Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited [2007] HCATrans 445 (22 August 2007)

Last Updated: 19 September 2007

[2007] HCATrans 445

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M74 of 2007

B e t w e e n -

AUSSIE VIC PLANT HIRE PTY LTD

Applicant

and

ESANDA FINANCE CORPORATION LIMITED

Respondent

HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON WEDNESDAY, 22 AUGUST 2007, AT 11.19 AM

Copyright in the High Court of Australia

MR J.M. SELIMI: May it please the Court, I appear for the applicant respondent. (Starnet Legal Pty Ltd)

MR N.A. FRENKEL: May it please the Court, I appear on behalf of the respondent. (instructed by Gadens Lawyers)

HIS HONOUR: The moving party, I believe?

MR FRENKEL: Yes.

HIS HONOUR: Mr Frenkel, you are moving on the summons of 3 August 2007, is that right?

MR FRENKEL: Yes, your Honour. The respondent relies upon the two affidavits of Barry Lipp, one sworn on 3 August 2007 and the other sworn on 17 August 2007.

HIS HONOUR: Is there any objection to my receiving those affidavits or any part of them, Mr Selimi?

MR SELIMI: No, your Honour.

HIS HONOUR: There is not. Very well, you may take those as read.

MR FRENKEL: Thank you, your Honour. As your Honour will recall, your Honour granted the applicant a stay on 16 July on the basis of some undertakings that were given to the Court, including an undertaking on behalf of the applicant not to trade or carry on any business or incur any debts. Your Honour, aside from the undertaking that my learned friend gave on behalf of the applicant, which is recorded in your Honour’s order, there was an exchange between my learned friend, Mr Selimi, and your Honour on 16 July which, in my submission, is very relevant to the present application. Your Honour, can I hand up a copy of the transcript. I just want to take your Honour to a short passage.

HIS HONOUR: Before you do that, several things. First, the basis for the immediate application which is, in effect, for dissolution of the stay is breach of undertaking, is that right?

MR FRENKEL: Yes, your Honour.

HIS HONOUR: First, I will ask you in a moment to articulate in the form of propositions the precise breach or breaches upon which you rely, but before we come to that, do you accept that in considering dissolution of the stay on the ground of alleged breach or breaches of undertaking that I should deal with the matter as I would were the application made for punishment for contempt?

MR FRENKEL: The same principles apply, your Honour, in my submission, in other words, that a wilful breach of the undertakings is enough.

HIS HONOUR: What I have in mind is, in particular, the Court’s decision in Witham v Holloway 183 CLR 525 where, at least as I read it, the standard of proof to be satisfied in establishing a contempt is beyond reasonable doubt. Do you accept that that is the requisite standard that must be demonstrated in showing breach of an undertaking?

MR FRENKEL: No, your Honour.

HIS HONOUR: Why not?

MR FRENKEL: I am sorry, your Honour, I did not appreciate what exactly your Honour’s question went to.

HIS HONOUR: I understand that. Why not?

MR FRENKEL: Because, your Honour, this is a civil proceeding. There is no quasi criminal element to it in terms of the relief we are seeking.

HIS HONOUR: The burden of the Court’s decision in Witham v Holloway was that:

all proceedings for contempt, whether for civil or criminal contempt, must realistically be seen as criminal in nature, all charges of contempt must be proved beyond reasonable doubt.

I think it is fair to describe the Court’s decision in Witham v Holloway as discountenancing any distinction between civil and criminal contempt and discountenancing any distinction between orders that are remedial on the one hand and orders that are punitive on the other.

MR FRENKEL: Your Honour, the difference is, in my submission, in this case this is not a proceeding for contempt. This is not an application in which my client is seeking that Aussie Vic be found to be in contempt. This is an application for the stay in respect of the Supreme Court winding-up proceeding to be lifted. Certainly it was open to my client to bring the contempt proceeding, but my client has taken the decision to seek a stay – I am sorry, the lifting of the stay that your Honour ordered on 16 July, any issue as to contempt is not a matter for your Honour today, in my submission, certainly in terms of what the respondent seeks. Obviously your Honour may make comments or have views of your own motion but what we simply seek is an order that the stay your Honour granted on 16 July be set aside.

HIS HONOUR: I understand that. Would you be good enough to identify with precision what is the breach or what are the breaches of undertaking upon which you rely? I say “with precision”, Mr Frenkel, lest there be any doubt about this, my intention is that you should state them in the form of propositions to which, absent application for leave to amend, you will be bound. Do you follow me? I want you to articulate precisely what is the breach or what are the breaches upon which you rely.

MR FRENKEL: Yes, your Honour, doing this on my feet, as I am, the first - - -

HIS HONOUR: If you wish time to articulate them carefully – because the importance of this is quite large, Mr Frenkel. Let me quite blunt with you. You assert breach of undertaking. I understand that and that is what I have to decide. A finding of breach of undertaking is a large finding. We need to be precise about it.

MR FRENKEL: I understand that, your Honour. Your Honour, could I have five minutes to articulate - - -

HIS HONOUR: Yes, of course.

MR FRENKEL: I do not think I need any more than that.

HIS HONOUR: Once we have identified precisely the breach or breaches relied on, I will then be wanting you to identify, again with precision, the material in Mr Lipp’s two affidavits which you say establish to the requisite degree of satisfaction the commission of those breaches.

MR FRENKEL: Thank you, your Honour.

HIS HONOUR: It is half past 11, if I come back at quarter to 12?

MR FRENKEL: Yes, your Honour, thank you.

HIS HONOUR: Yes.

AT 11.28 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.45 AM:

HIS HONOUR: Yes, Mr Frenkel.

MR FRENKEL: Thank you for the time, your Honour. Your Honour, the propositions are set out in paragraph 10 of my client’s outline of submissions and I will take your Honour through them with one addition at the end.

HIS HONOUR: Yes, I have read paragraph 10.

MR FRENKEL: Paragraph 10(a) is on 25 July 2007 issuing an application against Westpac in the County Court. Paragraph (b) is engaging solicitors and counsel to appear on its behalf on 26 July and 27 July 2007 at the return of the application. Paragraph (c) is engaging solicitors and counsel to appear on its behalf on 26 and 27 July at the return of Westpac’s application. The new (d), your Honour, is failing to take any step to prevent the incurring of costs orders on (1) 20 July 2007, (2) 27 July 2007 and, (3) 10 August 2007.

So, your Honour, they are in two categories. One category is the defensive category where they have engaged lawyers and acted to defend themselves against existing proceedings brought by Westpac. More importantly and more strongly in terms of the present application, although the first matter is a matter, in my submission, that does amount to a breach of the undertaking, but powerfully, they are actually prosecuting, they have actually instituted an application after they gave the undertakings to this Court and that appeared in two proceedings, your Honour, in which it, Aussie Vic, is the plaintiff. They are not proceedings in which they are defending themselves. They are prosecuting litigation against companies such as Westpac and Allfreight and they are taking positive steps.

The authorities, your Honour, say that positive steps obviously can amount to incurring the debt, but also failing to take a step, omissions, can amount to the incurring of a debt such as when a business incurs taxation liabilities.

HIS HONOUR: What part or parts of the undertaking is breached by each of the four matters that you identify?

MR FRENKEL: It is the part, your Honour, in 2(b) of the undertaking:

that until the hearing and determination of the application for special leave and any consequent appeal or further order, it will not incur any new debt or otherwise trade or carry on any business - - -

HIS HONOUR: My question is, what do you say this is? Is it incurring any new debt, is it otherwise trading or is it carrying on any business or is it all three? What is the breach that is alleged?

MR FRENKEL: All three, your Honour. It is all three, in my submission. It is most powerfully, or most clearly, in my submission, the incurring of a new debt, but the other two also apply, in my submission.

HIS HONOUR: Yes. So let me be quite sure I understand this. You assign four breaches. They are the three subparagraphs of paragraph 10 plus a fourth which I have noted as being “failing to take any step to prevent incurring costs orders on (1) 20 July 2007, (2) 27 July 2007, (3) 10 August 2007”, and do you say of each of those four assignments of breach that each constitutes any or all of incurring a new debt, otherwise trading or carrying on any business?

MR FRENKEL: Yes, your Honour.

HIS HONOUR: Yes.

MR FRENKEL: Your Honour, can I hand up a transcript. I will not read extensively from it, but there is a passage I want to read from, your Honour, which, in my opinion, is very relevant to this application.

HIS HONOUR: Why is it relevant? What matters is what the order is.

MR FRENKEL: It is relevant because Mr Strangio was in Court on the day, my learned friend was in Court, I was in Court, it will not take up much of your Honour’s time and it gives colour to the undertakings, your Honour, in my submission.

HIS HONOUR: Do you say it alters their sense or meaning?

MR FRENKEL: No, your Honour, I withdraw that “it gives colour”. What I mean, your Honour, is that it gives context to the undertaking. There was a contested application which the applicant succeeded on but only subject to specific undertakings which your Honour referred to as the price for obtaining the undertaking and, in my opinion, there is a specific exchange which is very relevant, your Honour, and as I said, I will not take long. If I could take your Honour to it briefly, it is at page 24 of the transcript beginning at line 1010:

MR SELIMI: Yes, well, it is relevant in terms of the undertaking, your Honour.

He is talking about the fact that I had mentioned that there was a proceeding involving Westpac which was pending –

Clearly, the applicant and Mr Strangio – well, the applicant, certainly Aussie Vic Plant Hire, has a proceeding against Westpac Pty Ltd in order to – out of an abundance of caution, your Honour, my respectful submission is this. The undertaking should be modified in order to address what my learned friend has alluded to, by adding the words “save for the prosecution of any proceedings, or defence of any proceedings presently on foot”.

HIS HONOUR: I am not minded to do that, Mr Selimi. I understood the undertaking that was proffered was an undertaking not to trade.

MR SELIMI: Yes.

HIS HONOUR: The further consequence to which I took that was that if the company is insolvent it should not incur further debts.

MR SELIMI: Yes.

HIS HONOUR: If it is not in a position to offer the undertaking, so be it, but that is the price that I propose to exact as the price for a stay. Now, I understand there is a real commercial world out there and there are real commercial questions at stake. Those real commercial questions may mean that the price, which I say I would exact as the price of the stay, cannot be paid. So be it. Do you offer an undertaking in the terms described, or not, or do you wish to have further time?

Then your Honour explains the importance of them and then:

MR SELIMI: Well, my submission, your Honour, is that the undertaking, in its current form, would effectively stultify other litigation if that - - -

HIS HONOUR: The undertaking in its present form will preserve the position in respect of a company which has hitherto had a number of opportunities to disclose its financial position and has not.

Your Honour then asks Mr Selimi whether he offers the undertaking and Mr Selimi says he does and the undertaking that was subject to that exchange was the undertaking in the final form that is recorded in the order. I note in an affidavit of Mr Strangio which was filed yesterday he says that - - -

HIS HONOUR: That has not been read yet, but go on. You are making your case, Mr Frenkel. Make no bones about it, Mr Frenkel, you are making a case in which you allege breach of undertakings. It is for your side to establish that.

MR FRENKEL: I understand that, your Honour.

HIS HONOUR: I have raised with you the question of the degree of satisfaction that must be established. You may wish to return to that, I do not know, but it is for you to make your case. Go on. Do you read the affidavit of Mr Strangio? Do you make that part of your case?

MR FRENKEL: It is not part of my case, your Honour, but it is - - -

HIS HONOUR: Then if you do not make it part of your case, do not refer to it until it is read. Go on.

MR FRENKEL: Your Honour, the way the application is put is that there are three real bases for the application. Firstly, Aussie Vic, the applicant, has taken an action, issued an application after the undertakings were given. They have engaged lawyers to act on their behalf and, of course, from the material filed on behalf of my client actual costs orders have been made, three costs orders have been made since the undertaking was given to your Honour. They could have taken steps to endeavour to prevent those costs orders taking place.

HIS HONOUR: What steps do you say could have been taken?

MR FRENKEL: They could have attempted to settle the disputes, for instance.

HIS HONOUR: Without breach of the undertaking?

MR FRENKEL: That would have been a matter for them, your Honour.

HIS HONOUR: No, Mr Frenkel, it is a matter for you. You seek to put them on the horns of a dilemma. I want to understand what those two horns are. You say they could have taken steps to prevent the making of costs orders. How, consistent with your construction which you are urging of the undertakings?

MR FRENKEL: In my submission, if they had sought to resolve the disputes, that would not amount to incurring of a debt or trading. If Mr Strangio had telephoned the solicitors for the various creditors and sought to resolve those matters, that is a far - - -

HIS HONOUR: Otherwise than by each party walking away bearing its own, which I could understand may or may not, on your construction, constitute incurring debt, how could it seek to resolve them consistent with the construction that you are putting on the undertaking? What could it have done?

MR FRENKEL: To prevent the incurring of the debt? Well, firstly, in respect of the application it could have not issued the application which is what it did a few weeks after it gave undertakings to your Honour not to trade, carry on business or incur any debt.

HIS HONOUR: Does this not identify the difficulty that underpins the construction you are advancing? If Aussie Vic had done nothing and if an opposing party, Westpac or Allfreight, had moved for judgment against it and obtained judgment against it, I would understand on your construction it would have incurred a new debt. Does this not reflect back into the construction which you are urging? Does it not reflect back by identifying what is meant in the context of this undertaking by incurrence of new debts?

There is a further problem that you are going to have to grapple with which is this. You fasten upon, as the argument thus far has developed, issuing an application, engaging lawyers and making costs orders and bare fact of the making of a costs order presents a difficulty about applying the expression “incurring new debts” if it is assumed that the costs order is made, for example, on Westpac’s motion for judgment unopposed by Aussie Vic.

Second, the proposition about “they have engaged lawyers on their behalf” obscures what seems to be a difficulty presented by your paragraph 13 of your outline which is whether Mr Strangio agreed to pay the costs or agreed to indemnify them and it is at that point that the question of burden of proof becomes important. Do you not have to go to the point of showing that Aussie Vic incurred a debt in the sense that it incurred a liability with no countervailing asset in the form of an indemnity apparently worth its full value from Mr Strangio?

MR FRENKEL: Your Honour, given your point your Honour said before, I am not going to refer to Mr Strangio’s affidavit at this point. If I get an opportunity in reply I will if my learned friend reads from it, but the fact is that whatever Mr Strangio has done, whether there is an informal agreement, nothing, a guarantee, an indemnity, an assignment, a novation, whatever there is does not change the fact that in the first instance when a barrister is acting on behalf of Aussie Vic and a solicitor is acting on behalf of Aussie Vic, Aussie Vic is incurring a new debt.

HIS HONOUR: There is an assumption in there which is the assumption I am inviting your attention to.

MR FRENKEL: Your Honour, more than that, when Aussie Vic takes a step in litigation such as issuing the application and then a costs order is made against us, an order of the County Court is made against Aussie Vic in favour of Westpac and other parties, that must be the incurring of a new debt. Again, it is entirely based upon the actions of Aussie Vic. Aussie Vic had a choice, would it issue the application or not? It chose to issue it. It chose to engage lawyers to act on its behalf on 26 and 27 July and it has incurred new debts to those lawyers and it has incurred new debts to the other litigants, Westpac and Allfreight, and the other parties that costs orders were made in favour of.

Now, your Honour, the vast bulk of authorities suggest that the terms that have been employed in the undertaking in this proceeding are wide terms. Your Honour, could I take you in the book of authorities - - -

HIS HONOUR: I have in mind particularly Chief Justice Gleeson’s statement in Hawkins and Others v Bank of China (1992) 26 NSWLR 562 at 572 where, in the context of a debate about 556 and the then applicable Companies (New South Wales) Code, his Honour said:

The words “incurs” and “debt” are not words of precise and inflexible denotation. Where they appear in s 556 they are to be applied in a practical and commonsense fashion, consistent with the context and with the statutory purposes.

Again, there is great risk in taking words like that out of the context in which they are uttered and simply applying them willy-nilly to the current context, but is it not the case that “incurs” and “debt” are not words of precise denotation?

MR FRENKEL: Yes, your Honour, I accept that. They are words that courts have on many occasions expanded upon and explained what they mean and some of those are referred to in my client’s outline of submissions. The situation, your Honour, as a basic commercial proposition or as a legal proposition, it must be the case that if an entity engages someone to do work for them that they are incurring a debt. If that is wrong - - -

HIS HONOUR: That is the proposition that has to be tested, Mr Frenkel. Has the entity engaged the parties to act for it or has the circumstance arisen of the kind contemplated in Knight v FP Special Assets where litigation is conducted in the name of the company but by another.

MR FRENKEL: And an order can be made against that party, against the individual and break through the corporate value, your Honour, that is right. Your Honour, certainly that is an argument and I presume it is my learned friend’s argument. The point is, if that is right, they will need to satisfy the Court - - -

HIS HONOUR: No, you assert breach of undertaking. You assert a matter which, at least on one view of Witham v Holloway, is properly to be treated as assertion of, in effect, criminal conduct or at least what is to be equated to criminal conduct as the headnote said:

all proceedings for contempt, whether for civil or criminal contempt, must realistically be seen as criminal in nature –

That is why I began with Witham v Holloway. That is why I want to understand the ground rules that are to be engaged in this debate. Unless and until we get those grounds rules right, we are at risk of the debate going awry.

MR FRENKEL: Your Honour, all I can say in response to that is this is not a proceeding in which we are seeking to prosecute a contempt. This is a proceeding in which my client is seeking to have the stay order by your Honour lifted. Clearly there are similar issues at stake and clearly the basis for a contempt can be a breach of an undertaking and clearly the basis for this application is a breach of the undertaking. What my client is seeking is not criminal or quasi criminal and it does not, in my submission, require that we establish our case beyond reasonable doubt. It is a civil application in which we are seeking that an order be set aside and the normal test applies which is the balance of convenience, in my submission.

If this was a proceeding for contempt, then the case that your Honour refers to would apply and the standard would be as high as that, in my submission. I should say, your Honour, in that context that there is a reference to a contempt case in my client’s outline of submissions at paragraph 16 but that was put by analogy. As I said at the outset, it was open for my client to pursue a contempt proceeding and it has chosen not to do so. The summons speaks for itself, your Honour. What my client is seeking is the lifting of the stay.

Your Honour, I also do press the fourth breach of undertaking that I raised with your Honour a little while ago, the failing to take steps to prevent the incurring of costs orders. If I could take you to tab 2 in the book of authorities which is a case called Powell. In that case the Full Court of South Australia makes extensive reference to Hawkins v Bank of China which your Honour referred to before. At page 598 of the decision in Powell, paragraph [64], the court says:

In speaking of the concept of incurring a debt, in the setting under consideration in Hawkins, Gleeson CJ made the point that the words “incur” and “debt” are not words of precise and inflexible denotation . . . they are to be applied in a practical and commonsense fashion, consistent with the context and with the statutory purposes. That dictum is no less apposite to the construction of s 588G –

of the Corporations Act.

[65] In Commissioner of State Taxation (WA) v Pollock . . . Ipp J, as a member of the Full Court, took, as his commencement point, that the normal meaning of the word “incur” is “to become liable to, or subject to, through one’s own action. He stressed that this did not exclude rendering oneself liable through acts of omission. Wallwork J agreed.

[66] So it was that the Full Court held that it was fairly arguable that a liability to pay tax was a “debt” and that a company could, in various circumstances, “incur” such a debt. Thus, for example, the engaging of a person at a time when there were reasonable grounds to expect that the company would be unable to pay its debts, or in circumstances in which the company knew that it could not pay future wages or pay-roll tax, was “incurring a debt” in the relevant sense . . . He there concurred in the view that a tax liability constituted a “debt” in the relevant statutory sense and, by inference, that it could be incurred.)

His Honour then goes on to mention some contrary authority, but from paragraph [68] where his Honour cites from Justice Hodgson in Standard Chartered Bank that:

a company incurs a debt when, by its choice, it does or omits something which, as a matter of substance and commercial reality, renders it liable to a debt for which it otherwise would not have been liable. He considered that such a formulation potentially threw up three factors for consideration, namely:-

. whether the company has a choice whether to do (or omit) the act or not;

. whether it is the act or omission, or something else, which renders the company liable for the debt; and

. whether the company would otherwise (in any event) have been liable for the debt.

Then towards the bottom of the page at paragraph [72] his Honour Justice Olsson says:

In my opinion, not only is it well established that a statutory impost is capable of constituting a debt, but it is also the situation that, if, by reason of the normal, ongoing operations of a company (including the mere passive retention of existing staff or premises) it is rendered liable to pay a statutory impost, then it may properly be said that such impost has been “incurred”, as a debt, by the entity in question . . .

[73] Moreover, as Gleeson CJ pointed out in Hawkins, a debt is taken to have been incurred when, by its conduct or operations, a company has necessarily subjected itself to a conditional, but unavoidable, obligation to pay a sum of money at a future time. So it is that, in FIA Traders Insurance Co Limited v Ferrara (1996) 41 NSWLR 91 the Court of Appeal had little difficulty in concluding that ongoing, accruing worker’ compensation premiums payable after the occurrence of insolvency were debts which had been incurred within the meaning of s 556 of the former Code.

So, your Honour, it is clear, in my submission, that taking no steps such as permitting statutory liabilities to accrue, such as workers compensation or taxation liabilities, can amount to the incurring of a debt. Certainly the first three of the four specific matters relied upon are clearer, in my submission, because they actually involve Aussie Vic taking positive actions but the fourth matter, particularly, your Honour, the costs order which was incurred to other entities, Westpac and Allfreight, that costs order was made because after your Honour accepted the undertakings from the applicant the applicant issued, filed and served an application in the County Court and that is the only reason why Aussie Vic now owes Westpac and Allfreight $35,000-odd which is deposed to in Mr Lipp’s affidavit.

The position is that in a number of ways, in my submission, Aussie Vic is in breach of its undertaking, both by taking positive steps and by failing to take steps. Your Honour, notwithstanding what your Honour said earlier, in my submission, I appreciate that my client has the burden of proof of the application but, in my submission, in circumstances where it is in evidence and not disputed that Aussie Vic has engaged lawyers on a number of occasions to appear in court for it since the undertakings were given and in circumstances where costs orders have been made, on three occasions, against Aussie Vic since the undertakings were given, in my submission, it is incumbent upon the applicant to satisfy the Court that there are arrangements in place which could not involve the incurring of a debt by Aussie Vic.

In my submission, firstly, there would be no way in which they could prevent the legal effect that if they engage other parties to carry out work for them that they are liable to pay for that, but in any event they would need to satisfy the Court, in my submission, of what those arrangements are. For instance, I mean, in my submission, it is clear, your Honour, that a guarantee – if a party engages someone to do work and a third party gives that party a guarantee, then obviously, in my submission, the first party is liable for the work but the guarantor of course is also liable, but it is a secondary liability.

HIS HONOUR: What is the best evidence from Mr Lipp’s affidavits which you say demonstrates Aussie Vic’s retaining of lawyers?

MR FRENKEL: The best evidence is first in paragraph 5 in which Mr Lipp - - -

HIS HONOUR: Of which affidavit?

MR FRENKEL: Of the first affidavit, 3 August 2007:

On 26 July 2007 I attended the hearing before His Honour Judge Anderson in the County Court of Victoria of applications in the following proceedings:

(a) Aussie Vic Plant Hire Pty Ltd v Westpac Banking Corporation & Ors . . .

(b) Aussie Vic Plant Hire Pty Ltd v Westpac Banking Corporation –

both proceedings in which Aussie Vic is the plaintiff.

The two proceedings were heard together.

In paragraph 9:

On 26 and 27 July 2007 before Judge Anderson Aussie Vic prosecuted its application in proceeding no. CI-06-00335 and defended Allfreight and Westpac’s applications in proceeding no. CI-07-02529.

10. In both proceedings, Mr Alan Sandbach of counsel appeared for Aussie Vic, on instructions from Starnet Legal, solicitors for Aussie Vic.

Then, all the way through to paragraph 15 where Mr Lipp says, in effect, what happened.

HIS HONOUR: Is it any more than an inference which you invite me to draw from the fact that Aussie Vic is the party and that counsel appeared on instructions of solicitors that the retainer was issued by Aussie Vic as distinct from a retainer by Mr Strangio?

MR FRENKEL: That is the inference that we are seeking that your Honour draw.

HIS HONOUR: Why should I draw that inference when it is to infer, so you would say, breach of undertaking?

MR FRENKEL: Your Honour, the inference is irresistible, in my submission. There is no other person, including Mr Strangio, that has any direct interest in Aussie Vic’s litigation. Obviously Mr Strangio being a director has potential exposure if Aussie Vic is wound up but the entity for whom the lawyers were appearing was Aussie Vic. It is, in my submission, an irresistible inference and, really, there is no other inference available.

Your Honour, in the cases in which the courts have been prepared to order that sole directors of companies pay the costs of that litigation, third party costs orders, those are cases in which the company itself is liable for the costs. It is an additional matter. If a party applies for a Knight v FP Special Assets type order, that is an order that is made, in my submission, in addition to the orders made against the company because the company, of course, is the entity, it is the party and it is the entity that ordinarily would be paying the costs in unsuccessful litigation.

Now, equally, if Mr Strangio has an arrangement with the lawyers and if he has an arrangement with Aussie Vic, in my submission, it is not to the point, your Honour. What is to the point is, most powerfully, a few weeks after the undertaking was given Aussie Vic issued an application and prosecuted the application in the County Court and then was the subject of a costs order against Aussie Vic. Judge Anderson did not order costs relevantly against Mr Strangio. Aussie Vic has incurred a new debt by reason of its conduct.

If Mr Sandbach had convinced his Honour Judge Anderson not to order costs against Aussie Vic but to order them against Mr Strangio, then
my learned friend might have an argument to say, well, Aussie Vic has not incurred any debt by reason of its conduct in issuing the application and appearing and losing, but his Honour Judge Anderson ordered that Aussie Vic pay those costs. Various courts have ordered two other sets of costs since the undertaking as well but Aussie Vic has both taken action and, in my submission, failed to take action to prevent further debts being incurred.

In my submission, your Honour, those actions also amount to trading and also amount to carrying on business. I accept what I am sure my learned friend will say which is it is not part of our case that Aussie Vic is hiring out its trucks which would be another way in which it could be trading or carrying on business, but engaging lawyers in litigation is one aspect of trading and carrying on business and it certainly, in my submission, involves the incurring of a debt. Your Honour, unless there is - - -

HIS HONOUR: Thank you, Mr Frenkel. Yes, Mr Selimi. What course does the defendant take as adding evidence?

MR SELIMI: Yes, may it please the Court, I refer to the affidavit of Mr Bruno Strangio sworn 21 August 2007 and filed and I rely upon that affidavit, your Honour.

HIS HONOUR: Yes. Is there any objection to its reception, Mr Frenkel?

MR FRENKEL: No, your Honour.

HIS HONOUR: Yes.

MR SELIMI: Your Honour, with great respect to my learned friend, your Honour’s observation during the course of argument that the applicant, Aussie, perhaps it could be said was in the horns of a dilemma aptly, in my submission, describes the correct position. If in fact the respondent’s construction of the legal and practical effect of the undertakings is correct, then the applicant would be in an invidious position. It would be damned if it took any positive step and it would be damned if it did not take any positive step with respect to litigation. Indeed, the curious addition of paragraph 10(d) of my learned friend’s outline of argument simply makes the point, that is, the suggestion that failing to take any step to prevent the incurring of costs orders clearly begs the question, what step could it have taken?

Indeed, the natural answer to that is, obviously a step that the applicant could and did take in relation to the application by Westpac for a permanent stay of a proceeding was, indeed, to retain lawyers with a view to avoid any adverse order that could be made against it. Yet, on the construction contended for by the respondent the very act of retaining lawyers to avoid or to hope or to seek to avoid the costs orders would, by their own definition, constitute a breach of the undertaking given to this Court. In my submission, one need only state that proposition to illustrate the absurdity of the application that is presently before this Court.

May I first, however, your Honour, refer to your Honour’s question of my learned friend as to the application of the relevant standard. In my respectful submission, it clearly is axiomatic that this application by its very nature relying upon an alleged breach of undertaking, of course, by implication suggests that the applicant is guilty of a contempt of court. It is a grave and serious allegation to make and, in my submission, the decision of the High Court in Witham v Holloway applies in relation to this particular application given the serious consequences that may ensue if this application is upheld.

In my submission, the respondent/applicant ought, indeed, discharge its burden of proof on the applicable criminal standard of beyond reasonable doubt and, secondly, it quite clearly and unequivocally bears the burden of proof. Curious, at one point my learned friend submitted it is incumbent upon the applicant to prove that there are arrangements in place which might indicate that perhaps the applicant in fact is innocent. That is a complete reversal of the burden of proof. The burden of proof remains with the respondent throughout - - -

HIS HONOUR: What do you say is revealed by the affidavit of Mr Strangio about the relationship between counsel, solicitors and Aussie Vic and/or Mr Strangio?

MR SELIMI: Yes, thank you, your Honour, for that question. I was about to deal with that alternative scenario. Even if, for the sake of hypothesis, one were to accept the submission of my learned friend that we have some onus, in my submission, it is quite clearly discharged. In paragraph 8 of Mr Strangio’s affidavit he deposes that Aussie has not incurred any debts in favour of any lawyers in relation to such litigation:

I have instructed lawyers to defend the rights of Aussie in such litigation –

and, of course, we are talking about the Westpac litigation –

on the basis that I am personally and solely liable for all legal costs and disbursements incurred.

HIS HONOUR: That may or may not go to the question of Aussie’s relationship with its own advisers or advisers appearing in the name of or for Aussie. Costs orders are made against Aussie. Why is that not the incurring of a new debt?

MR SELIMI: In my submission, the answer to that requires some very careful analysis of what does the phrase “incurring of a debt” mean in the context of the undertakings that were proffered to the Court. Your Honour referred my learned friend to the decision of Hawkins v Bank of China and your Honour referred in part to the decision of Chief Justice Gleeson in that case. In relation to this particular argument in respect of costs orders, I would refer to and rely upon the decision of President Kirby in the same case where his Honour said in part:

The expression “incurs a debt” in s 556(1) is, in isolation, entirely apt to describe an act on the part of a corporation whereby it renders itself liable to pay a sum of money in the future as a debt. The act of “incurring” happens when the corporation so acts as to expose itself contractually to an obligation to make a future payment of a sum of money as a debt.

So, in my submission, the mere fact that costs orders might be made by a judge exercising his discretion to order costs in curial litigation does not constitute the incurring of a debt within the proper meaning of the undertakings adjudged in the context of this particular case because there is no contractual nexus in that respect as required by the understanding - - -

HIS HONOUR: I would have thought reference to contract was inapposite. What has contract got to do with it? The orders of the court are enforced or made in exercise of judicial power. They are not an exercise in consensual agreement. It seems to me that you either have to stake your all on the proposition that there is no incurring the new debt in respect of any costs order made in respect of litigation pending at the date of the undertaking or, I do not know where you stake your ground out.

MR SELIMI: The ground, your Honour, in my submission, is that the orders in particular, insofar as my learned friend relies on 10(d), that is the incurring of costs orders - - -

HIS HONOUR: I understand the difficulty you seek to identify by reference to 10(d). Leave aside whether there is any disconformity between 10(d) and other provisions, that is a separate set of arguments, what is it, in your submission, that takes the making of an order today outside the concept of incurring new debt. It happens today, it does not happen yesterday, it may not have happened at all. What takes it outside that expression?

MR SELIMI: Your Honour, what takes it is the context. The undertakings that were given not to incur new debts were in the context of the undertaking not to engage in trade or business. The concept of trade or business, or commerce rather, the concept or expression “trade or commerce” has a well-defined meaning as referring only to conduct with the character of an aspect or element of trading or commercial activities or transactions. So, in my respectful submission, the answer to your Honour’s proposition is that a curial costs order of the kind relied upon by my learned friend in the context of this case does not constitute the incurring of a debt because the incurring of a debt that was envisaged was the incurring of a debt in the course of trade or business and the conduct of litigation by a company whose sole business is to move earth and to hire earthmoving equipment does not constitute engaging in trade or business.

HIS HONOUR: I understand that proposition. It seems to me to be a proposition that might encounter a little difficulty in its application to the case if Aussie Vic had by deed poll agreed to settle $100,000 on the Red Cross or on some other charity standing apart from trade or commerce. So I am not sure that the trade or commerce point necessarily meets the incur new debt. That is why, as it seems to me, you either can stake out ground on the proposition that there is no incurring of a new debt in prosecuting and defending existing litigation or you cannot. If you do not stake out that ground, I do not at the moment see what ground you have.

MR SELIMI: Yes, well, that is the sole ground upon which I rely, your Honour. There is no other ground.

HIS HONOUR: Well, judicial gifts are not always unalloyed donations to counsel, are they? What is it then that takes pre-existing litigation outside the concept?

MR SELIMI: In my submission, looking at the Westpac claim, what takes it out of the context is this. The Westpac claim relates to an alleged pre-existing debt and the continuing defence of litigation in regards to or in response to that alleged pre-existing debt could not on a proper construction constitute the incurring of a new debt. It relates to the defence of rights in respect of pre-existing alleged debts and not new debts, is my answer.

HIS HONOUR: I understand the force of that proposition. How then does that play out with respect to the prosecution whether by action or counter-claim in which Aussie Vic is the plaintiff?

MR SELIMI: That requires regard to be had to the history of the litigation. The application referred to in 10(a), that is, the issue of an application against Westpac in the County Court of Victoria seeking an order setting aside the dismissal of its counter-claim, that related to
pre-existing litigation, your Honour, and all the applicant wished to do was to set aside a self-executing order in respect of that pre-existing litigation which was - - -

HIS HONOUR: I assume the argument has to run, be it right or wrong, along the lines that pursuit of a counter-claim or pursuit of a separate claim
is not incurring a new debt. It is in furtherance of what are said to be existing legal rights.

MR SELIMI: That is correct, your Honour, in my submission.

HIS HONOUR: It seems to me that that argument is either right or wrong, but is there any other fallback position or alternative position?

MR SELIMI: No.

HIS HONOUR: No. I understand the argument.

MR SELIMI: If the Court please.

HIS HONOUR: What do you say, Mr Frenkel? I think we have reduced the area for debate and you now see the way in which the point is put against you in relation to the incurrence of costs issue; that it is said that pursuit of existing litigation, whether by defence or prosecution of litigation, is not the incurring of a new debt and what is the answer to that?

MR FRENKEL: The existing litigation relates to a pre-existing debt but every time you engage lawyers you are incurring a new debt and every time a costs order is made against Aussie Vic in favour of Westpac or Allfreight you are incurring another new debt. It is almost unarguable, in my submission, to say that they are all wrapped up in the pre-existing debts. Those debts I have just referred to, your Honour, are debts to different parties aside from anything else. The fact that counsel has been engaged, the fact that solicitors have been engaged, they do not relate to the pre-existing debt that is alleged to have been owed between Westpac and Allfreight and Aussie Vic.

Aside from anything else, your Honour, let us say the Westpac litigation is over $200,000, given that Judge Anderson ordered that Aussie Vic pay Westpac an additional $35,000 a few weeks after the undertaking was given, that is a new debt. That could not be said to have arisen out of the same subject matter as the original debt. The original debt relates to transactions entered into years earlier. One could serve a statutory demand in respect of the original $200,000 and one could serve a separate one in respect of the $35,000 ordered years after the original transaction was entered into.

So, in my submission, it could not be the case that the fact that the new acts of Aussie Vic since 16 July, it could not be put that because there was a pre-existing alleged debt, the subject of the litigation, that they do not amount to the incurring of new debts. As I said, your Honour, the fact that there are separate parties involved, the fact that there are lawyers involved to whom new debts are owed puts that point beyond argument, in my submission.

Your Honour, while I am on my feet and given that my learned friend has referred to Mr Strangio’s affidavit, can I just make a number of short points about it?

HIS HONOUR: Yes.

MR FRENKEL: Firstly, Mr Strangio’s affidavit makes – it is obviously a very pejorative affidavit. It makes a number of allegations that my instructing solicitors are acting in a misleading fashion and that the various creditors have colluded and, in fact, Mr Strangio goes so far as to say that the respondent’s lawyers have acted in a manner repulsive to Mr Strangio’s sense of justice. I would just like it on the record that all of those allegations are quite wrong and rejected, your Honour.

The other matter is that Mr Strangio’s affidavit which continually says that he has been treated in a very unfair fashion does not seem to accept or appreciate the fact that there are – in fact, Mr Strangio refers to Westpac, he refers to Mini Tankers, he refers to CBFC, he refers to Esanda. There are nine creditors on the court record pursuing Aussie Vic and the proposition that would be manifestly unfair if this application was successful is wrong, in my submission, and the contrary is the case.

Mr Strangio also continually says he is just trying to defend Aussie Vic. He is doing much more than that. He is prosecuting actions. Two of the proceedings referred to in Mr Lipp’s affidavits are proceedings in which Aussie Vic is the plaintiff. Your Honour, just finally, can I draw your Honour’s attention to the fact that, notwithstanding the exchange that both my learned friend and I have had with your Honour in respect of the burden of proof, of course I accept my client has the burden in respect of this application but, your Honour, notwithstanding that, Mr Strangio does not exhibit one document to demonstrate any formal arrangement that he has with his barristers or his solicitors, with Mr Sandbach or Mr Selimi or with Starnet Legal.

There is not one document exhibited, no formal agreement, no guarantee, no indemnity, no novation, no assignment. All there is is the assertion that my learned friend read that he has agreed or undertook to pay
the costs himself. That is not enough, in my submission, to satisfy the Court that Aussie Vic is not liable for those – he swears he is personally and solely liable. There is no documentation provided whatsoever, not one document tendered to establish what the arrangements are. It appears to be an informal arrangement and, in my submission, the clear inference is that
Aussie Vic is in the first instance liable for those debts. Unless I can assist your Honour.

HIS HONOUR: On 3 July 2007 Aussie Vic Plant Hire Pty Limited (Aussie Vic) made application for special leave to appeal against the orders of the Court of Appeal of Victoria made on 14 June 2007 dismissing an appeal by Aussie Vic to that court. The appeal to the Court of Appeal concerned Aussie Vic’s application to set aside a statutory demand made of it by the respondent in this Court, Esanda Finance Corporation Limited (Esanda).

On 16 July 2007, I ordered that, subject to an exception, the detail of which I need not notice, until the hearing and determination of the application for special leave and any consequent appeal or further order all further proceedings in an identified matter pending in the Supreme Court of Victoria in which Esanda is applicant and Aussie Vic is respondent are stayed. That stay was granted upon certain undertakings by Aussie Vic and by Mr Bruno Strangio, the sole director of Aussie Vic and, so far as the evidence reveals, the sole or at least effective controller of Aussie Vic.

Esanda now applies for an order which in effect would dissolve the stay. It alleges that Aussie Vic has breached the undertakings given to the Court on 16 July. Esanda’s summons did not state the respect or respects in which it was alleged that Aussie Vic had breached its undertakings. Esanda’s written outline of submissions in support of its application identified three matters said to constitute breaches of the undertaking and in the course of oral submissions counsel for Esanda added a fourth assignment of breach. The breaches alleged were described as being:

(a) On 25 July 2007 Aussie Vic issued an application against Westpac in a proceeding then pending in the County Court of Victoria seeking an order setting aside the dismissal of Aussie Vic’s counter-claim in that proceeding;

(b) Aussie Vic engaged solicitors and counsel to appear on its behalf on 26 July 2007 and 27 July 2007 on the return of the application referred to in paragraph (a);

(c) Aussie Vic engaged solicitors and counsel to appear on its behalf on 26 July 2007 and 27 July 2007 on the return of Westpac’s application for an order that Aussie Vic’s claim in another proceeding then pending in the County Court of Victoria be permanently stayed as an abuse of process; and

(d) Aussie Vic failed to take any step to prevent incurring costs orders made against it on:

(1) 20 July 2007;

(2) 27 July 2007;

(3) 10 August 2007.

Esanda submitted that each of those events constituted a breach of all three limbs of the undertaking proffered and received on 16 July 2007. That is, Esanda alleged that each of the acts described constituted incurring a new debt, trading or carrying on a business.

Esanda submitted that I should infer that Aussie Vic had retained solicitors and counsel to appear in its name and on its behalf on 26 and 27 July 2007 in connection with the applications that were then made. The material which Esanda contended grounded such an inference was essentially the fact of appearance by counsel on the instructions of solicitors in the name of Aussie Vic on the days identified in connection with the applications that have been mentioned.

In answer to the application for dissolution of the stay, Aussie Vic relies upon the affidavit of Bruno Strangio sworn 21 August 2007 in which Mr Strangio swears:

Based upon legal advice I believe that Aussie has not, within the proper meaning of the undertakings, incurred any new debts on behalf of Aussie since the undertakings were proffered to this honourable Court. I have, however, personally funded other legal proceedings involving Aussie in order to protect Aussie’s position from unmeritorious claims and demands. In particular, I refer to the Westpac legal proceedings referred to in the first Lipp affidavit –

I interpolate the first affidavit relied upon by Esanda –

Aussie has not incurred any debts in favour of any lawyers in relation to any such litigation. I have instructed lawyers to defend the rights of Aussie in such litigation on the basis that I am personally and solely liable for all legal costs and disbursements incurred.

Mr Strangio’s evidence in this respect or any other respect was not cross-examined. There may perhaps be some uncertainty about what Mr Strangio means when he says that he has instructed lawyers to defend the rights of Aussie in such litigation “on the basis that I am personally and solely liable for all legal costs and disbursements incurred” in the sense that there may be doubt about whether the liability of which he speaks extends to liability incurred to opposite parties in the litigation or is confined only to the costs incurred by the Aussie Vic side of the litigation. For present purposes, however, nothing turns on any uncertainty of that kind. What is important is that Mr Strangio swears, and it is not challenged, that Aussie Vic has not incurred any debts in favour of any lawyers in relation to the litigation which is referred to by Esanda in connection with its allegations of breach of undertaking.

Even without regard to questions of burden or onus of proof, it is not possible to conclude otherwise on the evidentiary basis thus established than that counsel and solicitors who appeared in the name of Aussie Vic at the applications referred to by Esanda in connection with its allegation of breach of undertakings were retained by Mr Strangio personally to act on behalf of Aussie Vic.

It is not unimportant to recognise that the grounds assigned for dissolution of the stay are only allegations of breach of undertaking. In Witham v Holloway (1995) 183 CLR 525 the Court held that because “all proceedings for contempt, whether for” what until then had been classified as “civil or criminal contempt, must realistically be seen as criminal in nature, all charges of contempt must be proved beyond reasonable doubt”. The Court expressly discountenanced the maintenance of a dichotomy between civil and criminal content and further discountenanced the notion of classifying proceedings according to whether the purpose or object of the proceedings should be described as punitive on the one hand or as remedial on the other. See in particular 183 CLR 525 at 533 per Justices Brennan, Deane, Toohey and Gaudron.

The finding which Esanda would have me make is a finding of breach of undertaking. At the very least such a finding should not be made without clear and cogent proof of breach. In the particular circumstances of this case it is not necessary to decide whether proof beyond reasonable doubt is required or some lesser standard of proof would suffice. It is important, however, to recognise that a finding of breach of undertaking should not be made unless the breach is plainly established by the evidence.

Central to Esanda’s contentions was the proposition that the further prosecution of or defence of legal proceedings by or against Aussie Vic would constitute breach by Aussie Vic of its undertakings even if the proceedings in question were pending at the date that the undertakings were given to the Court. Esanda’s essential submission was that prosecution of or defence of such proceedings would inevitably lead to the incurring of new debts, as it had in the present case, so the argument proceeded, when costs orders were made after the undertakings were given, and further that the prosecution or defence of such proceedings would amount to Aussie Vic “otherwise trading or carrying on any business”.

Reference was made to a number of decided cases said to elucidate what is meant by “incurring a debt” or “incurring a new debt” or “otherwise trading or carrying on any business”. In this regard reference was made to Australian Securities Investments Commission v Edwards [2005] NSWSC 831; (2005) 54 ACSR 583, Powell as Liquidator of Nolex Yachts Australia Pty Limited v Fryer [2001] SASC 59; (2001) 37 ACSR 589, Ku-ring-gai Co-operative Building Society (No 12) Ltd [1978] FCA 50; (1978) 36 FLR 134, Lukins v Highway Motel (Carnarvon) Pty Ltd [1975] HCA 50; (1975) 133 CLR 164 and Hawkins v Bank of China (1992) 26 NSWLR 562.

Reference to these cases is not unhelpful, but the utility of what is said there must be assessed having regard to the context in which consideration was given in those cases to the particular statutory expressions there in question. As Chief Justice Gleeson said in Hawkins v Bank of China (1992) 26 NSWLR 562 at 572:

The words “incurs” and “debt” are not words of precise and inflexible denotation.

In the particular context then under consideration Chief Justice Gleeson said that they were words:

to be applied in a practical and commonsense fashion, consistent with the context and with the statutory purposes.

So, too, in the present matter the words of the undertaking must be construed having regard to the context in which the undertaking was given.

Standing alone, the fact that an order for costs is made against Aussie Vic after it gave its undertaking to the Court cannot without more demonstrate breach of undertaking by Aussie Vic. There is an irreducible tension between the fourth assignment of breach made by Esanda, namely, failing to take any step to prevent incurring costs orders on specified dates and the three other assignments of breach in which steps in the litigation are condemned as being in breach of the undertaking.

The presence of the tension is not to be resolved as Esanda’s argument might contemplate by reading the undertaking as precluding Aussie Vic from taking any step in defence of or prosecution of an action pending at the time Aussie Vic gave its undertaking. Rather, the tension which I have identified is to be resolved by recognising that where, as here, actions to which Aussie Vic was a party were pending in the courts before Aussie Vic gave its undertaking, the further prosecution or defence of those actions does not without more constitute the incurrence by Aussie Vic of any new debt nor does it constitute Aussie Vic carrying on business or otherwise trading. The prosecution or defence of rights which Aussie Vic put in issue before the giving of the undertakings is not to incur a new debt.

Once that is identified, it is then apparent that none of the assigned breaches is established. First, the retainer of solicitors and counsel is, so far as the evidence reveals, a retainer of solicitors and counsel by Mr Strangio to act in the name of Aussie Vic. On that factual understanding there is no conduct of Aussie Vic which constitutes any breach of undertaking by it. The other two forms of breach alleged by Esanda, namely, the issuing of an application seeking an order setting aside dismissal of a counter-claim and failing to take steps to prevent incurring of costs orders, are not to be identified as breaches of the undertaking because those steps were taken in prosecution of litigation pending at the date of the giving of the undertaking.

For these reasons, it follows that none of the breaches identified by Esanda of undertakings given by Aussie Vic is made out. The application for dissolution of the stay must therefore be dismissed.

MR SELIMI: I seek costs, your Honour.

HIS HONOUR: Do you resist that, Mr Frenkel?

MR FRENKEL: If the Court pleases, your Honour, only to the extent that on 16 July your Honour ordered that costs be costs in the event. So, in my submission, that is again an appropriate order.

HIS HONOUR: Yes. In my opinion, costs must follow the event. The application will be dismissed with costs. Adjourn the Court.

AT 1.07 PM THE MATTER WAS CONCLUDED