Australian Beverage Distributors v Evans & Tate Premium Wines Pty Ltd

CATCHWORDS : CORPORATIONS - Winding-up - Plaintiff (2876/06) sought orders that second defendant be wound up in insolvency - Second defendant was parent company of first defendant - Plaintiff was creditor of second defendant because of contingent or prospective debt - Leave of Court required - s 459P(2)(a) Corporations Act 2001 (Cth) - Plaintiff failed to seek leave - Whether failure to seek leave constituted abuse of process - Whether plaintiff entitled to leave nunc pro tunc - Evidence that winding-up proceedings brought in attempt to recover disputed debt - Debt owed by second defendant's subsidiary (first defendant) - Enforceability of debt disputed on substantial grounds - Other proceedings on foot to resolve whether first defendant liable to pay disputed debt - Evidence that winding-up proceedings retaliatory - Whether winding-up proceedings brought for improper purpose - Plaintiff issued press release publicising winding-up proceedings before expiry of 3 days after service of originating process and in breach of undertaking - Extensive media coverage - Whether issue of press release a breach of r 5.6 Supreme Court (Corporations) Rules 1999 (NSW) - Purpose of r 5.6 - Whether breach of r 5.6 warrants summary dismissal of proceedings as abuse of process - Whether breach of r 5.6 saved by s 467A Corporations Act - CORPORATIONS - Winding-up - Plaintiff sought orders that first defendant (2876/06) be wound up in insolvency - Plaintiff claimed status as creditor of first defendant because of certificate of costs awarded to it in other proceedings - Plaintiff entitled to have certificate of costs filed as a judgment - Whether first defendant entitled to set off debt owed to it by plaintiff against debt arising from certificate of costs -Basis of jurisdiction of Court to allow set-offs - Whether plaintiff a creditor of first defendant - Other proceedings on foot to stay enforcement of costs order - Whether filing winding-up proceedings in such circumstances constitutes abuse of process - PRACTICE & PROCEDURE - Plaintiff (2760/06) sought orders to restrain defendant (2760/06) from executing judgment based on certificate of costs obtained in other proceedings - Jurisdiction of Court to stay execution of its own judgments and orders - Jurisdiction to be exercised with caution in interests of justice - Requirements of justice in instant case - COSTS - Indemnity costs - Order for indemnity costs to be made where one party delinquent in its conduct of proceedings - Whether plaintiff (2876/06) delinquent - Order for indemnity costs made.

Legal Professional Act 2004 (NSW) Supreme Court (Corporations) Rules 1999 (NSW) LEGISLATION CITED : Corporations Act 2001 (Cth) Civil Procedure Act 2005 (NSW) Companies Act 1981 (Cth) repealed

Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd (2004) NSWSC 827 Evans & Tate Premium Wines Pty Ltd v Australian Beverage Distributors Pty Ltd [2005] NSWSC 186 Paterson v Hampton Interiors (1989) 7 ACLC 904 Re A Company 00127 of 1992 (1992) 10 ACLC 3,035 Mann v Goldstein [1968] 1WLR 1091 Re a Company No 0062 of 1991 [1991] BCC 210 Melcann Ltd v Marmlon Holdings Pty Ltd (1991) 9 ACLC 678 Sydney Appliances Pty Ltd (in liq) v Robert Bosch (Australia) Pty Ltd (2000) 33 ACSR 680 L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180 CASES CITED : D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 APM Wood Products Ltd v Kimberley Homes, Cole J, 17 February 1989, unreported) Edwards v Hope (1885) 14 QBD 922 Reid v Cupper [1915] 2 KB 147 Puddephatt v Leith (No 2) [1916] 2 Ch 168 at 173 - 174 Re a Debtor No 21 of 1950 [1951] 1Ch 612 Derham, The Law of Set-Off, 3 ed Mitchell v Oldfield (1791) 4 Term Rep 123 Oshlack v Richmond River Council (1998) 193 CLR 72 Colgate-Palmolive Co v Cussens Pty Ltd (1993) 46 FCR 225

PARTIES : Australian Beverage Distributors v Evans & Tate Premium Wines Pty Ltd & 1 Or Evans & Tate Premium Wines Pty Ltd v Australian Beverage Distributors

COUNSEL : Plaintiff (2876/06): C R C Newlinds SC & D Allen Defendant (2876/06): S D Robb QC & J Mendel

SOLICITORS : Plaintiff (2876/06): Catalyst Legal Defendant (2876/06): Cowley Hearne Lawyers

• 27 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

2876/06 Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd & 1 Or 2760/06 Evans & Tate Premium Wines Pty Ltd v Australian Beverage Distributors Pty Ltd JUDGMENT 1 HIS HONOUR: These applications were heard together. In proceedings 2876/06, the defendants, being Evans & Tate Premium Wines Pty Ltd ("ETPW"), and Evans & Tate Ltd, seek the summary dismissal of winding-up applications brought against them by Australian Beverage Distributors Pty Ltd ("ABD"). They seek injunctions restraining ABD from presenting further winding-up applications based on the same debt as that on which the current originating process is based. 2 In the second proceedings, 2760/06, ETPW seeks orders to restrain ABD from registering as a judgment a costs certificate arising from an order for costs made in earlier proceedings between those parties. The claim in that form was not pressed. Instead, ETPW seeks to restrain ABD from executing such a judgment. 3 In the winding-up proceedings, the issues are whether the filing of the originating process for the winding-up of the two Evans & Tate companies was an abuse of process, and whether alleged breaches of the rules relating to the publishing of the notice of the winding-up application should also lead to the proceedings being dismissed as an abuse of process. Central to the first question is whether ABD had standing to institute the proceedings, and whether it used the winding-up jurisdiction for improper purposes. In the proceedings concerning the enforcement of any judgment based on the costs certificate, the questions are whether ETPW is entitled to set off against a debt or judgment in favour of ABD for costs another judgment for costs which it has against ABD, and an admitted debt owed by ABD to it. If not, there is an issue as to whether there is a wider jurisdiction to restrain execution of the costs order which should be exercised. Background 4 ETPW is a supplier and ABD is a distributor of wine. On 26 February 2004, ETPW served a creditor's statutory demand on ABD requiring payment within twenty-one days of a debt of $216,949.58, plus interest, for goods sold and delivered between September 2002 and March 2003. Unless the statutory demand were set aside, non-compliance with it would lead to the presumption that ABD was insolvent, thereby paving the way to an application to wind up ABD in insolvency. 5 ABD applied to set aside the statutory demand. It asserted that it had an offsetting claim of $243,623. The case came before Master Macready (as his Honour then was) and judgment was delivered on 10 September 2004 (see Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd [2004] NSWSC 827). The question before his Honour was not whether ABD had established such a claim, but whether the claim was genuine, such that it warranted investigation, and not merely colourable or spurious. That was not a high hurdle. Nonetheless, ABD failed to clear it, except as to an amount of $84,261. The bulk of ABD's claim for damages was in respect of wine it had bought, but not sold, and for which it claimed a credit. In relation to this claim Master Macready said (at [19]): "In order to base any claim for the return of stock under that agreement the plaintiff (ABD) would have to establish that it had an entitlement to a credit by complying with the terms of the second paragraph of the letter of 8 January 2003. The evidence clearly establishes that there has been no checking of the stock or verification of the stock to ensure that the stock is of current vintage and in resaleable condition. The plaintiffs themselves have put on no evidence of compliance with the condition. As I have mentioned, none of the stock has been redelivered.

In these circumstances there has been no compliance with the proviso or condition, and accordingly, there will be no liability for the defendant to take back the stock and issue credits. In these circumstances I do not see that there is an offsetting claim which is not frivolous or vexatious".

6 An application for leave to appeal was made to the Court of Appeal. That application was dismissed on 16 November 2004. Beazley JA said: " There is no plausible basis upon which the claimant can contend that it has any basis for an argument in relation to the stock and so the Court would not consider that leave ought to be granted in respect of that amount. "

7 The result was that ETPW's statutory demand was reduced to $158,051.21. This amount was not paid, thereby giving rise to a presumption that ABD was insolvent. 8 On 29 November 2004, ETPW filed a winding-up application against ABD. It failed in that application as ABD proved that it was solvent, notwithstanding that it had not complied with the statutory demand (Evans & Tate Premium Wines Pty Ltd v Australian Beverage Distributors Pty Ltd [2005] NSWSC 186). ETPW was ordered to pay ABD's costs of those proceedings. It is that order for costs which has now resulted in the issue of a costs certificate which can be filed as a judgment (Legal Professional Act 2004 (NSW), s 378(3)). 9 On 11 January 2005, ABD brought proceedings in the District Court for damages in an amount of $261,837.92. It allowed ETPW a credit against that sum of $216,949.85. The major part of its claim is that there was an oral agreement that its account with ETPW would be credited with the price ETPW had charged it for goods held at its warehouse, and that ETPW would credit it with all the stock returned to it by its customers which had originally been purchased from ETPW, together with a ten percent restocking fee. In those proceedings, ABD alleges that it was agreed that ownership of the stock would vest in ETPW, but that it would store the stock at its warehouse. ABD claims storage fees for doing so and a lien over the goods for the non-payment of the storage fees alleged to be payable. 10 In substance, these were the same claims as were made before Master Macready and which his Honour held to be frivolous and vexatious on the evidence then before him. That finding does not mean that ABD is precluded from litigating the claim on its merits, such as they may be. The materials before a court on an application to set aside a statutory demand are necessarily truncated, and the decision creates no estoppels. Nonetheless, it does mean that against an admitted debt of $216,837.92 owed by it to ETPW, ABD propounds a claim for damages which has not been decided and which, as to all but $84,342, has previously been held not to be genuine. 11 The litigation for the setting aside of the statutory demand and the winding-up of ABD led to costs orders being made in favour of both parties. ETPW obtained a certificate of costs in its favour in the sum of $16,988.64. This certificate has been filed in the Local Court and takes effect as a judgment of that court. 12 ABD's costs of the winding-up proceedings were initially assessed at $63,075.50. On 5 May 2006, a Costs Review Panel redetermined the costs in the amount of $78,348.50. The solicitors for ETPW complained that the review was completed, although they had received only an unsigned draft application for review with no supporting papers. However, this ground for challenging the costs certificate was not pressed before me. Presumably this was because the Legal Professional Act and regulations provided for such a review to be conducted on the papers and for notice to be given seven days before application was made. 13 To summarise matters thus far, on one side of the ledger, ABD owes ETPW $16,988.64 as a judgment debt. It owes an admitted debt of $216,837.92. It owes interest on the judgment debt and interest from September 2002 or March 2003 on the admitted debt, subject to any set-off arising from ABD's damages claim. On the other side of the ledger, ETPW owes ABD $78,348.50 on the costs certificate, which is not yet filed to take effect as a judgment, plus a further $1347.50 for the costs of the application to the Costs Review Panel. ETPW may be found to be liable for damages of up to $261,837.92. Of that claim it has been previously found that only $84,342 is a genuine claim. ETPW may be liable for interest depending upon the outcome of the claim in the District Court. 14 It is reasonable to conclude on the basis of the previous findings that it is more likely than not that ABD is a net debtor of ETPW. That is not to say that findings may not be made in the District Court proceedings which establish that ABD's damages claim is well-founded. It is only to recognise that ABD has failed to demonstrate that to be the case in previous proceedings when it attempted to establish that it had a genuine offsetting claim. 15 Proceedings 2760/06 were commenced on 15 May 2006. In those proceedings, ETPW seeks a declaration that the Certificate of Determination of Costs of the Costs Review Panel was null; that ABD be restrained from registering the certificate as a judgment in any court, that the costs order of Justice Palmer made on 15 March 2005 in the winding-up proceedings against ABD be stayed until the determination of the District Court proceedings; or that ETPW pay into court either $78,348.50 or $63,359.86, and that that sum only be paid out on the final determination of the District Court proceedings. 16 ETPW is a subsidiary of Evans & Tate Limited. Evans & Tate Limited is the holding company of a group of about fifteen subsidiaries. Evans & Tate Limited has accepted all of the obligations of Cranswick Premium Wines Limited to holders of convertible notes issued by Cranswick. By notice dated 8 May 2006, it gave notice of a meeting of noteholders to be held on 14 June 2006 to consider an extraordinary resolution to amend the convertible notes trust deed so as to provide that it will not be an event of default under the trust deed if the total liabilities in the group's consolidated accounts exceed eighty percent of its total assets during the period from 1 October 2005 to 30 June 2007. An independent report to noteholders from Ernst & Young states that as at 31 December 2005, the group's total liabilities exceeded its total assets by $48,286,000, and that the group was only able to continue as a going concern at this time because of the financial support provided by its banker, ANZ. Ernst & Young expressed the opinion that the waiver sought is in the best interests of noteholders. 17 On 19 May 2006, a broker purchased 1000 of the convertible notes for $584 on behalf of a company called Brodav Pty Ltd. Brodav holds those notes on trust for ABD. The notes represent about 0.005 per cent of the notes on issue; that is about 1 in 20,000 of the notes. 18 Proceedings 2760/06 were returnable before me as Duty Judge on 22 May 2006. I made orders by consent restraining registration of the certificate as a judgment until 5.00 pm on 1 June 2006 and stood the proceedings over to that day. On that morning, counsel for ABD foreshadowed that an application would be made for the winding-up of ETPW in insolvency. I refused leave for that application to be made by cross-claim, but directed that if such an application were made by 25 May 2006, it be returnable for directions on 1 June 2006 before me. 19 On 24 May 2006, ABD filed originating process against both ETPW and Evans & Tate Limited seeking orders that each company be wound up in insolvency. It also sought a declaration that the notice convening the meeting of noteholders was false and misleading. It claimed interim relief to restrain the further publication of the notice convening that meeting, to restrain the meeting, and to appoint a provisional liquidator to both defendants. 20 No notice was given at the hearing before me on 22 May 2006 that it was intended that proceedings be brought against Evans & Tate Limited. On 24 May 2006, Cowley Hearne, on behalf of the defendants, wrote to Mr Foate of Catalyst Legal, who acts for the plaintiff. They advised that application would be made for summary dismissal of the winding-up proceedings. Cowley Hearne continued: "We wish to draw your attention to your client's obligations under Corporations Law rule 5.6 which provides that any publication of such an application cannot be made until three days after service of the originating process. As yet we have not been served with a sealed copy of the originating process.

Please confirm by 3pm this afternoon that your client will comply with these obligations. If we have not received a positive response by that time we are instructed to approach the Duty Judge in the Equity Division of the Supreme Court seeking orders restraining any publication of the application by your client."

21 Mr Foate replied later that day, but his letter was not responsive to Cowley Hearne's request. 22 Rule 5.6 of the Supreme Court (Corporations) Rules 1999 (NSW) provides: " 5.6 Notice of application for winding up - Form 9 (1) Unless the Court otherwise orders, the plaintiff must publish a notice of the application for an order that a company be wound up. (2) The notice must be: (a) in accordance with Form 9, and (b) published in accordance with rule 2.11: (i) at least 3 days after the originating process is served on the company, and (ii) at least 7 days before the date fixed for hearing of the application." 23 In Paterson v Hampton Interiors (1989) 7 ACLC 904 at 905, Needham AJ said of the equivalent rule then in force that: "The purpose of that rule is well-known, that is, in the knowledge that many applications for winding up of companies do involve disputed claims, the rule provides for an opportunity for the company said to be the debtor to make application for an injunction prior to the advertising of the lodgment of the summons. The opportunity given to the company is justified by the damage which can accrue to a company which has had an advertisement placed in the paper and the Government Gazette that an alleged creditor is seeking to have that company wound up. Effect on the company and its business can readily be recognised. That is the purpose of the rule".

24 Because Mr Foate's letter was not responsive to what had been asked of his client, Cowley Hearne wrote again later that same day. They said: "Whilst our letter noted that ASIC had been informed of your client's application, the confirmation our letter sought was in relation to the publication in accordance with rule 5.6 of the Supreme Court (Corporations) Rules which relates to publication which is usually made in an appropriate newspaper.

We again request your client's confirmation that it will comply with this provision, otherwise our client will have no alternative but to approach the Court this afternoon".

25 Mr Foate replied to this letter by another letter misdated 26 May 2005. He said: "On our instructions any `publication' as required under the Corporations Act or regulations will be made in accordance with the Act or regulations.

We are unaware on what basis you have thought otherwise, unless you mistakenly were referring to the ASIC lodgment as a publication.

Should you continue with such time-wasting correspondence, we will need to request that all future correspondence be with your supervising partner".

26 This was an undertaking on behalf of ABD that the rules relating to publication would be complied with. I cannot pass by the last paragraph of this letter without comment. It was gratuitously offensive. Cowley Hearne's correspondence was not "time-wasting". A follow-up letter was required because of Mr Foate's failure to give a responsive answer to their first letter. He appears to have attempted to intimidate a professional colleague. This comes ill from a solicitor who had filed process which he should have known, if he did not know, was an abuse of process because it commenced proceedings against the parent company without having obtained leave of the Court to do so. I will explain why that is so later in these reasons. Mr Foate appears to have made no inquiry of his client as to whether, in fact, it had published notice of the winding-up application contrary to the rules. 27 Because Evans & Tate Limited is a listed company, it was required to notify the Australian Stock Exchange of the winding-up application. On 24 May 2006, it lodged notice that originating process had been filed seeking the winding-up of it and of ETPW, and that the originating process sought a declaration that the notice of meeting to noteholders was false and misleading. It stated, amongst other things, that Evans & Tate had been in litigation with ABD for two years in a commercial dispute arising from ABD's short-term position as a distributor of Cranswick Wine Products. It advised that the proceedings would be resisted and an application made for their summary dismissal as an abuse of process. 28 On the morning of 25 May 2006, a report appeared in The West Australian. It stated: "A Sydney based wine distributor has launched winding up proceedings against the debt laden Evans & Tate delivering a potentially fatal blow to the WA winemaker. Australian Beverage Distributors (ABD) said its application filed in the New South Wales Supreme Court yesterday would argue that E & T was insolvent and unable to pay its debts as and when they fell due. It said the company should be wound up `to prevent the further dissipation in the value of assets available to unsecured creditors' ". Later in the article, the author extensively quoted a Mr David Brooks, who describes himself as in-house legal counsel for ABD. 29 When the matter came before me on Monday 29 May 2006, I ordered that ABD file and serve an affidavit identifying to what persons, other than advisers retained by it, any of its officers had published notice that the plaintiff had instituted proceedings for the winding-up of either defendant (see Re A Company 00127 of 1992 (1992) 10 ACLC 3,035 where Mummery J of the Chancery Division of the High Court in England made a similar order). Pursuant to that order, Mr Brooks swore an affidavit in which he deposes that he was contacted by a number of journalists and that, following such contact having been made, he provided them with a press release. He issued the press release to journalists before the period of three days had expired after service of the originating process. 30 The press release commences as follows: "Today Australian Beverage Distributors Pty Ltd, a New South Wales wine distribution company, issued winding up proceedings in the Supreme Court of New South Wales against Evans & Tate Limited (ASX:ETW) and Evans & Tate Premium Wines Pty Ltd (formerly Cranswick Premium Wines). Australian Beverage Distributors Pty Ltd has issued the winding up proceedings in response to Evans & Tate Premium Wines Pty Ltd refusing to pay costs orders arising from previous proceedings between the parties. Evans & Tate Premium Wines Pty Ltd are in separate proceedings seeking to restrain Australian Beverage Distributors Pty Ltd from enforcing those costs orders. "

31 The press release then stated that ABD argued that the Evans & Tate group was insolvent and pointed to a number of matters said to justify this conclusion. The press release referred to defaults under the convertible notes trust deed and outlined ABD's allegations as to why the report to noteholders was misleading. It concluded by saying: "Australian Beverage Distributors Pty Ltd expresses the opinion that the value of the shares in the Evans & Tate group are worthless as evidenced by the financial accounts. It believes that action should be taken now to prevent the further dissipation in the value of assets available to unsecured creditors. Creditors of the Evans & Tate group and noteholders are encouraged to appear at the proceedings before the New South Wales Supreme Court of Sydney when they are next returnable on 1 June 2006".

32 There was further extensive publicity of the winding-up proceedings in the national press. Summary Dismissal of Winding-Up Application Against Evans & Tate Limited 33 I will deal first with the application by Evans & Tate Limited for summary dismissal of ABD's application to wind it up. Evans & Tate Limited's application for summary dismissal is based on three grounds. The first ground is that ABD was not entitled to file winding-up process against Evans & Tate Limited without leave of the Court. The second ground is that the application was brought for an improper purpose. The third ground is that the application was published by ABD in breach of the Supreme Court (Corporations) Rules, r 5.6. 34 In the originating process ABD claimed to be a creditor of both Evans & Tate Limited and ETPW. 35 Section 459P(1)(a) of the Corporations Act 2001 (Cth) provides that a creditor of a company may apply to the Court for the company to be wound up in insolvency. However, a person who is a creditor only because of a contingent or prospective debt may only apply with the leave of the Court (s 459P(2)(a)). ABD's only standing as a creditor of Evans & Tate Limited is as a beneficiary of the convertible notes, or as a creditor of ETPW for whose debts Evans & Tate Limited might become liable in the future pursuant to a deed of cross-guarantee if ETPW is wound up. 36 A prospective creditor is one whose debt is not presently due but which will become due in the future. In its capacity as a beneficial holder of convertible notes, ABD is an equitable creditor to whom a prospective debt is owed. The event of default under the convertible notes trust deed of which a waiver is sought does not ipso facto accelerate payment of moneys due on the notes. 37 A contingent creditor is one to whom an existing obligation is owed out of which a liability may arise on the occurrence of a possible future event. It is arguable that ABD is a contingent creditor of Evans & Tate Limited by reason of the deed of cross-guarantee. It is not arguable that ABD is a creditor of Evans & Tate Limited other than as a prospective or contingent creditor. ABD did not contend otherwise at the hearing before me. 38 It follows that ABD was not entitled to file originating process to wind up Evans & Tate Limited without first obtaining leave of the Court. Its filing of that originating process against Evans & Tate Limited without first obtaining leave was a serious abuse of the process of the Court. 39 Mr David James, who is not a director of ABD, but who claims to have given instructions for the commencement of the proceedings, gave evidence that he thought that under the deed of cross-guarantee, the parent company was responsible for the debts of its subsidiaries and that Evans & Tate Limited was therefore a debtor of ABD. He said that on or about 29 May 2006, his solicitor, Mr Foate, told him that he had to request leave. Such ignorance does not excuse or mitigate the seriousness of the abuse of process. A plaintiff ignorant of the principles of company law should obtain legal advice before instituting such proceedings. It is of equal concern that ABD's solicitor should have filed the process against the parent company. 40 ABD now seeks leave nunc pro tunc to commence these proceedings as a prospective or contingent creditor and as a contributory. That is to say, it now seeks leave, and would have that leave operate from the time it filed the proceedings. 41 ABD spent $533.95 acquiring shares in Evans & Tate Limited on 29 May 2006. The contract was not due to settle until 1 June 2006, being the first day of hearing. 42 ABD has made a very modest outlay to acquire notes and shares for the purpose of causing trouble. On the morning of the hearing, senior counsel for ABD advised that it was not proceeding with its claims for interim relief to restrain further publication of the notice convening the meeting of noteholders or restraining the meeting. Its reason for this, as given by Mr James, was that he had been advised that morning by senior counsel that the Court: "wasn't really going to be in a position to give me the orders that I required and there's nothing much I can do about that and that I'd be better off to allow the meetings to run and take further action if I wanted to after the meeting".

43 If counsel's advice was that the Court would not restrain the meeting, the advice was obviously right. One can only wonder whether counsel's advice was sought before proceedings were commenced or at any time before the day of hearing. Nor did ABD proceed with its application for the appointment of a provisional liquidator. 44 Nothing was put in support of its application for leave nunc pro tunc to commence these proceedings against Evans & Tate Limited. There was nothing that could properly have been said in support of that application. ABD has no genuine interest to protect as a prospective creditor or as a contributory. It has a minuscule holding of notes and shares which were acquired when it knew of the group's financial position and which were acquired in order to disrupt the group's affairs. It has already had considerable success in that endeavour. 45 Nor do its claims as a contingent creditor arising from its proceedings against ETPW warrant its being given leave to apply for the winding-up of Evans & Tate Limited. As I have explained, it is reasonable to conclude that it is a net debtor of ETPW. There are further reasons as to why it would not be appropriate to grant leave for it to proceed against Evans & Tate Limited arising from the publishing of the press release and arising from its purpose in instituting these proceedings. I deal with those matters below. 46 I conclude that ABD should not have leave, either retrospectively or prospectively, to commence winding-up proceedings against Evans & Tate Limited as a prospective or contingent creditor or contributory. This is sufficient to warrant the originating process against Evans & Tate Limited being summarily dismissed as an abuse of process, and for the grant of an injunction to restrain the filing of new proceedings for the winding-up of Evans & Tate Limited based on the same debts. 47 However, I will deal with the other grounds upon which the application was made. The next such ground was that the proceedings were brought for an improper purpose. The second paragraph of the press release which I have quoted contains an admission that the winding-up application was made against both defendants because ETPW had applied to seek to restrain ABD from enforcing its costs order. Rather than allow that application to be determined on its merits, ABD determined to bring the winding-up proceedings not only against the company which it alleges owes it money, but against the parent company who was not a party to those other proceedings. As the proceedings were brought in response to ETPW's application to restrain ABD from enforcing its costs orders, the officers of ABD responsible for bringing the proceedings must have hoped either to deter ETPW from pressing its claim, or hoped that a liquidator or provisional liquidator could be persuaded not to pursue that claim. Alternatively, the claim may simply have been retaliation for ETPW's having sought orders to stay enforcement of the costs order. It would be an abuse of process to commence winding-up proceedings for the purpose of preventing ETPW from having its proceedings determined on their merits. It would be an abuse of process to use the winding-up jurisdiction as a way of forcing ETPW to pay a debt for costs which ETPW acknowledges is due, but which it contends in those other proceedings it should not be compelled to pay, given the larger acknowledged debt owed to it. It would be an abuse of process to bring winding-up proceedings as retaliation for action which was displeasing to ABD. 48 In oral evidence, Mr James said that his purpose in giving instructions to commence the proceeding was because "they" had avoided paying what "they" owed him for the last three years, and that he didn't have any choice but to have them wound up. He added that he believed "them" to be hopelessly insolvent. Of course, ABD does have a choice. It has proceedings on foot which will determine whether ETPW is liable to pay any damages. It is an abuse of process to use the winding-up jurisdiction to seek to recover a disputed debt where the debt is disputed on substantial grounds. That is so even where the defendant company is insolvent (Mann v Goldstein [1968] 1 WLR 1091 at 1098-1099). The press release issued by ABD, and Mr James' evidence demonstrate that the proceedings were brought for an improper purpose. 49 I deal next with the ground based on premature publication. The defendants submit that ABD published notice of the winding-up application in breach of the Supreme Court (Corporations) Rules, r 5.6. They say the breach was a serious one. They say it has, or may have caused, substantial damage to the defendants and to the shareholders of Evans & Tate Limited. The share price fell from 10 cents overnight on 24 May 2006 to a low of 7.7 cents the next day, before closing at 8.5 cents on 25 May 2006. It fell to 6 cents on 30 May 2006. It is not possible to identify the winding-up proceedings and the publicity which has attended them as being the sole cause of the fall in the share price. However, the institution of those proceedings and the publicity attendant on them is likely to have caused damage to the defendants and the shareholders of the parent company. There is evidence that one supplier has expressed reticence about providing goods whilst the winding-up proceedings are on foot. The rules providing that notices of winding-up applications not be published for a limited period after service of the application are designed to protect companies, so far as may be possible, from being damaged by adverse publicity in relation to proceedings which have no merit. A breach of the rule will often result in proceedings being dismissed as an abuse of process without further investigation. 50 The first question is whether the rule is breached. Senior counsel for ABD submitted that the rule was concerned only with the publication of the prescribed form in the prescribed newspaper. Such a form could not be published until the expiry of three days after service of the originating process. But that, it was submitted, did not mean that third parties could not be told that winding-up proceedings had been commenced. Indeed, an applicant for a winding-up order is required by s 465A(a) of the Corporations Act to lodge with ASIC notice that the application has been made. The evidence in this case suggests that ASIC publishes such notices on its database before the three-day period after service has expired. In any event, a listed company is required to give notice to the Australian Stock Exchange of such an application as soon as possible. 51 Re a Company No 00127 of 1992 was concerned with rule 4.11 of the Insolvency Rules 1986 of the United Kingdom. That rule provided: "(1) Unless the Court otherwise directs, the petition shall be advertised once in the Gazette.

(a) if the petitioner is the company itself, not less than seven business days before the day appointed for the hearing, and

(b) otherwise, not less than seven business days after service of the petition on the company, nor less than seven business days before the day so appointed".

52 Mummery J followed an earlier decision of Harman J in Re a Company No 0062 of 1991 [1991] BCC 210 that in this context, advertisement was not confined to the formal advertisement of a winding-up petition, but extended to notifying persons of the existence of the winding up petition by a letter. Mummery J held (at 3,036) that the petitioning creditor's conduct in notifying the company's creditors, including its bank, of the existence of a petition was a clear breach of the rule. As in this case, the breach was exacerbated by an assurance having been given by the solicitors for the petitioning creditor that the petition would not be advertised before the period specified by the rule had expired. His Lordship concluded (at 3,037) that it was: "such a serious case of abuse of the Insolvency Rules and of the processes of the winding-up court that I should mark the Court's strong disapproval of actions of this kind by striking out the petition without investigating the merits of the petitioning creditor's argument that the points raised by the company in defence to the petition are specious".

53 I do not consider that there is anything in the different language of the Supreme Court (Corporations) Rules, r 5.6, which should produce a different construction. If anything, the implied restraint on publication of notice of the winding-up application is at least as broad as a restraint on advertising such an application. The purpose of the rule is to give a company the opportunity to take steps to prevent the damage which may be caused by the winding-up application becoming known. That purpose would be frustrated if it were open to an applicant for winding-up to publish notice of the application by means other than that provided for in the rule. The fact that a listed company may itself be under an obligation to publicise the application by the ASX does not affect the operation of the rule. The rule does not contain an exception for applications to wind up listed companies. Nor is it relevant that s 465A requires notice of the application to ASIC. It is a matter for ASIC when it chooses to publish such notices on its database. 54 What then are the consequences of a breach of the rule? In Paterson v Hampton Interiors, Needham AJ said (at 906): "that the principles behind the rule were such that the Court should not entertain any breach of the rule but dismiss the summons advertised in breach of the rule as an abuse of process". 55 However, whilst his Honour's comments reflect the seriousness with which a breach of the rule is regarded, not every breach of the rule need have this consequence. In Melcann Ltd v Marmlon Holdings Pty Ltd (1991) 9 ACLC 678, McLelland J (as his Honour then was) said (at 680) that this statement by Needham J: "... should not be regarded as justifying dismissal of the summons as an abuse of process where there has been a breach of [the] rule regardless of the circumstances of the case. Where, as in the present case, the breach is shown to have been unintentional and inadvertent, the defendant shows no interest whatever in resisting the winding up application and there is no suggestion that the premature advertising has caused any harm, the Court may properly make the winding up order notwithstanding the breach of [the] rule."

His Honour added: "I should add that in my view the situation might well be quite different where there was anything to justify a conclusion that the premature advertisement was intentional".

56 In this case, the premature publication was deliberate and calculated to cause harm to the defendants. It does not matter that Mr Brooks was approached by journalists. He did not content himself with answering their questions, but published a press release designed to give maximum publicity to the fact that winding-up proceedings had been brought; that ABD contended the companies were insolvent, and to encourage other creditors to support ABD's actions. This was at least as serious a breach of the rule as was the circulation of creditors in Re A Company No 001127 of 1992. 57 Subject to the defendant's arguments based on s 467A of the Corporations Act, the premature publication is an additional ground warranting the summary dismissal of the proceedings as an abuse of process. Subsection 467A provides: " 467A Effect of defect or irregularity on application under Part 5.4 or 5.4A An application under Part 5.4 or 5.4A must not be dismissed merely because of one or more of the following:

(a) in any case - a defect or irregularity in connection with the application; (b) in the case of an application for a company to be wound up in insolvency - a defect in a statutory demand; unless the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied (for example, by an adjournment or an order for costs) ."

58 ABD submitted that if there were a breach of rule 5.6, the breach was merely a defect or irregularity and should be excused unless the breach caused serious injustice. It submitted that the question is not whether the publicity consequent upon the press release caused substantial injustice, but whether the breach, as distinct from its consequences, caused substantial injustice (Sydney Appliances Pty Ltd (in liq) v Robert Bosch (Australia) Pty Ltd (2000) 33 ACSR 680 at 689). It submitted that that question should be answered by asking what the position would have been had there been no breach of the rule. In such a case, the defendants would have sought an injunction to restrain publication because the proceedings were an abuse of process, on grounds unrelated to publication. If such a case were made out, it would be made out on the present hearing on grounds unrelated to publication. If an injunction would not have been given, the publication would be permitted, and the same consequences of publication would follow. 59 On this analysis, the publication in breach of rule 5.6 could not be a separate ground justifying summary dismissal. The submission depends upon a finding that a breach of rule 5.6 was "merely" a defect or irregularity. It is hard to define what is a defect or irregularity, but when the phrase is used in s 467A in conjunction with "merely", it refers to a breach of the rules which is not at the higher end on the scale of seriousness. I agree with the submission for the defendants that a breach of the rules, or the Act, which would otherwise warrant the proceedings being dismissed as an abuse of process, is not a mere defect or irregularity within the meaning of s 467A. 60 For these reasons, each of the three grounds for summary dismissal of the originating process against Evans & Tate Limited is established. Summary Dismissal of Winding-Up Application Against ETPW 61 This application is based on four grounds. First, it is said that ABD is not a creditor of ETPW. Alternatively, its claim as a creditor is disputed. Secondly, it was submitted that even if ABD is a creditor by reason of the certificate for costs in its favour, it is an abuse of process to invoke the winding-up jurisdiction when ETPW has a counterclaim for an admitted debt. Thirdly, the application was brought for an improper purpose. Fourthly, ETPW also relies on the premature publication. 62 ABD relied on its certificate for costs for its status as a creditor, not on its claim for damages. It claimed that as it was entitled to have that certificate filed as a judgment, there could be no question but that it was a creditor of ETPW. Even if its claim for damages could not be set off against the debt it admittedly owes ETPW, it submitted that ETPW could not set off that debt against the debt arising from the costs certificate. It submitted that there were only three set-offs known to the law: a contractual agreement for set-off; a statutory set-off; or the equitable defence of set-off; and it submitted that none of these were available to ETPW. ETPW took issue with this. It said that there could be a set-off under s 21 of the Civil Procedure Act 2005 (NSW), or in equity. In any event, it argued that its status as a creditor did not depend on the availability of a set-off. Rather, if it had a genuine offsetting claim, whether or not amounting to a set-off for the purposes of winding-up proceedings, ABD could not be treated as its creditor. 63 This last submission can readily be disposed of. The existence of a counterclaim not amounting to a set-off would not deprive ABD of its status as a creditor. Had ABD served a statutory demand, that counterclaim would prevent a presumption of insolvency from arising if proceedings were taken to set aside the demand. Prior to the amendments to the Corporations Act made following the Harmer Report, the existence of such a counter-claim would mean that a company did not fail or neglect to pay a debt the subject of a statutory demand under s 364 of the Companies (NSW) Code or s 222 of the Companies Act 1961 (NSW). However, that says nothing about a plaintiff's status as a creditor entitled to apply to wind up a company by proving insolvency. As McLelland J said in L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180 at 183: "A counterclaim which would provide neither a legal nor an equitable defence to proceedings for enforcement of a debt does not affect the status of a person to whom that debt is owed as a creditor". 64 I accept that ETPW's debt for goods sold and delivered has not been shown to be extinguished by ABD's claim for damages. Apart from any consideration as to whether there is a sufficient connection between those two claims to impeach ETPW's claim to a debt for goods sold and delivered, the general conduct of the parties is relevant to the granting of such equitable relief by way of set-off (D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 26; AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 at 712). As Giles J observed in the latter case, an equitable set-off may be denied where the party claiming it fails to investigate, quantify or press its cross-claim (APM Wood Products Ltd v Kimberley Homes, Cole J, 17 February 1989, unreported). Given the previous findings that only $86,232 of ABD's damages claim is a genuine claim, and in the absence of any evidence on this application about the damages claim, I do not accept that ABD is entitled to set off its claim for damages against ETPW's claim for a debt. 65 Nonetheless, I do not accept that ETPW's claim for a debt for goods sold and delivered can be set off in equity so as to extinguish ABD's debt on the costs certificate. The debt for costs arose because ETPW was unsuccessful in proving that ABD was insolvent. There is not a close connection between that claim and ETPW's claim for a debt for goods sold and delivered. Unless there is a stay of further proceedings on the costs order, there is nothing to impeach ABD's claim to enforce its debt for costs (Rawson v Samuel (1841) Cr & Ph 161 at 178-179; 41 ER 451 at 458). As I shall explain later, wider questions arise on an application to stay enforcement of the costs order. 66 I am also inclined to think that Mr Newlinds SC, senior counsel for ABD, was right in submitting that s 21 of the Civil Procedure Act is of no avail to ETPW. Section 21 provides: " 21 Defendant's right to set-off (1) If there are mutual debts between a plaintiff and a defendant in any proceedings, the defendant may, by way of defence, set off against the plaintiff's claim any debt that is owed by the plaintiff to the defendant and that was due and payable at the time the defence of set off was filed, whether or not the mutual debts are different in nature. …

(6) In this section, debt means any liquidated claim." 67 ETPW says the debt owed by it on the costs certificate, and the debt owed to it for goods sold and delivered are mutual debts which can be set off under this section. However, there is no question of ABD suing for its debt for costs. It has a certificate which, subject to any stay of enforcement, it can file as a judgment. There is no claim to which ETPW can assert the debt owed to it as a defence. However, I would prefer not to express a concluded view on this question. This is because the case falls to be decided under a different principle. 68 Notwithstanding ABD's submissions to the contrary, set-off of judgments for costs in different actions and in different courts has long been allowed, as has the set-off of judgments for costs against judgments for debt or damages. Such set-offs do not depend upon the statutes of set-off, or the general equitable jurisdiction, but on the control a court exercises over its own proceedings. The jurisdiction is explained in many cases dealing with claims by solicitors to assert a lien over a judgment for costs in favour of their client where the opposite party has obtained judgment against their client in the same or in other proceedings (Edwards v Hope (1885) 14 QBD 922 at 926-927; Reid v Cupper [1915] 2 KB 147; Puddephatt v Leith (No 2) [1916] 2 Ch 168 especially at 173-174; Re a Debtor No 21 of 1950 [1951] 1 Ch 612 at 617-618). 69 This jurisdiction is accurately described in R Derham, The Law of Set-Off, 3 ed, 2003, at paras 2.71-2.83. Although in Edwards v Hope, Brett MR and Bowen LJ (at 926 and 927) described the jurisdiction as an equitable jurisdiction, in truth, it was not a creature of the Court of Chancery, but was applied by all courts. Indeed, it was applied more liberally in the Courts of law than in the Court of Chancery owing to Lord Eldon's care that solicitors should not be deprived of liens for their costs (Puddephatt v Leith (No 2) at 174-179). 70 Dr Derham says at para 2.80 that: "The basis of the set-off is the general jurisdiction of the Court over the suitors in it", citing Mitchell v Oldfield (1791) 4 Term Rep 123; 100 ER 929. There, in a case where each party had recovered judgment against the other for separate debts in separate actions, Lord Kenyon CJ stated that the case did not depend on the statutes of set-off, but the general jurisdiction of the Court over the suitors in it. 71 Although there may be a set-off of the judgments for costs, this would still leave a substantial balance owing to ABD for costs. I accept that ABD was a creditor for that amount when its claim was filed. Nonetheless, it was then a defendant in proceedings in which ETPW seeks to restrain enforcement of the order for costs. If such an order is made, ABD will cease to be entitled to a debt presently payable. Either in its inherent jurisdiction or pursuant to subs 135(1) of the Civil Procedure Act, the Court may restrain further proceedings on the costs order. 72 The vice of ABD's winding-up application against ETPW is that even though, in my view, its current status as a creditor is not disputed on substantial grounds, its entitlement to retain that status is disputed on substantial grounds. Filing winding-up proceedings where the creditor's right to retain its status as a creditor, other than as a prospective or contingent creditor, is disputed on substantial grounds, is as much an abuse of process as where the existence of the debt is so disputed. As McLelland J said in L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (at 183), an abuse of process will arise, inter alia: "if issues will arise in the winding up proceedings of a kind inappropriate for determination in such proceedings by a substantial contest as to the existence or enforceability of a debt relied on by the applicant, which should properly be resolved in separate proceedings brought for that purpose" (emphasis added). 73 When the proceedings were filed there was a substantial dispute arising from proceedings 2760/06 as to the enforceability of the debt for costs. Filing winding-up proceedings in those circumstances on the basis of such a debt was an abuse of process. That abuse is exacerbated in this case where, for the reasons previously given, the subjective intentions of ABD, as shown by its press release, were either to deter ETPW from proceeding with its claim to stay enforcement of the costs order, or to persuade a liquidator not to pursue such a claim, or to retaliate against the claim having been brought. 74 Further, for reasons previously given, I conclude from Mr James' oral evidence that he sought to use the winding-up jurisdiction to recover the disputed claim to damages. Neither Mr Brooks, nor Mr James was a director of ABD. The director of ABD is a Mr John James. He did not give evidence. Both Mr Brooks and Mr David James claimed to have caused the proceedings to be instituted. The intentions of each of them should be attributed to the company. Accordingly, I conclude that the purpose for which the proceedings against ETPW were instituted rendered the proceedings an abuse of process. 75 The premature publication of the proceedings is an additional ground. 76 It follows that the winding-up proceedings against each defendant should be dismissed. For reasons to be given shortly, I am of the view that the enforcement of the costs order should be stayed until the determination of the District Court proceedings or further order. It follows that ABD would not be entitled to file fresh winding-up proceedings without leave. In the circumstances of this case, having regard to its conduct to date, I think that there are reasonable grounds to apprehend that it may do so. I will, therefore, grant the injunctive relief sought by the defendants in proceedings 2876/06 in relation to any future application to wind up either defendant. ETPW's Application to Stay Enforcement of the Costs Order 77 I turn then to proceedings 2760/06. The Court has jurisdiction to stay its own proceedings wherever the requirements of justice so demand. The jurisdiction is one to be exercised with caution. This jurisdiction extends to staying execution of judgments and orders. The jurisdiction is an inherent one and is, in any event, specified in wide terms in subs 135(1) of the Civil Procedure Act. The stay of execution of a judgment to give effect to a set-off between two judgment debts is but an instance of the control which the Court exercises over its own proceedings. 78 In this case, justice requires that not only should the two certificates for costs be set off against each other, but that ABD not be entitled to enforce its judgment for costs until it has paid the debt owed to ETPW, or until the District Court proceedings have been determined. The reasons for this appear from the earlier part of these reasons. 79 On the materials before me, ABD owes more to ETPW than ETPW owes to it. Even though that is not sufficient to give rise to a set-off in equity, and even though a stay of execution is tantamount to allowing a set-off, the jurisdiction to stay execution of the order for costs does not depend on satisfaction of the requirements for establishing an equitable set-off. There is no reason to think that it should, as an equitable set-off extinguishes or reduces the debt, whereas a stay merely precludes enforcement of the debt for so long as the stay operates. 80 In the present circumstances, no good ground has been demonstrated as to why ABD has not paid the money it owes ETPW. I have considered the plea in ABD's statement of claim in the District Court of an oral agreement, and I have considered the documents relating to that claim for a credit for unsold goods as referred to in the decision of Master Macready in Australian Beverage Distributors Pty Limited v Cranswick Premium Wines Pty Limited [2004] NSWSC 877. There is nothing in the statement of claim filed in the District Court which makes ABD's claim more plausible than it appeared to Master Macready or the Court of Appeal. As I have said, no further evidence was led about that claim before me. 81 I am of the view that justice requires that further proceedings to execute the orders for costs in proceedings 6444/04 (the winding-up proceedings), and the orders for costs in proceedings 2021/04 (the proceedings to set aside the statutory demand), and on appeal in proceedings CA 40762/04, be stayed until the final determination of proceedings in the District Court at Newcastle (No. 7/2005), or further order. In proceedings 2760/06, I direct that counsel for the plaintiff bring in short minutes of order accordingly. I order that the defendant pay the plaintiff's costs of those proceedings.

Orders in Winding-Up Proceedings 82 In proceedings 2876/06, I order that the originating process be dismissed. I also order that the plaintiff by itself, its servants and agents be restrained from presenting a further application for winding-up of the first defendant based on the debt on which the application in the originating process filed on 24 May 2006 was based. I order that the plaintiff by itself, its servants and agents be restrained from presenting a further application to wind up the second defendant based on the debt on which the application in the originating process filed on 24 May 2006 was based. I will hear counsel on the question of costs in the winding-up proceedings.

83 HIS HONOUR: The defendants apply for an order that the plaintiff pay the costs of the winding-up proceedings on the indemnity basis. Such an order may be made where a party has been delinquent in its conduct of the proceedings (Oshlack v Richmond River Council (1998) 193 CLR 72 at 89; Colgate-Palmolive Co v Cussens Pty Ltd (1993) 46 FCR 225 at 233). I accept that the defendants had reasonable arguments to advance in relation to whether the premature publication was a breach of rule 5.6, and that they had reasonable arguments to advance in relation to the plaintiff's standing as a creditor of the first defendant. Indeed, in relation to the latter question I have accepted parts of the submissions made. If separate proceedings had been brought for the winding-up of the first defendant, I do not think that it would have been an appropriate case for the granting of an indemnity costs order. However, one proceeding was brought against both defendants. The claim against the second defendant, Evans & Tate Limited, should never have been brought without leave. It is true that in an appropriate case an order for leave nunc pro tunc may be granted, but this was not a case in which it was appropriate that such leave be given. I have found there is nothing that could properly have been said in support of that application. I consider that the institution of winding-up proceedings against the second defendant without leave was a serious delinquency which warrants the making of an indemnity order as to costs. 84 I also think that on this application it is relevant to take into account that undertakings were sought by Cowley Hearne in relation to the non-publication of the proceedings, and that such an undertaking was given but not met. I do not think it possible to differentiate the costs of the proceedings against the first defendant and the costs of the proceedings against the second defendant in any meaningful way. The arguments in relation to both applications proceeded seamlessly. 85 For these reasons, and for the reasons which I gave in the principal judgment, I order that the plaintiff pay the defendant's costs of proceedings 2876/06 on the indemnity basis. 86 The defendants have foreshadowed that they may wish to seek further costs orders against persons other than the plaintiff. Any such application would need to be made on notice. 87 I direct that if any such application is to be made that it be made by notice of motion to which any such affected party is joined as a respondent. Such notice of motion, if any, should be filed and served within seven days and, if filed, will be returnable before me for directions at 9.30am on 20 June 2006.

20/11/2006 - First line of para 80, 'doubt' replaced by 'good'. - Paragraph(s) 80

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