Roberts v Kowshu No. Scgrg-98-1742 Judgment No. S63

[1999] SASC 63

ROBERTS V KOWSHU

[1999] SASC 63

Civil (Ex Tempore)

1. LANDER J.       This is an application for a stay of proceedings in the Magistrates Court. 

2. The plaintiff brought these proceedings against the defendant on 9 September 1998.  On 16 September 1998 the defendant’s solicitor wrote to the plaintiffs' solicitors requesting the plaintiffs' solicitors not to obtain judgment without giving the defendant's solicitor notice of intention to do so.  The reason for requesting the plaintiffs' solicitors to refrain from obtaining judgment was that the defendant's solicitor required further information before entering a defence. 

3. On 1 October 1998 the defendant's solicitor spoke to the plaintiffs' solicitor by telephone and the plaintiffs' solicitor agreed that the plaintiffs would refrain from obtaining judgment.  The plaintiffs' solicitor was told by the defendant's solicitor that he would file the defendant's defence early in the following week, being about 6 October 1998.  The plaintiffs' solicitor agreed that she would give him that further time. 

4. On 2 October 1998 the defendant's solicitor faxed to the plaintiffs' solicitor a copy of the defence.   The defence, therefore, was in the hands of the plaintiffs' solicitor on 2 October 1998.  On or about that day, the plaintiffs heard that their solicitor had given the defendant time to file its defence.  They terminated the plaintiffs' solicitor's instructions and without notice to the defendant, and without notice to the court that the plaintiffs' solicitor was no longer acting, applied to the court for judgment.  Judgment was entered on 6 October 1998 before the Court received the defendant’s defence. 

5. On the same day, pursuant to part 5.4 of the Corporations Law, the plaintiffs served a statutory demand on the defendant. The defendant's solicitor received advice that judgment had been entered against his client in default of the defendant's defence. He applied to set aside the judgment. However, he was not instructed by his client that his client had received a statutory demand under part 5.4 of the Corporations Law.  No action was taken by the defendant in respect of the statutory demand under the Corporations Law.  The defendant's solicitor applied to set aside the judgment entered in the Magistrates Court and Mr Brook, who was instructed to act in lieu of the original solicitors, consented to such an order.  The judgment was set aside and the defendant entered its defence. 

6. The time prescribed in the statutory demand, served by the plaintiffs on the defendant, expired on 29 October 1998. Thereafter the defendant was not entitled to take any proceedings under Division 3 of part 5.4 of the Corporations Law to set aside the statutory demand. The plaintiffs maintained, notwithstanding the judgment had been set aside, that the statutory demand still had full force and effect. They claimed that notwithstanding that the judgment had been set aside, the service of the statutory demand meant that the defendant was deemed to be insolvent pursuant to s.459A(3) of the Corporations Law. 

7. The defendant applied ex parte in the Magistrates Court for an injunction restraining the plaintiffs from taking any steps to wind up the defendant until further order.  An order, in the nature of an injunction, was made on 13 November 1998.  When the injunction came to the plaintiffs’ attention they applied to set aside that order, but the application to dissolve the injunction was dismissed. 

8. The plaintiffs then sought leave to appeal to this Court from that order.  Leave to appeal was granted to the plaintiffs by Perry J on 15 January 1999.  The appeal has been set for hearing in the March sittings of this court.  I am not sure why it was not listed in these sittings. 

9. The plaintiffs complain in that appeal that the Magistrates Court had no jurisdiction to make the order and no jurisdiction to restrain the plaintiffs from exercising their statutory rights under the Corporations Law. 

10. After Perry J gave leave to the plaintiffs to appeal, the trial of this action was listed in the Magistrates Court.  The trial is now listed for 1 March 1999.  On 2 February 1999 the plaintiffs applied in this court for a stay pending the determination of the appeal.  It is that application with which I am presently concerned. 

11. The judgment in the Magistrates Court has been set aside.   However, the plaintiffs claim that they are entitled to use that judgment for the purpose of supporting the statutory demand which has not been challenged. 

12. The plaintiffs face considerable difficulties, in my opinion, in relation to the use of that judgment and in relation to any winding up proceedings that they might bring in this Court. First, the presumption created by s.459C(2) of the Corporations Law has expired. Section 459C(2) provides that a Court must presume that a company is insolvent if during or after three months ending on the day the application for winding up is made, the company failed to comply with the statutory demand. The three months from the day which the company failed to comply with the statutory demand has expired. Therefore the statutory presumption under s.459C(2) no longer arises.

13. Moreover the plaintiffs face the difficulty that in any application which they would have to make under s.459Q(c) they are no longer able to say that they rely on a judgment debt.  This is because the judgment debt, which the plaintiffs relied upon for the statutory demand, has been set aside. 

14. Lastly of course, if the plaintiffs were to present a petition for winding up, the defendant, notwithstanding that it failed to comply with the statutory demand would still be entitled to lead evidence in the winding up application to prove its solvency: Master Paving Pty Ltd v Heading Contractors Pty Ltd [Judgment No.S6250 of 1997 Judgment 7 July 1997]. 

15. If it may be assumed that the plaintiffs will succeed on this appeal and set aside the injunction, an assumption which I am prepared to make, it seems to me that the plaintiffs face considerable difficulty in relying upon the judgment debt, which has been set aside, for the purpose of any application for a winding up under part 5.4 of the Corporations Law. 

16. In my opinion they have considerable difficulties in ever obtaining a winding up order. Their difficulties are so great, in my opinion, that it would be necessary for the litigation which is sought to be stayed, to go forward to establish whether or not the defendant is indebted to the plaintiffs. Even if the plaintiffs succeeded in obtaining a winding up order under s.459P of the Corporations Law, the plaintiffs would then face the difficulty that they no longer have a judgment debt and they would have to prove their debt as against the liquidator.  The plaintiffs in those circumstances would still be likely to be rejected by the liquidator for the same reasons as the defendant has presently rejected the plaintiffs' claim. 

17. There are therefore considerable and almost impossible obstacles in the way of the plaintiffs succeeding in using a judgment debt, which has been set aside, for the purpose of obtaining a winding up order under part 5.4 of the Corporations Law. In my opinion the difficulties are so great that it would be inappropriate to stay the proceedings in the Magistrates Court, whilst the appeal against the order in the nature of injunction made in the Magistrates Court was heard, and whilst the plaintiffs made an application to wind up under part 5.4 of the Corporations Law.  In my opinion, therefore, the application for the stay of proceedings should be rejected. 

18. The application to stay the proceedings in the Magistrates Court is dismissed.  I order that the plaintiffs/applicants pay the defendant’s/respondent’s costs of and incidental to this application.  I certify for counsel.