Quadwest Developments Pty Ltd v Thi - [2009] WASC 54

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: QUADWEST DEVELOPMENTS PTY LTD -v- THI [2009] WASC 54

CORAM: MASTER SANDERSON

HEARD: 11 FEBRUARY 2009

DELIVERED : 17 MARCH 2009

FILE NO/S: COR 176 of 2008

BETWEEN: QUADWEST DEVELOPMENTS PTY LTD (ACN 113 060 861)
Plaintiff
AND
HUYNH HUON THI
NGUYEN LOI VAN
TRAN TUYEN VAN
TRAN DAU THI
Defendants

Catchwords:

Corporations law - Application to set aside statutory demand - Demand based on arbitration award - No application to register award as judgment - Whether demand ought be set aside for 'some other reason'

Legislation:

Nil

Result:

Demand set aside

Category: B

Representation:

Counsel:

Plaintiff: Mr C E Chenu
Defendants: Mr A J Prentice

Solicitors:

Plaintiff: Lavan Legal
Defendants: Mossensons

Case(s) referred to in judgment(s):

Cockatoo Dockyard Pty Ltd v Commonwealth of Australia [No 3] (1995) 35 NSWLR 689
Devaugh Pty Ltd v Lamac Developments Pty Ltd [2000] WASC 314
Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454; 16 ACLC 1440
Lamac Developments Pty Ltd v Devaugh Pty Ltd [2001] WASC 298
Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245

MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The facts giving rise to this application are simple and are not in dispute.
On 31 October 2008 the defendants served a statutory demand on the plaintiff. A copy of the demand and the accompanying affidavit appear as annexure DR1 to the affidavit of Dean Rafferty filed in support of the application to set aside the demand. The amount demanded is $278,159.87. In the schedule to the demand, under the heading 'Description of Debt', there appears the following:
Judgment in Arbitration obtained on 26‑09‑08 - $278,159.87
The description of the debt in the schedule is not accurate. As a consequence of an arbitration an award had been made. There is no 'judgment' in the sense that there is a court order which may be enforced under the provisions of the Civil Judgments Enforcement Act2004 (WA).
The nature of the dispute between the plaintiff and the defendants is not presently of concern. It is enough if I say that pursuant to an agreement between the parties, the Hon Robert Anderson QC was appointed an arbitrator. His appointment was made pursuant to the Commercial Arbitration Act 1985 (WA). A copy of the learned arbitrator's award and reasons is found as annexure DR3 to Mr Rafferty's affidavit. The plaintiff has sought leave to appeal against the award. The plaintiff needs leave before any appeal can be instituted. But as is common in these matters, the plaintiff has formulated its grounds of appeal, as the application for leave and the appeal will probably be heard together. These grounds appear as annexure DR4 to Mr Rafferty's affidavit.
It is open to a party in whose favour an arbitration award is made to apply under the provisions of the Commercial Arbitration Act for leave to enforce the award. Section 33 of the Act is in the following terms:
An award made under an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court to the same effect, and where leave is so given, judgment may be entered in terms of the award.
The defendants have not applied for leave to enforce this award. Rather they have issued the statutory demand. It is the plaintiff's argument that to issue a statutory demand in such circumstances is an abuse of process. They say that if an application had been made for leave to enforce the award then they could have opposed that application and, in the circumstances of this case, there is a real prospect that leave to enforce the award would not be given. Alternatively, they say that if leave to enforce the award was given, they could apply for a stay. In the present circumstances, as there is no judgment, there can be no application for a stay. As a consequence, the plaintiff says that it is effectively prevented from putting forward arguments which would support a stay. The plaintiff submits the demand should be set aside 'for some other reason' under s 459J(1)(b) of the Corporations Act 2001 (Cth).
Counsel for the plaintiff had two interlocking strands to his argument. The first strand relied upon the decision of Emmett J in Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454; 16 ACLC 1440. The facts in that case can be summarised in this way. Eumina Investments Pty Ltd (Eumina) owed Westpac Banking Corporation (Westpac) $42,000. This debt was owed under a Federal Court order that required Eumina to pay Westpac's costs in certain proceedings. Those proceedings had been dismissed but without prejudice to Eumina's right to bring further proceedings. Eumina did indeed bring further proceedings in the New South Wales Supreme Court. That claim was dismissed. Eumina took the matter to the Court of Appeal and lost. It then lodged an application for special leave to appeal to the High Court.
Before the special leave application was heard, Westpac served a statutory demand. Eumina applied to the Federal Court for an order setting aside the demand. Eumina raised a number of arguments. First, it said it had a 'genuine claim' against Westpac within the meaning of s 459H(5) of the Corporations Act. Emmett J determined that, as a result of the decision at first instance in the New South Wales Supreme Court and on appeal, Eumina had no claim against Westpac and, until the first instance decision was set aside, no other court could consider Eumina's claim. The only bona fide claim that Eumina had against Westpac was Eumina's claim for special leave to appeal. Even assuming that Eumina had reasonable prospects of success on appeal if leave were granted, that established only that the claim for special leave could be characterised as a genuine claim. The first instance decision conclusively determined as between Eumina and Westpac that there was no money recoverable by Eumina arising out of the proceedings in the New South Wales Supreme Court. Therefore Eumina did not have a genuine claim against Westpac within the meaning of s 459H.
It is worth noting at this point that, although he flirted in his written submissions with the idea that despite the arbitration award there could still be a genuine dispute in relation to the debt claimed in the statutory demand, counsel did not press this point in his oral submissions. He was right not to do so. An arbitration award is a different thing from a judgment obtained in a court. But it nonetheless represents a determination of rights as between the parties, that determination being made pursuant to a contract. Once the determination is made, what (in this case) the plaintiff is left with is a right to seek leave to appeal. But as matters stand at the moment, there has been a conclusive determination of rights as between the plaintiff and the defendants. It cannot be said that the plaintiff has a genuine claim against the defendants within the meaning of s 459H.
Returning to the Eumina Investments decision, Emmett J goes on to deal with s 459J(1). His Honour says:
It is, in my opinion, appropriate for a Court to exercise the discretion conferred by s 459J(1)(b) where the Court is satisfied that there is an appeal based on reasonable and arguable grounds which, if successful, would result in the existence of an offsetting claim. The expression 'reasonable and arguable grounds' is suggested by the decision of the Full Court in Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148. (1,444)
His Honour then draws a distinction between the case where there is an appeal against a decision which founds the debt the subject of the demand and where no stay has been granted, and the situation where there is an appeal against a decision relating to an offsetting claim where a stay cannot be obtained. His Honour says:
However, in an application under s 459J(1)(b), it may be appropriate to draw a distinction between the relevance of an appeal to a genuine dispute and the relevance of an appeal to an offsetting claim. Where there is an appeal against a judgment debt that gives rise to the statutory demand and there is no stay, whether or not the stay has been sought, there may be some substance in the conclusion that setting aside the statutory demand is a de facto stay. The appropriate course, in such a case, may be for the company to apply for a stay to the court which entered judgment.
Where, however, there is an appeal from a decision dismissing a possible offsetting claim, there is no dispute as to the debt which gives rise to the statutory demand as is the case here. There may be no basis for seeking a stay of the order made … On the other hand, no application for a stay could be made in respect of the order of [the Supreme Court of New South Wales] or the order of the Court of Appeal. There is, therefore, no mechanism available to the Company in the present circumstances, other than s 459J(1), to prevent the consequences of the presumed insolvency which would follow from non‑compliance with the statutory demand. (1,445)
His Honour then analyses the basis of the plaintiff's application for special leave to appeal. Having done so, he was satisfied that it was proper to set the demand aside 'for some other reason'. It must be accepted that there are differences between this case and the Eumina Investments decision. Here there is no offsetting claim, which is the subject of the appeal. But there are similarities. As the defendants have not applied to register the arbitration award as a judgment, there is no basis upon which the plaintiff in this action could apply for a stay.
On balance, I am satisfied that there is sufficient similarity between this case and the circumstances in Eumina Investments that I should follow the decision of Emmett J. The question then becomes whether or not, in the circumstances of this case, registration of the arbitration award might be refused. This was the second strand to counsel for the plaintiff's argument.
Reliance was placed by counsel on two cases in particular. The first was Cockatoo Dockyard Pty Ltd v Commonwealth of Australia [No 3] (1995) 35 NSWLR 689. Rolfe J said:
Prima facie … a party with the benefit of an award can seek to enforce it by resort to s 33. It is necessary for a party resisting an order under s 33 to establish a reason why the award should not be enforced. A reason may be that the Court considers the award is arguably vitiated by appealable error, or by other circumstances making it susceptible of being set aside in accordance with a provision of the Act. In other words it may well be an appropriate exercise of the Court's discretion not to grant leave if an application for leave to appeal is on foot or if an application has been made to set aside to award, for example, on the ground of misconduct. However unless an attempt is being made to have the award set aside I have difficulty envisaging other circumstances in which the discretion can be exercised. Certainly I do not regard s 33 as a 'back door' method of appealing against an award in so far as it constitutes a decision by the arbitrator how he should exercise his discretion. The discretion given does not include, in my opinion, an ability to re‑visit the way in which the arbitrator exercised his discretion where, otherwise, his discretion is not subject to attack in accordance with the Act. A contrary conclusion would, I believe, be totally at odds with the obvious intention and philosophy of the Act. (695 ‑ 696)
What is important about this statement of principle is that it acknowledges the court's discretion in the appropriate situation to decline to allow enforcement of the award. It acknowledges pre‑conditions to the exercise of that discretion - one of those pre‑conditions being that an application for leave to appeal has been made. But it is clear his Honour is not suggesting that in every case, where leave to appeal has been sought, it will be appropriate to refuse leave to enforce an award. Each case must depend upon its particular facts.
The second case to which counsel referred was my decision in Devaugh Pty Ltd v Lamac Developments Pty Ltd [2000] WASC 314. That was a case where I did refuse a party in whose favour an award had been made leave to enforce the award. In that case the criteria necessary to enliven jurisdiction had been satisfied. An application for leave to appeal was on foot. While not in any way dealing with the merits of the application for leave to appeal, I was satisfied that the facts in that case were such that the applicant for leave had a real prospect of being successful on the appeal. That position was reinforced because the parties had, on an earlier occasion, been to the Full Court. During the course of his judgment, Malcolm CJ made comments which seem to me to strongly indicate that the approach adopted by the arbitrator when making his award was in error. The position was such then that I was not satisfied that it would be proper to allow enforcement of the award and I exercise my discretion accordingly. In the event, leave to appeal was refused: see Lamac Developments Pty Ltd v Devaugh Pty Ltd [2001] WASC 298, and leave to appeal that decision was in turn refused: see Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245. But no appeal was lodged in relation to my refusal to register the award.
It is proper then to consider, in this case, the likelihood of the plaintiff being granted leave to appeal and the appeal being successful. Therein lies the difficulty. The arbitrator's decision is lengthy - it runs to 91 paragraphs. The document entitled 'Decision Details' runs to 33 paragraphs. Although I have been provided with a copy of the deed which led to the arbitration and at the arbitrator's award, I have not, understandably, been provided with any of the evidence which led the arbitrator to make his award. In the circumstances, I am not really in a position to offer even a tentative view as to the merits of the appeal. Nor is much assistance gained from the notice of appeal. It is to be remembered of course that leave to appeal from an arbitrator's decision can only be obtained in certain limited circumstances. The notice of appeal has references to errors of law by the arbitrator. Whether or not those alleged errors of law will be sufficient to satisfy the requirements of the Commercial Arbitration Act is very much open to question.
However, on balance I am satisfied that the better course is to assume that there is some merit in the plaintiff's application for leave to appeal. After all, in the Eumina Investments case, Emmett J was dealing with a situation where the plaintiff had lost at first instance and on appeal and was attempting to obtain special leave to appeal from the High Court. Such leave is notoriously difficult to obtain. The facts of the case, as recounted in his Honour's judgment, do not immediately suggest that the point at issue was of such significance that leave would be granted. Nonetheless, his Honour saw sufficient merit in the application to warrant the setting aside of the demand. In my view, I should follow a similar course in this case.
It is to be noted however, that, in setting aside the demand, his Honour imposed a condition. The condition was that the plaintiff was to pay into the court, or provide security for, the amount of the demand plus the costs of the application. Setting aside a demand on condition is an option available to the court under s 459M. That is the appropriate course for me to follow in this case.
Subject to hearing from counsel, I would propose that the orders in this case be as follows:
1.The statutory demand served 31 October 2008 be set aside upon condition that the plaintiff pay into court the sum of $280,000 or provide security in that amount to the satisfaction of the Principal Registrar within 21 days.
2.Should the applicant fail to meet the condition in order 1, the proceedings be dismissed. Costs of this application be reserved.