James Estate Wines v Winelink

CITATION : James Estate Wines v Winelink (Australia) [2003] NSWSC 744 HEARING DATE(S) : 4 & 6 August 2003 JUDGMENT DATE : 6 August 2003 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Originating process dismissed

CATCHWORDS : CORPORATIONS - winding up - duplicate statutory demands - whether objectionable as abuse of process LEGISLATION CITED : Corporations Act 2001 (Cth) ss 459G, 1322 Abignano v Wenkart [1998] FCA 1468 Braams Group Pty Ltd v Miric (2002) 44 ACSR 124 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 De Montfort v Southern Cross Exploration NL (1989) 17 NSWLR 468 House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 521 Liverpool Cement Renderers (Aust) Pty Ltd v Landmark Constructions (NSW) Pty Ltd (1996) 19 ACSR 411 Mala Pty Ltd v Johnston (1995) 13 ACLC 100 Murphy v Teakbridge Pty Ltd [1999] NSWSC 121 CASES CITED : Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 904 Re Fredericke and Whitworth; ex parte Hibbard [1927] 1 Ch 253 Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 20 ACLC 304 Reichel v McGrath (1889) 14 App Cas 665 Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198 Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 14 ACLC 925 State Bank of New South Wales v Tela Pty Ltd (No 2) (2002) 188 ALR 702 Walton v Gardener (1993) 177 CLR 378 Williams v Spautz (1992) 174 CLR 509 PARTIES : James Estate Wines Pty Ltd (P) Winelink (Australia) Pty Ltd (D) FILE NUMBER(S) : SC 3871/03 COUNSEL : D Allen (P) M P Cleary (D) SOLICITORS : Brooks & Co, Business Lawyers (P) Giles Payne & Co (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3871/03 JAMES ESTATE WINES PTY LTD V WIDELINK (AUSTRALIA) PTY LTD JUDGMENT (ex tempore; revised 12 August 2003) 1 HIS HONOUR: In this proceeding the plaintiff seeks relief on the basis that it would be an abuse of process for the defendant to rely on a certain statutory demand, because it is substantially identical with a statutory demand previously served. The defendant claims that the plaintiff is indebted to it in the sum of $109,000 for wine sold in 2002, and storage charges. It issued a statutory demand for that amount dated 17 April 2003 ("the Second Demand") and claims to have served the demand on or about 28 April 2003. 2 The plaintiff says that after the defendant served an earlier statutory demand in January 2003 ("the First Demand"), arrangements were made for payment of the amount claimed by the defendant by instalments and the First Demand was withdrawn. According to the plaintiff, when the Second Demand was served, a further arrangement was made to the effect that the plaintiff's managing director would guarantee the balance of the debt and accordingly the amount claimed in the Second Demand is not presently due. The plaintiff also says that the defendant has failed to deliver the wine and consequently the plaintiff has been unable to bottle and sell it and has suffered economic loss. 3 It is unnecessary for me to enter further into these claims. For the purposes of the present proceeding, the defendant concedes that there is a genuine dispute between the plaintiff and the defendant as to the existence of the debt to which the demand relates and that the plaintiff has an offsetting claim. Indeed, it is conceded that the plaintiff has now commenced a proceeding in the District Court in respect of the defendant's alleged failure to supply the wine. 4 On 9 May 2003 the plaintiff's solicitor wrote to the defendant's solicitor acknowledging receipt by his client of the Second Demand but noting that the demand was sent to the former rather than the current registered office of the plaintiff. The defendant's solicitor formed the view that it was more likely than not that the Second Demand, sent to the incorrect registered office, was fatally flawed. The defendant instructed him to rectify the flaw by issuing a fresh statutory demand to the correct registered office. 5 There is insufficient evidence to support the plaintiff's submission that service of the Third Demand was a "cynical exercise to try and catch the plaintiff out". At the resumption of the hearing today, the plaintiff, with leave, adduced further documentary evidence which showed that after the defendant's solicitor had formed the view that the Second Demand was fatally flawed, the defendant nevertheless gave a notice to the plaintiff's solicitor to attend for cross-examination at the hearing of the application to set aside the Second Demand and gave a widely drawn notice to produce documents in respect of that hearing. That, in the plaintiff's submission, is evidence of an abuse of process tending to support the submission that, notwithstanding the opinion formed by the defendant's solicitor in mid-May 2003, the defendant subsequently pursued an oppressive course of conduct, which included the service of the Third Demand. 6 In my opinion, this additional evidence does not, either considered separately or together with the other evidence, point to or establish an abuse of process in any sense. What it shows is that although an opinion had been formed as to the likely outcome of the application to set aside the Second Demand, on the balance of probabilities, the party forming that opinion had nevertheless decided to prosecute the proceeding with vigour. Ultimately, as I shall explain, the defendant consented to orders on the application to set aside the Second Demand, which included an order for costs. To the extent that it may have been inappropriate to require, in statutory demand proceedings, a person to attend for cross-examination, or to issue a widely drawn notice to produce that may have required production of irrelevant documents, these matters can be addressed in the assessment of costs. 7 On 16 May 2003 the plaintiff filed an originating process in this Court to set aside the Second Demand under s 459G of the Corporations Act 2001 (Cth) (proceeding No. 2824 of 2003). The application was supported by an affidavit asserting that the demand was sent to the former registered office of the plaintiff, which had been changed in March 2003, and asserting facts with respect to the arrangements for instalment payments and the offsetting claim. 8 The defendant issued a fresh statutory demand identical with the previous one except that it was dated 14 May and that the affidavit accompanying it was resworn ("the Third Demand"). The Third Demand was served at the proper registered office of the plaintiff on 19 May 2003. On 30 May 2003 the plaintiff's solicitor wrote to the defendant's solicitor inviting the defendant to withdraw the Third Demand pending determination of the proceedings relating to the Second Demand and saying that if the Third Demand was not withdrawn by 3 June his client would make an application to set it aside and would seek indemnity costs. 9 The plaintiff's solicitor practises in the Newcastle area. On 6 June 2003, adequately within the twenty-one day period allowed by s 459G, he instructed a Sydney law stationer to file and serve an application to set aside the Third Demand by 10 June 2003. Approximately a week later, and therefore outside the twenty-one day period, he called the law stationer to ask what was happening to the application. The law stationer said that nothing had been done because the application must have been mixed up with other documents, and he apologised. It was then too late to file the application, having regard to the terms of s 459G as construed by the High Court in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. 10 The plaintiff's solicitor did not take any further action with respect to the Third Demand because his client's application to set aside the Second Demand was still before the Court and he did not expect the defendant to seek to proceed on the identical new demand. 11 On 22 July 2003 Windeyer J made consent orders in proceeding No. 2024 of 2003 that the Second Demand be set aside, the originating process be dismissed and the defendant pay the plaintiff's costs. The orders did not refer to the Third Demand. 12 The plaintiff now seeks, in the present proceeding, an order restraining the defendant from filing an application to wind up the plaintiff for non-compliance with the Third Demand, or restraining it from advertising any such application, or permanently staying any such application. The defendant has not yet filed any winding up application. 13 The plaintiff claims to be entitled to this relief on the ground of abuse of process, not in the "technical sense" explained in Williams v Spautz (1992) 174 CLR 509, but of the kind described in Walton v Gardener (1993) 177 CLR 378. It relies on the following evidence to support its application. 14 The plaintiff is part of a large wine manufacturing and selling group which has 270 employees and a group turnover of around $50 million per annum. The financial statements of the group indicate that there are assets worth approximately $40 million and liabilities of approximately $14 million. One company in the group is re-financing its existing debt obligations which are due to expire and another is also re-financing to provide further working capital for proposed overseas expansion. The total value of these facilities is $6 million. The re-financing has been approved and is expected to settle within the next few weeks. The plaintiff is a guarantor under these facilities. The evidence is that if a winding-up application were to be presented against the plaintiff there would be a strong likelihood that the re-financing would not take place, and a risk that the plaintiff would be in default of its loan covenants under existing obligations, and the lending institutions would be entitled to call up their loans immediately. 15 In David Grant v Westpac Banking Corporation the High Court unanimously held that the time limit prescribed by s 459G cannot be varied under s 1322; and that the purpose of the amendments to the statutory demand procedure introduced by the 1992 amendments was, inter alia, to prevent a contention being made in the winding-up proceedings that reliance on a statutory demand in respect of a disputed debt is an abuse of process. Section 459G sets up a procedure for a statutory demand to be challenged and in effect, subject to one exception, that is the method by which such a challenge is to be mounted. 16 The exception was expressed in the judgment of Gummow J, with whom the other members of the Court agreed, 184 CLR at 279. There his Honour contemplated that injunctive relief may be available to the company to which the demand is directed if a winding-up application is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of the term, as explained in Williams v Spautz. 17 Williams v Spautz dealt with the abuse of process that arises where a proceeding is brought for an improper purpose - that is to say, where the purpose of bringing the proceeding is not to prosecute it to a conclusion but to use it as a means of obtaining some advantage for which it is not designed or some collateral advantage beyond what the law offers. 18 The plaintiff in the present case contends that abuse of process in the "technical sense" explained in Williams v Spautz does not cover the field of what is an abuse of process. Counsel for the plaintiff refers to Walton v Gardener, decided after Williams v Spautz, in which the High Court held that a proceeding before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, the continuance of the proceeding would be unjustifiably vexatious and oppressive for the reason that the proceeding seeks to litigate anew a case which has already been disposed of in an earlier proceeding. The same point was made much earlier by Lord Halsbury LC in Reichel v McGrath (1889) 14 App Cas 665. 19 Counsel for the plaintiff draws attention to a series of cases decided in the corporate context, in which the same principle appears to have been applied. In Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 904, Needham J found that there was an abuse of process where a party suing for a debt in the Commercial List issued a statutory demand for the same debt. His Honour's observations on that point were adopted by Santow J in Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 14 ACLC 925. 20 Particular reliance was placed on observations by Master Adams in Mala Pty Ltd v Johnston (1995) 13 ACLC 100. There the learned Master said: "It is prima facie an abuse of process for any party to institute two proceedings for the one claim [referring to the Portfolio Projects case]." 21 The Master then said: "I use the words 'prima facie' because there can be an explanation why two proceedings are issued and it is a matter for the Court to determine whether the explanation is sufficient." 22 In Murphy v Teakbridge Pty Ltd [1999] NSWSC 121, Master Macready held that to issue proceedings for the winding-up of a company where there are already proceedings on foot for the debt is, prima facie, an abuse. That observation appears to be referable to the same principle; see also Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198. 23 The contention made on behalf of the plaintiff is that for the purposes of the principle so identified, the service of a statutory demand constitutes a proceeding. Although in none of these cases was the issue whether there could be two concurrent statutory demands, the plaintiff submits that the same principle must apply where the only concurrent "proceedings" are statutory demands. Reference is made to the observation by Master Adams in Mala v Johnston that a statutory demand, while not a court process in the normal sense, should be treated as a proceeding for relevant purposes. 24 It seems to me plain that if the principle identified by the plaintiff's counsel, which I shall call the principle of "double proceedings" abuse of process, survives the David Grant case, it does not entail that there is automatically and necessarily an abuse of process simply because, for a period of time, there are two concurrent statutory demands expiring at different times in respect of the same debt. Counsel for the defendant drew my attention to some cases concerning concurrent bankruptcy notices: Re Fredericke and Whitworth; ex parte Hibbard [1927] 1 Ch 253 and Abignano v Wenkart [1998] FCA 1468 (13 November 1998). These cases show that the mere fact of concurrently existing bankruptcy notices is not itself oppressive or otherwise objectionable. It seems to me that while there are obvious differences between statutory demands and bankruptcy notices, those cases can be applied by analogy as support for that proposition. 25 What is evident from the cases to which I have referred, and in particular the observations of Master Adams in Mala v Johnston, which I have quoted, is that while there may well be a presumption of oppression where there are two concurrent statutory demands, it is open to the party issuing them to demonstrate that there is a good reason why this has occurred. 26 Counsel for the defendant made a more general submission in answer to the plaintiff's case. He contended that the "double proceedings" form of abuse of process has not survived, in the context of statutory demands, the High Court's decision in David Grant. He emphasised that the observations of Gummow J, to which I have referred, carefully preserve only abuse of process in the technical sense discussed in Williams v Spautz. They do not seek to preserve abuse of process in any other sense, as a ground for challenging a statutory demand outside proceedings under s 459G. In developing that argument, counsel took me to the following further authorities, each of which expresses the exception in terms of the improper purpose abuse of process identified in Williams v Spautz: see Liverpool Cement Renderers (Aust) Pty Ltd v Landmark Constructions (NSW) Pty Ltd (1996) 19 ACSR 411 at 416-7 per Tamberlin J; House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 521 at 529-530 per Brownie J; Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 20 ACLC 304 at paras 26, 27 and 29 per Palmer J; State Bank of New South Wales v Tela Pty Ltd (No 2) (2002) 188 ALR 702. 27 However, in Braams Group Pty Ltd v Miric (2002) 44 ACSR 124, Ipp JA contemplated (at 135) that another form of challenge to a statutory demand, which I assume to fall broadly under the rubric of abuse of process, is available. He referred to the judgment of Needham J in De Montfort v Southern Cross Exploration NL (1989) 17 NSWLR 468 at 471, where Needham J said that it would be "quite unacceptable" for a creditor to serve a statutory demand, then be paid the full amount claimed, and nevertheless seek to wind up the defendant. Ipp JA added that it would be equally unacceptable if a person claiming to be a creditor served a statutory demand on the basis of a judgment debt and, when the judgment was subsequently reversed on appeal, so that that person ceased to be a creditor, subsequently proceeded for the winding-up of the company. 28 What that suggests to me is that there may be forms of abuse of process that survive the David Grant case other than abuse of process in the technical sense identified in Williams v Spautz. However, it is unnecessary for me to reach a final conclusion on that point of law because it seems to me that, if the form of abuse of process relied upon by the plaintiff in this case (that is abuse of process on the "double proceedings" principle) exists, the facts do not fall within it. 29 As I have said, it is open to the defendant in such a case to prove an explanation for the concurrent existence of the two proceedings. In the present case, my view is that the defendant has done so. The Second Demand was served on the wrong registered office of the plaintiff. The fact that this mistake was made was part of the plaintiff's case for setting aside the Second Demand, as revealed in the affidavit filed on 16 May 2003 in support of the application in proceeding No. 2824/03. In my opinion, it was reasonable for the defendant to respond, in order to overcome the alleged deficiency, by serving a new statutory demand, namely, the Third Demand. The fact that the defendant also proceeded vigorously to defend proceeding No. 2824/03 does not detract from this conclusion. 30 The plaintiff submitted that the defendant was faced with a choice between only two legitimate courses: namely, it could have agreed to set aside the Second Demand while then serving the Third Demand, or it could have proceeded with the Second Demand. The plaintiff complained that the course taken by the defendant was an illegitimate one, because the defendant chose oppressively to create a situation in which there were two proceedings, forcing the plaintiff to file two originating processes in order to obtain adequate relief. 31 In my opinion, that submission fails on the facts, having particular regard to the letter written on 30 May 2003 by the plaintiff's solicitor to the defendant's solicitor. Rather than demanding that the defendant choose between the two legitimate choices now contended for, the plaintiff's solicitor invited the defendant to withdraw the Third Demand pending determination of the proceeding relating to the Second Demand - indeed, he insisted on the withdrawal of the Third Demand within a short time frame. 32 The plaintiff also draws attention to general considerations of public policy and to the harshness of a decision against it in the present case. So far as public policy is concerned, it seems to me that the contention is answered by the observations on this subject made by Gummow J in David Grant, particularly at p 279, and by the observation that if there is scope for challenging a statutory demand on the principle of "double proceedings" abuse of process, then the principle will assume, prima facie, that the service of two statutory demands is oppressive unless a proper explanation can be given. 33 So far as the harshness of the result on the plaintiff is concerned, again the observations of Gummow J in David Grant at p 279 are relevant. I accept the plaintiff's evidence that if a proceeding is instituted for its winding up, there will be consequences that appear to be highly disadvantageous to it and the group of which it is a part. However, that is the outcome ordained by Pt 5.4 of the Corporations Act. The procedure for challenging a statutory demand, whether it be the first one served or a second or subsequent one, is, subject to the matters of abuse of process to which I have referred, to make an application under s 459G within the time limit stated by that section. If the application is not made within time, then in a subsequent winding-up proceeding relying on the statutory demand, the party in the position of the present plaintiff has to grapple with s 459S. The present plaintiff says that the problem with relying on that section is that the company would be admitting that it was insolvent if the debt were in fact due and owing. I am far from convinced that this problem is insuperable: see the observations on s 459S in the judgment of Stein JA, with whom Mason P agreed, in Braams Group v Miric, especially at 129ff. But if the analysis of the effect of the section made in the plaintiff's submissions is correct, that is a consequence ordained by the law. 34 My conclusion, therefore, is that the originating process should be dismissed. I shall hear the parties with respect to costs.

(Counsel addressed as to costs.) 35 So far as costs are concerned, my view is that this is a case where costs should follow the event. The position is that the plaintiff has pursued the wrong remedy. These proceedings are self-contained and the outcome, so far as costs are concerned, should not be made to await any other proceeding in respect of winding-up. 36 Therefore, it is my intention, as I say, to dismiss the proceeding and order the plaintiff to pay the defendant's costs. 37 At the plaintiff's request, I shall not make those orders for the moment. I will stand the matter over for the purpose of making orders to 13 August 2003 at 9.30am. I make it clear that in doing so I do not invite the parties to re-litigate anything, including the question of costs. **********

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