New South Wales Supreme Court CITATION : Cedars Concrete Services v Maatouk [2006] NSWSC 884 HEARING DATE(S) : 30 August 2006 JUDGMENT DATE : 30 August 2006 JURISDICTION : Equity JUDGMENT OF : Campbell J EX TEMPORE JUDGMENT DATE : 08/30/2006 DECISION : Agreement to compromise claimed debt entered. No debt owing to plaintiff in winding up proceedings. Declaration accordingly made. CATCHWORDS : CORPORATIONS – winding up – statutory demand – no application made to set aside statutory demand – before hearing of winding up application, litigation seeking a declaration that debt on which statutory demand is based is not owing brought on for hearing – finding that debt not owing – whether appropriate to make a declaration to that effect – CONTRACT – formation of contract – whether contract to compromise claimed debt had been entered – decision on this topic turns on own facts LEGISLATION CITED : Corporations Act 2001 (Cth) Legal Profession Act 1987 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 CASES CITED : Braams Group Pty Ltd v Miric (2002) 44 ACSR 124 B Seppelt & Sons v Commissioner of Main Roads (1975) 1 BPR 9147 PARTIES : Cedars Concrete Services Pty Limited - Plaintiff Peter Maatouk - Defendant FILE NUMBER(S) : SC 2841/06 COUNSEL : S Golledge - Plaintiff I Todd - Defendant SOLICITORS : Uther Webster Evans - Plaintiff Maatouks Law Group - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J WEDNESDAY 30 AUGUST 2006 2841/06 CEDARS CONCRETE SERVICES PTY LTD v PETER MAATOUK 1068/06 PETER MAATOUK v CEDARS CONCRETE SERVICES PTY LTD 5722/05 CEDARS CONCRETE SERVICES PTY LTD v PETER MAATOUK JUDGMENT – Ex Tempore 1 HIS HONOUR: A dispute between a solicitor and his client concerning costs has spawned three different sets of proceedings. The solicitor, Mr Maatouk, served a statutory demand on the client, Cedars Concrete Services Pty Ltd, on or soon after 12 October 2005. That statutory demand related to a sum of $29,561.40. That sum was calculated by taking the amount of $42,061.40, which was said to be owing by the client pursuant to bills of costs for services rendered, and deducting from it an amount of $12,500 which had been paid. 2 The serving of that statutory demand led to the Company beginning proceedings number 5722/05 (which I will refer to as the Statutory Demand Proceedings), seeking to set aside the statutory demand. That set of proceedings has been abandoned, I infer because it was realised that it had not been commenced within the 21-day period which is required for the commencement of any such proceedings, under section 459G Corporations Act 2001. The only live issue in them now concerns costs. 3 The statutory demand was not complied with, and thereupon Mr Maatouk began winding-up proceedings against the Company. Those winding-up proceedings are before me today, but not for final hearing. They are before me only for the purpose of interlocutory directions. 4 The third set of proceedings, number 2841/06, is a set of proceedings which the Company began against Mr Maatouk, on 19 May 2006. In those proceedings, the Company seeks a declaration that as at 5 September 2004 all claims for payment for legal services by Mr Maatouk against the company had been discharged by an accord and satisfaction, and a declaration that as and from 5 September 2004 Mr Maatouk was no longer a creditor of the company in respect of any claims for payment of legal costs, and specifically was no longer a creditor in respect of any claims he made in bills of costs dated 23 June 2004 and 5 August 2004. 5 It is these last-mentioned proceedings, which I will refer to as the Debt Declaration Proceedings, which are before me for final hearing today. 6 Two separate issues arise in the Debt Declaration Proceedings. The first of them is whether claims for payment for legal services, which Mr Maatouk made by memorandum of fees rendered on 23 June 2004 and 5 August 2004, have been compromised in a binding way. The second - which really arises only if I decide that there has been such a compromise - is whether it is appropriate to make the declarations which are sought. There are two related grounds upon which it is submitted that it would not be appropriate to make any such declarations - lack of utility, and that the making of the declarations would subvert the statutory scheme for winding up of corporations pursuant to statutory demands, under Part 5.4 of the Corporations Act. Was There a Compromise? 7 Resolution of the first question involves consideration of a course of correspondence which passed between the parties, and the circumstances leading to the rendering of the disputed memorandum of fees. 8 Pursuant to costs agreements, Mr Maatouk did various kinds of work for the Company. The Company was involved in some building development projects. One type of work involved seeking to obtain re-financing of some borrowings. That work involved, it appears, negotiations with the Arab Bank, and also work concerning two other proposals for the obtaining of finance - one by Ms Katherine Marroun obtaining funds which were on-lent to the company, and another by A & C Ayoub and M & A Marroun obtaining funds which were on-lent to the Company. These latter two proposals did not proceed, but some work was done in connection with them. 9 On 23 June 2004 Mr Maatouk sent to the Company a tax invoice relating to work done in connection with those three matters. That tax invoice sought payment of $14,136.25. 10 Mr Marroun, the principal of the Company, was dissatisfied with the amount of that memo of fees, and sought to persuade Mr Maatouk to accept $5,000 for it. 11 On 5 August 2004 Mr Maatouk sent a total of 10 separate memos of fees to the company. Four of them related to the preparation of contracts for sale concerning four home units contained in one of the building developments in which the Company was engaged, and the other six related to the preparation of six contracts for sale of home units in another of the developments in which the Company was engaged. Each of those memos of fees was for $550. 12 Around the time of sending those memos of fees, Mr Marroun consulted other solicitors, Elias Gates & Associates. On 18 August 2004 Elias Gates wrote to Mr Maatouk requesting him to itemise each file, title deed and document that he had in his possession on behalf of both the Company, and another company, A & S Building Development Pty Ltd with which it was associated, and which had been a joint client in the various matters in which Mr Maatouk acted. Elias Gates & Associates were making that request "with a view to seeking instructions regarding your offer of $12,000 for fees you say are owing." 13 Mr Maatouk replied the same day, saying, "We note that our offer was for $12,500.00 to be paid by way of bank cheque or cash, and this covers all professional fees and invoices provided to your clients as of today's date. This figure is by way of compromise and on a without prejudice basis. ... We note that our offer is on the basis that the above amount is paid by close of business tomorrow." 14 The amount of $12,500 was not paid the following day. However, on 24 August 2004 Elias Gates sent to Mr Maatouk a photocopy of two cheques, totalling $12,500. Those cheques were not bank cheques, but rather cheques drawn on bank accounts of which the Company was one of the proprietors. Elias Gates said, "Accordingly, in order to exchange the cheques for our client's files and documents as well as deeds, would you kindly list each item that you will be handing over." 15 On 24 August 2004 Mr Maatouk wrote back providing a list of the documents he offered to hand over, and continuing, "We note that the cheques provided to you are not bank cheques and as you can appreciate we are hesitant in releasing any files until they have cleared. We provide you with our undertaking that we shall forward to you the above list of documents once your client's cheque has cleared." 16 Elias Gates replied on 24 August 2004, saying, "... we need confirmation that upon the two cheques being cleared, not only that you will forward the documents you have listed in your said letter, but you will also make no further claim against our clients for costs you allege is outstanding." 17 Mr Maatouk replied the same day, and provided confirmation, "… that upon clearance of the two cheques no further claims against your clients will be made for our professional costs. Please forward the cheques in tonight's DX in order for us to finalise this matter once and for all." 18 The cheques were sent to Mr Maatouk through the document exchange under cover of a letter dated 25 August 2004 from Elias Gates. The covering letter requested advice about when the cheques had cleared. 19 Mr Maatouk did not reply until 5 September 2004 - he had, it seems, been involved in a court matter which occupied five days of his time. On 5 September 2004, he wrote back, saying, "We note that your clients cheques have cleared, please advise if you would like us to send your files to your office via DX if you would prefer to arrange a courier to collect them from our office. We confirm that we shall require Cedars Concrete, A & S Building, Mr and Mrs Marroun and Mr and Mrs Ayoub to provide us with a signed deed confirming that this now puts an end to all matters between them and this firm as we note this firm only accepted their offer on this basis and does not wish to enter into any further arguments or unpleasant scenes in the future. Given the nature of the relationship between the parties a confidentiality clause is also required. Similarly we will be more than happy to sign the same deed." 20 On 6 September Elias Gates replied, referring to the letter of 5 September, and saying they: "... are amazed at part of its contents. Our client does not have to sign a deed or any documents as you have stipulated in your said letter. As you are aware, in exchange for the cheque for $12,500 our client was to receive all files, documents, deeds etc. You have acknowledged this previously on a number of occasions. The files should have been couriered to our office last week. Do you wish us to organise a courier to collect the documents from your office today?" 21 On 9 September Elias Gates wrote again to Mr Maatouk, providing an itemised list of the documents which their courier had collected. The letter continued, "It has come as a complete surprise to the writer that what you have forwarded is the work that you carried out relating to the fees you previously rendered which exceeded $27,000, in addition to the contracts prepared for Calder Road and Haldon Street. Although the total of all these accounts exceeded $30,000 we note that you agreed to accept $12,500 on the basis that you will not claim any further costs from our clients. We may be mistaken regarding the details of your attendances for all respective matters, however, this issue needs clarification as it appears from what you have provided to me being the clients files, the writer cannot ascertain where your cost estimates exceeding $30,000 could have been calculated from. It would be appreciated if you can clarify this issue". 22 Mr Maatouk replied to that facsimile, saying that there were some further documents which he would forward. He pointed out that not all the work which he had done on the matters was work which generated paper. He provided a copy of extracts from his diary, which gave some confirmation of attendances on Mr Marroun. 23 It may be of some relevance here to mention that Mr Maatouk and Mr Marroun were related by marriage, and indeed Mr Maatouk was Mr Marroun's Godson. In these circumstances, their relationship was not wholly an arms length solicitor/client relationship. 24 On 15 October Elias Gates wrote back, referring to previous correspondence, and saying that the clients, "… feel that in order to satisfy themselves as to the costings, they require itemised Tax Invoices." 25 The memorandum of fees of 23 June 2004 provided a general description of the types of work which had been carried out on the three matters for which it charged, and gave what it said was a conservative estimate of the time spent on the matter, which it then costed at an hourly rate. It was not, however, itemised. 26 Mr Maatouk replied on 18 October 2004 requesting that, "… should your client require an itemized tax invoice please arrange for [the documents] to be returned to our office along with all documents provided to you in these matters." 27 He said, "We hereby formally advise that we are more than happy to comply with your clients request, however, in the event that the itemized invoice exceeds the amount paid by your client, we will demand that the difference be paid and we will take all necessary action to recover same." 28 On 19 October Mr Maatouk wrote again, in the course of which he said, "… please also confirm that your client is aware that we shall seek the recovery of the shortfall from him in the event that our invoice exceeds the moneys paid." 29 On 28 October Elias Gates reiterated the request for preparation of an itemised tax invoice, but noted that the 10 invoices in relation to the preparation of contracts were already itemised, and no further itemisation of those was required. 30 On 29 October Mr Maatouk again stated to Elias Gates that his firm would be applying to have all tax invoices prepared by the firm assessed, and would seek to have recovery of the full payment on any shortfall. 31 There was some delay, as is hardly surprising, in the preparation of a fully itemised tax invoice. It was eventually available by 4 April 2005, on which date it was sent to Elias Gates. The total amount owing pursuant to that invoice was $42,061.40. On 4 April 2005 Mr Maatouk required payment of the balance of $29,561.40. It is that demand which lead, eventually, to the service of the statutory demand. 32 The Company contends that an agreement was arrived at between it and Mr Maatouk by 5 September 2004, under which Mr Maatouk capped his costs at $12,500. 33 I accept the plaintiff's contention in that respect. There had been negotiations, and a consensus was arrived at, the essential terms of which was that Mr Maatouk would not claim more than $12,500 for his fees, and would deliver up all files, in return for cleared funds of $12,500. 34 The attempt, by the letter of 5 September 2004, to require a signed deed was one which was made at a time when Mr Maatouk had already received the cleared funds. It came, in my view, too late to alter the agreement which had already been made, and had already been acted upon. 35 I recognise that in deciding whether parties had entered into a binding agreement it is not only permissible, but necessary, for the Court to take into account subsequent communications: Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622; B Seppelt & Sons v Commissioner of Main Roads (1975) 1 BPR 9147. Even taking into account the subsequent events which I have mentioned in this judgment, in my view, the objective bystander, noting the communications which had passed between the parties, would conclude that an agreement had been reached, by 5 September 2004, with the essential terms I have mentioned. A very powerful indicator that such an agreement had been reached was the fact that the company paid $12,500. 36 The demand for an itemised tax invoice does not, it seems to me, detract from this conclusion. It is to be noted, first of all, that the demand was put in terms of an itemised tax invoice - it did not use the language of the Legal Profession Act 1987, of seeking a bill of costs. 37 As well, I take into account that the Legal Profession Act 1987 conferred on a client a right, under section 199, to apply for an assessment of a solicitor's bill, even if the costs have been paid without there being a bill of costs which met all the formal requirements of that Act. Further, section 189 of that Act provided that any provision, not only of a costs agreement, but also of any other agreement, that purported to waive the right to an assessment of costs, was void. Against this background, I would not regard the request for an itemised tax invoice as an attempt to undo the agreement which had been reached. 38 Further, even though Mr Maatouk made clear, repeatedly, that he claimed the right to charge any difference between the $12,500 which had been paid, and the amount of any itemised tax invoice, no representative of the Company ever agreed he had such a right. Ought the Declarations Be Made? 39 Section 459G Corporations Act permits an application to set aside a statutory demand to be made only within 21 days after the date of service. In any such application, there is provision under section 459H for the demand to be set aside if the Court is satisfied that there is a genuine dispute about the existence or amount of a debt to which the demand relates, or if the company has an offsetting claim. Section 459S 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 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." 40 Mr Todd, for Mr Maatouk, submits that it would be subversive of the scheme of Part 5.4 to make a declaration of the present kind. I do not accept that that is so. 41 One of the policies underlying section 459S is that it should not be open to a company, which has not sought to challenge a statutory demand, to raise a contention, on the hearing of a winding up application, that the plaintiff lacks standing to bring the application. Part of the reason for this is that winding up proceedings ought be decided as promptly as possible. The procedure for challenging statutory demands enables a statutory demand to be set aside if there is a real question requiring investigation about whether the debt claimed is actually owing. If a company has foregone the opportunity to challenge the statutory demand, permitting a trial (on a final basis, not one with the low threshold involved in statutory demand proceedings) in the course of the winding-up proceedings of whether the debt was actually owing has the potential to seriously protract and delay the winding-up proceedings. Such a course should be permitted only if the Court gives leave. Further, the discretion of the Court to grant leave is curtailed by section 459S(2). 42 If I were to make a declaration of the kind the plaintiff seeks, the effect of section 459S would, in my view, not be subverted. The winding up proceedings would not be protracted or delayed by a trial about whether the debt is really owing, because I have already decided that the debt is not owing. Even though I have made that finding, the standing of Mr Maatouk to bring the winding up application would be preserved. Given that his standing was preserved, it would still be open to any other creditor to seek to be substituted, in Mr Maatouk's application, if he did not wish to proceed with it himself. Further, it would still be the case that a statutory demand had been served, and still be the case that that statutory demand had not be been complied with, and that therefore the statutory presumption of insolvency arose. It would be for the Company to displace that statutory presumption, by positive evidence showing its solvency. Further, in so doing it could rely on the ground that (as I have just held) it owes no debt to Mr Maatouk only if the court granted leave, under section 459S, for that ground to be relied upon. 43 It is conceivable - the evidence in the present application does not enable me to express a view as to its likelihood - that on an application for winding up, the question of whether a debt was owed to Mr Maatouk could make a difference to the solvency of the Company. If that were the situation, that could be a situation in which, taking into account other circumstances, a court might decide to grant leave under section 459S(2). 44 That there could be, between the expiry of the time for challenging the statutory demand and the hearing of the winding up application, a court decision that the debt claimed is not owing, was expressly contemplated by Ipp JA in Braams Group Pty Ltd v Miric (2002) 44 ACSR 124 at 135, [79]. 45 By making the declaration which is sought in the present case, even if the winding up proceedings were to fail, a live controversy between Mr Maatouk and the Company would be stilled, concerning whether he is able to claim any more money in relation to the work he did. Further, if it were to be the case that the winding-up application succeeds, the making of the present declaration would serve a useful purpose, in that it would decide a question - which is apparently still a live one - of whether Mr Maatouk was entitled to claim or to succeed in having any proof of debt in any such winding-up admitted. I accept Mr Golledge's submission that this latter consideration does not involve any subversion of the usual policy that the Court adopts, of leaving liquidators to decide questions of whether proofs of debt should be admitted, and having the Court involve itself in such questions only when and if there is an appeal from a liquidator's decision concerning admission of proof of debt. That is because, as at today, it is not possible for me to know whether there will be a liquidation. As at today, there is no liquidator for me to leave that question to. 46 For these reasons, I am satisfied both that the making of the declarations sought does not involve a subversion of the policy of Part 5.4, and also that there is utility in making the declarations. I make declarations 1 and 2 in the summons dated 19 May 2006. 47 I order the defendant to pay the plaintiff's costs in proceedings 2841/06. 48 In relation to the costs orders in proceedings 2481/06 I order that those costs not be recoverable until the conclusion of proceedings 1068/06. I give directions in accordance with a document I shall entitle short minutes which I initial and date today's date. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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