New South Wales Supreme Court CITATION : Blue Hills Village Management (Liverpool) Pty Ltd v Babcock & Brown International Pty Ltd [2009] NSWSC 87 HEARING DATE(S) : 23/02/09 JUDGMENT DATE : 23 February 2009 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 23 February 2009 DECISION : Originating process dismissed with costs CATCHWORDS : CORPORATIONS - winding up - statutory demand - application for order setting aside - debt for costs in other proceedings ordered to be paid forthwith - whether substantial and genuine claims in those other proceedings against party with benefit of debt for costs is "offsetting claim" - whether statutory demand an abuse of process LEGISLATION CITED : Corporations Act 2001 (Cth), ss 459G, 459H(1)(b), 459H(5), 459J(1)(b) Uniform Civil Procedure Rules 2005. rule 42.7 CATEGORY : Principal judgment Gilbert-Ash (Northern) v Modern Engineering (Bristol) Ltd [1974] AC 689 Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd [2004] FCA 1466; (2004) 51 ACSR 578 CASES CITED : Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd [2006] NSWSC 1308; (2006) 205 FLR 432 Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 TEXTS CITED : Ritchie's Uniform Civil Procedure NSW, para 67.40 Blue Hills Village Management (Liverpool) Pty Ltd - Plaintiff PARTIES : Babcock & Brown International Pty Limited - First Defendant CAGCare Pty Limited - Second Defendant FILE NUMBER(S) : SC 6143/08 COUNSEL : Mr J J Young - Plaintiff Ms K Richardson - Defendants SOLICITORS : Harris & Company - Plaintiff Watson Mangioni Pty Limited - Defendants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J MONDAY 23 FEBRUARY 2009 6143/08 BLUE HILLS VILLAGE MANAGEMENT (LIVERPOOL) PTY LTD v BABCOCK & BROWN INTERNATIONAL PTY LIMITED & ANOR JUDGMENT 1 The plaintiff makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 21 November 2008 served by the defendants. The debt or alleged debt the subject of the statutory demand is described in its schedule as follows: " Description of the debt Amount of the Debt Agreement that the Plaintiffs in Supreme Court of NSW proceedings 50118 of 2008 (Proceedings) pay to the Creditors the sum of $70,000.00 as an agreed minimum amount of indemnity costs payable in relation to orders made on 12 August 2008 in the Proceedings. Total Amount $70,000.00 " 2 As the description of the debt shows, the plaintiff and the defendants are parties to other proceedings in this court. Those proceedings are pending in the Commercial List. In those proceedings, the present defendants are the only defendants and the present plaintiff is one of nine plaintiffs. The amount at stake is accepted as being more than $15 million. It is not disputed that the claims of the nine plaintiffs in that sum are fairly arguable. 3 The present plaintiff says that this is enough to give rise to an entitlement to an order setting aside the statutory demand on the ground referred to in s 459H(1)(b), that is, the existence of an "offsetting claim" as defined by s 459H(5), being a genuine claim that the company has against the defendants by way of the counter claim, set-off or cross-demand even if it does not arise out of the same transaction or circumstances as the debt to which the statutory demand relates. 4 The defendants submit, however, that the claim quantified at $15 million or more in the Commercial List proceedings is not within the s 459H(5) definition of "offsetting claim". To understand that submission, it is necessary to go to some matters of background. 5 On 12 August 2008, the first day of the scheduled hearing of the Commercial List proceedings, the plaintiffs in those proceedings applied for leave to amend. The application was ultimately granted and the hearing dates were vacated. It was indicated that orders for costs thrown away would be made in favour of the defendants and against the plaintiffs in the Commercial List proceedings, with assessment being on the indemnity basis. Rein J was then asked for orders for assessment and payment forthwith. 6 After exchanges between bench and bar on that matter his Honour said "one solution to the problem is to fix an amount payable now that everyone can agree is the minimum amount that would be payable and the rest of it can wait until the determination of the final outcome". 7 At a subsequent point, his Honour restated his view in these terms: "I note that I've indicated in my view it's appropriate for the plaintiffs to pay both the costs of the adjournment thrown away by reason of the amendment on an indemnity basis. The question of whether or not that the costs should be assessed immediately and payable forthwith was also ventilated. The parties are content to see if agreement can be reached about – in my view the appropriate order is that an amount which can either be reached by agreement or should there not be agreement on the basis of the Court being subsequently approached to fix an amount of a minimum amount payable forthwith rather than the full amount of whatever costs are ultimately determined to be payable as a result of the order that I've just made." 8 On 18 September 2008, the defendants in the Commercial List proceedings filed a notice of motion by which they sought an order in the following terms: "The Plaintiffs pay to the Defendants the amount of $125,000.00 forthwith as the minimum amount of the costs payable to the Defendants as a result of the Court's order of 12 August 2008 that the Plaintiffs pay the Defendants costs thrown away by reason of the adjournment and by reason of the amendment on an indemnity basis." 9 Correspondence between solicitors ensued. On 31 October 2008, the notice of motion was dismissed by consent and the defendants' solicitors wrote to the solicitors for the plaintiffs in the Commercial List proceedings as follows: "We refer to our telephone conversation earlier today. We confirm that our clients are prepared to accept payment of $70,000.00 from the Plaintiffs as a minimum amount of costs payable forthwith, with the remainder of costs payable by the Plaintiffs to the First and Second Defendants on an indemnity basis to be determined by a costs assessor or as agreed between the parties at a later date. Would you confirm that your clients will pay our clients $70,000.00 forthwith, and return an executed copy of the Short Minutes of Order in relation to the Motion." 10 On the hearing before me, the present plaintiff conceded that, before the issue of the statutory demand, an agreement had been reached for the payment of $70,000 and that that sum was owing, due and payable at the time the statutory demand was issued and served. The present plaintiff does not accept, however, that, as the present defendants contend, the circumstances in which the agreed sum of $70,000 became so owing, due and payable are such as to put the admittedly genuine and arguable claim in the sum of more than $15 million in the Commercial List proceedings outside the definition of "offsetting claim" in s 459H(5) as it applies in this case. 11 The defendants rely on the decision of Austin J in Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd [2006] NSWSC 1308; (2006) 205 FLR 432. His Honour there referred to the right and ability of contracting parties to extinguish, curtail or enlarge the ordinary rights of set-off as long as they do so expressly or by clear implication. His Honour was here quoting words of Lord Salmon in Gilbert-Ash (Northern) v Modern Engineering (Bristol) Ltd [1974] AC 689 at 722. 12 In the case before Austin J, a statutory demand had been issued in respect of a bonus of $500,000 provided for in a building contract, even though substantial claims for allegedly defective workmanship and delay had been advanced against the party claiming the bonus. Those latter claims were put forward as offsetting claims within s 459H(5) but Austin J held that, upon the proper construction of the contract and in the light of an express term, they were not within the s 459H(5) definition. 13 The party required to pay the bonus was Jempac. There was an express contractual term that the bonus would "rank in priority before any entitlement of [Jempac] to receive monies in connection with the project". Austin J held that this clause had the effect that Jempac's obligation to pay the bonus was not to be eliminated or reduced by reference to any entitlement of Jempac to receive monies in connection with the project and a fortiori by reference to any claim in connection with the project by Jempac against the party entitled to the bonus. It followed that Jempac's wider claims arising from the project were not within the s 459H(5) definition. 14 Ms K Richardson of counsel submitted on behalf of the defendants that the position in the present case is essentially the same. Interlocutory costs are normally assessed and payable at the end of the proceedings. That position may be changed by order of the court or, of course, agreement of the parties. Ms Richardson emphasised that the exchanges in court, the matters noted by Rein J on 12 August 2008, the subsequent correspondence between the parties' solicitors and the agreement on the sum of $70,000 all occurred against that background. 15 It must follow, so the submission runs, that the clear indication involving payment of $70,000 "forthwith" and acceptance of the "payment forthwith" proposition precludes, by necessary implication, resort to the principal claims in the Commercial List proceedings by way of set-off. 16 Mr J J Young of counsel, who appeared for the plaintiff, argued to the contrary. He said that it must have been the parties' intention that, if the $70,000 was not paid, the sanction would be by way of a stay of proceedings in the Commercial List case until it was paid. 17 I accept Ms Richardson's submissions. The context leaves no room for doubt, in my view, that the $70,000 was to be paid before adjudication of the principal claims in the Commercial List proceedings and regardless of the pendency of those claims and the outcome in those proceedings. That was the reason for separation out of the $70,000 and the requirement for payment forthwith. If the plaintiff's contention about a right of set-off were correct, the $70,000 would not be payable until the determination of the Commercial List proceedings. That would entirely defeat the purpose of both the court's direction as to costs and the parties' agreement based on it. 18 The court made it clear in the Commercial List proceedings that the general rule as to timing of payment under rule 42.7 of Uniform Civil Procedure Rules 2005 is not to apply to the agreed amount. 19 I do not accept that the only avenue available in case of non-payment of the $70,000 is intended to be a stay of the Commercial List proceedings. The intention was, in my view, quite clearly that the defendants should have a right to payment of an agreed sum forthwith and that recovery accordingly should be available. Mr Young referred to commentary at paragraph 67.40 of Ritchie's Uniform Civil Procedure NSW. The indications in the cases there mentioned are that, absent some clear specification that proceedings will be stayed if interlocutory costs are not paid, an order for interlocutory costs payable forthwith gives a right to payment enforceable in the ordinary way. 20 I am of the opinion that, in the particular circumstances of this case, there is no right to set-off the principal claims in the Commercial List proceedings against the separate and immediate obligation to pay the $70,000 payable forthwith. The plaintiff has not made out its case of offsetting claim within s 459H(1)(b). 21 The plaintiff also submitted that the statutory demand represents an abuse of process. In Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, Hayne J accepted that principles generally similar to those about abuse of process might be applied under s 459J(1)(b) of the Corporations Act if, for example, a statutory demand is made for a purpose other than that contemplated by the legislation. In Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd [2004] FCA 1466; (2004) 51 ACSR 578, Heery J said that s 459J(1)(b) is sufficiently wide to prevent the statutory demand procedure being used for some ulterior purpose such as manoeuvring for corporate control. 22 The only basis on which it was said in the present case that the statutory demand represents an abuse of process is that already mentioned, namely, that the only proper avenue to be followed in the face of non-payment of the $70,000 is an application for a stay of the Commercial List proceedings. Since I have already indicated that I do not accept that proposition, the allegation of abuse of process cannot be upheld. 23 The overall result therefore is that the originating process is dismissed. [Counsel addressed on costs] 24 The defendants seek an order for costs and an order that costs be assessed on the indemnity basis. There cannot be any question about the entitlement of the defendant to a costs order. 25 As to assessment on the indemnity basis, the defendants note that the genuine dispute ground was abandoned only at the hearing and submit that the matter should have been resolved without going to a hearing, at least to the extent of the payment of the $70,000 into court. 26 I am satisfied that there was a genuine question to be agitated about the availability of the alleged offsetting claim. For that reason and to that extent, a hearing could not have been avoided. I am not satisfied that there was "relevant delinquency" on the part of the plaintiff in the sense in which that expression is used in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72. There is no good reason to depart from the ordinary rule. 27 I order that the plaintiff pay the defendants' 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.