Agar v Hyde

Judgment - ex tempore

1. By Amended Interlocutory Process filed on 13 November 2015, the Plaintiff, Industrial Maintenance & Fabrications Pty Limited ("IMF") seeks an order that the Amended Grounds of Opposition to Winding Up in the Amended Notice of Appearance by the Defendant, Structural Projects Pty Limited ("Structural Projects") be struck out. This application was brought on 13 November 2015 and is heard on 26 November 2015, in circumstances that a hearing on the merits as to the winding up has been listed to take place in a little more than two weeks' time, on 10 December 2015. In the ordinary course, it might be thought unfortunate for the parties and unfortunate for the community if it became common practice in winding up applications that, shortly before the hearing of a winding up application on its merits, an application was made to strike out Notices of Grounds of Opposition to the application, involving mini-trials of the matters which would ultimately be determined at a hearing of the merits that is shortly due to take place. That course has the potential to involve significant risk of waste of the community's resources, where the community funds the Court system, where, as has occurred here, a significant amount of time has been spent on agitating issues that may ultimately be re-agitated at a merits hearing, if the strike out application fails.
2. The Amended Grounds of Opposition to Winding Up, in paragraph 4, identify the sole ground of opposition to the winding up that is now pressed as follows: "The plaintiff's claim arises from work it performed (and was to perform) and goods it supplied (and was to supply) as sub-contractor to the defendant company for a contract the latter has with Lend Lease. As a result of the plaintiff's breach of its agreement with the defendant company, Lend Lease has withheld payment and that has been the cause of the defendant's cash flow problem."
3. That paragraph appears to identify a basis of opposition to the winding up, in the sense that it is contended that a winding up order should not be made because it is submitted that it was the conduct of the applicant for the winding up order, involving a breach of its agreement with Structural Projects, that caused a third party to withhold payment, which has in turn created cash flow problems for Structural Projects. That proposition may be correct or may be incorrect as a matter of fact, and it may be a strong, or a weak, defence to a winding up application. Where this matter will go to a final hearing on its merits before another judge, I will seek to limit my comments in respect of the prospects of the defence as far as possible, to the minimum necessary to determine this application.
4. The application is made to strike out the Amended Grounds of Opposition to the Winding Up, as though they were, for example, a Statement of Claim or a Defence. This document is, of course, not a pleading in the strict sense, and is instead a document that is required by the Supreme Court (Corporations) Rules 1999 (NSW) so as to give notice to the applicant for the winding up of the opposition which it needs to meet. Rule 2.9 of the Supreme Court (Corporations) Rules specifies what is required to be included in such a notice, relevantly, notice of the grounds on which the person opposes the application as required by s 465C of the Corporations Act 2001 (Cth). Section 465C of the Corporations Act in turn provides that, on the hearing of a winding up application, a person may not, without leave of the Court, oppose the application unless, within the period prescribed by the Rules, the person has filed and served notice of the grounds on which the person opposes the application, and an affidavit verifying the matters stated in the notice. In the present case, there is at least affidavit evidence filed by Structural Projects in support of the application.
5. Two further things should be noted about that section and that rule. The first is that it does not appear to contemplate a pleading, in the sense of one that is comparable to those which would occur in respect of substantive proceedings. The second is that it does not confine the basis upon which a person may oppose a winding up application in any final way, because s 465C of the Act expressly provides that a person may not, without the leave of the Court, oppose the application unless that notice has been filed. It appears to follow that a person may oppose the application, with such leave, even if such notice had not been filed, or, presumably, on a ground that is not contained in that notice. That will be a question for the Court in exercising its discretion as to leave at the time any application for the exercise of that discretion is made. I pause to note these matters because it is a common experience in this Court that companies seek to oppose winding up applications on grounds that are not spelt out with great detail and may ultimately not succeed. It is not, however, a common experience in this Court that such applications are met with applications to strike out the grounds of opposition, for the good reason that that would increase the costs that are incurred in a winding up application, where those issues could equally well be determined at a final hearing, and an application to strike out the grounds may well take as long as it would take to determine them on their merits at a final hearing.
6. Returning now to the basis of the application, the application is made in the Court's inherent jurisdiction and under r 14.28 of the Uniform Civil Procedure Rules 2005 (NSW) which provides that the Court may order, at any stage of the proceedings, that the whole or any part of a pleading be struck out if the pleading discloses no reasonable cause of action or defence, or other case appropriate in the nature of the pleading, or has a tendency to cause prejudice, embarrassment or delay, or is otherwise an abuse of the process of the Court. It may be that r 14.28 has no application, because a notice of grounds of opposition required by s 465C of the Act and the Corporations Rules is not a pleading. I do not pause to determine that matter, because it was not addressed in submissions and because I accept that the Court has an inherent jurisdiction in respect of the control of its own processes in any event.
7. It is, however, important to recognise the principles which apply to an application under r 14.28 of the Uniform Civil Procedure Rules, and, it seems to me by way of analogy, to the Court's exercise of its inherent jurisdiction. In determining when to make such an order, the Court must have regard to the fact that a party should, in the ordinary course, be allowed the opportunity to place its case before the Court in the ordinary way: General Steel Industries Inc v Commissioner for Railways [1964] HCA 69; (1964) 112 CLR 125; Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at [57], where the plurality of the High Court noted that the test to be applied has been expressed in various ways, but has the common characteristic that it requires a "high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way". That formulation has been adopted in later decisions of the High Court, including Spencer v Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118 at [24], and by the Court of Appeal in Shaw v New South Wales [2012] NSWCA 102 at [30]-[32] and in Ren v Jiang [2014] NSWCA 388; (2014) 104 ACSR 149 at [49], where the Court of Appeal referred to the test for summary judgment, and noted that it had repeatedly been said that the Court must be so certain of the outcome that to permit the proceedings to go forward would amount to an abuse of process.
8. The nature of that test emphasises the difficulty of the application that was sought to be brought, to strike out a ground of defence that, in effect, a company should not be wound up because the conduct of a party seeking the winding up had caused its financial difficulty. It may be that such a defence will ultimately fail, on the facts or on the law, where a presumption of insolvency exists, and if that presumption is not rebutted by evidence of solvency, and if the Court is satisfied that a winding up is ultimately necessary to protect the interests of creditors generally who may deal with the company. However, the proposition that a defence may ultimately fail, or is likely to ultimately fail, is not sufficient to support a striking out of the defence unless the Court can be satisfied with a high degree of certainty that it will in fact fail. It does not seem to me that the Court can presently be satisfied of that matter, with a high degree of certainty, where it depends upon a discretionary judgment, involving an exercise of judicial discretion in accordance with s 467 of the Corporations Act, to which I will return, by reference to the evidence which will ultimately be led at the final hearing.
9. Mr D Allen, who appeared for IMF, placed weight on the fact that there was limited affidavit evidence, and no evidence, he suggested, as to Structural Projects' solvency. He pointed out that the Court had made orders for the filing of affidavit evidence, and I accept that, in the ordinary course, further affidavit evidence could only be led with leave at this point. Nonetheless, at least one subpoena has been issued, which has not yet had documents produced in response to it. It would also be open to Structural Projects, at a hearing, to tender documents in the ordinary way, since an order for the filing of affidavits would not prevent, for example, the tender of evidence as to its financial position, by way of audited accounts or the like. No doubt, if that were to cause prejudice to IMF, it may seek to have that prejudice addressed, or the evidence excluded and that will be a matter for a trial judge. However, it does not seem to me that, where it is open to Structural Projects to tender documents at the hearing, IMF can fairly proceed on the basis that all evidence is complete at some time prior to the hearing.
10. Turning now to the detail of Mr D Allen's submissions in support of the application to strike out the grounds of opposition to the winding up, Mr D Allen pointed to the lack of particularity in the notice of those grounds. That criticism may have some force. However, as I have noted, that notice is not a pleading, but a notice required by s 465C of the Corporations Act and the Corporations Rules, and it does not seem to me that, in completing that notice, Structural Projects could be expected to provide the level of detail which would be required if, contrary to the fact, that notice were a pleading.
11. Mr D Allen also drew attention to authority, including the decision of the Court of Appeal in Australian Beverage Distributors Pty Limited v Evans and Tate Premiums Wines Pty Limited [2007] NSWCA 57; (2007) 69 NSWLR 574 for the proposition that a winding up order may be withheld by reason of abuse of process. Mr D Allen rightly emphasises the observation of Beazley JA at [72], in that case, that, if proof of insolvency depended upon disputed claims, then a Court may potentially exercise a discretion to stay or dismiss a winding up application, and, if a company is insolvent without taking the disputed debt into account, then the Court would "almost certainly" be required to allow a winding up application to proceed. However, her Honour was there careful to say that that is a course that a Court would "almost certainly" take, and not to indicate that the Court would certainly take that course. That is the necessary consequence of the fact that s 467 of the Corporations Act provides that, on the hearing of a winding up application, the Court may dismiss the application, even if a ground has been proved on which the Court may order the company to be wound up on the application, or adjourn the hearing conditional or unconditionally, or make any interim or other order that it thinks fit. Her Honour there rightly recognised that it was not possible to confine a discretion of that kind to say what the Court would certainly do.
12. It also must be recognised that there are cases where the Court has exercised a discretion in favour of the defendant in a winding up application, even where a presumption of insolvency arising from a creditor's statutory demand has not been rebutted, including Re Huon Foam Pty Limited [2000] TASSC 99, and Lechmere Financial Corp v Aspermount Pty Limited [2003] FCA 1138 at [93]. I noted those decisions, and did not apply them in the particular circumstances, in Re Gladstone Mortgagee (No 1) Pty Limited [2015] NSWSC 1551 at [66]. It seems to me however, that the existence of those decisions, and the question for a trial judge at a final hearing, whether the course taken in them should be taken in the particular case, in exercising the discretion under s 467 of the Corporations Act judicially and in accordance with the statute, again emphasises the difficulty of striking out a preliminary stage grounds of opposition that invoke discretionary matters, on the basis that they are almost certain to fail, without a full exploration of the evidence.
13. Mr D Allen also submitted that the grounds of opposition did not disclose a reasonable defence. It does not seem to me that that proposition can be established, where they invoke the exercise of a discretion, which if the Court is persuaded to exercise it, could bring about the fact that a winding up order is not made. He submitted that there was no reasonable defence on the evidence as to solvency, and no evidence of Structural Projects' financial position. That may, indeed, be a strong predictor of the ultimate outcome, if the evidence remains as it is, but that prediction is at best a prediction, and in any event, turns upon the question whether additional evidence may be tendered at the hearing, if Structural Projects seeks to do so and the trial judge is persuaded to grant leave for it to do so. Mr D Allen also read Australian Beverage Distributors as though it set out the only basis upon which the Court might decline a winding up order by reason of abuse of process. That decision does not, in my view, establish the only basis on which the Court may decline such an order, where the Court is invested with a statutory discretion that is unlimited in its terms by s 467 of the Act.
14. Mr D Allen pointed to the fact that s 459S of the Act limited the circumstances on which Structural Projects may rely in an application to set aside the demand. There is considerable force in that proposition, notwithstanding that the case law as to s 459S of the Act is somewhat complex. It is certainly strongly arguable that, where an application to set aside a demand on the basis that a debt is generally disputed or that there exists an offsetting claim has not been brought, and leave under section s 459S of the Act has not been sought, then it is not open to the debtor later to contest the existence of the debt, or to assert the existence of an offsetting claim without such leave. It does not seem to me that, as matters stand, Structural Projects here is seeking to do so, as distinct from invoking the discretion under s 467 of the Act to which I have referred above.
15. Mr D Allen also relies on the fact that Structural Projects previously pursued several grounds of opposition, which are not now pursued, in order to support a contention that it was only seeking to delay the proceedings, and advances a proposition that the remaining ground of opposition is only intended to delay a winding up order. That proposition was put by Mr D Allen to the solicitor acting for Structural Projects in cross-examination, who denied it. I would not draw that inference at this stage, where there is an equally available inference that Structural Projects had pursued defences which, in the event, the facts do not establish, or that are not legally open to it, prior to abandoning them in the course of the application today. It does not seem to me that the Court can fairly draw an inference of abuse of process from that matter where it must be observed, it is not uncommon that winding up orders are opposed on bases that ultimately are not well founded in fact and, no doubt, sometimes that involves an abuse of process but sometimes it also involves a lack of understanding of the detailed complexities of the law in the area.
16. Mr D Allen concluded with the proposition, that at the highest, Structural Projects' "pleaded" case was that IMF had acted wrongfully in dealing with it, so that the Court should exercise a discretion against a winding up on IMF's application. It seems to me that Structural Projects' case, as identified in the grounds of opposition, is, in fact, somewhat more pointed than that, in that the allegation is made that IMF's conduct caused the financial position in which Structural Projects now finds itself. Mr D Allen rightly, in my view, accepted that that matter was a potential difficulty for the application, so far as it invoked the exercise of the Court's discretion. That concession was, as I have noted, one that was properly made but it seems to me that it is simply fatal to the strike out application that was brought. The exercise of a discretion of that kind is one that can only fairly be exercised, on the merits and the full evidence, at a hearing on the merits.
17. For these reasons, it seems to me that the application to strike out the grounds of opposition, amended as they have now been to maintain only paragraph 4 of them, must be dismissed.
18. After I had delivered my ex tempore reasons for judgment, Mr D Allen rightly drew to my attention that I had not specifically addressed one of the arguments that he had made, namely, that s 459S of the Act would preclude Structural Projects from relying on matters which could potentially have been raised, in order to set aside a creditor's statutory demand, under s 459J of the Corporations Act. Mr D Allen was correct to draw that matter to my attention, since it is desirable that I specifically deal with that issue which potentially involves novel issues.
19. Mr D Allen did not draw attention to any authority which dealt with the application of s 459S of the Act, in respect of a ground that could have been raised under s 459J of the Act. There may be an open question whether s 459S, in referring to a "ground" that the company could have relied on in an application to set aside the demand, but did not rely on, is referring to the particular sections of the Corporations Act, or using the concept of "ground" in a wider sense, to embrace, for example, factual or legal propositions. It also seems to me that it would be a surprising result if the Corporations Act, on the one hand, conferred an express statutory jurisdiction on the Court to decline to make a winding up order under s 467 of the Act and, on the other, deprived the Court of that jurisdiction because the matters which could have been raised in support of its exercise could also have been raised at an earlier stage in respect of the creditor's statutory demand.
20. It does not seem to me to be necessary to express a final view, or indeed any view, as to those matters. The identification of those complexities, which so far as I am aware are unresolved in the case law, are such that it seems to me that the proposition that s 459S would deprive Structural Projects of the opportunity to rely on the discretionary grounds under s 467 of the Act, so far as they could potentially have been relied on to give rise to some other reason to set aside the demand under s 459J of the Act, is one of complexity, and one that should be determined at a final hearing, after proper argument, and not on an application to strike out the grounds of opposition to the winding up.
21. For these reasons, I decline to strike out the grounds of opposition to the winding up.