Tired Horses Films Holdings Pty Ltd v Property About Pty Ltd

[2012] WASC 478

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

CITATION:   TIRED HORSES FILMS HOLDINGS PTY LTD -v- PROPERTY ABOUT PTY LTD [2012] WASC 478

CORAM:   MASTER SANDERSON

HEARD:   31 OCTOBER 2012

DELIVERED          :   10 DECEMBER 2012

FILE NO/S:   COR 122 of 2012

COR 123 of 2012
COR 124 of 2012

BETWEEN:   TIRED HORSES FILMS HOLDINGS PTY LTD

Plaintiff

AND

PROPERTY ABOUT PTY LTD
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand on basis of abuse of process or 'some other reason why demand ought be set aside' - Turns on own facts

Legislation:

Nil

Result:

Demands set aside

Category:    B

Representation:

Counsel:

Plaintiff:     Mr A P Hershowitz

Defendant:     Mr N Marouchak

Solicitors:

Plaintiff:     Melvyn Levitan

Defendant:     Rowe Bristol Lawyers

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

Accordent Pty Ltd v RMBL Investments Ltd [2009] SASC 248

Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85

Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196

1. MASTER SANDERSON:  The plaintiff in these three matters has applied to set aside three separate statutory demands all of which were issued by the same defendant.  It is open to question whether three separate actions were necessary given the coincidence of the parties:  see Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196. In any event the fact that three separate actions were initiated does not invalidate the actions taken by the plaintiff.

2. It is convenient to begin with a summary of the facts.  There was no dispute between the parties as to the background facts and what follows is largely taken from the plaintiff's written submissions.  During 2008 various written and oral agreements were entered into between Paul China and Benjamin China (the China brothers) and James Smith concerning the development and production of a motion picture based on a screenplay entitled 'All the Tired Horses'.  Various written agreements were entered into in relation to the obtaining of finance for the film and to regulate the participation of 'investors' in the film.  Copies of some of these agreements are attached to the affidavit of James Smith sworn 3 August 2012 and filed in support of the application in COR 122 of 2012.

3. China Brothers Productions Co Pty Ltd invested approximately $1,500,000 into Tired Horses Films Holdings Pty Ltd (Tired Horses) to make the film and Mr Smith was required to find other investors to invest $3,700,000.  Production of the film would not occur until the full $5,200,000 was raised.  In the event the money was not raised and the film was not made.  Tired Horses ceased trading in mid‑2009.

4. Disputes concerning the production of the film arose between the China brothers and Mr Smith culminating in the commencement of proceedings by the China brothers and China Brothers Production Co against Tired Horses, James Smith and another entity TRI‑US Entertainment Holdings Pty Ltd.  There were two actions CIV 2583 of 2009 and CIV 2376 of 2009.  The proceedings have been consolidated and directions have been made programming the actions for trial.  As part of the ongoing dispute on or about 31 July 2009 China Brothers Production Co obtained freezing orders freezing all funds within the bank accounts of Tired Horses and James Smith.

5. In COR 122 of 2012 the amount of the debt is $10,000.  Under the heading 'description of the debt' in the schedule to the statutory demand there appears the following:

   An amount outstanding comprising AUD$10,000 for professional services provided to the Debtor Company by Ms Christine Rush of 6263 Lemona Avenue, Van Nuys CA 91411, USA pursuant to the request of the Debtor Company as invoiced to the Debtor Company on 20 July 2009 and such debt having been assigned to the Creditor by virtue of a Debt Assignment dated 27 June 2012. 

6. Accompanying the statutory demand was a document entitled 'notice of assignment'.  This document purports to give notice to Tired Horses that Ms Rush has assigned to Property About Pty Ltd a debt of $10,000 owed by Tired Horses to her.  The first time the plaintiff became aware of any assignment of a debt it owed to Ms Rush was when it was served with the statutory demand.

7. In COR 123 of 2012 the amount of the debt is $2,629.  The description of the debt in the schedule to the demand is as follows:

   An amount outstanding comprising AUD$2,200 for professional services provided to the Debtor Company by a company named Palchung Pty Ltd (ACN 071 638 063) t/as Creagh Barker Associates, including compiling annual accounts and taxation returns for the Debtor Company and related services as invoiced to the Debtor Company on 21 July 2010 (invoice no 9921), and such debt having been assigned to the Creditor by virtue of a Debt Assignment dated 2 July 2012.

   An amount outstanding comprising AUD$429 for professional services provided to the Debtor Company  by a company named Palchung Pty Ltd (ACN 071 638 063) t/as Creagh Barker Associates at the request of the  debtor company in respect of the preparation of annual company documents for submission to ASIC in the financial year ending 30 June 2010 and related services, as invoiced to the Debtor Company on 25 May 2010 (invoice no 9814), and such debt having been assigned to the Creditor by virtue of the Debt Assignment dated 2 July 2012 referred to above.

8. Once again the statutory demand was accompanied by a purported 'notice of assignment'.  Once again the first time the plaintiff knew anything of this assignment was when it was served with a statutory demand.

9. In COR 124 of 2012 the amount of the debt is $2,460.30.  The description of the debt found in the schedule to the demand is in the following terms:

   An amount outstanding comprising AUD$2,460.30 for labour and other miscellaneous services provided to the Debtor Company by a Mr Jeremy Levi pursuant to an invoice dated 21 August 2009 (invoice no 0000001), and such debt having been assigned to the Creditor by virtue of a Debt Assignment dated 27 June 2012.

10. Once again there was a notice of assignment accompanying the statutory demand.  Once again this was the first time the plaintiff had been aware the alleged debt had been assigned.

11. The director of the defendant who signed the statutory demands is one Maxell Allan Strawhorn. Mr Strawhorn is an investor in China Brothers Production Co and one of the plaintiffs in one of the Supreme Court proceedings. It was the plaintiff's submission the defendant was using the statutory demand procedure for an improper purpose. It knew the plaintiff was subject to the freezing orders. When the debts were not paid pursuant to the statutory demand a presumption of insolvency would arise which would allow the defendant to move to wind‑up the plaintiff. Of course if the plaintiff was wound‑up it would be effectively removed from the Supreme Court proceedings. This, so it was submitted, would justify the demand being set aside under s 459J(1)(b) of the Corporations Act 2001 (Cth).

12. Before dealing with this issue I should say something more about these assignments.  The defendant obtained the assignments by paying roughly 50% of the amount of the debt.  For instance in COR 123 of 2012 the defendant paid $1,314 for assignment of a debt of $2,629.  The plaintiff asked rhetorically - why the defendant would take such an assignment when it knew because of the freezing orders the plaintiff could not pay.  No answer to this reasonable question was provided by evidence filed on behalf of the defendant or by counsel during the course of his submissions.

13. There is some dispute at appellate level as to what constitutes an abuse of process in the statutory demand regime.  In Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85, Martin CJ said:

    Adopting the criterion from Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, suggested by Gummow J in David Grant & Co Pty Ltd, there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt [50].

14. In Accordent Pty Ltd v RMBL Investments Ltd [2009] SASC 248, Doyle CJ expressed some doubts about the Createc decision.  After quoting the passage I have set out above his Honour went on:

    I accept that the power conferred on the court by s 459J(1)(b) of the CA is widely expressed. No doubt the power is to be exercised taking into account the purposes of Pt 5.4 of the CA. However, on an application to set aside a statutory demand it may be that the concept of an abuse of process is relevant only by way of analogy. A creditor who serves a statutory demand does not invoke the process of a court. A debtor who applies to have a statutory demand set aside does invoke the process and powers of a court, but whether in that setting it is appropriate to speak of an abuse of process by the creditor is another thing. A court that considers an application under s 459J(1)(b) must also be careful not to allow the ordinary incidents of the service of a statutory demand, which might sometimes seem to operate harshly, to become a basis for setting aside a statutory demand. Care is also called for in using the notion of 'pressure' to recover a debt, because there is no doubt that the service of a statutory demand will put pressure on a debtor company.

    Of course, on an application by the creditor to wind up the debtor, the concept of abuse of process is relevant, but once again it is necessary for the court to recognise the manner in which the statutory regime relating to statutory demands operates.

    Be that as it may, I accept that the concept of impropriety of purpose may be relevant to the application of s 459J(1)(b) [55] ‑ [57].

15. In the end it may be there is no practical difference between the approach of the two courts.  Certainly for the purposes of this case nothing turns on the differences of approach.

16. It is to be noted in each matter Mr Strawhorn has sworn an affidavit in opposition to the plaintiff's application in which he says 'my intention is not to interfere with SCWA proceedings' (par 10).

17. As I have indicated that is the only explanation he gives as to why the defendant took an assignment of each of the debts and proceeded with the issue of the statutory demands.  Clearly Mr Strawhorn could have provided an explanation had he wished to do so.  On the face  of it there is no commercial reason why the defendant should have paid for an assignment of a debt it knew because of the freezing order could not be paid.

18. In my view the irresistible inference in this case is the defendant has issued the statutory demands because it wants to hobble the plaintiff in the Supreme Court proceedings.  It well knew the demands could not be paid.  The inevitable consequence would be a presumption of insolvency followed by a winding‑up application.  The plaintiff may or may not have been able to resist the winding‑up application - it would of course have needed to prove solvency.  But either way the defendant started with the significant advantage of having a presumption of insolvency.  It must follow then it saw a real chance to eliminate the plaintiff from the Supreme Court proceedings.

19. In my view that provides some other reason why this demand ought be set aside.  In each case the order will be the demand be set aside and the defendant pay the plaintiff's costs of the applications including reserve costs.