Maniotis v Valimi Pty Ltd
[2002] VSCA 91
•24 June 2002
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 4310 of 2001
| BASIL MANIOTIS and PETER MANIOTIS | |
| Appellants | |
| v. | |
| VALIMI PTY. LTD. | Respondent |
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JUDGES: | CALLAWAY and EAMES, JJ.A. and O'BRYAN, A.J.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 24 April 2002 | |
DATE OF JUDGMENT: | 24 June 2002 | |
MEDIUM NEUTRAL CITATION: | [2002] VSCA 91 | |
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Company law – Insolvency – Statutory demand – Offsetting claim – Whether company may rely on claim where proceeding to enforce it has been temporarily stayed – Corporations Act 2001, s.459H.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr R.L. Berglund, Q.C. | Leo Dimos & Associates |
| For the Respondent | Mr S. Gillespie-Jones | Law Partners |
CALLAWAY, J.A.:
I have had the advantage of reading in draft the reasons for judgment prepared by the other members of the Court. Notwithstanding Mr Berglund’s attractive argument, I agree with their Honours that the appeal should be dismissed and that it is unnecessary to consider s.459J(1)(b) of the Corporations Act 2001.
The only question that we have to decide is whether a presently existing, and not contingent or inchoate, claim cannot be “a genuine claim that the company has against the respondent” within the meaning of the definition of “offsetting claim” in s.459H(5) by reason only that a proceeding against the respondent in which it is sought to be enforced is temporarily stayed. To my mind, that question answers itself. The company still has the claim, and it is otherwise genuine. The effect of the stay is simply that, for the time being, the proceeding cannot go forward.
None of the cases cited to us was concerned with the effect of a temporary stay. The only case that has caused me hesitation is McDonnell & East Ltd. v. McGregor[1], but that was not a case about bankruptcy notices or statutory demands. At most it suggests that a statute-barred claim could not be availed of as an offsetting claim even if the relevant statute of limitations did not extinguish the cause of action[2] and would have to be pleaded. That is very different from a temporary stay.[3]
EAMES, J.A.:
[1] (1936) 56 C.L.R. 50 especially at 57.
[2]Compare Aries Tanker Corporation v. Total Transport Ltd. [1977] 1 W.L.R. 185 at 188D-G, considered by the Full Court in Australian Shipping Commission v. Kooragang Cement Pty. Ltd. [1988] V.R. 29.
[3]Moreover the result follows from the statute of limitations rather than from more general considerations that could affect the interpretation of the definition of “offsetting claim”.
In this case I have had the advantage of reading in draft the reasons of O’Bryan, A.J.A., with which I am in substantial agreement. I gratefully adopt his Honour’s discussion of the history of this appeal and his identification of the issues raised in the notice of appeal.
Counsel for the appellants cited a number of authorities to support the proposition that if a statutory demand was to be set aside because of an offsetting claim, as defined in s.459H(5) of the Corporations Act, then any such counterclaim, set-off or cross demand had to be not merely a genuine claim but also one that was “effective”, in the sense that it was capable of being enforced as at the time of the hearing of the application to set aside the demand. An action which was the subject of a stay order, counsel contended, was not effective, in that sense.
An “offsetting claim” is defined in s.459H(5) to mean “a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand arises)”. Counsel for the appellants submitted that the notion of an “effective” cross claim for which they contend was introduced by use of the word “has”. I respectfully agree with the conclusion of O’Bryan, A.J.A., that the cases cited by counsel do not support that contention and, being in general agreement with his Honour’s analysis of the cases, I will confine my own discussion of them.
The word “effective”, upon which counsel placed such reliance, is not found in the bankruptcy legislation, but was used in the judgment of Vaughan Williams, L.J. in Re G.E.B, A Debtor[4].
[4]Re G.E.B., A Debtor [1903] 2 K.B. 340. The reasons of Vaughan William, L.J. were agreed to by Stirling, L.J. Romer, L.J. gave separate but not dissonant reasons.
That case was concerned with a debtor served with a statutory demand by a company in liquidation whereby payment was sought of a judgment debt arising out of unpaid calls. The Court of Appeal held that the debtor could not have the demand set aside on the basis that he had a set off against the company. The judgment debt out of which the statutory notice arose was obtained in an action brought by the liquidator of the company in the name of the company. Had the action been brought by the company when not in liquidation then, their Lordships held, the debtor could have pressed a set off which he had against the company. Once the company was in liquidation, however, the statutory demand was being made on behalf of a body of creditors of the company in liquidation, not by the company. The real plaintiff was the liquidator, not the company. Thus, there was a lack of mutuality as between the parties so as to permit a set off between the liquidator and the debtor. However, were the debtor himself a bankrupt then s.38 of the Bankruptcy Act 1883 provided that the debts due to him as a shareholder could be set off against calls made on his shares. At the time when the demand was made to pay the judgment debt and at the time of hearing the debtor had neither a present set off (because of lack of mutuality) nor a statutory right to a set off (because he was not then bankrupt). The demand was made, however, in the course of proceedings to bankrupt the debtor and it could be expected, therefore, that in due course he would be made bankrupt.
The critical factor in the action to set aside the demand was at what time the set off had to be in existence if it was to be set up in answer to the statutory demand. In Re G.E.B, A Debtor their Lordships held that the question was to be determined at the time of the hearing of the application to set aside the demand. It was in that context that Vaughan Williams, L.J. observed that the debtor did not have a set off “in respect of which, at that moment, he could bring an action”. Furthermore, it was in that context that his Lordship made the statement on which counsel for the appellants placed such weight that, as at that moment “the defendant could not maintain an action against the company for this cross-claim – that is to say, he had not, at the moment when this application to set aside the judgment summons was heard, an effective set-off which he could enforce at that moment.”[5] His Lordship held that the debtor had “an existing right of set off” but not “an effective set off which he could enforce by action”[6].
[5]Re G.E.B., A Debtor, supra, at 348.
[6]Supra, at 349.
The decision in Re G.E.B., A Debtor was concerned with an inchoate right of set off, one which might or might not arise in the future, depending on whether the judgment debtor himself became bankrupt.
In the later decision of Re A Bankruptcy Notice[7], Maugham, L.J. cited with approval the statement in the judgment of Vaughan Williams, L.J. in Re G.E.B., A Debtor, that a cross-demand had to be “effective” at the time of the hearing of the application to set aside the bankruptcy notice. Once again, however, the issue before the Court was not akin to that before us. In the case before the Court of Appeal their Lordships were concerned with a suggested cross claim which did not constitute a claim against the judgment creditor, as at the time of the hearing. At that moment it was a claim against a third party. Furthermore, it was a claim for an indeterminate sum, which might not equal or exceed the amount of the judgment debt. It was because of those uncertainties that the cross claim was ineffective to be set up in answer to the statutory notice.
[7][1934] Ch. 431, at 440-441, per Maugham, L.J.; neither Lord Hanworth, M.R. nor Romer, L.J. referring to Re G.E.B, A Debtor.
The issues with which the courts were concerned in those and the other cases cited by counsel contrasted the notion of a cross claim which the debtor “has” with one which he once “had” but no longer has at the time of the hearing - perhaps because it had become statute barred[8] or for some other reason had been defeated. Likewise, a cross claim that one “has” may be contrasted with a cross claim which one “might have” in the future if certain contingencies were to take effect[9], or upon accrual of a cause of action which has not yet accrued[10].
[8]As in McDonnell & East Ltd v. McGregor (1936) 56 C.L.R. 50.
[9]Mideb Nominees Pty. Ltd. v. Begonia Pty. Ltd. (Receiver and Manager Appointed) & Anor (1994) 15 A.C.S.R. 70
[10]Advance Ship Design Pty. Ltd. v. D.J. Ryan trading as Davies Collison Cave & Anor (1995) 16 A.C.S.R. 129.
It is necessary to consider the effect of the stay of proceedings in this case. The appellants contend, in effect, that the stay operates in a manner similar to dismissal of the claim. However, a stay of proceedings until payment of costs does not amount to a permanent stay, the latter being a stay whereby the rights of the parties are finally disposed of or conclusively determined[11]. A stay which is not a permanent stay does not bring the action to an end; the action becomes ”static” but can be restarted at any time[12].
[11]See Hi-Fert Pty. Ltd. v. Kiukiang Maritime Carriers Inc. (1998) 86 F.C.R. 374, at 387, 395.
[12]Lambert v. Mainland Market Ltd. [1977] 1 W.L.R. 825, at 834.
In the present case the debtor has an existing claim, one which is being enforced by an action which is presently stalled. Before the enforcement process can continue the stay must be removed. Neither Re G.E.B., A Debtor nor any of the other cases cited by counsel were concerned with the question of “effectiveness” in the sense that counsel sought to apply that term to the situation when a stay was in operation. Warren, J. accepted that there were authorities which imposed a requirement that the offsetting claim be “effective”, but held that the cross claim made in the respondent’s action was an effective claim, because it was merely stayed, not struck out or dismissed. I do not understand her Honour, thereby, to have been agreeing that there was any additional requirement which had to be imported into the statutory definition of an offsetting claim, but merely acknowledging that the debtor must have a genuine offsetting claim as at the time of the hearing.
Counsel for the appellants complained that unless a requirement is imposed that a cross demand be “effective”, in the sense for which they contend, then an anomalous situation would persist. Counsel contend that what the appellants are seeking to do here is not to defeat the action, but merely to secure payment of costs, as they are entitled to do. If the respondent is permitted to rely on its action as the offsetting claim, notwithstanding the fact that it has been stayed, then, the appellants submit, they are denied recourse to the remedy under s.459G of the Corporations Act.
The appellants contend that to allow the statutory demand to be defeated in that way would allow the debtor to defeat the statutory demand while not having an offsetting claim which was capable of being pursued. The imposition of a requirement that the cross claim must be “effective” overcomes the impasse, they submit, and the respondent is not thereby denied the right to pursue its action, because payment of the costs will allow the action to resume forthwith. Furthermore, counsel submit, even if the costs are not paid and a liquidator is appointed to the company the liquidator might chose to pay the costs and allow the action to proceed.
The appellants are not without remedy to overcome the impasse which the stay produces in their attempt to enforced the statutory notice. In any event, the present impasse is one created by themselves as much as by the respondent. The appellants had chosen not to pursue their application to Bongiorno, J., under R.63.03(3)(a), to have the proceeding dismissed for non payment of interlocutory costs. In pursuing, instead, the alternative application for a stay of proceedings until the costs were paid counsel for the appellants expressly informed his Honour (and Bongiorno, J. treated the information as relevant to his decision to grant a stay) that the appellants did not seek to shut out the respondent from prosecuting its case.
Whatever may be the practical and policy considerations which might justify the imposition of the requirement that a cross-demand be “effective”, in the sense suggested on behalf of the appellants, the short answer to their contention is that the introduction of such a requirement neither gains support from the authorities cited by counsel with respect to the interpretation of Australian or foreign bankruptcy legislation nor is it a requirement imposed by the terms of the present legislation.
The amendments to Division 3 of Part 5.4 of the Corporations Law which followed upon passage of the Corporate Law Reform Act 1992 (Commonwealth) made considerable changes to the law relating to statutory demands, in particular by removing grounds for technical objection to the statutory demand on account of such matters as formal defects or misdescription which did not create substantial injustice[13] and by providing for the quick resolution of the issue of solvency and
determination of the need for winding up of a company[14]. In making such sweeping changes, however, Parliament did not take the opportunity to impose a requirement in s.459H that a counterclaim, set-off or cross demand had to be “effective” in the manner suggested by the appellants. In my opinion, the court should not now read such a requirement into the definition of “offsetting claim”.
[13]See s.459J(2). As to the changes effected by the amendments see, for example, the discussion by Hayne, J. in Mibor Investments Pty. Ltd. v. Commonwealth Bank of Australia [1994] 2 V.R. 290, at 293-296.
[14]See David Grant & Co. Pty. Limited v. Westpac Banking Corporation (1995) 184 C.L.R. 265, at 270, 279.
In my opinion, Warren, J. was correct in her conclusion that the stay of proceedings did not preclude that claim being treated as an offsetting claim which might justify setting aside the statutory demand. That conclusion makes it unnecessary to consider the alternative basis on which her Honour said that she would have set aside the statutory demand, by reference to the “some other reason” provision in s.459J(1)(b).
In my opinion, the appeal should be dismissed.
O'BRYAN, A.J.A.:
Litigation between the parties in this proceeding has been ongoing since 1995; it has been expensive and the end is not yet in sight.
In the primary proceeding (No. 6444 of 1995) the respondent in this proceeding, Valimi Pty. Ltd. and Con George Thyssen brought proceedings against the appellants in this proceeding, Basil Maniotis, Peter Maniotis and David John Beatty claiming damages for breach of fiduciary duty, tortious conspiracy and negligence. The damages claimed are in excess of $1M. Thyssen and his wife were directors and shareholders of Valimi Pty. Ltd., which conducted a business in partnership with Peter and Basil Maniotis known as V. & V. Nurseries between 22 July 1985 and 31 January 1990. The partnership went into receivership on 18 January 1990 and David John Beatty was appointed receiver and manager. I shall continue to refer to Valimi Pty. Ltd. as the respondent and to Peter and Basil
Maniotis as the appellants.
In the primary proceeding the appellants obtained costs orders in their favour against the respondent and Thyssen totalling $33,630.90, the last order being made on 16 August 2000. The respondent obtained cost orders against the appellants in the same proceeding totalling $5,624.60. The net amount due and owing on account of costs owed by the respondent to the appellants is, therefore, $28,006.30.[15]
[15]These amounts are referred to in the reasons for judgment of Waren, J. at page 1.
On 11 January 2001 or thereabouts the appellants caused a statutory demand to be served on the respondent pursuant to s.459E of the Corporations Act for the amount of $30,220.90[16], being the costs payable pursuant to orders of Master Wheeler. There is no dispute between the respondent company and the appellants about the existence or amount of the debt to which the demand relates.
[16]This amount was the subject on an order made by a master of the Supreme Court on 24 November 2000 in the primary proceeding.
In the primary proceeding the respondent and Thyssen issued a summons dated 2 February 2001 seeking a stay of execution in respect of the interlocutory cost orders made against them in favour of the appellants. By summons issued by the appellants dated 15 January 2001 the appellants sought an order that the primary proceeding be dismissed pursuant to Rule 63.03(3)(a) of the Supreme Court (General Civil Procedure) Rules 1996 on the ground that such interlocutory costs had not been paid. The respondent and Thyssen obtained an order from a Master on 5 February 2001 which had the effect of staying execution of the costs orders against them until completion of the trial of the proceeding or further order. On the same date the Master also dismissed the appellants’ summons for an order that the primary action be dismissed pursuant to Rule 63.03(3)(a).
The appellant appealed the orders made by the Master and the two appeals were heard by Bongiorno, J. in February 2001. The appeal was argued before Bongiorno, J. by Mr Berglund, who argued the appeal in this Court, on the basis that the appellants were seeking to stay the proceeding until the outstanding costs were paid rather than to dismiss it. On 24 May 2001, Bongiorno, J. upheld the two appeals. He ordered that the respondent’s and Thyssen’s summons seeking a stay of execution in respect of interlocutory costs orders made against them in favour of the appellants be dismissed. He further ordered that the respondent’s and Thyssen’s action (No. 6444 of 1995) be stayed until the respondent and Thyssen paid to the appellants the costs totalling $33,620.90 less $5,624.60 payable to them by the appellants (the stay order). In his reasons the judge said:
“[Mr Berglund] did not seek to shut the [respondents] out from prosecuting their case; merely that they may be entitled to do so only after they had met existing liquidated obligations to the [appellants].”
The respondent and Thyssen next applied on summons for leave to appeal the orders of Bongiorno, J. On 22 June 2001 Chernov and Vincent, JJ.A. dismissed the application. Their Honours were made aware by counsel for the respondent and Thyssen that a bankruptcy proceeding and a liquidation proceeding were pending against the respondent and Thyssen. Their Honours did not consider that injustice would arise from the orders made by Bongiorno, J. because the respondent and Thyssen could still put the argument that they had a substantial case against the appellants and that the determination of the bankruptcy proceeding and liquidation proceeding should await the resolution of the primary proceeding.
The respondent next made an application to set aside the statutory demand served on it, pursuant to s.459G of the Corporations Act in February 2001. The Senior Master referred the proceeding to a judge in the Corporations List for determination on 29 June 2001. The application came on for hearing before Warren, J. on 27 July 2001. On 15 August Warren, J. delivered reasons for judgment in which her Honour said that she was satisfied the formal requirements of s.459G had been met and that the respondent had an offsetting claim in the primary proceeding. Her Honour next considered whether the fact that the primary proceeding had been stayed impacted upon the offsetting claim. Her Honour concluded that the stay order made by Bongiorno, J did not affect the genuineness or validity of the offsetting claim. Warren, J. also said that she was satisfied in the terms of s.459J(1)(b) “there is some other reason why the demand should be set aside”. Her Honour said:
“In my view the reason lies in the fact that the stay order of Bongiorno, J. does not effect the genuineness or validity of the offsetting claim. Rather, it is a procedural order made in the primary proceeding effectively punishing the [respondent] for non-compliance with court orders and purporting to impose a significant penalty on the [respondent] in the other proceeding in order to compel compliance. In my view these are matters that do not relate to the genuineness or validity of the offsetting claim. Furthermore in my view it is apparent that if Valimi [the respondent] is placed in the position of the stay order remaining on foot in the primary proceeding and the statutory demand being allowed to stand in the present proceeding then it is subject, in effect, to double jeopardy. In my view it would constitute a substantial injustice if such circumstances was permitted to prevail. Accordingly, if needs be I would exercise the discretion under s.459J of the Corporations Act and set aside the statutory demand.”
By order of the Court the statutory demand dated 11 January 2001 was set aside.
The next step in the saga was an application by the appellants for leave to appeal from the orders of Warren, J. made on 15 August 2001. Leave was granted by Phillips and Vincent, JJ.A. insofar as the same was necessary, on 12 October 2001.
The Notice of Appeal specified ten grounds of appeal, but as the argument by Mr Berglund proceeded it became apparent that two main contentions were involved in the appeal –
1.Did the respondent continue to have an offsetting claim after the stay order in respect of the primary proceeding was made by Bongiorno, J. on 24 May 2001?
2.Was Warren, J. entitled to be satisfied that there was some other reason why the demand should be set aside pursuant to s.459J of the Corporations Act?
The Court below was entitled to find, as it did, that if the “offsetting claim” was a genuine claim that the respondent had against the appellants it was for an amount considerably in excess of the amount of the statutory demand. In s.459H(5) “offsetting claim” means a genuine claim that the company has against the respondent by way of counter-claim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
Undoubtedly, the offsetting claim alleged by the respondent is a counter-claim or cross-demand. No issue was raised by Mr Berglund that on the day previous to the stay order being made the respondent could claim that in the primary proceeding it had an offsetting claim of about $1M. The offsetting claim was pleaded in an amended statement of claim and verified in an affidavit made by Con George Thyssen on 16 July 2001, particularly in paragraph 6. As the judge said:
“There is no issue that there is a genuine dispute between [the respondent] and the [the appellants] about the existence or amount of the debt to which the demand relates.”
No issue was raised by Mr Berglund in this Court to her Honour’s comment. The judge next observed that the Act only required her to identify a genuine claim and she did not need to consider the prospects of success.[17] Hence, she said, if satisfied that the amount claimed is claimed in good faith and is not fictitious, she could be satisfied that there is an offsetting claim.[18]
[17]See Re Morris Catering (Aust.) Pty. Ltd. (1993) 11 A.C.S.R. 601 at 605.
[18]See Jesseron Holdings Pty. Ltd. v. Middle East Trading Consultants Pty. Ltd. (No. 2) (1994) 12 A.C.L.C. 490 at 493; 122 A.L.R. 717.
A point at issue in this Court was whether the stay order in the primary proceeding had resulted in the offsetting claim not being “effective” in the sense of being operative on 27 July 2001, the day of the hearing of the application to set aside the demand.
Mr Berglund submitted in the Court below, unsuccessfully, that a company must have a genuine and “effective” offsetting claim at the moment of hearing of the application to set aside the demand. By “effective” he meant enforceable by action. This result, he argued, arises from the importance of “has” in the definition. The words “the company has against the respondent” mean has an entitlement to enforce an offsetting claim, Mr Berglund argued. The stay order, Mr Berglund contended, means that until the costs are paid or the order is lifted, or varied, so as to permit the claim in the primary proceeding to move forward, the respondent does not have an entitlement to enforce an offsetting claim against the appellants.
Reference will need to be made to a number of authorities relied upon by Mr Berglund. Before doing so it is necessary, I consider, to examine the effects of the stay order. The order prohibited the respondent and Thyssen from taking any further step in the primary proceeding. The stay order did not require anything to be undone that had been legally done. It did not require the respondent and Thyssen to alter the legal position that had already been created. It merely prevented anything from being done that would in any way alter the position. “A stay operates to keep things in statu quo.”[19]
[19]See Joseph Pty. Ltd. v. Gray (1939) 56 N.S.W.W.N. 190 at 195 per Bavin, J.
I consider it is abundantly clear that the stay order in the primary proceeding was not intended by the judge to do more than prevent steps being taken in the proceeding until the costs were paid. Further, in the Court of Appeal, Chernov and Vincent, JJ.A. certainly did not envisage that the order would put at risk the respondent’s and Thyssen’s ability to defend successfully the bankruptcy and liquidation proceedings for they said so. They also said: “The effect of the order is only that the applicants [the respondent and Thyssen] comply with what the law already requires them to do, namely, pay the costs which they have been ordered to pay.”[20] Nor were they disabused of their belief by counsel.
[20]See Valimi Pty. Ltd. and Thyssen v. B. Maniotis and P. Maniotis (unreported, Court of Appeal, 22/6/01).
I shall turn now to the authorities relied upon by Mr Berglund for the proposition that “has” as used in s.459H means an entitlement capable of being enforced.
In Re G.E.B. A Debtor[21] the relevant section of the Bankruptcy Act 1883 (46 & 47 Vict. c.52) similar to s.459(H) was s.4(1)(g). Relevantly, the sub-section provided that a debtor committed an act of bankruptcy if he did not either comply with the bankruptcy notice “or satisfy the Court that he has a counter-claim, set-off, or cross-demand which equals or exceeds the amount of the judgment debt, and which he could not set up in the action in which the judgment was obtained.”
[21]In Re G.E.B. A Debtor [1903] 2 K.B. 340.
In the Court of Appeal the leading judgment was delivered by Vaughan Williams, L.J. His Lordship considered the point of time when the debtor has to satisfy the Court he “has a counter-claim” etc. and concluded that the words “he has” must refer to the time of the hearing of the application to set aside the bankruptcy notice. His Lordship then determined “not without considerable doubt” the debtor had not a set-off in respect of which, at that moment, he could bring an “effective set-off which he could enforce by action”. Stirling, L.J., who agreed in the judgment of Vaughan Williams, L.J., also “felt great difficulty” in arriving at the same conclusion.
There are similarities between the language used in s.459H(1)(b): “the Court is satisfied … that the company has an offsetting claim” and s.4(1)(g) which requires the Court to be satisfied “that he has a counter-claim etc.”, but they are not the same. The definition of “offsetting claim” inserted by No. 210 of 1992 produced a significant difference by including the words “means a genuine claim that the company has against the respondent”.
The expression “a genuine claim” means, I consider, an authentic or bona fide claim. “Genuine” means: truly what something is said to be; authentic (the New Oxford Dictionary of English 1998 ed.). When the definition of “offsetting claim” was inserted in s.459(5) in 1992, a question arises whether the definition is complete or allows an additional requirement that the offsetting claim must also be effective or enforceable at the relevant time.
In the definition clause the Court has to be satisfied that the company has a genuine offsetting claim against the respondent. The Corporations Law does not expressly make it incumbent on a company to show that, on the day the Court has to be satisfied, the company is able to enforce by action its offsetting claim. One requirement is clearly specified, that the company has a “genuine claim”. In my view, “has”, wherever it is used in s.459H, means possesses or holds and is not used in the sense of being operative, or actually in effect, at the relevant time. This is particularly evident in s.459(H)(2) in the definition of “offsetting total”: “the company has only one offsetting claim” and “the company has 2 or more offsetting claims”.
The requirement prescribed by s.459H(1)(b) is whether the company has an offsetting claim as defined, that is whether it has a genuine claim at the relevant time.
Accordingly, the decision in G.E.B.[22] can be distinguished. A further decision relied upon by Mr Berglund, McDonnell & East Ltd. v. McGregor[23], has no application in the interpretation of s.459H. It was concerned with whether a defendant could plead by way of sett-off a claim for a liquidated amount in answer to an action for unliquidated damages.
[22]In Re G.E.B. A Debtor (supra).
[23]McDonnell & East Ltd. v. McGregor (1936) 56 C.L.R. 50.
The decision of the English Court of Appeal in Re A Bankruptcy Notice[24] was referred to by Mr Berglund. There the Court followed the passage in the judgment of Vaughan Williams, L.J. in G.E.B., to which reference has been made, in a case in which the Court had to consider whether the debtor had a counter-claim, set-off or cross-demand which equalled or exceeded the amount of the judgment debt. Lord Hanworth, M.R. considered the meaning of set-off, counter-claim and cross-demand in the Bankruptcy Act 1914 (4 & 5 Geo. 5, c.59), s.1(1)(g) and held that the claim of the debtor could not be so described because it was a claim of right which may enure ultimately for the benefit of the judgment debtor, but it was difficult to say that it equalled or exceeded the amount of the judgment debt, a requirement of s.s.(1)(g). Romer, L.J. and Maughan, L.J. were of the same opinion. Only Maughan, L.J. referred to G.E.B.[25]. He said: “If we are considering the word ‘cross-demand’ in the present case, it has to be a cross-demand against the creditor effective at the time of the hearing of the application to set aside the bankruptcy notice, either for an amount equal to or exceeding the amount of the judgment debt or, at any rate, for property of the value which at that moment exceeds the amount of the judgment debt.”[26] I consider that the decision of the Court of Appeal in Re A Bankruptcy Notice turned on the amount of the counter-claim, set-off or cross-demand and the finding that it did not equal or exceed the amount of the judgment debt and not on whether the cross-demand was effective at the relevant time.
[24][1934] Ch. 431.
[25]In Re G.E.B. A Debtor (supra).
[26]Re A Bankruptcy Notice at 441.
Reliance was placed by Mr Berglund upon the decision of Senior Master Mahony in Mideb Nominees Pty. Ltd. v. Begonia Pty. Ltd. (Receiver and Manager Appointed) & Anor[27]. Mideb sought orders to set aside a statutory demand served on it by Begonia. Mideb claimed to have an offsetting claim against Begonia in relation to Begonia’s guarantee wholly to indemnify Mideb against its liability to a bank. It was argued for Begonia that the offsetting claim of indemnity did not constitute a genuine claim which Mideb had because it was only in the event that the guarantee was held valid and enforceable against Begonia that Mideb could claim contribution from Begonia. This was not a present claim, it was argued, because it was contingent upon whether the guarantee was held valid and enforceable. Counsel for Begonia argued that an offsetting claim must be a claim which a company “has”, in the sense that it is effective at the time of the hearing of the application to set aside the statutory demand. Counsel relied upon G.E.B.[28]. Counsel for Mideb contended that the contingent aspect of the claim did not take it outside the definition of an “offsetting claim” because it was of a nature which Mideb was not only entitled, but obliged, to make in the proceeding in which the bank was the plaintiff, Mideb was the defendant and Begonia was a third party.
[27](1994) 15 A.C.S.R. 70.
[28]G.E.B. A Debtor (supra) at 348.
Master Mahony held that Mideb’s claims against Begonia for contribution and indemnity could not be described aptly as genuine claims which Mideb “has” because they were claims which Mideb “may have” at some time; that time being when Mideb’s liability to the bank was ascertained by judgment or admission.
Master Mahony’s decision focused on the word “genuine” in the definition of “offsetting claim”. He concluded that the claims were not genuine because Mideb may have the claims in the future and were not offsetting claims in the present.
The final case relied upon by Mr Berglund is Advanced Ship Design Pty. Ltd. v. D.J. Ryan t/as Davies Collison Cave & Anor[29]. There, a statutory demand claimed payment by a company to the defendant of a liquidated amount said to be owing in respect of professional fees and expenses. The company asserted that it disputed both the existence and the amount of the alleged debt made by the defendant in the statutory demand. Also the company asserted that it had an offsetting claim for damages for breach of contract and negligence. For the purposes of s.459H(1)(a), Master McLaughlin (N.S.W.)[30] said that he was not satisfied there was a genuine dispute between the company and the defendant about the existence of the debt, but he was satisfied there was a genuine dispute about the amount of the debt, albeit a small proportion of the total alleged debt. The Master next proceeded to consider whether he was satisfied that the company had an offsetting claim.[31] He was not satisfied the offsetting claim was one which the plaintiff presently had. The Master said: “the definition of an offsetting claim in sub-section (5) of s.459H requires not only that the claim be a genuine claim, but that it be in respect of a cause of action which has accrued, and that it cannot relate to a cause of action which is not presently in existence.” The analysis made of the cause of action in the statement of claim by the master led him to conclude that if the plaintiff was able to establish all the factual matters alleged therein the plaintiff would not be entitled to more than nominal damages. If the claim to damages arises from an event in the future such a claim is not a “genuine claim” that the company had against the defendant, the master held. Once the master was not satisfied that there was presently any amount to which the plaintiff was entitled in the claim for unliquidated damages against the defendant, he had to find that the plaintiff did not have an offsetting claim. The finding simply meant that the company did not have a genuine claim. I do not consider the decision in Advanced Ship Design is inconsistent in any way with the decision of Warren, J.
[29](1995) 16 A.C.S.R. 129.
[30]Advanced Ship Design Pty. Ltd. v. D.J. Ryan t/as Davies Collison Cave & Anor (1995) 16 A.C.S.R. 129 at 136.
[31]This involved a consideration of s.459H(1)b) and s.459H(5).
Warren, J. accepted the authorities referred to required that the offsetting claim must be effective at the moment of hearing of the application to set aside the demand, but considered that the offsetting claim remained valid and effective notwithstanding the stay order. The primary proceeding, although stayed procedurally, could be reactivated at any time by payment of the costs ordered, or further order, her Honour said.[32]
[32]Valimi Pty. Ltd. v. B. & P. Maniotis [2001] VSC 281 para.19.
Mr Gillespie-Jones submitted that Re G.E.B. A Debtor and Re A Bankruptcy Notice have no application to the interpretation of s.459H. He contended that all that was required of the respondent was that it has a genuine offsetting claim on the day of the hearing to set aside the offsetting claim. It did have such a claim, he argued, because, following the stay order, the cause of action in the primary proceeding remained in existence notwithstanding it could not presently be pursued in the Court. Mr Gillsespie-Jones relied upon a number of authorities for the following: “the action following a stay remains technically in being. The action cannot proceed or resume its active life without an order of the Court.”[33]
[33]See Rofa Sport Management A.G. v. DHL International (U.K.) Ltd [1989] 1 W.L.R. 902 at 911, cited with approval in Cockerill v. Tambrands Ltd. [1998] 1 W.L.R. 1379 at 1385.
No issue arises that the respondent has a genuine claim against the appellant by way of cross-demand which is of such a nature that it equals or exceeds the amount of the debt claimed in the statutory demand. But the respondent could not proceed to prove its cross-demand when the application was heard by Warren, J. because of the stay order in the primary proceeding. In my opinion, the claim was untouched by the stay order save that the proceeding could not move forward. It remained in an uncertain state awaiting payment of the costs, or further order, or dismissal of the proceeding by court order pursuant to Rule 63.03(3)(a). Until an order for dismissal is made I am of the opinion that the claim is genuine because the cause of action remains in existence and the claim is enforceable by action in the primary proceeding. Until dismissal the respondent has an offsetting claim. I do not consider that for the purposes of s.459H(1) an offsetting claim means that the claim must be effective in the sense used by Vaughan Williams, L.J. in the G.E.B. case[34]. The offsetting claim must be a genuine claim that the company has at the relevant time.
[34]G.E.B. A Debtor (supra).
The notice of appeal also alleged that the judge erred in exercising a discretion under s.459J(1)(b). On an application under s.459G the Court may by order set aside the demand if it is satisfied that: (b) “there is some other reason why the demand should be set aside.” Although the discretionary power conferred on the Court by s.459(J) was not argued during the hearing, her Honour in her reasons for judgment informed the parties that she would, if necessary, exercise the discretion conferred under s.459 and set aside the demand on the ground of “some other reason”. She offered two reasons for doing so. The first reason, in my opinion, does not offer “some other reason”; it is, in effect, repetitious of the reasons given why the stay order did not affect the genuineness or validity of the offsetting claim. It need not be considered further. The second reason given was as follows:
“Furthermore in my view it is apparent that, if [the respondent] is placed in the position of the stay order remaining on foot in the primary proceeding and the statutory demand being allowed to stand in the present proceeding, then it is subject, in effect, to double jeopardy. In my view it would constitute a substantial injustice if such circumstance was permitted to prevail. Accordingly, if needs be, I would exercise the discretion under s.459 of the Corporations Act and set aside the statutory demand.”
Notwithstanding that this finding was vigorously attacked by Mr Berglund I find it unnecessary to decide the matters argued by counsel. The respondent has succeeded on the first and threshold point of the appeal with the consequence that the appeal will be dismissed. Grounds 6 to 10 inclusive relate to the second point of the appeal.
In my opinion the appeal should be dismissed.
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