Gone Farming v Long

[2001] NSWSC 816

CITATION:	GONE FARMING v LONG [2001] NSWSC 816
CURRENT JURISDICTION:	EQUITY DIVISION
FILE NUMBER(S):	SC 2921/2001
HEARING DATE(S):	06/09/2001
JUDGMENT DATE:	7 September 2001
PARTIES :	GONE FARMING PTY LIMITED v PETER JOHN LONG
JUDGMENT OF:	Master Macready at 1

COUNSEL :	Mr J. Duncan for plaintiff Mr C.R. Newlinds for defendant
SOLICITORS:	Mallesons Stephen Jaques for plaintiff Sally Nash & Co. for defendant
CATCHWORDS:	Corporations Act. Application to set aside statutory demand. No matters of principle.
DECISION:	Paras 25 and 27

- 1 -

1   MASTER: This is an application to set aside a statutory demand dated 9 May 2001 served by the defendants on the plaintiff claiming an amount of $232,405.48 described in the following terms:

Description of the debt Amount of the debt

(i) Pursuant to Deed dated 12 December $225,000.00
2000 as approved by Hill J for
which payment was made by a third
party on the company’s behalf but
for which the cheque was
subsequently dishonoured

(ii) Reimbursement of advertising as $ 7,405.48
required pursuant to Deed dated
12 December 2000 as approved by
Hill J for which payment was made
by a third party on behalf of the
debtor but which cheques were
subsequently dishonoured
$232,405.48

2   The plaintiff in this action is the defendant in the Federal Court in proceedings in which a number of farmers have brought a class action against it for what is alleged to be faulty agricultural equipment. The defendant in those proceedings cross claimed against some suppliers to it of equipment and also against the insurer HIH who had refused indemnity. Ultimately indemnity was given by HIH on certain terms. The defendants are solicitors who now act for the applicants and other class members in the class action.

3   On 12 December 2000, Hill J in the Federal Court approved a deed dated that day which established a scheme designed to compensate such of the applicants and other class members who suffered a loss. So far 18 claims in the class action have been settled. Those settlements predated the execution and approval of the deed. A further 16 claims remain to be dealt with by litigation or settlement.

4   I turn to the terms of the deed. The first parties are a number of the plaintiffs in the action. The second group of parties are the partners of Long Howard Houston and Healy Pynt. The partners are in fact named in Schedule 1 to the deed. The third party is CSN Pty Limited who is in fact the applicant in these proceedings. The recitals refer to the terms of the litigation and the fact that the parties have agreed to settle the proceedings by means of a scheme. In Clause 1 there are definition provisions and Clause 1(f) defines costs of the proceedings in the following terms:

“1(f)‘Costs of the Proceedings’ means the party and party costs of the Proceedings including the party and party costs relating to the common issues arising in the Proceedings and managing the claims process established pursuant to the Scheme.”

5   Clause 2 then gives effect to the scheme and incorporates the relevant obligations. The scheme in Schedule 2 applies after approval and creates the obligations to put in place and run the scheme for settlement of actions. Clause 3 includes various covenants to do various things to implement the scheme. Clause 4, which is relevant to an argument about advertising, is in the following terms:

“4. CSN agrees:

(a) to forward to LHH a copy of each Notice of Registration Form lodged with McCullough Robertson.

(b) to pay the costs of advertising or notification of settlement of the Proceedings in compliance with any orders of the Court.”

6   Clause 5 also relates to matters which assist the scheme. Clauses 6 and 7, which are relevant to the arguments before me, are as follows:

“Costs

6. CSN agrees to pay LHH and Healy the Costs of the Proceedings, in a sum and on terms agreed between the parties, or as taxed in default of agreement in accordance with the Rules of the Court.

7. This Deed constitutes the entire agreement of the parties and supersedes all prior understandings, negotiations, agreements, written or oral, express or implied.”

7   There are some other clauses but the deed itself does not contain anything about the implementation of the scheme. That is dealt with in Schedule 2 in the scheme itself. In Schedule 2 in the scheme itself it includes similar provisions about definition of costs and the payment of those costs. The costs in this question, which are the first item in the statutory demand, were submitted under a letter of 13 October 2000. That of course was well prior to the deed and the scheme. Most of those costs predated 1 July 2000 when there is only Mr Long and not the current three partners in the partnership of Long Howard Houston. There were negotiations about the amount of those costs no doubt in the light of the provisions in the deed for agreement on costs. The negotiations started on 22 November when an offer was made and ultimately there was what is clearly a binding agreement between the parties as to what were the amount of the costs. That appears in the final letter and is one of 15 February 2002, and the costs were agreed at $225,000. It is important to realise that the terms of that agreement, which was contained in correspondence between Long Howard Houston and McCullough Robertson, was “inclusive of all outlays and Healy Pynt’s costs”.

8   The plaintiff raises a number of points as giving rise to a genuine dispute and also in a way constituting defects in the demand or the affidavit. It also raises some other reasons for setting aside the demand under s 459J(1)(b). So far as the costs are concerned, it raises a number of matters. First that the costs are all to do with settlement prior to September 2000. Second, that they were due to an earlier version of the firm Long Howard Houston. Third, that they include costs for creditor not party to the demand, namely Healy Pynt, and that there is also a question as to whether there was any agreement to pay from their own monies in contrast to their insurer.

9   It is useful to recall what is in fact the definition of genuine dispute. I have had the benefit of having a number of submissions in respect of the principles to be applied and I think probably the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments in respect of the expression “Genuine dispute”:

“It is, however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s.459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit ‘however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be’ not having ‘sufficient prima facie plausibility to merit further investigation as to (its) truth’ (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or ‘a patently feeble legal argument, or an assertion of facts unsupported by evidence’ (cf South Australia v Wall (1980) 24 SASR 189 at 194).

But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law and to the terms of Division 3:


‘These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.’

In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said:

‘There is little doubt that Division 3 ... prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court’s examination are the ascertainment of whether there is a ‘genuine dispute’ and whether there is a ‘genuine claim’.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple – to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).’
I respectfully agree with those statements.”

10   I deal with the first point which is whether in fact the costs are related to the deed or were for an earlier period. It is apparent from the terms of the deed that it is a deed to put into place a settlement which is executed part way through the litigation. The very terms of the deed and the definition of costs itself obviously must encompass costs which have already been incurred to date. The common issues arising in the proceedings are separated from the managing claims process which is obviously what has to happen after the execution of the deed. Accordingly it seems to me that clearly the costs in question, which were the subject of the agreement, are within the terms of the deed. I do not see how there can be any argument.

11   The next point is whether there is any earlier version of the firm and therefore for some reason the wrong creditor has been joined as in the deed. It is important to notice that in the definition it does not limit the costs by reference to any particular firm, it really talks about costs generally in the action. If there are a number of parties who are entitled to costs then they can all be included. This is because the parties have adopted the terms of Clause 6 which provides for specific payments to LHH and to Healy of the costs of the proceedings. This is a covenant in a deed which does not require support by consideration and indeed it is simply a promise that they will be paid. Accordingly it seems to me that the parties have expressly adopted a mechanism so that the payment will be to the two relevant defined parties.

12   Another point is raised which I have mentioned. It is said that it is not payable because HIH is the one who is make the payments. It is said in some way that there is some estoppel to give rise to the fact that it was HIH who has to pay the costs. There is general evidence of the fact that the parties knew that HIH were the defendants’ insurers and that it participated in settlements in the proceedings. However, the evidence does not give any evidence of representations as to HIH paying the costs. It would seem impossible to imply a term to this effect having regard to the express term which is Clause 6 in the deed. This is all the more so since at that stage HIH was in fact a party to the litigation. If some other arrangement was to be made then one would not have included Clause 6 and the entire agreement in Clause 7. I cannot see any basis at all for the suggestion that there is some claim that HIH is liable. It is of course very unfortunate because as has been established by the evidence in this case (one can almost take judicial notice of the fact) HIH is in liquidation and the chances of recovery are minimal.

13   I will first deal with the reason under s 459J(1)(b) why it is said the demand should be set aside. In general terms it is suggested that because HIH was in liquidation and that the defendant does not have the benefit of insurance, that this, coupled with the fact that there is a rescue package for which the defendant could apply to the Federal Government, are “other reasons”. Firstly, I have a real doubt as to whether that matter could amount to “some other reason” within the terms of s 459J(1)(b). There are some fairly well known categories referred to in the cases. For instance, defective affidavits is a common area as the principles behind the legislation will be defeated if people do not comply with the requirements for affidavits. The other common area is where there is an abuse of process, in the correct use of that term, where a statutory demand procedure has been used for some improper purpose, a not uncommon event. Here the claim seems to be a plea to some general wide discretionary reasons based upon unfairness. I myself doubt these are proper reasons but in any event in this case the evidence itself does not establish that the defendant was not able to, for instance, pay the amount due. There is also the fact that even if it were wound up the liquidator can pursue the claim against the government to obtain indemnity.

14   I turn to one other separate area and that is the claim for advertising. It is said that there is in fact no court order for the payment of that amount of advertising. I have earlier quoted the terms of 4(b) of the deed. A clear reading of that clause indicates that it is the advertising or notification of settlement of the proceedings which is the subject of orders of the court. The proper English construction of the sentence makes it clear that all the first four words do is create an obligation to pay those costs. It is not in any way conditional upon there being an order. It is also suggested because there had been an order for HIH to pay the costs that this was a reason why they were not payable. The fact that HIH might have in some way in proceedings been ordered to pay a certain amount of costs is quite irrelevant to the liability that arises under Clause 4(b). The liability that arises under the deed is separate from any other liability that there might be on HIH. There is nothing which has been put before me that the ordering of HIH to pay in some way novated or abrogated the liability under clause 4(b) the deed.

15   Accordingly it seems to me that there is no genuine dispute but that is, of course, subject to the other matter which I have not dealt with and to which I will now come. It is necessary to address an area where there may be said to be a defect in the demand and that is whether there is a proper description of the creditor in the demand. The demand specifies as the creditor the three named partners in Long Howard Houston. This raises a question as to whether in fact that is the creditor or whether that partnership and Healy Pynt Solicitors are in fact the creditors. If one goes back to the deed and looks at Clause 6, one sees that the words are that CSN agrees to pay LHH and Healy the costs of the proceedings. The question is whether that obligation is owed to LHH and Healy jointly or jointly and severally or indeed severally. In this respect it is important to notice that earlier in the deed, for instance in Clause 2, it specifies obligations severally, in 3 they are specified as joint and several, in 5 joint and several, whereas 6 does not have any specification. The ordinary principle about any specification is that it would be a debt due to two creditors jointly, not jointly and severally. The other thing to note is the factual compromise which was agreed upon which falls within “on terms agreed between the parties” in Clause 6. It is set out in the course of correspondence. The correspondence was between LHH and the defendants solicitors, but obviously LHH was acting on behalf of itself and Healy. In fact, in the estimate one finds included both LHH’s costs and Healy’s costs, and that sum is ultimately compromised down to a figure of $225,000 in a manner which does not distinguish between what is due to LHH and what is due to Healy. There no doubt would be some separate arrangement between those persons as to sharing, but what the correspondence indicates to me is that it is a joint obligation. There are two creditors owed this $225,000 pursuant to Clause 6.

16   If parties jointly entitled to a debt, seek to sue under Part 8 Rule 3, all persons entitled must be joined as parties to the action and the common problem where one person does not want to be joined is solved by making them a defendant under provisions of the rules. However there is reference to a number of cases in the notes to that rule where if a party persists in not joining then the action is dismissed. In Rajski v Computer Manufacture & Design (1981) 2 NSWLR 799, his Honour Needham J dealt with the question as to whether an indemnity had to be offered as the price for joining someone as a plaintiff. The judgment is useful in that he in fact refers to some principles set out in Dicey, Parties to an Action, where he said the following:

“It is my opinion that, as there is no principle of law enshrined in that decision which justifies the headnote or the submissions made on behalf of the third defendant, that is probably sufficient to decide the matter, but I was referred to the decision of Starke J in Australian Workers’ Union v Bowen (1946) 72 CLR 575, at p 586 and following. His Honour said that a cestui que trust was entitled to use the name of his trustee without more but he said (at p 586):
‘... a joint contractor who is made a co- plaintiff without his consent is entitled to an indemnity against his costs.’

17   Further down his Honour said:

‘A joint contractor or joint creditor is in the same position ... Thus it is a general rule that ‘all the persons with whom a contract is made must join in an action for the breach of it.’

18   That is a quotation from Dicey, Parties to an Action, 1st ed, (1870), p 104. He says:

‘But a co-plaintiff whose name is used without his permission is not without protection.

1st. He may obtain an indemnity against costs from the party who makes use of his name; i.e., he may apply to the Court to have such party’s proceedings stayed until he gives security for costs.

2nd. He may release or settle the action.’

19   Further down (p 587) his Honour said:

‘A joint contractor cannot have proceedings stayed if he be given an indemnity. There is no justification for staying an action in such a case on the part of a defendant if the joint creditor does not move.’”

20   If it is necessary for two creditors to sue then clearly there are two creditors in respect of one debt and both of them, both the two firms of solicitors, and by that I mean as presently constituted because that is the proper construction of Clause 6, would have to have made the demand.

21   There is a defect in the demand in that only one has been named in the demand. There is also another defect in that if both are creditors in respect of the one debt, there has been non-compliance with s 459E(2)(f) which requires the creditors to sign the demand. Defects in creditors names certainly can be a defect within the section. These have been dealt with in a number of cases, for instance Macro Constructions Pty Ltd (1992) 10 ACLC 1,722, Scandon Pty Ltd (1996) 14 ACLC 124, B & M Quality Constructions Pty Ltd v W G Brady Pty Ltd (1994) 12 ACLC 970, and Hornett Aviation Pty Ltd v Ansett Australia Ltd (1995) 13 ACLC 613. They would be more matters of misnomer. In a slightly different context his Honour Cohen J in First Line Distribution v Paul Whiley (1995) 13 ACLC at 1218, had to deal with the reverse situation where one creditor issued a demand in respect of a debt for three disparate companies. There his Honour talked about the question of whether there would be substantial injustice in that case, held that there was, and at page 1220 he said the following:

“The form of the demand, having three separate creditors claim a composite debt in one statutory demand, does constitute a defect under s 9 of the Law , although it is not a defect within the examples given in the definition section. I am of the opinion that it is a defect of a nature which will lead to substantial injustice if it is not set aside. A creditor is required, in a statutory demand, to claim the debt in a certain and specific manner, but in the present case, three individual creditors claim one composite amount in a single demand. The company is required by the statutory demand to pay, compound for or secure the amount claimed, but there is no indication as to how the company is to do this where the amount claimed is owing to three different creditors. If, for example, the company discharges its debt to one creditor, it is unclear from the demand whether that payment will affect the debts owing to the other creditors. The recipient of the statutory demand is entitled to know exactly what he or she owes to whom, and how the debt may be discharged. This statutory demand is most confusing, and its defects, in my opinion, are productive of substantial injustice. On this basis, too, the statutory demand should be set aside.”

22   I have heard submissions and indeed I have had further submissions as to whether or not the preliminary reasons I have expressed about the debt being jointly owed to the creditors rather than severally is correct. I was taken to the provisions of Clause 6 that deal with the creditors agreeing otherwise and also referred to the fact that the amount was paid to LHH. The cheque was in fact dishonoured on presentation because of the appointment of the provisional liquidator to HIH. So far as the question of the correspondence is concerned that I do not think really addresses the question as to whom the costs are payable. In fact the correspondence presupposes that the costs are payable to two solicitors even though there is a substantial disproportion between them. The correspondence carefully included both claims so therefore as a matter of liability there is clearly still a joint debt. It may well be that from that correspondence one could infer that the parties agreed that the manner of payment was by a payment to LHH. In those circumstances one would think that the fact that only LHH was referred to in the demand would not create substantial injustice. The agreement between the parties was that it would be paid to LHH thus extinguishing the liabilities to both LHH and Healy.

23   However, it does not, in my mind, get over what is the more difficult matter and that is the breach of s 459E(2)(f), which required the signature of demand on behalf of both creditors. Where one has joint creditors there would seem to be a principle, namely, that the debtor should be entitled to know that both creditors wish to avail themselves of the statutory demand. As it is a joint debt one would have thought that both must agree to adopt the procedure rather than just one of them.

24   In the present case I think it is an important matter and I think there is some injustice even though that is not necessary to set aside the demand. Accordingly I propose to set aside the demand. Accordingly the orders I make are:

25   I make order 1 in the application.

(Application for costs.)

26   In this matter the affidavits set out a number of grounds upon which it was said there was a genuine dispute. The actual point on which I have set aside the demand is one which was only articulated in argument yesterday. In fact I have found against all the applicant’s grounds that were advanced apart from that particular one. I have been referred to Callite Pty Ltd. v Adams (2001) SSWSC 52 which deals with the obvious fact that the matters of law do not have to be set out in the affidavit in support of the application to set aside for it to be a sufficient affidavit. There is however the general principle that has been referred to in a decision of McClelland J in Lindel Constructions Pty Ltd v Basic Bros Plasterering Pty Ltd (unreported) 29 April 1996 where his Honour referred to the fact that where the ground or the nature of the dispute is not made obvious before the action then costs should be against the plaintiff up until such point as the affidavit material made clear what was the dispute.

27   I think the appropriate order in this case is that there be no order as to costs and I make no order as to costs to the intent that each party pay their own costs.

28   The exhibits may be returned.

oOo

Last Modified: 09/19/2001