MRL (Palm Gardens) Pty Ltd v PGRV Pty Ltd - [2009] SASC 5

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MRL (PALM GARDENS) PTY LTD v PGRV PTY LTD
[2009] SASC 5
Reasons of Judge Lunn a Master of the Supreme Court
14 January 2009
CORPORATIONS
Application to set aside a statutory demand - debt was the subject of a determination by an independent expert pursuant to the terms of a contract between the parties but whose validity was being challenged by the plaintiff in other proceedings - whether setting aside the demand should be subject to a term under s 459M of the Corporations Act that the plaintiff give security for the amount - held term for security to be imposed.

MRL (PALM GARDENS) PTY LTD v PGRV PTY LTD
[2009] SASC 5
Reasons on application to set aside the statutory demand.

JUDGE LUNN: These reasons are confined to the matters necessary to determine the application before me. There are wider issues between the parties which are to be resolved in other proceedings.
As part of a broader arrangement involving other parties, which effected the sale of several retirement villages, on 1 September 2007 the plaintiff, MRL (Palm Gardens) Pty Ltd, entered into a deed with the defendant, PGRV Pty Ltd.
Clause 13 of the deed provided as follows:
Dispute Resolution
13.1If a dispute arises between the parties, either party may give to the other a notice specifying the nature of the dispute in as much detail as is reasonably practicable.
13.2If the dispute has not been settled within five business days of the delivery of the notice the party giving the notice may require the dispute to be referred to an Independent Expert in accordance with this clause by giving a further notice to that effect to the other party.
13.3The parties must endeavour to agree on the Independent Expert. If the parties fail to appoint an Independent Expert within that time either party may ask the President for the time being of the Law Society of South Australia to appoint a suitably qualified person to act as the Independent Expert and the dispute will then be referred to that person.
13.4The Independent Expert appointed to act under this clause must:
13.4.1 be qualified by his or her education, training and experience to pass a reasonable judgment upon the particular matters subject of the dispute; and
13.4.2 not have any relationship or association with either party which may jeopardise his or her impartiality.
13.5A decision of the Independent Expert will be absolute and final and will bind the parties accordingly.
13.6The Independent Expert will act as an expert and not as an arbitrator.
13.7Each of the parties agrees that it will:
13.7.1 make available to the Independent Expert all materials requested by him or her and any other materials which are relevant to any determination by the Independent Expert;
13.7.2be entitled to produce to the Independent Expert any materials or evidence which the party believes is relevant.
On 6 December 2007 the defendant gave notice of a dispute under clause 13 claiming, inter alia, in excess of $370,000 from the plaintiff. On 13 December 2007 the plaintiff gave another notice under clause 13 of a dispute in which it claimed, inter alia, $164,862 from the defendant. (Both notices also claimed delivery up of various property, but that is not relevant to the dispute before me).
Mr S Walsh QC was appointed by agreement of the parties to be the Independent Expert under clause 13 to determine both of the notices of dispute which then proceeded in conjunction. The parties each provided written materials and submissions to Mr Walsh QC. While the plaintiff submitted that it was beyond the power of Mr Walsh QC to do certain things such as rectification of the agreement, as was sought by the defendant, the plaintiff did not suggest that the resolution of the disputes was beyond the power of the Independent Expert. In any event, Mr Walsh QC decided that he had the contested powers.
On 10 July 2008 Mr Walsh QC delivered a preliminary determination which found that moneys were due from the plaintiff to the defendant on certain grounds, but that the defendant was not liable to the plaintiff for any moneys as had been claimed in the second notice of dispute. (The parties had previously agreed that Mr Walsh QC should give this preliminary determination before embarking on a quantification of any amount which was payable).
After receipt of the preliminary determination the plaintiff for the first time challenged the right of Mr Walsh QC to make any expert determination under clause 13. Although it was opposed by the plaintiff, Mr Walsh QC then proceeded to complete the expert determination. On 2 October 2008 he determined that the defendant was entitled to recover $365,804 from the plaintiff.
The defendant served a statutory demand under s 459E of the Corporations Act 2001 (“the Act”), which was dated 3 October 2008, on the plaintiff. On 27 October 2008 the defendant commenced this action seeking to set aside that statutory demand on the grounds that the amount claimed was genuinely disputed or that there was other “good reason” under s 459J of the Act to set it aside. On 12 November 2008 the defendant’s solicitors wrote to the plaintiff’s solicitors proposing that they would consent to the statutory demand being set aside if the plaintiff paid the amount of the determination into an interest-bearing bank account in the joint names of the solicitors for the parties. By a letter of 18 November the plaintiff’s solicitors rejected that proposal.
On 20 October 2008 the plaintiff instituted another action, 1571/08, in this Court seeking declarations that the determinations of Mr Walsh QC were of no legal effect. In brief, the grounds pleaded by the plaintiff were that the issues could only be determined by arbitration and not by an expert determination, the expert had purported to determine the issues of collateral contract, estoppel and rectification that were beyond the scope of clause 13, the expert did not identify the basis upon which he had made his determinations as required by clause 13 and that clause 13 was void as being against public policy for ousting the jurisdiction of the Courts. No defence has yet been filed in that action. The plaintiff has not sought any interlocutory injunction against the defendant preventing if from relying on the expert determinations.
But for the operation of clause 13 there is no doubt that there would have been a “genuine dispute” and/or an “offsetting claim” for the purposes of s 459H of the Act which would have required any statutory demand based on the debt which was the subject of the notice of 6 December 2007 to be set aside. I did not understand counsel for the defendant to contend to the contrary. The argument before me centred on whether the two expert determinations of Mr Walsh QC, and the consequent operation of clause 13, meant there was no “genuine dispute” or “offsetting claim” for the purposes of s 459H or any “other reason” for the purpose of s 459J of the Act. While counsel for the defendant contested the challenges of the plaintiff to the validity of the expert determinations, his ultimate position was that if the statutory demand was to be set aside it should only be on terms that the plaintiff pay the amount of the demand into an interest bearing account pending the resolution of the second action. This is the only question which I need address.
S 459M of the Act provides:
An order under s 459H or 459J may be made subject to conditions.
This section confers a general judicial discretion on the Court. There is little authority on its operation. Counsel for the defendant referred me to two cases where a condition of providing security for the amount of the debt had been imposed under s 459M as a condition of setting aside statutory demands. These cases were Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 and Midas v Equator (2007) 25 ACLC 1038. In both of those cases the debt which was the subject of the statutory demand was subject to an unresolved appeal by the debtor. In both cases there had been no stay imposed on the judgment pending the appeal. In each case the Court imposed a condition of the provision of security as a term of setting aside the statutory demand. (There is also another decision of Hammerschalg J, who decided Midas v Equator, of Aussie Homewares Pty Ltd v Wesgordon Pty Ltd (2007) 25 ACLC 1239, which was decided shortly after Midas v Equator, where in similar circumstances a condition of the provision of security under s 459M was not imposed, but that case is distinguishable because of the particular provisions of the New South Wales Building and Construction Industry Security of Payment Act 1999).
While the cases cited do not establish that a condition of the provision of security under s 459M should be imposed wherever there is an unresolved appeal against a judgment for the debt which is the subject of the statutory demand they are a general indicator of the types of considerations which will lead to the imposition of such a condition for giving security under s 459M. They were cases where there had been a judicial determination on the merits of the claim, albeit that there were arguable grounds of appeal to the contrary. This is analogous to the situation here where there had been an expert determination on the merits of the claim which, although not a judicial determination, was generally in accordance with the procedure which had been invoked, and acquiesced in, by the plaintiff until it had received an unfavourable result. Some, but not all, the grounds on which the plaintiff now seeks to challenge that expert determination were put to Mr Walsh QC before he made the second determination, but he ruled against the plaintiff on them. If the plaintiff had raised its present objections to invoking the procedure under clause 13 at the outset, it may well be that the expert determination would not have proceeded and the defendant could by now have been well advanced in pursuing litigation to determine the validity of its claim. The acquiescence of the plaintiff in pursuing a resolution of the issues under clause 17 until 10 July 2008 has probably prejudiced the defendant. Accordingly, I consider that a term should be imposed under s 459M that the plaintiff give adequate security as a condition of setting aside the statutory demand.
It has not been necessary for me to go into the question of whether the demand should be set aside under ss 459H or 459J. Subject to the imposition of the term under s 459M, which would apply in either case, one or other of these sections justify setting aside the statutory demand.
Although the defendant has proposed that security should be given by depositing the amount in question in an interest-bearing deposit in the joint names of the solicitors for the parties, there may be other ways in which the security could be given. I am prepared to hear the parties on this issue and the precise terms of the order.
There will be a further hearing on Wednesday 29 January 2009 at 9.15 am.