Clarke & Walker Pty Ltd v Thew

It is clear enough that the appellant's undertaking not to sue or take any proceedings against the company in respect of the debt was a promise not to do so within the period of six months specified in the guarantee and the only question which has been debated is whether a written demand made by the appellant upon the company and left at its registered office constituted the taking of "proceedings" against the company in respect of the outstanding debt. The learned District Court judge was of the opinion that it did not and entered judgment for the appellant. But on appeal a majority of the Court of Appeal thought otherwise, and directed that judgment should be entered in the action for the respondent.

The demand which was served was couched in formal language and was expressed to be a notice pursuant to s. 222 (2) (a) of the Companies Act, 1961 N.S.W.. It recited that the company was indebted to the appellant in the sum of £2,229 10s. 1d. for goods sold and delivered and the notice intimated that unless the outstanding amount was paid before 5 p.m. on 11th November 1964 action would be taken by the appellant "to petition that the company be wound up for the reason that the company is within the meaning of s. 222 of the Companies Act, 1961, unable to pay its debts". The demand was not complied with but no petition for a winding-up order was filed within the six months' period. In the circumstances the question is whether service of such a demand constitutes the taking of "proceedings" within the meaning of that expression as it is used in the guarantee. We are firmly of the opinion that it does not.

A multitude of cases may be cited to show that, when used in a context such as the present, the expression "proceedings" denotes, primarily, curial proceedings though no doubt if in the instant case the debt was a secured debt, it would be wide enough to include the exercise of a right given by the security to take extracurial action for the recovery of the debt. So seizure and sale of goods or the appointing of a receiver under powers conferred upon the creditor by the security might, in such a context, be properly regarded as the taking of proceedings. But a mere written demand for payment and a threat to present a winding-up petition at some future time has none of the characteristics of curial proceedings or of the exercise of rights given to a creditor by his security. Section 222 (2) (a) does not authorize, and does not purport to authorize, a creditor to make a demand for payment upon his debtor; a creditor needs no statutory authority for this. All that s. 222 (2) (a) does is to provide a convenient method of proof, if a debtor company for three weeks after service of a demand neglects to pay the sum due or to secure or compound for it to the reasonable satisfaction of the creditor, that a company is unable to pay its debts which, by virtue of the earlier sub-section is a ground for winding up.

It is not to the point to say that such a written demand may be used to exert pressure on a debtor company or that it may effect its credit or that other persons who have knowledge of the demand and of the debtor company's neglect to comply may avail themselves of the formal proof which these matters afford. The appellant did not undertake not to attempt to obtain payment of his debt or not to exert pressure for this purpose and considerations of this kind cannot justify a conclusion that if such a demand is made by a creditor he has taken "proceedings" against the debtor in respect of the debt.

In our view the appeal should be allowed and the judgment of the learned District Court judge restored.

I am of the opinion that this appeal should be dismissed. I find the reasons for my judgment fully and clearly stated in the judgment of Holmes J.A. in the Court of Appeal, in which Jacobs J.A. agreed. I will take the liberty of adopting as my own reasons the reasons stated by Holmes J.A. without repeating them.