New South Wales Supreme Court CITATION : LawCover Pty Ltd v Swart [2007] NSWSC 306 HEARING DATE(S) : 02/04/07 JUDGMENT DATE : 5 April 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Summary judgment for plaintiff on claim for order setting aside statutory demand CATCHWORDS : CORPORATIONS - winding up - statutory demand - application for order setting aside statutory demand - demand based on alleged judgment debt - no accompanying affidavit - where party serving demand had obtained money judgment against solicitor and declaration that solicitor's insurance responded - whether "judgment debt" owed by insurer to party serving demand Bankruptcy Act 1966 (Cth), s.117 Corporations Act 2001 (Cth), ss.459E(3), 459G LEGISLATION CITED : Insurance Contracts Act 1984 (Cth), s.51 Supreme Court Act 1970, s.75 Uniform Civil Procedure Rules 2005, rule 13.1 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 CASES CITED : Re Harrington Motor Co Ltd [1928] Ch 105 Swart v Carr; Swart v LawCover Pty Ltd [2006] NSWSC 1302 Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (1994) 14 ACSR 565 PARTIES : LawCover Pty Limited - Plaintiff Daniel Frederick Swart - Defendant FILE NUMBER(S) : SC 1657/07 COUNSEL : Mr D.R. Pritchard - Plaintiff Defendant in person SOLICITORS : Ebsworth & Ebsworth Lawyers - Plaintiff Defendant in person IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J THURSDAY, 5 APRIL 2007 1657/07 LAWCOVER PTY LIMITED v DANIEL FREDERICK SWART JUDGMENT 1 I am dealing with an interlocutory process filed by the plaintiff ("LawCover") on 20 March 2007. LawCover seeks, pursuant to rule 13.1 of the Uniform Civil Procedure Rules 2005, summary disposal of the proceedings by way of an order granting summary judgment for the plaintiff. 2 LawCover maintains that the defendant ("Mr Swart") has no conceivable defence to LawCover's substantive claim, which is a claim under s.459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on LawCover by Mr Swart. 3 The statutory demand is dated 13 February 2007 and was served on that day. The alleged debt to which the demand relates is described in its schedule which is as follows: "SCHEDULE Description of the debt Amount of the debt 1. Supreme Court of NSW Equity Division Judgment Debt ordered on the 12 December 2006 in proceeding No. 3022 of 2003 and proceeding No. 1395 of 2004 $1,145,460.30 ___________________________________________________________ 2. Interest thereon from the 12 December 2006 when orders were entered in the registry to the 13 February 2007 $ 19,457.13 ___________________________________________________________ Total Amount $1,164,917.43 " 4 No affidavit of the kind contemplated by s.459E(3) accompanied the statutory demand. Since that provision requires an accompanying affidavit "[u]nless the debt … is a judgment debt", the absence of an affidavit reinforces the assertion in the statutory demand itself that the alleged debt on which Mr Swart relies is a judgment debt owed by LawCover to him. Indeed, if there is a debt but it is not a judgment debt, the entire absence of accompanying affidavit would of itself lead inevitably to an order setting aside the demand: Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (1994) 14 ACSR 565. 5 It is the proposition that there is a judgment debt owed by LawCover to Mr Swart that LawCover considers entirely unsustainable. LawCover accepts that Mr Swart was successful in obtaining certain relief against it in proceedings in this court in which orders were made on 12 December 2006. But LawCover says that no judgment debt (indeed, no debt at all) thereby came to be owed by it to Mr Swart. 6 Before dealing with that contention, I should digress briefly to mention the matter of service. The statutory demand was, as I have said, served on 13 February 2007. Under s.459G(2), an application for an order setting aside a statutory demand "may only be made within 21 days after the demand is so served". Section 459G(3) makes it clear that an essential ingredient of this concept of making an application is service of both the application itself and a supporting affidavit within that period of 21 days. The court has no power to extend the period: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. 7 Mr Swart maintains that service was not effected within the stipulated period of 21 days. The last day of the 21 day period was 6 March 2007. I have, in the affidavit of Mr Newton, solicitor, evidence that the relevant documents were delivered by Australia Post to the address specified in paragraph 6 of the statutory demand; and that such delivery occurred on 6 March 2007 as a result of dispatch by Mr Newton by express post. On the basis of that evidence, I am satisfied that the s.459G application was duly "made" as referred to in that section. That the documents may not have actually come to the notice or attention of Mr Swart until some later time is beside the point when the question is as to service. 8 I return, therefore, to the contention of LawCover that no judgment debt has ever come to be owed by it to Mr Swart. 9 Orders and declarations were made on 12 December 2006 in two separate proceedings which had been heard together (3022 of 2003 and 1395 of 2004). In each case, Mr Swart and his wife were the plaintiffs. In 3022 of 2003, the sole defendant was Mr Carr, a solicitor. In 1395 of 2004, there were two defendants, being Mr Carr and LawCover. The orders made on 12 December 2006 were as follows: "1. In proceedings 3022 of 2003: (a) judgment for the First Plaintiff [Mr Swart] against the Defendant (Mr Carr) in the sum of A$1,145,460.30; (b) judgment for Mr Carr against the Second Plaintiff [Mrs Swart]; (c) Mr Carr to pay the First Plaintiff's [Mr Swart's] costs of proceedings 3022 of 2003 on the ordinary basis and otherwise no order as to costs; (d) judgment for the Cross Defendants [Mr Swart and Mrs Swart] on the Cross Claim; (e) the Cross Claimant, Mr Carr, to pay the Cross Defendants' costs of the Cross Claim on the ordinary basis and otherwise no order as to costs; (f) the enforcement of the judgment in subparagraph 1(a) above be stayed for 28 days." "2. In proceedings 1395 of 2004: (a) declaration that clause 2 of the Certificate of Insurance for the period 1 July 2000 to 30 June 2001 (Certificate) issued under the authority of HIH Casualty and General Insurance Limited (HIH) Master Policy No. 98NSW14 responds up to an amount not exceeding $1,500,000 in excess of Mr Carr's Self Insured Retention in respect of: (i) Mr Carr's liability resulting from the orders made in subparagraph 1(a) above; (ii) Mr Carr's liability resulting from the orders made in subparagraph 1(c) and subparagraph 1(e) above; and (iii) all costs and expenses incurred by the Defendant, LawCover Pty Limited (LawCover), as agent for HIH, in the investigation, defence or settlement of the claim made against Mr Carr in proceedings 3022 of 2003; (b) declaration that subclauses 5(b)(ii) and (viii) of the Certificate do not apply in respect of Mr Carr's liability resulting from the orders made in proceedings 3022 of 2003; (c) LawCover to pay, on the ordinary basis, the First Plaintiff's [Mr Swart's] costs of the declarations made in subparagraphs 2(a) and (b) above, which do not include costs of: (i) the matters pleaded in paragraphs 75 to 76F inclusive of the Further Amended Statement of Claim in proceedings 1395 of 2004 (FASOC); (ii) the prayers for relief at subparagraphs 77.2 and 77.4 to 77.10 inclusive of the FASOC, and otherwise no order as to costs; and (d) the Plaintiffs [Mr Swart and Mrs Swart] to pay, on the ordinary basis, LawCover's costs of the Section 44A issues and otherwise no order as to costs." 10 In resorting to the statutory demand process against LawCover in the way he has, Mr Swart has proceeded on a twofold view about the effect of the orders of 12 December 2006: first, that they are the source of a right on his part to receive payment from LawCover; and, second, that the concomitant obligation of LawCover to make payment to him is a "judgment debt" as referred to in s.459E(3). 11 Neither of these views is correct. 12 Mr Swart recovered judgment against Mr Carr in the sum of $1,145,460.30. Upon the making of the orders of 12 December 2006, a judgment debt of that amount undoubtedly arose in favour of Mr Swart and against Mr Carr. But Mr Swart did not recover any money judgment against LawCover. Rather, he obtained what s.75 of the Supreme Court Act 1970 refers to as a "binding declaration of right" recognising, in the particular context, a right on the part of Mr Swart to have LawCover act and perform in a defined way vis-à-vis Mr Carr. The court confirmed, for the benefit of Mr Swart, the existence of Mr Carr's right to be indemnified by LawCover. 13 Mr Swart conducted his own case before me. He did so in an efficient and effective way. He took me to the certificate of insurance for the period 1 July 2000 to 30 June 2001 referred to in declaration 2(a) made on 12 December 2006. The operative words of the certificate (in clause 2) are "the Insurer shall indemnify the Assured … against amounts payable by the Assured to claimants …". The obligation of the "Insurer" is thus an obligation owed by it to the "Assured" which, as the definition of that term makes perfectly clear, is the solicitor or firm conducting a legal practice. The certificate of insurance is thus the source of a right of the solicitor as against the insurer, being a right to be indemnified by the insurer against amounts payable by the solicitor to claimants. 14 Mr Swart also referred me to various dictionary definitions of "indemnify". They showed nothing new. The concepts are clear. If and to the extent that claimants (no doubt principally clients) become entitled, in relevant circumstances, to the payment of money by the solicitor, the insurer must make good to the solicitor, and protect the solicitor against, the financial consequences of the obligation of the solicitor to make payment to the claimants. The person indemnified by the insurer is the solicitor, not the client of the solicitor (claimant). The insurance and indemnity create no right of the client (claimant) against the insurer, so far as receipt of payment is concerned. No debt is owed by the insurer to the client (claimant). 15 Mr Swart placed emphasis on paragraph 109 of reasons for judgment delivered by Palmer J on 1 December 2006 (Swart v Carr; Swart v LawCover Pty Ltd [2006] NSWSC 1302): "For these reasons, I conclude that: – in performing services for Mr Swart under the JVA, Mr Carr was acting in his capacity as a solicitor; – Mr Carr's liability to Mr Swart for breach of Clause 4 of the JVA is a liability incurred in connection with the business of practising as a solicitor which Mr Carr was undertaking; – the Policy responds to the claim by Mr Swart against Mr Carr." 16 The reference here to "the Policy" is a reference to the certificate of insurance mentioned above. In that connection, I quote paragraph 62 of Palmer J's judgment: "Under the Certificate of Insurance current in respect of Mr Carr at the relevant time ('the Policy'), LawCover is required to indemnify Mr Carr against amounts payable by him to claimants (including costs) arising from a claim in respect of any description of civil liability incurred in connection with 'the Practice'. 'The Practice' is defined to mean : '… the business of practising as a solicitor undertaken by [Mr Carr] … [i] Including acting as Trustee, Executor, Attorney-under Power, Tax Agent, Company Director (but only if Company Directors' Liability cover has been accepted by the Insurer as specified in the Schedule), Secretary, Public Officer, Public Notary, or any activity declared by the Council of the Law Society of New South Wales to be appropriate to be undertaken as part of a solicitor's practice, which declaration of the Council of the Law Society of New South Wales shall be binding on the Insurer, provided that any fees or other income which accrue from any activities described above inure to the benefit of the Firm or Incorporated Practice or Sole Practice of which [Mr Carr] is or was a member.' Clause 5[b][ii] of the Policy excludes liability 'arising from a contract other than a contract to provide services within the definition of "the Practice"' . Clause 5(b)(vii) excludes liability in connection with a practice conducted wholly outside New South Wales or the Australian Capital Territory." 17 His Honour's conclusion at paragraph 109 with respect to "the Policy" was thus that LawCover was required to indemnify Mr Carr against amounts payable by Mr Carr to Mr Swart. It is that conclusion that is reflected in declaration 2(a). Palmer J did not conclude that LawCover was required to make any payment to Mr Swart. 18 The decision of Palmer J reflects a working out of general legal principles. Where A is guilty of negligence or breach of contract or duty as against B and A is also insured by C against the risk of liability for such occurrences, B is entitled to recover damages from A upon a cause of action based on the negligence or breach; a judgment debt owed by A to B arises from the court's award of damages; and A, having incurred the liability for damages, can recover from C upon the promise of C, as insurer, to indemnify A. But B has no right of action against C. This general law position was described as follows by Atkin LJ in Re Harrington Motor Co Ltd [1928] Ch 105 at p.118: "But the position in law seems to me clearly to be that a third party in a case like the present has no claim in law or in equity of any sort against the insurance company, or against the money paid by the insurance company, nor has he any claim against the person who injures him, the assured, to direct the assured to pay over the sum of money received under the insurance policy to him. The amount that the assured in fact received is part of his general assets. As a general rule the expediency of that, I think, cannot be disputed. It obviously would disturb the whole practice of insurance if the claimant against the assured who caused the risk had a direct right of recourse against the insurance company, and we know that in actual practice the assured receives the money - the parties being solvent - and does not pay over necessarily that sum of money to the third party who is injured, but, of course, pays his claim out of his own assets and uses the insurance money, so far as it goes, because it does not always completely meet his liability." 19 In some circumstances, the general law position thus described is modified by statute so that the person I have designated B has some form of access to the moneys referable to the indemnity or insurance that A holds from C. In the present case, if Mr Carr were bankrupt, s.117 of the Bankruptcy Act 1966 (Cth) might allow Mr Swart direct access to insurance proceeds from LawCover in the hands of Mr Carr's trustee in bankruptcy. If Mr Carr had died or, after reasonable inquiry, could not be found, s.51 of the Insurance Contracts Act 1984 (Cth) might allow Mr Swart to recover moneys directly from LawCover. But since it is not suggested that Mr Carr is bankrupt, has died or cannot be found, the statutory provisions do not operate and the general law position described by Atkin LJ prevails. 20 In any event, the question before me relates to the existence of a judgment debt, that being the matter on which any viability of Mr Swart's statutory demand wholly depends. The only relevant judgment and orders are those of 12 December 2006 to which I have referred. They, for reasons I have explained, recognise, so far as liability or obligation of LawCover is concerned, no more than an obligation or liability of LawCover owed to Mr Carr. They are also the source of a judgment debt owed by Mr Carr to Mr Swart, but that is irrelevant to the present proceedings. 21 It is clear beyond all question that the orders of 12 December 2006 are not the source of any judgment debt owed by LawCover to Mr Swart and that no such judgment debt exists. The statutory demand based solely and squarely on the postulated existence of such a judgment debt is therefore bound to be set aside if these proceedings go to trial. Mr Swart has no conceivable defence to LawCover's s.459G application. 22 I therefore order pursuant to rule 13.1 of the Uniform Civil Procedure Rules 2005 summary judgment for the plaintiff in terms of paragraph 1 of the originating process. I also order that the defendant pay the plaintiff's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.