Boulton Cleary & Kern v Ivyline Pty Ltd [2011] QSC 332

1-1 SUPREME COURT OF QUEENSLAND CITATION: Boulton Cleary & Kern v Ivyline Pty Ltd [2011] QSC 332 PARTIES: BOULTON CLEARY & KERN (A FIRM) (applicant) v IVYLINE PTY LTD ACN 010 465 988 (respondent) BOULTON CLEARY & KERN (A FIRM) (applicant) v IVYLINE PTY LTD ACN 011 053 562 (respondent) FILE NO: BS 7609 of 2011 & BS 7610 of 2011 DIVISION: Trial Division PROCEEDING: Trial ORIGINATING COURT: Supreme Court of Queensland DELIVERED EX TEMPORE ON: 25 October 2011 DELIVERED AT: Brisbane HEARING DATE: 25 October 2011 JUDGE: Daubney J ORDERS: BS 7609 of 2011 1. Ivyline Pty Ltd ACN 010 465 988 be wound up in insolvency 2. Robert Hutson and John Park be appointed official liquidators for the purposes of the said winding up. 3. The applicant’s costs of and incidental to the application be costs in the liquidation pursuant to section 556(1)(b) of the Corporations Act 2001. BS 7610 of 2011 1. Ivyline Pty Ltd ACN 011 053 562 be wound up in insolvency 2. Robert Hutson and John Park be appointed official liquidators for the purposes of the said winding up. 3. The applicant’s costs of and incidental to the application be costs in the liquidation pursuant to section 556(1)(b) of the Corporations Act 2001. -- 1 of 12 -- 1-2 ORDER 1 10 20 30 40 50 60 CATCHWORDS: CORPORATIONS – WINDING UP - WINDING UP IN INSOLVENCY – STATUTORY DEMANDS – OTHER CASES – where the applicant seeks that the respondents be wound up in insolvency under s 459P of the Corporations Act 2001 (Cth) – where the respondents oppose the applications on the grounds that the pursuit of the winding up applications is an abuse of process and that there are defects in the form of the statutory demands – whether the winding up applications are an abuse of process – whether the respondents should be wound up Corporations Act 2001 (Cth), s 459C, s 459F, s 459J, s 459P, s 459S, s 467A, s 601A(F) Corporations Amendment Regulation 2007 (No. 13) (Cth) Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) NSWCA 57, cited L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180, considered McElligott v Boyce [2011] QCA 117, considered COUNSEL: R P S Jackson for the applicant P W Hackett and A Katsakalas for the respondent SOLICITORS: Brian Bartley & Associates for the applicant PCF Law for the respondent -- 2 of 12 -- 1-4 ORDER 1 10 20 30 40 50 60 HIS HONOUR: Ivyline Pty Ltd, ACN 011 053 562 ("Ivyline A"), and Ivyline Pty Ltd, ACN 010 465 988 ("Ivyline B") are the first and second plaintiffs, respectively, in claim number 4448 of 2008, which is a claim for damages for professional negligence against the law firm Boulton Cleary & Kern ("BCK"). The third and fourth plaintiffs in that claim are Mr Richard John Vanhoff and Mrs Narelle Gai Vanhoff, the directors and shareholders of Ivyline A and Ivyline B. The short explanation for the existence of these companies with identical names, but different Australian Company Numbers, is that Ivyline A, which was incorporated in 1990, was deregistered in September 1993 and was not re-registered until May 2008, pursuant to an order made under section 601A(F) of the Corporations Act. Ivyline B was originally incorporated with the name Anteal Pty Ltd in 1983. In August 1994, while Ivyline A was deregistered, Anteal Pty Ltd changed its name to Ivyline Pty Ltd. Nothing turns, for present purposes, on the identity of these names. On 12 October 2010, BCK filed an interlocutory application to strike out the statement of claim in proceeding number 4448 of 2008. On about 26 October 2010, the parties to matter 4448 of 2008 consented to the Registrar making an order adjourning the application to a date to be fixed. By this consent order, it was also ordered: "(2) That the plaintiffs pay to the defendants costs in the sum of $7,000.00." The interlocutory application came on again before Byrne SJA -- 3 of 12 -- 1-5 ORDER 1 10 20 30 40 50 60 on 6 June 2011. The parties consented to an order which incorporated certain undertakings concerning the amendment of certain other proceedings, and the parties consented to the application being further adjourned and an order that: "The plaintiffs pay the defendant’s costs of an incidental to the adjournment fixed in the sum of $5,000.00." These costs orders were not paid. On 29 June 2011, statutory demands and the necessary supporting affidavits were issued against each of Ivyline A and Ivyline B. Each statutory demand made demand for the $12,000 owing by each of the companies pursuant to the costs orders. It was not an issue before me that each of these statutory demands was duly served on each company, nor was it in issue that neither company applied to satisfy the respective statutory demand within the 21 day period prescribed by section 459G(2). Each company therefore failed to comply with the statutory demand made on it (section 459F) and the Court must therefore presume that each company is insolvent (section 459C(2)(a)). Applications are now made for each of the companies to be wound up in insolvency under section 459P. Each company, however, seeks to oppose the application. The same grounds of opposition apply in each application, so it is convenient to deal with them compendiously. -- 4 of 12 -- 1-6 ORDER 1 10 20 30 40 50 60 The grounds of opposition are: (a) The pursuit of the winding up applications is an abuse of process in the circumstances of this case, and (b) There are defects in the form of the statutory demands and other technical defects with vitiate the applications to wind up. Section 459S of the Corporations Act provides: Company may not oppose application on certain grounds (1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). (2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent. There may have been an interesting question as to whether the companies could properly advance the abuse of process argument on the present application, given that that was a ground on which they may have been able to rely under section 459J(1)(b) to seek to have the demand set aside. In the event, it is unnecessary for me to determine this point. The companies' argument on the abuse of process point comes down to this: Ivyline A and Ivyline B are, together with Mr and Mrs Vanhoff, plaintiffs in a proceeding under which they seek to recover damages for professional negligence. The damages claimed by Ivyline A are quantified at $1,481,129, and -- 5 of 12 -- 1-7 ORDER 1 10 20 30 40 50 60 those claimed by Ivyline B are quantified at $254,367. It was asserted for the companies that "The applicant’s sole purpose of a winding up application can only be to end the litigation with [the companies]." I note in passing that there was no evidence led to support the "sole purpose" assertion. In any event, it was further submitted: "There are no assets in the company and so any attempt to wind it up can only be for the purpose of ending litigation." To be completely accurate, it should perhaps be said that one of the consequences of winding up orders being made might be to end the litigation in matter number 4448 of 2008 so far as Ivyline A and Ivyline B are concerned. The winding up orders, of course, have no effect on the personal plaintiffs in that proceeding. In L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180, McLelland J said at 183: “Proceedings by a person as creditor for the winding up of a company on the ground that it is unable to pay its debts will ordinarily be held to be an abuse of process: (1) if the winding up proceedings are bound to fail eg if it is clear that the applicant will not be able to prove that he is a creditor within the meaning of s 363(1)(b) of the Code, or will not be able to prove that the company is unable to pay its debts within the meaning of s 364(1)(e); (2) if the application is made for some improper purpose eg if the applicant is seeking to use the winding up proceedings to coerce a company into paying an alleged debt without affording the company a reasonable opportunity to ascertain or have it established that the debt is properly payable; or -- 6 of 12 -- 1-8 ORDER 1 10 20 30 40 50 60 (3) if issues will arise in the winding up proceedings of a kind inappropriate for determination in such proceedings eg a substantial contest as to the existence or enforceability of a debt relied on by the applicant, which should properly be resolved in separate proceedings brought for that purpose.” As applied to the present case: (a) This is not a case where the winding up proceedings are bound to fail. The respondent, BCK, has the benefit of debts payable pursuant to costs orders made by the consent of the parties. (b) There is no suggestion of an improper purpose in the sense of the companies being denied the right to investigate the debts. On the contrary, as is apparent, the companies knew of the circumstances which gave rise to the debts by having consented to the orders under which the debts are created. (c) There is nothing to determine about the debts on which BCK relies. Again, they arise as a consequence of court orders to which the companies consented. Where litigation is pending between parties in which, as here, there is a claim in excess of the demanded debt, the Court ought not find that it is an abuse of process to pursue the debt unless the Court is at least satisfied that the bringing of the winding up proceedings is unreasonable and inappropriate in the circumstances (Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) NSWCA 57, per Beasley JA at paragraph 83). -- 7 of 12 -- 1-9 ORDER 1 10 20 30 40 50 60 Counsel for the company submitted that, in the circumstances of this case, it was both unreasonable and inappropriate for BCK to bring the winding up proceedings because the companies, and those behind the companies, were prosecuting substantial claims for damages against BCK for professional negligence. The proceeding against BCK has been on foot since 2008. The costs orders are associated with an interlocutory application in that proceeding. It was again submitted that the only purpose for the winding up application was to bring the other proceeding to an end, at least so far as the companies were concerned. Counsel was not, however, able to refer me to any authority in which it has been held that the pursuit by a party of recovery under a costs order in its favour amounts to an abuse of process for the purposes of a winding up application. I have already noted on several occasions that the subject debts owed by the companies on which the winding up applications are based arise as a consequence of orders of the Court to which the companies consented. The orders are enforceable and the monies are undeniably payable under those orders. No application was made for those orders to be stayed. No reason or explanation has been given for the non- payment of these costs orders, despite the companies having consented to them in October 2010 and June 2011. -- 8 of 12 -- 1-10 ORDER 1 10 20 30 40 50 60 It is not in issue that each of the companies is liable to pay the costs orders and there is no reason why the costs orders should not be enforced. In those circumstances I am not satisfied that the bringing of the winding up proceeding against each company is either unreasonable or inappropriate. I therefore find that neither company has established that the winding up application against it is an abuse of process. Turning then to the technical objections, the first point relied on is that the form of statutory demand served on each company failed to contain the notification box which was introduced onto the forms of statutory demands by the Corporations Amendment Regulation 2007 (No. 13). Section 467A of the Corporations Act provides: Effect of defect or irregularity on application under Part 5.4 or 5.4A An application under Part 5.4 or 5.4A must not be dismissed merely because of one or more of the following: (a) in any case--a defect or irregularity in connection with the application; (b) in the case of an application for a company to be wound up in insolvency--a defect in a statutory demand; unless the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied (for example, by an adjournment or an order for costs). The companies claim that the omission of the boxed warning has caused substantial injustice within the meaning of section 467A. The only evidence on this was an affidavit by Mrs Vanhoff, sworn 22 September 2011, who deposed: -- 9 of 12 -- 1-11 ORDER 1 10 20 30 40 50 60 "(2) On or about July 2011 I received the statutory demand from the Respondent. "(3) I was unaware of the consequences of not applying to set aside the statutory demand within 21 days. Had I been aware of this fact I would applied [sic] within the 21 days to set aside the statutory demand." Unfortunately, neither Mrs Vanhoff, nor the solicitor retained to act for the companies in the presence applications, mentioned in their affidavits that the solicitors for BCK had also sent copies of the statutory demands and supporting affidavits to the companies’ solicitors at the same time as formal service was effected on the companies on about 29 June 2011. In McElligott v. Boyce [2011] QCA 117, the Court of Appeal considered a statutory demand on which, as in the present case, the boxed warning had been omitted. Muir JA, with whom Chesterman and White JJA agreed, said at paragraph 12 (omitting citations): “A defect in the form of a statutory demand is not necessarily fatal to the validity of a statutory demand in the absence of proof of substantial injustice. The absence of the warning statement has been held not to require the setting aside of a statutory demand. There is no basis for concluding that the absence of the warning statement led to any injustice to Westwood, substantial or otherwise. There is clear evidence that the debt supporting the statutory demand was due and owing. Moreover, the applicant admitted that Westwood had no assets. There was an assertion by the applicant in the course of the hearing at first instance that a bank account existed, but it was not revealed whether that bank account was -- 10 of 12 -- 25102011 D.1 T(3)03/IMK(BNE) BRIS2 (Daubney J) 1-12 ORDER 1 10 20 30 40 50 60 Westwood’s, the applicant’s or in the name of some other person or entity. Nor was anything said about whether the account was in credit and, if so, to what extent.” Having regard to the fact that the companies’ solicitors were provided with copies of the statutory demands at the time as formal service was effected on the companies. I am not satisfied that the omission of the boxed warning statement led to any, let alone any substantial, injustice. Each form of statutory demand that was served clearly notified of the demand for payment within 21 days, the necessity for any application to set aside the statutory demand to be made within 21 days and the fact that BCK could rely on a failure to comply with the statutory demand as grounds for applying for winding up. The debts pursuant to the costs orders were clearly due and owing by each company. Neither company has any assets (except, I suppose, its claims in the professional negligence proceeding). I am not satisfied that omission of the boxed warning has caused substantial injustice to the companies. The companies sought to rely on a number of other technical defects in the forms, such as the omission of the words "Supreme Court" on one of the forms and the fact that the liquidators’ consent does not include their hourly rates. In fairness to counsel for the companies, having formally raised these technical defects they did not seek further to persuade me that any of these defects caused substantial injustice to -- 11 of 12 -- 25102011 D.1 T(3)03/IMK(BNE) BRIS2 (Daubney J) 1-13 ORDER 1 10 20 30 40 50 60 either company. In these circumstances, I am not persuaded in relation to any of the grounds of opposition to winding up orders which have been raised on behalf of Ivyline A and Ivyline B. Both companies will be wound up. Do you have a draft order, Mr Jackson? MR JACKSON: I do, your Honour. One for each matter. HIS HONOUR: Have you seen the draft orders, Mr Hackett? MR HACKETT: I have, your Honour. HIS HONOUR: Do you wish to be heard in relation to them? MR HACKETT: No, your Honour. HIS HONOUR: Thank you. In each of matters 7609 of 2011 and 7610 of 2011, there will be orders in terms of the draft that I initial and place with the papers. ----- -- 12 of 12 --