Tindall Gask Bentley v KH International Traders Pty Ltd

[2009] SASC 387

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

TINDALL GASK BENTLEY v KH INTERNATIONAL TRADERS PTY LTD

[2009] SASC 387

Reasons of Judge Lunn a Master of the Supreme Court

16 December 2009

CORPORATIONS

Application to wind up defendant - no steps taken to set aside statutory demand or to prove solvency - plaintiff's debt was for legal costs - request under s 42 of the Legal Practitioners Act to tax them after winding up proceeding issued - held not a sufficient exceptional circumstance to justify adjourning winding up proceeding until completion of taxation - adjournment refused and winding up order to be made.

TINDALL GASK BENTLEY v KH INTERNATIONAL TRADERS PTY LTD
[2009] SASC 387

Reasons on winding up of the defendant company.

1. JUDGE LUNN: The plaintiff is a firm of lawyers which had acted for the defendant. On 8 September 2009 it served a statutory demand under s 459E of the Corporations Act 2001 (“the Act”) by post on the defendant claiming $5,726 as the balance of legal costs allegedly due and payable. The defendant did not take the necessary steps to have the statutory demand set aside. Accordingly, there is now a presumption of its insolvency under s 459C(2)(a). On 12 November 2009 the plaintiff instituted this action under the Act, seeking the winding up of the defendant in insolvency under s 459P of the Act.

2. On 5 November 2009 other lawyers acting for the defendant made an application to this Court in action 1672/09 under s 42 of the Legal Practitioners Act for the legal costs charged by the plaintiff to the defendant to be taxed.  The preliminary assessment under 6R 272(4) on that adjudication has been adjourned to await the outcome of these winding up proceedings.

3. On 10 November 2009 the defendant filed an appearance opposing the winding up on the ground that it was solvent or, in the alternative, seeking an adjournment until the adjudication for costs had been finalised.  On that day the defendant paid the $5,726.14, the amount claimed in the statutory demand, into Court with a denial of liability and an assertion “that this sum is sufficient to satisfy the plaintiff’s claim in this action”.  It did not pay in any additional amount for the plaintiff’s costs of this action.  I am unaware of any Act or Rule which authorised the defendant to pay this amount into Court on these terms.  The plaintiff has not accepted the amount paid into Court because no sufficient amount for its costs of this action have been paid into Court or offered to it.  The first hearing of the action also occurred on that day when it was adjourned to 24 November.

4. On 20 November the defendant filed an affidavit of Irene Lambrinos, its General Manager, deposing as to various grounds on which the quantum of the plaintiff’s costs were challenged and explaining why there had been no effective response to the statutory demand.  On that day the defendant’s solicitors wrote to the plaintiff stating:

   That the company had decided not to oppose the petition on the ground of solvency.

   The defendant maintains that it is solvent, but it has not filed any affidavit seeking to prove it solvency. Thus the presumption of its insolvency under s 459C of the Act has not been displaced. In the argument on 12 December counsel for the defendant submitted that the winding up application should be further adjourned until after the adjudication in action 1672/09 had been completed. Unless an adjournment is to be granted for this purpose there is no reason to refuse the plaintiff’s application for an immediate winding up of the defendant.

5. S 42(2)(b) of the Legal Practitioners Act 1981 gives this Court power to stay “proceedings for recovery of (legal) costs” pending the completion of a taxation of the costs under that section. However, a proceeding for the winding up of a company is not a proceeding “for the recovery of legal costs” for the purposes of s 42(2)(b) of that Act: D A Starke Pty Ltd v Yardoo Pty Ltd, Withers M, 22 August 2008; Koutsourais v Metledge & Associates, New South Wales Court of Appeal, 23 November 2004, Judgment No [2004] NSWCA 313 at [8]. The defendant’s counsel did not submit that these authorities were wrongly decided.

6. While the affidavit evidence from the defendant suggested that there were cogent grounds to dispute much of the costs charged by the plaintiff, it was not submitted that there was no amount payable for costs by the defendant to the plaintiff and therefore that the plaintiff was not a creditor of the defendant which could maintain this proceeding under s 459P of the Act.

7. The defendant’s payment of the amount of the demand into Court after the institution of this action is of no significance.  It was not paid into Court pursuant to an order of the Court making it a condition of any adjournment of the action.  By the time of its payment in the plaintiff had incurred significant costs in prosecuting this action which are not covered by the amount paid in.  The defendant’s counsel did not submit that the amount by which the plaintiff’s costs would be reduced on a taxation would be sufficient to cover the plaintiff’s costs of this action to the date of payment in and in any event it is not appropriate to complete the adjudication in 1672/09 to deal with this possibility.

8. The defendant’s counsel cited the decision of Ace Contractors Pty Ltd v Westgarth Development Pty Ltd, Weinberg J, Federal Court 1 June 1999, Judgment No [1999] FCA 728, as authority that this Court had power to adjourn a winding up proceeding even though the presumption of insolvency had not been displaced. However, as Weinberg J made clear in his reasons, this could only be done in exceptional circumstances. He only granted an adjournment of 14 days so that the defendant could pay the outstanding debt. Such adjournments are only to be granted in exceptional circumstances, and only for a short time: Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631. Here there are no exceptional circumstances and the adjournment sought is likely to be for some months to enable all of the issues raised in 1672/09 to be resolved (which include a challenge that the plaintiff’s time-costing agreement was not fair and reasonable).

9. Counsel for the defendant also relied upon the decision of Burley M in Timms v Dellaplus Pty Ltd, 12 March 2008, Judgment No [2008] SASC 61. There the amount of the demand had been paid into Court, but it is unclear from the Reasons what was the basis for that payment into Court. There is no suggestion that it was with a denial of liability. The inference from the other parts of the Reasons is that it was in the nature of a payment into Court on a plea of tender of the debt before action. That is not the situation in this case. It does not assist this defendant.

10. Counsel for the defendant also relied upon the decision of Anderson J in 4WD Pty Ltd v McNamara, 3 September 2009, Judgment No [2009] SASC 274, and the case which it followed of Jarena Pty Ltd v Scholl Nicholson Pty Ltd (1996) 136 ALR 427. In those cases, solicitors had issued statutory demands for costs, the clients had duly instituted proceedings to set aside those demands and had requested adjudications of the costs under s 42 of the Legal Practitioners Act or its equivalents. It was held that the requests for the adjudications in those circumstances constituted sufficient other “good reason” under s 459J(1)(b) of the Act on grounds of public policy to set aside the demands. If the defendant had made her request for an adjudication in conjunction with an application to set aside the plaintiff’s statutory demand, it is likely on these authorities that the demand would have been set aside. The defendant’s counsel submitted that the principle of public policy which was applied in those decisions should be extended to where the lawyer seeks to wind up the company even after the statutory demand has expired. She cited no authority for this proposition and I am not aware of any. However, it is contrary to s 459S of the Act which provides:

    (1)Insofar as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without leave of the Court, oppose the application on a ground:

    (a)that the company relied on for the purposes of an application by it for the demand to be set aside; or

    (b)that the company could have so relied on, but did not so rely (whether it made such an application or not).

11. The defendant has not sought any leave under s 459S. Its request for an adjudication was a ground on which it could have relied to set aside the statutory demand, but which it did not then raise. Thus s 459S(1) of the Act now precludes it from now raising it as an answer to the proceedings for winding up.

12. Accordingly, the defendant has not made out any sufficient grounds to have the winding up application further adjourned.  The plaintiff is entitled to its order for winding up.

13. On the next hearing I will make the order for winding up, hear any application as to what is to happen to the moneys in Court and consider what orders are to be made in respect of action 1672/09.