an employee, secretary and director of a company.  He resigned and took the company's books of account with him, and then claimed payment of certain amounts.  He served a statutory demand for that amount.  He asserted that he held a lien over the company's books of account.  The company sought an injunction preventing the commencement of winding up proceedings against it based on the alleged failure to comply with the statutory demand.

Brownie J referred to the three situations identified by McLelland J in L & D Audio Acoustics that might constitute an abuse of process in situations where an alleged creditor attempts to wind up a company on the ground that it is unable to pay its debts.  His Honour held, at 289, that although the intention of the drafters of the Corporations Law was to create, in Pt 5.4, a code regulating the winding up of companies and the basis upon which statutory demands might be set aside, some disputes in the second situation identified by McLelland J, namely an application made for an improper purpose, are not covered by Pt 5.4. His Honour noted that in Williams v Spautz (1992) 174 CLR 509, the High Court concluded that the Australian superior courts have inherent jurisdiction to stay proceedings which are an abuse of process, that it is the duty of the court to protect itself against abuse of process, and that the power must extend to the prevention of an abuse even if the moving party has a prima facie case.

His Honour concluded there was an abuse of process in that matter as the defendant had attempted to coerce the plaintiff into meeting the defendant's claim under the threat of winding up proceedings, and did not give the plaintiff an opportunity, within the time fixed by the statutory demand, to ascertain its position.  The company was entitled to an injunction though the defendant was entitled to serve a fresh statutory demand immediately, if it desired.

In Re J & E Holdings Pty Ltd, the New South Wales Court of Appeal dealt with proceedings by summons filed out of time. It was necessary to determine whether an order should be made extending the period for it to apply to the Court, under s459G of the Corporations Law, to set aside a statutory demand. In the course of his judgment Sheller JA, who gave the leading judgment, concluded that Pt 5.4 does not inhibit the Court from exercising its inherent jurisdiction to prevent an abuse of its process by the institution of proceedings for an improper purpose, and referred to Williams v Spautz at 518.  His Honour also indicated that the power might be exercised if the application was served in an unauthorised way.
     In these proceedings, counsel for Ion referred to Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559. The registration of a company, Future Life Enterprises Pty Ltd, had been cancelled in July 1992 pursuant to s574 of the Corporations Law. In August 1993, a Registrar of the Supreme Court ordered that the company's registration be reinstated "only for the purpose of continuing specific litigation in the Supreme Court".  McLelland CJ in Eq had to consider whether the company's registration could be reinstated for limited purposes only.  An issue also arose about the service of a statutory demand on Future Life after its registration had been reinstated.  The demand had been left at the registered office of Future Life, which was a firm of accountants.  That firm returned the demand to the firm of solicitors that had served it and informed them the accounting firm had had no contact with officers from Future Life for many years.

McLelland CJ dealt with the question of whether the demand had been served.  His Honour referred to conflicting views about the effect of the statutory provisions concerning service, which were later considered in David Grant & Co v Westpac Banking Corporation.  His Honour referred to, with qualified approval, and quoted from, the judgment of Santow J in F P Leonard Advertising Pty Ltd v K D Travel Service Pty Ltd (1993) 12 ACSR 136:

"... in F P Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd (1993) 12 ACSR 136; 11 ACLC 1,203. His Honour expressed his conclusion, so far as presently relevant (at 139; 1205) as follows:

"But what is the effect ... of coming to know after postal delivery that the company, no longer resides at the registered office address? ... One line of authority, based on a doctrine of 'fair notice', would suggest that in cases where there is knowledge that the address is 'false' or 'non-existent' then service will not be effective: Re Gasbourne Pty Ltd (1984) 8 ACLR 618; 2 ACLC 103. This has been formulated in different ways including not being 'misled' by the register: Re Otway Coal [1953] VLR 557 at 563. And that it would be an abuse of process to allow judgment in cases, where the [plaintiff] knew that the statement of claim had not come to the attention of the defendant: Deputy Federal Commissioner of Taxation v Abberwood Pty Ltd (1990) 2 ACSR 91; 8 ACLC 528.

But Abberwood can be distinguished.  There the [plaintiff] had independent contact with the directors of the company.  Yet the [plaintiff] told them nothing of the process sent to the registered office and later returned by a subsequent occupant with the notification that the company was no longer at that address.  This was held to be an abuse of process.  That, in my judgment, should be the proper basis for such an exception to the statutory requirement.  Abuse of process underlies the notion of lack of "fair notice".  Here, contrary to the facts in Abberwood, such opportunity for indirect contact was diligently pursued by the plaintiff. There was 'fair notice' - if that be required - and clearly no abuse of process. There is therefore no basis for failing to give full force to the clear words of the two sections of the Corporations Law in deeming service to have occurred."

The qualification is that an abuse of process in the circumstances postulated by his Honour is not strictly speaking an "exception" to the provisions of s220(1) (which would suggest that there has been no effective service) but rather constitutes an over-riding ground for refusing relief notwithstanding that there has been effective service.  This is really implicit in what his Honour says.

In the present case, there is no possible basis for suggesting an abuse of process on the part of Friends' Provident, whose solicitors did all they reasonably could to ensure that fair notice of the statutory demand was given to those in control of the affairs of Future Life."

A similar issue arose in Golden Orchid Pty Ltd v Comax Pty Ltd (1995) 58 FCR 113. A statutory demand has been served on an employee of a shop on the same floor of premises housing Golden Orchard's registered office on 14 February 1995. The employee affirmed to the process server that the premises were the registered office of Golden Orchid. The managing director of the applicant, did not receive the demand until 27 or 28 February 1995. An application was made to set aside the statutory demand on the basis that the demand had not been served.

Sheppard J held there had been good service of the statutory demand at the registered office of the applicant on 14 February 1995. The process server had taken steps to ensure that the statutory demand was left with someone in the building who knew the applicant company.  In the course of his judgment, Sheppard J said at 116-117:

"It is of critical importance, therefore, to ascertain whether the statutory demand was served, as the respondent contends, on 14 February 1995.  If it was not, it seems to me that I should take the view either that the demand has not been served at all or that it was served, at the earliest, on 27 or 28 February when Mr Lee says it came to his notice.

The authorities in this area are numerous.  In the view I take of the matter it is sufficient to refer principally to the decision of McLelland CJ in Eq in Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559. There a statutory demand was left at the registered office of the debtor company which was the office of a firm of accountants. In fact the accountants had had no contact with the company for several years. Mail for the company passed on by the accountants to an address they had been given for the company had been returned unclaimed. His Honour held (at 565) that the service was good because it was effected in conformity with the provisions of s220 of the Law.

There were some other matters dealt with in the judgment including the significance, if any, to be attached to the fact that the creditor was advised by the accountants that they had had no contact with the company for several years.  The question was whether there was an abuse of process.  In the course of his treatment of this question, McLelland CJ in Eq referred to the decision of von Doussa J (when a judge of the Supreme Court of South Australia) in Re Rustic Homes Pty Ltd (1988) 49 SASR 41. His Honour took a different view from that taken by von Doussa J. Here there can be no question of any abuse of process. It was not suggested that there was. The documents did in fact come to the attention of Mr Lee albeit that some two weeks had passed between the time they were served and the time they reached him."

It is clear from the observations of Gummow J in David Grant & Co Pty Ltd v Westpac that the basis on which a Court might stay an application under s459P is limited. It may do so if the winding up application is made for an improper purpose amounting to an abuse of process. The authorities footnoted by his Honour and those referred to by counsel in these proceedings, which I earlier summarised, include circumstances where the abuse of process was not founded or not founded only on the making of an application for an improper purpose. Gummow J's remarks must be taken to have comparatively narrowly defined the class of application under s459P that would not run a course charted by the terms of Pt 5.4. It is to be remembered that if the company the subject of the application under s459P is solvent then, notwithstanding its failure to comply with a statutory demand or have it set aside, the Court may grant leave to oppose the application on a ground that is material to proving the company's solvency: s459S(2) which might, for instance, arise because there was a dispute about the debt founding the demand: s459H(1)(a).

A creditor may serve a statutory demand on the registered office of a company knowing that there was no longer any material or effective connection between the company and the activity carried on at the registered office. Alternatively the creditor may learn of this during the period in which the demand is to be satisfied or subsequently learns of it before an application was made to wind the company up. In those circumstances, it might be inferred that the creditor would have known that the demand would not or had not come to the attention of the company. However even if such an inference is drawn, a subsequent application under s459P might be made for the purpose of having the company wound up in insolvency for a purpose that was not an improper one. Equally, however, circumstances may arise where such an inference can be drawn, and that inferred fact may be one of a number of matters that demonstrate that the application was made for an improper purpose. A creditor who has secured the non-observance of a statutory demand in the circumstances I just described, may seize the opportunity of pressing the company to undertake some act for the creditor's benefit and to do so in the knowledge that the opportunity had passed for the company to apply to have the demand set aside in the manner provided for in Division 3 of Pt 5.4. The creditor may make the application to wind up the company as part of that process. Such an application could, in appropriate circumstances, be characterised as an abuse of process.

However in this matter the evidence does not establish that the winding up application is an abuse of process. Firstly, the evidence does not establish that service of the second demand on the registered office of Ion was effected by Gillis Delaney Brown with any knowledge that the address was of a firm of accountants that had ceased to act for Ion. It may be accepted that, as a result of the phone call of Majkovska, it is probable that Gillis Delaney Brown knew that it was being asserted that the address at which the second, and probably the first, statutory demand was served was not the registered office of Ion. However that assertion was, as a matter of fact, wrong. It is plain Gillis Delaney Brown knew the address of Ion's registered office and would have appreciated that the assertion to the contrary was wrong. The evidence does not establish that they were told anything concerning the termination of the professional relationship between Lee's firm and Ion nor is it probable they reached that conclusion having regard to what they were told. Secondly, even if it had been demonstrated that Gillis Delaney Brown knew the demand was unlikely to come to the attention of Ion then that fact, in the absence of other evidence establishing that the purpose of the application was an improper one, would be insufficient to establish an abuse of process. Gillis Delaney Brown were entitled to rely on the statutory scheme found in Pt 5.4 and there is no suggestion, to this point, that the winding up application was not made in conformity with it.

I dismiss the interlocutory application.

I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Moore.

Associate:  ........ ........ ......
Dated:    24 September 1996

APPEARANCES

Counsel for ION International Pty Ltd:     Mr Lloyd QC

Solicitor for ION International Pty Ltd:   Davidsons Solicitors

Counsel for Dewina Trading SND BHN:       Mr Connell

Solicitor for Dewina Trading SND BHN:     Gillis Delaney Brown

Dates of Hearing:  30 August 1996

Date of Judgment:  24 September 1996