Wisewould v Allcorp Pty Ltd - [2004] WASC 184

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WISEWOULD -v- ALLCORP PTY LTD [2004] WASC 184

CORAM: MASTER SANDERSON

HEARD: 27 JULY 2004

DELIVERED : 20 AUGUST 2004

FILE NO/S: COR 15 of 2004

BETWEEN: BRADLEY DEAN WISEWOULD
Plaintiff
AND
ALLCORP PTY LTD (ACN 065 379 731)
Defendant

Catchwords:

Corporations Act - Application to wind up in insolvency - Failure to comply with statutory demand - Presumption of insolvency - Position of substituted creditor - Turns on own facts

Legislation:

Nil

Result:

Leave to rely on affidavit refused

Category: B

Representation:

Counsel:

Plaintiff: Mr R I Penrose
Defendant: Mr M de Kerloy

Solicitors:

Plaintiff: Tottle Partners
Defendant: Mony de Kerloy

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

Deputy Federal Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 12 ACLC 966
English Exporters (London) Ltd v Eldonwall Ltd (1973) 1 All ER 726
South East Water Ltd v Kitoria Pty Ltd (1996) 14 ACLC 1328

Case(s) also cited:

Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd (1979) FCA 728
ACP Syme Magazines Pty Ltd v Tri Automotive Components Pty Ltd (1997) 15 ACLC 732
Aspermont Ltd v Lechmere Financial Corp (2002) 27 WAR 1
Braams Group Pty Ltd v Miric (2002) 171 FLR 449
Christmas Island Resort Pty Ltd v Geraldton Building Co Pty Ltd (No 5) (1997) 18 WAR 334
Commissioner of Taxation v Simionato Holdings Pty Ltd (1997) 15 ACLC 477
Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075
Elite Motor Campers Australia v Leisuresport Pty Ltd (1996) 14 ACLC 1759
Expile Pty Ltd v Jabbs Excavation Pty Ltd (2003) 45 ACSR 711
In the Matter of Bond Corp Holdings Ltd (1990) 1 WAR 465
Kelvingrove (1993) Pty Ltd v Paratoo Pty Ltd (1998) 16 ACLC 964
L & D Audio Acoustics Pty Ltd v Pioneer Electronics Aust Pty Ltd (1982) 1 ACLC 536
Lechmere Financial Corporation v Aspermont (2003) FCA 1138
Leslie & Anor v Howship Holdings Pty Ltd (1997) 15 ACLC 459
Mala Pty Ltd v Johnston (1995) 13 ACLC 100
Melbase Corp Pty Ltd v Segenhoe Ltd (1995) 123 ACLC 832
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1993] 2 VR 290
Milano Constructions Pty Ltd v J D Holdings Pty Ltd [2001] NSWSC 899
Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911
Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232
Re The Imperial Silver Quarries Co Ltd (1868) 14 WR 1220
Re Tweeds Garages Ltd [1962] Ch 406
Rees v Bank of New South Wales (1964) 111 CLR 210
Sandell v Porter (1966) 115 CLR 666
SP Hay v Allcorp [2004] WASC 77
Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808
Terashore Pty Ltd v Jacdin Pty Ltd [2001] NSWSC 601

MASTER SANDERSON: This is the plaintiff's application to wind up the defendant. The matter has something of a history and that history is relevant to the application. The place to begin then is with a short account of events leading up to the hearing of the application.
An originating process seeking an order winding up the defendant was issued on 6 February 2004. At that stage the plaintiff was G & L OBrien. The application itself relied upon the defendant's failure to comply with a statutory demand. It has never been in issue that there was a failure to comply with the demand and that the winding‑up application was soundly based.
It would seem that the defendant and G & L OBrien resolved their differences. On 17 March 2004 solicitors representing G & L OBrien moved to discontinued the winding‑up application. At the hearing of this motion a solicitor who was in Court on an unrelated matter sought leave to appear with a view to his client being substituted as a creditor in the winding‑up application. The matter was adjourned to allow for the hearing of an application for substitution.
On 23 March 2004 the present plaintiff served on the defendant an application for substitution. The following day, when the matter was called on, no‑one appeared to represent the defendant. An order was made granting substitution on the application of the present plaintiff. The material filed in support of the application disclosed that the plaintiff's claim was based on an existing defended District Court action.
In support of his application for substitution the plaintiff filed an affidavit sworn 24 March 2004. This affidavit makes it plain that the claim by the plaintiff against the defendant rests solely on the grounds of District Court action number 1002 of 2003. That action was commenced on 6 May 2003. At that stage the plaintiff was represented by CBA Legal. The defendant attempted to enter an appearance on 21 May 2003. However, on the same day an application for default judgment was lodged by the plaintiff's solicitors. A judgment was entered. That judgment was subsequently set aside on 18 June 2003. On 25 June 2003 a statement of claim was filed and on 10 July 2003 the defendant filed its defence. An amended defence and counterclaim was filed on behalf of the defendant in April 2004. The plaintiff's solicitors in the District Court proceedings applied for and were granted an order removing them from the record. The ground upon which the solicitors made their application was that the plaintiff had failed to pay their accounts within the terms of their retainer. On 18 September 2003 the solicitors issued proceedings in the Local Court seeking to recover outstanding fees. There is no evidence as to the present state of that Local Court action.
Thereafter there were a number of appearances in chambers in this matter which resulted in programming orders being made. Of particular relevance are the orders made on 8 July 2004. They were as follows:
"1.The defendant have until 5 pm on 14 July 2004 to file any further affidavit, otherwise the defendant not be entitled to rely on any further affidavit not so filed.
2.The plaintiff have leave to file any answering affidavits by 12 noon on 23 July 2004.
3.The plaintiff have leave to cross‑examine any expert deponent to any affidavit filed pursuant to order 1 hereof."
On 28 May 2004 the defendant issued an interlocutory process which relevantly sought the following orders:
"1.That the Deponent Bradley Dean Wisewould attend before the Master on the hearing of the winding‑up application in these proceedings.
2.That should the Deponent Bradley Dean Wisewould not attend before the Master at the hearing of this matter for the purpose of cross‑examination that the winding‑up application be stayed."
The interlocutory process was first mentioned in chambers on 1 June 2004. It was adjourned until 9 June, the same date as the originating process was mentioned. No order has been made on that interlocutory process. It is worthy of note that the plaintiff has filed only one affidavit sworn 4 June 2004.
On a number of occasions when this matter has been before the Court counsel for the defendant has claimed that the application is an abuse of process either because it is designed to prevent the defendant defending the District Court proceedings or prosecuting other proceedings which it has initiated in this Court against the plaintiff. As I understand the position, the reason why it is sought to cross‑examine the plaintiff is to try and make good this allegation. As an alternative, it is said that the action is being improperly maintained by a third party. Quite who that third party might be and why they should be maintaining the action is not made clear on the evidence. All that is offered in support of the defendant's proposition is the evidence that the plaintiff has failed to pay his solicitors in the District Court proceedings. From that, it is said, it can be inferred that a third party must be funding this application.
With great respect, there is nothing in the evidence which could justify my concluding either that this application is being brought for an improper purpose and is therefore an abuse of process or that it is being maintained by a third party. Furthermore, there is no basis upon which I could order that the plaintiff attend for cross‑examination and stay the action if he did not do so. What I could do is order that unless the plaintiff make himself available for cross‑examination, he not be entitled to rely on any affidavit material filed on his behalf. But counsel for the plaintiff indicated that no reliance in the winding‑up proceedings is placed on any affidavit material filed by the plaintiff. So even were I prepared to make such an order, it would be of no use to the defendant.
Dealing then with the winding‑up application, the starting point is to consider the status and the standing of the plaintiff. The substitution of the present plaintiff for the original plaintiff was made under s 465B of the Corporations Act. Section 465B(1) anticipates that a person can be substituted where that person "might otherwise have so applied for the company to be wound up". If an application for substitution is made and the defendant is of the view that there is a genuine dispute in relation to the alleged debt between the applicant for substitution and the defendant, then the order for substitution can be refused: see South East Water Ltd v Kitoria Pty Ltd (1996) 14 ACLC 1328. In this case no objection was raised by the defendant and the order for substitution was made. Pursuant to s 465B(4) the present plaintiff is entitled to proceed as the original plaintiff. That would mean, for instance, that, on the hearing of the winding‑up application, s 459S(1) would apply and the defendant could not oppose the application on the basis of matters which could have been raised at the time when the substitution application was made, unless leave was granted under s 459S. To be fair to the present applicant, no suggestion was made that the defendant could rely on an argument that there was a genuine dispute as to the present plaintiff's alleged debt.
Under s 459C(2), where a company has failed to comply with a statutory demand, the Court "must" presume that the company is insolvent. That is the starting point for the winding‑up application. The Court presumes the defendant is insolvent. In other words, there is a rebuttable presumption in favour of the insolvency of the defendant. Cross on Evidence (5th ed) puts the position as follows (at [7270]):
"Whenever reliance is placed on a rebuttable presumption of law, two legal rules are involved. First, there is what may be termed the 'rule of presumption', according to which the presumed fact must be found to exist until evidence tending to disprove is adduced, and, secondly, there is the rule which prescribes the amount of rebutting evidence required."
For present purposes it is unnecessary to deal with the extent of the evidence necessary to establish that the defendant is solvent. However, two observations can be made. First, the plaintiff on the winding‑up application need lead no evidence. If it does not do so, insolvency must be presumed and the company should be wound up: see Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 12 ACLC 966. Second, if the defendant is to lead evidence, it must do so in an admissible fashion. This is a final hearing and therefore the defendant cannot avail itself of the provisions of O 37 r 6. It is on this question of the admissibility of certain evidence that a dispute arose on the winding‑up application.
The defendant sought to rely on an affidavit of Maxwell Leonard Troy sworn 14 July 2004. Mr Troy is an accountant with 43 years of "practical accounting" experience. Annexed to his affidavit is what he describes as a "Compilation Report" ("the report"). Attached to the report is a Balance Sheet for the defendant as at April 2004, a statement of assets and liabilities of the same date and a cash flow projection (it is entitled "Cash Flow Statement" but is it clearly a projection) for the period 1 July 2004 to 30 April 2005. The plaintiff objected to the admissibility of this evidence. It was submitted that facts underlying the report had not been proved and that the evidence of Mr Troy as to the solvency of the defendant was therefore hearsay and inadmissible. Before dealing with that objection it is necessary to say something more about Mr Troy's report.
In the opening paragraph of his report Mr Troy says:
"On the basis of information provided by the trustees of the Bletch Family Trust (Trust) (the plaintiff is the trustee of the Bletch Family Trust) we have compiled in accordance with APS9 'Statement of Compilation of Financial Reports' the special purpose financial report of the Trust for the period ended 30 April 2004, as set out in the attached Balance Sheet."
In the third paragraph of the report Mr Troy says:
"Our procedures use accounting expertise to collect, classify and summarise the financial information, which the Trustees have provided into a financial report. Our procedures do not include verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed."
Mr Troy then goes on to refer to the five particular areas and make specific comments. First, he deals with "Stock on Hand". He says that he has accepted the trustee's own valuation. Second, he deals with "Inter‑company Loans". He says that he has reconciled all of the inter‑company and trust loans and examined the recoverability of these loans. He says that he is satisfied "that they (presumably the inter‑company loans) are recoverable". He sets out no basis for that belief. Thirdly, he deals with "Trade Debtors". He says they "appear to be recoverable". He comments on one contingent asset of the company which he says has been ignored for the purpose of quantifying the trade debtors. Fourthly, he deals with the "Rivervale Property". Mr Troy says that the property has been sold post‑30 April and he is satisfied that the proceeds of sale were received by the trust. Finally, there is "Plant and Equipment". He says that "Prices placed on plant have been checked against similar plant sold recently and the plant on hand has been checked against the asset register of the company". He says that he has taken the written‑down value of the plant, discounted that by 20 per cent and reached a realisable value. He also says:
"Due to time restraints as mentioned above we have not been able to substantiate the value of plant and equipment nor are we qualified to place a value on the plant, equipment and stock on hand."
In relation to the cash flow projection, Mr Troy comments that the trust is solvent, assuming that assets are realised in a timely manner and the proceeds are applied to repaying creditors of the trust. He also says:
"The Trustees advise us that arrangements have been made with creditors and these have been included in the preparation of the cash flow."
Finally, Mr Troy concludes as follows:
"We believe that the Trust is solvent and able to repay all creditors in a timely manner due to the current arrangements with creditors and a surplus of assets over liabilities as shown in the attached Balance Sheet and Schedule of Realisation, together with the Cash Flow Forecast."
It is this final statement of opinion upon which the defendant seeks to rely. What the plaintiff says is that the underlying facts have not been proved and therefore it is not open to the Court to receive as evidence the opinion of Mr Troy. The plaintiff's position can be illustrated by reference to what Mr Troy has to say about stock on hand. Mr Troy, as is noted above, has "accepted the trustee's own valuation". On behalf of the plaintiff it was said that if Mr Troy's opinion as to the solvency of the plaintiff was to be accepted, it would be necessary, at the very least, for the trustee to provide evidence as to the valuation of the stock on hand. This might have been done in a number of ways - perhaps by evidence from an expert valuer. But in the absence of such evidence or, put another way, given the failure to prove an underlying fact, Mr Troy's evidence is inadmissible.
The extent to which facts underlying expert opinion must be proved was considered by Megarry J in English Exporters (London) Ltd v Eldonwall Ltd (1973) 1 All ER 726. This case involved expert evidence of a valuer. After pointing out that an expert may rely on his experience and may give direct evidence on matters of fact, his Honour said (at 731 ‑ 732):
"That being so, it seems to me quite another matter when it is asserted that a valuer may give factual evidence of transactions of which he has no direct knowledge, whether per se or whether in the guise of giving reasons for his opinion as to value. It is one thing to say 'From my general experience of recent transactions comparable with this one, I think the proper rent should be £X': it is another thing to say 'Because I have been told by someone else that the premises next door have an area of x square feet and were recently let on such and such terms for £Y a year, I say the rent of these premises should be £Z a year'. What he has been told about the premises next door may be inaccurate or misleading as to the area, the rent, the terms and much else besides. It makes it no better when the witness expresses his confidence in the reliability of his source of information: a transparently honest and careful witness cannot make information reliable if, instead of speaking what he has seen and heard for himself, he is merely retailing what others have told him. The other party to litigation is entitled to have a witness whom he can cross‑examine on oath as to the reliability of the facts deposed to, and not merely as to the witness's opinion as to the reliability of information which was given to him not on oath, and possibly in circumstances tending to inaccuracies and slips. Further, it is often difficult enough for the courts to ascertain the true facts from witnesses giving direct evidence, without the added complication of attempts to evaluate a witness's opinion of the reliability, care and thoroughness of some informant who has supplied the witness with the facts that he is seeking to recount."
That quote neatly summarises the position here. It may be that the trustee's valuation of the stock on hand is entirely accurate. But Mr Troy does not know that. He may assume it to be the case and, based upon his experience, he may have no reason to doubt what he has been told. But the fact is that he has no direct knowledge of the value of the stock and he is relying on what he has been told by others. The same comments can be made with respect to trade creditors and the value of plant and equipment. Mr Troy has no direct knowledge of either of these matters. Given the failure to prove underlying facts, his opinion as to the solvency of the defendant is clearly inadmissible.
At the hearing of this matter I indicated to the parties that I would deal with the admissibility of Mr Troy's evidence and, depending on the conclusion I reached, hear further from the parties as to how the matter should proceed. Accordingly, on publication of these reasons, the matter will be adjourned to a date to be fixed.