In the matter of HGC Properties Pty Ltd
[2019] VSC 202
•25 March 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 00247
| KINGSTON & KNIGHT AUDIT PTY LTD (ACN 614 405 211) | Plaintiff |
| v | |
| HGC PROPERTIES PTY LTD (ACN 168 768 661) | Defendant |
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JUDICIAL REGISTRAR: | Hetyey JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 March 2019 |
DATE OF RULING: | 25 March 2019 |
CASE MAY BE CITED AS: | In the matter of HGC Properties Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 202 |
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CORPORATIONS – Corporations Act 2001 (Cth) – s 465B – Winding up application –Application for substitution – Attempted tender of judgment debt refused by supporting creditor – Subsequent payment into Court – Whether genuine dispute about other alleged debts owed to supporting creditor – Whether debts owed to other creditors – Whether substitution of supporting creditor should be declined as a matter of discretion.
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| APPEARANCES: | Counsel | Solicitors |
| No appearance for the Plaintiff | ||
| For the Defendant | Mr M Garrett | JT Lawyers Pty Ltd |
| For the Supporting Creditor | Aitken Partners Pty Ltd |
JUDICIAL REGISTRAR:
Introduction
Set out below are ex tempore reasons for decision delivered on 25 March 2019 which have been the subject of minor revision.[1]
[1]The revisions include editing, correction and re-ordering of some sections of the reasons. The substance of the reasons remains the same.
Pursuant to s 465B of the Corporations Act 2001 (Cth) (“the Corporations Act”), the Court may substitute a supporting creditor as plaintiff in a winding up proceeding. In this case, the supporting creditor refused the defendant company’s payment of a debt owed to it and the money was ultimately paid into Court. The defendant also alleges that further debts said to be owed to the supporting creditor have either been paid or are disputed. Should the Court, in the exercise of its discretion, permit the substitution of the supporting creditor?
Background
The supporting creditor in this matter, Owners Corporation No 1. Plan No 415064K (“Owners Corporation”), is the proprietor of common property located at 1-3 Hughes Road, Chirnside Park, Victoria. The Owners Corporation comprises members who own Lots at that site. HGC Properties Pty Ltd (“the defendant”) is the registered proprietor of a number of the Lots, collectively known as the Heritage Golf & Country Club. There is a recreational centre, maintenance buildings and a waste water treatment plant (dealt with further below) operating on the defendant’s property for the benefit of members of the Owners Corporation (including approximately 150 residents).
In August 2018, the Owners Corporation commenced proceedings against the defendant in the Victorian Civil and Administrative Tribunal (“the VCAT”) seeking payment of certain fees and levies due and payable to the Owners Corporation in accordance with the Owners Corporation Act 2006 (Vic). On 16 January 2019, the VCAT made an order by consent that the defendant pay to the Owners Corporation the principal sum of $235,638.02. A further order was made that required the defendant to pay the Owners Corporation’s costs in the sum of $5,000. Together, those amounts total $240,638.02 (“the judgment debt”). The judgment debt was subsequently registered in this Court for the purposes of enforcement on 13 February 2019.[2] That same day, a statutory demand for the sum of the judgment debt was prepared by the Owners Corporation, although there is some dispute about whether it was actually served on the defendant.
[2]See proceeding number S ECI 2019 00590.
On 23 January 2019, the original plaintiff in this proceeding filed an application under s 459P of the Corporations Act to wind up the defendant in insolvency.
At the first return of the matter on 27 February 2019, the plaintiff was given leave to withdraw from the proceeding on the basis it had been paid its underlying debt. At the hearing, an appearance was announced on behalf of the Owners Corporation as a supporting creditor. Orders were made for any supporting creditor to make an application for substitution by 4 March 2019. The Owners Corporation filed an interlocutory process for substitution under s 465B of the Corporations Act in accordance with those orders. It principally relies upon the existence of the judgment debt as the basis for its substitution.
At the next return of the matter on 13 March 2019, the defendant’s counsel produced a bank cheque and sought to tender it as payment of the entire amount of the judgment debt. Payment was refused by the Owners Corporation, however, the Court ultimately ordered that the bank cheque be paid into Court pending the resolution of the proceeding.
In addition to placing reliance upon the judgment debt, the Owners Corporation relies upon other fees and liabilities said to be owing to it by the defendant. The application for substitution is opposed by the defendant on the basis that the defendant is ready, willing and able to pay the full amount of the judgment debt and any further liability to the Owners Corporation is disputed.
The parties have filed voluminous affidavit material in relation to this application. The affidavits comprise:
a) an affidavit in support of Lyn Ross Boyes QC sworn 6 March 2019;
b) an affidavit of Marika McQuillen sworn 8 March 2019;
c) an affidavit of Tomy Tao Lam affirmed 12 March 2019;
d) a second affidavit of Tomy Tao Lam affirmed 12 March 2019;
e) an affidavit of Robert Caulfield sworn 19 March 2019;
f) a further affidavit in support of Lyn Ross Boyes QC sworn 20 March 2019;
g) an affidavit of Marty Grogan sworn 20 March 2019; and
h) a third affidavit of Tomy Tao Lam affirmed 22 March 2019.
Legal principles
Section 465B of the Corporations Act provides:
Substitution of applicants
(1)The Court may by order substitute, as applicant or applicants in an application under section 459P, 462 or 464 for a company to be wound up, a person or persons who might otherwise have so applied for the company to be wound up.
(2)The Court may only make an order if the Court thinks it appropriate to do so:
(a)because the application is not being proceeded with diligently enough; or
(b) for some other reason.
(3)The substituted applicant may be, or the substituted applicants may be or include, the person who was the applicant, or any of the persons who were the applicants, before the substitution.
(4)After an order is made, the application may proceed as if the substituted applicant or applicants had been the original applicant or applicants.
To succeed in an application for substitution, a supporting creditor is required to show that it was also a creditor at the time the plaintiff filed its winding up application.[3]
[3]See Re Elgar Heights Pty Ltd (No 2) (1985) 3 ACLC 480 and Re Rippon Investments Pty Ltd (1985) 3 ACLC 733.
As I said In the matter of Erfanian Developments Pty Ltd:[4]
The purpose of the substitution procedure in s 465B is to ensure that the winding up application can be continued so that all creditors can take full advantage of the process [Re C2C Investments Pty Ltd (2012) 92 ACSR 266. See also Thomson Reuters, McPherson’s Law of Company Liquidation (5th ed), vol 1 (at Update 59) 3.1040]. There is also a clear policy found in Part 5.4 of the Corporations Act that an insolvent company should be promptly wound up as a matter of public interest [See Kelly v J Stockland & Co Pty Ltd [2007] NSWSC 214 at [11] (Barrett J) and Equititrust [2012] QSC 206 at [90] (McMurdo J)]. It follows that a winding up proceedin[g] is not ordinary inter partes litigation in which a party may pursue or acquire a debt and prosecute an action to recover a judgment. It is a proceeding brought for the benefit and protection of all creditors of the company, including existing and future creditors.
In addition, in exercising discretion to order the substitution of a creditor under s 456B of the Corporations Act, the Court will seek to ensure that the winding up process is not used as a debt collection mechanism.[5]
[4][2018] VSC 342 at [8].
[5] South East Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465.
In the exercise of its discretion, the Court may refuse to allow the substitution of a supporting creditor where the debt relied upon is disputed.[6]
[6]Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in Liq) (2004) 185 FLR 130, 146 [68] (‘Tokich’).
In Re C2C Investments Pty Limited,[7] Black J explained the position as follows (citations omitted):
It is well established that the Court should decline to permit substitution if it finds that the applicant’s alleged debt is the subject of a bona fide dispute upon substantial grounds: … to show there is a bona fide dispute about the debt claimed by the applicant for substitution, the onus is on the company to show that there are clear and persuasive grounds or substantial grounds for the dispute … the standard of satisfaction as to a disputed debt has often been expressed, for the purposes of s 465B of the Corporations Act, as to whether a “genuine dispute” as to the debt existed, and noted that term may well have been borrowed from s 459H of the Corporations Act which deals with the standard of satisfaction in relation to a disputed debt in the context of an application to set aside a statutory demand served on a company.[8]
[7](2012) 92 ACSR 266.
[8]Ibid 272 [22].
Critically, where the Court is satisfied that the relevant debt is genuinely disputed, the supporting creditor will not have standing to prosecute a winding up proceeding under s 459P of the Corporations Act.[9]
[9]See Tokich 148-9 [78]; Re Advanced Controls Pty Ltd [2018] VSC 639 and Farid Assaf, Statutory Demands and Winding Up in Insolvency (LexisNexis Butterworths, 2nd ed, 2012) 451-4.
Tender of judgment debt amount and payment of interest
As a consequence of the defendant’s non-compliance with the plaintiff’s statutory demand dated 4 December 2018, the defendant is presumed insolvent pursuant to s 459C(2)(a) of the Corporations Act. Further, the Owners Corporation, as supporting creditor and applicant for substitution, is entitled to rely upon that presumption of insolvency so long as it was a creditor at the time the plaintiff filed the winding up application.[10]
[10]See Earthwave Corporation Pty Ltd v Starcom Group Pty Ltd [2011] NSWSC 694.
The defendant concedes, and I am satisfied on the evidence before me, that the Owners Corporation was plainly a creditor at the relevant time by reason of the judgment debt. However, the question arises as to whether the defendant’s attempt to tender payment of the judgment debt, together with its payment of that amount into Court, means that the Owners Corporation should be prevented from being substituted as plaintiff.
The director of the defendant, Mr Tomy Tao Lam, deposes that on 26 February 2019 he attended at the office of the manager of the Owners Corporation and handed to a branch manager a bank cheque for the sum of the judgment debt. After consulting with the Owners Corporation’s lawyers, the branch manager returned the cheque to Mr Lam.
The chairman of the Owners Corporation, Mr Lyn Ross Boyes QC, has given evidence that tender of the amount of the judgment debt has been refused for the following reasons:
a) other amounts are owing to the Owners Corporation by the defendant;
b) the defendant has a history of non-payment of the amount the subject of the judgment debt;
c) the Owners Corporation is aware that the defendant has other creditors to whom it owes various sums; and
d) the Owners Corporation is “extremely concerned” about the management of the defendant.[11]
[11]Affidavit of Lyn Ross Boyes QC sworn 4 March 2019 [17].
On an appeal from a winding up order, the New South Wales Court of Appeal in Australian Mid-Eastern Club v Yassim[12] relevantly held that:
There is ample authority that the proffering of cash or its equivalent in the full amount demanded constitutes a valid tender, even if proffered “without admissions” or “under protest”, provided only it is unconditional: see Scott v Uxbridge and Rickmansworth Railway Co(1866) LR 1 CP 596; Sweny v Smith(1869) LR 7 Eq 324; Greenwood v Sutcliffe[1892] 1 Ch 1 and Burnham v Carroll Musgrove Theatres Ltd (1928) 41 CLR 540 at 558 per Isaacs J….If a valid tender be made, a refusal of that tender (whether for good or bad reason, or for no reason at all) does not eliminate the debt in question. The relationship of creditor and debtor still subsists. The tender is no answer to a claim for the debt unless (as did not happen here) there is a continued readiness to pay, coupled with an actual payment into court: see Halsbury's Laws of England, vol 8, 3rd ed, Butterworths, para 289, p 169.[13]
[12](1989) 1 ACSR 399.
[13]Ibid 403. See also Alcatel Australia Ltd v PRB Holdings Pty Ltd (1998) 27 ACSR 708, 713
The object of a tender is not to end all controversy between the parties but to “throw the risk of further controversy upon the other party”.[14] So long as a defendant is able to show that he or she was willing to unconditionally pay the entirety of an amount falling due, then tender will be effective.[15]
[14]Greenwood v Sutcliffe [1892] 1 Ch 1 (”Greenwood v Sutcliffe”) at 10 (Lindley LJ), followed in Burnham v Carroll Musgrove Theatres Ltd (1928) 41 CLR 540 (”Carroll Musgrove Theatres”) at 558 (Isaacs J).
[15]Dixon v Clark (1855) 136 ER 919; Greenwood v Sutcliffe at 10; Carroll Musgrove Theatres at 558.
Here, the defendant made an unconditional tender of the entire judgment debt and later paid that sum into Court. In addition, the defendant made payments to the Owners Corporation in respect of interest on the judgment debt on 26 February 2019 and 12 March 2019 for the sums of $2,679 and $923, respectively. The second of these payments constitutes notional interest which has accrued during the period in which the Owners Corporation refused to accept tender of the amount of the judgment debt.
There is a suggestion by Mr Boyes QC, that these recent payments are associated with one of the lots owned by the defendant (Lot S11) upon which the water treatment plant is located and in respect of which the defendant has another alleged liability to the Owners Corporation. However, it seems clear that these payments are for sums which equate to interest on the judgment debt. On the Owners Corporation’s own evidence, the judgment debt relates, at least in part, to Lot S11. There is also no suggestion that these payments have been returned.
I am satisfied on the evidence that the defendant has established it has been ready, willing and able to pay the entire amount of the judgment debt, together with interest, without condition. It has demonstrated valid tender in respect of these amounts. The question then arises as to whether the Court should, as a matter of discretion, decline to substitute the Owners Corporation in respect of these debts.[16]
[16]In the matter of Denham Constructions Pty Ltd [2016] NSWSC 948 at [9].
In Denham Constructions, Black J considered an attempted tender by a defendant and held that because of the potential for the payment to constitute a voidable transaction, the applicant for substitution had not acted unreasonably in refusing it.[17] Accordingly, the supporting creditor was, as a matter of discretion, substituted as plaintiff. However, in Nationwide Produce Holdings Pty Ltd (in Liq) v Franklins,[18] Barrett J came to a contrary view. There, his Honour said as follows:
The plaintiff says that it was proper for it to decline to accept payment because of a fear that it would be receiving what turns out to be a preference. That is for the plaintiff to decide. It would be in no worse position if it accepted and was later forced to disgorge. There is nothing compelling a creditor somehow to remain pure by shunning a payment in respect of which there exists some theoretical future possibility of its proving to be preferential. A normally motivated creditor would be inclined to accept such a payment conscious of any risk of disgorgement, and with fingers crossed to the extent indicated by the circumstances.[19]
[17]Ibid [9]-[10]; See also Occidental Life Insurance Co of Australia v Life Style Planners Pty Ltd (1992) 38 FCR 444.
[18][2001] NSWSC 1120.
[19]Ibid [9].
That case involved an application by a creditor for the appointment of a provisional liquidator to a defendant company. The tender and payment of an amount into Court by the defendant was sufficient for Barrett J to conclude that the plaintiff had likely lost its standing as creditor.[20]
[20]Ibid [8].
Justice Barrett’s conclusion in that regard was doubted by Austin J in Australian Beverage Distributors Pty Ltd v The Red Rock Co Pty Ltd.[21] Instead, the Court preferred the analysis that tender and payment into Court constitutes a defence to an action in debt, thereby protecting the debtor from a claim to interest or damages, but does not eliminate the debt itself.[22]
[21][2008] NSWSC 3 [28].
[22]Ibid. See also LexisNexis, Halsbury’s Laws of England, vol 22 (at March 2019) 524 Contract, ‘8 Discharge of Contractual Promises’ [538]-[539].
There also is a line of authority which suggests that if the amount of a statutory demand is paid after winding up proceedings have commenced, the question of whether a winding up order should be made or whether the proceeding should be dismissed is a matter of discretion.[23] Further, in Timms v Dellaplus Pty Ltd, Burley J found that there was no distinction between: (a) payment of the amount of a statutory demand before a winding up order is made; and (b) payment of the amount of a statutory demand into Court coupled with a continued willingness to pay the same in discharge of the indebtedness.[24]
[23]See De Montfort v Southern Cross Exploration NL (1987) 17 NSWLR 468, 471 (Needham J); Australian Beverage Distributors Pty Ltd v The Red Rock Co Pty Ltd (2007) 213 FLR 450, 458-9 (White J); Timms v Dellaplus [2008] SCSC 61 (“Timms v Delleplus”) (Burley J) [47].
[24]Timms v Dellaplus [47].
The Owners Corporation’s reasons for refusing the defendant’s tender are relevant to whether it has acted unreasonably. The defendant’s history of non-payment, the alleged existence of debts owed to the Owners Corporation and other creditors and the apparent involvement of the defendant’s director, Mr Lam, in a litany of now liquidated entities which have either owned the property of the Heritage Golf & Country Club or operated its business, go some way to explaining the Owners Corporation's reluctance to accept the payment.
I am of the view that even assuming the Owners Corporation has not acted unreasonably in refusing to accept the tender, as a matter of discretion and having regard to all of the surrounding circumstances, it should not be substituted as plaintiff in reliance upon the judgment debt. That is because the defendant: (a) has sought to tender the amount of the judgment debt; (b) has paid that amount into Court; (c) remains willing to discharge the judgment debt; and (d) has paid the resulting interest. Had the Owners Corporation been the original plaintiff in this matter, the authorities I have referred to above suggest it would have been within the Court’s discretion to dismiss the winding up proceeding in the absence of any other supporting creditor coming forward. There seems to be no reason in principle why the Owners Corporation as an applicant for substitution should be treated any differently in the present circumstances.
Aside from giving context to the Owners Corporation’s refusal of the tender, I am also of the opinion that the pattern of non-payment by the defendant and Mr Lam’s alleged association with the ownership and management of the Heritage Golf & Country Club by various other failed companies are not matters which should be accorded any significant weight in the exercise of the Court’s discretion. The winding up application was brought against this defendant company and not against any related entities. Similarly, the defendant’s historic failure to pay the amounts the subject of the judgment debt is a matter which should properly be viewed in light of an alleged offsetting arrangement entered into between the defendant and the Owners Corporation (to which I will return). The defendant’s actual payment of the amount into Court should be accorded greater weight in the balancing exercise.
The existence of other potential creditors is a discretionary factor dealt with later in these reasons.
I will now consider whether the additional liabilities said to be owed by the defendant to the Owners Corporation have been paid or are genuinely disputed.
Further alleged liabilities to the Owners Corporation
Additional fees
In his first affidavit of 4 March 2019, Mr Boyes QC states that the Owners Corporation is owed further fees by the defendant since October 2018 (after the commencement of the VCAT proceeding). Reliance is placed on a document styled “Owner Arrears Report” which bears the date of 4 March 2019.[25] However, in his affidavit of 12 March 2019, Mr Lam suggests that it is unclear:
[25]See exhibit LRB-01 to the affidavit of Lyn Ross Boyes QC sworn 4 March 2019.
a) what amounts are said to be owing by the defendant in respect of what Lots and for what periods;
b) whether the further fees sought by the Owners Corporation are, in fact, partly covered by the judgment debt which, it will be recalled, was given on 16 January 2019;
c) whether some of the further fees sought relate to the period commencing 1 April 2019 and are therefore not yet payable; and
d) whether the amounts constitute interest on the judgment debt, including interest accruing during the period the Owners Corporation refused to accept payment (noting that the amount of the judgment debt has been paid into Court and all interest is also said to be paid).
In any event, Mr Lam deposes that on 29 December 2018 he made an electronic payment of $13,197 to the Owners Corporation on behalf of the defendant in respect of levies payable for the period 1 January 2019 to 31 March 2019. Mr Boyes QC’s further affidavit of 20 March 2019 does not contest or otherwise address Mr Lam’s evidence in this regard. Nor does it appear that this payment was refused or returned.
There is an obvious lack of clarity about the amounts claimed in the Owner Arrears Report. The precise amount of those additional fees and levies is not made clear in either that document or in the affidavit material relied upon by the Owners Corporation. Accordingly, to the extent that any fees and levies claimed to be owing to the Owners Corporation have not now been paid by the defendant, I am prepared to proceed on the basis that there is a bona fide dispute about whether those further fees or levies are presently owing.
In addition, the defendant is in receipt of a further set of invoices issued on behalf of the Owners Corporation on 25 February 2019.[26] The invoices each contain a “brought forward balance” for each Lot, together with interest. However, the only identifiable item claimed in the 25 February 2019 invoices is described as “Legal Fees for Debt Collection Due and payable by 25/03/2019”. The combined total of the legal fees claimed in these invoices is $52,924.79. Whilst not explicitly referred to in the Owners Corporation’s affidavit material as a further liability owing to it, it is unclear on what basis this claim for legal fees is made. It will be recalled that the VCAT made a costs order in favour of the Owners Corporation for the fixed sum of $5,000 only. However, at the hearing, the Owners Corporation confirmed it does not rely on these legal costs in support of its application.
[26]See exhibit TL-19 to the affidavit of Tomy Tao Lam sworn 12 March 2019.
Having regard to those matters, it is unnecessary to consider those legal costs any further at this stage.
Waste water treatment plant
As previously mentioned, there is a waste water treatment plant ("WWTP") located on Lot S11 which is part of the land owned by the defendant. The WWTP is operated for the benefit of the defendant and other members of the Owners Corporation.
The defendant ultimately came to purchase the relevant land, including Lot S11, from the liquidator of the earlier owner, GHG Services Pty Ltd ("GHG"). Mr Boyes QC has explained that as successor in title to the earlier owner, the defendant assumed obligations under a pre-existing Service Agreement for the management of the WWTP. Further, under the terms of the Service Agreement, the defendant is said to be obliged to make an annual payment into a trust account of $10,000 to cover the future replacement of plant and equipment associated with the WWTP. The annual payment is to be indexed by the greater of 3% or the Consumer Price Index.[27]
[27]See clauses 1 and 2 of section E of the Service Agreement found at exhibit TL-10 to the affidavit of Tomy Tao Lam sworn 12 March 2019.
The Owners Corporation alleges that the defendant only made three annual payments under the terms of the Service Agreement in respect of the 2012, 2013 and 2014 years but no subsequent payments. It also alleged that at some point between July 2014 and July 2015, the defendant withdrew, without authority, all of the money it had paid into the trust account (the sum of $30,909). The net amount said to be owing by the defendant in respect of the fund is $76,742.96. Apparently, this deficit has meant that certain essential repairs to the WWTP cannot be attended to. Mr Boyes QC also states that the Owners Corporation has withheld certain payments owed to the defendant under the Service Agreement on the basis that the defendant is in breach of its obligations to operate the WWTP.[28]
[28]See para 59(b) of the affidavit Mr Boyes QC sworn 4 March 2019.
In his affidavit of 12 March 2019, Mr Lam identifies a provision of the Service Agreement which requires the Owners Corporation to pay to the defendant an annual management fee, adjusted each year by reference to particular charges imposed by the relevant water authority[29] (for the year ended 30 June 2012, the management fee was $121,169, excluding GST). Mr Lam explains that, in practice, the defendant's annual trust account payment was sourced from the Owners Corporation's payment of the management fee. In addition, the amount of the defendant's annual management fee often exceeded the defendant's liability to pay levies to the Owners Corporation. Importantly, Mr Lam also alleges that an offset arrangement was reached between the parties whereby the Owners Corporation levies payable by the defendant were offset against the annual management fee payable by the Owners Corporation. On this basis, apparently neither party initially made payment to the other until the arrangement was abandoned by the Owners Corporation. Mr Lam says that the defendant's failure to make payments into the trust account for the upkeep of the WWTP must be viewed in the context of this previous offset arrangement.
[29]See clauses 1 and 2 of section C of the Service Agreement found at exhibit TL-10 to the affidavit of Tomy Tao Lam sworn 12 March 2019.
In his supplementary affidavit of 20 March 2019, Mr Boyes QC, points to a number of further alleged breaches by the defendant including a failure to render tax invoices for the annual management fee. Whilst he does not specifically concede the existence of an offset arrangement, he does say that, in the usual course, the annual service fee would have exceeded the Owners Corporation's levies. As a consequence, the Owners Corporation “made payments referrable to the WWTP by agreement given that the [d]efendant was unable to pay the same”. He then goes on to state that “[o]f the invoices paid by the [Owners Corporation] on behalf of the [d]efendant, $228,701.30 remain[s] unpaid by the [d]efendant".[30] A spreadsheet has been proffered which itemises invoices paid by the Owners Corporation on behalf of the defendant.[31] Whilst Mr Boyes QC’s affidavit suggests this constitutes a further liability of the defendant to the Owners Corporation, at the hearing, the Owners Corporation confirmed that it does not rely on this amount as an additional debt owing to it.
[30]See para 37 of the affidavit of Mr Boyes QC sworn 20 March 2019.
[31]See exhibit LRB-20 to the affidavit of Mr Boyes QC sworn 20 March 2019.
Mr Boyes QC also clarifies his earlier evidence to explain that the $30,909 apparently withdrawn by the defendant from the trust fund without authority was in fact paid to the defendant by the liquidator of GHG. He also notes that the amounts due to be paid by the defendant under the Service Agreement for the years ending 2014, 2015 and 2016 were paid by journal entries.
The evidence of the parties concerning the operation of the WWTP and the Service Agreement set out above is conflicting in places and confusing in others. Taken as a whole, the evidence also reveals a bona fide dispute on substantial grounds in relation to the following matters:
a) whether, in the absence of any formal novation as between the defendant and GHG, the defendant and the Owners Corporation adopted the Service Agreement by convention (in whole or in part);
b) the extent to which the Service Agreement currently applies as between the defendant and the Owners Corporation;
c) whether an offset arrangement apparently entered into by the parties entitled the defendant to withhold making its annual trust account payments;
d) whether the defendant owes outstanding trust account payments and, if so, for what amount (noting that the Owners Corporation concedes journal entry payments were made in recent financial years);
e) whether any such obligation gives rise to a debt as between the Owners Corporation and the defendant;
f) whether the defendant has an obligation to repay to the trust fund the $30,909 paid to it by the liquidator of GHG;
g) whether the Owners Corporation has appropriately withheld annual management fees from the defendant;
h) whether the defendant was required to render tax invoices before the Owners Corporation was obliged to pay the annual management fee or whether any such requirement was overtaken by the parties entering into the alleged offset arrangement;
i) whether the non-payment by the Owners Corporation of the annual management fee to the defendant rendered the defendant unable to make trust fund payments;
j) whether the defendant owes the Owners Corporation for invoices apparently paid on its behalf and, if so, for what amount and on what basis (eg: under a specific provision of the Service Agreement or otherwise); and
k) the construction and operation of the Service Agreement generally, including the interrelationship between its various provisions.
It is difficult to see how these questions are capable of being resolved in the absence of a contested hearing on the merits. However, that is clearly not the purpose of the application before the Court today.
Other creditors
The extensive affidavit material relied upon by the parties involves much consideration of whether the defendant presently owes debts to a number of other creditors including: Caulfield Krivanek Architects Pty Ltd; Best Advisors Pty Ltd; Yarra Valley Water Corporation; Environment Protection Authority Victoria; Impala Group Pty Ltd; Origin Energy; and Aquacare Australia Pty Ltd (“Aquacare”).
In respect of these potential creditors, the defendant either asserts that:
a) it has recently paid the entirety of the debt claimed;
b) it is negotiating a payment plan or has entered into terms of settlement with that creditor;
c) the relevant debt is disputed;
d) the relevant debt arises between the creditor and another entity (ie: not the defendant); or
e) no debt is presently due and owing.
It may be, having regard to the affidavit material filed by the parties, that the controversy between the defendant and Aquacare has not yet been resolved to the satisfaction of that creditor, notwithstanding the lump sum payment of $32,759.01 made by the defendant on 19 March 2019 in respect of urgent works being undertaken by Aquacare in relation to the WWTP.[32]
[32]See para 13 of the affidavit of Mr Tomy Tao Lam affirmed 22 March 2019.
However, given it is uncertain whether the defendant is indebted to any other creditor, the Court is fortified in its decision to decline, as a matter of discretion, the substitution of the Owners Corporation on the basis of the judgment debt. Further, it seems to me that the question of whether the defendant owes debts to other creditors is a question which is most appropriately resolved in the event another supporting creditor is substituted as plaintiff and the defendant seeks to rebut the statutory presumption of insolvency arising under s 459C(2)(a) of the Corporations Act.
Improper purpose
In its submissions, the defendant suggests that there are ample grounds for the Court to draw an inference that the Owners Corporation is not pursuing its application for substitution for proper purposes. Instead, it is suggested that the Owners Corporation is motivated by complaints relating to other entities (including those previously associated with the Heritage Golf & Country Club and now in liquidation) and the illegitimate pursuit of additional legal costs not covered by orders made by the VCAT.
Given the reasons referred to above, it is unnecessary for me to consider this question further. However, for the sake of completeness, I should say that it seems unlikely the defendant would discharge the heavy onus of proving the Owners Corporation was motivated to make its application for substitution by a predominant purpose which was improper.[33] The affidavit material does not readily support such a finding.
[33]See Williams v Spautz (1992) 174 CLR 509, 529.
Conclusion
It follows that the Owners Corporation’s interlocutory process for substitution should be dismissed.
The Court makes the following orders:
1) The interlocutory process filed by the Owners Corporation on 4 March 2019 be dismissed.
2) Any further supporting creditor file and serve any interlocutory process for substitution under s 465B of the Corporations Act 2001 (Cth) with any affidavit material in support by 8 April 2019.
3) The Owners Corporation inform all other creditors referenced in the affidavit material relied upon in the hearing of this interlocutory process of the outcome of today’s hearing, the Court’s orders and the next return date.
4) The Owners Corporation pay the defendant’s costs of, and incidental to, the interlocutory process filed 4 March 2019 on a standard basis, such costs to be taxed in default of agreement.
5) The further hearing of this proceeding and the return of any further interlocutory process for substitution be listed for 17 April 2019 at 2.00 pm in Court 5, 436 Lonsdale Street, Melbourne.
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