In the Matter of Idem Australia Pty Ltd (ACN 054 740 359) Idem Australia Pty Ltd (ACN 054 740 359) v Fuji Xerox Australia Pty Ltd (ACN 000 341 819)
[1996] FCA 1015
•7 Nov 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 3511 of 1996
)
GENERAL DIVISION )
IN THE MATTER OF IDEM AUSTRALIA PTY LTD (ACN 054 740 359)
BETWEEN: IDEM AUSTRALIA PTY LTD
(ACN 054 740 359)
(Applicant)
AND: FUJI XEROX AUSTRALIA PTY LTD
(ACN 000 341 819)
(Respondent)
CORAM: Ryan J
DATE: 7 November 1996
PLACE: Melbourne
REASONS FOR JUDGMENT
RYAN J: By a motion on notice dated 31 October 1996 the applicant seeks leave to amend its application dated 20 September 1996 to set aside a statutory demand by adding the following alternative prayer for relief:
1A.Alternatively, an order that the respondent be restrained from commencing any proceedings seeking an order that the applicant be wound up in insolvency based upon alleged non compliance by the applicant with the statutory demand dated 29 August 1996 on the grounds that the commencement of any such winding up proceedings is an abuse of process of the Court.
The application for an amendment was initially opposed by counsel for the respondent but that position, it was indicated in the course of argument today, is no longer maintained, although various procedural difficulties of a technical nature were pointed to as being likely to be encountered if the
amendment were allowed. However, the application for an amendment has been made essentially to provide a basis for an application for an interim or interlocutory injunction restraining the respondent, pending the hearing and determination of the application as proposed to be amended, from applying for an order for the winding up of the applicant on the ground of insolvency established by its non-compliance with a statutory demand.
As a result of my judgment yesterday that an application to set aside the statutory demand had been filed out of time, it is no longer open to the applicant directly to contend that there is a genuine dispute about the existence of the debt on which that statutory demand was based. The applicant on 31 October 1996 commenced proceedings against the respondent by writ issued out of the Supreme Court of Victoria. That writ has not yet been served. A statement of claim in that action discloses that the applicant essentially seeks to invoke against the respondent in that Court causes of action in contract and under the Trade Practices Act 1974.
Apart from the presumption which arises from non-compliance with the statutory demand, there is no evidence before the Court one way or the other as to the applicant's solvency. Mr Glacken of Counsel for the applicant contends that is no bar to the Court's granting an injunction of the kind which he seeks. He points in that context to Butterworths Australian Corporation Law, p 54,246 where it is observed:
In England the view is that where the company can show that the application cannot succeed, the court will restrain it as an abuse of process notwithstanding that the company may be insolvent: Mann v Goldstein [1968] 2 All ER 769; Stonegate Securities Ltd v Gregory [1980] 1 All ER 241 at 246-247 per Buckley LJ.
In New South Wales, the English line was followed in CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295 at 302 per Cohen J. His Honour followed the decision of Smart J, in Ron Pritchard Pty Ltd v Horwitz Grahame Pty Ltd (1988) 6 ACLC 258 where it was said that there was considerable doubt about the need for a company seeking an injunction to prove solvency except perhaps where there was no detailed consideration of the questions of standing at an interlocutory stage. It has also been said that in the absence of evidence of solvency one way or the other, the court will assume that the company is solvent: Westeq Ltd v Challenger Mining Corp NL (1988) 13 ACLR 627; 6 ACLC 868; see also Frank Hermens (Wholesale) Pty Ltd v Palma Pty Ltd (1985) 10 ACLR 257; 3 ACLC 835.
However, Mr Glacken accepted that evidence or lack of it going to the solvency of the company may be relevant to the exercise of the Court's discretion to grant or refuse an injunction restraining the issue of winding up proceedings. It was accepted on behalf of the applicant that s. 459S of the Corporations Law is relevant to the same exercise of discretion. That section provides:
In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a)that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b)that the company could have so relied on, but did not so rely on (whether it made such an application or not).
The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.
However, it was pointed out on behalf of the applicant that the mere institution of winding up proceedings may do irreparable damage to a company by, for example, triggering the calling in of securities. In this area a difficulty is created by the absence of evidence about the company's
solvency because the Court is unable to assess how likely it is that such a triggering will occur. Indeed, there is no evidence that the present applicant company is a party to mortgages, debentures or other securities, the enforcement of which could be triggered by an application for winding up.
It was also submitted that s. 459S may limit the ability of a company to resist an application for winding up as an abuse of process. However, that argument, as I understood it, presupposed the operation of the triggering effect to which I have just referred. Even if I were to assume that winding up application would have such an effect I cannot make an assumption of solvency similar to that which informed Young J's illustration in The Bartex Fabrics Pty Ltd v Phillips Fox (1994) 13 ACSR 667.
In that case, as noted by Shellar JA in Re J & E Holdings Pty Ltd (1995) 17 ACSR 319 at 324, Young J adverted to the possibility that there would be no way in which a company which was one day late in filing or serving an application to set aside the statutory demand but was completely solvent could prevent the issue of a winding up summons. He said, as quoted by Sheller JA:
The issue of such a summons may have very drastic commercial consequences. For instance, it may trigger rights in mortgagees to call up the whole of the principal of mortgages, or it may cause the crystallisation of floating charges. [Section 459s] is really not much of a safety net if because the company is one day late, it may, with the leave of a court, be allowed to defend a winding up summons and show that it has $12.7m worth of shareholders' funds, yet be completely ruined because secured creditors have been able to accelerate payment of their debts and all this without the petitioner being responsible at all for the damage to the company.
With great respect to Hayne J, the view that he has taken and others have followed since, that there is some exclusive code in Pt 5.4, runs quite contrary to the whole spirit of the Corporations Law that technicalities are not to crucify companies.
The applicant imputed to the respondent an intention to perpetrate an abuse of process arising from a concern to coerce the applicant to pay a debt which is genuinely disputed without allowing the applicant an opportunity to establish that the debt is not payable. However, I agree with the submission of Mr Nolan of Counsel for the respondent that since the enactment of the new regime in relation to statutory demands an injunction of the kind sought will only be granted in extreme cases.
In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, Gummow J observed at 279:
No doubt in some circumstances the new Part 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abusive process in the technical sense of that term, as explained in Williams v Spautz (1992) 174 CLR 509 at 518-522, 532-537.
That passage was cited by Tamberlin J in Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Construction (NSW) Pty Ltd (1996) 19 ACSR 411 where his Honour said at p 416 after setting out the passage from the judgment of Gummow J which I have just quoted:
Counsel for Landmarks seeks to rely on this statement in the present case in relation to the residual power of the Court to grant injunctive relief. In order to do so, facts must be proved which amount to a threat to wind up the company for a collateral and improper purpose, so as to be an abuse of process: see Williams v Spautz supra, at 522. In my view, no such improper purpose has been shown in the present case. Indeed, the purpose which emerges from the
evidence, is that Liverpool seeks to recover the moneys allegedly owed to it, which, it seems to me, is not only proper but is the purpose for which the statutory demand was issued. There is no suggestion of threats of undue pressure, extortion, or commercial duress. Nor is there any suggestion that the demand was a charade in that it was not intended to be pursued to its conclusion.
That passage I consider may be paraphrased to apply to the facts of the present case.
The only evidence which approaches a suggestion of what his Honour called "undue pressure, extortion, or commercial duress" is that evidence going to the withholding of "consumables". The evidence on that issue appears in the affidavit of Ms Smythe sworn 25 October 1996 where it is deposed in paragraph 2:
I have read the affidavit of Daniel Hughes sworn on 20 September 1996 and refer to paragraph 18 of that affidavit.
That paragraph of Mr Hughes' affidavit I interpolate in these terms:
Furthermore, on or about April 1996, the applicant was placed on a cash sale basis by the respondent in relation to the purchase of consumables, supplies and service and the second service agreement was terminated.
Then returning to Ms Smythe's affidavit, it continued:
On 22 October 1996, I attempted to place an order with the respondent at about 10:00 am by calling Jenny Morgan of the respondent which is the usual practice for the acquisition of goods and services by the applicant from the respondent.
Approximately, an hour later I received a telephone call from Mr Richard Fauser of the respondent advising to the effect that as there is a legal case between the applicant and the respondent, and until such time that the legal case is resolved, the respondent will not provide any goods or services to the applicant either on a credit or cash sale basis. I advised Mr Fauser that that would put the applicant out of business and he replied `Yes'.
It is not possible to purchase consumables from an alternative supplier and the refusal of the respondent to supply the applicant with the consumables will eventually result in the applicant being unable to continue to trade.
That evidence might have given to point to the imputation of abuse of process arising from a collateral purpose to drive the applicant out of business if there had been evidence that the applicant is solvent, at least putting to one side its dispute with the respondent. However, as I have already remarked, the applicant has left the Court in the position where it is unable to come to a conclusion one way or the other on that issue. It is also to be observed that the explanation given in the exchange deposed to by Ms Smythe of the refusal to resume supplies of consumables is not related to the earlier express or implied threat to issue the winding up proceedings which are anticipated by this application for an interlocutory or interim injunction.
The service of a notice of intention to repossess the photocopying equipment which is the subject of the dispute between the applicant and the respondent does not support the imputation of improper purpose. It is in my view consistent, in the language of Tamberlin J in the Liverpool Cement case, with a purpose of seeking to recover the moneys owed to the respondent. For these reasons, I am not persuaded that the applicant has made out a serious question to be tried as to whether the proposed application for winding up could be regarded as an abuse of process.
Moreover, I consider that the balance of convenience does not tender in favour of a grant of the injunction which has been sought. If the substantive application could not be resolved by 19 December 1996 the respondent would be precluded once and for all from relying on non-compliance with the statutory demand which it has served. In a related context it is to be observed that the prejudice to the respondent if it were held out of relief to which it is presumptively otherwise entitled could probably not be compensated by recourse to the undertaking as to damages which the applicant has proffered. The application for an interlocutory injunction is accordingly refused.
In the circumstances, and having heard the competing submissions of counsel on this matter, I consider it appropriate to make the following order as to costs:
That the respondent's costs of the application to set aside the statutory demand be taxed as between party and party up to 1 November 1996 and from 1 November 1996 on an indemnity basis.
That the respondent's costs of the application for leave to amend and of the application for an interim injunction be taxed as between party and party.
That all such costs be paid by the applicant or in the event that a winding up order be made on the ground of non-compliance with the statutory demand dated 29 August 1996 be recovered as part of the petitioning creditor's costs in the winding up.
I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment of his Honour Justice Ryan.
Associate:
Date:
Counsel for the Applicant : Mr S.A. Glacken
Solicitors for the Applicant : Messrs Russo Pellicano
Carlei
Counsel for the Respondent : Mr J.A. Nolan
Solicitors for the Respondent : Minter Ellison
Date of Hearing : 7 November 1996
Date of Judgment : 7 November 1996
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