[27] I then referred to the particular significance, in the s 459J(1)(b) context, of a stay of execution of a judgment where the statutory demand is based on a judgment debt:
'[25] If, in the present case, a stay of execution of the Local Court orders is in force by operation of s 107 of the Justices Act, reliance upon the statutory demand to produce a statutory presumption of insolvency as a basis for seeking a winding-up order will entail for the plaintiff consequences of a serious and adverse kind. The defendant, as a judgment creditor to whom the remedy of execution upon the judgment is expressly denied pending determination of the appeal to this court, will nevertheless be permitted to rely on the judgment as a basis for bringing to bear the pressure for payment and threat of serious and adverse consequences inherent in a statutory demand and a winding-up petition, notwithstanding the legislative policy that precludes direct resort to execution. That legislative policy would thereby be circumvented.
[26] If parliament sees fit to provide that, where a certain type of appeal is initiated in respect of a judgment debt, the judgment creditor is not to be allowed to exercise ordinary judgment creditor remedies by proceeding to execute the judgment, it would, in my view, be inconsistent with the position parliament has striven to create if the judgment creditor could nevertheless proceed with impunity to initiate winding-up proceedings on the basis of the mere existence (even though technically not subject to 'genuine dispute') of that judgment debt. Such a course would, in my view, be oppressive in the sense referred to by Austin J in Moutere and by Mullins J in Softex . The circumstances would therefore warrant an order under s 459J(1)(b) setting aside the statutory demand, even though the initiation of action towards winding up was not technically within the black letter operation of s 107 of the Justices Act: cf Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337.'
[28] I am of the opinion that the present case attracts the operation of the principles set out at paras 25 and 26 of Scope Data and that the stay of execution presently in operation by virtue of s 107(2) of the Civil Procedure Act provides, in terms of s 459J(1)(b) of the Corporations Act, "some other reason" why the statutory demand should be set aside. There will be an order accordingly."
57 Other aspects of the Tatlers case are important. In contrast to this matter, Tatlers involved a situation where the stay of execution was issued after the instalment order was entered. That instalment order was not complied with due to a mistake on the part of the judgment debtor and the Registrar made a second instalment order. In the meantime a statutory demand had been served. The judgment creditor objected to the Registrar's decision on the second instalment order. At the time of the judgment that matter had not been resolved. This had the effect that at the time of issue and service of the statutory demand some of the total judgment debt had been paid while no instalment order was in force, but, by the time the originating process was filed, the position had changed to the extent that a new instalment order was in force.
58 Barrett J considered (at [11]) whether the timing on which "a s 459G applicant relies must be seen to have existed when the statutory demand was served or whether regard is to be had to the position that exists when the court comes to consider the s 459G application." His Honour decided that the second approach was the correct one, stating, "when s 459J(1)(b) is invoked, the court is called upon to decide what will best serve the statutory purpose at the time it considers the question."
59 His Honour stated at [13]:
"… If there was some sound basis for failure to pay, distinct from genuine dispute as to the amount or existence of the debt or the existence of an offsetting claim, then the situation is one in which the policy of the legislation will be subverted if the presumption of insolvency is allowed to arise."
60 His Honour then referred to a number of authorities which confirmed the proposition that a court may have regard to events occurring after the service of a statutory demand when considering a case pursing a s 459G application based on s 459J(1)(b). His Honour stated at [16],
"The last case to be mentioned is of particular relevance to the present circumstances. It is the decision of Master Macready in Detail Rock Tools Pty Ltd v Kleenkut Pty Ltd [2003] NSWSC 643. That case, like this, involved a situation where a judgment debtor had obtained an order for payment by instalments. The order in that case was an order made by the Local Court in respect of a Local Court judgment. Under the Local Court (Civil Claims) Rules 1998, the order, while in force, operated as a stay of enforcement of the judgment. The order was made after service of the statutory demand. After deciding that the existence of a stay represented "some other reason" within s 459J(1)(b), Master Macready made particular observations at para 10 of his judgment:
'Although the stay was not in force at the time of the issue of the demand, it did come into effect within twenty-one days after the date of issue. I do not see why that would make any difference. It is apparent the application was made promptly and only a month after the judgment. It was no doubt done as a response to the service of the demand. That does not detract from the clear legislative provision which allows applicants to pay debts by instalments. For those reasons I would propose to set aside the demand but I will briefly refer to the other matters.' "
61 The provisions that create the stay are twofold. Part 37.5 of the UCPR provides:
"37.5 Stay of execution pending determination of application for instalment order
(1) Execution of the judgment to which an application for an instalment order relates is stayed:
(a) from the time the application is made until the time the application is determined, and
(b) if the application is refused by an order under rule 37.3 (1) (b) and an objection against the order is filed under rule 37.3 (3), from the time the objection is filed until the time the objection is determined.
(2) Subrule (1) does not apply if the applicant has previously made an application under this rule with respect to the same judgment debt."
62 Further, as this Court has made an instalment order, section 107 of the Civil Procedure Act 2005 provides:
"107 Deferred payment and payment by instalments
(1) A court in which judgment has been entered may, subject to and in accordance with the uniform rules, make an order allowing for:
(a) payment of the judgment debt within such time as is specified in the order, or
(b) payment of the judgment debt by instalments, payable in such amounts and at such times as are specified in the order.
(2) Subject to section 119, execution of a judgment for the payment of money is stayed while the judgment is the subject of an order in force under this section."
63 Having regard to the terms of the section and the reasons of his Honour at paragraph 25 it is plain that for the purposes of this question, the plaintiff was a creditor if the situation was, which it appears to be, that there was a stay at the time of the commencement of proceedings on 4 September 2008. The other paragraphs of his judgment to which I have referred will be important when considering the further matters I have to consider in this judgment.
Has there been an abuse of process in order to defeat a meritorious cross-claim?
64 The defendants have argued that Jazabas' unresolved chose in action against the plaintiff is the company's most valuable asset and it is a bona fide chose in action. They submit that they have evidence of a claim by against the plaintiffs for general damages, which provides a relevant defence to the proceeding and value of that claim exceeds the debt owed. They suggest that this claim is a cross-claim that they could not have raised in answer to the demand under section 459H, hence the appropriate time to raise it is at final hearing: per Flick J in Massih v Esber [2008] FCA 1452.
65 Further the defendants submit that if the companies were wound up, the chose in action is likely to go to waste as:
(a) It has been acknowledged by the Court of Appeal that it would be unlikely for the choses in action to be continued by the liquidators if the companies are wound up, because the liquidators would not give personal undertakings.
(b) If the defendants are wound up, the builder's warranty insurance on the dual occupancy development at Matraville being constructed by BAS will not be issued and the dual occupancy properties will not be able to be sold. This will not only affect BAS, but also the party that engaged BAS to construct the development.
66 The plaintiff has submitted that they do not know the source of the assertions made at (a) and (b) and those assertions are disputed. The evidence does not support this. They argue that defendant's have overstated their claim: it has been stayed for 3 years since the decision of Simpson J on 9 June 2006 and the defendants could have sought to raise their chose in action in answer to the demand under s 459H.
67 Massih v Esber is distinguishable to the facts of the present case. Massih concerned the Bankruptcy Act 1966 (Cth) and in particular the provisions of s 40(1)(g) of that Act. That section requires a counter claim that could have been set up in the action or proceeding in which the judgment or order was obtained. In Massih, Flick J held that because the counter claim could not have been set up as such in the costs assessment proceedings, such a counter claim did not fall within the provisions of s 40(1)(g). There is no such requirement under the Corporations Act in order to set aside a notice of statutory demand. However, if the purpose of these proceedings is to stultify a genuine counter claim there may be an abuse of process.
68 The parties did not put evidentiary material before me to demonstrate the merits but made reference to what had been said in previous proceedings.
69 One of the major defences which the plaintiff proposes to run in relation to the defendants' claim is a res judicata or an Anshun estoppel alleging that the present claim is simply an attempt to re-litigate the defendants' earlier unsuccessful claim. The plaintiffs have argued that Associate Justice Harrison recognised this in her judgment Jazabas Pty Ltd v Haddad & Ors [2008] NSWSC 593 at [57].
" [57] Botany Council submitted that as its costs in prior proceedings have not been paid, this is a further basis that the stay should remain in place. As previously mentioned these outstanding costs are substantial and the only attempt at repayment is a recent offer by Jazabas of $500 per month, that is, $6000 per year. The amount outstanding is $969,309.91. Realistically this offer can in no way meet Botany Council's costs that have been incurred in the prior proceedings. It is my view Jazabas, as a common plaintiff to both proceedings, has commenced these proceedings for substantially the same cause of action and for substantially the same relief. I accept that this is another reason why a stay should remain in place so far as Botany Council is concerned."
70 The Court of Appeal proceedings, Jazabas Pty Ltd v Haddad & Ors [2007] NSWCA 291, Basten JA dealt with the merits of the defendants' claims at [30] to [31]. His Honour stated:
" Merits of claims
[30] There is no doubt that the bona fides of the claim and its merits, at least to the extent that it must be reasonably arguable, are material factors, as stated by French J in Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514:
'Where there is a claim prima facie regular and disclosing a cause of action, I see no reason why the court would, in the absence of evidence, proceed on the basis that the claim was otherwise than bona fide with a reasonable prospect of success.'
[31] In the present case, it is clear that the primary judge was not willing to characterise the claim in this way. She was "unpersuaded that [the plaintiffs] have as yet established any real likelihood that they will ultimately be successful": at [52]. Although this language departs from that usually adopted, it does not reveal error. Her Honour thought that this claim was not on its face regular and reasonably arguable. Her reason for reaching that conclusion was that the factual basis of the pleading "does not emerge with any degree of clarity from the amended statement of claim, or from the evidence" - at [6] - and that the pleading required "radical surgery": at [50]. Her Honour also noted that to pursue their claim against the Council, the plaintiffs would need to overcome questions of estoppel arising from earlier failed proceedings against the Council and based on the principles stated in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. Her Honour accepted that neither BAS Developments Pty Ltd nor Permtree Pty Ltd were directly affected by those principles: however, as Permtree Pty Ltd appears to have been involved only as a shareholder in Jazabas, the earlier litigant, it is not clear that it would escape from any estoppel arising against Jazabas. BAS Developments Pty Ltd was apparently the builder used by Jazabas in relation to its residential developments: whether it had a significant independent claim may have been open to doubt. In any event, these factors led her Honour to a lack of satisfaction that there was shown to be "any real likelihood" of success. While I accept, as explained by McClellan CJ at CL, that there may be causes of action available to the plaintiffs - see [82] below - I am not persuaded that her Honour's assessment of the prospects of success was based on any relevant error. It was not contended that this assessment was irrelevant to the exercise of the discretionary power.' "