JSBG Developments Pty Limited v Kozlowski [2010] NSWSC 1260 | Case summary

... (2) A company within the meaning of the Corporations Act 2001 of the Commonwealth: (a) may commence and carry on proceedings in any court by a solicitor or by a director of the company, and (b) may commence and, unless the court orders otherwise, carry on proceedings in the Local Court by a duly authorised officer or employee of the company. " 5 Rule 7.1(3) provides: " (3) In the case of proceedings in the Supreme Court, subrule (2)(a) authorises a company to commence proceedings by a director only if the director is also a plaintiff in the proceedings. " 6 Mr Huang is not a director of a plaintiff. Even if he were the proceedings would not be properly commenced in accordance with the rules unless commenced by a solicitor. A director of the plaintiff is not a plaintiff in the proceedings. The plaintiff has one director, Mr Kin Lam. Mr Huang is not a solicitor. 7 There is no doubt that the originating process is defective. Section 467A of the Corporations Act provides that an application under Pt 5.4 (which includes the present application) must not be dismissed merely because of a defect or irregularity in connection with the application, unless the court is satisfied that substantial injustice has been caused that cannot otherwise be remedied. 8 Section 1322(2) provides that a proceeding under the Act is not invalidated because of any procedural irregularity unless the court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the court and by order declares the proceedings to be invalid. 9 In JSBG Developments Pty Limited v Kozlowski [2009] NSWSC 1128, an application under s 459G of the Corporations Act to set aside a statutory demand was brought by an originating process signed by the company's director. Barrett J held that the proceedings so commenced were not a nullity. His Honour said that the proceedings so commenced suffered from a procedural irregularity to which s 1322(2) applied, and from a defect or irregularity to which s 467A applied. In the absence of substantial injustice, it could not be said that the proceedings had been invalidly constituted. 10 In the present case there is no evidence of substantial injustice. Nor did Mr Hockey who appears for the defendant submit that the defect or irregularity has caused substantial injustice. Rather, Mr Hockey submits that the present case is distinguishable from JSBG Developments Pty Limited v Kozlowski, because in that case the person bringing the proceeding was undoubtedly authorised to cause the company to institute proceedings, he being the only director of the plaintiff company. 11 In my view if Mr Huang had the authority of the director of the plaintiff to institute the proceedings, then the non-compliance with r 7.1(2)(a) was a defect or irregularity to which ss 1322 and 467A apply. On the other hand I agree with Mr Hockey's submission to this extent that if the proceedings had been instituted by Mr Huang for the plaintiff without his having the authority of the director to do so, then there is more than a defect or irregularity. Thus in Zimmerman Holdings Pty Limited v Cooney [2002] NSWSC 387 McLaughlin M (as his Honour then was) was concerned with the validity of proceedings instituted by a solicitor without the authority of the directors. Authority had been given by only one of two directors without the concurrence of the other director. A third person had purportedly been appointed as a director of the plaintiff and had purportedly joined in giving instructions to the solicitor, but the appointment of that third person was invalid. 12 His Honour, rightly in my view, held that the purported appointment of the third person as a director would not fall into the category of another otherwise valid appointment which suffered some procedural defect which could be validated by the provision of s 1322 of the Corporations Act (at [49]-[51]). 13 In an ordinary action the lack of authority for the institution of proceedings can be cured by ratification (Danish Mercantile Co Ltd v Beaumont [1951] 1 Ch 680 at 687-688). That might not be the case where there is a time limit for the institution of the proceeding that must be strictly adhered to. See PG Watts & FMB Reynolds, Bowstead and Reynolds on Agency, 18th ed (2009) Sweet & Maxwell, article 19, at [2-087] where the learned authors say: " Ratification is not effective where to permit it would unfairly prejudice a third party and in particular - (1) where it is essential to the validity of an act that it should be done within a certain time, the act cannot be ratified after the expiration of that time, to prejudice of any third party ."

14 For the reasons which follow, I find it unnecessary to decide that particular issue. 15 There is no direct evidence that Mr Huang was authorised by the director of the plaintiff to institute the proceedings. No adverse inference arises against the plaintiff in this respect, as this point was not raised until today when the matter came on for hearing. That was so, notwithstanding that when the matter was fixed for hearing, Barrett J made the usual order for hearing in practice note SC Eq 1. That order required each barrister or solicitor to cause to be filed and served not later than five working days before the hearing date a short outline of submissions and a statement of the real issues for determination. 16 Quite apart from the terms of that order the parties and their legal representatives are expected to conduct litigation so as to facilitate the just, quick and cheap resolution of the real issues in the proceedings. That means that a point such this point ought to have been flagged, whether there is any order requiring the service of a statement of issues or not. The days of trial by ambush ought to be long gone. Were it necessary to do so I would adjourn these proceedings to allow the plaintiff the opportunity to put on evidence from the director of the plaintiff on the question whether Mr Huang was authorised by him to act as he did. 17 However, I do not consider that step is necessary for this reason. The director, Mr Kin Lam, has himself sworn an affidavit in the proceeding in support of the relief claimed in the originating process. It can be inferred from that fact that he knew of and approved of the institution of the proceeding. Indeed, Mr Huang himself deposed, albeit in a form which would be inadmissible if objection could be properly be taken, that he was authorised to make the supporting affidavit under s 459G. That authority must have come from the director. I infer that the institution of the proceedings, albeit in a defective form, was authorised by the plaintiff through its director and accordingly the non-compliance with the rules should be treated as a defect or irregularity which can be disregarded. 18 I turn then to the second issue, namely, whether there is a genuine dispute. As indicated earlier, the defendant claims that a debt is owed for goods sold and delivered. It is the defendant's evidence on this application that its director, Mr Dai, reached an agreement with Mr Lam in early September 2009 for the sale by the defendant to the plaintiff, a large quantity of glassware at a discounted price of 40 per cent off the wholesale price. 19 It is the defendant's case that it delivered 200 pallets of the goods to the plaintiff on 22 October 2009 by eight trailer trips of two semi-trailers to the Liverpool markets. It is the defendant's case that some days later approximately 80 pallets were returned to the defendant. 20 Mr Dai deposes that he issued an invoice on 23 September 2009 to the plaintiff for the 200 pallets. That invoice is in the sum of $224,139.63. Mr Dai annexed to his affidavit an invoice which bears a signature which has the appearance of Mr Lam's signature. After the goods were returned the defendant issued a further invoice which is annexed to the statutory demand for $169,618.02. The defendant says that the plaintiff simply has not paid for the remaining goods. 21 The evidence of the plaintiff is that the agreement was not an agreement for the sale of goods but an agreement whereby the plaintiff would take and sell goods on consignment and the parties would share the expenses of sale and profits equally. Mr Lam admitted parts of a conversation to which Mr Dai deposed, but denied relevant parts. According to Mr Lam he stated words to the effect of "it will be on consignment and we can share the profits 50/50. We'll also share the costs as well". 22 He deposed that he had not seen any invoices and he did not sign any invoices. He disputed that there were eight deliveries by two semi-trailers of the goods to the Liverpool markets. He said that there were three deliveries by two trucks, one being a smaller truck. He deposed that all of the unsold goods were returned to the defendant's premises. 23 Mr Huang for the plaintiff deposed that the plaintiff was only able to sell glassware to the value of about $300. The plaintiff read an affidavit of a forensic document examiner which puts in issue the authenticity of the signature on the invoice of 23 September 2009. 24 On an application under s 459G for an order under s 459H on the ground that there is a genuine dispute as to the debt, it is not the Court's function to try the merits of the dispute. The only question is whether there is a genuine dispute. As McLelland CJ in Eq said in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669 at 671; (1994) 12 ACSR 785 at 787 "genuine dispute connotes a plausible contention requiring investigation". 25 It is not appropriate on the present application to seek to embark upon an enquiry as to the credit of witnesses. There is a clear dispute as to the terms of the agreement between the plaintiff and the defendant, and as to the quantity of goods delivered by the defendant to the plaintiff. There is a clear dispute as to whether the invoices were in fact provided, as well as to the authenticity of the signature on one of those invoices. 26 On the plaintiff's evidence it would not owe any amount to the defendant. Accordingly, the "admitted amount" in relation to the debt, the subject of the statutory demand, would be nil. The statutory demand should be set aside. 27 I make an order in accordance with paragraph 1 of the originating process.

JSBG Developments Pty Limited v Kozlowski

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