Residents Against Improper Development Incorporated v Chase Property Investments Pty Ltd

[2006] NSWSC 623

CITATION:	Residents Against Improper Development Incorporated v Chase Property Investments Pty Ltd [2006] NSWSC 623
HEARING DATE(S):	19/06/06
JUDGMENT DATE :	23 June 2006
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Application under s.459G of Corporations Act dismissed. Defendant to pay plaintiff's costs on the indemnity basis.
CATCHWORDS:	ASSOCIATIONS AND CLUBS - incorporated association - winding up - unavailability of both s.459E and s.585(a) of Corporations Act to create presumption of insolvency - PROCEDURE - costs - where defendant served on incorporated association a document purporting to be a statutory demand - where plaintiff pointed out inapplicability of Corporations Act provisions and invited withdrawal of document - no withdrawal - plaintiff compelled to protect position by instituting proceedings - whether defendant should pay plaintiff's costs - whether assessment on indemnity basis should be ordered
LEGISLATION CITED:	Associations Incorporation Act 1984 Corporations Act 2001 (Cth), ss.459C, 459E, 459G, 459H, 459J, 583, 585(a)
CASES CITED:	Emhill Pty Ltd v Bonsoc Pty Ltd (2004) 50 ACSR 305 Oshlack v Richmond River Council (1988) 193 CLR 72 Ottway v Jones [1955] 1 WLR 706 QBE Workers Compensation (NSW) Limited v Wandiyali ATSI Inc (2004) 62 NSWLR 117 Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129
PARTIES:	Residents Against Improper Development Incorporated - Plaintiff Chase Property Investments Pty Limited - Defendant
FILE NUMBER(S):	SC 2602/06
COUNSEL:	Mr J.T. Johnson - Plaintiff Mr P. Newton - Defendant
SOLICITORS:	Woolf Associates - Plaintiff John de Mestre & Co - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY, 23 JUNE 2006

2602/06 RESIDENTS AGAINST IMPROPER DEVELOPMENT INCORPORATED v CHASE PROPERTY INVESTMENTS PTY LIMITED

JUDGMENT

1 The plaintiff is an association incorporated under the Associations Incorporation Act 1984. On or soon after 13 April 2006, the defendant served on the plaintiff a document bearing that date which was in the form prescribed for a statutory demand under s.459E of the Corporations Act 2001 (Cth) and required payment of an alleged debt of $15,141.97 described as follows:

“Costs ordered to be paid pursuant to an order on 13 February 2006 of the Supreme Court of New South Wales Court of Appeal proceedings number 40758 of 2005. A Bill of Costs for assessment on a party/party basis was served on the company who [sic] has not objected to the Bill.”

2 On 24 April 2006, the plaintiff’s solicitors wrote to the defendant’s solicitors (whose name and address were contained in the demand) making, in essence, two points. First, it was said that the provisions with respect to winding up in the Associations Incorporation Act contain no statutory demand procedure of the kind made available by the Corporations Act. The decision in QBE Workers Compensation (NSW) Limited v Wandiyali ATSI Inc (2004) 62 NSWLR 117 was cited in that connection. Second, the point was made that no order of the court had been made with respect to costs which would justify the view that any amount was presently due and owing on account of costs, this being an essential matter in the statutory demand context created by the Corporations Act. The letter concluded:

“Failing an unconditional withdrawal of the document dated 13 April 2006 by 5.00pm on Thursday 27 April 2006 our client will take such action as is advised which may comprise or include, without further notice, to make application to the Court to set aside the document together with an order for Indemnity Costs. Our client considers the issue of the Notice to constitute an abuse of process in circumstances where there is no entitlement to seek to recover the costs at the present time.”

3 The defendant did not withdraw the demand. The plaintiff therefore felt impelled to commence proceedings. It did so on 4 May 2006 by means of an originating process claiming an order as follows:

“An Order that the document issued and served by the Defendant upon the Plaintiff purporting to be a notice under section 459E of the Corporations Act 2001 dated 13 April 2006, be set aside.”

4 The form of order reflects the plaintiff’s understanding that the document was, in reality, not a “notice under section 459E of the Corporations Act 2001”.

5 There was also in the originating process a claim for an order that the defendant pay the plaintiff’s costs, such costs to be assessed on the indemnity basis.

6 The defendant’s solicitors wrote to the plaintiff’s solicitors on 22 May 2006 and again on 29 May 2006. In neither letter was it indicated that the demand was withdrawn. The first letter maintained that part of the claimed sum had been “admitted” because a notice of objection lodged by the plaintiff in respect of the defendant’s bill of costs in the Court of Appeal proceedings had dealt with only so much of the claimed total as exceeded the so-called “admitted” sum.

7 The second and longer letter repeated the allegation of “admission” and went on to say that the demand, although in the form prescribed for a statutory demand under s.459 of the Corporations Act, was in truth a demand pursuant to s.585(a) of that Act dealing with the winding up of Part 5.7 bodies. The letter concluded by saying, first, that the plaintiff should consent to dismissal of the originating process and, second, that, since the demand was “a valid and effective demand for the purpose of Section 585 of the Corporations Act”, the defendant would rely on non-compliance as a basis for filing a winding up application under the Corporations Act – by clear implication, an application under s.583 relating to Part 5.7 bodies.

8 The plaintiff’s application for an order setting aside the statutory demand came before me for hearing on 19 June 2006. The plaintiff took the position that, essentially for the reasons it communicated at the outset by means of the solicitors’ letter of 24 April 2006, the demand must be set aside. The defendant’s position was that, as the document is not in reality a statutory demand, there is no jurisdiction to set it aside, with the result that the proceedings should be dismissed.

9 The document is, as I have said, in the form prescribed for a s.459E statutory demand. It was submitted on behalf of the plaintiff that that makes it a “statutory demand”, as defined by s.9, with the result that there is jurisdiction to set it aside, which jurisdiction should be exercised. Reference is made, in that respect, to the part of the s.9 definition that reads:

“’statutory demand’ means … a document that is, or purports to be , a demand served under section 459E …” [emphasis added]

10 The question whether a particular document either is or “purports to be” within this description cannot be answered merely by looking at its form and content. An essential attribute, according to the definition, is that it has been “served under section 459E”. That section of course, begins:

“A person may serve on a company a demand …” [emphasis added]

11 The concept of being “served under section 459E” thus carries within it the requirement that the relevant service be “on a company” – a requirement that, in this case, cannot on any view of matters be seen to be satisfied. The only aspect of the s.9 definition of “company” that is relevant to the construction of s.459E is the core aspect covered by the words “a company registered under this Act”. The plaintiff is, quite simply, not a company registered under the Corporations Act.

12 In any case where a document which is, or purports to be, in the form prescribed for the purposes of s.459E is, in truth, not “served on a company”, the setting aside jurisdiction centred upon ss.459G, 459H and 459J is not engaged. The correct course is to seek a declaration that the document is not a statutory demand or to take the point about the lack of statutory efficiency if and when a winding up application is subsequently made. Those alternatives were clearly spelled out by Mandie J in Emhill Pty Ltd v Bonsoc Pty Ltd (2004) 50 ACSR 305 in relation to a situation where the form of the document and the status of the addressee as a “company” were not in question but there had been no service as such. The alternatives apply also to the present case where the form of the document and the matter of service are not in question but the entity served is not a “company”.

13 At the hearing before me, the plaintiff made an oral application for leave to amend to add a claim for declaratory relief of the kind referred to by Mandie J. That application was not formally dealt with and I do not think that there is now any real need for it to be pursued. It is sufficient, I think, that I record that the document of 13 April 2006 is not a “statutory demand” within the meaning of the Corporations Act, that the court accordingly lacks jurisdiction to determine any s.459G application in respect of it and that the originating process will, on that basis, therefore be dismissed.

14 That leaves the question of costs.

15 It is a pity that the defendant’s solicitors did not act upon the plaintiff’s solicitors’ invitation of 24 April 2006 to read the decision in QBE Workers Compensation (NSW) Pty Ltd v Wandiyali ATSI Inc (above). Had they done so, they would (or should) have seen that their client was in no position at all to seek to rely on the demand. The Wandiyali decision is to the effect not only that the s.459E statutory demand process with respect to “companies” is unavailable in relation to an association incorporated under the Associations Incorporations Act, but also that the analogous s.585(a) process in relation to Part 5.7 bodies is likewise unavailable, even allowing for the fullest effect of State law provisions dealing with incorporated associations and applying Corporations Act provisions with respect to Part 5.7 bodies in relation to their winding up. A reading and understanding of the latter aspect of the judgment would have prevented the defendant’s solicitors embarking upon the incorrect arguments as to the applicability of ss.583 and 585(a) advanced in the letter of 29 May 2006.

16 This is a case in which the defendant persisted with a wrong and misguided view of matters even after the error had been promptly drawn to its attention – with the result that the plaintiff was forced to take action to protect itself. As I have outlined, the plaintiff in fact sought inappropriate relief. But the proceeding it initiated served as a vehicle for an appropriate determination. The defendant says, in effect, that the plaintiff’s resort to s.459G was as misguided as the defendant’s initial resort to s.459E and that the proper course was for it not to institute the proceedings at all. I do not agree. It was quite in order for the plaintiff to seek to challenge the status of the document as a statutory demand, as it did by the particular words used in the form of order sought.

17 In a technical sense, the defendant is the successful party in this litigation: the substantive order sought against it by the plaintiff has not been made. But when one looks at the substance of the matter, the plaintiff is the successful party: the court has accepted the plaintiff’s central contention that the supposed statutory demand is, from the Corporations Act viewpoint, simply meaningless and of no utility. The plaintiff did not act unreasonably when it commenced proceedings directed towards a determination of the status of the document. To the extent that the plaintiff sought to invoke the s.459G jurisdiction, it did not choose an appropriate form of order to include in the originating process. But, at the same time, the order was, as I have said, cast in terms making it clear that the plaintiff did not accept the status of the document as a s.459E statutory demand. In that sense, the basic message conveyed by the originating process was an appropriate one.

18 If the plaintiff is regarded, in substance, as the successful party, it should have a costs order. If the defendant, on a technical basis, is regarded as the successful party, the question is whether the circumstances are such as to warrant the exceptional (but undoubtedly available) step of awarding costs against it.

19 Among the cases in which this exceptional step may be taken against a successful defendant are those in which, to quote the words of Sachs LJ in Ottway v Jones [1955] 1 WLR 706 at p.718, “the conduct of the defendant has brought about the proceeding or in which his conduct causes its continuance” (see also Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129). This is such a case. The defendant was alerted to the fatal flaw in its purported reliance on the s.459E procedure within a very short time after service of the supposed statutory demand. It did not withdraw the demand and, in effect, forced the plaintiff to take proceedings to prove the fatal flaw. Even after those proceedings had been commenced, and in total disregard of the matters clearly put forward by the plaintiff’s solicitors in their letter of 24 April 2006, the defendant persisted in its insupportable contention that the document was a valid and effective demand non-compliance with which would raise a presumption of insolvency through Corporations Act provisions (s.585(a) rather than ss.459E and 459C).

20 The defendant both brought about the proceedings and caused their continuance in circumstances where, properly advised as to the legal position clearly articulated in the plaintiff’s solicitor’s letter of 24 April 2006, it should never have done so. The situation is accordingly one in which the defendant should pay the plaintiff’s costs.

21 There is then the question of the basis of assessment. The originating process seeks costs on the indemnity basis. In my opinion, the quite unreasonable persistence of the defendant in the circumstances I have described represents “relevant delinquency” as contemplated by Oshlack v Richmond River Council (1988) 193 CLR 72. Assessment on the indemnity basis should therefore be ordered.

22 The orders of the court are as follows:

1. Order that, because the document dated 13 April 2006 served by the defendant on the plaintiff is not a statutory demand as defined by the Corporations Act 2001 (Cth), the originating process be dismissed.
2. Order that the defendant pay the plaintiff’s costs of the proceedings, such costs to be assessed on the indemnity basis.
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