|
|
Home
| Databases
| WorldLII
| Search
| Feedback
Supreme Court of Victoria |
Last Updated: 25 May 2022
AT MELBOURNE
IN THE MATTER of BUNDOORA PARK ESTATE HOLDING PTY LTD (ACN 630 535 385)
BETWEEN:
|
|
|
|
|
|
|
|
|
---
|
JUDGE:
|
|
|
WHERE HELD:
|
|
|
DATE OF HEARING:
|
|
|
CASE MAY BE CITED AS:
|
Re Bundoora Park Estate Holding Pty Ltd
|
|
MEDIUM NEUTRAL CITATION:
|
---
CORPORATIONS – Application to set aside a statutory demand pursuant
to s 459G of the Corporations Act 2001 (Cth) – Abuse of process
– Section 459J of the Corporations Act 2001 (Cth) – Whether
an abuse of process to issue demand in order to obtain advantage in collateral
proceedings – Undisputed
debt.
---
|
APPEARANCES:
|
Counsel
|
Solicitors
|
|
For the Plaintiff
|
Jem Lawyers
|
|
|
|
|
|
|
For the Defendant
|
Tisher Liner FC Law
|
1 The plaintiff, Bundoora Park Estate
Holding Pty Ltd, applies pursuant to s 459G of the Corporations Act
2001 (Cth) (‘the Act’) to set aside a statutory demand dated
2 December 2021, which was served on it by the defendant’s
solicitor, Tisher Liner FC Law. It claims that the statutory demand should be
set aside pursuant to s 459J(1)(b) as an abuse of
process.
2 The demand claims that the plaintiff is
indebted to the defendant, 328-338 McKimmies Road Pty Ltd, in the sum of
$1,808,145.40.
The debt is described in the schedule of the demand as:
Judgment debt due and owing pursuant to a judgment made against the Company in the County Court of Victoria at Melbourne on 1 December 2021 in County Court of Victoria Proceeding No. CI-21-04762 between 328-338 McKimmies Road Pty Ltd (ACN 614 249 080) (as Plaintiff) Bundoora Park Estate Holding Pty Ltd (ACN 630 535 385) (as First Defendant) And Nhut Quang Dai Huynh (as second defendant).
Affidavits
3 The plaintiff relies on the affidavit of its director, Nhut Quang Dai Huynh, affirmed on 21 December 2021. The defendant relies on the affidavits of its director, Ben Atanasovski, and its solicitor in this matter, Robert Daniel Oxley, affirmed on 25 and 27 January 2022, respectively.
Background
4 The plaintiff and Mr Atanasovski are
engaged in litigation before this Court (‘the Consolidated
Proceedings’) concerning
land at 328-338 McKimmies Road, Mill Park
(‘the Land’). The plaintiff owns the Land and seeks orders that
would allow
it to refinance its mortgage debts, including the debt owed to the
defendant the subject of this proceeding.
5 On 8
October 2016 Mr Huynh purchased the Land from the defendant for $16.8m and
nominated the plaintiff as purchaser. The purchase
was financed by three
mortgages:
6 In order to arrange the first two
mortgages with Qi Yong 7 and Qi Yong 8 (together, ‘the Qi Yong
Parties’) Mr Huynh
had dealings with Elissa Dai, a mortgage broker.
Ms Dai was a representative of the Qi Yong Parties and their director, Qi
Tan. In
obtaining this finance, amendments were made to the agreement whereby
the lender was to pay a due diligence fee. The agreement as
to this fee was not
later adhered to by mistake of the Qi Yong Parties. When the loan was drawn down
for the completion of the purchase
of the Land on 18 July 2019, the fee was
deducted but not credited to the Qi Yong 7
mortgage.
7 Another mistake occurred when Mr
Huynh’s bookkeeper failed to pay two payments from the ATO into Qi Yong
7’s lawyer’s’
trust account, as directed by Mr Huynh. Instead
these sums were paid to a trust ledger in Mr Huynh’s personal name rather
than
credited to the mortgage.
8 Following these
errors, Qi Yong 7’s solicitors alleged that the plaintiff had fallen into
arrears and served a default notice
on the plaintiff on 2 March 2020. Mr Tan
deposes on affidavit in the Consolidated Proceedings that the default notice was
issued
in error and invalid. Shortly prior to this, on 19 February 2020 the
defendant’s solicitor wrote to the plaintiff to inform
it that it was in
default and demanded payment.
9 Prior to the
admission of the error from Mr Tan, on 23 June 2020 Qi Yong 7 purported to enter
a contract to sell the land to Mr
Atanasovski in his capacity as mortgagee.
The plaintiff did not partake in the expression of interest process as it
had entered into
a development contract with another company under Mr
Huynh’s control, which granted the latter company an option to purchase
the Land for $14.7m. A $500,000 deposit had been paid following the exercise of
the option. Mr Atanasovski purported to purchase
the land on 23 June 2020 for
$12.5m.
10 On 17 August 2021 the defendant’s
solicitor sent a letter to the plaintiff’s solicitor regarding a debt in
excess of
$1.4m, asking whether the latter had instructions to accept service of
legal proceedings in respect of the debt.
11 Once the
contract of sale for the Land between Mr Atanasovski and Qi Yong 7 failed to
settle, Mr Atanasovski instituted proceedings.
An amendment to the originating
motion sought orders to the effect that Qi Yong 7 could not refuse settlement of
the contract with
Mr Atanasovski due to the default notice having been
improperly served unless it was restrained by order of a court. Those orders
were made by this Court but Qi Yong 7 refused to settle the contract of
sale.
12 Mr Atanasovski commenced the proceedings
shortly thereafter seeking specific performance of the contract of sale of the
Land. This
was a matter of days after Mr Huynh became aware of the errors
in the default notice. The plaintiff then commenced proceedings seeking
declarations and injunctions restraining the contract of sale between Mr
Atanasovski and Qi Yong 7 from proceeding. Both proceedings
were then referred
to Matthews AsJ for directions.
13 On 1 October 2021
the abovementioned proceedings, as well as another filed by Qi Yong 7 in the
meantime, were set down for trial
on 18 and 19 October 2021. These proceedings
constitute the Consolidated Proceedings. Following an application from the
parties associated
with Mr Atanasovski (‘Atanasovski Parties’), the
trial date was adjourned to 3 May 2022.
14 On 15
October 2021 the defendant’s solicitors sent another letter to the
plaintiff’s solicitors with regard to the
debt owed to the defendant.
Similar letters were sent two weeks later.
15 On 9
November 2021 the defendant commenced proceedings to recover the debt. Default
judgment was entered on 1 December 2021 in
the amount stated in the statutory
demand. The statutory demand was issued the following day.
Abuse of Process
The Law
16 Section 459G of the Act provides:
Company may apply
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
17 When an application alleges that the statutory demand is an abuse of process the Court begins at s 459J of the Act. Section 459J states:
Setting aside demand on other grounds
(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
...
Plaintiff’s Submissions
18 The plaintiff contends that the
defendant issued the statutory demand in order to wind up the plaintiff not in
order to recover
a debt but, rather, to prevent the plaintiff from obtaining
finance and placing it in the hands of a liquidator who, with regard
to the
Consolidated Proceedings, would either not oppose Mr Atanasovski’s claim
or, being unable to make a decision prior to
the trial date, would not be able
to provide effective opposition to Mr Atanasovski’s claim for specific
performance. This,
it says, is an abuse of process and therefore the statutory
demand should be set aside pursuant to s 459J of the
Act.
19 In establishing its contention that the
statutory demand was issued as an abuse of process the plaintiff relies on the
Western
Australian Court of Appeal’s decision in Createc Pty Ltd v
Design Signs Pty Ltd
(‘Createc’).[1] In
the Court’s reasons, Martin CJ, Owen and Miller JJA stated:
...there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers...[2]
20 Createc was cited with approval by this Court in Body Corporate Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd,[3] in which Randall AsJ said:
It has generally been accepted that the court retains a residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of an abuse of process. The Western Australian Court of Appeal in Createc Pty Ltd v Design Signs Pty Ltd (‘Createc’), is authority for making an express finding that the statutory demand issued by the creditor in that case was an abuse of process. The court applied the criterion from Williams v Spautz, suggested by Gummow J in David Grant & Co Pty Ltd, that:
there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers — such as the application of pressure to compel payment of the disputed debt.[4]
21 In Williams v Spautz,[5] Mason CJ, Dawson, Toohey, and McHugh JJ made the following observations regarding the English Court of Appeal’s decision in Re Majory,[6] which concerned a bankruptcy court’s power to stay proceedings issued for a collateral purpose:
It has been suggested that the criterion for abuse of process is whether the improper purpose is the sole purpose of the moving party. However, in more recent times it has been said, in our view correctly, that the predominant purpose is the criterion.[7]
22 In order to sustain the contention that the defendant is acting in a manner that is an abuse of process, the plaintiff asks the Court to infer some facts that create a foundation for what it says is the ultimate conclusion that the predominant purpose of this proceeding is to assist Mr Atanasovski’s prosecution of the specific performance claim in the Consolidated Proceedings:
23 The plaintiff says that what would happen is:
24 This is a purpose for which the
statutory demand mechanism was not created. At the very least the statutory
demand procedure is
not available to a party who wishes to use the statutory
presumption of insolvency to harry, hamper or stymie an adversary in separate
litigation with the debtor.
25 The plaintiff cites
the decision of Barrett J in TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust)
Pty Ltd[8] (‘TS
Recoveries’) to support its submission. His Honour said:
Abuse of process is concerned predominantly with propriety of purpose. That issue must be judged according to the legitimate objectives of the particular process. A challenge under s.459J(1)(b) on the grounds of abuse of process would pay attention to the objectives properly pursued by service of a statutory demand, whereas an abuse of process allegation in relation to the pressing of winding up proceedings would pay attention to the objectives for which winding up proceedings are properly pursued.
It seems to me that, even apart from the different timing factors I have mentioned, the two purposes do not coincide. A creditor serving a statutory demand aims, first and foremost, to obtain payment of the creditor’s debt. The word “demand” means what it says: the creditor is demanding payment of what is due. The creditor may have a second or subsidiary purpose, which is to obtain the benefit of a presumption of insolvency if the primary purpose of eliciting payment is not achieved and no successful application to have the demand set aside is made. But the principal purpose is to obtain payment.[9]
26 The plaintiff says that the
defendant’s predominant purpose in issuing the demand is not to obtain the
debt but to stifle
an opponent in another proceeding. This should be borne in
mind when considering the facts outlined above and reiterates the point
made in
the extract from Williams v Spautz, above. It says that it is important
to distinguish between, on the one hand, getting a happy by-product from winding
up a company
and, on the other, an improper resort to a process predominantly
for the purpose of achieving something that otherwise the law would
not permit.
27 The plaintiff relies further on Williams v
Spautz:
...Lord Evershed referred to a general rule “that court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused”. In our view, that is a correct statement of the principle.[10]
28 The plaintiff avers that the words of
Lord Evershed clearly stand for the point that court proceedings may not be used
for the
purpose of obtaining some collateral advantage to himself and not for
the purpose for which such proceedings are designed.
29 The plaintiff next cites White J (as his Honour
then was) in Australian Beverage Distributors Pty Ltd v The Redrock Co Pty
Ltd (‘ABD v
Redrock’),[11] in which
his Honour said:
In the present case, one of Mr James’ purposes, and hence one of ABD’s purposes, is to obtain a collateral advantage for which the proceedings are not designed, namely, to put pressure on Redrock by embroiling it in litigation thereby causing it to incur expense and to consume executive time. However, the proceedings can only be dismissed as an abuse of process on this ground if that purpose is the predominant purpose (Williams v Spautz at 529). It was not put to Mr James that this was his main or predominant purpose.[12]
30 The plaintiff says that the argument put in that case is the same as that which it puts presently, that a predominant improper purpose is sufficient to give rise to an abuse of process. The difference is that in ABD v Redrock the party alleging an abuse of process was unable to show that, of multiple purposes, the improper purpose was the predominant one. In this case the fact that the defendant would gain nothing or almost nothing in winding up the plaintiff demonstrates that the predominant purpose is the improper one of bringing pressure to bear on this plaintiff in the Consolidated Proceedings.
Defendant’s Submissions
31 The defendant submits that the
plaintiff concedes the debt is due and payable, has not been paid and is not
subject to any offsetting
claim. That the plaintiff has not paid its debt to the
defendant for over two years leads inevitably to the conclusion that it is
insolvent. Its insolvency was noted by Keogh J in a related
proceeding[13] and conceded by
counsel for this plaintiff on 30 March 2022 at a hearing before McDonald
J.[14]
32 The
defendant says that it is and was entitled to serve the demand. There is no
abuse of process and the debt is not in dispute
in the Consolidated Proceedings.
This application represents an attempt by the plaintiff to avoid the
consequences of its insolvency.
33 Insolvent
companies should be wound up. That the plaintiff continues to trade while
insolvent is to the detriment of its creditors
in reducing its assets that may
be available in winding up and increases its liabilities. As the defendant is a
creditor its interests
are being adversely affected as long as the plaintiff
continues to trade whilst insolvent.
34 To the
plaintiff’s contention that it is the defendant’s purpose to place
the plaintiff in the hands of a liquidator,
hampering its ability to litigate
the Consolidated Proceedings, the defendant says that there is no evidence of
the subjective state
of mind of Mr Atanasovski or the defendant in seeking to
recover this debt. Even if the allegations as to Mr Atanasovski’s
subjective state of mind were accepted, they could not lead to the conclusion
that service of the demand was an abuse of
process.
35 The only conclusion available on the
evidence is that the demand was served for the purpose of securing payment of
the debt and,
if it remains unpaid, to then obtain the benefit of the
presumption of insolvency. That purpose is entirely consistent with the
legitimate
use of a statutory demand. Any submission made by the plaintiff that
the defendant’s subjective state of mind contained an
improper purpose is
misconceived.
36 The defendant states that the
plaintiff’s submission is misconceived as it is premised on the idea that
service of a statutory
demand could displace its director and stymie the
Consolidated Proceedings. That result is not the effect of a statutory demand,
but rather relies on a number of separate events occurring afterwards. In any
case, any collateral benefits of the statutory demand
would not give rise to an
abuse of process in its service.
37 With regard to
the point it makes above about collateral benefits the defendant relies on the
decision of Brereton J in Re 360 TV Network Pty
Ltd,[15] in which his Honour
states:
So far as the allegation that the demand is an abuse of process is concerned, it suffices to say that even if there is a collateral purpose for the demand, if it is underpinned by an amount that is not disputed on genuine grounds, then at least where the company is not patently solvent, it is not an abuse of process to serve such a demand. The mere fact that some collateral purpose might also be served does not render a demand for an amount due and payable by a company that is at least arguably insolvent an abuse of process.[16]
38 This passage is directly on point with
the present facts. There is an undisputed judgment debt owed by an insolvent
company, service
of a demand upon which company cannot be an abuse of process
regardless of any collateral purpose.
39 With regard
to the passage in TS Recoveries cited by the plaintiff, the defendant
says that there is recognition that service of a demand usually has a subsidiary
purpose beyond
that of recovering a debt, which is to obtain the presumption of
insolvency.
40 The defendant also cites Williams
v Spautz:
In Dowling, the respondent Society bought up a debt owing by the appellant and instituted bankruptcy proceedings against the appellant in order, after a sequestration order had been made, to ascertain by examination the identity of the person behind the appellant’s publication of defamatory material. The making of a sequestration order was opposed on the ground, amongst others, that the bankruptcy proceedings were an abuse of process. This Court (Isaacs and Powers JJ., Griffith CJ. dissenting) held there was no abuse of process. Isaacs J. said:
“If the object sought to be effected by the process is within the lawful scope of the process, it is a use of the process within the meaning of the law, though it may be malicious, or even fraudulent, and in the circumstances the fraud may be an answer; if, however, the object sought to be effected by means of the process is outside the lawful scope of the process, and is fraudulent, then - both circumstances concurring - it is a case of abuse of that process, and the Court will neither enforce nor allow it to afford any protection, and will interpose, if necessary, to prevent its process being made the instrument of abuse. Grainger v. Hill laid down the distinction.”[17]
41 The defendant states that, in the case
cited in that passage, the purpose of the winding up was plainly not a purpose
contemplated
by the Act. Nevertheless the High Court said that the winding up
was not an abuse of process because the Court was not making an
inquiry into the
subjective state of mind of the person bringing it. It was a question about
whether the object sought to be affected
by the process was within the lawful
scope of that process. In that case, the creditor had a debt which had not been
paid, it was
within the lawful scope of the process to wind up that company in
insolvency, and it was within the lawful process to conduct liquidator’s
examinations. The inquiry was not about the subjective intention of the party
but the scope of the process.
42 The defendant
submits that the pursuit of a legitimate remedy is not converted to an abuse of
process by an unworthy or ulterior
motive. It is immaterial what any ulterior
motive might be where a party is prompted to do a legal act. It is hard to
imagine such
an act that might be invalidated by proof that it was prompted by
some vindictive motive.
43 A distinction must be
drawn between intention and motive, the former being what result a party desires
to obtain in commencing
proceedings, the latter relating to all the
considerations that move a party to commence or maintain proceedings. Where a
party intends
to obtain relief within the scope of the legal remedy available,
there is no abuse of process regardless of
motive.
44 The defendant too cites Re Majory,
in particular an extract from the Privy Council decision of King v
Henderson,[18] in which Lord
Watson said the following:
...it becomes necessary to consider what will, in the proper legal sense of the words, be sufficient to constitute what is generally known as an abuse of process or as a fraud upon the court. In the opinion of their Lordships, mere motive, however reprehensible, will not be sufficient for that purpose; it must be shown that, in the circumstances in which the interposition of the court is sought, the remedy would be unsuitable, and would enable the person obtaining it fraudulently to defeat the rights of others, whether legal or equitable.[19]
45 Lord Watson’s words make it
clear that unless the remedy is unsuitable or it defeats the rights of others,
there won’t
be an abuse. The defendant states that, in this case, the
right sought to be defeated is the director’s right to continue to
incur
costs for an insolvent company by litigating. That is not a right that the
director of an insolvent company has. The Act contemplates
that such a director
should be prohibited from trading or incurring costs whilst
insolvent.
46 The defendant raises ABD v
Redrock in support of the contention that it is not an abuse of process to
apply to wind up a company even if one of the benefits of doing
so might be to
avoid other litigation which is on foot at the time. White J said:
The second of these outcomes, namely that Redrock may cease to contest the proceedings against Liquor National, is not an outcome which a winding-up order is intended to secure. The practical effect of making a winding-up order may be to stultify a company’s pursuit of an arguable claim, but that is not its purpose... Whether a liquidator could or would defend the proceedings is another matter. The tactical advantage which a winding-up order could give ABD is not within the intended scope of such an order. But Spautz v Williams and Dowling v Colonial Mutual Life Assurance Society Ltd show that that does not make the proceeding an abuse of process.[20]
47 The defendant says that the above
passage is clearly on all fours with the present
case.
48 The defendant finally distinguishes
Createc on the ground that the demand in that case involved a genuinely
disputed debt where one party sought to avoid bringing the debt before
a court
to have it adjudicated by issuing a demand. In this case there is no dispute
regarding the debt. The defendant here issued
a notice of dispute, sought to
negotiate and then threatened legal proceedings. Only after obtaining judgment
upon the debt was the
demand issued.
Consideration
49 Here, the statutory demand was served
following the entry of default judgment. There is no dispute that the debt is
owed to the
defendant. The defendant states that the predominant purpose is to
obtain payment of the debt which has been due and payable for
over two years.
There may also be a collateral purpose to stifle the Consolidated Proceedings as
there would be an advantage if the
plaintiff is wound up. The only way in which
the plaintiff will be able to pay this debt is if it is successful in the
Consolidated
Proceedings and obtains finance. It appears to be insolvent as
it cannot pay its debts as and when they fall due. If the demand is
not set
aside, then it will be presumed to be insolvent.
50 In Re 360 TV Network Pty Ltd Brereton J
noted that service of a statutory demand will not be an abuse of process where a
creditor’s debt is not disputed
and the debtor is not patently solvent
even if there is a collateral purpose for the demand. That is the situation
here. There is
no abuse of process.
51 The service
of a statutory demand cannot impede the conduct of the Consolidated Proceedings.
That could only be done if the defendant
is successful in obtaining an order
that the defendant be wound up.
52 In ABD v
Redrock White J held that it was not an abuse of process to wind up a
company even if one of the benefits in so doing was to avoid litigation.
In
certain cases that may be so, but clearly at the stage of setting aside a
statutory demand, there is no abuse of process here.
53 The question of whether there has been an abuse
of process is properly to be considered when an application is brought to wind
up the plaintiff, not at the stage of an application to set aside the statutory
demand. The service of the statutory demand and an
application for a winding up
order serve different purposes. The defendant has a statutory right to issue the
demand for a debt that
is due, particularly a judgment debt that has been
opposed and which has been due for some two years.
54 The plaintiff’s application will be
dismissed.
[1] [2009] WASCA 85; (2009) 71 ACSR 602.
[2] Ibid [50].
[3] [2017] VSC 435; (2017) 322 FLR 355.
[4] Ibid [101].
[5] [1992] HCA 34; (1992) 174 CLR 509.
[7] Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, 529.
[9] Ibid [17]-[18].
[10] Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, 528.
[11] [2007] NSWSC 966; (2007) 213 FLR 450.
[12] Ibid [42].
[13] Atanasovski v Huu Loi Yarra Valley Pty Ltd [2021] VSC 594.
[14] Transcript of Proceedings, Atanasovski v Qi Yong 7 Pty Ltd (Supreme Court of Victoria, McDonald J, 30 March 2022) 27 and 30.
[16] Ibid [28].
[17] Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, 524-5.
[18] [1898] UKLawRpAC 33; [1898] AC 720.
[19] Ibid, cited in Re Majory (1955) Ch 600, 623.
[20] Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 966, [44].
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/vic/VSC/2022/273.html