Valimi Pty Ltd v Maniotis and Maniotis
[2001] VSC 281
•15 August 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 4310 of 2001
| VALIMI PTY LTD | Plaintiff |
| v | |
| BASIL MANIOTIS and PETER MANIOTIS | Defendants |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 July 2001 | |
DATE OF JUDGMENT: | 15 August 2001 | |
CASE MAY BE CITED AS: | Valimi Pty Ltd v Maniotis and Maniotis | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 281 | |
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Corporations Act, ss.459H and 459J – setting aside statutory demand – off‑setting claim in a separate proceeding - stay order relating to costs in separate proceeding – whether fact of stay order impacts on off‑setting claim – whether substantial injustice if statutory demand not set aside.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S. Gillespie-Jones | Law Partners |
| For the Defendants | Mr J. Nolan | Leo Dimos & Associates |
HER HONOUR:
The plaintiff seeks relief under s.459G of the Corporations Act to set aside a statutory demand.
The proceeding falls with the jurisdiction of a Master[1]. However, it seems that because the plaintiff's application involved some perceived novelty, the Senior Master, at first instance, was persuaded to refer the proceeding to a Judge in the Corporations List for determination. For my part I have some hesitation about such referral. The Masters are vested with certain jurisdiction under the Corporations Act and the Rules and, in my view, it is generally desirable that the jurisdiction be exercised. Be that as it may, the proceeding came before me in the Corporations List by which time the parties had incurred further cost. Ultimately, I resolved that for reasons of expediency and in the interests of justice I ought hear the matter. In so doing, it should not be assumed that Judges in the Corporations List will always be so minded.
[1]Pursuant to Schedule 2 of Chapter V of the Rules of the Supreme Court of Victoria.
Turning then to the present application. It has a chequered history that is relevant to the application at hand.
In a related proceeding in this Court, No. 6444 of 1995, Valimi Pty Ltd ("Valimi") and Con George Thyssen as plaintiffs brought proceedings claiming breach of fiduciary duty, tortious conspiracy and negligence against Basil Maniotis, Peter Maniotis and David John Beatty as defendants. I refer hereafter to that proceeding as "the primary proceeding".
In the primary proceeding, the defendants, Basil Maniotis and Peter Maniotis ("Maniotis") obtained costs orders in their favour against Valimi and Con George Thyssen in an amount totalling $33,630.90. The last of such orders was made on 16 August 2000. In the same proceeding Valimi obtained a number of costs orders against Maniotis for the total amount of $5,624.60.
On 5 February 2001 a Master made two sets of orders in the primary proceeding. On a summons filed by the plaintiffs, Valimi and Thyssen dated 2 February 2001 seeking a stay of execution in respect of interlocutory costs orders made against them in favour of Maniotis, Master Wheeler ordered a stay of execution until completion of the trial of the proceeding or further order. On a summons filed by Maniotis dated 15 January 2001 seeking that the action be dismissed pursuant to Rule 63.03(3)(b) of Chapter I of the Rules on the ground that interlocutory costs had not been paid as ordered, the Master dismissed the application. By notices of appeal dated 9 February 2001 Maniotis in the primary proceeding appealed each of the Master's orders made on 5 February 2001. The appeals came on for hearing before Bongiorno J on 19 and 21 February 2001.
On 24 May 2001 Bongiorno J published reasons and made orders allowing the appeals against the orders of the Master made on 5 February 2001.
On the summons filed 2 February 2001, Bongiorno J ordered –
(1)That the appeal be upheld.
(2)That the plaintiffs' summons seeking a stay of execution in respect of interlocutory costs orders made against them in favour of the first and second defendants be dismissed.
(3)That the plaintiffs pay the first and second defendants' costs of that summons and of the appeal.
(4)That the plaintiffs be granted an indemnity certificate pursuant to s.4 of the Appeal Costs Act 1998 in respect of the appeal.
On the summons filed 15 January 2001, Bongiorno J ordered:
(1)That the appeal be upheld.
(2)That in lieu of the order of Master Wheeler that the defendants' summons be dismissed there be an order that the proceeding against the first and second defendants be stayed pursuant to Rule 63.03(3)(b) of the Rules until the plaintiffs pay to the first and second defendants the costs ordered to be so paid by orders of the Court of 11 December 1996, 6 February 1998, 10 November 1998, 19 October 1999, 30 May 2000 and 28 June 2000, totalling $33,620.90 less the sum of $5,624.60 ordered to be paid by the first and second defendants to the plaintiffs by orders of the Court made 9 December 1998 and 30 June 1999 or further order.
(3)That the plaintiffs pay the first and second defendants' costs of the summons and the costs of the appeal.
(4)That the plaintiffs be granted an indemnity certificate pursuant to s.4 of the Appeals Cost Act 1998 in respect of the appeal.
Subsequently, the plaintiff, Valimi applied for leave to appeal against the orders of Bongiorno J. The application came before the Court of Appeal constituted by Chernov and Vincent JJA on 22 June 2001. The application for leave to appeal was dismissed. Chernov JA with whom Vincent JA agreed[2] observed (at p.3-5):
"His Honour did not, in terms, deal in his judgment with the submission made to him by the present applicants that a stay of the proceeding would jeopardise their defence in the bankruptcy and insolvency proceedings. It was common ground, however, that this matter was put to his Honour, and I think it is fair to say that Mr Gillespie‑Jones accepted that his Honour gave it consideration, although he argued that his Honour did not give it sufficient consideration.
Be that as it may, it is in relation to the decision to which I have just referred that the applicants seek leave to appeal. It is trite that, in order to obtain such leave, they must establish that the discretionary decision of his Honour is attended with sufficient doubt and that substantial injustice would be done if the decision were to remain.
In my view, it is difficult to see how substantial injustice would arise in this case if the decision were not set aside. His Honour's order does not take away the applicants' substantive rights. The effect of the order is only that the applicants comply with what the law already requires them to do, namely, pay the costs which they have been ordered to pay. That cannot constituted substantial injustice for present purposes. See Niemann v Electronic Industries Ltd [1978] VR 431 per Murphy J at 442.
It was put on behalf of the applicants that substantial injustice would arise from the fact that, as a matter of practicality, his Honour's order will put at risk the applicants' ability to defend successfully the bankruptcy and liquidation proceedings. In my view, however, that argument cannot be accepted. If the order had not been made, but the bankruptcy proceeding and the insolvency proceeding had continued, the applicants would put before the respective courts precisely the same argument that they would now put, namely, that they have a substantial case against those who seek sequestration and that the determination of the bankruptcy proceeding and the liquidation proceeding should await the resolution of the principal proceeding. That argument is still open to them and it is a matter for the Federal Court and the Court hearing the liquidation application to decide whether that constitutes sufficient defence to the claims.
It is to be borne in mind that the applicants chose to bring this complex piece of litigation and to prosecute it and that the interlocutory costs that were run up by the respondents were not incurred due to fault on their part. The situation was brought about by the applicants' obviously inappropriate formulation of their claim.
In the circumstances, therefore, in my view the applicants have not made out the requirement to establish that substantial injustice would result if the present order were to remain."
[2]Valimi Pty Ltd and Anor v Maniotis and Anor, unreported judgment of the Court of Appeal delivered 22 June 2001.
The application for the stay by Valimi at first instance with respect to the cost orders before the Master were initiated as a consequence of service of a statutory demand dated 11 January 2001 by Maniotis on Valimi. The statutory demand was for the amount of $30,220.90 representing the order for costs as taxed by Master Bruce in the primary proceeding on 24 November 2000.
Against this background, Valimi applies pursuant to s.459G of the Corporations Act to set aside the statutory demand. Section 459G provides that a company may apply to the court for an order setting aside a statutory demand served on the company but that such application may only be made within 21 days after the demand is so served. Sub‑section (3) of s.459G provides that an application is made in accordance with the section only if within 21 days after the demand is so served an affidavit supporting the application is filed with the Court and a copy of the application and a copy of the supporting affidavit are served on the person who served the demand on the company. The affidavit in support of the application under s.459G was that of George Con Thyssen sworn 2 February 2001. In his affidavit Mr Thyssen deposed that a statutory demand had been served on Valimi by Maniotis. He exhibited a copy of the demand. I observe that the demand is dated 1 February 2001. The affidavit of Mr Thyssen does not disclose when the demand was served on the plaintiff. I can only assume it was so served after 11 January 2001. Otherwise, under s.459G of the Act it seems it was necessary for the application and the affidavit in support to be filed and served within 21 days of the date of service being by 1 February 2001. The originating process launching the application under s.459G of the Corporations Act was filed on 2 February 2001. There is no evidence before me as to the date when the originating process and affidavit in support were served on Maniotis. As there was no challenge by Maniotis based on the dates of filing and service of the originating process and affidavit in support, I have assumed that the formal requirements of s.459G have been met.
On the assumption that the originating process and affidavit in support were filed and served in accordance with the requirements of s.459G of the Act I turn to the primary issue in the present proceeding.
Valimi claims that in the primary proceeding it has an offsetting claim said to be in the order of well over $1,000,000. On that basis, given the quantum of the claim it says that such amount offsets the amount that is the subject of the cost orders against it in favour of Maniotis that forms the subject statutory demand. Accordingly, Valimi argued that the fact of the stay order made by Bongiorno J in the primary proceeding pending the payment of the costs order did not enable Maniotis to rely upon non‑payment of such costs as the basis for the statutory demand. In essence, the question is what is the effect of the stay order of Bongiorno J on the statutory demand?
For the plaintiff to succeed on the application under s.459G of the Corporations Act I need be satisfied that there is a genuine dispute about the claim or that the company has an offsetting claim. Section 459H(5) defines "offsetting claim":
"Offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)."
The affidavit in support of the application exhibited an amended statement of claim in the other proceeding of some 32 pages in length, together with extensive schedules. The affidavit exhibited, also, a further amended defence some 15 pages in length. Having considered the pleadings as exhibited to the affidavit in support I am satisfied that the plaintiff in the present proceeding clearly has an off‑setting claim in the primary proceeding. There is no issue as to the amount of costs that provided the foundation to the stay order in the primary proceeding. Hence, there is no issue that there is a genuine dispute between the plaintiff and the defendants about the existence or amount of the debt to which the demand relates. The plaintiff can rely on one matter only and that is its alleged offsetting claim.
The principles to be applied in determining an offsetting claim are well-known. I need only identify a genuine level of claim but need not consider the prospects of success: see Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601, 605. If I am satisfied that the amount claimed is so claimed in good faith and is not fictitious I can be satisfied that there is an offsetting claim: see Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No. 2) 12 ACLC 493. As I have observed already, on the basis of the pleadings filed in the primary proceeding, I am satisfied that the plaintiff has an offsetting claim. Indeed, so much seems to have been anticipated by Chernov JA in the reasons I have cited.
The only question remaining, therefore, is whether the fact that the primary proceeding has been stayed as a consequence of the orders made by Bongiorno J on 24 May 2001 impact upon the offsetting claim. In my view it does not. The fact that the primary proceeding has been stayed pending the payment of the costs orders that are the basis of the stay order is not a matter that relates to the test I must apply, that is, of being satisfied that there is an offsetting claim. The primary proceeding is stayed pending payment of the costs orders or further order of the court. Such order does not affect the genuineness or validity of the offsetting claim. Accordingly, I am satisfied that the statutory demand dated 11 January 2001 served by the defendants on the plaintiff should be set aside pursuant to s.459G of the Corporations Act.
Of course, there are the authorities to the effect that the off-setting claim must be effective at the moment of hearing of the application to set aside the demand: see Re GEB, a debtor (1903) 2 KB 340, 348; also, Re A Bankruptcy Notice (1934) AC 431, 440. In the present case, the off-setting claim remains valid and effective. For procedural reasons it is stayed but not dismissed or struck out. The other proceeding can be re‑activated at any time upon payment of the costs ordered by Bongiorno J or further order: see Cooper v Williams and Anor (1963) 2 QB 567, 580; Lambert v Mainland Market Deliveries Limited (1977) 1 WLR 825, 834; Cockerill v Tambrands Limited (1998) 1 WLR 1379, 1385. y
There is a remaining matter that warrants consideration. In the event that the view I have taken with respect to the impact of the stay order of Bongiorno J upon the offsetting claim was wrong I nevertheless have a remaining discretion under s.459J of the Corporations Act whereby the Court may set aside a demand if satisfied that "there is some other reason why the demand should be set aside". The power vested in the Court under s.459J was not canvassed during the course of argument. Nevertheless, if it were necessary to do so I would exercise the discretion under s.459J of the Corporations Act and set aside the demand on the ground of "some other reason". In my view the reason lies in the fact that the stay order of Bongiorno J does not affect the genuineness or validity of the offsetting claim. Rather, it is a procedural order made in the primary proceeding effectively punishing the plaintiff for non‑compliance with court orders and purporting to impose a significant penalty on the plaintiff in the other proceeding in order to compel compliance. In my view these are matters that do not relate to the genuineness or validity of the offsetting claim. Furthermore, in my view it is apparent that if Valimi is placed in the position of the stay order remaining on foot in the primary proceeding and the statutory demand being allowed to stand in the present proceeding then it is subject, in effect, to double jeopardy. In my view it would constitute a substantial injustice if such circumstance was permitted to prevail. Accordingly, if needs be I would exercise the discretion under s.459J of the Corporations Act and set aside the statutory demand.
In accordance with the calculation of the substantiated amount required under s.459H of the Corporations Act I am satisfied that the off-setting total exceeds the admitted total. Thus, no consequential variation of the demand would be required.
For these reasons it follows that the plaintiff succeeds and orders will be made accordingly.
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