Treasury Wine Estates Vintners Ltd v Garrett

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FEDERAL COURT OF AUSTRALIA

Treasury Wine Estates Vintners Ltd v Garrett [2015] FCA 797

Citation: Treasury Wine Estates Vintners Ltd v Garrett [2015] FCA 797
Parties: TREASURY WINE ESTATES VINTNERS LTD (ACN 004 094 599) v ANDREW MORTON GARRETT
File numbers: VID 158 of 2015
VID 159 of 2015
VID 160 of 2015
VID 161 of 2015
VID 162 of 2015
VID 163 of 2015
VID 164 of 2015
VID 165 of 2015
VID 166 of 2015
Judge: DAVIES J
Date of judgment: 7 August 2015
Catchwords:

CORPORATIONS – applications to set aside statutory demands for payment pursuant to s 459G of the Corporations Act 2001 (Cth) – whether genuine dispute about the existence or amount of the debts under s 459H of the Corporations Act 2001 (Cth) – whether there is a defect in the demands causing substantial injustice or some other reason the demands should be set aside pursuant to
s 459J(1) of the Corporations Act 2001 (Cth)

PRACTICE AND PROCEDURE – where defendant has had a vexatious proceeding order made against him pursuant to s 37AO of the Federal Court of Australia Act 1976 (Cth) – meaning of the words “proceeding” and “institute” in s 37AQ of the Federal Court of Australia Act 1976 (Cth) – whether serving statutory demands for payment under s 459E of the Corporations Act 2001 (Cth) constitutes the institution of proceedings for the purposes of s 37AQ of the Federal Court of Australia Act 1976 (Cth)

Legislation: Corporations Act 2001 (Cth) ss 9, 459C(2)(a), 459E, 459F, 459G, 459H, 459J, 1324
Federal Court of Australia Act 1976 (Cth) ss 37AM, 37AO, 37AQ, 37AT
Bankruptcy Act 1966 (Cth) ss 41(1), 129AA
Cases cited: First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) (2013) 95 ACSR 654; [2013] FCAFC 108
Panel Tech Industries (Australia) Pty Ltd v Australian Sky Reach Equipment Pty Ltd (No 2) [2003] NSWSC 896
LSI Australia Pty Ltd v LSI Holdings Ltd (2007) 25 ACLC 1602; [2007] NSWSC 1406
Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452
House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527
SMEC International Pty Ltd v C.E.M.S. Engineering Inc (2001) 38 ACSR 595; [2001] NSWSC 459
Roberts v Wayne Roberts Concrete Constructions Pty Ltd (2004) 50 ACSR 204; [2004] NSWSC 734
Garrett v Make Wine Pty Ltd [2014] FCA 1258
Garrett v Make Wine Pty Ltd [2015] FCA 593
HWY Rent Pty Ltd v HWY Rentals (in liq)(No 2) [2014] FCA 449
First Line Distribution Pty Ltd v Whiley (1995) 18 ACSR 185
Re Elgar Heights Pty Ltd (No 1) [1985] VR 657
Date of hearing: 27 July 2015
Place: Melbourne
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 73
Counsel for the Plaintiff: Mr B Carew
Solicitor for the Plaintiff: Corrs Chambers Westgarth
Counsel for the Defendant:
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Details
Case
[2015] FCA 797
Decision Date

CaseChat Overview and Summary

Treasury Wine Estates Vintners Limited and Treasury Wine Estates Limited (collectively referred to as "TWE") brought an application against Andrew Garrett for the statutory demands for payment served by Mr Garrett to be set aside. The demands related to debts owed by TWE under a Deed of Settlement. The application was heard by Bromberg J in the Federal Court of Australia. The court was required to determine whether Mr Garrett's statutory demands for payment were in breach of a vexatious proceedings order and if the statutory demands were genuine or should otherwise be set aside. The court found that the statutory demands served by Mr Garrett constituted the institution of a proceeding within the meaning of s 37AQ(1) of the Federal Court of Australia Act 1976 (Cth). The court was assisted by the decision in HWY Rent Pty Ltd v HWY Rentals (in liq)(No 2) [2014] FCA 449, where Perry J held that a request to issue a bankruptcy notice constituted the taking of a step necessary before proceedings in a court may be started against a debtor by way of a creditor’s petition. The court concluded that Mr Garrett’s statutory demands were served in contravention of s 37AQ(1) of the FCA. Accordingly, the statutory demands were set aside and Mr Garrett was ordered to pay TWE’s costs of the application.

Orders

Orders of the court

1. The Defendant’s statutory demand for payment of a debt in the sum of $1,819,573.41 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

1. The Defendant’s statutory demand for payment of a debt in the sum of $8,550,000 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

1. The Defendant’s statutory demand for payment of a debt in the sum of $219,269.60 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

1. The Defendant’s statutory demand for payment of a debt in the sum of $52,500 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

1. The Defendant’s statutory demand for payment of a debt in the sum of $112,500 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

1. The Defendant’s statutory demand for payment of a debt in the sum of $5,300,000 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

1. The Defendant’s statutory demand for payment of a debt in the sum of $150,000 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

1. The Defendant’s statutory demand for payment of a debt in the sum of $310,000 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

1. The Defendant’s statutory demand for payment of a debt in the sum of $37,000 dated 10 March 2015 be set aside.

2. The Defendant pay the Plaintiff’s costs of the application including any reserved costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

This statutory demand is the subject of the application in VID 166 of 2015. EVIDENCE Mr Jason Ryan, the Deputy General Counsel of Treasury Wine Estates Limited (“TWE”), the parent company of TWEV, swore an affidavit in each proceeding in which he deposed to the matters set out below. For the quarterly periods from 26 July 2000 to 1 April 2005, TWEV made payments in the manner provided for under Clause 9 of the Deed of Settlement. On 24 September 2004, a sequestration order was made against Mr Garrett and Mr Peter Ivan Macks (“Mr Macks”) was appointed trustee of Mr Garrett’s bankrupt estate. In mid-2005, TWEV commenced interpleader proceedings in the Supreme Court of Victoria concerning the quarterly payments due under Clause 9 of the Deed of Settlement. The claimants to the payments included Mr Macks, and a Mr Shu Mu Tseng, under a Deed (“the Tseng Deed”) entered into with Mr Garrett and his wife in their capacity as trustees of the Andrew Garrett Family Trust. By orders of the Supreme Court made on 26 July 2005 and 19 August 2005, TWEV was granted leave to pay the amounts due under Clause 9 into the Supreme Court until the determination of the proceeding or further order. On 16 December 2005, orders were made in the Supreme Court proceeding cross-vesting the proceeding to the South Australian Registry of the Federal Court of Australia and directing that future quarterly payments by TWEV due under Clause 9 were to be paid into the Federal Court. On 27 March 2009, Lander J in the cross-vested proceeding (SAD 5 of 2006), made orders by consent that out of the monies held in Court, $112,500 was to be paid to the Australian Taxation Office, $100,000 was to be paid to the Commercial & General Law Trust Account on account of Mr Garrett in his capacity as trustee of the Andrew Garrett Family Trust No. 3, and the balance was to be paid to Mr Macks in his capacity as trustee of the bankrupt estate of Mr Garrett. The Court further ordered TWEV to pay future amounts payable pursuant to Clause 9 to the Lipman Karas Trust Account (being the trust account of a South Australia law firm). Mr Ryan exhibited a table to his affidavit which he believed accurately summarised the documents evidencing the payments made under Clause 9 for the quarterly periods from 30 July 2004 to 30 July 2010. The Tseng Deed was also put into evidence. Clause 1 of that deed contained a warranty from Mr Garrett that TWEV had paid the quarterly payments due for the quarters from 1 January 2003 up to 1 April 2004. On 1 May 2014, Mr Garrett filed a proceeding in the Federal Court against TWEV and other related entities. The claims made by Mr Garrett against TWEV included:(a)an allegation that, on the proper construction of Clause 9 of the Deed of Settlement, in addition to the amounts payable by TWEV to the trustees, quarterly payments were also due and payable by TWEV to him personally “in perpetuity” and none of those payments had been made;(b)an allegation that TWEV had breached the terms of Clauses 14 and 15 of the Deed of Settlement in relation to the exercise by Mr Garrett of certain option rights;(c)an allegation that Clause 17.3 of the Deed of Settlement operated as an indemnity in Mr Garrett’s favour in respect of the 2014 proceedings instituted by him and all other proceedings he had taken against TWEV. The 2014 Federal Court proceeding

Decision

Reasons for decision

Finally, TWEV seeks an injunction under s 1324 of the Act restraining Mr Garrett from serving any more statutory demands based upon claimed breaches or entitlements under the Deed of Settlement. Section 1324 empowers the Court to grant injunctions where a person has engaged, is engaging or proposing to engage in conduct that constitutes or would constitute relevantly the contravention of the Act or attempting to contravene the Act. It was submitted that there was a breach of s 459E in the circumstances where Mr Garrett is aware that TWEV disputes any further liability to him. I do not accept that the power of the Court under s 1324 is enlivened. The demands were not a breach of the Act in the relevant sense but, rather, were ineffective to achieve their statutory purpose. Accordingly, the application for an injunction is refused. CONCLUSION I have not dealt with all the arguments advanced by both parties as it is unnecessary to do so in view of my conclusion that the statutory demands should be set aside for the reasons given. An order will be made setting aside the statutory demands.

Ratio Decidendi

Legal Principle Established

During a case management conference held on 9 July 2014 in the 2014 proceedings, Mr Garrett withdrew all but five of the statutory demands served by him. The withdrawals were without prejudice to any rights Mr Garrett may have after the determination of the 2014 proceeding to serve similar statutory demands on TWE and TWEV. TWE and TWEV subsequently commenced five separate proceedings to have the remaining statutory demands set aside. At a case management conference before a Registrar of the Court on 1 August 2014, Mr Garrett provided an undertaking to the Court that he would withdraw the remaining five statutory demands upon provision of material from TWEV demonstrating solvency. Such material was provided to Mr Garrett and on 5 August 2014, orders by consent were made for those five statutory demands to be set aside. CONSIDERATION The first issue for consideration is whether the statutory demands the subject of the current proceedings were served by Mr Garrett in contravention of s 37AQ(1) of the FCA. Section 37AQ relevantly provides:(1)If the Court makes a vexatious proceedings order prohibiting a person from instituting proceedings, or proceedings of a particular type, in the Court:(a)the person must not institute proceedings, or proceedings of that type, in the Court without the leave of the Court under section 37AT; and(b)another person must not, acting in concert with the person, institute proceedings, or proceedings of that type, in the Court without the leave of the Court under section 37AT.(2)If a proceeding is instituted in contravention of subsection (1), the proceeding is stayed. The word “proceeding” is defined by s 37AM of the FCA Act to have the meaning in s 4 of the FCA Act as follows:proceeding means a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal.Example: Discovery is an example of an incidental proceeding. The word “institute” is defined in s 37AM of the FCA Act and includes relevantly:… for civil proceedings – the taking of a step or the making of an application that may be necessary before proceedings can be started against a party. TWEV submitted that the service of the statutory demands constituted the institution of a proceeding within the meaning of s 37AQ because the purpose of a statutory demand is to facilitate proof of a company’s inability to pay its debts (see s 459C(2)(a) of the Act) and thus, it was said, the service of the statutory demands was the taking of a step that may be necessary before commencing wind up proceedings. I am not aware of any reported decision on point and none was cited to me. However, I am assisted by HWY Rent Pty Ltd v HWY Rentals (in liq)(No 2) [2014] FCA 449, in which Perry J held that a request to issue a bankruptcy notice under s 41(1) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) constitutes the taking of a step necessary before proceedings in a court may be started against a debtor by way of a creditor’s petition.