Floruit Holdings Pty Ltd & Anor v Sebastian-Builders & Developers Pty Ltd

Judgment 1HIS HONOUR : In these proceedings, the plaintiff seeks an order that the defendant be wound up in insolvency. 2The originating process was filed on 9 August 2011 and had a return date of 20 September 2011 at 9.00 am before the Registrar. 3By an interlocutory process filed on 24 August 2011, the plaintiffs seek expedition of the hearing. They seek an order that the originating process be set down for hearing on Monday, 29 August 2011, although counsel indicated that if a date were available for hearing later in the week commencing 29 August, it would press for a later date that week for the hearing of the claim. 4The reason for the application for expedition is that the parties are parties to proceedings before the District Court that are set down for hearing commencing on 5 September 2011 with an estimated hearing time of ten days. 5The proceeding in the District Court is the hearing of a cross-claim the present plaintiffs have brought against the present defendant claiming damages of $643,920. 6The plaintiffs say that they should not be required to spend the substantial sums that will be involved in litigating that claim over a period of, perhaps, ten days against the defendant which they say is insolvent. The plaintiffs rely upon the presumption of insolvency resulting from failure to comply with a statutory demand. 7Hence the plaintiffs seek an urgent hearing of the winding-up application. 8The defendant says that the claim for an expedited hearing is an abuse of process and was brought for a collateral and improper purpose of the plaintiffs avoiding difficulties which, it is said, they face in the District Court. The defendant says that those difficulties are such that either the plaintiffs' claim in the District Court is doomed or likely to fail, or if not, it will be as a result of an adjournment which will lead to a costs order against the plaintiffs. 9To avoid these outcomes, so the defendant says, the plaintiffs are seeking to put the defendant into liquidation. 10The defendant also says, through its counsel, that it would not be fair to require it to defend the winding-up application in the short time available as it should be entitled to more time in order to adduce evidence of its solvency. 11The background to this dispute is that the plaintiffs were the owners of land in Kiama and engaged the defendant as builder to construct four townhouses. 12The builder commenced proceedings in the District Court claiming that moneys were owing under the contract. It also withheld the plumbing certificate because the plaintiffs owed money under the contract, notwithstanding that its subcontractor had provided the plumbing certificate to it. Without the plumbing certificate, the plaintiffs could not obtain the necessary approval of the subdivision. 13The plaintiffs brought a cross-claim in the District Court against the defendant for damages for withholding the plumbing certificate. 14On 19 December 2008 the defendant's claim in the District Court was settled. The cross-claim is still on foot. 15A separate issue was heard as to whether the defendant was entitled to withhold the plumbing certificate for non-payment of moneys due. In the District Court the defendant was successful on that question, but failed in the Court of Appeal. (See Floruit Holdings Pty Ltd & Anor v Sebastian-Builders & Developers Pty Ltd [2009] NSWCA 303.) 16In the Court of Appeal a costs order was made in the plaintiffs' favour against the defendant. The costs were assessed and the statutory demand was served for the judgment debt arising from the costs assessment. That debt was for $63,289.62. 17The defendant applied to set aside the statutory demand. It did not dispute that it owed the debt the subject of the judgment. It submitted that the statutory demand should be set aside under s 459J(1)(b) of the Corporations Act 2001 (Cth) for some other reason. The reason was, or included, that the plaintiffs' cross-claim in the District Court was doomed to fail and the plaintiffs would incur a costs order against it. 18On 11 July 2011 Macready AsJ dismissed the present defendant's application to set aside the statutory demand ( Sebastian Builders & Developers Pty Ltd v Floruit Holdings Pty Ltd & Currency Corporation Pty Ltd [2011] NSWSC 655). His Honour rejected the argument that the plaintiffs' cross-claim in the District Court was doomed to fail, but made observations as to the adequacy of the pleading of the cross-claim on which the defendant now relies. 19His Honour recorded (at [13]) that one of the submissions of the present defendant was that: " ... the penny has dropped with the [plaintiff] that its case is hopeless and the [plaintiff] is trying to get out of it by way of winding up the [defendant] as opposed to discontinuing the cross claim proceedings with costs or prosecuting the cross claim leading to a costs order against it. In this scenario the progressing of the District Court proceedings to a hearing date is just a charade or a keeping up of appearances to avoid it being obvious that it does not want to run the cross claim and incur its own costs in so doing and also risking an order that it pay the [defendant's] costs. " 20The same argument in substance is made by the defendant in opposing the present application. 21His Honour said: " 23 There are three bases for the plaintiff's claim which are as follows: (a) The cross claim is fatally defective on its face because the defendant must allege and prove that it would have been able to sell the townhouses if it had the plumbing certificate as at January 2007. (b) Similarly in respect of the claim for holding charges and interest for the town house that was sold, there is no allegation in the cross claim that the completion of lot 14 could have taken place on 14 January 2007 but for the missing plumbing certificate. (c) The plaintiff has failed to mitigate its loss. 24 In relation to the first issue (a), the defendants suggested that if the plaintiff genuinely thought the pleadings were defective it should strike them out in the District Court, which it has not done. In oral submissions Counsel for the defendant, Mr Katekar, stated that the pleadings in their present form are perfectly adequate. Paragraph 33 states that by reason of the matters alleged at paragraphs 23 and 26, the claimants have been unable to obtain the subdivision certificate and as a result have suffered and continue to suffer loss and damage. The loss is then particularised in a way that can generally be described as loss of interest, loss of opportunity to sell the other three townhouses before 14 July 2008, interest paid on borrowed funds and diminution in value of the townhouses. Paragraph 23 refers to the plaintiff's refusal to deliver the plumbing certificate. Paragraph 26 refers to the defendant's inability to obtain Certificate of Subdivision. 25 Counsel for the plaintiff, Mr McVay had indicated that ... the defendant's needed to plead that there was a market slump and that slump should have been part of their knowledge or reasonably foreseeable in order for it to be included in the losses claimed. 26 The defendants point out that they have amended their statement of cross claim to include a loss of opportunity claim. However that claim appears in the particulars to para 33 and is not pleaded properly in the statement of claim. If it were pleaded properly, the defect would not exist. One might expect that it would be properly repleaded before the hearing because at the moment it is not. 27 The second issue could also be cured by amendment before the hearing and the defendant would be foolish not to do so. " 22The defendant had earlier contended that the cross-claim was fatally defective in submissions in the Court of Appeal on costs in November 2009. Counsel for the defendant submitted that the plaintiffs were required to allege and prove that they would have been able to sell the townhouses if they had had the plumbing certificate as at January 2007. Counsel observed that there was no such allegation that the townhouses would have been sold if the plaintiff had the plumbing certificate, and therefore the absence of the certificate was the cause of the loss. Counsel submitted that without making and proving such an allegation the plaintiffs had not causally linked the absence of the certificate with the non-sale of the units and their decreasing value. Counsel observed that no loss of a chance to sell the townhouses was pleaded. 23Apparently in response to that submission, a fourth further amended statement of cross-claim was filed in the District Court on 24 January 2010. 24It pleads that by reason of the defendant's refusal to deliver the plumbing certificate and the inability of the plaintiffs to obtain a Certificate of Subdivision and consequent inability to separately sell and settle the sales of the four townhouses, the plaintiffs suffered loss and damage. Particulars of the loss and damage are given, including that there was a delay in the settlement of the sale of one of the townhouses until 14 July 2008 (being the date when the plumbing certificate was provided) and an inability to sell the other three town houses which otherwise would have been sold by 14 July 2008, or, in the alternative, loss of opportunity to sell them prior to 14 July 2008. 25Macready AsJ may have intended by his observations that the pleading was defective only that what appears in the particulars is not pleaded in the substantive paragraphs (at [26]). 26The plaintiffs have foreshadowed their intention to seek leave further to amend the cross-claim. No further draft pleading has been provided to date, although counsel has been briefed to draw the same. 27In a letter dated yesterday, the solicitors for the plaintiffs state that the amendments to the cross-claim will be: " ... for the purposes of pleading damages for loss of opportunity. That claim is presently particularised in the Cross Claim. Your client is aware of it. There is no question of surprise. The amendments will be made to alleviate any concerns about the manner in which the loss of opportunity claim has not been properly pleaded. However, once the amendments are made, there is no reason for the District Court proceeding to be vacated. " 28They said that senior counsel had been briefed to appear for the plaintiffs (cross-claimants). 29Counsel for the defendant says that if leave is given to make the amendments, there will have to be an adjournment with costs. He submits that an adjournment of the proceedings in the District Court takes away the reason now advanced by the plaintiffs as to why there should be an expedited hearing of the winding-up application. 30Counsel observes that an adjournment with costs will give the defendant a set-off for a cross-claim against the plaintiffs which it could raise in the winding-up application. He also submits that the plaintiffs' purpose in seeking to have the winding-up application determined before the District Court proceedings are heard is to allow the plaintiffs to avoid having to make amendments said to be necessary to their pleading, and to avoid having to proceed with the claim in the District Court on the basis of the current pleadings. 31Mr Grech, the solicitor for the plaintiffs, was cross-examined. He admitted that he wished to avoid going to a hearing on the present formulation of the cross-claim, but he also said that if the amendments were refused the plaintiffs did wish to proceed with the hearing. He denied that the purpose of seeking an expedited hearing of the winding-up application was to avoid having to face the alleged difficulties in the District Court. 32The first observation to make about the defendant's submission as to the plaintiffs' purpose and as to it being an alleged abuse of process, is that it is not an abuse of process for a party to bring proceedings for the purpose of pursuing them to a conclusion to obtain whatever entitlement or benefit the law provides if the proceedings terminate in the plaintiffs' favour ( Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 526; Dowling v Colonial Mutual Life Assurance Society [1915] HCA 56; (1915) 20 CLR 509 at 524; and in the context of winding up, Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 966 at [36]-[45]). 33Hence, even if it were the purpose of the plaintiffs to avoid having to proceed to a hearing in the District Court by first obtaining a winding-up order of the defendant that would result in the proceedings in the District Court being stayed, that would not mean that the present application was an abuse of process. Rather, it would be the plaintiffs seeking to obtain the consequences for which the law provides on the making of the winding-up order the plaintiffs seek. 34However, in any event, I do not accept that the inevitable outcome of the hearing in the District Court on 5 September 2011 is that either the amendments will be rejected, or that there will be an adjournment with a consequential costs order in favour of the defendant. 35The amendments have not yet been formulated. It is not inevitable that once the amendments are formulated that, if they are allowed, there would be an adjournment. Whether that is so would depend upon the scope of the amendments, the issues raised by the amendments, and the extent to which those issues have already been identified as live issues which the parties should be expected to have addressed. 36Those would be matters for determination by the District Court judge. 37Nor do I accept that if the amendments are rejected, that the plaintiffs would necessarily be precluded from running a claim for damages for loss of opportunity to sell the three townhouses. Again, that will be a matter for the District Court judge to determine, informed, no doubt, by considerations, amongst others, of the obligations imposed by s 56 of the Civil Procedure Act 2005 on both parties, and by the extent to which the real issues have been identified in the particulars to para 33 of the cross-claim that would be raised by the proposed amendments. 38These are all matters the District Court judge will be called on to determine in dealing with the question of amendments, if the proceedings have not been stayed in the meantime on the making of a winding-up order. 39No doubt the District Court judge hearing such an application will give consideration to, and respect, the observations of Macready AsJ as to the adequacy of the existing pleadings. But His Honour's observations about the adequacy of the pleadings give rise to no issue estoppel. Nor are they binding on the judge that will have to determine the application as a matter of precedent. The judge would not be bound by Macready AsJ's observations, as to what course should be taken if the amendments are either granted or refused. 40I accept Mr Grech's evidence that by making this application, the plaintiffs are not seeking to avoid a hearing in the District Court, except, of course, on the ground that they are concerned that such proceedings would be futile if the defendant is insolvent and does not have assets with which to satisfy a judgment in the plaintiffs' favour. 41I reject the grounds of opposition to this application based upon alleged abuse of process or attempt to obtain an improper collateral advantage. 42That is not the end of the question. The plaintiffs have the benefit of the presumption of insolvency. The defendant is entitled to call evidence to rebut that presumption and is entitled to a fair and reasonable opportunity to do so. 43I was advised that the originating process was served on 16 August 2011, that is to say, ten days ago. 44On 19 August 2011 the defendant filed a notice of motion seeking an order that the judgment debt be paid by instalments. It sought an order that the debt be paid by monthly instalments of $10,548.27 commencing on 12 September 2011. 45In support of that application, the director of the defendant swore an affidavit which attached a financial statement for the defendant that he swore he believed to be true. He stated that the defendant's assets consisted of a motel and unit said to have a value of $4,700,000, two motor vehicles said to be worth $7,000, sundry debtors of $15,000, tools and equipment worth $2,000: a total of $4,724,000. He deposed that liabilities other than the judgment debt consisted of a secured debt to the ANZ Bank for $4,700,000. 46The financial statement also stated that estimated gross annual income of the business carried on by the defendant of providing accommodation was $1,054,870 and that annual expenses were $865,614. 47Information in the form presented would be inadequate to rebut the presumption of insolvency. But that is not to say that other evidence of the defendant's assets and liabilities, income and expenditure and cash flow, supported by appropriate accounting records (and probably it would need to be supported by a report of an external accountant), might not be sufficient to rebut the presumption of insolvency. 48I do not consider that the defendant has had an adequate opportunity to date to adduce evidence in opposition to the winding-up application, and I do not think that a hearing either on Monday of next week or on any other day next week (if time and a judge can be found for the hearing) would be adequate for the defendant to deal with the winding-up application on its merits. 49In that regard, I take into account that the defendant also has to prepare for the hearing in the District Court. 50It does not follow merely because the presumption of insolvency has arisen that I should assume that the defendant would be wound up and that the District Court proceedings would be stayed. 51The defendant says that it has the cash flow to meet the judgment by instalments. It would not be fair to require the defendant to litigate next week to seek to prove its solvency and then also to be required to litigate the District Court proceeding the following week. 52The plaintiffs simply find themselves in the position, as is often the case, that they have brought a cross-claim against a party which might not be able to satisfy a judgment against it. 53In my view, the pendency of the District Court proceedings is not a sufficient reason for the degree of expedition that the plaintiffs seek and would need for the hearing of the winding-up application. 54The degree of expedition sought would be such that the defendant would be deprived of an adequate opportunity to defend the claim. 55I reach this conclusion, notwithstanding that this was not separately flagged as a ground of opposition to the interlocutory process in the notice of appearance that has been provided, and the defendant's solicitor did not give evidence about it. 56I think it sufficiently appears from the materials that are otherwise before the Court that more time than has been afforded to the defendant to date would be needed. 57Finally, I should refer briefly to a further ground on which the defendant opposed the interlocutory process. It was said that there had been a material non-disclosure of facts when an order for short service was obtained because I was not then told that amendments were proposed by the plaintiffs to the cross-claim in the District Court. 58In my view, that was not a material matter to be disclosed on that application, dealing as it was only with the question of short service. 59However, for the other reasons I have given, I reject the claim in paras 3 and 4 of the interlocutory process filed on 24 August 2011. [Parties addressed on costs.] 60The defendant seeks an order that the plaintiffs pay its costs of the interlocutory process and that it have leave to assess those costs forthwith. 61Prima facie costs follow the event. 62However, I have rejected the principal basis upon which the defendant opposed the application. 63The affidavit filed for the defendant did not address the basis upon which I have held for the defendant. The bulk of the submissions made by counsel for the defendant to which the plaintiffs responded were addressed to different issues. 64The application has taken much longer to determine than it otherwise would, had it been addressed simply to the question of whether or not the defendant would be in a position to deal with the winding-up application in the short time that was sought. Had that question been properly addressed, it might have been able, and probably should have been able, to be dealt with in last Monday's list. 65In my view, the defendant should not necessarily have its costs of the application. 66I think the interlocutory process should be treated as simply part of the litigious process commenced by the originating process and that costs of this application should be costs in the proceedings. 67I so order. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 September 2011