JUDGMENT No, ZEAL E25 IN THE FEDERAL COURT OF AUSTRALIA ) BANKRUPTCY DISTRICT ) No. NG 3685 of 1995 OF THE STATE OF NEW SOUTH WALES ) Re: ANTHONY BICANIC Debtor Ex parte: DERNAN PTY LIMITED Creditor REASONS FOR JUDGMENT EINFELD J SYDNEY 7 MAY 1995 A demand for the payment of $35,000 by the respondent to the applicant was made under section 459E(2)(e) of the Corporations Law on 7 November 1995. Although the demand itself does not say so, an affidavit of debt later filed by the applicant says that the debt arose from a loan in or about August 1988. As a consequence, this debt could not at the time of the issue of the statutory demand have been successfully sued for in a court of 'law because it was statute barred. The statutory demand was, according to an affidavit of the solicitor for the applicant, served on 7 November 1995 at the registered office of the respondent company which was at the office of its accountant, Robert Hauer, in Bondi Junction. demand;, was that the money be paid within 21 days but not "= -2- heard by the applicant or his solicitor in that period and accordingly the statutory period expired on 28 November. On 4 December the applicant filed an application to wind up the 'company on the basis of the failure to comply with the demand within the 21 day period laid down. The winding up application was not served until on or about 15 December 1995 when it was forwarded by pre-paid ordinary post to the registered address which was still in Hauer's office. Nothing was heard by the applicant thereafter until about 5 January 1996 when the envelope containing the winding up application was returned unopened and marked "refused", under a stamp showing a hand pointing to the original address, and the sign "Return to sender", Accordingly, on 8 January 1996 the application was faxed to the registered address and it seems also to have been dispatched by post to the secretary of the respondent company at the same address. Next, a letter dated 31 January from solicitors representing the respondent was received on 2 February by the solicitor for the applicant. That letter said in part: We refer to the writer's telephone conversation with Mr Morahan on the 28th and confirm that we have recently been instructed by Robert Hauer, "accountant, to act on behalf of Deran Pty Ltd, (Hormerly Ivans Butchery (Merrylands) Pty Ltd) in 'connection with your client's application to Wind Up the said company. I interrupt the reading of the letter to comment that Mr Morahan was the solicitor for the applicant. There is no evidence from 'anyone as to what was said in the conversation on 28 January or even if it took place. I go on with the letter: We are aware that our client did not within the period for compliance or at all make an application to set aside the statutory demand and, therefore, your client made an application to Wind Up our client pursuant to Sec 4599 of the Corporations Law. The letter went on to inform the applicant's solicitor that on 1 April 1995 the company Ivan's Butchery Merrylands Pty Limited, which was now known as Dernan Pty Limited, was sold to people named Ristevski. In other words, the company had passed out of the hands of the people who had borrowed the $35,000 from the applicant back in 1988. The Ristevskis have each filed an affidavit stating that they had purchased the shares in Dernan Pty Limited, as it now is, in March 1995, and in doing so placed reliance on information provided by a statutory declaration from aman named Ivan Spehar, who was a director of the company prior to the purchase, that there were no outstanding charges and no debts of the company. The Ristevskis subsequently gave instructions to their solicitor to resist the winding up application. by be - 4 - The evidence shows that Spehar and the applicant were previously conducting the butchery business known as Ivan's Butchery Merrylands Pty Limited, but the applicant ceased to be a director of that company at the end of 1990. The evidence establishes that there was in fact a loan or an investment by the applicant in Ivan's Butchery of $35,000 made on or about 2 June 1988. Hauer appears to have been the accountant of the business at that time as well as at the later times that have been mentioned. His affidavit says that the applicant's investment gave him an equity of 25 per cent in Ivan's Butchery. It was on Hauer's initiative that the $35,000 was listed in the books of that company as a loan by the applicant of all but $25 of the $35,000, with $25 being the price of the shares that the applicant was then purchasing. Hauer's affidavit goes on to aver that in his belief the applicant had for some years been employed as a shop manager at a butcher shop at Campbelltown also carrying on business under the name of Ivan's Butchery, but when Spehar decided to open a shop at Merrylands in June 1988, he invited the applicant to 'acquire a 25 per cent equity in that business for the $35,000. According to MHauer's understanding, the applicant borrowed $35,000 from a bank in order to pay it to Spehar so that the Merrylands business could commence. u f ~ 5 - The books of the Merrylands business at the time were entered up as 75 issued shares to Ivan's Butchery Pty Limited and 25 issued shares to the applicant. So far as the goodwill was concerned, Ivan's Butchery lent the new company $105,000 and the applicant lent $35,000 making a total for goodwill of $140,000. These two liabilities were carried forward into later years of accounts, 'but in September 1989 the applicant sold his shares in the Merrylands business in return for a 25 per cent equity in the Campbelltown business of which he had formerly been the manager. It appears that the applicant was then issued with 24 shares in the Campbelltown business. What happened to the other share is not immediately clear. Then in July 1990 an accounting entry was passed through the Merrylands business extinguishing the company's liability to the applicant for the balance of the $35,000 that had not then been paid. Later the applicant sold his 24 per cent interest in the Campbelltown business, and later still the Ristevskis bought the shares in the Merrylands business that were then presumably owned entirely by Spehar. In his affidavit Hauer says further that: The arrangements in relation to equity swap and the share transfers in relation to the Merrylands and Campbelltown businesses between 1988 and 9 occurred with the. full knowledge of Anthony Bicanic (that is the applicant) and that he is fully aware of the factual - 6- situation regarding his alleged claims for moneys outstanding. This evidence was not objected to, and there was no cross- examination on or any contrary evidence to it. What is argued is that that particular part of Hauer's evidence actually does not really go to the issue whether the applicant was owed any money at all after 1990 when it appears to have been written off because all that he has said he knows about is "the equity swap and the share transfers," and "the factual situation regarding his alleged claim for moneys outstanding." It is of course true that Hauer could have been more specific about what he was talking about in this regard, and it is also true that Bicanic could have put on an affidavit saying that he knew nothing about these matters at all and in particular knew nothing about the write off of his debt. This is important because the claim now made is that the application for winding up should be dismissed on the applicant's application but, so the applicant says, there should be no order to costs. The respondent, on the other hand, claims its costs from the applicant. The applicant's argument is that he or his solicitor was told nothing at all about the situation in relation to this debt, either in response to the statutory demand or in response to the application for winding up, until effectively the letter from the solicitors for the respondent received on 2 February. 'What happened thereafter was that on 7 and 14 February there were telephone conversations between the respective solicitors wherein the respondent's solicitor was either informed or it was intimated that the applicant would withdraw the summons but that he was seeking costs. The desire or intention to withdraw the summons appears to have been motivated by the fact that the applicant was really seeking to get his money back from Spehar and did not wish to penalise the Ristevskis with whom he had had no contact at all. There were some discussions which passed for negotiations about the amount of costs but no agreement was ever reached. As a consequence, the application for winding up came before the Court on 22 February 1996 which was its return date. There was no appearance by or for the respondent and the matter was adjourned to 28 March, but at the end of business on 27 March, the respondent faxed to the applicant's solicitor some affidavits and a letter. When the matter was called on for hearing on 28 March, the applicant stated that he wished to have the application dismissed only if there were no orders as to costs. The entitlement of the respondent to a costs order was 'contested, the application was adjourned to 26 April when it was not reached, and finally adjourned to today. f -g- The argument of the applicant now is that if the respondent had drawn to the applicant's attention long before the letter of 31 January was received on 2 February the facts as then disclosed, the application could have been dismissed with minimal costs whereas it was not because there was no agreement as to costs. As a consequence, the matter has just snowballed until no doubt now the costs are quite substantial. The respondent, on the other hand, argues that the applicant's application has failed "in the sense that it has been withdrawn and that the respondent was never presented with any suggestion that the respondent's costs should be paid but rather that the respondent should pay the applicant's costs, which as the respondent says, was quite absurd in the circumstances. I think that the respondent's argument should prevail. There seems to me to be no obligation upon a party sued for a sum of money which it knows is not payable and which it knows or has good reason to believe the applicant also knows is not payable. 'In particular the strange way in which this case has proceeded seems to me to require a comment or two. It really is quite improper for lawyers to allow a case to string out when there really is nothing of substance in dispute between them. If the matter had been properly settled in say January 1996, long before counsel had been briefed in the matter, the costs would have been much less than they are now, and the idea that each party should pay his and its own costs would have been sensible. aaa =- 9 " Even if the respondent had insisted upon an order for costs, its costs would have been much lower than today and some sensible compromise could have been reached then. If the applicant knew nothing at all about the writing off of his debt in July 1990, he could easily have sworn an affidavit to say so and it seems to me that that is a stark absence from the evidence presented to the Court in this case. It is, as I said, also true that Hauer's affidavit might have been better expressed and might have been more specific, but he did say without objection and without cross-examination or request for cross~examination that Mr Bicanic was: ... fully aware of the factual situation regarding his alleged claim for moneys. outstanding. There is no other claim for moneys outstanding other than for the $35,000. It seems to me to be reasonably inferential from what he says, particularly as there was no contrary evidence and no objection or cross-examination, that what Hauer was saying was at least prima facie or arguably that Bicanic knew perfectly well that the debt had been written off. It is also a very odd thing that so many years after the loan was made, and for that matter so many years after the debt was written. off, that without any knowledge at all of who were -10- running the Merrylands business at the time, Bicanic took the route of a statutory demand and an application to wind up, in the full knowledge that he could not have sued for the money in 'law because it was statute barred. For that matter, he did so without any search or inquiry as to whether the Merrylands business was still under Spehar's governance or not. As it happens, it was not, and it is clear that Bicanic has now withdrawn his winding up application because he did not want to penalise the Ristevskis for any failure on the part of Spehar. This seems to me to be an extraordinary use if not abuse of court process. There is no evidence before me that it has now or has ever had anything other than a harassing motive. The 'fact that Bicanic did not, despite the fact that an affidavit was read from him, seek to give any evidence to disclose his knowledge to the Court of the facts of the matter or his intentions when he commenced this process to recover his debt, is also revealing. The ease with which he was willing to withdraw the application regardless of the question of costs was itself testament to the fact that no inquiries were made. There seems no doubt that he had the intent to follow Spehar, and when Spehar was found to be no longer involved, Bicanic was willing to go home. It algo seems odd to me that when he was offering to withdraw i his summons, presumably on the basis that Spehar had nothing ws -u1- more to do with the company and that the Ristevskis should not be penalised or harassed, he nevertheless wished to penalise the Ristevskis to the tune of more than $1000 in legal costs that seem to have been incurred because he was pursuing Spehar wrongly in the sense that Spehar had nothing more to do with the Merrylands business. In the absence of any explanation of all these matters, it seems to me that the ordinary rule should apply, namely, that the party that succeeds in the proceedings ought to have its costs. In this case, the successful party is the respondent. On the application of the applicant, I therefore order that the application to wind up be dismissed and that the applicant pay 'the respondent's costs of the application. | certify that this and the = 7.2 Preceding pages are a true copy of the Reasons for Judgment herein of his Honour Justice Einfeid Dated: u