Bidal Consulting Pty Limited v Miles Special Builders Pty Limited

Judgment (EX TEMPORE) 1HIS HONOUR: On 30 April 2014 I gave reasons for judgment ([2014] NSWSC 527) and made orders pursuant to the (Cth) Corporations Act 2001, s 465B, substituting Titan National Pty Limited and Kathryn Weber as plaintiffs and pursuant to s 459R(2), extending the period within which the winding up proceedings must be determined to 3 September 2014. I also ordered the defendant to pay the substituted plaintiffs' costs of the interlocutory process for substitution, and adjourned the originating process to 19 May 2014, is today, in the Corporations Registrar's List. By interlocutory process filed on 14 May 2014 - that is to say, within the fourteen days referred to in UCPR r 36.16(3)(a) - the defendant Aquaqueen International Pty Limited applies for orders staying or setting aside the judgment of 30 April 2014, dismissing the winding up proceedings and costs. 2While r 36.16(3)(a) confers on the parties an entitlement to apply to have the Court amend, vary or recall its final judgment when the application is made before entry of judgment or within fourteen days thereafter, the power is subject to the significant limitation imposed by the public interest in maintaining the finality of litigation, which requires great caution in the exercise of the power, especially where the variation sought would have the practical effect of reopening the proceedings to enable a significant rehearing. The power will be exercised in such circumstances as where it is established that the original judgment or order was affected by a misapprehension of law or fact or a failure to afford a proper opportunity to be heard, but it is not exercised so as to permit a general reopening of the case. 3Generally speaking, an applicant for reopening under the rule must point, to some misapprehension of law or fact or other defect in the earlier proceedings in order to justify being permitted to reopen the judgment. 4In this case, the defendant applicant referred to a number of matters, with which I shall shortly deal. 5First, it was said that the substituted plaintiffs had no judgment nor any s 459G notice on which they could rely for standing in the winding up proceedings. It is true that the judgment that was registered in the District Court on 5 December 2013 appears subsequently to have been set aside by consent, although more recently another judgment has been registered. But this is entirely irrelevant to the question on an application for substitution, as I sought to explain in the reasons given on 30 April and again in the course of argument today. The question of standing, on application for substitution, is determined at the date on which the original winding up summons was filed. In the previous judgment, in support of that proposition I referred to the judgment of McLelland J in Deputy Commissioner of Taxation v Sun Heating Pty Limited [1983] 2 NSWLR 78, (1983) 9 ACLR 314 and Bidal Consulting Pty Limited v Miles Special Builders Pty Limited (2005) 54 ACSR 228. 6The cases make very clear further that a substituted plaintiff does not need to have a judgment, nor have served its own s 459G demand, but is entitled to rely on any available act of insolvency, including a presumed insolvency arising from the company's failure to comply with a s 459G demand served by the original, replaced, plaintiff. Accordingly, although it seems that the judgment registered on 5 December 2013 was set aside, the pendency of that judgment played no part in my reasoning on 30 April this year. While it is correct that the circumstance that it had been set aside was not drawn to my attention - unsurprisingly, since so far as I can tell it did not happen until after I had delivered judgment - it is entirely irrelevant to the reasoning which informed my decision. 7So too is the submission that the letter of demand of 24 April 2014 is not a s 459G demand. I agree that it is not a s 459G demand, but that is entirely irrelevant. What may be relevant is the presumption of insolvency arising from the original plaintiff's s 459G demand. It was submitted that that demand had been complied with, in that it had been paid after Black J's judgment in which his Honour stayed the winding up order to permit the original plaintiff to be paid. However, payment of the original plaintiff's debt belatedly, after a winding up order is made, does not equate to compliance with the demand. Section 459G makes manifest that if there is a failure to comply with the demand at the expiration of twenty one days - or, where an application to set aside the demand is made, seven days after the application is dismissed, unless the Court extends that time within that seven-day period. There having been no such extension, there was a non-compliance with the original demand, and that non-compliance is not cured or expunged by paying the debt at a much later date. It is exactly to avoid that consequence that the process for substitution exists. 8Repeated reference was made in the course of the applicant's submissions to the appeal proceedings in the District Court. As I have pointed out previously, the pendency of an appeal from a costs assessor's decision after a review has been dismissed does not affect the enforceability and operation of the decision, unless the Court in which the appeal is pending or the review panel otherwise orders which, at least at this point, has not yet occurred. 9In the reasons given on 30 April 2014, I found that on the relevant date, namely 2 October 2013, the substituted plaintiffs were creditors for a sum certain being the amount certified in the certificate of assessment, and that they must be recorded as creditors as at the date on which the winding up proceedings were initiated. As I said then, it is true that the operation of the certificate was suspended between about 5 November 2013 (when the review application was filed) and at least 11 December and perhaps 17 January 2014 (when the review determination was made and released). Even so, that would leave the present applicants as the beneficiary of a costs order in the District Court, even if it be regarded as unquantified during that period, so that they remained at least contingent creditors and, subject to a grant of leave, had standing to bring winding-up proceedings. 10Once the suspension was removed by the review panel, any question of requiring leave evaporated. There was no requirement for leave as at the date the originating process was filed, and there was no requirement for leave as at the date of 30 April 2014 when I made the order for substitution. 11It was submitted that there was no merit in the contention that the defendant is insolvent. That is a matter for determination on the hearing of the winding up petition, and not on the application for substitution. As I explained in the earlier judgment, on an application for substitution the questions are, first, whether the applicant for substitution would have had standing to commence winding up proceedings on the date on which the proceedings were, in fact, commenced by the original plaintiff; secondly, whether the proceedings were being diligently prosecuted by the original plaintiff; thirdly, questions of discretion. The question of insolvency does not arise at this stage. However, it must be borne in mind in that respect that while on the hearing before Black J, when the winding up order was originally made, the defendant contended that it was not insolvent, it manifestly failed to rebutt the presumption of insolvency. It may be now that it knows which evidence needs to be adduced to prove solvency, that it will be able to do so if and when the winding up proceedings ever again come to be heard. 12I do not doubt the genuine intent of Aquaqueen to prosecute the District Court appeal, and its genuine belief that it has an arguable case on that appeal. That said, it remains highly doubtful that, even if it succeeds in the District Court appeal, that will entirely expunge the status of the present substituted plaintiffs as creditors. 13It may well be also that Aquaqueen has an offsetting debt of $12,680 or thereabouts referred to in the evidence. Again, it seems unlikely that that will be sufficient, even in combination with any success on the appeal, to expunge the debt; but it may, and if it does that will provide a strong reason for not permitting the winding up proceedings to proceed further. However, unless a stay is granted in the District Court proceedings, or unless and until the appeal succeeds, nothing has been demonstrated contrary to the entitlement of the substituted plaintiffs to proceed, as I explained in the judgment given on 30 April this year. 14The further course of the winding up proceedings may well be influenced by what happens in the District Court. If the District Court does grant a stay of the costs determination, that would as always be a very weighty consideration in this Court's decision as to whether or not the winding up application should be allowed to proceed, when the debt on which the petitioning creditor relies is the subject of a stay. 15If a stay is in force, the Court would not likely proceed to wind-up the company. If the appeal succeeds and reduces the amount of the debt, that may well have an impact on the Court's attitude as to whether the substituted plaintiffs should be able to proceed to wind up the defendant. 16All this was explained on the last occasion. Absolutely nothing has been raised on the present application which is relevant and was not addressed on the last occasion. Absolutely no ground whatsoever has been shown for reopening the judgment under rule 36.16. 17I order that the interlocutory process be dismissed, with costs assessed in the sum of $3000.