In the matter of Aquaqueen International Pty Limited
[2014] NSWSC 527
•30 April 2014
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Aquaqueen International Pty Limited [2014] NSWSC 527 Hearing dates: 30 April 2014 Decision date: 30 April 2014 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Pursuant to Corporations Act, s 465B Titan National Pty Limited and Kathryn Wood-Weber be substituted as plaintiff.
Pursuant to s 459R(2) the period within which the application initiated by the originating process herein must be determined be extended to 30 September 2014.
The defendant pay applicant's costs of the interlocutory process.
Catchwords: CORPORATIONS - External Administration - winding up - winding up in insolvency - substitution of plaintiff - where original plaintiff paid out and not proceeding Legislation Cited: (Cth) Corporations Act 2001, s 459G, s 459R, s 465B
(NSW) Legal Profession Act 2004, s 377Cases Cited: CCV Investments Pty Limited v PNTA Aviation Pty Limited (1989) 18 NSWLR 295
Expile Pty Limited v Jabb's Excavations Pty Limited [2002] 194 ALR 138, [2002] NSWSC 851
In the matter C2C Investments Pty Limited [2012] NSWSC 1443
JPQS Pty Limited v Redfern Developments Pty Limited (2009) NSWSC 687
National Australia Bank Limited v Market Holdings Pty Limited (in liquidation) (2001) 37 ACSR 629
Perpetual Nominees Limited v DY2 Pty Limited (2005) 56 ACSR 111
Re DIM Furniture Wholesale NSW Pty Limited (1998) 28 ACSR 407
South East Water Limited v Kitoria Pty Limited (1996) 21 ACSR 465
Tokich Holdings Pty Limited v Sheraton Constructions (NSW) Pty Limited [2004] NSWSC 527Category: Interlocutory applications Parties: Wolfgang Weber (plaintiff)
Aquaqueen International Pty Ltd (defendant)
Titan National Pty Ltd (first applicant)
Kathryn Wood-Weber (second applicant)Representation: Counsel:
Ms Perry (solicitor) (applicants)
Ms Penson (in person) (defendant)
Solicitors:
Pure Legal (plaintiff)
File Number(s): 2013/297134
Judgment (ex tempore)
HIS HONOUR: By interlocutory process filed on 9 April 2014, the applicants Titan National Pty Limited and Kathryn Wood-Weber, who hitherto have appeared in the proceedings as supporting creditors, apply pursuant to (Cth) Corporations Act 2001, s 465B, to be substituted as plaintiffs for the present plaintiff Wolfgang Weber and also, for an order pursuant to Corporations Act, s 459R(2), extending the period within which the application that the defendant Aquaqueen International Pty Limited be wound up in insolvency must be determined to 30 September 2014.
Section 465B provides that the Court may by order substitute as applicants, in an application under s 459P that a company be wound up in insolvency, a person or persons who might otherwise have so applied for the company to be wound up but only if the Court thinks it appropriate to do so because the application has not been proceeded with diligently enough or for some other reason. Section 459R provides that an application for a company to be wound up in insolvency must be determined within six months after it is made, but that the Court may by order extend that period but only if the Court is satisfied that special circumstances justify the extension.
The defendant has been represented in the proceedings before me, again, by its director Ms Penson, to whom I granted leave to appear, having regard to the circumstance that she was permitted to appear for the company in the related proceedings in the Court of Appeal and also in the proceedings before Black J. It should not be assumed this leave will continue indefinitely. There are reasons why the Court insists on companies being represented by lawyers, including that legal representation assists to ensure that attention is focused on the real issues that arise.
The factual background to the present application, though somewhat lengthy, is not really controversial. I will summarise it as follows.
The present proceedings arise out of litigation that commenced in the District Court of New South Wales in which Aquaqueen was the plaintiff and the present applicants and the present plaintiff Wolfgang Weber were the defendants. Those proceedings were heard by Williams DCJ, who on 6 June 2011 dismissed Aquaqueen's claim. On 24 June 2011 his Honour made an order that Aquaqueen and its director Ms Penson jointly and severally pay the costs of the first and second defendants in those proceedings, namely the present applicants, and on an indemnity basis from 26 February 2010, and also that, Aquaqueen pay the costs of the third defendant in those proceedings, the present plaintiff Mr Wolfgang Weber.
Mr Weber obtained a certificate of assessment, which he had registered on 28 November 2012 thus procuring a judgment against Aquaqueen in the sum of $38,484.48. On 30 November 2012, he served a creditor's statutory demand on Aquaqueen for that sum. Aquaqueen made a series of applications in respect of that judgment. It had previously, by a motion filed in the District Court, unsuccessfully sought a stay of the orders made against it in the District Court. On 11 December 2012 Aquaqueen filed a motion in this Court seeking to have the judgment of 28 November 2012 set aside. On 17 December 2012 it applied pursuant to Corporations Act, s 459G, to have the statutory demand set aside.
Those applications were heard by Garling J, who dismissed them on 5 September 2013 [see [2013] NSWSC 1181]. Notice of that judgment before it was delivered was not given to Aquaqueen, because of the use of an incorrect email address, and it was not until some days after the judgment had been delivered that Aquaqueen learnt that its application to set aside the statutory demand had been dismissed. Although there is some uncertainty as to just when Aquaqueen learnt of it, in the light of what has happened since that does not matter for present purposes.
On 12 September 2013, that is to say seven days after the dismissal, the time for compliance with the creditor's statutory demand as extended by Corporations Act, s 459F, expired. Not having been complied with, a presumption that Aquaqueen was insolvent thereupon arose.
Mr Weber on 2 October 2013 filed an originating process in these proceedings claiming an order that Aquaqueen be wound up in insolvency, relying on the presumption of insolvency arising from failure to comply with the creditor's statutory demand. Aquaqueen filed a notice of intention to appear and grounds of opposition on 11 November 2013. The present applicants, Titan and Ms Wood-Weber, filed a notice of intention to appear and, though it is on its face ambiguous, it must be inferred to support the winding up application, on 28 November 2013. They had, in the meantime, also proceeded to assessment of the costs orders made in their favour in the District Court. A certificate of assessment was issued by a costs assessor on 2 September 2013 in the sum of $111,416.95 and released by the Manager Costs Assessment on 1 October 2013.
On 31 October 2013, Aquaqueen and Ms Penson, filed an application for a review of that assessment, and that application was referred to a review panel on or about 5 November 2013. The effect of the referral of the review application to a review panel, pursuant to (NSW) Legal Profession Act 2004, s 377, was that the operation of the costs assessor's determination was suspended. The review panel issued a certificate of determination of the review on 11 December 2013, which was released by the Manager Costs Assessment on 17 January 2014. The review panel affirmed the determination of the costs assessor, and ended the suspension of the costs assessor's determination pursuant to Legal Profession Act, s 377.
In the meantime, on 5 December 2013, and notwithstanding that it would seem that the operation of the certificate was suspended at the time, the present applicants procured the assessor's certificate to be registered in the District Court, and a judgment of the District Court to issue conformably with the certificate.
On 20 January 2014, Aquaqueen and Ms Penson filed in the District Court a summons by way of appeal from the decision of the review panel. That appeal has come before the Court on at least one if not two occasions so far. On at least one of those occasions, the respondents to the appeal, being the present applicants, did not appear. However, no stay has been granted by the District Court of the determination of the costs assessor or the review panel, and an appeal from a costs assessor or review panel's decision to the District Court does not operate as a stay, or suspension unless the court orders that there be a stay which at least so far it has not done.
Meanwhile, Aquaqueen sought leave to appeal to the Court of Appeal from Garling J's decision. That appeal was dismissed by the Court of Appeal on 20 March 2014 [see [2014] NSWCA 101]. The originating process had by that time been before this Court on more than one occasion, and I had adjourned it until after the determination of the proceedings in the Court of Appeal to enable that application to be heard and determined in that Court.
The application for leave to appeal having been unsuccessful, the originating process came before Black J for hearing on 25 March 2014. While many issues were raised in opposition to the winding up application, the principal issue of substance was, as it practically could only be in the circumstances, that of insolvency. His Honour concluded that Aquaqueen had failed to rebut the presumption of insolvency arising from non-compliance with the creditor's statutory demand, and accordingly, his Honour concluded that, all other requisite matters having been established by the plaintiff, a winding up order should be made. However, in order to afford Aquaqueen one last opportunity to do what it then said it would have done had it been given timely notice of Garling J's refusal to set aside the creditor's statutory demand, his Honour stayed the winding up order to enable Aquaqueen to pay the plaintiff's debt. His Honour said (at [28]):
For these reasons, and subject to a significant qualification noted below, an order should be made winding up the company and appointing Mr Mark Hutchins and Mr Robert Kite who have consented to their appointment as its liquidators. The significant qualification is however that it seems to me that there is a case for staying that order for a short period to allow the company to discharge the debt by payment to Mr Weaver or his solicitors if it wishes to do so, so as to place it in the position that it would have been had it received notice of the judgment of Garling J on the day it was given and had the period permitted by s 459F of the Corporations Act to make such a payment after its application to set aside the statutory demand was dismissed.
His Honour recorded that the plaintiff did not oppose the court taking such a course, and emphasised that the orders would take effect if the amount claimed was not paid to Mr Weaver or his solicitors within the period of the stay:
In particular I have made those orders to reflect the opportunity which s 459F of the Corporations Act would have afforded to the company at the point of delivery of judgment by Garling J to make the payment of the amount claimed by the creditor which Ms Penson at one point in submissions suggested the company would have done had it received the email sending it the judgment.
His Honour ultimately stayed the winding-up order until 11 April 2014. When giving judgment on 25 March, his Honour also made an order extending time for determination of the winding-up application to 30 April 2014. In that respect, his Honour simply said:
I will also, for good order's sake, extend the time during which the winding-up application is to be determined to 30 April 2014 since the six month period specified in s 459R of the Corporations Act would otherwise expire in early April 2014.
At the hearing before Black J on 25 March the applicants were represented initially, although not at the later part of the hearing. Ms Penson, on behalf of Aquaqueen, queried their standing and his Honour did not need to resolve it. In the latter part of the hearing, the solicitor appearing for the plaintiff sought to mention the appearance of the supporting creditors, and his Honour observed in the course of discussion and again in the judgment:
I should add that the two supporting creditors who may be associated with Mr Weber, Titan National Pty Limited and Ms Wood-Weber, had filed a notice of intention to appear and the company disputed their right to appear. I should note for completeness that r 2.13 of the Supreme Court Corporation Rules authorises the Court to hear a creditor of a company in an application of this kind in an appropriate case.
In any event the supporting creditors' solicitor was not able to be present to make submissions when the matter had to be adjourned to continue in the afternoon in a busy corporations list and I did not consider it necessary to determine the dispute as to the supporting creditors entitlement to appear when it would have made no difference to the outcome of the application.
I note that Ms Van Munster sought to mention the supporting creditors' appearance in the course of the afternoon as she indicated she had been asked to do.
That was a reference to the circumstance that Ms Van Munster had said at transcript p 25 of 25 March, after his Honour had foreshadowed that he intended to stay the winding-up order:
I mention the appearance of the supporting creditor, there is a supporting creditor in relation to this matter. I advised your Honour's Associate prior to the matter being put down on the last occasion.
His Honour observed that the supporting creditor was not there, that there was a dispute as to their entitlement to appear and that there were enough complexities in the matter without hearing a debate as to the entitlement to appear of a supporting creditor who was not there. His Honour, as recorded in the passage from the judgment which I have referred to above, did not need at that stage to decide any issue concerning the supporting creditor. What is clear, however, is that it must have been evident to all that the supporting creditors were interested and active in the proceedings.
On 28 March 2014, Aquaqueen and Ms Penson filed in the District Court proceedings amended notice of motion claiming a stay of the judgment arising from the certificates of assessment. So far as I can tell, that amended motion is returnable before the District Court tomorrow.
Prior to 11 April, Aquaqueen tendered payment of the amount of the debt to the plaintiff's solicitors. As a result, the matter was re-listed before me on Aquaqueen's application to have the winding-up order set aside. On 9 April 2014, the matter was listed for that purpose and, by consent, I set aside the order that the defendant be wound up. On that occasion, the present applicants appeared and did not oppose the setting aside of the winding-up order, but indicated that they intended to apply to be substituted, as they have now done. I therefore made directions for the filing of the present interlocutory process, pursuant to which the matter comes before the Court today.
As is apparent from s 465B, which I have set out above, on an application for substitution the Court is faced with three main issues. The first is whether the applicant is, in the words of the section, a person who might otherwise have so applied for the company to be wound up. The second is whether it is appropriate to make an order for substitution as referred to in subs (2). The third is a question of discretion: if the first two requirements are satisfied, whether, as a matter of discretion, such an order should be made.
The issue as to whether the applicant for substitution might otherwise have applied for the company to be wound up is to be judged at the date on which the originating process claiming the winding-up order was filed: see Deputy Commissioner of Taxation and Sun Heating Pty Limited [1983] 2 NSWLR 78; (1983) 9 ACLR 314; and Bidald Consulting Pty Ltd and Miles Special Builders Pty Ltd (2005) 54 ACSR 228 where Barrett J, as his Honour then was, said (at [15]):
The important point it seems to me is that in a case such as this involving a presumption of insolvency because of non compliance with a statutory demand the matter of standing as such is to be judged at the time the winding-up application is initiated Re William Hockley Ltd [1962] 1 WLR 555; [1962] 2 All ER 111.
Thereafter the proceeding remains extant for the benefit of any creditor the Court sees fit to allow to pursue it. If the only person seeking to pursue it by the time it eventually comes before the Court for determination is the original plaintiff, but that plaintiff is not then a creditor, the application will be dismissed.
If any person who is a creditor at that time, whether the plaintiff or someone else, then has the ability and standing to press for the making of a winding-up order, the Court will entertain the application and may make the order but that outcome will not be capable of being seen to be the correct outcome until the time fixed for determination of the winding-up application has arrived.
Corporations Act, s 459P, confers standing to make an application for a company to be wound-up in insolvency on, relevantly, "(b) a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor)". As I have said, the originating process for the winding-up order was filed on 2 October 2013, so that is the relevant date for ascertaining whether the present applicants would have had standing to apply for a winding up order. As at that date, they had the benefit of the costs orders made in their favour against Aquaqueen in the District Court proceedings. While those orders were originally for an unquantified amount, those amounts had been quantified by the certificate of assessment dated 2 September and released on 1 October 2014. As at 2 October 2013, therefore, the present applicants were creditors for a sum certain, being the amount certified in the certificate of assessment. The order of the District Court imposed the obligation to pay; the certificate of assessment quantified that obligation. Accordingly, the present applicants must be regarded as creditors as at 2 October 2013.
It is true that the operation of the certificate was suspended between about 5 November 2013 (when the review application was filed) and until at least 11 December and perhaps 17 January 2014 (when the review determination was made and released respectively). Even so, that would leave the present applicants as the beneficiary of the costs order in the District Court, even if it would be regarded as unquantified during the period of suspension. In National Australia Bank Limited v Market Holdings Pty Limited (in liquidation) (2001) 37 ACSR 629, Young J, as his Honour then was, held (at [134]) that the beneficiary of an unquantified costs order was nonetheless a "contingent creditor" for the purposes of s 459P(a). Thus it seems to me that, even if the suspension meant that during the period of the suspension the status of the applicants was reduced to that of the contingent creditors, they nonetheless remained at least contingent creditors and, subject to a grant of leave, would have had standing to bring the proceedings. Once the suspension was removed by the review panel, any question of requiring leave evaporated. There was no requirement for leave as at the date the originating process was filed, since there was no suspension then in force and the amount of the costs had been quantified.
It is of course well established that, as a matter of discretion, the Court will usually not make an order for substitution if the applicant's claimed debt is the subject of a bona fide dispute on substantial grounds: see CCV Investments Pty Limited v PNTA Aviation Pty Limited (1989) 18 NSWLR 295; South East Water Limited v Kitoria Pty Limited (1996) 21 ACSR 465; Tokich Holdings Pty Limited v Sheraton Constructions (NSW) Pty Limited [2004] NSWSC 527; In the matter C2C Investments Pty Limited [2012] NSWSC 1443, [22] and the cases there mentioned.
It must be recognised that, at least in the context of s 459G, it has been accepted that where there is a judgment of a Court it is not open to argue that there is a genuine dispute as to an amount of a debt, even if an appeal is pending from that decision. Even if the view were taken that the application for review of the costs assessments certificate and the application to the District Court demonstrated that there was a dispute as to the quantum of the debt, there is no appeal from or application to set aside the original costs order of the District Court, and it cannot be doubted that there will, as a result of that, be some amount owing by Aquaqueen to the applicants. Accordingly, even if it were open to conclude that there were a genuine dispute as to the quantum of the applicants' debts, their status as creditors is not open to genuine dispute on substantial grounds.
Aquaqueen's submissions and evidence have also referred to some offsetting costs orders in the District Court proceedings and amounts said to be due from the present applicants to Aquaqueen. The onus of establishing a genuine dispute on substantial grounds, even if it were available in the context where there is a judgment registered in the District Court, is on Aquaqueen. While it has pointed to amounts in the vicinity of between $10,000 and $20,000, Aquaqueen has not established that any setoff that it might have would approach extinguishing the amount of the applicants' debt. Accordingly, the first element of which I must be satisfied is established.
The next question is whether it is appropriate to make an order for substitution, either because the application has not been proceeded diligently enough or for some other reason. As Barrett J observed in JPQS Pty Limited v Redfern Developments Pty Limited [2009] NSWSC 687, where the plaintiff no longer presses the winding up application because it has been paid off, it is almost inevitable that this issue must be resolved in favour of the applicant. Here, the plaintiff has been paid off and is no longer proceeding with the application. In those circumstances, the ground in s 464B(2)(a) is plainly satisfied.
The final matter to be considered is the question of discretion, but as that is intertwined with the question of an extension of time and because there would be no utility in making a substitution order if the Court were not prepared to extend time for determination of the application, it is preferable to consider next the application for extension under s 459R.
As I have said, s 459R(2) provides that the Court may extend the period within which an application for winding up an insolvency must be determined only if it is satisfied that special circumstances justify the extension. The concept of special circumstances in this context was considered by Hamilton J in Expile Pty Limited v Jabb's Excavations Pty Limited [2002] 194 ALR 138, (2002) NSWSC 851:
[5] The word "special" is an ordinary English word. The relevant definition of it as used in the present context appears to me to be that given in the Macquarie Dictionary (3rd ed, 1997) as follows:
"6 Distinguished or different from what is ordinary or usual: a special occasion"
The thrust of that definition is that "special" is used in contradistinction to "ordinary" or "common". "Special circumstances" is an expression that has been used in other statutes. One must always bear in mind in an exercise of statutory interpretation that one is interpreting the particular words in the context of the particular statute. However, cases decided on other statutes, whilst they cannot govern the situation, indicate that, where "special circumstances" is used in contexts like the present, it is used in the sense of the definition which I have quoted from the Macquarie Dictionary. Its essential meaning is that it denotes a particular situation which can be regarded as distinguished from the ordinary or common runs of situations. It has been found to bear this meaning in a number of other statutory contexts of a widely varying nature: eg Re Norman (1886) 16 QBD 673 per Lopes LJ at 677; Re Hunter (A Bankrupt), Ex Parte Exclusive English Imports Ltd (In Liquidation) [1954] NZLR 747 per F B Adams J at 754; Clarks of Hove Ltd v Bankers' Union [1978] 1 WLR 1207 per Geoffrey Lane LJ at 1215; Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 per Wilcox J at 225; Lyon v Wilcox [1994] 3 NZLR 422 CA per Casey J at 431; Peninsula Watchdog Group (Inc) v Minister of Energy [1996] 2 NZLR 529 CA per Richardson P at 536.
[6] The other thing that may be said about the meaning of the words "special circumstances" in this context is that there should be no exhaustive attempt to define or list the matters which may come within the rubric "special circumstances" as used here: Re Norman ibid; Springfield Nominees ibid. The discretion is a discretion to be exercised by the Judge on the view that he or she takes of all the circumstances of each case. Having said that, I should emphasise that one feature of s459R(2) is that an order may only be made under the subsection if the Court is satisfied that special circumstances exist and justify the extension. If no special circumstances exist, then that is an end of the matter. If there is nothing that can be characterised as special circumstances, the discretion cannot be exercised. If, however, special circumstances are found to exist, that does not compel or even necessarily authorise the exercise of the discretion. Those special circumstances must be found to justify the extension and whether or not an extension is granted is still within the general discretion of the Court, as emphasised by the word "may", which is the third word in s459R(2).
See also Perpetual Nominees Limited v DY2 Pty Limited (2005) 56 ACSR 111; Re DIM Furniture Wholesale NSW Pty Limited (1998) 28 ACSR 407. The thrust of the reasoning in those cases, and in particular in Expile, is that "special" is used in contradistinction to "ordinary" or "common". Special circumstances need not be unique or extraordinary. Its essential meaning is that it denotes a particular situation which can be regarded as distinguished from the ordinary or common run of situations. There should be no exhaustive attempt to define or list the matters which may come within the rubric of the term. At least ordinarily, the relevant circumstances will relate to why it is that it has not been possible to determine the winding up application within the prescribed six month period.
In this case, the answer to that question is straightforward. First, the proceedings were adjourned on the application of Aquaqueen to permit it to prosecute its application for leave to appeal to the Court of Appeal. Secondly, and perhaps most strikingly, a winding up order was made but then set aside when Aquaqueen ultimately paid out the petitioning creditor after the winding up order had been made. If those do not constitute special circumstances, I cannot conceive of a case that would. I am satisfied that there are special circumstances justifying the extension of the period within which the application for winding up must be determined.
That leaves for consideration under both sections the question of discretion - that is to say, whether ,notwithstanding that ,grounds for making the orders are established, the Court should as a matter of discretion decline to do so.
The most significant consideration in that respect is that Aquaqueen no doubt paid off the plaintiff's debt in the expectation that having done so, the winding up order would be set aside and the proceedings would be at an end. But while that is a significant consideration, however the expectation is more one which was really open to Aquaqueen, in circumstances where the interest of the supporting creditors had been manifest since November last year when they filed their notice of intention to appear, from their presence at the hearing before Black J, initially and from the circumstance that their ongoing interest was mentioned by the solicitor for the plaintiff at the conclusion of the hearing before his Honour. In essence, taking an objective view of what happened on that occasion, it would not have been reasonable to think that the supporting creditors would go away if the plaintiff were paid off.
Moreover, the effect of making the substitution order would not necessarily be to make a winding up order. Aquaqueen will have the luxury of a second opportunity to rebut the presumption of insolvency, with the benefit of the judgment of Black J identifying the inadequacies of its attempt to do so on the last occasion. If Aquaqueen is indeed solvent, then it has an opportunity and judicial guidance as to what it needs to do to establish as much. If it is not solvent, then frankly it should be wound up.
Next, the future course of the proceedings may well be influenced by what happens in connection with the District Court appeal. If the District Court does grant a stay of the costs determination - whether tomorrow or on some later occasion - that would as always be a very weighty consideration in this Court's decision as to whether or not the winding up application should be allowed to proceed, when the debt on which the petitioning creditor relies is a subject of a stay. Generally speaking, if a stay is in force the Court would not proceed to wind up the company. That course is not precluded to Aquaqueen by making an order for substitution. Even if a stay were not granted in the District Court, this Court often, though not invariably - adjourns winding up proceedings to permit an appeal from the underlying judgment to be resolved - just as it did when the application for leave to appeal was before the Court of Appeal.
For all those reasons, it seems to me that the only proper exercise of discretion is in favour of making the orders sought.
Accordingly, the Court orders that:
(1) Pursuant to Corporations Act, s 465B, Titan National Pty Limited and Kathryn Wood-Weber be substituted as plaintiff.
(2) Pursuant to Corporations Act, s 459R(2), the period within which the application initiated by the originating process herein must be determined be extended to 30 September 2014.
(3) The defendant pay the applicant's costs of the interlocutory process.
(4) The originating process be adjourned to 19 May 2014 at 9am in the Corporations Registrars list.
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Decision last updated: 16 July 2014
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