JUDGMENT AND ORDERS - gross sum costs order made - application by judgment debtor for instalment order - relevant considerations discussed - onus not discharged by applicant
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JUDGMENT AND ORDERS - gross sum costs order made - application by judgment debtor for instalment order - relevant considerations discussed - onus not discharged by applicant
Judgment (2 paragraphs)
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Judgment
BARRETT AJA: I have heard today two applications arising out of a gross sum costs order made by Sackar J on 4 May 2016. The order was made against Australian Institute (Vic & Tas) Pty Ltd ("AIVT") and in favour of Australian Institute of Fitness Pty Ltd ("the Institute") in proceedings 2014/300068. The gross sum was $343,675.50.
To put the applications into context, I should set out the following chronology:
(1) On the day on which the gross sum costs order was made, 4 May 2016, the Institute served on AIVT a statutory demand under s 459E of the Corporations Act 2001 (Cth) in respect of the judgment debt thereby created.
(2) On 24 May 2016, AIVT made an application under r 37.2 of the Uniform Civil Procedure Rules 2005 (NSW) for an instalment order in respect of the judgment debt.
(3) On 25 May 2016, AIVT made an application under s 459G of the Corporations Act for an order setting aside the statutory demand.
(4) On 1 June 2016, Senior Deputy Registrar Bellach refused the application for an instalment order.
(5) On 3 June 2016, AIVT filed a notice of motion seeking an order setting aside the order of refusal made by the registrar and an order for payment of the judgment sum plus post judgment interest by monthly instalments.
The applications now before me are AIVT's notice of motion seeking an instalment order and AIVT's originating process seeking an order setting aside the statutory demand served by the Institute.
Both parties proceeded initially on the footing that determination of the first of these applications would resolve both applications. By this I mean that the parties were initially agreed that, if an instalment order were made in respect of the judgment debt, an order setting aside the statutory demand should also be made (for reasons corresponding with those in Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; 203 FLR 473), whereas, if no instalment order were made, there would be no sound basis for setting aside the statutory demand.
At the hearing, however, AIVT sought to resile from that position. Its revised position was that, if an instalment order were refused, there would still be a basis for setting aside the statutory demand. I shall return to this matter.
The application for an instalment order follows on from the earlier refusal by the registrar. The application therefore falls to be dealt with under r 37.4(3). The rules make it clear that the situation is not one of appeal from or review of the registrar's order or decision and that the court proceeds de novo.
The rules do not prescribe matters to which the court is to have regard in cases where an instalment order is sought. In Hellier Capital Pty Ltd v Albarran [2009] NSWSC 403, however, McDougall J identified a number of criteria as relevant to the case before him. He drew these in part from comparable legislation elsewhere and in part from his own assessment of the nature of the case.
The criteria thus identified by McDougall J (at [7]) included the following: (a) whether the judgment debtor is employed; (b) the means the judgment debtor has to satisfy the judgment; (c) whether the instalments sought will see the judgment debt paid within a reasonable time; (d) the necessary living expenses of the judgment debtor and dependants; (e) other liabilities of the judgment debtor; (f) whether, having regard to the availability of other enforcement means, making the order would be consistent with the public interest in enforcing money orders efficiently and expeditiously; and (g) whether the order will impose unreasonable hardship on the judgment creditor.
In addition, McDougall J pointed out (at [8]) that an instalment order ought not to be made if the judgment debtor's means are sufficient to allow payment of the judgment immediately and in full; or conversely (at [9]), if the means are so deficient that the instalments could not be met and the making of the order would be futile.
An important point made by Mukhtar AsJ in Davidson v Greedy [2012] VSC 202 is that provisions of this kind exist to enable judgment creditors to obtain the fruits of their judgments. The purpose is not to curtail the rights available at law to obtain satisfaction of a judgment but, rather, to add a method that may be more suited to the particular circumstances than levying of execution and other processes by which the whole sum is sought to be recouped at once.
While an instalment order obviously mitigates the severity of the situation in which the judgment debtor is placed, that is not the real issue. The principal concern, as I say, is to discover whether an instalment arrangement will be more conducive to the judgment creditor's achieving payment in full in a reasonable time. The issue is thus not one of indulgence to the judgment debtor because the judgment debtor somehow deserves an indulgence. The issue is whether indulgence to the judgment debtor will enhance the prospects of full recovery by the judgment creditor.
In the Hellier Capital Pty Ltd v Albarran above (at [19]), McDougall J referred to the "public interest in enabling parties who have litigated their disputes to enforce the victory that they have achieved". His Honour continued (also at [19]:
"That public interest arises, at least in part, because the system of adjudication through courts depends firstly on acceptance of the outcome (if necessary, after exhausting all available avenues of appeal) and, secondly, the ability to enforce the outcome. If the process of adjudication is to survive, so that people do not resort to self-help, the courts should be slow to interfere in the normal processes of enforcement."
Considerations of this kind led Einstein J to observe in Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 1054 (at [15]) that some "particularly special circumstance would have to be shown to deny a party to major commercial litigation, its entitlement to enforce a court order". A requirement framed in terms of a "particularly special circumstance" may tend to overstate the position, but there can, to my mind, be no doubt that the judgment creditor's position regarding immediate enforcement should not be disturbed without some good reason going to enhancing the prospects of ultimate payment in full.
With these principles in mind, I turn to the facts.
The first thing to note is that, as I have said, the original judgment debt was $343,675.50. Of that, at least two, and perhaps three, instalments have already been paid as if an instalment order were in force. Each such payment is said to have been $31,388.62, so that the remaining balance is about $281,000 or about $250,000. Appraisal of the circumstances must be against that background.
The Institute is a registered training organisation which licences its brand name and intellectual property to regional licensees in Australia. Using the name "Australian Institute of Fitness", the licensees provide training courses to achieve accreditation as personal trainers.
The licensee for Victoria and Tasmania is Australian Institute of Fitness (Vic & Tas) Pty Limited which I shall call "Vic/Tas". Vic/Tas is related to AIVT in that they are both wholly owned subsidiaries of another company, The Institute Holdings Pty Ltd ("Holdings"), which has a number of other wholly owned subsidiaries in a similar field of endeavour but not associated with the Institute.
The relationship between AIVT and the Institute is that AIVT holds 20 per cent of the shares in the Institute. Each of four other State or Territory licensees or licensee affiliates also holds 20 per cent of the shares in the Institute. The proceedings in which the gross sum costs order was made by Sackar J were oppression proceedings brought by AIVT as a shareholder in the Institute.
AIVT does not trade or earn income. Its balance sheet records negative equity of slightly more than $1 million. However, the costs order in favour of the Institute has already been paid in part and the funds to enable such payment have come from Vic/Tas. In addition, gross sum costs orders made in favour of the other shareholders in the Institute have been paid by Vic/Tas.
I should also refer to a deed poll made by Vic/Tas in favour of all parties who became the beneficiaries of gross sum costs orders. By the deed poll, Vic/Tas purports to covenant to satisfy instalments under any instalment orders made by the court in respect of the liability of AIVT under the gross sum costs orders.
As things now stand, the deed poll, if it is effective, applies only to the costs order in favour of the Institute, since the costs payable to the other four parties have now been paid in full by Vic/Tas. The thrust of the deed poll is therefore that Vic/Tas is willing to satisfy the costs order in favour of the Institute and against AIVT, but only if the instalment order is made.
It is relevant to consider the financial capability of Vic/Tas. Mr Hornsey, a director of Holdings and other group companies, gave evidence in an affidavit of 24 June 2016 that Vic/Tas had receivables of just over $5.1 million, and that it expected that about $2.1 million of this would be received during the 2016-2017 financial year. He also deposed that cash expenses of operations were forecast to be $475,000, so that a cash surplus of approximately $1.625 million would exist at the end of the financial year. He said that he would ensure that any cash surplus was made available to meet any instalment order.
A question obviously arises because of the recent ability of Vic/Tas to pay in full the gross sum costs orders made in favour of the other Institute shareholders, an aggregate amount of some $700,000. It is said that that was possible because of a one-off windfall arising from a lease or tenancy matter.
I have referred to the fact that AIVT and Vic/Tas are two out of a larger number of wholly owned subsidiaries of Holdings. The other subsidiaries are involved in one way or another in the so-called Sage business, which is a business that operates in the same field of endeavour as the business operated by the Institute's licensees but independently of the Institute.
There is no evidence about the financial capabilities of these other companies. To be more precise, AIVT, upon which rests the onus in the matters before me, has not made any attempt to show that the wholly owned subsidiaries of Holdings, other than Vic/Tas and AIVT, are unable to provide financial support to their sister company AIVT.
I mention next the fact that AIVT is owed some $590,000 by the Institute. This represents loans made by AIVT to the Institute under a system of shareholder loans involving advances by all shareholders equally. The loans are on terms that repayment can only be made equally to all shareholders, and that the timing of any repayment or reduction is entirely a matter for the Institute (which is the borrower) rather than the shareholder lenders. The loans are thus very much akin to capital.
The evidence shows that the Institute has not made any decision to repay any part of the shareholder loans and is, in any event, confronted by the prospects of significant legal costs related to an appeal by the Sage parties in respect of certain of the substantive orders of Sackar J and also in separate proceedings commenced by AIVT against the Institute in the Supreme Court of Victoria which are at an early stage, although one contested interlocutory hearing has already taken place.
Looking at the financial capacity of AIVT in the light of the matters I have mentioned, the following picture emerges. First, AIVT itself has little in the way of immediately available cash. Second, Vic/Tas is generating cash and has already paid off part of the Institute's costs debt, and the whole of the costs owed to the other shareholders, albeit it is said with the aid of a windfall. Third, the relationship of AIVT to Vic/Tas, a willing financial supporter, is precisely the same as the relationship of AIVT to a number of other wholly owned subsidiaries of Holdings. Fourth, those other subsidiaries are carrying on businesses, but AIVT has not put before the Court any evidence of their financial capabilities. This is despite an obvious willingness to expose the financial position of Vic/Tas which occupies in the group structure a position precisely equivalent with that of each other subsidiary of Holdings.
A relevant factor in a matter such as this is the ability of the judgment debtor to pay, not only from its own internal resources but also from external sources, particularly related companies on which it might reasonably be expected to draw and which might reasonably be expected to provide financial assistance to it. In this case, the evidence shows that one such related company source, being Vic/Tas, has some financial capability; but perhaps more to the point, that there are several other related companies the financial affairs of which have not been exposed to the court.
In these circumstances, I decline to make any finding that AIVT does not have available to it means of raising $250,000 or $281,000 in the short term.
Returning then to the criteria to which I referred earlier, I record several findings as follows. Criteria (a) and (d) apply only to individuals and may be ignored. As to criteria (b) and (e), it is not shown that AIVT's means, understood in the extended sense to which I have referred, are insufficient to satisfy the judgment debt. As to criterion (c), there must be a finding favourable to AIVT, in that the instalments sought will see the debt paid within a reasonable time. That leaves criteria (f) and (g) as to which my assessment is that the making of an instalment order would not be consistent with the public interest in enforcing money orders efficiently and would impose unreasonable hardship on the Institute as judgment creditor.
I should amplify on this last matter by saying in a more general way that, given my assessment regarding resources reasonably expected to be available to AIVT and the apparent cash generating or raising potential that, in the absence of evidence to the contrary, must be taken to be available within Holdings' corporate group, there is no reason in justice why the Institute should be made to wait for its money or inhibited from resorting to normal enforcement processes. I do not regard an instalment order as a method more suited to the circumstances of this case than the enforcement mechanisms otherwise available.
AIVT's notice of motion filed on 3 June 2016 will be dismissed.
I turn now to the application under s 459G of the Corporations Act in respect of the Institute's statutory demand dated 4 May 2016 served on AIVT. I said earlier that the position the parties originally agreed was that, if the application for an instalment order was unsuccessful, it would follow that the s 459G application should be dismissed.
At the hearing, however, AIVT sought to withdraw that concession. Its revised position was that, if there were no instalment order, the statutory demand should be set aside under s 459J(1)(b) because there exists, in terms of that section, "some other reason why the demand should be set aside", that is, some reason other than a reason comprehended by s 459H and s 459J(1)(a): Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1977] FCA 681; 76 FCR 452 at 459.
The "other reason" propounded by AIVT is the existence of the indebtedness of $590,000 by the Institute to AIVT in respect of shareholder loans. The submission is that s 459J(1)(b) is concerned with cases of injustice if a statutory demand is allowed to stand, and that it would be unjust for the Institute to seek a winding up order in respect of AIVT when the Institute is indebted to AIVT for shareholder loans in a sum in excess of that claimed in the statutory demand.
That argument is, if I may say so, simply untenable. The provisions about setting aside statutory demands expressly contemplate the possibility that the company served with the demand may have a genuine claim against the party serving the demand by way of counterclaim, set-off, or cross-demand. Such a case is dealt with in s 459H(1)(b) which creates, by reference to the defined term "offsetting claim", one of the grounds for ordering that a demand be set aside.
AIVT does not seek to rely on the s 459H(1)(b) ground. Nor could it, given the terms of the shareholder loans. Rather, the contention is that, if the creditor to whom the debt the subject of the demand is presently due and payable by the company in turn owes the company a larger sum that is not due and will become due only if and when the creditor decides to pay, it is "unjust" that the creditor should be allowed to obtain the benefit of a presumption of insolvency for the purposes of an application for winding up in insolvency. No basis for any such finding of injustice suggests itself to my mind or was suggested in submissions. Section 459J(1)(b) is not concerned with "injustice" in some amorphous sense. The Court of Appeal said in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 at [25] that the section is a remedial provision under which the court may deal with cases not within s 459H or s 459J(1)(a) in a way that is just, having regard to the purpose of the legislation. Reliance by the Institute on the statutory demand in this case in no way subverts the purpose of the legislation. Nor is such reliance unjust having regard to that purpose.
There is the added point that the s 459J(1)(b) ground on which AIVT seeks to rely was in no way foreshadowed by the supporting affidavit filed with the s 459G application. That affidavit referred to the filing of the instalment order application and said that AIVT had been advised by its solicitors that the filing of that application had caused the execution of the judgment debt to be stayed by operation of r 37.5(1). There was no reference to the indebtedness of $590,000 in respect of shareholder loans.
As the Court of Appeal noted in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 334; 85 NSWLR 601 at [34], there is a requirement that the supporting affidavit state the facts in support of the application. Nothing in the affidavit in this case referred to the fact of indebtedness at $590,000, or to any other fact giving rise to an inference that reliance would somehow be placed on the existence of that indebtedness in seeking to have the statutory demand set aside. I reject the submission of AIVT's counsel that reference in the affidavit to the making of the instalment application somehow carried within it a reference to every matter stated in an affidavit filed in support of the instalment order application.
The principle associated with Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; 70 FCR 452 confines a s 459G applicant to grounds revealed by the supporting affidavit. The ground relied on must be evident from the affidavit, even if only from an annexure which reveals it. A mere reference to some other application having been made, albeit in proceedings between the same parties, does not reveal anything about the content of other documents filed in connection with the other proceedings. In the Britten-Norman case, the Court of Appeal accepted that these restrictions apply to a s 459J case as well as a s 459H case. The fact that a document filed in connection with the instalment order application referred to the $590,000 indebtedness, without in some way making the connection with the s 459G application, would be insufficient revelation of a ground of challenge of the kind that AIVT seeks to advance.
Because the ground related to the $590,000 indebtedness is precluded by the Graywinter principle and is in its own right untenable, it is not necessary to consider whether AIVT should be permitted to depart from its concession about the effect of the instalment order decision on the s 459G application.
The orders of the Court are as follows:
(1) The notice of motion filed by Australian Institute (Vic & Tas) Pty Ltd on 3 June 2016 in proceedings 2014/300068 is dismissed;
(2) The originating process filed by Australian Institute (Vic & Tas) Pty Ltd on 25 May 2016 in proceedings 2016/160755 is dismissed.
[Submissions on costs.]
The Institute seeks an order for costs. AIVT accepts that costs should follow the event.
In addition, however, the Institute seeks a gross sum costs order in respect of each of the applications determined by me today. It has referred to considerations which led Sackar J to think that the making of gross sum costs orders was an appropriate measure in the proceedings with which his Honour dealt. The relevant observations of Sackar J appear at p 64 of transcript of 16 December 2015, which forms part of an annexure to an affidavit of Robert Mangioni of yesterday's date.
The observations of Sackar J to which my attention has been drawn and which formed the basis of his decision to make gross sum costs orders in the very substantial proceedings with which he dealt do not apply here. These were self-contained applications going to confined issues but, at the same time, giving rise to a court book running to 961 pages. I see no good reason for departing from the normal course which sees costs agreed by the parties or quantified through the costs assessment process.
The costs order is, accordingly, that Australian Institute (Vic & Tas) Pty Ltd pay the costs of Australian Institute of Fitness Pty Ltd of each of the applications determined by me today.
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Decision last updated: 17 August 2016