Haagmans v Australian Bight Infrastructure Pty Ltd - [2010] SASC 337

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
HAAGMANS v AUSTRALIAN BIGHT INFRASTRUCTURE PTY LTD
[2010] SASC 337
Reasons of Judge Lunn a Master of the Supreme Court
7 December 2010
CORPORATIONS - WINDING UP
Whether plaintiff has locus standi as a creditor of the defendant to seek its winding up - plaintiff's debt under a default allocatur from the Court on a costs order was made in proceedings pending when the company entered into a deed of arrangement but where the actual order was not made until after that date - held under s 44D(1) of the Corporations Act the plaintiff's debt was not caught by the Deed of Company Arrangement and he has locus standi to seek the winding up.
Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52, applied.

HAAGMANS v AUSTRALIAN BIGHT INFRASTRUCTURE PTY LTD
[2010] SASC 337
JUDGE LUNN:

In Action No 1000 of 2005 in this Court the Friends of Elliston - Environment and Conservation Inc brought proceedings for judicial review against the present defendant, Australian Bight Infrastructure Pty Ltd. On 19 January 2007 Bleby J dismissed those proceedings. The defendant then brought an application against the present plaintiff, who was not a party to the earlier action, that he pay the defendant’s costs of that action. That application was argued before Bleby J on 9 February 2009. On 22 January 2010 the application was dismissed and the defendant was ordered to pay the plaintiff’s costs as adjudicated of the application.
In the meantime, on 1 July 2009 the defendant had appointed administrators. On 21 October 2009 it entered into a Deed of Company Arrangement (“the DOCA”) which made provision for third parties to provide funds for the partial satisfaction of the claims of the defendant’s creditors.
In March and April 2010 there was correspondence between the solicitors for the plaintiff and the defendant’s deed administrators in which the administrators contended that the plaintiff’s claim for costs was a debt provable in the DOCA, but this was disputed by the plaintiff.
On 14 July 2010 the plaintiff served a short form claim for his costs under 6R 271. The defendant did not respond to that claim. On 19 August 2010 the Registrar issued a default allocatur for those costs for $69,651.67. They were not paid.
On 21 September 2010 the plaintiff served a statutory demand under the Corporations Act 2001 (“the Act”) on the defendant. The defendant maintains that it did not receive this demand until well after it had expired. The defendant’s counsel did not dispute that the plaintiff’s evidence duly established that it had satisfied s 109X of the Act in proving due service of the demand.
On 5 November 2010 the plaintiff issued these proceedings seeking the winding up of the defendant under the Act, based on the presumption of insolvency arising from s 459C of the Act and resulting from non-compliance with the statutory demand.
By its appearance, as amended, the defendant opposes a winding up order on the grounds that the plaintiff is not a creditor of the defendant entitled to bring winding up proceedings to enforce a debt, the statutory demand was defective and did not relate to a debt enforceable against the defendant and the defendant is solvent.[1]
[1] I have paraphrased these grounds in the light of the way that the argument developed during submissions.
The defendant sought an injunction to restrain the plaintiff from advertising these proceedings on the grounds that it would be detrimental to its ongoing business activities.[2] The plaintiff has given an undertaking not to advertise for the timebeing. In order to expedite the matter, I directed that various issues be argued before the full hearing of the proceedings in an effort to narrow the issues, and to avoid the defendant incurring the substantial costs of proving its solvency if the proceedings could be determined on other grounds.
[2] I was told the DOCA has now terminated, but apparently after any date relevant to the present application.
Part of the defendant’s submissions on the preliminary issues was that it had a reasonably arguable case that the plaintiff’s claim was a provable debt within the terms of the DOCA and this was relevant to whether the statutory demand would have been set aside if the defendant had taken out an application to do so. The plaintiff disputed that there was any such reasonable argument. The issue is principally one of law which is to be determined on the documents which are already before me. It does not depend upon any disputed facts. Towards the end of submissions I raised with counsel whether the expeditious course was for me now to determine the issue of whether the plaintiff’s claim for costs is barred by the DOCA or not, but subject to the defendant being at liberty to make supplementary written submissions on the point.[3] Counsel agreed I should determine it finally, rather than merely to consider whether the point was reasonably arguable.
[3] It has since notified me it does not wish to do so.
In essence, the point is whether an order for costs made against the defendant company after the commencement of the DOCA[4] in proceedings which were pending between the company and the plaintiff at the commencement date of the DOCA is a provable debt in the DOCA and precludes the plaintiff from now pursuing that claim for costs against the company after the DOCA has terminated. It is not a case where the costs had been ordered before the commencement of the DOCA but had not been quantified by that date, but one where it was unknown at the commencement of the DOCA whether any costs order would be made against the company or not.
[4] There was a dispute whether the relevant date was the commencement of the DOCA or the date on which the defendant entered into administration, but it is not significant here.
Counsel for the defendant argued on a line of cases represented by Environmental Earth Sciences v Vouris[5] and McDonald v Deputy Commissioner of Taxation[6] that the genesis for the order for costs had been sufficiently established at the commencement of the DOCA so that the circumstances giving rise to the debt should be found to have occurred before the relevant date.
[5] (2006) 57 ACSR 629.
[6] 187 FLR 461.
Counsel for the plaintiff relied on the decision of the High Court in Foots v Southern Cross Mine Management Pty Ltd[7] where it was held in relation to s 82 of the Bankruptcy Act 1966 (Cth) that a costs order was not provable in a bankruptcy where that order was made after the relevant date, even though the proceedings had been commenced before that relevant date. While the High Court acknowledged at pp 57-8 that s 82 was narrower than the equivalent provisions of the Act, those differences do not directly relate to such obligations for costs. This decision of the High Court is subsequent to the authorities relied on by the defendant’s counsel. While the High Court did not refer to those authorities, it did criticise in part some earlier English authorities which had been applied in the cases relied upon by the defendant’s counsel. The current author of MacPherson’s Law of Company Liquidation[8] has concluded that Foots’ case is applicable in company windings up and should be followed in such cases until the law on the point is clarified by an appellate court. I agree.
[7] (2007) 234 CLR 52 at 65-6.
[8] Paragraph 12.470.
In clause 2.1 of the DOCA “claim” is defined in extremely wide terms. It is not necessary to deal with the defendant’s submission that the plaintiff’s claim for costs may come within the breadth of this definition. The operation of the DOCA cannot be wider than the power laid down in the enabling section of the Act. Section 444D(1) of the Act provides:
A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed …
The determinant is the breadth of the expression “all creditors” as used in this section. If the DOCA seeks to define creditors in any wider term, that cannot have any legal effect and the defendant did not contend to the contrary. The term “the creditors” for s 444D(1) is not defined in the Act, but counsel for the defendant conceded it meant the same as creditors under s 553(1) for proofs of debt in windings up.[9] Under s 444A(4)(i) of the Act the claim must have arisen before the relevant date.
[9] Lam Soon Pty Ltd v Molit (No 55) Pty Ltd (1996) 22 ACSR 169.
On what I have stated above, Foots case decides that the costs payable under an order made after the relevant date for the winding up are not a provable debt. Thus, I hold the plaintiff’s claim for his costs is not barred by the DOCA and was properly the subject both of the statutory demand and of this action.
Apart from the issue of solvency, this ruling is sufficient to dispose of all of the preliminary points. Even assuming the allocatur of the plaintiff was not a “judgment debt” for the purposes of s 459E(3) of the Act, this statutory demand would not have been set aside under s 459J of the Act if it had also been found that the defendant did not have a reasonably arguable case that it did not owe the costs. My finding above precludes any finding that it was reasonably arguable the costs were not owing.[10] No other ground was put forward to challenge the liability for costs other than that they were a debt provable under the DOCA. It is not necessary to consider whether s 459S of the Act now bars the defendant raising the DOCA as an answer to the claim for costs.
[10] The point should have been raised earlier by the defendant under 6R 271(4) and (6), and if it had done so, it would have been determined before any statutory demand was served. The defendant gave no satisfactory explanation why it did not then raise the point. In not doing so it has brought this action upon its own head.
On the adjourned hearing I will give directions about how and when the remaining issue of solvency is to be dealt with. I will also then hear any argument about whether the proceedings should be advertised before a hearing on solvency.