Supreme Court New South Wales Medium Neutral Citation: In the matter of Mission Providence Pty Ltd [2016] NSWSC 1112 Hearing dates: Monday, 11 July 2016 Date of orders: 11 July 2016 Decision date: 11 July 2016 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Creditor's statutory demand set aside; defendant to pay plaintiff's costs. Catchwords: CORPORATIONS – winding up – insolvency – creditors statutory demand – application to set aside – where claimed debt is manifestly disputable – whether proceedings should be adjourned – held, adjournment refused and demand set aside Legislation Cited: (NSW) Legal Profession Uniform Law Application Act 2014, Schedule 2 (NSW) Supreme Court (Corporations) Rules 1999 (NSW) Uniform Civil Procedure Rules 2005, r 7.2(1), r 7.2(2) Category: Principal judgment Parties: Mission Providence Pty Ltd (plaintiff) Elena Grabovsky (defendant) Igor Grabovsky (interested party) Representation: Counsel: I Fernandes (plaintiff) I Grabovsky (in person) Solicitors: Thomson Geer (plaintiff) File Number(s): 2016/184721 Judgment (ex tempore) 1. HIS HONOUR: By originating process filed on 17 June 2016, the plaintiff Mission Providence Pty Ltd seeks an order setting aside a creditor's statutory demand served on it by the defendant Elena Grabovsky on or about 30 May 2016. The application, having been filed on 17 June, was made within the 21 day period permitted. The demand was for an amount of $3259.90, described in the Schedule as follows: No Brief description Rate [$] Quantity Amount [$] 1 Expenses claimed on 20 January 2016 As per application As per application 415-15 2 Letter dated 22 February 2016 [research and composition (R&C)] $0.40 p. word 489 words 195-60 3 Letter dated 07 April 2016 – R&C $0.40 per word 890 words 356-00 4 Letter dated 09 April 2016 – R&C $0.40 per word 561 words 244-40 5 Letter dated 11 April 2016 – R&C $0.40 per word 927 words 370-80 6 Letter dated 13 April 2016 – R&C $0.40 per word 1400 words 560-00 7 Letter dated 24 April 2016 – R&C $0.40 per word 2186 words 874-40 8 Letter dated 25 April 2016 – R&C_CL $0.40 per word 1198 words 479-20 9 Copying/Printing $0.10 per page 150 pages 15-00 10 Postage (including mail to Officials) $5-90 per parsel 5 parsels 29-50 11 Mobile changes (calls to Resolution Centre) $0.50 per minute 270 min 135.00 12 Total 3675-35 (i) Position 1 of the invoice (in amount of $415-45) had been paid by the Company on the 20 May 2016. (ii) Total Amount the Company owes to the creditor is $3,259-90 1. As appears from Note (i), item 1 in the Schedule – being "expenses claimed on 20 January 2016" – has been paid. The remaining items are charges for "research and composition" of letters written by or on behalf of Ms Grabovsky to procure that payment. That payment itself was the reimbursement of costs incurred by Ms Grabovsky; which she requested on grounds of hardship. [Mr Grabovsky made further submissions] 1. Mr Grabovsky has, in good faith, interrupted my delivery of these reasons to contend that the request for reimbursement was not made on grounds of hardship, and that the reference to hardship was only to the expedition with which payment was sought. If that be so – which may be correct – and the reimbursement itself was claimed as a matter of right, not discretion – that does not affect the circumstance that the remainder of the amount claimed, which forms the unpaid balance of the creditor's statutory demand, was for the research and composition of letters in connection with claiming that repayment. Leave to appear 1. The first issue which arose in connection with the proceedings today was the plaintiff's objection to Mr Grabovsky appearing as attorney for the defendant, who is his daughter. Mr Grabovsky has produced a form of power of attorney– albeit not in the prescribed form – by which it appears he has been appointed his daughter's attorney under power. Although that does not mean that an attorney under power is entitled to appear as of right on behalf of his or her principal in a court (as distinct from instituting proceedings in the name of a party), because the court retains control over who can appear before it, it does seem to me that Mr Grabovsky should be permitted to be heard today on behalf of the defendant. He is her power of attorney; and she does not have other legal representation. In my judgment, leave should be given to him to appear for her for the purposes of dealing with the matter today. However, it should be understood that my permitting him to appear today does not bind any other judge who might have to hear the proceedings at a later stage; each judge is entitled to decide whether a person not entitled to appear as of right should be permitted to do so. Directions sought 1. Having been granted that leave for today's purposes, Mr Grabovsky sought a number of directions for the further conduct of the proceedings. It needs to be borne in mind, first, that the present s 459G proceeding does not involve the final disposal of Ms Grabovsky's claim, but is an application to set aside a creditor's statutory demand which, if successful, will leave Ms Grabovsky entitled to sue for the money claimed at law in the Local Court. Secondly, the sum in question is some $3,000, and the costs incurred in connection with the matter will already have substantially exceeded that amount. That gives rise to considerations of proportionality in deciding how the case should be managed. 2. The directions Mr Grabovsky sought, which I discussed with him in the course of his submissions, may be summarised and answered as follows. 3. First, he sought a direction - said to be pursuant to (NSW) Uniform Civil Procedure Rules 2005, r 7.2(1) or (2) – that the plaintiff file and serve a statement and copy of its duly executed authority to Mr Steel to exercise the powers of directors, or a copy of a relevant resolution of the plaintiff giving him that authority. Rule 7.2(1) provides that a person who commences or carries on proceedings in the Supreme Court as the director of a company, or as the authorised officer of a corporation, must file with the originating process an affidavit as to his or her authority in that capacity. Rule 7.2(2) makes provision in respect of the content of that affidavit. Rule 7.2 must be read in the context of Rule 7.1. Rule 7.1(2) provides that a company within the meaning of (CTH) Corporations Act 2001 may commence and carry on proceedings in any court by a solicitor or by a director of the company. 4. The purpose of r 7.2, upon which Mr Grabovsky relies, is to stipulate what a person who institutes or carries on proceedings as a director, where a company commences proceedings by a director rather than by a solicitor, must do. In this case, the company has not commenced proceedings by a director; it has commenced proceedings by a solicitor. In those circumstances, r 7.2 is inapplicable and irrelevant. There is no requirement, necessity or desirability for making the first direction sought. 5. The second direction sought is for the plaintiff to serve an outline of submissions. A direction for an outline of submissions would be appropriate only if that were going to aid the just, quick and cheap disposal of the proceedings. The fundamental issue in this case is quite clear: whether there is a genuine dispute as to the debt in question, or whether the statutory demand was otherwise an abuse of process. In the context of this case, a requirement for a written outline of submissions would serve only to prolong the proceedings and increase the costs. 6. The third direction sought, which is said to be pursuant to UCPR, r 2.3, and (NSW) Legal Profession Uniform Law Application Act 2014, Schedule 2, is for the plaintiff to file and serve statements showing the basis of provable facts and a reasonably arguable view of the law upon which the plaintiff's application for setting aside the creditor's statutory demand has reasonable prospects of success. This direction is sought on the incorrect basis that Schedule 2 is applicable to this type of proceeding. By clause 2, that Schedule provides that a law practice must not provide legal services on a claim or defence of a claim for damages, unless the responsible legal practitioner or associate reasonably believes, on the basis of provable facts and a reasonably arguable view of the law, that the claim or its defence has reasonable prospects of success. The requirement applies to claims for damages, as was the case with the predecessor provisions of the (NSW) Legal Profession Act 2004. An application to set aside a creditor's statutory demand is not a claim for damages. The requirement does not apply in respect of such an application, and there is no requirement for certification of it. The prescribed form of a statement of claim (UCPR form 3A) provides two options for a legal representative. The first is to certify that the statement of claim does not require a certificate under clause 4 of Schedule 2 to the UCPR or the Legal Profession Uniform Law Application Act; and the alternative is to certify under clause 4 of Schedule 2 that there are reasonable grounds for believing, on the basis of provable facts and a reasonably arguable view of the law, that the claim for damages in the proceedings has reasonable prospects of success. The (NSW) Supreme Court (Corporations) Rules 1999, which prescribes the form of originating process for an application that commences proceedings of the present kind, contains no requirement for certification. In other words, Schedule 2 does not apply, and a direction to the effect sought would be inappropriate. 7. The fourth direction sought is that the defendant file and serve the power of attorney in the prescribed form. If I thought that the absence of the prescribed form was crucial in declining Mr Grabovsky leave to appear, then that might have been appropriate; but, as I have already granted him leave to appear today, I do not see any utility in directing that he file and serve a power of attorney in the prescribed form. 8. The fifth direction sought – which Mr Grabovsky agreed was unnecessary – was that the defendant file and serve a defence. No defence is necessary or appropriate in proceedings initiated by originating process. Whether proceedings should be adjourned 1. There being no basis for any of the directions sought by Mr Grabovsky, the question then arises as to whether the proceedings should be adjourned. If there were some prospect that further evidence might show that there was no genuine dispute when, on the evidence presently before the Court, there is a genuine dispute, I might have been inclined to grant an adjournment. However, the critical matters are, first, the contents of the invoice itself –which, as I have said, shows that the amount the subject of dispute is for research and composition of correspondence demanding payment of what I will assume, for present purposes, was an amount of money to which the defendant was entitled. The second critical matter is that while the initial amount demanded was paid, it was paid under cover of a letter which made clear that that was done – so far as the plaintiff was concerned – as, a matter of grace, and not in recognition of any entitlement. 2. It is manifestly clear that the unpaid amount is the subject of genuine dispute. 3. The legal basis upon which the defendant could be entitled to the costs of researching and composing correspondence before commencing legal proceedings is simply not apparent. It is well-known that the costs of correspondence and demands before instituting proceedings are not recoverable from an opposing party, (unless the contract between the parties so provides, as for example mortgages often do). No basis has been identified on which those costs could be recoverable here. Moreover, even if some basis could be identified, it would still be a matter for argument, and not so clear as to justify resort to a creditor's statutory demand. 4. For those reasons, it seems to me that adjourning the proceedings is going to do no more than delay the inevitable and increase the costs of doing so, and I propose to set aside the creditor's statutory demand. [Mr Grabovsky made further submissions] 1. Mr Grabovsky has submitted that, in the reasons I have just given, he was denied procedural fairness, and was deceived by the grant of leave without an indication that I would proceed to hear and determine the case. I find it difficult to see how in the circumstances that misconception could have arisen; the plaintiff's affidavit evidence and written submissions addressed all issues, and I repeatedly invited Mr Grabovsky to explain why there was not a genuine dispute. However, I am prepared to accept that it did, and for that reason, I have now afforded Mr Grabovsky an opportunity to further explain on what basis it might be argued that the outstanding amount claimed by the defendant was payable. 2. In response to that request, two main propositions have been advanced. 3. The first, which is absolutely correct insofar as it goes, is that refusal of payment is not equivalent to a genuine dispute. However, refusal of payment is not inconsistent with a genuine dispute. In other words, one cannot reject the proposition that there is a genuine dispute just because there was refusal of payment; it would not make sense to pay if there was a genuine dispute. As such, that argument really does not take the matter any further. It is, as I have said, tolerably clear that the claims in the invoice, and now in the creditor's statutory demand, are of a kind which one would expect to be disputed. 4. The second argument that was advanced was that, as time had been incurred and expended in researching and composing the various pieces of correspondence referred to in the invoice and demand, "someone has to pay". However, if a creditor instructs solicitors to write letters of demand in an attempt to obtain payment of a debt, and after some correspondence the debtor pays the creditor's debt but does not agree to pay the creditor's solicitor's costs, then it is very basic law that the creditor has no right in law to recover the creditor's legal costs from the defendant. The entitlement to costs does not arise, unless and until legal proceedings to recover the debt are commenced. Accordingly, the proposition that "someone has to pay" is not correct, even when lawyers are involved; and it is even less correct when lawyers are not involved. In addition, it is appropriate to reiterate that even if there were some arguable basis advanced for claiming the amount in question, it would not be so clear and so straightforward as to permit the use of a creditor's statutory demand, rather than suing for the amount claimed at law in the proper court. 5. Mr Grabovsky has beseeched the Court eloquently to adjourn the proceedings to allow a further opportunity to pursue these matters. In many ways, it is tempting to do so; and in many ways, it would be easiest for the Court to accede to that course. However, the invocation of the dictates of justice in such circumstances can sometimes overlook that there are two parties before the Court, and the Court must endeavour to do justice as between those parties. Very little injustice will be done by setting aside this demand, because Ms Grabovsky will still be able to sue for the sum in question in the ordinary way if minded to do so. On the other hand, the defendant will be put to the considerable costs of conducting further proceedings on further days, and incurring further time and costs in impugning a demand which, as things appear at the moment, ought never have been issued. 6. In those circumstances, although I appreciate that declining an adjournment and the opportunity which Mr Grabovsky has urged and beseeched may appear unjust to him, it seems to me that the justice of this case clearly requires that the demand be set aside without further ado, and that Ms Grabovsky be required to sue in the ordinary course in the Local Court for the moneys in question if she wishes to do so. Orders 1. Accordingly, the Court orders that: 1. The creditor's statutory demand issued by the defendant dated 30 May 2016 and served on the plaintiff be set aside. 2. The defendant pay the plaintiffs costs. ********** Amendments 12 August 2016 - Para 17, change "respectfully" to "repeatedly" 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: 12 August 2016