Agricultural Services Pty Ltd, Re [1996] QSC 86

IN THE SUPREME COURT OF QUEENSLAND Brisbane No. 8 of 1995 IN THE MATTER of THE CORPORATIONS LAW - and - IN THE MATTER of AGRICULTURAL SERVICES PTY LTD A.C.N. 052 412 281 REASONS FOR JUDGMENT - WHITE J Judgment delivered 22/05/1996 CATCHWORDSAPPLICATION to wind up - application for leave to apply to set aside out of time - Cavetina Pty Ltd v. Synthetic Dyeworks Industries Pty Ltd appld. -wh genuine dispute - solvency of company - wh Stamps Act requires stamping of agreement relied on in statutory demand - costs. Counsel: Mr T North for applicant/creditor. Mr H Fraser QC for respondent/company With him Mr G Newton. Solicitors: Gadens Ridgeway for applicant/creditor. Russell and Company for respondent/company. Hearing date: 9 February 1995 -- 1 of 31 -- IN THE SUPREME COURT OF QUEENSLAND Brisbane No. 8 of 1995 IN THE MATTER of THE CORPORATIONS LAW - and - IN THE MATTER of AGRICULTURAL SERVICES PTY LTD A.C.N. 052 412 281 REASONS FOR JUDGMENT - WHITE J Judgment delivered 22/05/1996 The applicant, Rural Finance Pty Ltd ("Rural") seeks an order that Agricultural Services Pty Ltd ("Agricultural Services") be wound up and a liquidator appointed. Messrs Phillip Arthur Hennessey and Michael Joseph Dwyer, the receivers and managers of Rural appointed by Equus Financial Services Limited, ("Equus") served a statutory demand for the payment of $1.4 million on Agricultural Services on 11 November 1994 pursuant to a loan agreement allegedly made between Rural and Agricultural Services on 28 June 1991. Agricultural Services has filed five separate applications in respect of this hearing two of which are amended applications and it is those latter which encapsulate the relief sought. Agricultural Services seeks: • An order extending the time within which to make this application; • An order setting aside the statutory demand; -- 2 of 31 -- 2 • Alternatively an injunction restraining the receivers and managers from further prosecuting the application to wind-up; • Alternatively leave to oppose the application for an order for the winding-up of the company; • That the receivers and managers pay the applicant company's costs of these applications less the costs thrown away by reason of the failure to apply within time to set aside the statutory demand. A separate application filed on 2 February 1995 sets out the grounds upon which Agricultural Services intends to oppose the application to wind-up. Those grounds are • That it is not indebted to the applicant in the sum the subject of the demand or in any sum; • Alternatively that the debt is the subject of a genuine dispute; • Alternatively if the company was indebted pursuant to the loan agreement referred to in the demand that indebtedness has been discharged by set-off; • Alternatively there is an offsetting claim in respect of the whole of the debt the subject of the demand; • Alternatively the debt the subject of the demand arose in the course of an illegal scheme to defraud the Commissioner of Taxation in which the applicant/creditor knowingly participated; • Alternatively the loan agreement not having been duly stamped is unenforceable pursuant to s. 4A of the -- 3 of 31 -- 3 Stamp Act 1894; • The application is an abuse of process, the applicant being aware of the substance of the contentions (save the stamp duty argument) prior to issuing the demand and filing the application. Agricultural Services asserts that it is solvent. Leave to extend time S. 459G of the Corporations Law provides: "(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 the person who served the demand on the company." The statutory demand was served on Agricultural Services on 11 November 1994. The company's application to set aside the demand was filed on 2 February 1995, well outside the 21 days. Section 1322(4)(d) of the Corporations Law empowers a court to extend the period for taking any proceeding under the Law, including an order to extend time where the period expired prior to the application for the order. The section provides that a court shall not make such an order unless it is satisfied that no substantial injustice has been or is likely to be caused to any person, s. 1322(6)(c). -- 4 of 31 -- 4 Section 459S limits the grounds upon which a company may oppose an application to wind-up. It provides "(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 the statutory demand, the company may not, without 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 sub- section (1) unless it is satisfied that the ground is material to proving that the company is solvent." Counsel for Rural submitted that there was no power in the Court to extend time pursuant to s. 1322(4)(d), Texcel Pty Ltd v. Commonwealth Bank of Australia (1993) 11 ACSR 535 per Hayne J. So far as this Court is concerned I am bound by the majority decision of the Court of Appeal in Cavetina Pty Ltd v. Synthetic Dyeworks Industries Pty Ltd (1994) 14 ACSR 274 which held that there is no "clear and emphatic statement" by the draftsman in s. 459G that the statutory time may not be extended so as to exclude the general time extension provision in s. 1322. Accordingly, the court has power to extend time to bring an application to set aside a statutory demand outside the time limited by the section for so doing on the usual discretionary grounds. Mr T North for Rural submitted that an intention may be discerned in Pt 5.4 Div. 2 in s. 459S to permit only a limited opportunity for contesting a statutory demand once the winding-up application has been presented. -- 5 of 31 -- 5 That section envisages that there may be opposition with the leave of the court to an application to wind-up which relies on a failure to comply with a statutory demand when the point could have been taken earlier on an application to set aside the demand but only where the court is satisfied that the ground is material to proving that the company is solvent. Mr H Fraser, for Agricultural Services maintained that the grounds raised in its notice and in Mr Whear's affidavit are in any event material to the question of the company's solvency and I will consider this further in due course. Further leave is required pursuant to s. 465C to oppose the winding-up application. Section 465C provides "On the hearing of an application under Section 459P, 462 or 464, a person may not, without the leave of the Court, oppose the application unless, within the period prescribed by the Rules, the person has filed, and served on the applicant: (a) notice of the grounds on which the person opposes the application; and (b) an affidavit verifying the matters stated in the notice." Rule 60 of the Corporations (Queensland) Rules 1993 provides that notice must be given not less than seven clear days before the time appointed for the hearing of the winding-up application that the application is opposed and an affidavit in opposition to the application must be filed and served within the same time. The notice was filed on 2 February 1995 and the affidavit filed on the following day. Both documents are dated 2 February. The date fixed for the hearing of the application was 9 February and thus the giving of notice and the filing of -- 6 of 31 -- 6 the affidavit lay outside the stipulated time. Agricultural Services' solicitor wrote a detailed letter to the receivers and managers dated 31 January 1995 setting out the grounds upon which the winding-up application was opposed and those matters are sworn to in Mr Whear's affidavit filed in opposition to the application. No prejudice has been identified by Rural because of the late service of the notice and affidavit. Leave is given to oppose the application to wind up. There remains the more important question as to whether leave should be given to seek to set aside the statutory demand or whether Agricultural Services ought to be confined to s. 459S which limits the grounds upon which opposition to a winding-up application may be made. The approach of the majority in Cavetina would suggest that where the justice of the case demands it and where there is no countervailing injustice suffered by the creditor extensions of time ought to be granted. The prejudice to Rural in extending time to bring an application to set aside the statutory demand consists in depriving it of the benefit of the provisions of s. 459S(1). The acceptance of this submission requires a particular view of the scope of Part 5.4 of the Law which was implicitly rejected by the majority in Cavetina, namely, that the policy of the Division is to channel "... exclusively into early applications to set aside statutory demands everything that is open to a resisting company to raise on that issue" per Macrossan CJ at p. 278. Once the court's power to extend time in respect of s. 459G -- 7 of 31 -- 7 applications pursuant to s. 1322 is admitted then the strict construction of the Division contended for cannot otherwise be raised as a reason for not giving an extension of time. There is no prejudice otherwise identified by Rural. Mr Whear a director of Agricultural Services and the person who has been dealing with Rural and its receivers and managers in respect of this matter has sworn that against the background of his communications with the receivers and managers in respect of an earlier application to wind-up he did not believe that Rural seriously intended to pursue the winding-up application. He was of the view that one of the principal purposes of the receivers in giving the further statutory notice of demand was to put pressure on himself and Agricultural Services to negotiate an arrangement in relation to its interests as lessee and caveator of farm property owned by Burnett River Plantation Pty Ltd which it had acquired from a partnership of which Agricultural Services was General Partner. Mr Whear also refers to some personal problems in respect of a matrimonial dispute with his wife which occurred during November and December 1994 and which concerned rural property in the Northern Territory. He said that he did not wish to trouble the limited partners of the partnership for funds to oppose the winding-up application as he did not believe that it would proceed. He swears that he was of the view and continues to believe that the winding-up application is based upon a demand without foundation. Mr Whear recognised however that he was out of time and in the solicitor's letter -- 8 of 31 -- 8 dated 31 January 1995 Agricultural Services offered to pay the costs thrown away occasioned by the failure to bring the application to set aside the statutory demand within time. Mr Fraser has submitted that even if leave were not granted to apply to set aside the statutory demand leave ought to be granted under s. 459S(1) to oppose the winding-up on the grounds which might have been raised on an application to set aside the statutory demand because they are material to proving that the company is solvent. I will deal with the question of the company's solvency in due course, but this submission is correct in as much as the company asserts that there was no agreement as alleged in the statutory demand and since the company no longer trades and otherwise has no debts (apart from a small amount owing for accountancy fees which is covered) it is solvent. There is another matter which requires brief mention. As McPherson JA pointed out in his dissenting judgment in Cavetina at p. 280, an order made pursuant to s. 1322(4)(d) to extend the period within which copies of the application and affidavit to set aside the statutory demand be served on the demandant does not have the consequence of making the application effective for the purpose of s. 459G. Pursuant to s. 459G(3) an application to set aside is made in accordance with the section only if, within 21 days, the affidavit is filed with the court and it and the application are served on the demandant. Accordingly it is necessary to extend the time limited in s. 459G(2) for bringing the application. -- 9 of 31 -- 9 I have concluded in the absence of any prejudice to Rural that time should be extended to 2 February 1995 for bringing the application to set aside the statutory demand and for complying with the requirements of s. 459G(3). The Dispute Where a company applies to set aside a statutory demand s. 459H of the Law provides that the court must be satisfied either that there is a genuine dispute between the company and the demandant about the existence or amount of the debt and/or that the company has an offsetting claim. In Re Morris Catering (Australia) Pty Ltd [1993] 11 ACLC 919 Thomas J said at p. 922 "It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than the other. The essential task is relatively simple - to identify the genuine level of claim (not the likely result of it) and to identify the genuine level of the offsetting claim (not the likely result of it)" To similar effect see Beazley J in Scanhill Pty Ltd v. Century 21 Australasia Pty Ltd [1994] 12 ACLC 111 at p. 113; and John Holland Construction & Engineering Pty Ltd v. Kilpatrick Green Pty Ltd [1994] 12 ACLC 716. The background to relations between Agricultural Services, Rural and Rural and other relevant companies, which is necessary for an understanding of the dispute, may be outlined briefly. From about the late 1980's the Johnson Farm -- 10 of 31 -- 10 Management Group of Companies (details of the Group's corporate structure are contained in Appendix 1 to the receivers' and managers' first report to Equus Financial Services Limited dated 16 August 1991 being Exhibit DMA1 to the affidavit of David Mark Henderson filed on 20 September 1993 in action no 1464 of 1991 (document no 955)) and in particular Farmer Johnson Limited was engaged in the business of the formation and promotion of limited partnerships to conduct agricultural ventures. These projects included, inter alia, blueberry farms in northern New South Wales and aquaculture projects near Bundaberg in Queensland. Farmer Johnson Limited and many associated companies have had receivers and managers or liquidators appointed to them since mid-1991. Rural is a company associated with the Johnson Farm Management Group. The shares in Rural at the relevant time were held by Woods & Johnson Developments Pty Ltd ("Woods & Johnson"). The directors of Rural at the relevant time were Messrs Frank Johnson and Greg Johnson. In their report to Equus, the receivers and managers maintained that Mr Tony Johnson was implicitly involved in the management of Rural and in their opinion was an officer of the company. The shares in Woods & Johnson were held by Messrs Frank and Greg Johnson. Mr Greg Johnson was appointed a director in 1986. In their report the receivers and managers stated "Rural appears to be the only subsidiary of W & J [Wood & Johnson Developments]. While not linked by shareholdings to companies within the JFM [Johnson Farm Management] Group, these two companies appear to be operated as part of the JFM Group, of which Johnson Farm Management Pty Ltd ("JFM") is the -- 11 of 31 -- 11 ultimate holding company." Mr Whear, as I have said, is a director of Agricultural Services. The company is not part of or associated with the Johnson Group beyond the arrangement which was the subject of this matter. He has sworn that in early 1991 he was an employee of Farmer Johnson Limited (although on occasions his salary was paid by Rural) and in that way met Mr Greg Johnson who was working within the Group of companies. In the course of his employment Mr Whear worked on a proposal for a limited partnership to be promoted by the Farmer Johnson Group at a farm site at Wallaville in the Lower Burnett River basin in Queensland. In early 1991 Mr Greg Johnson told Mr Whear that Rural would provide all the funds necessary to establish the farm at Wallaville and to provide for its operating expenses in whatever amount may have been necessary over and above the capital subscribed by the limited partners. Agricultural Services was to be the General Partner to the project. Details of the Burnett River Horticultural Project (as it was named) including projected results of the partnership, were put together by Mr Greg Johnson and appear at pp. 66-102 of exhibit RLW1 to Mr Whear's affidavit. It appears that the project was advertised and the subscriptions were due to close on 30 June 1991, a very short time after advertisement. Mr Whear swears that in the week prior to that date he and Mr Greg Johnson had a number of conversations in which Mr Johnson told him that it would be "very beneficial from a tax point of view" for a large sum to be advanced by Rural to Agricultural Services prior to -- 12 of 31 -- 12 30 June 1991 to enable Agricultural Services to pre-pay both interest on that advance for the first twelve months of a loan and a large management fee to Woods & Johnson which was to be appointed farm manager to the project. Mr Whear says that Mr Johnson thought it was not practical to work out exactly how much should be advanced to the project until after the subscriptions had closed and that a large advance should therefore be made before that date. He told Mr Whear that the advance would be undertaken by means of a round robin of cheques with the effect that no money would leave Rural. Mr Johnson said that he would have some letters prepared on the letterhead of Agricultural Services for Mr Whear to sign to give effect to his proposals. Those letters appear at pp. 1 and 1A of Exhibit RLW1. Mr Johnson also told Mr Whear that once it was worked out how many units had been taken up and paid for in the project Woods & Johnson would refund the surplus management fee which would have been paid to it prior to 30 June 1991. The information memorandum (prospectus) called for $11,666.67 to be borrowed per unit fully subscribed and set the management fee. According to Mr Whear, Mr Johnson said that following the refund Agricultural Services would in turn pass that money back to Rural. He said that the net result would be that Agricultural Services would have available to it something in the order of $1.4 million in cash either directly from Rural or from the balance remaining in the Woods & Johnson account with Rural on account of the prepaid management fees for the development and operating expenses of -- 13 of 31 -- 13 the new farm project. Mr Whear says that he relied upon and acted upon everything that Mr Johnson told him and signed the letter drafted by Mr Johnson. The letter on Agricultural Services' letterhead signed by Mr Whear and dated 26 June 1991 was to the directors of Rural Finance and is headed "Re: Loan - Agricultural Services Pty Ltd - $2.8M." The letter states inter alia, "... I am writing to confirm our agreement on a number of matters pertaining to the loan, its disbursement and the final amount of the loan which will be determined by 31 July 1991. The details are as follows: (1) The $2.8M will be made available to us, on or before 28 June 1991 to enable the deposit to be credited on our bank statement by 30 June 1991. We anticipate this will be the maximum loan requirement. (2) After 30 June 1991, the loan and interest will be reduced pro-rata with confirmed partners. The amount of the loan will be $1,400,000 per 120 Units subscribed ($11,666.67/Unit) in accordance with the Memorandum. ... (3) For the purposes of formulating accounts, all parties will use the floating loan and interest balance at the time of preparation and agree to adjust surplus accordingly after 30 June 1991. Loan and interest adjustments shall be made by way of General Journal by each party. (4) All parties involved, Woods & Johnson Developments Pty Ltd, Agricultural Services Pty Ltd and Rural Finance Pty Ltd agree to adjust any payments or other indebtedness between the parties which may become apparent at a later stage, insomuch as the parties agree to follow the guidelines set out in the Memorandum and the Partnership Deed, including borrowing and the prepayment of fees." On 28 June 1991 five transactions took place. Their authorisation can be seen in five letters appearing pp. 2-6 of Exhibit RLW1. They were: -- 14 of 31 -- 14 • Transaction 1 - On Rural's letterhead and described as "Transaction No 1" Rural authorised its bank, State Bank of New South Wales, Southport Branch to transfer from Rural Account No 79-0156-00 the sum $2,799,998.40 to Agricultural Services Trust Account No 10-0266-00. • Transaction 2 - On Agricultural Services' letterhead and described as "Transaction No 2" Mr Whear authorised State Bank of New South Wales, Southport Branch to transfer from Agricultural Services Trust Account No 10-0266-00 the sum of $2,162,457.60 to Woods & Johnson Developments Pty Ltd Account No 97-0157-00. • Transaction 3 - On Woods & Johnson letterhead and described as "Transaction No 3" Gregory Johnson authorised State Bank of New South Wales transfer from Woods & Johnson Developments Pty Ltd Account No 97-0157-00 the sum of $2,162,457.60 to Rural Finance Account No 79-0156-00. • Transaction 4 - On Agricultural Services' letterhead described as "Transaction No 4" Mr Whear authorised State Bank of New South Wales to transfer from Agricultural Services Trust Account Account No 10- 0266-00 the sum of $350,001.60 to Rural's Account No 79-0156-00. • Transaction 5 - On Agricultural Services' letterhead described as "Transaction No 5" Mr Whear authorised -- 15 of 31 -- 15 State Bank of New South Wales to transfer from Agricultural Services Trust Account Account No 10-0266-00 the sum of $287,539.20 to Rural's Account No 79-0156-00. Rural's bank statement for that account for the period 4 June 1991 to 28 June 1991 records these transactions (Ex 2). The total amount transferred from Rural to Agricultural Services on 28 June 1991, by virtue of those authorisations, was returned to the same account on that day. One hundred and twenty-five units in the Burnett River Horticultural Project were fully subscribed. The information memorandum prepared by Mr Greg Johnson provided that for each 120 units subscribed 50 hectares would be planted and the General Partner (Agricultural Services) would borrow on behalf of the partnership $1.4 million. At p. 32A of exhibit RLW1 Mr Whear has set out diagrammatically the transaction as was described to him by Mr Greg Johnson and which he understood was to occur, and I have appended that diagram to these reasons. According to Mr Whear none of the transactions represented in that diagram ever took place. The receivers and managers were appointed to Rural on 26 July 1991. Mr Whear says that Woods & Johnson never refunded to Agricultural Services any of the moneys which had been the subject of the round robin of cheques on 28 June 1991 and no part of the sum of $2,162,457.60 has ever been refunded to Agricultural Services nor the $1.4 million referred to in the prospectus. Mr Whear swears that he has never authorised any person or had any discussions with -- 16 of 31 -- 16 Rural or Woods & Johnson to make any journal entry on the footing that the transaction (the loan) had actually proceeded. As soon as he learnt that the Farmer Johnson Group of companies had collapsed Mr Whear wrote to Woods & Johnson on behalf of Agricultural Services terminating the management agreement dated 25 June 1991. In paragraph 25 of his affidavit he swears that "not one cent was made available by Rural Finance to Agricultural Services or the partnership for any purpose whatsoever." The effect of that on the business of the partnership was disastrous. Rural has never provided Agricultural Services with an executed copy of the loan agreement or an account of the moneys held on deposit for either it or Woods & Johnson. Despite requests to the receivers and managers, Rural has not provided any information concerning the moneys deposited after the round robin of the five transactions on 28 June 1991. Agricultural Services submits that there is no evidence that the loan agreement was executed before the statutory demand was served and points to the evidence that by late September 1991 several months after the bank statement entries the loan agreement was not then in existence. Rural responds that although the agreement is not dated, its existence is noted in correspondence between the receivers and managers and Agricultural Services dated 18 June 1993. That letter was a demand from the receivers and managers to Agricultural Services to pay $350,000 being an interest repayment said to be required to be paid before 30 June 1993 pursuant to a loan agreement -- 17 of 31 -- 17 entered into between the parties the principal amount of which was $2.8 million. The statutory demand relied upon in the application was served on 11 November 1994 and Rural submits that the clear implication is that the loan agreement was executed well before the date of the statutory demand. The receivers and managers served a statutory demand for payment of $3.206 million dated 31 March 1994 on Agricultural Services and then brought an application to wind-up based on failure to meet that demand. The demand was based upon the alleged loan of approximately $2.8 million plus interest. That application was adjourned several times before it was dismissed by the Registrar on 14 October 1994. Prior to the service of the demand Mr Whear had met Mr David Anderson an accountant employed by the receivers and managers on several occasions. He was accompanied on one occasion by one of the auditors for the limited partnership and a member of the firm of the accountants for the limited partnership. He said that they attempted to explain to Mr Anderson the round robin of cheques and that no moneys were actually received by Agricultural Services from Rural. Mr Whear says that Mr Anderson has not shown him any document recording an advance of either $3.206 million or of $1.4 million from Rural to Agricultural Services despite requests. In his affidavit sworn in proceedings No 1464 of 1991, an action by Rural and the Farmer Johnson Group of Companies and Gregory, Francis and Anthony Johnson constituting the plaintiffs against the receivers and managers and Equus, -- 18 of 31 -- 18 Mr Anderson has sworn that he has carefully inspected and analysed the financial records of Rural and that "the accounting of Rural Finance are and were at the time of the appointment of the Receivers and Managers of Rural Finance in a state of disarray," (para 11A). In paragraphs 11(d) and (e) of that affidavit Mr Anderson swears that apart from the Blueberry Investor Loans (between Rural and investors in the Blueberry project) and a small number of Citrus and Red Claw Investor Loans, Rural had no other assets of any significance. He said that Rural never held any significant real cash and operated only by way of journal entry between the various plaintiff companies to record "so-called transactions" between itself and the other plaintiffs. Mr North has argued that this refers only to the companies in that action and not between the Farmer Johnson Companies and others. The statement is significant because it supports Agricultural Services' argument that as to what occurred on this occasion and that the receivers and managers have no clear documentation of a loan but only of a transaction. Rural's documents were subpoenaed for this hearing but were described as "unsatisfactory" by Mr Fraser. Its bank statement issued on 1 July 1991 for Account No 79-0156-00, the account from which and into which the round robin of cheques passed, shows a credit balance of $59.24 on 20 June 1991 and again on 28 June after the movement in and out of the account of the sums referred to earlier. As I have mentioned, there is no evidence as to when the alleged loan agreement upon which -- 19 of 31 -- 19 Rural bases its statutory demand was made. Correspondence appearing at pp. 37A, B and C of RLW1 dated 11 September 1991 and 12 September 1991 from Mr Hehir a taxation consultant in Canberra to an employee of Farmer Johnson Limited makes clear that it was not then in existence. Mr Hehir wrote "Subject to pressure of other work, are you able to assist by drawing the Loan Agreement between RF [Rural Finance] and ASPL [Agricultural Services] as GP [General Partner] of the limited partnership? As I see it, it would be a pretty straight forward Loan Agreement and the special provisions I will pick up in the Tripartite Agreement." One can assume that he was then requested to prepare the loan agreement because in his facsimile letter of 12 September Mr Hehir asked Miss Reynolds of Farmer Johnson Limited for particulars so that he could prepare the loan agreement. In another fax to Miss Reynolds bearing the same date Mr Hehir mentioned that the Tripartite Agreement which he had just finished "is a very tax sensitive document and must be kept strictly between the parties". It is clear from the memorandum relating to the Burnett River Horticultural project that borrowings of up to $1.4 million by Agricultural Services were contemplated as was the prepayment of management fees to Woods & Johnson. Rural points to the letter of 5 October 1992 being Exhibit DMA3 to Mr Anderson's affidavit filed by leave on 9 February 1995 from Feros Wee, the accountants to Rural addressed to Mr David Anderson as evidencing the loan "Our auditors require confirmation of - • the balance of the loans (including accrued interest) owing to the abovementioned company -- 20 of 31 -- 20 [Rural] by Agricultural Services Pty Ltd as General Partner for the Burnett River Horticultural Partnership as at 30 June 1992; • the terms of loans with Rural Finance Pty Ltd including interest rates, repayment schedules, security held, and any other matter you may consider to be relevant; • the balance of interest bearing deposits (including accrued interest) held by the abovementioned company in the name of Agricultural Services Pty Ltd as General Partner for the Burnett River Horticultural Partnership as 30 June 1992. Our records show that the balance at 30 June 1992 were [sic] as follows - Deposits with Rural Finance Pty Ltd 149,760.00 Loan owing to Rural Finance Pty Ltd 458,332.50" The report of the receivers and managers to Equus makes detailed reference to Burnett River Horticultural Project. The following appears at p. 13 "Details of the project were initially denied by senior JFM Group staff; however, when questioned on certain transactions in the accounts, details were made available to us. We are informed that in June 1991, Rural lent the BRP [Burnett River Project] $2.8M and investors in BRP purchased partly paid units for $1.2M. The BRP purchased project assets and short term capital improvements for a value of $1.2M. $2.2M was paid to Agricultural Services Pty Ltd as pre-paid management fees, who in turn subcontracted the management to W and J and paid $2.2M to them as pre-paid management fees. Of the unpaid balance, BRP paid to Rural $350,000 pre-paid interest and deposited $300,000 with Rural. W and J deposited the $2.2M with Rural." As mentioned, Mr Anderson swears in paragraph 11(e) of his affidavit that Rural never held any significant real cash and operated only by journal entry between the various Farmer Johnson companies to record "so-called transactions". That affidavit was in an action not involving Agricultural Services -- 21 of 31 -- 21 but nonetheless it is apposite to this enquiry. There is no evidence of any kind against that background as to the source of the funds for the loan of $2.8 million. Rural was not then meeting its financial obligations to Equus and shortly thereafter receivers and managers were appointed. There is evidence from which a court might be asked to conclude that no loan of $2.8 million or a lesser amount between that sum and $1.4 million was ever made. There is in my view a genuine dispute as to whether a loan of moneys ever occurred between Rural and Agricultural Services in the sense that any beneficial interest moved from Rural to Agricultural Services. The evidence of Mr Whear that Mr Greg Johnson told him that the purpose of the round robin was to obtain tax deductions prior to the end of the financial year 30 June 1991 to which they were arguably not entitled supports this. No material has been placed before the court by the receivers and managers from Mr Greg Johnson which would advance their position, although the argument of Agricultural Services had been known for some time. Alternatively, if there was a real loan then there is evidence sufficient to set aside the demand on the ground that Agricultural Services has an offsetting claim. That evidence supports an arguable case that Agricultural Services borrowed the money from Rural in reliance upon representations made by Mr Greg Johnson on behalf of Rural that Woods & Johnson and Rural would subsequently make funding available to the partnership and that Woods & Johnson would provide management -- 22 of 31 -- 22 services. At that time it is arguable that he knew that Rural was in no position to make such a loan or that Woods & Johnson would be unable to manage the project and justify the payment of the pre-management fee. Woods & Johnson went into liquidation shortly afterwards and Rural was then in financial difficulties. A further argument was advanced by Agricultural Services based on a letter written by Rural's solicitors after the hearing to the Stamps Office. I do not propose to elaborate on it as I do not conclude that the letter has the effect contended for as to the existence or otherwise of the loan. Solvency of Agricultural Services Mr Whear asserts that Agricultural Services is solvent. It is neither presently trading nor incurring any debts. It ceased to be General Partner of the limited partnership on 31 January 1993. The company's assets consist of a registered leasehold interest in the land of the partnership and an equitable interest in the same land by way of lien to secure moneys owing by the partnership for expenses incurred and services rendered as farm manager following the failure by Woods & Johnson to render any services. That equitable interest is protected by a caveat. Mr Whear has concluded that the value of the lease and the caveatable interest is approximately $150,000. He bases that opinion on an agreement for the sale of the land to the neighbouring landholder which has been negotiated at that price subject to the surrender of Agricultural Services' leasehold interest and the removal of -- 23 of 31 -- 23 the caveat. Mr Whear swears that Agricultural Services' liabilities consist solely of a debt to its accountants in the sum of approximately $700 which they are not pressing to have paid until the settlement of the sale of the land. Mr North for Rural has submitted that in the absence of Agricultural Services' balance sheets or audited accounts these assertions by Mr Whear are of limited value. He also points to the fact that Agricultural Services is obtaining funds to pursue its legal remedies and other litigation involving the farm property from some of the limited partners of the partnership. He submitted that a solvent company would not need to do this. There is certainly no prospect that Agricultural Services could pay the amount of the demand of $1.4 million. These are no doubt matters that directly concern the limited partners and no adverse inference as to solvency ought to be drawn. If it is insolvent in the relevant sense, it would argue that it is as a direct result of the conduct of Rural or at its direction. Stamp Duty Agricultural Services submits that since the loan agreement pursuant to which Rural seeks to wind-up the applicant is not stamped pursuant to s. 4A of the Stamp Act 1894 it cannot be a valid basis for a winding-up application. Section 4A provides: "An instrument chargeable with stamp duty (whether under this Act or under any prior Act) shall not, except in criminal proceedings, be given in evidence, or be available for any purpose whatever, unless it is duly stamped." Duty if chargeable would be levied upon the document by virtue -- 24 of 31 -- 24 of either s. 67A relating to loan applications or offers or s. 4. After the hearing the solicitors for Rural tendered the loan agreement to the Commissioner of Stamp Duties on 15 February 1995. Based on facts set out in that letter and, no doubt, upon its own internal advices, the loan agreement was stamped "no duty payable" and dated 17 February 1995. Rural relies upon the principle in Shepherd v. Felt & Textiles Ltd (1931) 45 CLR which concluded that instruments which are stamped during the course of a civil proceeding are as efficacious as to their stamping as if they had never fallen foul of the equivalent of s. 4A of the Stamps Act. Whether the assertions made in the letter to the Commissioner of Stamp Duties are correct or not is not a matter with which I should be concerned on this application. The agreement now bears the imprint of the Stamps Office and has therefore been duly stamped. Void Agreement Agricultural Services argues that if there were a loan agreement of the kind sought to be advanced by Rural the transaction in the context of the round robin of cheques is void and an agreement to defraud the revenue and refers to Boulevarde Developments Pty Ltd v. Toorumba Pty Ltd (1984) 84 ATC 4715. I propose to say nothing more about this argument. Suspicions might well be raised, but insufficient material is available, particularly in respect of the limited partners, for it to be elevated to an arguable case. -- 25 of 31 -- 25 Conclusions Agricultural Services has sought various relief. I have concluded that the statutory demand ought to be set aside. The company has sought an order in the alternative that Rural ought to be enjoined from further prosecuting the application to wind-up Agricultural Services and I should make some observations on that alternative basis of power. Rural has now presented two applications in respect of the same alleged loan agreement. The first was dismissed by the Registrar. The issues that have been ventilated on this hearing were the subject of discussions in the office of the receivers and managers of Rural and a lengthy solicitor's letter. The facts upon which the present statutory demand were based as to the amount of the loan and its date were not correct which a reasonably careful reading of Rural's documents must have revealed, although if that were all the demand could have been rectified, s. 459J. The receivers and managers have obligations to recover whatever may be properly owing to Rural and they have been hampered because the accounting records of Rural at the time of the appointment of the receivers and managers were in a state of disarray. Although Mr Whear and the accountants spoke to Mr Anderson about these matters on several occasions, Mr Whear, according to Miss Forrest's affidavit proved very difficult to track down from about September 1994 and seemed reluctant to provide something in writing for the receivers and managers. The matters to which Miss Forrest deposes which were not -- 26 of 31 -- 26 challenged or sought to be challenged (the affidavit being filed at the hearing) go more to questions of costs rather than to questions of principal relief, although it was submitted that Mr Whear's conduct encouraged the inference that his resistance was mere "bluster". Rural did not seek to argue that Part 5.4 of the Law excludes the power of the court to grant injunctive relief. Browlie J in Pacific Communication Rentals Pty Ltd v. Walker (1994) 12 ACLC 5 concluded that the inherent jurisdiction of the court remained to prevent an abuse of its process but he thought such occasions would be very rare. Dowsett J in Pacific Marine Developments Pty Ltd v. Yamaha Motor Australia Pty Limited (unrep dec No 239 of 1994 of 4 March 1994) agreed that the jurisdiction remained but was inclined to think that his Honour took too narrow a view of the power of the court to restrain abuse of process. Shepherdson J followed Browlie J in KFL International Pty Ltd v. Quentin Douglas George (unrep dec No. 194 of 1994 of 11 May 1994). In L & A Audio Acoustics Pty Ltd v. Pioneer Electronics Aust Pty Ltd (1982) 1 ACLC 536 McLelland J concluded that presentation of a winding-up application on the ground of insolvency will ordinarily be an abuse of process if the winding-up proceedings are bound to fail, for example, that the applicant would be unable to prove that he was a creditor; or if the application is made for some improper purpose, for example, using 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 -- 27 of 31 -- 27 is properly payable; or if issues will arise in the winding-up proceedings of a kind inappropriate for determination in such proceedings, for example, 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 to the principle generally see Williams v. Spautz (1991-1992) 174 CLR 509 at p. 518 et seq I agree with respect that the court retains an inherent power to prevent abuse of its process notwithstanding the "codifying" effect of the Law. I have concluded that the receivers and managers were aware of the substantial nature of the dispute between Rural and Agricultural Services as to the existence of the debt relied upon by Rural in its winding-up applications. In that circumstance had I not adhered to Agricultural Services' principal application it would seem appropriate that Rural be restrained from proceeding further with this application to wind-up. Costs Agricultural Services submits that the receivers should pay their costs based upon the principles in Knight v. FP Special Assets Ltd. Mason CJ and Deane J at pp. 192-3 of their joint judgment recognised that any general category of case in which an order for costs should be made against a non-party would encompass the case of a receiver of a company who is not a party to the litigation. Their Honours said "That category of case consists of circumstances where the party to the litigation is an insolvent -- 28 of 31 -- 28 person or a man of straw, where the non-party has played an active part in the conduct of the litigation and whether non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made." Miss Forrest's affidavit sets out and makes reference to the dealings between her firm and Mr Whear in relation to the first application to wind-up Agricultural Services. It can be inferred that there were a number of communications without the intervention of Agricultural Services' solicitors. In its letter of 6 September 1994 Rural's solicitors stated that they were not prepared to discuss the winding-up application adjournment or its discontinuance any further until Mr Whear had provided written material setting out the matters the subject of his assertions. Rural's solicitors regularly adjourned the hearing of the winding-up application through September and October 1994 largely, it seems, because of the unavailability of Mr Whear to deal with the matter. Mr Whear has now revealed that he was engaged in both matrimonial and other commercial disputes and/or litigation at the time in the Northern Territory. Mr Whear's solicitor's letter of 31 January 1995 as I have mentioned set out in some detail the basis upon which Agricultural Services argued that the winding-up order ought not be proceeded with. Rural's solicitors were not prepared to withdraw the application without Mr Whear being prepared to set down his account in writing. It was not until 3 February 1995 -- 29 of 31 -- 29 that they received the affidavit of Mr Whear. It may well have been that the receivers and managers concluded that there was a degree of "bluster" on the part of Mr Whear because he failed to keep a great many appointments to discuss the dispute with officers in the receivers' and managers' office from the time of the original statutory demand. Nonetheless, it has not been disputed by the receivers and managers that they had been aware of Agricultural Services' dispute with Rural as to the existence of or the basis for an action to recover moneys said to be lent pursuant to the loan agreement. After the solicitor's letter of 31 January 1995 it was by then clear that there was a substantial contest as to the existence or enforceability of the debt relied upon by the applicant. The receivers and managers ought not to have pressed ahead with the winding-up application even though Agricultural Services was out of time with respect to the statutory demand. Cavertina had then been decided by the Court of Appeal and even on a quite strict approach to Part 5.4 of the Law there was a real prospect that the court would not permit the company to be wound-up in the presence of a substantial dispute. From the beginning of February 1995 the receivers and managers ought to be responsible for the costs of the application to wind-up. Prior to that time it was not unreasonable of them to press for particulars of the defence in writing from Mr Whear (or his solicitors). The formal orders are: 1. Leave given to Agricultural Services to extend time to -- 30 of 31 -- 30 2 February 1995 (a) to bring an application to set aside the statutory demand by Rural Finance Pty Ltd (Receivers and Managers Appointed) served on 11 November 1994; (b) for complying with the requirements of s. 459G(3) of the Corporations Law. 2. Set aside the statutory demand referred to in 1. above. 3. Agricultural Services Pty Ltd to pay Rural Finance Pty Ltd's costs thrown away as a consequence of not seeking to set aside the statutory demand referred to in 1. above within the time limited by s. 459G of the Corporations Law to be taxed. 4. The Receivers and Managers of Rural Finance Pty Ltd to pay the costs of Agricultural Services Pty Ltd after 1 February 1995 in respect of the several applications before the court to be taxed save the costs of the two documents being the amended applications filed by leave on 9 February 1995. 5. Liberty to apply with respect to the orders as to costs on giving 2 days' notice in writing. -- 31 of 31 --