Supreme Court New South Wales Medium Neutral Citation: In the matter of Riva NSW Proprietary Limited [2016] NSWSC 1954 Hearing dates: Friday, 27 May 2016 Date of orders: 27 May 2016 Decision date: 27 May 2016 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: (1) Time for compliance with the subpoena issued by the plaintiff on 11 April 2016 be extended to 3 June 2016 and the subpoena be returnable in the Registrar's Subpoenas List on that day. (2) The plaintiff not be entitled to rely, at the substantive hearing, on any affidavit evidence that has not been served by 10 June 2016. (3) The defendant not be entitled to rely on any affidavit evidence that has not been served by 24 June 2016. (4) The proceedings be adjourned to 27 June 2016 at 10am in the Corporations Judge Directions List. Catchwords: PROCEDURE – setting aside of subpoena for production of documents – where in previous proceedings Court ordered that no fresh proceedings be commenced on same causes of action without leave of court – where alleged that subpoena sought to elicit evidence to establish offsetting claim – whether by reason of previous Court orders, the offsetting claim is not maintainable Legislation Cited: (CTH) Corporations Act, s 459E, s 459G, s 459H. s 459M Cases Cited: BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982; (2008) 68 ACSR Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284 Maniotis v Valimi Pty Ltd [2002] VSCA 91; (2002) 4 VR 386 Noroton Holdings Pty Ltd v Sydney Land Corporation Pty Ltd [1999] NSWSC 192 Riva NSW Pty Ltd v Key Nominees Pty Ltd [2014] NSWCA 381 Virgtel Ltd v Zabusky [2009] QCA 92; (2009) 2 Qd R 293 Statewide Developments Realty Pty Ltd, Re [2016] NSWSC 154 Category: Procedural and other rulings Parties: Riva NSW Pty Limited ACN 113 881 815 (plaintiff) Key Nominees Pty Limited ACN 001 081 661 (defendant) Representation: Counsel: R K Newton (plaintiff) R A Parsons (defendant/applicant) Solicitors: Bray Jackson & Co Solicitors (defendant) File Number(s): 2015/3171648 Judgment (EX TEMPORE) 1. HIS HONOUR: In 2006, the defendant Key Nominees Pty Limited sold, in exercise of its power of sale as mortgagee, a property at Wingadal Place, Point Piper. Angelo and Gustavo Ferella were then the registered proprietors, but – at least, according to them – as trustees of a unit trust, in which capacity they have since been replaced by the plaintiff Riva NSW Proprietary Limited. Upon completion of the sale, and in addition to the amount required to clear the title and discharge the mortgage debt, the defendant retained an amount referred to in the evidence as $75,000 by way of provision for costs, which the defendant had anticipated might be incurred in connection with disputes regarding the exercise of the power of sale and the defendant's liability to account as mortgagee. I say the sum in question has been referred to as $75,000 because there is some suggestion that it may have been $100,000 but, for the purposes of the present application, nothing turns on that and I should not be taken as having made any finding one way or the other in that respect. 2. In 2009, the plaintiff Riva instituted proceedings in this Court (2009/290947) against the defendant, in which it claimed inter alia that Key Nominees was not entitled to hold the $75,000 and that Key Nominees pay the plaintiff that sum. The pleading in those proceedings contended in substance that Key Nominees was not entitled to retain that sum and was liable, as mortgagee and as a fiduciary, to account to the plaintiff for it. Those proceedings were set down for final hearing on 23 May 2011, when Riva applied for an adjournment, which was refused by Windeyer AJ (as his Honour had then become). His Honour ordered that the proceedings be dismissed with costs, as the plaintiff had offered no evidence and had not appeared at the hearing after the adjournment was refused. No decision was made on the merits of the claim. 3. Subsequently, further proceedings were initiated in this Court (2012/173688) in 2012, claiming inter alia an order for the taking of accounts between Key Nominees as mortgagee and the Ferellas and/or Riva as mortgagor in respect of the sale of the Point Piper property, including as to whether Key Nominees was entitled to retain the "security amount" of $75,000, and an order that Key Nominees pay to Riva and/or the Ferellas the said amount. The Statement of Claim that ultimately pleaded the plaintiff's cause of action in that proceeding alleged that Key Nominees refused to provide an account for or pay the security amount and thus breached its duties as mortgagee and/or as a fiduciary and ought to be required to account for the said security amount. 4. In those proceedings, applications were made for an order striking out the Statement of Claim. On 6 December 2013, Young AJ (as his Honour had become), ordered that the Statement of Claim be struck out, with leave to re-plead by 4 March 2014. On 4 March 2014, his Honour made an order that the proceedings be dismissed with costs and that no fresh proceedings be commenced by the plaintiff on the same causes of action without the leave of the Court, such leave to be obtained prior to the commencement of any fresh proceedings. However, his Honour stayed those orders until 11 March and indicated that further submissions would be received as to why those orders should be entered or not be discharged. Subsequently, his Honour made orders on 21 March affirming the orders of 4 March 2013 and, in particular, that the proceedings against Key Nominees be dismissed, the plaintiff to pay the first defendant's costs, the case against the second defendant dismissed, the plaintiff to pay the second defendant's costs and that no fresh proceedings are to be commenced by the plaintiff on the same causes of action without the leave of the Court and that that leave is to be obtained prior to commencement of any fresh proceedings. 5. From that judgment, Riva sought leave to appeal to the Court of Appeal; that application was dismissed on 7 November 2014. [1] The Court of Appeal ordered that the summons seeking leave to appeal be dismissed and that the applicant pay the respondent's costs. The costs order of 7 November 2014 founds the debt which is at the heart of the current proceedings. 6. Subsequently, the Ferellas and Riva commenced further proceedings in this division (2015/130088) on 1 March 2015, seeking an order for the taking of accounts between the parties arising out of the mortgagee sale of the Point Piper property. Key Nominees moved for summary dismissal of the summons, essentially on the footing that they were brought contrary to Young AJ's order. Darke J concluded that the proceedings had been instituted contrary to the terms of Young AJ's order and concerned causes of action which were the subject of the proceedings in which Young AJ made those orders. His Honour thus ordered that the 2015 proceedings be dismissed, and that the plaintiffs pay the defendant costs of those proceedings forthwith. 7. Key Nominees had its costs pursuant to the order of the Court of Appeal dismissing the application for leave to appeal from Young AJ's decision assessed, and subsequently had the Certificate of Determination registered as a judgment. The costs of the assessment were also certified and registered as a judgment. There were review proceedings, and ultimately an unsuccessful appeal. On 6 October 2015, Key Nominees served on Riva a creditor's statutory demand in respect of the judgments arising upon the certificates of assessment of costs. 8. By originating process filed on 23 October 2015, Riva applies pursuant to (CTH) Corporations Act, s 459G, to have the creditor's statutory demand set aside. In the supporting s 459G affidavit, Riva raises three grounds. 9. The first ground appears to be a contention that there was a dispute in respect of the debt because of the pendency of appeal proceedings in the District Court. Even if that ground could ever have been advanced in circumstances where the debt was founded on a judgment, it is no longer alive because that appeal has now been dismissed. 10. Secondly, it was said that the demand should be set aside because it does not comply with the requirements of the prescribed form. This has not been the subject of elaboration at this stage, and it is not entirely clear what the defects relied on are and, if they be defects, how they have occasioned substantive injustice. It may be observed that, peculiarly for a demand founded on a judgment debt, it is unnecessarily supported by an affidavit verifying the debt; but, on the other hand, although it contains reference to case numbers, it does not particularise or identify the court in which the relevant judgment is said to have been given. If that is a defect, then whether it is one that occasions substantial injustice is a matter for decision on another day. 11. The third ground was an offsetting claim for $75,000 withheld from the proceeds of the mortgagee sale of Wingadal Place, Point Piper, together with interest thereon. On 11 April 2016, Riva issued a subpoena to Bray Jackson Solicitors, who acted for Key Nominees on the mortgagee sale, for production of documents which would evidence the application of the $75,000 withheld upon completion of the sale. By Notice of Motion filed 21 April 2016, Key Nominees seeks to have that subpoena set aside, and it is that application which is presently before the Court. However, the underlying premise of the application is that the subpoena seeks to elicit evidence in aid of establishing an offsetting claim which is, so it is said, by reason of the orders of Young AJ, not maintainable. Accordingly the real issue before the Court is whether, by reason of the orders of Young AJ to which I have referred, the offsetting claim propounded in the s 459G affidavit is not maintainable. 12. It is important to understand that at this point I am not concerned even with whether the offsetting claim is viable or arguable or even genuine, but only with whether it is precluded – or whether its propounding in these proceedings is precluded by the orders made by Young AJ. 13. It is well-established that to be within s 459H, an offsetting claim must be one that the company presently has against the creditor as at the date of the hearing of the s 459G application, [2] not one that it merely may have in the future, nor one that is statute barred so as to no longer exist. An offsetting claim based upon a cause of action that is statute barred is not within s 459H. [3] However, an offsetting claim may exist, notwithstanding that it is not immediately enforceable and, in particular, notwithstanding that it is not enforceable without some prior order of a court. In Maniotis v Valimi Pty Ltd, [4] the Court held that a company had an offsetting claim within s 459H, notwithstanding that the proceeding in which that claim was being advanced, had been temporarily stayed. The Court said that the word "has", in s 459H, meant "possesses" or "holds", and did not import any requirement that at the hearing of the s 459G application there be an immediately enforceable existing offsetting claim. O'Bryan AJA referred (at [53]) to submissions which were accepted by the Court, that notwithstanding a stay of the proceedings, an action remained technically in being, although it could not proceed or resume its active life without an order of the Court. His Honour continued: No issue arises that the respondent has a genuine claim against the appellant by way of cross-demand which is of such a nature that it equals or exceeds the amount of the debt claimed in the statutory demand. But the respondent could not proceed to prove its cross-demand when the application was heard by Warren J because of the stay order in the primary proceeding. In my opinion, the claim was untouched by the stay order save that the proceeding could not move forward. It remained in an uncertain state awaiting payment of the costs, or further order, or dismissal of the proceeding by court order pursuant to r 63.03(3)(a). Until an order for dismissal is made I am of the opinion that the claim is genuine because the cause of action remains in existence and the claim is enforceable by action in the primary proceeding. Until dismissal the respondent has an offsetting claim. I do not consider that for the purposes of s 459H(1) an offsetting claim means that the claim must be effective in the sense used by Vaughan Williams LJ in the G E B case (GEB A Debtor (supra)). The offsetting claim must be a genuine claim that the company has at the relevant time. 1. In Virgtel Ltd v Zabusky [2009] QCA 92; (2009) 2 Qd R 293, the Court observed, with reference inter alia to Maniotis (at [11]): The grant of a stay...would not have altered the substantive legal rights and liabilities of the parties in relation to the costs, the subject of those orders. 1. The same Court, differently constituted, made an observation to like effect in Virgtel v Zabusky (No 2) [2009] QCA 349 (at [20]), again with reference to Maniotis. 2. In Re Statewide Developments Realty Pty Ltd [2016] NSWSC 154, Black J (at [49]) accepted that the fact that an order for security for costs has been made and not complied with, so that the proceedings have been temporarily stayed, will not necessarily prevent the underlying claims from constituting an offsetting claim. His Honour referred inter alia to Maniotis and to Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 where Ward J, as her Honour then was, observed (at [130]): I note that it has been held that, while the offsetting claim must be genuine and be in existence on the day of the s 459H hearing, it does not necessarily have to be enforceable on the day of the hearing. An offsetting claim for the purposes of s 459H(1)(b) therefore includes a claim that is stayed by court order: Maniotis. 1. In the present case, the situation is that Riva had repeatedly, in the 2009 proceedings and the 2012 proceedings, unsuccessfully brought claims for an account by Key Nominees as mortgagee in respect of the sale of the Wingadal Place property, and – particularly in the 2012 proceedings – had not successfully formulated those claims in a pleading. The dismissal of each of those proceedings did not destroy the claims, but in order to prevent Key Nominees being further vexed by inappropriately formulated proceedings, a restriction was placed on Riva's capacity to bring further proceedings, namely the requirement that it obtain the prior leave of the Court. But it has never been a requirement of a genuine offsetting claim that the claim has been commenced in a Court, or be pending in a Court, at the time when it is propounded under s 459H. The requirement for leave means that Riva's offsetting claim is one that cannot continue without an order of the court – namely, the grant of leave – but that does not mean that the claim does not exist. 2. The defendants submitted that the practical impact of this was that by not seeking leave and not prosecuting its offsetting claim, Riva could indefinitely frustrate the defendant's invocation of the s 459E process. But there are other courses open to Key Nominees. There are other means of enforcing a judgment debt than a s 459E demand and, if it turns out that there is a genuine offsetting claim, terms can be imposed under s 459M requiring the prompt and diligent institution and prosecution of proceedings to enforce the offsetting claim. [5] 3. It was also argued for Key Nominees that these proceedings themselves, being an application to set aside the statutory demand in reliance on the contemplated offsetting claim, are brought in contravention of Young AJ's order. The question that that argument poses is whether these proceedings are proceedings "on the same causes of action" as those that were before Young AJ. 4. In my judgment, they are not. Proceedings to set aside a creditor's statutory demand pursuant to s 459G on the ground that the company has an offsetting claim under s 459H are not proceedings on the offsetting claim itself. These proceedings are not proceedings for the taking of accounts or the recovery of the $75,000 by Riva against Key Nominees. 5. For those reasons, in my judgment, the propounding of the offsetting claim in these proceedings is not precluded by the order of Young AJ. That is not to say for a moment that ultimately it will necessarily be found that the offsetting claim is genuine such as to justify the demand being set aside. That is an argument which will have to await another day, and will involve not only a preliminary examination of the substance of that claim, but also potentially whether it should be regarded as genuine in light of the litigious history to which I have referred. That said, as the offsetting claim is not precluded, a subpoena that seeks to elicit documentary material for use in support of sustaining it cannot be said to be issued other than for a legitimate forensic purpose in these proceedings. 6. Accordingly, the Court orders that the Notice of Motion filed on 21 April 2016 be dismissed with costs. 7. The Court further orders that: 1. Time for compliance with the subpoena issued by the plaintiff on 11 April 2016 be extended to 3 June 2016 and the subpoena be returnable in the Registrar's Subpoenas List on that day. 2. The plaintiff not be entitled to rely, at the substantive hearing, on any affidavit evidence that has not been served by 10 June 2016. 3. The defendant not be entitled to rely on any affidavit evidence that has not been served by 24 June 2016. 4. The proceedings be adjourned to 27 June 2016 at 10am in the Corporations Judge Directions List. ********** Endnotes 1. Riva NSW Pty Ltd v Key Nominees Pty Ltd [2014] NSWCA 381. 2. Noroton Holdings Pty Ltd v Sydney Land Corporation Pty Ltd [1999] NSWSC 192 at [12] (Austin J). 3. See Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284. 4. [2002] VSCA 91; (2002) 4 VR 386. 5. See, for example, BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982; (2008) 68 ACSR 1 at [25]. 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: 13 July 2017