Supreme Court New South Wales Medium Neutral Citation: Tanamerah Estates Pty Ltd v Tibra Capital Pty Ltd [2015] NSWSC 1519 Hearing dates: 12 October 2015 Decision date: 12 October 2015 Jurisdiction: Equity - Corporations List Before: Black J Decision: Order that the proceedings be stayed in order for the Plaintiff to obtain legal representation and for a legal representative to formally enter an appearance on behalf of the Plaintiff. Order the Plaintiff pay the costs of an incidental to the proceedings as agreed or as assessed. Catchwords: CORPORATIONS – creditor's statutory demand – where company represented by director – whether company, represented by its director, may commence and carry on winding up proceedings pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 7.1(3) Legislation Cited: - Civil Procedure Act 2005 (NSW) pt 5.4, ss 3, 3(1), 14, 101 - Corporations Act 2001 (Cth) ss 459G, 459H, 459J, 459R - Uniform Civil Procedure Rules 2005 (NSW) rr 7.1, 7.1(2), 7.1(3), 7.2(2), 7.13 Cases Cited: - DB Mahaffy & Associates Pty Ltd v Mahaffy [2011] NSWSC 673 - Connectland Pty Limited v Porthaven Pty Ltd [2011] NSWSC 616 - JSBG Developments Pty Ltd v Kozlowski [2009] NSWSC 1128; (2009) 75 NSWLR 745 - May v Christodoulou [2011] NSWCA 75; (2011) 80 NSWLR 462 - Re DB Mahaffy & Associates Pty Ltd [2012] NSWSC 776 - Tanamerah Estates Pty Limited (as the trustee of the Alexander Superannuation Fund) v Tibra Capital Pty Ltd [2013] NSWCA 266 - Tanamerah Estates Pty Limited v Tibra Capital Pty Ltd [2013] NSWSC 36 Category: Procedural and other rulings Parties: Tanamerah Estates Pty Ltd (Plaintiff) Tibra Capital Pty Ltd (Defendant) Representation: Counsel: M. Klooster (Defendant) Solicitors: Mr J Tydeman (authorised director) Alistair Stewart Schofield King Lawyers Pty Ltd (Defendant) File Number(s): 2015/176355 Judgment – ex tempore 1. By Amended Summons filed on 23 September 2015, Tanamerah Estates Pty Limited ("Company") seeks orders setting aside a creditor's statutory demand dated 22 May 2015 ("Demand") served by Tibra Capital Pty Limited ("Tibra") under ss 459H and 459J of the Corporations Act 2001 (Cth). The Amended Summons also seeks an order to temporarily stay all further steps being taken in setting aside the Demand until after an application filed on 27 July 2015 in the Court of Appeal. 2. The Amended Summons is signed on behalf of the Company by Mr Tydeman who is there described as an authorised director acting on behalf of the Company as contemplated by Uniform Civil Procedure Rules 2005 (NSW) r 7.2(2)(a)(ii) for the conduct of its legal proceedings. Rule 7.2(2)(a)(ii) of the UCPR in turn provides that an affidavit made by a director of a company, for the purposes of that rule, must contain specified statements, including that the director has been authorised by resolution of the directors to commence and carry on the proceedings. It is common ground that Mr Tydeman has in fact been authorised by the Company to commence and carry on the proceedings for the purposes of that rule. 3. The Company was represented by Mr Tydeman for the purposes of the application today, in circumstances that I dispensed with the application of UCPR rr 7.1 and 7.2 for today only, to allow Mr Tydeman to develop his argument, under s 14 of the Civil Procedure Act 2005 (NSW). The Company relies on a detailed affidavit of Mr Tydeman dated 15 June 2015 in respect of the substantive application to set aside the Demand and that affidavit was also read without objection for the purposes of this application. The affidavit helpfully annexes a copy of the Demand, which is a demand for the amount of $118,545.73 being the total of the amounts of the debts described in the schedule. The schedule in turn refers to four debts and an amount of interest under s 101 of the Civil Procedure Act which together total the amount claimed. I infer that the amount of those debts relates to costs assessments in the proceedings to which reference is made in the schedule. I will refer to several judgments in those proceedings below, so far as they are relevant authorities in respect of the issue now raised before me. The Company will presumably rely on that affidavit in its application to set aside the Demand. That affidavit refers to a passage in May v Christodoulou [2011] NSWCA 75; (2011) 80 NSWLR 462 to which I will refer below, and also identifies other matters, in respect of a dispute concerning a valuation of sale shares under a Shareholders Agreement; the conduct of certain previous proceedings in this Court; and various allegations of bad faith which are made in respect of other judges sitting at first instance and in the Court of Appeal. 4. By motion filed on 1 October 2015, Tibra seeks a declaration that the Company does not have standing to bring the proceedings on the basis of non-compliance with UCPR r 7.1(3). It also seeks orders that the proceedings be stayed for a period of 28 days for the Company to obtain legal representation and for a legal representative formally to enter an appearance on behalf of the Company and, if a legal representative does not do so, an order that the proceedings be dismissed. I pause to note that this does not seem to me to be a matter that warrants declaratory relief of the kind that is sought and that the real question is whether the Court should make operative orders of the kind that are sought in respect of the conduct of the proceedings. 5. It will be helpful initially to refer to several authorities as to matters which have been commonly regarded as well-understood in this Court, before turning to Mr Tydeman's submissions which advance substantive challenges to the correctness of that understanding as to the operation of the Court's rules. In JSBG Developments Pty Ltd v Kozlowski [2009] NSWSC 1128; (2009) 75 NSWLR 745, Barrett J referred to UCPR r 7.1(2)-(3) and held that the combined effect of those provisions was that a company may only commence and carry on proceedings by a director if the director is also a plaintiff in the proceedings, and, as I will note below, that requires that the director as plaintiff himself or herself have a proper cause of action which may be advanced in the proceedings. 6. In Connectland Pty Limited v Porthaven Pty Ltd [2011] NSWSC 616, White J dealt with relevant rules in the same context as this application, namely an application to set aside a creditor's statutory demand. His Honour held that a director, in that case, was not a plaintiff and was not a proper party to the proceedings, although his Honour noted that the Court could dispense with the requirements of the Rules under s 14 of the Civil Procedure Act 2005 (NSW) in a proper case. I should note that, in the course of submissions, I asked Mr Tydeman whether the Company in this case sought to have the Court dispense with the operation of UCPR rr 7.1 and 7.2 under s 14 of the Civil Procedure Act, and drew his attention to the fact that it was not uncommon for a party, which advanced a primary position, in this case Mr Tydeman's position that the Rules have no relevant application, to advance an alternative and secondary position. Mr Tydeman made clear that the Company does not seek to invoke the operation of s 14 of the Civil Procedure Act, and stands on its primary position. I will nonetheless make a comment as to the potential application of the section below. 7. This issue was again addressed in the matter of DB Mahaffy & Associates Pty Ltd v Mahaffy [2011] NSWSC 673, to which I drew the parties' attention, and which was specifically addressed both by Mr Klooster who appears for Tibra and by Mr Tydeman in submissions. In that case, White J observed (at [32]-[33]) that the effect of the relevant rules was that the company must appear by a solicitor, but can appear by a director if the director is himself or herself a plaintiff; that a director is not a proper plaintiff in an application to set aside a creditor's statutory demand; and again noted that the Court has power under s 14 of the Civil Procedure Act to dispense with the operation of the rule. In a further judgment in the same proceedings ([2012] NSWSC 776) Brereton J expressed the same view, and ordered that the proceedings be stayed unless a notice of a solicitor acting had been filed by a legal practitioner retained by the plaintiff. 8. These cases were followed at first instance in proceedings between the two parties which appear in this application, by Hallen J in Tanamerah Estates Pty Limited v Tibra Capital Pty Ltd [2013] NSWSC 36. His Honour there made a similar order to that which had been made by Brereton J in DB Mahaffy & Associates Pty Limited, namely that proceedings be stayed unless, by a specified date, a notice of legal practitioner acting had been filed and served by a solicitor retained by the Company. It appears that an application for leave to appeal was brought from that decision and it is the subject of the decision of two members of the Court of Appeal in Tanamerah Estates Pty Limited (as the trustee of the Alexander Superannuation Fund) v Tibra Capital [2013] NSWCA 266. Basten JA (with whom Sackville AJA agreed) there referred to UCPR rr 7.1–7.2 and noted several arguments put by Mr Tydeman, which were advanced in similar form before me. First, Mr Tydeman there submitted that he was a plaintiff in the proceedings for the purposes of UCPR r 7.1, by reference to the definition of plaintiff in s 3 of the Civil Procedure Act, so far as he was an authorised agent of the Company. Basten JA noted that Hallen J had rejected that submission at first instance; observed that the reading of the rule taken by Hallen J was supported by authorities including some of those to which I have referred above; and expressed the view (at [16]) that the term "plaintiff" is not used to describe the person who initiates proceedings, but to refer to a person, being a director, who has an arguable cause of action which may properly be pursued in the same proceedings as the cause of action pursued by the corporation. It seems to me that, for reasons to which I will refer below, that is the only available meaning of the rule, because otherwise the rule would be entirely superfluous, although Mr Tydeman, in submissions, suggested it had a somewhat more sinister purpose. 9. Basten JA also addressed a submission by Mr Tydeman, also put before me, that he was a plaintiff because he appeared as "tutor" for the Company, so far as the Company was a person under a legal incapacity. The phrase "person under legal incapacity" is defined, as Basten JA there noted, in s 3 of the Civil Procedure Act, although there is a further definition in UCPR r 7.13 which is potentially wider, as a person who is incapable of managing his or her affairs. Basten JA noted and did not accept an argument put by Mr Tydeman, also put before me, that a company was under a legal incapacity because it was unable to act except through agents. His Honour noted, it seems to me correctly, that that argument would have the consequence that every company would be forced to sue through a "tutor" in all cases. That does not seem to be the intention of the rule, and it is inconsistent with the common experience of this Court and the commercial community, where companies, although they are not natural persons, act with full capacity in many aspects of commercial life. His Honour also referred to the question whether the rules should be dispensed with under s 14 of the Civil Procedure Act, although I noted above that the Company did not seek such a dispensation in the application before me. 10. In this application, Mr Tydeman developed a number of sophisticated arguments, which to some extent overlap with those he had previously put by the Court of Appeal, as to why the Company was entitled to appear by him as its director as of right. In doing so, he explicitly put the submission that several of the judgments to which I referred above were wrong, and his submission should also be understood to imply that the decision of the two members of the Court of Appeal to which I have referred in the case involving the Company and Tibra was also wrong. Mr Tydeman put, and as I noted above, it was common ground, that he had been authorised by the Company to represent it in the proceedings. He put the submission, to which I have referred above, that the concept of "plaintiff" in proceedings includes a tutor, and that he was appearing for the Company so far as it was a person under legal incapacity in the proceedings. I do not accept, both for the reasons to which Basten JA referred and also for other reasons, that a company is a person under a legal incapacity. A company, is of course, an artificial entity, created by the Corporations Act or its predecessors. However, it seems to me that a company is not a person who falls within either the definition of a person under legal incapacity in s 3(1) of the Civil Procedure Act, or the definition in UCPR 7.13, so far as a company is plainly capable of managing its own affairs. It does so, in the manner authorised by the Corporations Act and its constitution, by its board of directors, and in certain cases by its members in general meeting. It is subject to certain restrictions, imposed by a range of legislation, some of which are limited to companies, and some of which apply more widely. However, the fact that the company's activities may be constrained, as to whether it may, for example, bring a claim in defamation, or whether it may, as relevantly here, appear other than by a solicitor in litigation, does not seem to me to deprive it of capacity in respect of its affairs. For that reason, it seems to me that the Company is not a person under legal incapacity and Mr Tydeman is not entitled to represent it as tutor and does not do so. 11. Next, Mr Tydeman places considerable weight on observations of Handley AJA in May v Christodoulou above at 465-466. It should be noted, for completeness that his Honour was in dissent in that case. Putting aside that matter, his Honour there observed, in a sentence on which Mr Tydeman places substantial weight, that UCPR r 7.1(2) read with relevant definitions, enables a company, acting by a director, to commence and defend proceedings in any court, although his Honour went on to refer to r 7.1(3) which his Honour recognised provided that a company can only commence proceedings in this Court by a director if that director is also a plaintiff. Mr Tydeman also referred to his Honour's observation (at [17]) that a company which is unable or unwilling to retain a solicitor could not enforce its rights as a plaintiff or defend proceedings against it. His Honour was there referring to the common law rule to which he had referred to in the previous paragraph of his judgment. His Honour also noted, in a passage to which Mr Tydeman gives weight, that the common law rule could cause injustice to companies, although his Honour also added, in a passage to which Mr Tydeman does not refer, that it protected plaintiffs which would not be forced to incur irrecoverable legal costs in proceedings against an insolvent company defended by a director. It should also be recognised that that common law rule has now, as his Honour noted elsewhere in the judgment, been relaxed at least to some extent by UCPR rr 7.1 and 7.2. However, on the authorities, it has only be been relaxed to the extent that I have referred, namely to permit a company to bring proceedings in this Court where a director is also in his or her own right a plaintiff in the proceedings. I do not understand anything in Handley AJA's observations in May v Christodoulou to be to the contrary. 12. I should note, for completeness, that Mr Tydeman's affidavit also refers to an extra-judicial observation of the Honourable Justice Handley, now retired, in which his Honour appears to have expressed a broad view as to the state of the law. I would, of course, give the greatest weight to any views expressed by his Honour, including those expressed extra-judicially and after his retirement, as to the state of the law. However, in deciding matters in this Court, I am bound by decisions in the Court, not by the views expressed by eminent jurists while speaking extra-judicially. 13. I should also note at this point, that Mr Tydeman's argument that a company lacks legal capacity also has a difficulty that, in effect, it proves too much. If the position is that, as Mr Tydeman puts, a company lacks legal capacity and must act by its tutor, and the tutor is a plaintiff in the proceedings, then UCPR r 7.1(3) becomes otiose, because it will always be satisfied so far as a company which is in legal incapacity must act by a director, as its tutor, who will thereby be a plaintiff in the proceedings. I raised that matter with Mr Tydeman in the course of submissions, and he responded that the rule was directed to misleading directors as to their ability to appear. It seems to me, with respect, that the rule is directed to a more constructive purpose, namely to promote the just, quick and cheap resolution of proceedings in this Court, and it should not be read in a manner that renders it otiose. 14. Mr Tydeman also developed a novel submission, which indicated his close attention to the terms of the rule, and which does not appear to have been raised previously in applications of this kind, that r 7.1(3) is limited to the commencement of proceedings, and does not apply to carrying on a proceeding, although r 7.1(2) does refer to carrying on proceedings. While I acknowledge the ingenuity of that submission, I do not accept it. It seems to me that the difficulty with that submission is that r 7.1(3), in its terms, imposes a limitation on when proceedings may be commenced. It is not surprising that the rule assumes that proceedings will not be carried on by a company represented by a director and not within the relevant exception, where they cannot be commenced by a company represented by a director and not within that exception. It should not be understood that a rule which limits the circumstances in which proceedings are commenced impliedly permits their continuance in circumstances where their commencement was in breach of the rule. That would, with respect, turn the rule on its head. In any event, the proceedings were in fact commenced, and not merely continued, by the Company purportedly acting by its director in circumstances where the relevant exception did not apply, on the authorities and on the view that I have expressed above. 15. Next, Mr Tydeman submitted that the Company was in truth a defendant in the proceedings, defending against a creditor's statutory demand. He therefore submitted that UCPR r 7.1 should not apply to its conduct, so far as it was neither commencing or continuing proceedings, or at least was not doing so as plaintiff. I can accept that an application to set aside a creditor's statutory demand can be described as defensive in one sense, in the sense that it is intended to avoid the consequences of the creditor's statutory demand. It may be, as Mr Tydeman contends, the Company's application is defensive in a wider sense in this case, insofar as there is an ongoing dispute between the parties. However, it seems to me that, whatever that wider characterisation of the Company's role, it is in truth a plaintiff in its application to set aside creditor's statutory demand. That is not merely because it occupies the position of plaintiff, and has initiated the proceedings and is named as plaintiff in the Originating Process (or, in this case, the Summons), but also because, as a matter of substance, s 459G of the Corporations Act permits the recipient of a creditor's statutory demand to bring any application to set it aside, and the Company bears the onus of establishing, under ss 459H or 459J of the Corporations Act, the matters on which it contends to submit that the Demand should be set aside. In these circumstances, whatever the wider commercial context, it seems to me that a company that brings an application to set aside a creditor's statutory demand, as the Corporations Act permits, is properly characterised as plaintiff in that application, consistent with the authorities to which I referred above that have proceeded on that basis. 16. For all these reasons, I do not accept Mr Tydeman's wider submission that he is entitled to represent the Company as of right. I should, however, return to the question of s 14 of the Civil Procedure Act. As I noted above, Mr Tydeman made clear that the Company did not seek to have UCPR rr 7.1 and 7.2 dispensed with under that section, against the contingency that I might not, as I have not, accepted his construction of those rules. I should note that, had the Company or Mr Tydeman sought to have those rules dispensed with, there may have been real difficulties in such an application. The area of applications to set aside creditors' statutory demands is notoriously technical and complex and poses challenges even to the practitioners who conduct such applications on a daily basis. It seems to me that there is a real risk that a layperson, in bringing such an application, would expose the Company to unnecessary risk, both in respect of costs and to the extent that any argument that it may have, within this technical field, may not be identified or may be displaced by other arguments which are not likely to succeed. In this case, it seems to me that the risk is very real, so far as Mr Tydeman's lengthy affidavit dated 15 June 2015, read in these proceedings, raises a very large number of issues, which are not expressed in a way that identifies any obvious relevance to an application to set aside a creditor's statutory demand. UCPR r 7.1(3), which Mr Tydeman considers should not apply to the Company, does not seem to me to be directed to entrenching legal practitioners' work, as Mr Tydeman may understand it to be. At least in the context of complex and technical applications of this kind, it operates to protect the Company and the administration of justice by ensuring those who bring such application ought to have the legal expertise to manage it properly, and to make a reasoned assessment as to whether arguments are likely to be relevant to an application to set aside a creditor's statutory demand, particularly if that demand is based on a judgment debt, or are likely to establish an offsetting claim, given the authorities as to what that would require. 17. It seems to me that there may be a real question whether Mr Tydeman would be able to identify the relevant issues or, having regard to his affidavit, conduct the case in a manner proportionate to the summary jurisdiction to set aside a creditor's statutory demand. There is, as was also noted by Basten J in the application for leave to appeal from Hallen J's decision, a continuing absence of evidence explaining why the Company is not represented by a solicitor, other than for the suggestion that Mr Tydeman lacks confidence in solicitors; an absence of evidence as to the Company's or Mr Tydeman's financial circumstances; and an issue whether the conduct of the proceedings, by Mr Tydeman, on the Company's behalf, would comply with sections 56–60 of the Civil Procedure Act, so far as promoting the just, quick and cheap resolution of the real issues in dispute in the proceedings. I note these matters, without having heard argument about them, and merely as a preliminary view, because it seems to me they would have arisen had an application been made to dispense with the application of the Rules under s 14 of the Civil Procedure Act. I note that such application was not made, and I do not have any concluded view as to any of these matters, were such an application properly to be made at some future point. They seem to me, however, to be matters that would require serious consideration. 18. I should note a final argument put by Mr Tydeman, because it is relevant to what occurs next. Mr Tydeman put the submission that, if the Court were to accede to the application brought by Tibra, and to stay the application to set aside the Demand, pending the application of a legal representative by the Company, then the proceedings would pass into a kind of limbo, as it appears the earlier proceedings may have done, when stayed by Hallen J pending the appointment of a legal representative who was never appointed. I should note that that is not the outcome which Tibra seeks, so far as it seeks not only a stay of the proceedings, but also a dismissal of them if a legal representative is not appointed within a specified period. It does not seem to me that the Court should make such a self-executing order of that kind at this stage, not least because it is always possible that, in 28 days, the Company has taken steps to retain a legal representative, but for some reason, the notice of appearance has not yet been filed but might, for example, be filed shortly thereafter. 19. However, it is important that Mr Tydeman understands that the consequence of the Court staying the proceedings, and allowing an opportunity for the Company to appoint a solicitor, is not that they will pass into limbo if Mr Tydeman or the Company decline to take up that opportunity. The Court's responsibility, in dealing with applications to set aside creditor's statutory demands, is to deal with them promptly, reflecting the role of the statutory demand procedure under Part 5.4 of the Corporations Act. A creditor's statutory demand is typically served in circumstances where there is an unpaid debt and will, if the demand is not set aside and not complied with, give rise to a presumption of insolvency. As Mr Tydeman recognised, if that presumption of insolvency arises and is not rebutted, then the Company may be wound up. There is a strong public interest in the prompt determination of applications to set aside creditor's statutory demands and of winding up applications, which is recognised by the legislature in s 459R of the Corporations Act, which requires an application for a company to be wound up in insolvency to be determined within six months after it is made, unless that period is the extended by the Court. It is very likely, and it is important for Mr Tydeman to understand, that where he and the Company are allowed an opportunity to retain a legal representative on behalf of the Company, and do not take it, the next step is likely to be a prompt dismissal of the proceedings. They will not therefore linger as Mr Tydeman had apprehended into the indefinite future. 20. For all these reasons, it seems to me that the arguments put by Mr Tydeman today should not be accepted. I make the follow orders: 1. Order that the proceedings be stayed for a period of 28 days from today in order for the Plaintiff to obtain legal representation and for a legal representative to formally enter an appearance on behalf the Plaintiff in these proceedings. 2. List the matter in the Corporations Motions List at 9.45am on 9 November 2015, with a view to determining whether the proceedings should then go forward or be dismissed by reason of any failure by the Company to obtain legal representation within that period. 1. I will hear the parties as to costs. DISCUSSION AS TO LISTING DATE, SEE TRANSCRIPT 1. I will amend the orders which I have made previously, in order to accommodate Mr Klooster's availability, and without objection by Mr Tydeman, so that they should read as follows: 1. Order that the proceedings be stayed to 4.00pm, 16 November 2015 in order for the Plaintiff to obtain legal representation and for a legal representative to formally enter an appearance on behalf of the Plaintiff in these proceedings. 2. Relist the matter in the Corporations (Motions) List at 9.45am on 16 November 2015 with a view to determining the status of the proceedings and whether, if no legal representation has been obtained for the Plaintiff, they should be dismissed. DISCUSSION AS TO COSTS SEE TRANSCRIPT 1. Tibra, by its counsel, Mr Klooster, seeks an order for costs on an indemnity, or alternatively an ordinary basis, against the Plaintiff, Tanamerah Estates Pty Limited, in respect of the costs of today. Mr Klooster made clear that no such application was made as against the Company's director Mr Tydeman who appeared before me today. Mr Klooster submits that such an order should be made because this was the third occasion on which issues as to Mr Tydeman's ability to represent the Company had been agitated, these matters having been addressed once before Hallen J and a second time in the leave application in the Court of Appeal. Mr Tydeman responds that the position which he put was arguable, and had aspects which may not have been, or not been fully, agitated in earlier proceedings. It seems to me that there was a significant overlap in the issues raised before me and the issues raised in the leave application in the Court of Appeal. It may be that there is a point at which the reagitation of issues, which the Court has determined within particular proceedings, could be characterised as unreasonable so as to support an order for indemnity costs, and it may be that we are very close to, if we have not passed, that point. 2. Having said that, on balance, it seems to me that Mr Tydeman put his argument efficiently; it had some novel aspects; it is possible that some of those novel aspects had not been raised before Hallen J and the Court of Appeal; and Mr Tydeman was entitled to raise them or at least it could not be said that he was acting unreasonably in doing so. I also bear in mind that Mr Tydeman acted courteously and in an entirely reasoned way in developing his arguments before the Court, and that also seems to me to be consistent, rather than inconsistent with, the manner in which a litigant ought to conduct himself in litigation of this kind. For that reason, I am on balance not satisfied that this is a proper case for indemnity costs. Mr Tydeman does not put a submission that this was not a matter where costs should follow the event in respect of the application, and it seems to me there would be very little room for such a submission had it been put. 3. Accordingly, I make a further order that Tanamerah Estates Pty Limited pay the costs of and incidental to the Notice of Motion filed 1 October 2015 by Tibra Pty Limited as agreed or as assessed. ********** 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. Decision last updated: 15 October 2015