Rectangular Pty Ltd v Mae Cardaci ATF the Marco Cardaci Testamentary Trust

[2023] WASC 13

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RECTANGULAR PTY LTD -v- MAE CARDACI ATF THE MARCO CARDACI TESTAMENTARY TRUST [2023] WASC 13

CORAM:   LUNDBERG J

HEARD:   25 JANUARY 2023

DELIVERED          :   27 JANUARY 2023

FILE NO:   COR 2 of 2023

BETWEEN:   RECTANGULAR PTY LTD

Plaintiff

AND

MAE CARDACI ATF THE MARCO CARDACI TESTAMENTARY TRUST

Defendant

FILE NO:   COR 3 of 2023

BETWEEN:   WASHBURN PTY LTD

Plaintiff

AND

MAE CARDACI ATF THE WASHBURN TRUST

Defendant

Catchwords:

Applications to set aside statutory demands – Judgment debts obtained after hearing on the merits – Pending appeals to the Court of Appeal – Stay of primary judgment refused by the Court of Appeal – Judgment debtors are former trustee companies without assets – Whether 'some other reason' for setting aside the statutory demands

Legislation:

Civil Judgments Enforcement Act 2004 (WA), s 15
Corporations Act 2001 (Cth), s 459G, s 459H, s 459J

Result:

Applications dismissed

Category:    B

Representation:

COR 2 of 2023

Counsel:

Plaintiff	:	M L Bennett
Defendant	:	E M Heenan SC

Solicitors:

Plaintiff	:	Bennett
Defendant	:	Herbert Smith Freehills

COR 3 of 2023

Counsel:

Plaintiff	:	M L Bennett
Defendant	:	E M Heenan SC

Solicitors:

Plaintiff	:	Bennett
Defendant	:	Herbert Smith Freehills

Cases referred to in decision:

Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235

Body Corporate Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [2017] VSC 435

Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 3] [2022] WASC 412

Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 4] [2022] WASC 453

Cardaci v Filippo Primo Cardaci as executor of the estate of Marco Antonio Cardaci [No 5] [2021] WASC 331

Cardaci v Filippo Primo Cardaci as executor of the estate of Marco Antonio Cardaci [No 5] [2021] WASC 331 (S)

Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9

Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473

Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454

Food Channel Network Pty Ltd v Television Food Network, GP [2010] FCA 403

Meehan v Glazier Holdings Pty Limited [2005] NSWCA 24; (2005) 53 ACSR 229

Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; (1993) 11 ACLC 1062; (1993) 11 ACSR 362

Midas v Equator [2007] NSWSC 759

Norilya Minerals Pty Ltd v Ireland [2008] WASC 53

Ozy Homewares v Wesgordon [2007] NSWSC 982

Professional Services of Australia Pty Ltd v Lean [2018] WASC 28

Quadwest Developments Pty Ltd v THI [2009] WASC 54

Quarter Enterprises Pty Ltd v Allardyce Lumber Company Ltd [2011] NSWSC 1031

Re A.C.E.S. Sogutlu Holdings Pty Ltd [2014] NSWSC 140

Re JKAM Investments Pty Ltd [2015] NSWSC 2032

Re John Farlow Pty Ltd [2015] NSWSC 939

Re Mio Amico Pty Limited [2013] NSWSC 1292

Remote Camps Australia Pty Ltd v Hazeldine Pty Ltd [2012] FCA 130

Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466

Washburn Pty Ltd v Cardaci [2022] WASCA 15

Washburn Pty Ltd v Cardaci [2022] WASCA 43

Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1,039

Table of Contents

A.    Overview and summary

B.     Factual background

The Applications

The Trust Action and the Family Provision Action

Quantification of the orders

The Appeals

C.    Legislative Regime (pt 5.4 of the Act)

D.    Relevant principles

Overview

Barclays Australia (Finance) Ltd

Eumina Investments

E.     Submissions

Plaintiffs' Submissions

Defendant's Submissions

F.     Disposition

Overview

There is not 'some other reason'

Payment into court

G.    Conclusion

LUNDBERG J:

A.     Overview and summary

1. These reasons for decision relate to two applications brought by the plaintiff companies seeking to set aside two statutory demands served on the plaintiffs by the defendant just prior to Christmas, on 22 December 2022 (the Applications).  I will refer to the plaintiff companies in these reasons as Rectangular and Washburn. The Applications were filed on 4 January 2023, within the statutory time period. The Applications are brought pursuant to s 459G of the Corporations Act 2001 (Cth) (the Act). Rectangular and Washburn seek orders to have the respective statutory demands set aside in reliance on the ground in s 459J(1)(b) of the Act in that there is 'some other reason' the demands should be set aside. 

2. In COR 2 of 2023, the judgment creditor is Mae Cardaci as the trustee for the Marco Cardaci Testamentary Trust.  I will refer to her in these reasons as Ms Cardaci.  In that capacity, Ms Cardaci served a statutory demand on Rectangular seeking payment of the sum of $2,541,792.30 (Rectangular Statutory Demand). 

3. In COR 3 of 2023, the judgment creditor is Ms Cardaci as trustee for the Washburn Trust.  In that capacity, Ms Cardaci served a statutory demand on Washburn seeking payment of the sum of $2,099,239.44 (Washburn Statutory Demand). 

4. In sum, the statutory demands sought payment of the amount of $4,641,031.74 within 21 days of service of those demands.  That total sum represents the quantified amount of the judgments granted, and orders made, by this court in favour of Ms Cardaci. 

5. The Applications were first brought on before me for directions on 19 January 2023.  The view I reached was that the Applications should be listed promptly, given the nature and importance of the issues arising therein.  Accordingly, I listed the Applications for a substantive hearing on 25 January 2023 with a truncated timetable for filing submissions.  Ultimately, both parties attended to the filing of those submissions in a prompt and efficient fashion ahead of the hearing.  At the hearing, the plaintiff companies were represented by Mr M L Bennett and Ms Cardaci was represented by Mr E M Heenan SC.

6. For the reasons below, I am of the view that the Applications should be wholly dismissed. In my view, the Rectangular Statutory Demand and the Washburn Statutory Demand were legitimately issued by the defendant, in a manner consistent with the purposes of pt 5.4 of the Act. I can discern the existence of no collateral purpose attached to the issuing of the demands, and I reject the contention of the plaintiffs that there is 'some other reason' for the demands to be set aside.  To set these statutory demands aside would itself be to 'wreak a substantial injustice', looking at the position of both parties, not just the interests of the recipient, and in the context of pt 5.4 of the Act.[1]

   [1] Adopting the language of Santow JA in Meehan v Glazier Holdings Pty Limited [2005] NSWCA 24; (2005) 53 ACSR 229 [53].

7. Further, given the financial position of the plaintiff companies, which are presently assetless trustee companies, I consider there is no utility in adopting an approach whereby the plaintiffs are afforded an opportunity to pay the judgment sum into court, or to secure the amount to the satisfaction of the defendant.  No offer was made to this effect by the plaintiff companies (and there was ample opportunity for them to do so), and such an approach would in any event serve no useful purpose given the admitted parlous financial state of the entities.

8. As to the costs of the Applications, the provisional view I take is that the plaintiffs in each proceeding should pay the defendant's costs to be taxed, if not agreed.  However, I will allow either party to provide a minute of proposed orders to my chambers within seven days setting out any alternative costs order (including as to special costs orders), and the matter can be re-listed in due course for further submissions if required.

B.     Factual background

The Applications

1. In both Applications before me, Rectangular and Washburn seek orders to have the respective statutory demands set aside in reliance on the ground in s 459J(1)(b) of the Act in that there is 'some other reason' the demands should be set aside.  Each Application is supported by an affidavit of Mr Filippo Cardaci affirmed on 4 January 2023.  The affidavits are in similar terms.  I will refer in these reasons to Mr Cardaci as Mr Philip Cardaci.  Mr Philip Cardaci is the sole director of both Rectangular and Washburn.  I will refer in these reasons to the affidavit filed in COR 2 of 2023 as the Philip Cardaci Affidavit.[2]

   [2] A further affidavit was filed by the plaintiffs, being the affidavit of Chloe Alyssa Tolley affirmed 23 January 2023.  That affidavit was not read at the hearing on 25 January 2023: ts 15.

2. In essence, the plaintiffs say, through Mr Philip Cardaci, that this court should set aside the demands by reason that the orders of this Court which underlie the judgment debts are presently the subject of pending appeals to the Court of Appeal, and those appeals are soon to be heard and are reasonably arguable.  Allied to this, the plaintiffs suggest the statutory demands are infected with some collateral purpose, which is to either stultify the appeals or to coerce a third party (such as Mr Philip Cardaci) to put the plaintiffs into funds so the demands can be met.  This provides, at least according to the plaintiffs, the 'some other reason' which is contemplated by s 459J(1)(b).

3. At least initially, the Applications were broader in scope, relying also on s 459H(1)(a) of the Act (that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates) and s 459J(1)(a) of the Act (that there is a defect in the demand, and substantial injustice will be caused unless the demand is set aside).[3] Those additional grounds were not pressed by the plaintiffs at the hearing before me. 

   The Trust Action and the Family Provision Action

   [3] Grounds of Application in the Originating Process in COR 2 of 2023 at [2] and [3]; and Grounds of Application in the Originating Process in COR 3 of 2023 at [2] and [3].

4. The judgment debts which are the subject of the Rectangular Statutory Demand and the Washburn Statutory Demand arise from proceedings commenced by Ms Cardaci in this court, being CIV 1750 of 2017 (the Trust Action).  There were related proceedings in this court brought by Ms Cardaci, being CIV 3186 of 2016 (the Family Provision Action). 

5. The Trust Action and the Family Provision Action were heard by his Honour Justice Le Miere at a trial that occupied some 30 days in 2020, in what his Honour has described as 'hard fought' and 'hostile' litigation.  In the result, both Rectangular and Washburn were unsuccessful in that litigation and, as shall be seen below, they have both appealed the orders of Le Miere J to the Court of Appeal. 

6. Within the Trust Action referred to above, Ms Cardaci sought relief to remove Rectangular and Washburn as trustees of the Marco Cardaci Testamentary Trust and the Washburn Trust, to appoint herself as trustee of those trusts, and ancillary relief. 

7. On 4 October 2021, the trial judge granted the substantive relief, removing the plaintiffs as trustees and appointing Ms Cardaci in their place.[4]

   [4] Cardaci v Filippo Primo Cardaci as executor of the estate of Marco Antonio Cardaci [No 5] [2021] WASC 331 (Le Miere J).

8. On 23 December 2021, the trial judge delivered further reasons and made further orders.[5] The further orders required the plaintiffs (and Mr Philip Cardaci) to pay certain of Ms Cardaci's costs of the Trust Action, required Washburn to pay to Ms Cardaci, as trustee for the Washburn Trust, all money paid from trust assets for the purposes of meeting Washburn's own costs of the Trust Action (Order 9 of the relevant orders), and required Rectangular and another company to pay to Ms Cardaci, as trustee for the Marco Cardaci Testamentary Trust, all money paid from trust assets for the purposes of meeting Rectangular's own costs of the Trust Action (Order 10). 

   [5] Cardaci v Filippo Primo Cardaci as executor of the estate of Marco Antonio Cardaci [No 5] [2021] WASC 331 (S) (Le Miere J).

9. By way of context to the relief granted by Le Miere J at first instance (relevantly for present purposes), I refer to his Honour's summary at [107] and [108] of his supplementary reasons:[6]

   Washburn and Rectangular should restore to the trusts the trust funds used to meet their costs of the proceeding

   [107]Washburn and Rectangular have no right of indemnity against the trust funds for the payment of their costs of this proceeding.  Washburn and Rectangular had no authority to use trust funds to defend these proceedings.  Washburn and Rectangular precipitated this proceeding by their breaches of trust and misconduct through Philip.  They defended the proceeding, by their controller Philip, in substance for his benefit rather than for the benefit of the Trust.  Washburn and Rectangular each acted unreasonably in defending the proceeding for their removal as trustee.  They acted in breach of trust by using trust funds to pay their costs of defending this proceeding.

   [108]Washburn and Rectangular should restore to the trusts the trust funds used by them to pay the costs of these proceedings, together with interest, and an account should be taken for that purpose.

   Quantification of the orders

   [6] Cardaci v Filippo Primo Cardaci as executor of the estate of Marco Antonio Cardaci [No 5] [2021] WASC 331 (S).

10. The amounts the subject of Orders 9 and 10 made by the trial judge on 23 December 2021 were to be quantified by the taking of an account.  The quantification process was undertaken by Registrar Nelson, on a referral from the trial judge.  Registrar Nelson completed that process on 5 December 2022: Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 3] [2022] WASC 412.

11. The amounts quantified by Registrar Nelson, being the sum of $2,541,792.30 in respect of the Marco Cardaci Testamentary Trust and the sum of $2,099,239.44 in respect of the Washburn Trust, are largely comprised of payments made by Rectangular and Washburn to its solicitors, accountants and other professional advisers.

12. I made orders on 21 December 2022, on an unopposed motion filed by Ms Cardaci, to adopt the report of Registrar Nelson: Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 4] [2022] WASC 453. Upon the Registrar's report being adopted, the amounts in question became due and payable by Rectangular and Washburn, in effect from 22 December 2022.[7]

    The Appeals

    [7] Supreme Court Act 1935 (WA), s 50(2).

13. While the quantification process was underway, appeals against the substantive orders made by the trial judge have been progressing.  There are four pending appeals in the Court of Appeal, being:

    1.CACV 100 of 2021 (the Family Provision Appeal);

    2.CACV 101 of 2021 (the Trust Appeal);

    3.CACV 7 of 2022 (the Second Trust Appeal); and

    4.CACV 8 of 2022 (the Second Family Provision Appeal).[8]

    [8] Collectively, the Appeals.

14. The Second Trust Appeal is against the orders made in the Trust Action on 23 December 2021. 

15. In essence, I understand that all orders made in the Family Provision Action and the Trust Action have been appealed. 

16. Within the four appeals, there have been two interlocutory applications to the Court of Appeal.  The first was an application for security for costs by Ms Cardaci in the Trust Appeal: Washburn Pty Ltd v Cardaci [2022] WASCA 15 (Mitchell and Vaughan JJA). The second was a stay application pursuant to s 15 of the Civil Judgments Enforcement Act 2004 (WA) by the appellants in the Second Trust Appeal, which included the two plaintiff companies to the present proceedings: Washburn Pty Ltd v Cardaci [2022] WASCA 43 (Mitchell and Vaughan JJA).

17. In the court's reasons in both interlocutory applications, it was accepted that the proposed grounds of appeal were reasonably arguable in the relevant sense.[9] As I indicated to Counsel for the plaintiff companies during the hearing on 25 January 2023, I propose to proceed on that same basis in considering the present Applications.[10]

    [9] Washburn Pty Ltd v Cardaci [2022] WASCA 15 [29] (Mitchell and Vaughan JJA); and Washburn Pty Ltd v Cardaci [2022] WASCA 43 [41] (Mitchell and Vaughan JJA).

    [10] ts 15.

18. The security for costs application was granted and the stay application was refused.  The refusal of the stay application by the Court of Appeal is an important factor in the context of the present Applications. 

19. In dismissing the stay, the members of the court rejected the two supporting bases advanced by the stay applicants. 

20. The first basis was that neither Washburn nor Rectangular have sufficient assets to repay amounts of legal costs to their respective trusts or to pay Ms Cardaci's costs of the Trust action, as required by the court orders.  The stay applicants contended that there was a real prospect that, if they did not pay these amounts, Washburn and Rectangular would be placed into liquidation as a result of the enforcement of the orders and that the appeal would be stayed unless a liquidator chose to prosecute the appeal.

21. The second basis is not presently relevant, but focuses on a contention that, if the stay applicants paid the amounts to Ms Cardaci as ordered, Ms Cardaci would pay those amounts to her litigation funder and those amounts may not be recoverable in the event that they were successful in the appeal. 

22. In rejecting the first of these contentions, Mitchell and Vaughan JJA indicated they were not satisfied that the prospect of the trustee companies being wound up was so significant that a stay was required to prevent the appeals being rendered nugatory (Washburn Pty Ltd v Cardaci [2022] WASCA 43 [19] - [28] (Mitchell and Vaughan JJA)):

    [19]We are not satisfied that the current prospect of the corporate trustees being wound up before an appeal is heard is such as to justify the grant of a stay to avoid the appeal being rendered nugatory.

    [20]Crystallisation of amounts owing by the appellants into a judgment debt for an ascertained sum will occur only once the accounts provided for in orders 9 - 12 of the orders made on 23 December 2021 are taken or Mae's costs of the Trust action are assessed.  It is not clear whether either process will be completed prior to the hearing of the appeal. 

    [21]Affidavits sworn by Philip for the purposes of the accounts indicate that Washburn paid $1,728,861.56 from the assets of the Washburn Trust, and Rectangular paid $2,199,095.93 from the assets of Marc's Testamentary Trust, in respect of the costs of defending the primary proceedings.  However, an account will still need to be taken before a statutory demand for a judgment debt of a specific sum could be served.

    [22]As to costs, once Mae's costs of the Trust action are assessed or agreed, Philip, Washburn and Rectangular will be jointly and severally liable for their payment.  For reasons explained in the Security for Costs Decision, there is no reason to apprehend that Philip will not discharge his personal liability to pay Mae's costs of the primary proceedings.

    [23]In this context, the appellants have given the court very limited information as to the financial position of Washburn and Rectangular.  The affidavit in support of the application simply asserts that the deposing solicitor has been informed by Philip and verily believes that Washburn and Rectangular do not have sufficient assets to pay the money required to pay the amounts owing under orders 1, 9 and 10.  No accounts for the corporations in their own right have been tendered.  There is no evidence as to the capacity that those corporations have to be placed in funds by other Cardaci entities sufficient to discharge their obligations under the primary orders prior to the determination of the appeal.

    [24]There is also no evidence as to whether Washburn or Rectangular have creditors other than Mae (either in her personal capacity or as trustee of the Washburn trust and Marc's Testamentary Trust) who may be willing to fund the prosecution of the appeal by a liquidator of the companies.  Philip or the entities that he controls would also seem to have the capacity to fund the prosecution of the appeal, and he may well regard it to be in his interests or in the interests of the entities he controls to provide that funding if a stay is not granted.  The current state of the evidence does not enable any conclusion to be reached as to the prospects of a liquidator deciding to prosecute the appeal.

    [25]Further, it appears to be common ground between the parties that neither Washburn nor Rectangular have any substantial assets.  As such, their prosecution of this and related appeals must currently depend on financial support being provided by Philip or other companies in the Cardaci Group.  Counsel for the appellant accepted that the court could draw this inference.  There is nothing before this court to show any reason why those currently providing financial support to enable Washburn and Rectangular to prosecute these appeals would not continue to do so if those companies are placed into liquidation.

    [26]There are two further considerations in evaluating the contention that, by reason of the prospect of winding up, a refusal of a stay could create practical difficulties threatening the integrity of the appeal:

    1.First, it will be open to Washburn and Rectangular to seek an adjournment of any winding up application pending the determination of the appeal.  The judicial officer considering such an application will be in a better position than this court in important respects.  It should be known when the appeal will be heard.  Further, the court may have more evidence as to the appellant companies' financial position and what, if any, actions are proposed to preserve the respondents' and other creditors' interests in the face of any apparent insolvency.

    2.Second, even if Washburn and Rectangular are wound up - and a liquidator then refuses to cause the appellant companies to continue to conduct the appeals - it will be open to a person with sufficient interest to apply for an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) to seek review of that decision.

    [27]In summary, before the appeal could be rendered nugatory in the absence of a stay of the primary orders, in the circumstances of the present case, the following events would need to occur:

    1.The costs would need to be assessed and/or the accounts of amounts owing under orders 9 and 10 of the primary orders would need to be taken before the determination of the appeal.

    2.Philip, Washburn or Rectangular (in the case of costs), and Washburn and Rectangular (in the case of amounts payable under orders 9 and 10) would need to fail to pay the relevant amounts.  This would involve the financial support required for Washburn and Rectangular to pay the amounts not being forthcoming from Philip or another company in the Cardaci Group.

    3.Statutory demands would need to be issued and not complied with.

    4.An application to wind up Washburn and Rectangular would need to be made.

    5.A court would need to decide to deal with the winding up application and order the winding up of the companies in advance of the determination of this appeal.

    6.A liquidator would need to be appointed to Washburn and Rectangular and would need to decide not to prosecute the appeal, either because:

    (a)        the liquidator assesses the appeal to have insufficient prospects of succeeding; or

    (b) the financial support currently provided by Philip or other Cardaci Group companies to enable Washburn and Rectangular to prosecute the appeals has been withdrawn and an alternative source of financial support is not available.

    [28]We are not satisfied that the evidence presently before the court establishes that this combination of events is sufficiently likely to occur so as to make a stay necessary to preserve the subject matter of the appeal or avoid practical difficulties in the relief which could be granted in the appeal.

1. The appeals are due to be heard by the Court of Appeal over a period of 3 days commencing on 1 February 2023, which is next week.  The assessment of the Court of Appeal in April 2022, when it delivered its decision to refuse the stay application, to the effect that a stay of the orders was not required to prevent the appeals being rendered nugatory,[11] must surely apply with even greater force today.  The preparation of the appeals has progressed to the point that they are listed for hearing in a matter of a few days.  I infer, as did the Court of Appeal, that the plaintiff companies have achieved this position through the financial support of others, whether that be Mr Philip Cardaci or other companies in the corporate group he controls. 

   [11] Washburn Pty Ltd v Cardaci [2022] WASCA 43 [19] (Mitchell and Vaughan JJA).

2. The consequences feared by the plaintiff companies have not materialised to date and, in my view, there is no likely prospect that a dismissal of these Applications would impair the hearing of the pending appeals.  I will return to this point below.

C.     Legislative Regime (pt 5.4 of the Act)

1. Part 5.4 of the Act is headed 'Winding up in insolvency'. Within pt 5.4, div 2 and div 3 create a statutory regime by which a creditor may serve a statutory demand on a company in respect of a debt or debts which are due and payable, provided the debts meet at least the statutory minimum amount (s 459E of the Act).

2. A creditor may take advantage of the statutory demand procedure whether or not the creditor has obtained a judgment in respect of the debt.  Greater difficulties can arise for the creditor where the debt which underpins the statutory demand is not the subject of a judgment or court order, given the scope of the debtor company to assert there is a 'genuine dispute' as to the existence of amount of the debt in question (see s 459H(1)(a) of the Act).

3. In the present matters, being COR 2 of 2023 and COR 3 of 2023, as already explained, the creditor has obtained judgment in her favour in respect of the debts which are the subject of the statutory demands. 

4. The failure by a company to comply with a statutory demand creates a presumption of insolvency for a particular period (s 459C(2)(a) of the Act), which the creditor may call in aid to support an application for an order to wind up the company for insolvency (under div 4 pt 5.4).

5. In the present matters, we are not yet concerned with any application by the judgment creditor for orders to wind up the plaintiff companies. Rather, we are at an anterior stage of the process. Rectangular and Washburn have been served with statutory demands pursuant to s 459E of the Act and, in response, those companies have applied to this court pursuant to s 459G of the Act for orders to set aside the demands.

6. In the event the statutory demands cannot be set aside, it would then be open to the judgment creditor to apply for winding up orders. At that second stage, there are statutory limits as to the grounds a debtor may rely upon to oppose a winding up order, unless the leave of the court is obtained (s 459S of the Act). In particular, a debtor may not rely upon a ground that it relied on for the purposes of applying to set aside the demand, without the leave of the court. This provision is designed to ensure that questions as to the existence of a genuine dispute or an offsetting claim are determined before a winding up application is lodged.

7. In both matters, Rectangular and Washburn seek orders to have the respective statutory demands set aside in reliance on the ground in s 459J(1)(b) of the Act. Section 459J of the Act provides as follows:

   Setting aside demand on other grounds

   (1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

   (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

   (b) there is some other reason why the demand should be set aside.

   (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

8. Rectangular and Washburn have thus confined their Applications to s 459J(1)(b) of the Act, which necessitates that those companies demonstrate there is 'some other reason why the demands should be set aside'. 

D.     Relevant principles

Overview

1. There was some common ground between the parties as to the applicable principles, but important differences in certain respects. I have set out below the orthodox principles which I should apply, having regard to the weight of the authority on the scope of pt 5.4 of the Act, and s 459J(1)(b) in particular.

2. The statutory language employed within s 459J(1)(b) of the Act undoubtedly requires the court to exercise a discretion - the court 'may' set aside the statutory demands.  The existence of 'some other reason' does not require the court to necessarily accede to the application. The discretionary nature of the power in s 459J(1) represents an important difference between the grounds in s 459H(1)(a) and s 459J(1). It confers a wide discretion.[12] Indeed, it has been said that the power in s 459J(1)(b) exists to:

   maintain the integrity of the process provided under Part 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but not by reference to subjective notions of fairness.[13]

   [12] Midas v Equator [2007] NSWSC 759 [17] (Hammerschlag J).

   [13] Re Mio Amico Pty Limited [2013] NSWSC 1292 [8] (Black J).

3. So understood, an application to set aside a statutory demand in reliance on s 459J(1)(b) of the Act requires that the whole of the circumstances of the matter be considered, in order to determine whether the court can be satisfied there is some other basis (beyond those in s 459H(1) and s 459J(1)(a) of the Act) which justifies an order being made that precludes the use of the statutory procedure. The relative positions of both sides must be examined, not merely the party which is the subject of the demand, having regard to the objectives of pt 5.4 of the Act.[14]

   [14] Meehan v Glazier Holdings Pty Limited [2005] NSWCA 24; (2005) 53 ACSR 229 [52] (Santow JA, with Tobias JA and Young CJ in Eq agreeing).

4. The operation and application of s 459J(1)(b) of the Act in the context of a pending appeal against a judgment debt, has been addressed in numerous decisions. In those instances, Australian courts have been alive to the possibility that the application to set aside a statutory demand may operate as a de facto stay of the judgment debt.  See, for example, the observations of Master Adams in Wilden Pty Ltd v Greenco Pty Ltd (Unreported, WASC, Library No. 950307, 16 June 1995) at page 6; Emmett J in Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454, 460; Ward J (as her Honour then was) in Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9 [34]; and Randall AsJ in Body Corporate Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [2017] VSC 435 [80]. The appropriate course may be for the recipient of the statutory demand to apply for a stay to the court which entered judgment: Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454, 460F (Emmett J); and Re John Farlow Pty Ltd [2015] NSWSC 939 [15] - [16] (Brereton J).

5. Further, where there is a pending appeal against a judgment debt which is reasonably arguable, it is not inconsistent with the structure of pt 5.4 of the Act for a party which has the benefit of the underlying judgment debt (which has not been either stayed or set aside) to rely upon it for the presumption of insolvency that follows when a statutory demand is served and payment is not made. I refer, by way of example, to the observations of Santow JA in Meehan v Glazier Holdings Pty Ltd [2005] NSWSC 24; (2005) 53 ACSR 229 [51]; Barrett J in Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 [24] - [25]; and Black J in Re JKAM Investments Pty Ltd [2015] NSWSC 2032 [17].

6. It must be remembered that a failure to comply with a statutory demand does not automatically lead to the winding up of a company, and there remains a discretion whether, if a winding up application is ultimately filed, to proceed with the application or adjourn the matter while the underlying judgment is challenged.  These processes must not be conflated.  It is thus not necessary to set aside a statutory demand merely because there is a challenge underway to the underlying judgment or orders.  The statutory demand process will not, of itself, impair the company's ability to challenge the judgment, whether through an appeal or otherwise. 

7. In the absence of a stay, the mere existence of a reasonably arguable appeal will therefore not constitute 'some other reason' for the purposes of s 459J(1)(b) of the Act. There exists compelling authority in support of this proposition including Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235, 239 (McLelland CJ in Eq); Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9 [34] ‑ [42] (Ward J); Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 [24] ‑ [25] (Barrett J); and Re A.C.E.S. Sogutlu Holdings Pty Ltd [2014] NSWSC 140 [20] (Brereton J).

8. As Smith AJ noted in Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [66], citing Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235:

   Yet, an existing appeal on reasonable and arguable grounds against a judgment debt if successful, that expunges the judgment debt, in itself, in the absence of a stay, is not a circumstance that will constitute 'some other reason' why the demand should be set aside

9. The additional circumstance often identified, for the purposes of establishing the 'some other reason' required by s 459J(1)(b) of the Act, is the payment into court of the sum demanded, or for the applicant to secure that sum to the satisfaction of the judgment creditor. This outcome is typically achieved by exercising the power in s 459M of the Act to impose a condition on an order setting aside the relevant statutory demand. Smith AJ ultimately adopted this approach in Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [67], following the course adopted in Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454 (Emmett J); Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759 and Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 (Barrett J).[15] The demands of justice, and the interests of both sides, may then be met.  In that scenario, the judgment creditor will be assured of the existence of the funds to meet the judgment debt in the event the pending appeal succeeds, although questions may arise as to the judgment creditor's relative entitlement to those funds if the debtor falls into liquidation. 

   [15] See also Quadwest Developments Pty Ltd v THI [2009] WASC 54 [19] (Sanderson M) and Quarter Enterprises Pty Ltd v Allardyce Lumber Company Ltd [2011] NSWSC 1031 [9] (White J).

10. In addition to the above overview of relevant principles, it is appropriate to more closely examine two of the authorities which were analysed by both Counsel at the hearing on 25 January 2023.

    Barclays Australia (Finance) Ltd

11. In Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235, McLelland CJ in Eq set aside a statutory demand upon provision of an undertaking by the judgment debtor to pay to the judgment creditor the amount of the debt in question. In the event the undertaking was not given, McLelland CJ in Eq ordered that the application to set aside be dismissed.

12. The factual circumstances in Barclays Australia (Finance) Ltd are important but, as McLelland CJ in Eq notes, the precise facts in the case are less than clear (at 237). It appears that the debt in question was jointly owed by Barclays Australia and another party. The other party appealed the judgment, Barclays Australia did not, and both parties sought a stay. Barclays Australia's stay application was declined, seemingly because it was not strictly an appellant. The other party obtained a partial stay (of 50% of the amount in question) and he accordingly paid half the amount of the debt into court. It then appears as though Barclays Australia gratuitously paid the other half into court.

13. McLelland CJ in Eq rejected the argument that the pending appeal gave rise to a genuine dispute about the existence of the debt.  His Honour held:

    The answer to this submission is that the possibility that a presently existing and enforceable debt may be set aside in the future pursuant to a subsisting appeal does not give rise to a genuine dispute about the existence of the debt within the meaning of s 459H: see eg Hoare Bros Pty Ltd v DCT (1995) 16 ACSR 213; 13 ACLC 358; Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1039. The position would of course be different if there were a stay of proceedings under, or stay of execution of, the costs order against Barclays, but there is not, and in the absence of any such stay and notwithstanding the pendency of the appeal, the costs orders of 16 July 1995 against Barclays (together with the judgment of 16 May 1996), unless and until set aside on appeal, operate as res judicata determining the matter of Barclays' costs liability to Gaffikin Marine: see Spencer-Bower & Turner Res Judicata 2nd ed p 144; Lahoud v B & M Quality Constructions (22 July 1994, SC(NSW), McLelland CJ in Eq, unreported).

14. His Honour also rejected a further argument that the court's orders which gave rise to the debt should be characterised as a joint liability such that it could not be enforced against Barclays alone, either at all, or in light of the stay of granted to the other party.

15. The final ground advanced by Barclays Australia was on based on s 459J(1)(b) of the Act. In this regard, his Honour reiterated his earlier point: 'It seems clear that the pendency of the appeal would not of itself provide any sufficient reason for setting aside the demand under that provision: see Hoare Bros, supra, and Wilden, supra' (at 240).  His Honour noted the existence of a further circumstance which was relevant to the application to set aside, namely that the whole of the amount demanded had been paid into court.  While superficially advantageous for the creditor, there remained difficulties.  First, the creditor was strictly speaking entitled to enforce payment of the full amount against Barclays Australia alone.  Second, no amounts had been paid to the creditor.  Third, it was possible for Barclays Australia to obtain an order for payment of the money out of court to its benefit, as the amount had been paid into court irregularly.

16. McLelland CJ in Eq concluded that the institution of winding up proceedings against Barclays Australia on the ground of insolvency would be more than merely a mode of enforcing a judgment or order, and would involve wider interests than those of the immediate parties.  His Honour further noted that 'the only significance of the statutory demand is of course to establish evidence of insolvency as a foundation for such winding up proceedings' (at 239).

17. Given these matters, McLelland CJ in Eq determined that the proper course was to order that the statutory demand be set aside provided that Barclays Australia gave an undertaking to the court to pay to the judgment creditor an amount equal to the whole of the judgment debt, less any sum the appellate court has ordered to be paid out of the court fund to the creditor.  Absent an undertaking to this effect, his Honour proposed to dismiss the application to set aside.

18. The circumstance that there had been a substantial payment into court, albeit a voluntary one, represents an important distinguishing feature of the Barclays Australia (Finance) Ltd case, relative to the Applications before me.

    Eumina Investments

19. In Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454, Emmett J heard an application by a company to set aside a statutory demand served by the respondent bank. The demand sought payment of an amount which was the subject of a costs order made by the Federal Court. The costs order was not appealed and was not the subject of any stay application. The company maintained that it had a genuine claim against the respondent bank which far exceeded the costs order debt. That claim was dismissed in the Federal Court, and then reasserted (and dismissed) in the Supreme Court of New South Wales. An appeal to the Court of Appeal of New South Wales was then dismissed. At the time Emmett J heard the matter, an application for special leave to the High Court of Australia was pending.[16] Nonetheless, at the time the application to set aside the statutory demand was heard, there had been a determination that the company had no claim against the respondent bank, as Emmett J noted (at 458). 

    [16] The application for special leave was ultimately refused by the High Court: Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] HCATrans 363 (Gleeson CJ and Gummow J). The court was of the view that the decisions appealed against turned largely upon findings of fact and the matter was not attended with sufficient prospects of achieving a different outcome to the litigation if special leave were to be granted.

20. Emmett J rejected the company's contention that there was a genuine dispute as to the debt, for the purposes of s 459H(1) of the Act. His Honour concluded that the effect of the determination of the Court of Appeal in dismissing the appeal from the decision of the trial judge (which dismissed the company's claim against the respondent bank) was that, as at the date of service of the statutory demand, as at the date of commencement of the proceedings before his Honour, and as the date the matter was heard by his Honour, it had been determined that the company had no claim against the respondent bank. It was thus not open to the company to contend to the contrary, having regard to the doctrine of res judicata.  A superior court had conclusively determined that the company had no claim.

21. Emmett J was of the view that the only bona fide claim which the company had against the respondent bank was its claim for special leave to appeal from the decision of the Court of Appeal.  His Honour was prepared to assume that the application for special leave had reasonable prospects of success and that the company had reasonable prospects of succeeding on appeal if leave were granted.  Emmett J held that that assumption would not avail the company, however.  It would only establish that the claim for special leave might be characterised as a genuine claim.  The determination of the trial judge conclusively determined, as between the company and the respondent bank, that there was no money recoverable by the company from the respondent bank arising out of the subject matter of the proceedings.

22. Having concluded that there was no genuine dispute as to the debt the subject of the statutory demand, for the purposes of s 459H(1) of the Act, Emmett J considered the possible application of s 459J(1). In this regard, he noted that s 459J(1)(a) was not relied upon by the company, there being no relevant defect in the demand. This left for consideration the ground which appears in s 459J(1)(b), namely there being 'some other reason'. 

23. Emmett J opined that a circumstance in which it may be unjust for a statutory demand to stand, for the purposes of s 459J(1)(b), was where there was a judgment or order which precluded a contention that there was a genuine dispute or an offsetting claim, but there was a bona fide appeal on foot from that judgment or order. His Honour expressed the view, for the reasons he developed, that the court may set aside a demand which is based on the judgment or order which is subject to appeal or in respect of which, if an appeal succeeds, there would be an offsetting claim, if justice requires (and subject to the possibility of imposing conditions as contemplated by s 459M of the Act).

1. Emmett J referred to the decision of McLelland CJ in Eq in Barclays Australia (Finance) Ltd to the effect that the pending appeal in that case would not of itself provide any sufficient reason for setting aside a demand under s 459J(1)(b). McLelland CJ in Eq had cited Hoare Brothers Pty Ltd v D.C.T.  (1995) 16 ACSR 213 and Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1039 as support for that conclusion. Emmett J examined the decision of Olney J in Hoare Brothers in some detail.  Emmett J's analysis may be summarised as follows:

   1.In Hoare Brothers, Olney J had observed that the general flavour of s 459J was of a section which gave the Court a discretion to set aside a statutory demand when the justice of the case demanded that a company which was otherwise likely to become deemed to be insolvent should be relieved of that possibility.

   2.The debt in that case arose from the issue of an assessment under the income tax legislation.  Questions remained unresolved in relation to the company's objection to one year's tax assessment.  Further, the Commissioner had rejected an objection lodged out of time in respect of another year's assessment.  Further still, the objection which was under consideration had been lodged out of time and the company's argument that there was a genuine dispute depended upon both objections being entirely successful.  No attempt had been made by the company to object to one of the assessments until after the statutory demand was served.

   3.In those circumstances, Olney J did not consider that the Commissioner's conduct in serving the statutory demand was in any way unconscionable or an abuse of process or that it had given rise to substantial injustice that warranted the Court setting aside the statutory demand. 

   4.Olney J concluded, therefore, that there was nothing special about the circumstances of that case which called for the court's intervention. The Full Court of the Federal Court dismissed an appeal (see 135 ALR 677) but left open the possibility of a fairly wide discretion under s 459J if 'some appropriate reason' was shown (at 691).

2. Ultimately, Emmett J concluded that it was appropriate for a court to exercise the discretion conferred by s 459J(1)(b) where the Court was satisfied that there was an appeal based on reasonable and arguable grounds which, if successful, would result in the existence of an offsetting claim. In reaching this conclusion, his Honour considered it 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.[17]

   [17] In this regard, I cannot agree (with the greatest of respect to his Honour) with Hammerschlag J's observation in his ex tempore judgment in Midas v Equator [2007] NSWSC 759 [23] that Emmett J did not intend to draw a distinction between a pending appeal which, if successful, would result in an offsetting claim by the debtor against the creditor, as opposed to impeaching the judgment debt itself.

3. Emmett J observed that, where there was an appeal against a judgment debt which gave rise to the statutory demand and there was no stay, whether or not the stay had been sought, there may be some substance in the conclusion that setting aside the statutory demand is, in effect, a de facto stay.  The appropriate course was for the company to apply for a stay to the court which entered judgment.

4. In contrast, Emmett J held that, where there was an appeal from a decision dismissing a possible offsetting claim, the position was somewhat different. In the case before his Honour, there was no mechanism available to the company, other than by relying on s 459J(1)(b), to prevent the consequences of the presumed insolvency which would follow from non-compliance with the statutory demand.

5. His Honour then examined the merits of the application for special leave and, noting that it was not for his Honour to presume to predict the outcome of that application, he reached the conclusion that the application was based on reasonable and arguable grounds.  He was thus disposed to conclude that there was 'some other reason' why the demand should be set aside.  Given the absence of evidence as to the financial state of the company, Emmett J considered it appropriate to require, as a condition of setting the demand aside, that the company pay the amount of the debt into court or otherwise secure the amount of the debt.

6. The continuing authority of Eumina Investments was called into question by Logan J in Food Channel Network Pty Ltd v Television Food Network, GP [2010] FCA 403 [18]. His Honour's doubts as to the correctness of Eumina Investments were driven by the High Court's decision in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473, in which the court reversed the Queensland Court of Appeal decision reported as Neutral Bay Pty Ltd v Deputy Commissioner of Taxation (2007) 68 ATR 886.

7. Logan J found it difficult to reconcile the statements of Emmett J at pages 5 and 6 in Eumina Investments with the reversal by the High Court of the Queensland Court of Appeal's decision in Neutral Bay. His Honour considered that an application to set aside a statutory demand should not be seen as an opportunity to remedy an evidentiary failure on a stay application (at [19]). His Honour concluded that to permit reliance upon the existence of a pending appeal would be to permit reliance upon a basis which does not provide an 'other reason'.  His Honour preferred to associate himself with the remarks of Young CJ in Eq in Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 to the effect that:

   [58]Although the wording of s 459J(1)(b) of the Corporations Act appears wide, its context and history requires reading it down to encompass in general terms only cases where the Court is satisfied that injustice will be caused unless the demand is set aside because of a defect relating to, but not in, the demand, see Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 17.

8. Some years later, and in contrast, Black J expressed the view, although not a final one, that the High Court's decision in Broadbeach Properties is directed to the particular statutory and policy context of statutory demands served by the Commissioner of Taxation and it 'does not question the application of the principle in Eumina in other contexts': Re Mio Amico Pty Limited [2013] NSWSC 1292 [11].

9. The resolution of this issue is not a matter on which I need to form a final view in the present context, although I should say that I prefer the view that the conclusion in Eumina Investments was largely informed by the circumstance that the pending appeal (if successful) would result in an offsetting claim.  There was thus no mechanism available to the debtor in that case to prevent the consequences of the presumed insolvency which would follow from non-compliance with the statutory demand.  The factual setting in Eumina Investments is thus quite different from the circumstances which arise on the present Applications before me.  I therefore do not regard the conclusions of Emmett J in Eumina Investments as directly applicable to these Applications. 

10. The approach I propose to take is to have regard to the pendency of the appeal to the Court of Appeal and to accept that the appeal is based on reasonably arguable grounds. I propose to do so in the context of all the relevant additional circumstances, including the relative positions of both parties. In this regard, I do not regard the pending appeal as a gateway issue to the exercise of the discretion in s 459J(1)(b) of the Act. The pending appeal forms part of the overall context. So too does the ability of the plaintiff companies to seek a stay from the Court of Appeal, as does the fact that such a stay was sought and was refused.

E.     Submissions

1. Detailed written submissions were filed by the parties.  I refer to the plaintiffs' submissions dated 23 January 2023 (Plaintiffs' Submissions) and the defendant's submissions dated 24 January 2023 (Defendant's Submissions).  A summary of those submissions, which were further developed orally at the hearing on 25 January 2023, is set out below.

   Plaintiffs' Submissions

2. The plaintiff companies placed considerable reliance on the pendency of the appeals to the Court of Appeal and the decision of Emmett J in Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454. The plaintiffs observe that the Appeals are due to be heard by the Court of Appeal on 1 to 3 February 2023, and the Court of Appeal has twice expressed the view that those pending Appeals are reasonably arguable, in the relevant sense.[18] If the Appeals are successful, the plaintiffs highlight that the orders creating the debts will be discharged.[19]

   [18] Plaintiffs' Submissions [7] - [9].

   [19] Plaintiffs' Submissions [18].

3. The plaintiffs submit that the reasoning and analysis of Emmett J is not confined to circumstances involving an offsetting claim.[20]

   [20] Plaintiffs' Submissions [13] - [15].

4. The plaintiffs further submit that the authority of that decision is not diminished by the subsequent decision of the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473.[21]

   [21] Plaintiffs' Submissions [16] - [17].

5. By reference to decisions of Black J in Re Mio Amico Pty Limited [2013] NSWSC 1292 and Barker J in Remote Camps Australia v Hazeldine Pty Ltd [2012] FCA 130, the plaintiffs submit that the High Court's approach in Broadbeach Properties was directed to the particular statutory context before the court on that occasion, involving the assessment and collection of income tax and goods and services tax.[22]

   [22] Plaintiffs' Submissions [16] - [17].

6. In particular, the plaintiffs drew my attention to the comments of Black J in Re Mio Amico at [11], to which I have earlier referred in these reasons, although it is apparent from his Honour's comments that he was not required to express a final view on the issue in the context of that case:

   I should note that there is an open question as to the present standing of the principle in Eumina Investments, to which counsel did not refer in submissions.  In Food Channel Network Pty Ltd v Television Food Network GP [2010] FCA 403 at [18]; [2010] FCA 180; (2010) 184 FCR 1, Logan J questioned whether reliance could continue to be placed on that principle, following the decision of the High Court of Australia in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473. In Collendina Pty Ltd v ClarkeKann (NSW) Pty Ltd (No 2) [2010] FCA 949, Jacobson J noted that issue but found it unnecessary to decide it in the particular case, where no appeal was then on foot. In Remote Camps Australia v Hazeldine Pty Ltd [2012] FCA 130 at [32], Barker J assumed, without deciding, that the principle in Eumina continued to be good law.  I would be inclined to the view that the decision of the High Court of Australia in Broadbeach is directed to the particular statutory and policy context of statutory demands served by the Commissioner of Taxation and does not question the application of the principal in Eumina in other contexts.  However, for reasons that will emerge below, it is not necessary for me to express a final view as to that issue.

7. As to whether a condition might be imposed by the court in setting aside the statutory demands, the plaintiffs submitted that no conditions ought be imposed.[23] As I have earlier noted, there are numerous instances in which superior courts in Australia have imposed, as a condition of an order to set aside a statutory demand, a requirement that the full amount of the judgment debt be paid into court (or security for the judgment debt be provided in some other form acceptable to the judgment creditor).  The plaintiffs resist this by highlighting the following matters:[24]

   1.the plaintiffs were historically trustee companies and they have insufficient assets to meet the judgment debts;

   2.it is submitted that the demands are directed to securing the liquidation of the trustee companies which would result in a purported stay or withdrawal of the appeals; and

   3.in the alternative to the preceding point, it is submitted that the demands are directed at forcing third parties to provide financial support for the plaintiffs in order to maintain the appeals.

   [23] ts 36.

   [24] Plaintiffs' Submissions [19].

8. As to the third of these points, it is submitted by the plaintiffs that it is wrong, in principle, to have regard to the potential for third parties to support the position of the plaintiffs by placing them in funds sufficient to enable a payment into Court to be made.[25] The plaintiffs say that these setting aside applications are intended to 'avoid the unjust circumstance where, by the imposition of conditions, legitimate rights of appeal would be curtailed, if not extinguished, notwithstanding the statutory demands would otherwise be set aside'.[26]

   Defendant's Submissions

   [25] Plaintiffs' Submissions [20].

   [26] Plaintiffs' Submissions [21].

9. The defendant rejected any notion that Eumina Investments continues to stand as an authority which supports the plaintiffs' contentions that the statutory demands here should be set aside pursuant to s 459J(1)(b) of the Act (unconditionally or otherwise).

10. The defendant accepts that the appeals are soon to be heard by the Court of Appeal.  The defendant submits, however, there is plainly no 'genuine dispute' about the existence of the judgment debt for the purposes of s 459H of the Act,[27] and the pendency of the appeals with reasonably arguable grounds does not, in and of itself, provide 'some other reason' why the demands should be set aside.[28] I regard these propositions as unassailable, with respect, given the authority to which I have earlier referred. 

    [27] Defendant's Submissions [14].

    [28] Defendant's Submissions [15].

11. The defendant also emphasises the matters of timing and process identified by Mitchell and Vaughan JJA in their reasons for dismissing the stay application in April 2022.[29] That is to say, the refusal of a stay and a subsequent failure by the plaintiff companies to comply with a statutory demand do not necessarily have a direct impact on the ability of those entities to prosecute their appeal.  So much is apparent from the passage of time since April 2022. 

    [29] Defendant's Submissions [11] - [12].

12. The defendant refutes the notion that the proximity of the appeal hearing can have any bearing on whether the ground in s 459J(1)(b) exists. At most, the defendant says this is an issue to be addressed at the winding up application stage.

13. Further, the defendant highlights the fact the stay itself was refused, and submits that, at least prima facie, this demonstrates there will not be some other reason to set aside the demands.[30] The defendant submits that the refusal of the stay should weigh heavily against the granting of the Applications.[31]

    [30] Defendant's Submissions [17] and [24] - [25], relying on Quarter Enterprises Pty Ltd v Allardyce Lumber Company Ltd [2011] NSWSC 1031 [9] (White J).

    [31] Defendant's Submissions [25].

14. The defendant rejects any contention that she has issued the statutory demands in a manner which is contrary to the objects or purposes of pt 5.4 of the Act and submits, quite forcefully, that the service of statutory demands in the present context is orthodox and wholly legitimate.

15. Senior Counsel for the defendant submitted that there is no authority in Australia in which a court has set aside a demand for payment of a judgment debt for 'some other reason', even on condition that the money be paid into court, where an application for a stay of the judgment has been refused.[32] Senior Counsel for the defendant further submitted that there is no authority in Australia in which a statutory demand issued in the face of a pending appeal has been set aside unconditionally (save for Ozy Homewares v Wesgordon [2007] NSWSC 982 and Norilya Minerals Pty Ltd v Ireland [2008] WASC 53, both of which involve peculiar facts).[33]

    [32] Defendant's Submissions [24].

    [33] ts 38.

16. The primary position of the defendant was thus that the Applications should be dismissed because there is not 'some other reason' within the meaning of s 459J(1)(b) of the Act. In the alternative, the defendant submits that if, despite the Court of Appeal's refusal of the stay, I was to conclude that the statutory demands should be set aside, the 'preponderance of authorities…requires that the setting aside should be on condition that the plaintiffs pay the judgment debts into Court'.[34]

F.     Disposition

Overview

[34] Defendant's Submissions [26] - [44].

1. At least initially, and only as an alternative ground, the plaintiffs asserted in these Applications that there was a 'genuine dispute' within the meaning of s 459H(1) of the Act, arising from the pending appeals to the Court of Appeal which were said to be reasonably arguable.[35]

   [35] Grounds of Application in the Originating Process [2]; and Philip Cardaci Affidavit [37.2] and [37.3].

2. This alternative ground was not pressed in the Plaintiffs' Submissions, nor at the hearing before me.  The decision not to press the ground was no doubt driven by the overwhelming weight of authority which holds that the existence of a pending appeal with reasonable prospects of success does not create a 'genuine dispute' about the existence of a judgment debt for the purposes of s 459H(1) of the Act, particularly where judgment has been obtained following a hearing on the merits before the primary court.[36] The fact of the judgment debt (and certainly one obtained after a hearing on the merits) is res judicata as between the parties.

   [36] Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1,039, 1,040 (Adams M); Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235, 238 (McLelland CJ in Eq); Food Channel Network Pty Ltd v Television Food Network, GP [2010] FCA 403, [14] (Logan J); Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466, [11] (Barrett J); Quarter Enterprises Pty Ltd v Allardyce Lumber Company Ltd [2011] NSWSC 1031, [8] (White J); Remote Camps Australia Pty Ltd v Hazeldine Pty Ltd [2012] FCA 130, [25] (Barker J); and Professional Services of Australia Pty Ltd v Lean [2018] WASC 28, [35] - [37] (Smith AJ).

3. The foregoing proposition drives the plaintiffs to rely on the ground in s 459J(1)(b) of the Act, and to challenge the statutory demands on the basis there is 'some other reason' why they should be set aside. As I have earlier noted, the court is empowered to exercise a discretion in this regard. In exercising that discretion, I should recognise that s 459J(1)(b) of the Act exists to maintain the integrity of the process provided under pt 5.4 of the Act and may be used to counter an attempted subversion of the statutory scheme. Further, the discretion should be exercised by regard to all of the circumstances, including the relative positions of both parties, for good reason relevant to the purposes for which the power exists and not by reference to subjective notions of fairness.

4. I take the view, consistent with the weight of authority to which I have referred to at [47] of these reasons, that the existence of a pending appeal on reasonably arguable grounds against a judgment debt, does not in and of itself establish 'some other reason'. Such a conclusion would wholly undermine the proposition at [91] of these reasons in relation to the scope of s 459H(1). There is a need for some additional matter to be demonstrated by an applicant who seeks to rely on s 459J(1)(b) of the Act. That additional matter must, in some respect, engage the purpose which underlies that provision, namely the maintenance of the integrity of the process provided under pt 5.4.

   There is not 'some other reason'

1. In my respectful view, when all of the circumstances in these matters are examined, there is a strong basis to conclude that there is not 'some other reason' to set aside the statutory demands which were issued by the defendant.  I reach that conclusion for the following reasons.

2. First, the statutory demands are based upon judgment debts obtained by the defendant after a lengthy trial on the merits before this court.  We are not here concerned with a default judgment or summary judgment, obtained in the absence of a merits hearing.  As Le Miere J has described, the litigation before him in 2020 was 'hard fought' and 'hostile', and involved extensive cross-examination of the primary witnesses.  We are also not presently dealing with a judgment obtained through one of the Security of Payments legislative regimes, such as in Ozy Homewares v Wesgordon [2007] NSWSC 982, where a restitutionary procedure exists. Nor are we dealing with an order for restitution made following criminal proceedings, such as in Norilya Minerals Pty Ltd v Ireland [2008] WASC 53. In the present circumstances, the proposition that the defendant should be entitled to the fruits of her litigation is a compelling one and weighs in favour of dismissing the Applications.

3. Second, the plaintiff companies were not only able to seek a stay of the judgment debts, they did in fact apply for a stay, and that application was refused by the Court of Appeal.  Although that stay was sought some time ago and well before the judgment debt was quantified by Registrar Nelson, I do not accept this point of timing lessens the significance of the refusal of the stay.  It is plain from the reasons of the Court of Appeal that the stay application was fully developed and argued before the court, and their Honours were conscious of the possibility that a statutory demand might be issued in due course if a stay was not granted.  Put simply, as submitted by Senior Counsel for the defendant, their Honours have already undertaken the balancing exercise and resolved that in favour of the defendant.[37]

   [37] ts 51.

4. As to the significance of the existence of a stay refusal, I respectfully agree with the analysis of Brereton J in Re John Farlow Pty Ltd [2015] NSWSC 939 in this regard, which is set out below:

   [15]The cases, therefore, establish that a pending appeal or application for leave to appeal from or to set aside a judgment, even one in which the grounds are considered arguable, does not of itself provide sufficient reason to set aside a creditor's statutory demand.  Relevant considerations include whether reasonable and arguable grounds for the application to set aside the judgment or for the appeal have been shown; whether a stay is available and, if so, has been sought or refused; and whether there has been an offer to pay into Court the amount of the demand pending the outcome of the application or appeal.  In short, the Court will at least ordinarily require either that a stay has been granted or that the moneys be paid into Court pending the outcome of the appeal, although there may be an exception to this where the judgment is not amenable to a stay [see In the matter of A.C.E.S.  Sogutlu Holdings Pty Ltd ACN 122 192 509[2014] NSWSC 140, [17] - [21] (Brereton J)].

   [16]I do not suggest that the absence of an application for a stay or even the refusal of a stay is necessarily fatal to an application to set aside a creditor's statutory demand.  Ultimately, the Court has a discretion in that respect.  However, the cases indicate that where a stay has not been sought or where a stay has been refused, that is a highly influential and often decisive consideration.  There is a strong policy reason why that is the case, namely that is that it is for the Court in which the judgment has been given – or, sometimes, a Court in which an appeal from which that judgment has been brought – to determine whether the merits of any appeal and other relevant discretionary considerations are such as to justify staying enforcement of the judgment pending the outcome of the appeal.  It is undesirable that a third Court, neither the trial Court nor the appellate Court, has to undertake separately that examination.  An application to set aside or extend time for compliance with a creditor's statutory demand, like an application to set aside or extend time for compliance with a bankruptcy notice, is not an alternative to an application for a stay.  Companies who wish enforcement of judgments against them to be stayed pending an appeal must understand that their proper course is to apply for a stay, rather than to wait until a creditor's statutory demand is issued and then apply to have it set aside.  The Court readily entertains applications to set aside demands where a stay has been granted, even after the creditor's statutory demand has been served, because while such a stay does not otherwise deprive the demand of effect at the date it was made, it indicates that the proper court has decided that it is appropriate that it not be enforced in the meantime.  [Emphasis added]

5. The refusal of the plaintiff companies' stay application in April 2022 by the Court of Appeal is, in my view, a highly influential factor in the present case.  It further emphasises the nature of these Applications as attempts to seek de facto stays of the judgment and orders imposed by Le Miere J following trial.

6. Third, it is telling in the present circumstances that the plaintiff companies have not made an offer to pay into court the amount of the statutory demands pending the outcome of the Appeals, or to otherwise offer to provide some form of security to the judgment creditor's satisfaction.  As Brereton J noted in Re John Farlow Pty Ltd [2015] NSWSC 939 [15], the existence of such an offer is a relevant factor in assessing the existence of 'some other reason' in s 459J(1)(b) of the Act.

7. Fourth, it was not in issue in the hearing before me that the plaintiffs have insufficient assets to meet the judgment debts.[38] Given the parlous financial position of the companies, the lack of an offer from the plaintiffs to pay the judgment debt into court (as mentioned above) is therefore hardly surprising. 

   [38] Plaintiffs' Submissions [19.1].

8. Rather than treat this financial position as a weakness in the context of advancing these Applications, Counsel for the plaintiffs has submitted that the assetless nature of these former trustee companies is a factor which favours the making of the orders sought in the Application.  I am not so persuaded.

9. I do not have evidence before me as to the precise financial position of the plaintiff companies or whether the plaintiffs have other creditors (nor the extent of any other creditors). Nonetheless, the (at best) borderline insolvent nature of these companies means it is proper that I give consideration to the interests of potential creditors of the entities, including the defendant. As submitted by Senior Counsel for the defendant, these matters provide a strong justification to allow the statutory demand procedure to run its course, and to provide the defendant with the benefit of the presumption of insolvency which arises under s 459C(2)(a) of the Act.[39] If a winding up application eventuates, I anticipate that process would shed greater light on the precise financial position of the plaintiffs and the extent of their creditors, and allow a proper consideration of the wider interests beyond those of the immediate parties.[40]

   [39] ts 48 - 50.

   [40] As Logan J correctly noted in Food Channel Network Pty Ltd v Television Food Network, GP [2010] FCA 403 [20], a statutory demand can have a particular deeming effect (where there is non-compliance) but it does not, in itself, result in a change of status for the company. It is the winding up application which can involve a change in status of the entity.

10. Fifth, I consider there is no likely prospect of the statutory demand procedure impairing the hearing of the Appeals next week.  The proximity of the hearings tends against granting the orders sought by the plaintiffs in the Applications in that the proximity reduces the force of the plaintiffs' contention that the Appeals might be stultified in some way. 

11. Of course, there will be a period of time during which the Court of Appeal reserves its decision following the 3 day hearing next week (and I note there are four complex, interconnected appeals which arise from an extensive 30 day trial before Le Miere J).  During that period, the plaintiff companies may be exposed to a winding up application.  As Mitchell and Vaughan JJA have noted, circumstances might arise at that stage which justify the adjournment of a winding up application.  I am not in a position to predict what might happen in that eventuality.  However, I should say that I infer, as did the Court of Appeal in its reasons for refusing the stay application, that the plaintiffs are currently dependent on financial support being provided by Mr Philip Cardaci or companies in his group in order to prosecute the Appeals (and to launch these Applications), and it is reasonable to infer that this financial support is likely to continue until the Court of Appeal has ultimately delivered its reasons. 

12. Sixth, I place some considerable weight on the nature of the claims advanced by the defendant in the Trust Action before Le Miere J, which ultimately succeeded and which underpin the judgment debts which the defendant has obtained.  In essence, the plaintiffs were ordered by Le Miere J to restore to the trusts the trust funds used by them to pay the costs of the proceedings before his Honour, together with interest.  As I have noted earlier in these reasons, Le Miere J found that neither of the plaintiff companies had any authority to use trust funds to defend the proceedings before his Honour.  The plaintiff companies were found to have precipitated the proceedings by their breaches of trust and misconduct through Mr Philip Cardaci.  The plaintiffs were found to have defended the proceeding, by their controller Mr Philip Cardaci, in substance for his benefit rather than for the benefit of the Trust.  Further, the plaintiffs were found to have acted unreasonably in defending the claims for their removal as trustee.  His Honour concluded that the plaintiffs acted in breach of trust by using trust funds to pay their costs of defending that proceeding.

13. The statutory demands thus seek payment of the quantified amounts which this court has ordered be paid to Ms Cardaci to restore the trust funds they improperly used to pay the costs of the unsuccessful litigation.  Whilst I accept that the appeals against the orders made by Le Miere J have reasonably arguable grounds, and it may therefore be accepted there is at least a possibility of the trial orders being overturned, I consider that in the absence of a stay being obtained from the 'proper court' (to use the language employed by Brereton J in Re John Farlow Pty Ltd [2015] NSWSC 939 [16]), the character of the judgment debt as a binding obligation on the former trustees to restore to the trusts the funds they improperly expended is a strong factor which points against the exercise of the discretion to set aside these demands.

14. Seventh, there is no direct evidence to support the plaintiffs' contention that the defendant is using the statutory demand procedure for a collateral purpose. Nor do I consider there is any reasonable basis upon which to draw such an inference. The Rectangular Statutory Demand and the Washburn Statutory Demand are both demands for payment of judgment debts. The recipient companies have declined to pay the debts and both companies are in admittedly weak financial positions. Those matters provide a natural setting for a judgment creditor to avail itself of the statutory regime in div 2 of pt 5.4 of the Act.[41]

    [41] As to which, see the authorities referred to at [45] of these reasons.

15. The defendant is not, in the present case, trespassing into the improper purpose territory identified by Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; (1993) 11 ACLC 1062; (1993) 11 ACSR 362, 366, namely the use of pt 5.4 of the Act to compel a solvent company to pay a disputed debt. 

16. The fact the demands have been issued in the month before the Appeals are listed to be heard is explicable having regard to the delays associated with the quantification process.  The delays arose from the lodging of the Appeals, the two interlocutory applications filed within those Appeals, and the conferral between the parties which ultimately led to a measure of agreement between them as to the numerous individual items examined by Registrar Nelson in the quantification process.[42] Accordingly, in my view, the proximity of the statutory demands to the hearing of the Appeals does not provide a basis to infer the existence of any collateral purpose on the part of the defendant.

    [42] Defendant's Submissions [5]; and Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 3] [2022] WASC 412 [16] - [28] (Registrar Nelson).

17. Eighth, I do not accept that the statutory demands have been directed at forcing third parties to provide financial support for Rectangular or Washburn, as has been submitted by the plaintiffs.  There is no direct evidence to support this contention and such an inference is not reasonably available.  Whether or not third parties may put Rectangular or Washburn into funds in order to meet the statutory demands is entirely a matter for those third parties.  The plaintiffs say it is 'notable' that this issue was touched upon by the Court of Appeal in its decision rejecting the stay application.[43] Their Honours made two separate observations in this regard:[44]

    [25] Further, it appears to be common ground between the parties that neither Washburn nor Rectangular have any substantial assets.  As such, their prosecution of this and related appeals must currently depend on financial support being provided by Philip or other companies in the Cardaci Group.  Counsel for the appellant accepted that the court could draw this inference.  There is nothing before this court to show any reason why those currently providing financial support to enable Washburn and Rectangular to prosecute these appeals would not continue to do so if those companies are placed into liquidation.

    …

    [44]It may be that Philip regards himself as having an interest in retaining control of the relevant trust assets through Washburn and Rectangular.  However, there is no evidence that Philip lacks the capacity to cause Washburn and Rectangular, which he still controls, to receive and pay funds to discharge their liabilities pending the determination of the appeal.  If Philip has that capacity but chooses not to exercise it, he can hardly complain if the failure by Washburn and Rectangular to meet their obligations then prevents the appeal from being prosecuted by those corporations.

    [43] Plaintiffs' Submissions [19.2].

    [44] Washburn Pty Ltd v Cardaci [2022] WASCA 43 [25] and [44] (Mitchell and Vaughan JJA).

18. I cannot discern how these observations of Mitchell and Vaughan JJA lend any support to the plaintiffs' contention in this respect.  Indeed, the contrary is true. 

    Payment into court

19. Finally, I have given consideration to whether, in exercising the discretion in s 459J(1)(b), or indeed the power in s 459M, I should afford the plaintiffs the opportunity to pay the judgment sum into court, or to secure the amount to the satisfaction of the defendant. If that opportunity were afforded to the plaintiffs, and they availed themselves of the opportunity, there is considerable authority to support the view that there would then exist 'some other reason' to set aside the demands.  I have referred to those authorities earlier in these reasons. 

20. Of course, the exercise of the discretion to afford a judgment debtor such an opportunity depends on all the circumstances.  It is not to be expected that it would be the outcome in every case in which there is a pending appeal with reasonably arguable grounds, or in other similar cases. 

21. In the present circumstances, I am not minded to follow this course.  I have reached this view having regard to the financial position of the plaintiffs, which are presently assetless trustee companies.  Allied to this, I am conscious of the apparent concern of the plaintiffs that these demands have been motivated to force third parties to provide financial support for the plaintiffs, to discharge the demands.  The plaintiffs submit it is 'wrong in principle' to have regard to the potential for third parties to support the position of the plaintiff by placing them in funds sufficient to enable a payment into court.[45] Whether that is correct or not as a matter of principle, the submission provides a strong demonstration of the plaintiffs' position and, more importantly, the position of those who control the plaintiffs, that they will not allow these statutory demands to be used as a lever to compel the flow of funds into the plaintiffs to meet those demands (and satisfy the judgment debts). 

    [45] Plaintiffs' Submissions [20].

22. The foregoing explains why there has been no offer from the plaintiff companies to pay funds into court (and there was ample opportunity for them to do so).  Nonetheless, the absence of such an offer is telling. 

23. Accordingly, I have reached the view there is no utility in adopting an approach whereby the plaintiffs are afforded an opportunity to pay the judgment sum into court or to secure the amount to the satisfaction of the judgment creditor.

G.     Conclusion

1. The Applications should be dismissed. 

2. The Rectangular Statutory Demand and the Washburn Statutory Demand were legitimately issued by the defendant, in a manner consistent with the purposes of pt 5.4 of the Act. I reject the contention of the plaintiffs that there is 'some other reason' within the meaning of s 459J(1)(b) of the Act for the demands to be set aside. Further, there is no utility in adopting an approach whereby the plaintiffs are afforded an opportunity to pay the judgment sum into court, or to secure the amount to the satisfaction of the defendant. No offer was made to this effect by the plaintiff companies (and there was ample opportunity for them to do so) and such an approach would in any event serve no useful purpose given the admitted parlous financial state of the entities.

3. As to the costs of the Applications, the provisional view I take is that the plaintiffs in each proceeding should pay the defendant's costs to be taxed, if not agreed.  However, I will allow either party to provide a minute of proposed orders to my chambers within seven days setting out any alternative costs order (including as to special costs orders), and the matter can be re-listed in due course for further submissions if required.

4. The following orders will now be made in each of COR 2 of 2023 and COR 3 of 2023:

   1.The originating process dated 4 January 2023 be dismissed.

   2.Within seven days, either party may file and serve a minute of proposed orders setting out any costs order as an alternative to an order that the plaintiff pay the defendant's costs of the application to be taxed, if not agreed.

   3.Upon receipt of a minute of proposed orders from either party in accordance with order 2, the matter will be relisted for further submissions as to costs, but otherwise the court will proceed to issue the order described in order 2. 

   4.The matter is otherwise adjourned sine die.

I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.

SAO
Associate to the Honourable Justice Lundberg

27 JANUARY 2023

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION: RECTANGULAR PTY LTD -v- ATF THE MARCO CARDACI TESTAMENTARY TRUST [2023] WASC 13 (S)

CORAM:   LUNDBERG J

HEARD:   ON THE PAPERS

DELIVERED          :   5 APRIL 2023

FILE NO/S:   COR 2 of 2023

BETWEEN:   RECTANGULAR PTY LTD

Plaintiff

AND

MAE CARDACI ATF THE MARCO CARDACI TESTAMENTARY TRUST

Defendant

FILE NO/S:   COR 3 of 2023

BETWEEN:   WASHBURN PTY LTD

Plaintiff

AND

MAE CARDACI ATF THE WASHBURN TRUST

Defendant

Catchwords:

Practice and procedure - Costs - Defendant's application for indemnity costs following dismissal of plaintiffs' applications to set aside statutory demands - Defendant contends that applications were hopeless -  Defendant contends that rejection of Calderbank offer was unreasonable - Costs also sought against non‑party

Legislation:

Corporations Act 2001 (Cth), s 459G
Rules of the Supreme Court 1971 (WA), O 66 r 1(1)
Supreme Court Act 1935 (WA), s 37(1)

Result:

Application granted
Indemnity costs awarded against plaintiffs and non-party

Category:    B

Representation:

COR 2 of 2023

Counsel:

Plaintiff	:	No appearance
Defendant	:	No appearance

Solicitors:

Plaintiff	:	Bennett
Defendant	:	Herbert Smith Freehills

COR 3 of 2023

Counsel:

Plaintiff	:	No appearance
Defendant	:	No appearance

Solicitors:

Plaintiff	:	Bennett
Defendant	:	Herbert Smith Freehills

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

Ben Pelech v Royle [2020] WASCA 168 (S)

CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100

Civil Properties Pty Ltd v Miluc Pty Ltd [2011] WASCA 195

Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397

Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70

Huntingdale Village Pty Ltd v Korda [2015] WASCA 101(S)

Kaur v Sikh Gurdwara Perth (Inc) (No 2) [2018] WASC 99

Knight v FP Special Assets Ltd (1992) 174 CLR 178

Markan v Queensland Police Service [2015] QCA 22

Naidoo v Williamson [2008] WASCA 179; (2008) 37 WAR 516

Parisi v Nigro [2006] NSWCA 121

Re Palladium Consulting Pty Ltd [2013] NSWSC 92

Rectangular Pty Ltd v Mae Cardaci ATF the Marco Cardaci Testamentary Trust [2023] WASC 13

Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466

Warrego Energy EP469 Pty Limited [2020] NSWSC 980

Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196; (2002) 172 FLR 35

LUNDBERG J:

A.     Introduction

1. On 27 January 2023, I delivered my reasons (Primary Reasons)[46] in respect of the two applications brought by the plaintiff companies[47] seeking to set aside two statutory demands served on the plaintiffs by the defendant (the Applications). The Applications were brought pursuant to s 459G of the Corporations Act 2001 (Cth) (the Act).  The statutory demands were based on judgment debts arising from orders of this court, following contested proceedings before Le Miere J.  The judgment debts payable by Rectangular and Washburn were for substantial sums ($2,541,792.30 and $2,099,239.44 respectively). 

   [46] Rectangular Pty Ltd v Mae Cardaci ATF the Marco Cardaci Testamentary Trust [2023] WASC 13.

   [47] As with the Primary Reasons, I will refer to the plaintiff companies in these reasons as Rectangular and Washburn, to the defendant as Ms Cardaci, and to Mr Filippo Primo Cardaci as Mr Philip Cardaci.

2. I concluded in the Primary Reasons that the statutory demands were legitimately issued by Ms Cardaci and I rejected the contention that there was 'some other reason' to set them aside, within the meaning of s 459J(1)(b) of the Act. Accordingly, I dismissed the Applications.[48]

   [48] Primary Reasons [6] and [117] - [120].

3. As to the costs of the Applications, the provisional view I expressed in the Primary Reasons was that the plaintiffs in each proceeding should pay the defendant's costs to be taxed, if not agreed.  I recognised, however, that one or other party may wish to make an application for alternative costs orders, including as to special costs orders.  Directions were subsequently made to allow the parties to file and serve submissions and any affidavit material on the question of costs, with the matter to be determined on the papers.

4. Having considered the material filed on behalf of the parties, I consider this is an appropriate case in which the high threshold for an award of indemnity costs has been made out.  Costs will also be awarded against a non‑party, namely Mr Philip Cardaci, on the basis of the concession made in this regard by the plaintiffs.[49]  My reasons for reaching these conclusions are set out below.

B.     Parties' Submissions

[49] See [9] below.

1. Ms Cardaci filed written submissions dated 1 March 2023 (Ms Cardaci's Costs Submissions), supported by the affidavit of Alan James Mitchell affirmed on 15 February 2023 (Mitchell Affidavit).  Mr Mitchell is a partner of the law firm Herbert Smith Freehills, the solicitors for Ms Cardaci.  The plaintiffs filed written submissions in response dated 1 March 2023 (Plaintiffs' Costs Submissions).  It is not necessary to recount the submissions made by the parties in every detail.  It is sufficient to mark out the principal contentions which were advanced.

   Ms Cardaci's Costs Submissions

2. Ms Cardaci has proposed a series of cascading alternative costs orders, starting with indemnity costs for the whole of the proceedings, alternatively indemnity costs from a certain point in the brief life span of the proceedings (namely, 23 January 2023, being the date on which the plaintiffs rejected the Calderbank offer made by Ms Cardaci), and finally a party/party costs order.  No orders for special costs[50] are sought by Ms Cardaci.

   [50] That is, costs orders pursuant to s 141(3) of the Legal Profession Uniform Application Act 2022 (WA).

3. In each case, Ms Cardaci seeks orders that, whichever method of assessment the court adopts, the costs should be jointly and severally payable not only by the named plaintiff companies (Rectangular and Washburn), but also by Mr Philip Cardaci, who is not a party to these proceedings.

4. In support of the costs orders sought against Mr Philip Cardaci, Ms Cardaci advanced submissions that this court has power to award costs against a non-party and that power should be exercised in the present circumstances.[51]  In general terms, it was submitted that the order for costs should be made in the interests of justice because the plaintiff parties to the litigation are insolvent, the non-party has played an active part in the conduct of the litigation, and the non-party has an interest in the subject of the litigation.[52]  In those submissions, Ms Cardaci acknowledged that the jurisdiction to award costs against non-parties should be exercised with considerable caution.

   [51] Ms Cardaci's Costs Submissions [3] - [23].

   [52] Naidoo v Williamson [2008] WASCA 179; (2008) 37 WAR 516 [38] ‑ [39]; Kaur v Sikh Gurdwara Perth (Inc) (No 2) [2018] WASC 99 [10] (Le Miere J); Huntingdale Village Pty Ltd v Korda [2015] WASCA 101(S) [19] (Martin CJ, Newnes and Murphy JJA) and Knight v FP Special Assets Ltd (1992) 174 CLR 178, 192 ‑ 193 (Mason CJ and Deane J)

5. As matters have developed, the plaintiffs have accepted in their responsive submissions that a costs orders should be made against Mr Philip Cardaci.[53]  I proceed on the basis that the plaintiffs' solicitors had authority to make this concession on behalf of Mr Philip Cardaci.  Accordingly, other than to recognise that I accept the court has the power to make an award of costs against a non-party,[54] it is unnecessary for the court to express any views on the discretionary matters raised in Ms Cardaci's Costs Submissions.

   [53] Plaintiffs' Costs Submissions [1.2].

   [54] Supreme Court Act 1935 (WA), s 37; Rules of the Supreme Court 1971 (WA), O 66 r 1(1); and Huntingdale Village [19] (Martin CJ, Newnes and Murphy JJA).

6. The balance of Ms Cardaci's Costs Submissions explain the twin bases for the indemnity costs orders which are sought. 

7. The first basis focuses on the asserted unmeritorious nature of the Applications,[55] combined with Ms Cardaci's contention that the plaintiffs made allegations of improper conduct against her[56] which were unjustified and unreasonable.[57]  Ms Cardaci contends in her submissions that, properly advised, the plaintiffs should have known that they had no chance of success so that the Applications should be presumed to have been commenced and continued for some ulterior motive or because of some wilful disregard to the known facts or the clearly established law.

   [55] Relying on Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397, 401 (Woodward J); Huntingdale Village [17] (Martin CJ, Newnes and Murphy JJA) and Re Palladium Consulting Pty Ltd [2013] NSWSC 92 [8] (Black J), among other authorities.

   [56] Relying on, at least by way of example, Parisi v Nigro [2006] NSWCA 121 [16] (Beazley JA, with Ipp and Basten JJA agreeing) and Markan v Queensland Police Service [2015] QCA 22 [20] (Jackson J, with Holmes and Fraser JJA agreeing).

   [57] Ms Cardaci's Submissions [25] - [38].

8. The second, alternative basis is that a Calderbank offer was made by Ms Cardaci which was unreasonably rejected by the plaintiffs,[58] in circumstances in which that offer was more favourable for the plaintiffs than the outcome as set out in my Primary Reasons.[59]  The Calderbank offer is contained in a letter from Ms Cardaci's solicitors to the plaintiffs' solicitors dated 20 January 2023.[60]  By the terms of that letter, Ms Cardaci made a Calderbank offer to compromise the proceedings on terms that the statutory demands be set aside if the plaintiffs paid the judgment sums into court.  That offer should be viewed in its proper context, namely that the plaintiff companies had not, at any stage, offered to pay the judgment sums into court which, as I noted in my Primary Reasons, is quite a usual step in circumstances similar to the present where a party seeks to invoke the 'some other reason' shield.  It is submitted on behalf of Ms Cardaci that the terms of her offer:

   …were consistent with the overwhelming preponderance of authority that 'some other reason' for setting aside a statutory demand may exist where the sum demanded is paid into court.  It was the best outcome the plaintiffs could reasonably have expected to obtain.[61]

   [58] Relying on Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 [16] ‑ [32] (Buss JA with Wheeler JA agreeing).

   [59] Ms Cardaci's Costs Submissions [39] - [42].

   [60] Mitchell Affidavit, Annexure AJM-1.  The letter was sent the day following the initial directions hearing in this matter before me on 19 January 2023.

   [61] Ms Cardaci's Costs Submissions [39].

9. It is further submitted on behalf of Ms Cardaci that she maintained, and ultimately succeeded in maintaining, that absent such an offer there was no prospect of the statutory demands being set aside, and that her position has been 'unequivocally vindicated'.[62]  It is submitted by Ms Cardaci that, in light of the overwhelming weight of authority accepted by the court, the plaintiffs' rejection of Ms Cardaci's offer was unreasonable and warrants an award of indemnity costs.

   Plaintiffs' Costs Submissions

   [62] Ms Cardaci's Costs Submissions [40].

10. The plaintiffs oppose the indemnity costs orders sought by Ms Cardaci. 

11. The plaintiffs invite the court to reject Ms Cardaci's submission to the effect that the Applications to set aside the statutory demands were an abuse of process, had no prospect of success, or were hopeless.  The plaintiffs observe that a solicitor should not resort to an application for an indemnity costs order merely to secure the recovery which could be achieved by a properly formulated special costs order,[63] unless the unsuccessful party's conduct is genuinely to be impugned by the successful party.

    [63] The plaintiffs note that Ms Cardaci has not adduced evidence as to the costs incurred such that the court is not in a position to assess whether a 'carefully crafted special costs order' would be inadequate: Plaintiffs' Costs Submissions [24].

12. The plaintiffs submit that their application to set aside the statutory demands principally relied on the pendency of an appeal with reasonable prospects, and refer to the competing authorities on this issue.[64]  The plaintiffs reject any suggestion or inference they had proposed a leisurely timetable to deal with the applications or that their true purpose in making the applications was simply delay.[65]  It is submitted that no ulterior motive can be ascribed to the plaintiffs.

    [64] Plaintiffs' Costs Submissions [6].

    [65] Plaintiffs' Costs Submissions [15].

13. Further, the plaintiffs contend there is no basis for an award of indemnity costs in Ms Cardaci's favour by reason of the plaintiffs' rejection of the Calderbank offer.[66]

C.     Relevant Principles

[66] Plaintiffs' Costs Submissions [25] - [27].

1. The court has a wide discretion in relation to costs, although the discretion must of course be exercised judicially.[67]  An award of indemnity costs is a departure from the usual order that costs be awarded on a party and party basis.  The categories in which indemnity costs may be awarded are not closed.  Indemnity costs are only awarded in exceptional circumstances.[68]

   [67] Supreme Court Act 1935 (WA), s 37(1); and Rules of the Supreme Court 1971 (WA), O 66 r 1(1).

   [68] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [7] (Pullin JA and Kenneth Martin J).

2. One category in which such an award is appropriate is where the action 'has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success'.[69]  In cases such as that, the action 'must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established laws'.[70]  The following passages from Newnes JA in Civil Properties Pty Ltd v Miluc Pty Ltd [2011] WASCA 195 provide a useful summary of the principles:

   [82]Ordinarily an indemnity costs order is appropriate only where the unsuccessful party has been involved in some unreasonable conduct in relation to the proceedings, such as where the institution or continuation of the proceeding was plainly unreasonable or the proceeding was issued or maintained for an ulterior or collateral purpose:  see Rosniak v Government Insurance Office (1997) 41 NSWLR 608, 616; PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24 [36]. An order for indemnity costs reflects the court's disapproval of the conduct of the unsuccessful party: Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [25].

   [83]If a party brings a case which is hopeless it can normally be inferred that the proceeding was commenced or continued 'for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law':  Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 401. But it is not necessary that such an inference be drawn; it is sufficient that the court's resources and the successful party's costs have been wasted on entirely frivolous litigation: Re SCA Properties Pty Ltd (in liq) [1999] QSC 180; (1999) 17 ACLC 1611 [70].[71]

   [69] Fountain Selected Meats (401) (Woodward J).

   [70] Fountain Selected Meats (401) (Woodward J).

   [71] Civic Properties [82] ‑ [83] (Newnes JA).

3. Further, in Ben Pelech v Royle [2020] WASCA 168 (S), the Court of Appeal observed that:

   [93]Relevantly, while the categories of cases in which an indemnity costs order may be made are not closed, one category where indemnity costs are appropriate is where the action has been commenced or continued in circumstances where the applicant, properly advised, should have known that it had no chance of success.  Whether that is so is determined objectively ‑ it does not direct attention to the actual legal advice given to the party.  The court should not be too quick to characterise a case as hopeless ‑ parties should not be discouraged from persisting in an action merely because success is uncertain.  Whether a case was hopeless must be judged without the benefit of hindsight.

   [94]Thus, it is sufficient to enliven the discretion to award indemnity costs that, for whatever reason, a party persists in what should, on a proper consideration, have been seen to be a hopeless case.[72]

   [72] Ben-Pelech [93] ‑ [94] (Murphy, Beech and Vaughan JJA).

4. It has been said that a properly crafted special costs order may obviate the need for an indemnity costs order, where components of cost scale items are allowed above the applicable scale ceiling.  Further, an indemnity costs order may not be appropriate if the claimed costs would be likely to be recovered under the standard order for party and party costs, or under a special order raising or removing a scale ceiling allowance.  These propositions were endorsed by Pullin JA and Kenneth Martin J in Swansdale as part of a ten point summary of the relevant principles (at [10], see point 9). Their Honours went on to observe that an indemnity costs order may nonetheless be made as an appropriate sanction marking the disapproval of improper or unreasonable conduct, where the unsuccessful party's conduct is genuinely to be impugned by the successful party (at [10], see point 10).

1. In cases involving contests over statutory demands, an award of indemnity costs has been considered appropriate where the issuing party has unsuccessfully resisted an application to set aside the demand and it has been apparent that the low hurdle associated with the 'genuine dispute' ground in s 459H(1) of the Act would inevitably be cleared. Examples in Western Australia include Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196; (2002) 172 FLR 35 (Steytler, Templeman and Miller JJ) and Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70 (Bredmeyer M), both of which have been referred to with approval on numerous occasions.

2. An array of authorities to similar effect, from several jurisdictions, was assembled by Barrett J in CGI Information Systems v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 [18] ‑ [22] (Barrett J). His Honour expressed the following views on the question whether indemnity costs should be imposed in this context:

   [20] Indemnity costs have been awarded in some s 459G cases. In Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70; BC200201522, an order of that kind was made where the statutory demand asserted debts said to come from an oral agreement, where the supposed conversation was denied by one of its supposed parties and the plaintiff offered to withdraw its application and bear its own costs on the basis that the defendant withdrew its statutory demand, an offer that Master Bredmeyer said should have been accepted. In Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196; (2002) 172 FLR 35, the Full Court of the Supreme Court of Western Australia found that the statutory demand was grossly defective and its accompanying affidavit was obviously inadequate, yet the defendant persisted in resisting an application to have the demand set aside. The court saw the case as involving 'shortcomings ... sufficiently serious ... to warrant the conclusion that the respondent's defence of its position was an abuse of the court's process, arguably justifying an award of indemnity costs'. In Carinda Homes Pty Ltd v Highlands Austral Pty Ltd [2003] FCA 275; BC200301362, Lindgren J ordered costs on the indemnity basis where the evidence made it plain that the time limit fixed by s 459G(2) and (3) (which is immutable: David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265 ; 131 ALR 353 ; 18 ACSR 225) had not been met, so that, as his Honour put it, 'the proceeding was doomed to fail' and it was 'quite unreasonable for it to be pursued once 25 February 2003 had passed without service having been effected'.

   [21] At the same time, it is important to remember that the party by whom a statutory demand is served is entitled not only to test the recipient company's claim that the alleged debt is genuinely disputed but also to see the evidence the plaintiff is able to marshal in support of the claim of genuine dispute. That principle has been stated on several occasions by Palmer J in sounding a note of caution about the award of indemnity costs in this type of case: see Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867; (2001) 165 FLR 72 Club Marconi of Bossley Park v AVR Services (NSW) Pty Ltd [2002] NSWSC 584; BC200203662 Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95; BC200300470.

   [22] I accept that the possibility of an order for indemnity costs should not be allowed to deter a party by whom a statutory demand has been served from putting the company to appropriate proof of the genuine dispute it asserts. But that principle has a limit to it. As Galaxy Resources, Wildtown Holdings and Carinda Homes show, there are cases in which attempts to resist the setting aside of the demand are, even on the interpretation of the facts most favourable to the defendant, so devoid of prospects of success as to be perverse. The opportunity to put the company to proof of the asserted genuine dispute is something to which the defendant should not be regarded as entitled in such obvious cases. A defendant, on having an obvious and irremediable weakness in its position pointed out, ought to withdraw the statutory demand. If, in such circumstances, such a defendant does not do so, it may well be appropriate for the court to award costs to the plaintiff on the indemnity basis.

1. More recently, Black J in Warrego Energy EP469 Pty Limited [2020] NSWSC 980 warned that:

   Where a creditor chooses to pursue a creditor's statutory demand, in the face of clear notice of a dispute about it, then it seems to me that its conduct is sufficiently unreasonable to warrant an order for indemnity costs.[73]

   [73] Warrego Energy [35] (Black J).

2. Similar considerations apply where it is the application to set aside the statutory demand, rather than the demand itself, which is said to be devoid of merit.  In Palladium Consulting, Black J expressed the view, albeit by way of dicta, that persistence with an application for an order under s 459J(1)(b) of the Act to set aside a statutory demand for payment of a judgment debt 'for some other reason', absent an offer to pay the debt into court, might alone establish an order for indemnity costs.  Black J held as follows:

   Palladium alternatively brought its application under s 459J(1)(b) of the Corporations Act which provides, relevantly, that a statutory demand may be set aside when the Court is satisfied that there is some other reason why the statutory demand should be set aside. Even if an extension of time for the review of the costs assessment had been granted, it is well established that the existence of an appeal would not itself have been sufficient reason to set aside the Demand where there was no stay of enforcement of the judgment: Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd above.  There is some prospect that the Demand might have been set aside on terms that Palladium paid the amount of the judgment debt into Court: Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759; Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd above at [26]. There is, however, no evidence before me as to whether Palladium would have had the capacity to make such a payment. It seems to me, with greater hesitation, that SMI might also have established an order for indemnity costs in that regard. The circumstance in which the application to set aside the Demand was abandoned, shortly before their hearing date, would reinforce the basis for such an order.[74]

D.     Primary Reasons

[74] Palladium [8] (Black J).

1. Before I analyse the competing positions of the parties on costs, I should summarise the conclusions I reached on the principal issues on the substantive applications.

2. I found the statutory demands were legitimately issued by the defendant, in a manner consistent with the purposes of pt 5.4 of the Act.[75]  I could not discern the existence of any collateral purpose attached to the issuing of the demands, and I rejected the contention of the plaintiffs that there was 'some other reason' for the demands to be set aside.[76]  I concluded that to set these statutory demands aside would itself be to 'wreak a substantial injustice', looking at the position of both parties, not just the interests of the recipient, and in the context of pt 5.4 of the Act.[77]

   [75] Primary Reasons [6] and [107].

   [76] Primary Reasons [6] and [107].

   [77] Primary Reasons [6].

3. In the absence of a stay, I took the view, consistent with the weight of authority, that the existence of a pending appeal on reasonably arguable grounds against a judgment debt, did not in and of itself establish 'some other reason' for the purposes of s 459J(1)(b) of the Act.[78] Such a conclusion would otherwise wholly undermine the established position with respect to the scope of s 459H(1). There was a need for some additional matter to be demonstrated by an applicant who sought to rely on s 459J(1)(b). That additional matter must, in some respect, engage the purpose which underlies that provision, namely the maintenance of the integrity of the process provided under pt 5.4 of the Act.[79]

   [78] Primary Reasons [93].

   [79] Primary Reasons [93].

4. I did not accept that the statutory demands were directed at forcing third parties to provide financial support for Rectangular or Washburn.  There was no direct evidence to support that contention and such an inference was not reasonably available.  Whether or not third parties might put Rectangular or Washburn into funds in order to meet the statutory demands was entirely a matter for those third parties.[80]

   [80] Primary Reasons [110].

5. Given the financial position of the plaintiff companies, which were assetless trustee companies, I considered there was no utility in adopting an approach whereby the plaintiffs were afforded an opportunity to pay the judgment sum into court, or to secure the amount to the satisfaction of the defendant.[81]  No offer had been made to that effect by the plaintiff companies (and there had been ample opportunity for them to do so during the course of the proceedings).

E.     Disposition

Preliminary matters

[81] Primary Reasons [7] and [114].

1. There are two features of this case, referred to by Ms Cardaci, which I consider do not weigh in favour of an award of indemnity costs. 

2. First, I do not regard it as improper in any way for the plaintiffs to have initially asserted multiple grounds for their applications, which were later refined, with two grounds being abandoned.[82] An application to set aside a statutory demand must, by its nature, be filed in a rapid manner.  An applicant may properly mark out a series of grounds which, on mature reflection, are later narrowed.  Provided this is done promptly, I would not typically see this as irresponsible in any way. 

   [82] Ms Cardaci's Costs Submissions [25]. The plaintiffs initially relied on s 459H(1)(a) of the Act (that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates) and s 459J(1)(a) of the Act (that there is a defect in the demand, and substantial injustice will be caused unless the demand is set aside). Those additional grounds were not pressed by the plaintiffs at the hearing before me.

3. Second, I do not draw any adverse inference against the plaintiffs solely arising from what Ms Cardaci describes as the 'leisurely timetable' proposed by the plaintiffs at the first directions hearing on 19 January 2023.  Ms Cardaci relies on this aspect of the matter to support the ulterior motive on the part of the plaintiff companies, namely to delay matters until after the appeal hearing before the Court of Appeal, which was listed for early February 2023.[83]  However, not until the directions hearing on 19 January 2023 were the parties aware I was able to accommodate the matter for hearing on 25 January 2023.  Once that became apparent, I did not detect any resistance from counsel for the plaintiffs to the proposed timetable. 

   Analysis

   [83] Ms Cardaci's Costs Submissions [36] - [37].

4. Putting the foregoing matters to one side, I turn to matters of greater substance for the purposes of this costs application.  The features of the proceedings, and the plaintiffs' conduct, which were highly troubling, in my view, are the following.

5. First, the reality that a party served with a statutory demand is insolvent or borderline insolvent is of great significance when evaluating the conduct of that party in bringing an application to set aside the demands for 'some other reason'. It invites close attention to whether there is a collateral purpose at play. I say this because the failure by a company to comply with a statutory demand creates a presumption of insolvency for a particular period (s 459C(2)(a) of the Act), which a creditor may call in aid to support an application for an order to wind up the company for insolvency. It is only subsequently that an application to wind up is made by a judgment creditor.

6. Put another way, as I noted in the Primary Reasons, a failure to comply with a statutory demand does not automatically lead to the winding up of a company.  There remains a discretion whether, if a winding up application is ultimately filed, to proceed with the application or adjourn the matter while the underlying judgment is challenged.  It is not necessary to set aside a statutory demand merely because there is a challenge underway to the underlying judgment or orders.  The statutory demand process will not, of itself, impair the company's ability to challenge the judgment, whether through an appeal or otherwise.

7. In the present case, the plaintiff companies were assetless trustee companies which were borderline insolvent.[84]  I described the companies as being in a 'parlous financial state' in the Primary Reasons.  Their appeals against the underlying orders and judgment were set to be heard the week after these applications were brought on for determination.  Seeking to set aside the demands in those circumstances, where there was no dispute as to the existence of the judgment debts, and no likely ability for the companies to satisfy the debts from their own resources, was something of an arid exercise.

   [84] Ms Cardaci's Costs Submissions [17] and [18].

8. Second, and allied to the first reason, it was telling that the plaintiff companies made no offer to pay into court the amount sought in the statutory demands pending the outcome of the appeals, or to otherwise offer to provide some form of security to the judgment creditor's satisfaction. Given the weight of authority on this issue, which demonstrably shows that the offer of payment into court typically grounds a conclusion there is 'some other reason', the failure to make any such offer, in the overall circumstances, meant the Applications were doomed to fail.

9. Third, a stay had already been sought by the plaintiff companies in order to forestall attempts at execution by Ms Cardaci.  The stay application was dismissed by the Court of Appeal as long ago as April 2022.  The fact that a stay had not only been sought, but refused, rendered the plaintiffs' ability to successfully set aside these demands a forlorn exercise.

10. Fourth, the statutory demands were founded upon judgment debts which, absent a stay or a successful appeal, were enforceable on their terms and required compliance therewith.  The judgments had also been obtained after some years of contested litigation. 

11. Fifth, as noted in the Primary Reasons, a highly relevant feature of these proceedings was the nature of the claims advanced by Ms Cardaci, which ultimately succeeded and which underpin the judgment debts which Ms Cardaci obtained.[85]  The orders made by Le Miere J required the plaintiff companies to restore the trust funds used by them to pay the costs of the proceedings before his Honour, together with interest. The plaintiff companies acted in breach of trust by using trust funds to pay their costs of defending that proceeding.  It reflects poorly on the plaintiff companies that they would then seek to forestall the statutory demands on the strength of the pendency of reasonably arguable appeals, without more.

    [85] Primary Reasons [105]. I considered that in the absence of a stay being obtained from a proper court, the character of the judgment debt as a binding obligation on the former trustees to restore to the trusts the funds they improperly expended was a strong factor which pointed against the exercise of the discretion to set aside the demands.

12. Sixth, as described in Ms Cardaci's Costs Submissions, a 'central pillar of the plaintiffs' argument was that the statutory demands were issued for a collateral purpose and were an attempt collaterally to force a payment into court by some third party', which submissions were 'tantamount to an allegation that the statutory demands were an abuse of process'.  There was simply no direct evidence adduced before me to support the plaintiffs' contention that Ms Cardaci was using the statutory demand procedure for a collateral purpose.  Nor did I consider there was any reasonable basis upon which to draw such an inference. 

13. In truth, the statutory demands were both demands for payment of judgment debts.  The recipient companies had declined to pay the debts and both companies were in admittedly weak financial positions.  Those matters provided a 'natural setting for a judgment creditor to avail itself of the statutory regime' (Primary Reasons [107]).

14. Seventh, the overwhelming and consistent weight of authority was that the mere existence of an appeal with reasonably arguable grounds was not, of itself, sufficient to constitute 'some other reason' for setting aside a statutory demand. I found the propositions advanced by Ms Cardaci in this regard to be 'unassailable'.[86]  As submitted by Ms Cardaci, the substance of the argument advanced by the plaintiffs 'did not rise any higher than a contention that the court's discretion should be exercised in its favour because there was an appeal with reasonable prospects of success due to be heard within a few days'.

    [86] Primary Reasons [83].

15. Eighth, I accept that ordinarily, the exceptional jurisdiction to award indemnity costs should not be engaged if an appropriately drafted special costs order (or even a party and party costs order) is adequate to secure recovery of the successful party's costs. 

16. There is some evidence before the court, albeit conclusionary and limited in detail,[87] to the effect that Ms Cardaci's actual costs of opposing the applications exceed the amount recoverable following taxation on a party-party basis. There is no evidence as to the amount which may be recoverable on taxation pursuant to a special costs order made under s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA).

    [87] Mitchell Affidavit [13].

17. The absence of some analysis of estimated costs recovery under a special costs order is not fatal to an indemnity costs application, provided it can be said that the unsuccessful party's conduct is genuinely to be impugned.[88]  I consider this is such a case.

    [88] Swansdale [10] (Pullin JA and Kenneth Martin J).

18. Taking all of the foregoing matters in combination, I have formed the view that the threshold for making an award of indemnity costs has been met in this case, and the discretion enlivened.  In the circumstances, the court ought to mark its disapproval of the conduct of the plaintiff companies with an award of indemnity costs in respect of the whole of the proceedings.  The matters to which I have referred in these reasons demonstrate that these applications were objectively hopeless from the outset (particularly in the absence of any offer to pay the judgment sums into court).  The bringing, and then the maintenance, of the applications was thus plainly unreasonable, in my view.  Within the course of the proceedings, the plaintiffs also agitated contentions that Ms Cardaci was acting for a collateral purpose.  I formed the view that those contentions were without any basis. 

19. The matters to which I have referred provide a strong basis for the court to infer that the proceeding was commenced or continued for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law.  The ulterior motive which can be inferred is that the plaintiffs were seeking to delay the overall process by which Ms Cardaci might secure a winding up order as against them, and thereafter obtain control of the companies.  The relevant delay being sought was until after the Court of Appeal had heard the appeals and had delivered its reasons. Yet, properly advised, the plaintiff companies ought to have known that they had no chance of success on the grounds they advanced. 

20. A company which applies to set aside a statutory demand pursuant to s 459J(1)(b) of the Act is seeking to persuade the court that it should exercise the judicial discretion vested in the court by that provision. The discretion to be exercised is whether the creditor should be precluded from using the statutory demand procedure to establish a presumption of insolvency, which is a stage prior to any winding up application, as I have earlier noted.

21. Where the underlying debt is an enforceable judgment which is under appeal, but where the appellate court has already declined to stay enforcement, the company will need to adduce some cogent material or explanation to justify the exercise of this discretion. Pointing to reasonably arguable appeal grounds will not be sufficient. However, the company might have a proper basis to assert that the judgment creditor is acting for, or motivated by, some collateral purpose, or it might adduce material to demonstrate that the integrity of the process under pt 5.4 of the Act is being undermined in some manner. The company may make an offer of payment of the judgment sum into court, or make some offer to provide a form of security to the judgment creditor's satisfaction. Absent such matters, an impecunious company which initiates and maintains an application under s 459J(1)(b) in these circumstances runs the very real risk of straying into the crosshairs of an indemnity costs order.[89]

    Calderbank offer

    [89] Palladium Consulting [8] (Black J).

22. In the event I am wrong about the foregoing matters, I would alternatively have concluded that indemnity costs ought be payable from 23 January 2023, following the unreasonable rejection by the plaintiffs on that date of the Calderbank offer made by Ms Cardaci. 

23. The offer involved Ms Cardaci agreeing to compromise the proceedings on the basis that the plaintiffs pay the judgment sums into court.  As submitted by Ms Cardaci, the terms of the offer were consistent with the overwhelming preponderance of authority that 'some other reason' for setting aside the statutory demands might exist where the sum demanded is paid into court.  The offer was rejected by the plaintiffs. 

24. Admittedly, as the plaintiffs observed, they were in no position to make the payments into court (and the amounts were substantial), but I consider that is irrelevant to an assessment as to whether the rejection of the offer itself was unreasonable.[90] 

    [90] Noting that an acceptance of the offer and the making of an order conditionally setting aside the demands would not have compelled the plaintiffs to satisfy the conditions: Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 [28] (Barrett J).

25. But for my conclusions at [48] and [49] above, I would therefore have made an award of indemnity costs from the date of rejection of the offer.

F.     Order

1. The costs order I will make in each proceeding (COR 2 of 2023 and COR 3 of 2023) is as follows:

   1.The plaintiff and Filippo Primo Cardaci do jointly and severally pay all of the defendant's costs of the application, including reserved costs, to be agreed or taxed so that the defendant is completely indemnified by the plaintiff for its costs on and from that date except insofar they are of an unreasonable amount or have been unreasonably incurred.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

SAO
Associate to the Honourable Justice Lundberg

5 APRIL 2023