5.1 ASIC claim for public interest
immunity privilege over documents and witness statements
rejected
(By Pablo Fernandez, DLA
Phillips Fox)
P Dawson Nominees Pty Ltd v
Multiplex Ltd [2007] FCA 1659, Federal Court of Australia,
Goldberg J, 2 November 2007
The full text of this
judgment is available at:
http://cclsr.law.unimelb.edu.au/judgments/states/federal/2007/november/2007fca1659.htm
or
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp
(a) Summary
The
applicant ("Dawson") brought proceedings against the
respondent ("Multiplex") in relation to an alleged
contravention of the Corporations Act 2001 No. 50 (Cth) and the
ASX Listing Rules whereby Multiplex allegedly failed to
disclose material information that a reasonable person would
expect to have a material effect on the price or value of
Multiplex's shares.
This decision relates
specifically to ASIC's claim for public interest immunity
privilege over certain documents the subject of a subpoena
duces tecum served on ASIC by Dawson. Goldberg J rejected
ASIC's claim for privilege over the documents.
(b) Facts
Dawson brought proceedings on its own behalf and
on behalf of other persons who had acquired shares in
Multiplex between 2 August 2004 and 30 May 2005. Multiplex
(UK) had entered into a contract in September 2002 for the
design and construction of the Wembley National Stadium ("the
stadium") in the United Kingdom. Completion of the project was
delayed due to substantial cost increases and other issues.
Dawson alleged that during the period between 2
August 2004 and 30 May 2005, as a consequence of the issues
surrounding the stadium project, profit earnings of Multiplex
were substantially reduced. Dawson further alleged that by 2
August 2004 Multiplex was aware or should have been aware of
the substantial reduction in profit earnings.
Dawson alleged that such information was
material information that a reasonable person would expect to
have a material effect on the price or value of Multiplex's
shares, and that Multiplex, being a listed company, was
therefore obliged to disclose such information to the
Australian Stock Exchange ("ASX") pursuant to the ASX Listing
Rules and had contravened its obligation of continuous
disclosure under section 674 of the Corporations Act by
failing to do so.
From February 2005 until
September 2006, the Australian Securities and Investments
Commission ("ASIC") investigated the events and issues
relating to the stadium project. During its investigation it
obtained and generated a significant number of documents,
including 23 witness statements.
On 21 December
2006, Dawson applied to ASIC under section 25(1) of the Australian Securities and Investments
Commission Act 2000 No. 51 (Cth) for investigation
documents and transcripts of examinations pursuant to an ASIC
investigation of Multiplex. At the time of judgment ASIC had
not yet made a determination on this
application.
On 12 July 2007, Heerey J gave
Dawson leave to issue a subpoena duces tecum against ASIC for
the production of the above documents. Objection was made to
the production of a number of the documents:
- by ASIC, on the ground of public interest immunity
privilege;
- by Multiplex, on the ground of legal professional
privilege; and
- by Multiplex, on the ground that the documents which are
otherwise available for inspection should only be inspected
by persons who enter into confidentiality undertakings.
The documents the subject of the subpoena were
produced to the Court by ASIC on 20 August 2007.
(c) Decision
(i) Multiplex objection to the
production of documents for
inspection Multiplex objected to the
production of documents for inspection by ASIC on various
grounds. First, Multiplex argued that legal professional
privilege applied in respect of a number of documents which
Multiplex had supplied to ASIC. This issue was to be
determined at a later date and is not considered
further.
Multiplex further submitted that the
documents should only be inspected by Dawson's legal
representatives who had signed confidentiality undertakings.
Dawson argued that confidentiality undertakings were
unnecessary and that the documents should be available for
inspection. Goldberg J set an interim arrangement on 11
September 2007, whereby access would be given to Dawson's
legal representatives who had signed confidentiality
undertakings. The final determination in relation to this
point is the basis of this judgment.
(ii)
ASIC's objection to the production of documents for
inspection ASIC applied to restrict
inspection of thirty-six documents it produced pursuant to the
subpoena as well as copies of all the transcripts of
examination of all witnesses examined by ASIC during its
investigation of Multiplex on the ground of public interest
immunity privilege.
(iii) ASIC's ex
parte application ASIC sought orders
pursuant to section 50 and section 17(4) of the
Federal Court of Australia Act 1976 No. 156
(Cth) ("FCA"). Under section 50, ASIC sought to forbid the
publication of the confidential affidavits it had filed,
including publication to the legal representatives of Dawson
and Multiplex. Under section 17(4), ASIC sought orders
excluding the public from the hearing of its public interest
immunity privilege claim on the basis that the presence of the
public would be contrary to the interests of justice.
Goldberg J granted the orders sought by
ASIC. In relation to section 50 FCA, his Honour
noted that it is a fundamental principle of the administration
of justice in Australia that the administration of justice be
open justice and that, in considering ASIC's application to
restrict access to the documents, justice must be done between
all the parties involved.
In relation to
exercising the power under section 17(4) of the FCA, Goldberg
J noted that an approach similar to that of section 50 of the
FCA should be taken and furthermore that the power should only
be exercised in circumstances where not to exercise it would
be "contrary to the interests of justice".
Dawson
argued that ASIC should disclose its reasons to support its
claim for the protection of information in an open hearing.
However, Goldberg J agreed with ASIC's argument that in
disclosing its reasons, it would inevitably expose the
information it sought to be protected, and therefore granted
the orders sought under sections 17(4) and 50 of the
FCA. ASIC's application for public interest immunity
privilege was therefore heard in the absence of both parties
to the proceeding.
(iv) Reasons for
rejecting ASIC's public interest immunity privilege
claim Goldberg J rejected ASIC's claim
for public interest immunity privilege over the specified
documents and witness transcripts. First, ASIC submitted that
Dawson's objective of serving the subpoena on ASIC was to
confine the quantum of any security for costs which might be
ordered. ASIC argued that this purpose was different from the
usual purpose to obtain documents for use as evidence.
Goldberg J rejected ASIC's argument and considered that in
these circumstances, such use of a subpoena was for a
legitimate purpose and proper forensic
objective.
Secondly, ASIC submitted that as it
was only claiming the privilege over certain documents, the
subpoenaed documents that were available for inspection (i.e.,
not subject to the privilege claim) were more than adequate
for the administration of justice. Goldberg J rejected this
submission, stating that it was not for ASIC to determine
whether Dawson had sufficient evidence to prove its case
against Multiplex or whether or not Dawson would require the
documents subject to ASIC's claim for privilege.
Goldberg J therefore rejected ASIC's claim for
public interest immunity privilege over the specified
documents and witness transcripts.
As it was
decided that the documents were not protected from production
for inspection on the ground of public interest immunity
privilege, Goldberg J permitted persons examined by ASIC
during the investigation and whose transcripts are subject to
the subpoena, to make submissions.
The court
ordered that this proceeding be adjourned until 14 November
2007.
5.2 Stringent approach to
asset preservation orders directed at non relevant
persons (By Cherie Canning, Mallesons
Stephen Jaques)
ASIC v Burnard [2007] NSWSC 1217,
Supreme Court of New South Wales, Barrett J, 31 October
2007
The full text of this judgment is available
at:
http://cclsr.law.unimelb.edu.au/judgments/states/nsw/2007/october/2007nswsc1217.htm
or
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp (a)
Summary ASIC v Burnard examines the
scope of orders the court may make to prohibit payment or
transfer of money and other property under section 1323(1) of
the
Corporations Act 2001 No. 50 (Cth).
The decision confirms that, if the case for the
appointment of a receiver of property of a relevant person is
established under section 1323(1)(h), the court may instead
impose an "alternative or lesser" order, producing in
practical terms a substantially similar
result.
For the purpose of section 1323(1)(a),
where the order is directed at restraining a person who is not
the "relevant person", the court will only grant such an order
if that person has no interest in the property the subject of
the order. That person must amount to no more than a
bare trustee of the property, having no beneficial interest
whatsoever in the property.
(b)
Facts This proceeding stems from the
financial collapse of the Westpoint Group and investigations
and other actions undertaken by ASIC in consequence of that
collapse. ASIC sought continuation of orders that were
in force in respect of Neil Austin Burnard (Mr Burnard),
Palentia Pty Ltd (formerly known, and referred to herein, as
"Kebbel NSW") and Tenala Pty Ltd. In addition ASIC
sought orders against an additional two defendants Jennifer
Lee Robins ("Ms Robins") and BDI Pty Ltd ("BDI"). Ms
Robins was the wife of Mr Burnard. BDI was a company
owned and controlled by Mr Burnard and Ms Robins. BDI's
principal activity was to act as the trustee of three trusts,
known as the Asset Trust No 2, the Tessa Trust and the
Executive Superannuation Plan One.
ASIC applied
for the following orders under section 1323(1) of the
Corporations Act:
| Order 1 - That Mr Burnard and Kebbel NSW
be restrained from dealing with any of their respective
assets; |
| Order 2 - That Ms Robins be restrained
from dealing with the following properties: |
| |
(a) the family home of Mr Burnard, Ms Robins and
their children (the "Mosman Property"); and |
| |
(b) a holiday house located in Mona Vale (the "Mona
Vale Property"); |
| Order 3 - That BDI be restrained from
dealing with all of their respective assets including
assets owned on behalf of Asset Trust No 2, the Tessa
Trust and the Executive Superannuation Plan
One |
(c)
Decision This decision examined the
scope of the orders available under section 1323(1).
Section 1323(1)(a)
provides:
"Where an
investigation is being carried out under the ASIC Act or this
act in relation to an act or omission by a person, being an
act or omission that constitutes or may constitute a
contravention of this Act and the Court considers it necessary
or desirable to do so for the purpose of protecting the
interests of a person (in this section it is called an
aggrieved person) to whom the person referred to in paragraph
(a) (in this section called the relevant person), is liable,
or may be or become liable, to pay money, whether in respect
of a debt, by way of damages or compensation or otherwise, or
to account for financial products or other property, the Court
may, on application by ASIC or by an aggrieved person, make
one or more of the following orders."
Section
1323(1)(d) - (k) lists a range of orders that the court may
make if the elements of section 1323(1)(a) are made out.
ASIC sought to rely, inter alia, on section 1323(1)(h), which
provides that the court may make an order
appointing:
if the relevant
person is a natural person - a receiver or trustee, having
such powers as the court orders, of the property or of part of
the property of that person; or
if the relevant person is a
body corporate - a receiver or receiver or manager, having
such powers as the court orders, of the property or of part of
the property of that person.
Each if Mr Burnard
and Kebbel NSW were the "relevant persons" in respect of whom
orders were sought under section
1323(1).
(i) Order
1 The court accepted that section
1323(1)(h) provided a jurisdictional basis for the making of
Order 1 which was directed at restraining Mr Burnard and the
whole of the property of Kebbel NSW.
The court
found support for its view in three recent decisions: Re
Richstar Enterprises Pty Ltd; Australian Securities and
Investments Commission v Carey (No 3) (2006) 57 ACSR 307;
Australian Securities and Investments Commission v Kreichwost
[2007] NSWSC 948 and Australian Securities and Investments
Commission v Banovec (No 2) [2007] NSWSC 961. These
cases all provided that, if grounds are established for the
making of an order under section 1323(1)(h), it is open to the
court to instead make an "alternative or lesser order" which
does not appoint a receiver but otherwise safeguards or
preserves the property in respect of which a receiver could
have been appointed.
The court granted the asset
preservation order against Mr Burnard and Kebbel NSW, subject
to a time limit at which point the orders would be
reviewed.
(ii) Order 2
Order 2 was directed at Ms Robins and
sought to restrain her dealings with the Mosman Property and
Mona Vale Property. The court refused to grant Order 2
on the basis that it fell outside the scope of section
1323(1).
The registered proprietors of the Mosman
Property were Ms Robins and Mr Burnard, who hold their
interests as tenants in common in unequal shares, being Ms
Robins as to a 99 percent undivided interest and Mr Burnard as
to a 1 percent undivided interest. Ms Robins was the
sole registered proprietor of the Mona Vale Property.
The funds for the acquisition of the Mosman property and the
Mona Vale property came from BDI and Kebbel NSW. The
funds that came from BDI were, in part, assets of trusts that
at all material times were the property of Mr Burnard.
Due to the source of the funds, the Mosman property and the
Mona Vale property were held on a resulting or constructive
trust for Mr Burnard.
The court considered whether
section 1323(1) empowered the court to make Order 2 which
would restrain Ms Robins from dealing with the Mosman Property
and the Mona Vale Property. Sections 1323(1)(e), (f) and
(g) were rejected as providing a jurisdictional basis for
the order. The court then considered whether
section 1323(1)(h) provided such a basis. The court
again held that it would only provide a basis if the order
represented an "alternative or lesser" measure compared to an
order appointing a receiver of Mr Burnard's interest or that
of Kebbel NSW.
The court observed that if Order 2 were
made, it would bind Ms Robins in such a way to immobilise the
interests of Mr Burnard and Kebbel NSW, but also the interests
of Ms Robins. If Ms Robins were a bare trustee having no
beneficial interest whatsoever in the properties, an order
restraining her from disposing of them might well be seen as a
lesser alternative to the appointment of a receiver of Mr
Burnard's equitable interest or that of Kebbel NSW. This
would not be the case if Ms Robins herself had an interest in
the property. Accordingly, the court considered whether Ms
Robins was a bare trustee or had a beneficial interest in the
property.
ASIC provided evidence of the cash flows
relating to the purchase of the properties, inviting the court
to draw from this that Ms Robins had no beneficial interest in
the property. The court held that no reliable conclusion
regarding the existence of a resulting or constructive trust
could be reached by having regard to cash flows alone, in
particular the intention of the parties was also an important
consideration. On the high level analysis of the cash
flows that was available, the court was unable to find to this
effect. Therefore, ASIC had failed to establish Ms Robins had
no beneficial interest in the property and Order 2 was not
granted.
(iii) Order
3 Order 3 was directed at restraining
BDI. As with Order 2, the court refused to grant order 3 on
the basis that it fell outside the scope of section 1323(1).
Again the court rejected ASIC's submissions that
sections 1323(1)(e), (f) and (g) provided a basis for the
making of this order and attention was directed at section
1323(1)(h). Order 3 could only be made under section
1323(1)(h) if BDI, despite being the legal owner, had no
beneficial interest of its own.
The court held
that this was not the case as each of the trusts were active
and ongoing. The trustee incurred expenditure and, in
relation to the real estate assets, become liable to rates and
other outgoings. The general law principle is that a
trustee has a right to resort to and apply trust funds for the
discharge of liabilities incurred in the authorised conduct of
the trust. That right is given by means of an equitable
interest in the whole of the assets of the trust: see Chief
Commissioner of Stamp Duties v Buckle (1995) 38 NSWLR 574,
approved by the High Court in Chief Commissioner of Stamp
Duties v Buckle (1998) 192 CLR 226). Consequently BDI was
found to have an equitable interest in the property and it was
held that section 1323(h) did not authorise the making of
Order 3.
5.3 No waiver of privilege
caused by ASX announcements disclosing legal advice
(By Sabrina Ng and Katrina Sleiman,
Corrs Chambers Westgarth)
GMCG, LLC v Agenix Ltd
[2007] QSC 309, Supreme Court of Queensland, Douglas J, 29
October 2007
The full text of this judgment is
available at:
http://cclsr.law.unimelb.edu.au/judgments/states/qld/2007/may/2007qsc309.htmor
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp(a)
Summary The case concerned an
application for disclosure of documents said to be protected
by legal professional privilege.
Agenix Ltd (Agenix)
lodged a note to a company report with ASX Limited (ASX) which
disclosed that Agenix received legal advice that it had no
liability whatsoever in respect of proceedings brought against
it. Shortly after, Agenix lodged an amended note with
the ASX stating that Agenix had received legal advice and
based on that advice, the company believed that it had no
liability whatsoever.
GMCG, LLC (GMCG) asserted
that the note waived privilege that might otherwise have
attached to the advice and sought disclosure of the advice and
all documents which were relied on in the preparation of the
advice or which influenced the content of the
advice.
The court was asked to consider whether
the disclosure of the advice was inconsistent with the
confidentiality which the privilege was intended to
protect. After considering the purpose of the disclosure
to the ASX, the court held that Agenix did not waive privilege
in the advice or in the other related
documents.
(b) Facts
GMCG had commenced proceedings against
Agenix for fees claimed to be owed pursuant to an agreement by
which GMCG acted as financial adviser to Agenix. In a
note to a preliminary final report lodged by Agenix with ASX
on 13 September 2006, Agenix said of this litigation: "The
company has received legal advice that it has no liability
whatsoever."
On 21 September 2006 GMCG's
solicitors asserted that the note waived privilege that might
otherwise have attached to the advice and sought disclosure of
it. On 28 September 2006 Agenix lodged its financial
statements for the financial year ended 30 June 2006 with the
ASX and repeated the statement already made in the preliminary
final report set out above. On 22 December 2006 Agenix
advised the ASX of a correction to its financial statements to
amend that note to read: "The company has received legal
advice. Based on that advice, the company believes that
it has no liability whatsoever."
GMCG asserted
that the note waived privilege that might otherwise have
attached to the advice and sought disclosure of the advice and
all documents which were relied on in the preparation of the
advice or which influenced the content of the advice,
including instructions, witness statements, file notes and
other documents provided to or generated by the author of the
advice for the purpose of obtaining or preparing
it.
There was uncontradicted evidence from Mr
Anthony Finn, the finance manager and joint company secretary
of Agenix, that the note was prepared in its original form to
explain why Agenix's potential exposure to a claim should be
classified as a "contingent liability" instead of a
"provision" under the relevant accounting standard. Mr
Finn stated that, on about 22 December 2006, he caused an
amendment to be made to the note on contingent liability to
reflect the fact that it recorded Agenix's belief and not its
lawyer's belief which he regarded as desirable to ensure that
the note was completely accurate.
(c)
Decision The court accepted Mr
Finn's evidence that he referred to the legal advice to make
it clear that the classification of the claim as a contingent
liability was based on the Agenix's belief, following legal
advice, that it had no liability. The court also
accepted that the advice was mentioned in order to explain the
reason why Agenix believed that its possible further exposure
in the proceedings was properly classified as a contingent
liability.
The court then considered whether the
disclosure of the advice was inconsistent with the
confidentiality which the privilege was intended to
protect. Referring to the decision in Secretary to the
Department of Justice v Osland [2007] VSCA 96, the court
identified a number of relevant principles. First,
because privilege is a rule of substantive law, not of
evidence, and an important common law right or immunity, the
task for the court is to determine whether this specific
disclosure is so clear and inconsistent with the maintenance
of the privilege as to be unfair. Second, the test of
inconsistency is capable of accommodating the notion that, in
appropriate circumstances, the privilege-holder should be able
to disclose publicly that he is acting on advice and what the
substance of the advice is, without being at risk of having to
disclose the confidential content of that advice. Third,
in assessing whether there is an inconsistency leading to
waiver, the purpose for which the privilege-holder made the
disclosure is highly relevant. Fourth, the question is
whether the use made by the privilege-holder of the
information - particularly the purpose of disclosing the
conclusion of the advice - is inconsistent with maintenance of
confidentiality in respect of the content of the
advice.
In considering the purpose of the
disclosure to the ASX, the court stated that it was important
that Agenix be able to disclose why it had adopted a
particular accounting treatment of its potential exposure to
GMCG, as it promoted the integrity of the accounts and market
transparency by the provision of appropriate information to
shareholders, potential shareholders and creditors in
circumstances where the disclosure has given it no advantage
in the litigation.
Accordingly, the court
held that the references to the advice Agenix received in the
notes to its accounts did not waive the privilege in the
advice or in the other documents relied on in the preparation
of the legal advice or which influenced the content of the
legal advice for the purposes of the proceedings.
5.4 Filing a limited
defence to preserve the privilege against
self-incrimination (By Laura Deschamps,
Freehills)
MacDonald v ASIC [2007] NSWCA 304, New
South Wales Court of Appeal, Spigelman CJ, Mason P, Giles JA,
26 October 2007
The full text of this judgement
is available at:
http://cclsr.law.unimelb.edu.au/judgments/states/nsw/2007/october/2007nswca304.htm
or
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp (a)
Summary Following the initiation of
civil penalty proceedings by ASIC, MacDonald claimed that the
privilege against self-incrimination meant that he was not
required to file a defence.
The court held that
the privilege against self-incrimination does not exclude the
requirement to address the issues addressed in the initiating
process. The filing of a defence is still required even where
the privilege is claimed.
The defence required
to be filed, however, was limited to identifying the matters
which were admitted, not admitted and denied in order to
preserve the privilege. MacDonald was also granted the liberty
to file an amended defence after the close of ASIC's
defence.
(b)
Facts ASIC commenced civil penalty
proceedings against MacDonald and other defendants, alleging
various contraventions of the Corporations Act. ASIC also
sought disqualification orders against the individual
directors.
At first instance MacDonald had
claimed that the privilege against self-incrimination did not
require him to lodge a defence. On appeal, MacDonald resiled
from this position, but nevertheless claimed that any
requirement for him to lodge a defence was limited to an
indication of the extent to which ASIC's allegations were
admitted, not admitted or denied.
MacDonald also
indicated during the course of proceedings that he intended to
rely on statutory defences which would require him to adduce
additional evidence.
(c)
Decision The court indicated that a
departure from compliance with the civil proceedure rules was,
in these circumstances, necessary to preserve the privilege
against self-incrimination.
The requirement to
file a defence was not waived. A failure to file a defence in
civil proceedings is an admission of the facts contained in
the statement of claim. As Mason P (with whom Giles JA agreed)
noted, a failure to file a defence would have enabled ASIC to
apply for judgment against MacDonald.
Although
MacDonald was required to file a defence, he could "not be
compelled to include in his Defence any information that may
have the tendency to expose him directly or indirectly to the
penalties being sought by ASIC" in order to preserve the
privilege. Similarly, a defendant is not required to disclose
information which directly or indirectly leads to a train of
enquiry which may be self-incriminating.
Mason P
found that any departure from the rules of procedure, to
preserve the privilege against self-incrimination, should be
no more than that which was strictly necessary to preserve the
privilege. The form of pleading which Mason P required
was:
"If, which is so denied, the matters alleged in
para X constitute a contravention of sY of the Corporations
Law, the defendant says that the matters alleged by ASIC
also establish that the claimant relied upon information or
professional or expert advice / acted honestly (etc). The
defendant reserves the right to advance in his case
additional material in support of his defence, the details
whereof will be disclosed by amending this paragraph after
the close of ASIC's case".
Mason P held that this
form of pleading still required compliance with the rules of
procedure as MacDonald was still required to invoke any
defences and identify any of ASIC's allegations on which he
would rely.
In a separate judgment Spigelman CJ
questioned whether the form of pleading proposed by Mason P
retained a role for
Uniform Civil Procedure Rules 2005 No. 418
(NSW) rule 14.14(2)(c) which requires any matters not
arising out of the preceding pleading be specifically pleaded.
The form of pleading which Spigelman CJ would have required
would have only have dispensed with the Civil Procedure rules
for matters arising in relation to the statutory defences and
granted MacDonald the ability to file an amended
defence.
5.5 The privilege against
self-incrimination: avoiding further and better particulars in
civil penalty cases (By Chad Catterwell,
Freehills)
Australian Securities and Investments
Commission v Mining Projects Group Limited [2007] FCA 1620,
Federal Court of Australia, Finkelstein J, 25 October
2007
The full text of this judgment is available
at:
http://cclsr.law.unimelb.edu.au/judgments/states/federal/2007/october/2007fca1620.htmor
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp (a)
Summary The defendant directors claimed
that either the privilege against self-incrimination or the
closely related "penalty privilege" protected them against an
application by ASIC for further and better particulars. ASIC
claimed that even if the privileges could ordinarily be relied
upon, they had been waived when the defendants filed detailed
defences.
ASIC's application was dismissed. A
defendant cannot be required to provide information (including
by way of particulars) that may be the basis of an
investigation leading to the discovery of evidence against
him. The waiver was confined to the facts asserted or admitted
in the defences.
The defendants sought discovery
of draft witness statements obtained by ASIC from third
parties. The application was dismissed. The statements were
protected by legal professional privilege under the
Evidence Act 1995 No. 2 (Cth).
(b) Facts ASIC
alleges Mining Projects Group Limited made misleading public
announcements. In addition, ASIC alleges two directors
breached their duties under sections 180 and 181 of the
Corporations Act 2001 No. 50 (Cth),
breached the insider trading rules and improperly used company
information. As a result, ASIC seeks pecuniary penalties
against the directors and orders disqualifying them from
managing a corporation.
Each defendant has filed
a defence which admits certain facts, denies others and
includes facts amounting to a positive case.
In
the present application, ASIC claimed these defences were
deficient and sought orders for further and better
particulars.
(c)
Decision As Finkelstein J noted, the
conflict between the privilege against self-incrimination and
the rules of pleadings most starkly arises where a defendant
wishes to run a positive case in defence. The pleading rules,
in Finkelstein J's preferred view, must give way to the
privilege and there should be no obligation on a defendant to
plead a positive case. Alternatively, if the defendant is
required to plead a positive case, it should be entitled to
rely upon the privilege.
In adopting this
approach, Finkelstein J preferred a narrow reading of Bridal
Fashions Pty Ltd v Comptroller-General of Customs (1996) 17
WAR 499 (Bridal Fashions). ASIC contended that Bridal Fashions
was authority for the proposition that a positive case was by
definition exculpatory and thus could never be incriminating.
Justice Finkelstein disagreed with that view saying at [16]:
disclosing a positive case at the pleadings
stage will often provide the plaintiff with an opportunity
to follow up leads and open up fresh fields of inquiry. A
defendant cannot be required to provide information that may
be the basis of an investigation that may lead to the
discovery of real evidence. If a defendant is required to
plead a positive case there is a risk of that happening.
(references omitted)
This view, he said, was not
inconsistent with Bridal Fashions. That case was a civil
penalty proceeding under the
Customs Act 1901 No. 6 (Cth). By virtue of
by section 255 of the Customs Act, pleading facts in a
statement of claim is prima facie evidence of those facts. In
those circumstances, it was not open to the defendant to
simply put the plaintiff to proof on the allegations as such a
defence would not enable the defendant to lead any evidence to
negate the presumption created by section 255. Section 255 had
the practical effect of requiring that a positive case be
pleaded. Accordingly, Finkelstein J suggested at [15] that:
the point made by the Full Court is a narrow
one. In a Customs Act case neither penalty privilege nor
self-incrimination privilege is of any use to a defendant
because, if either privilege is claimed and no positive case
is run, the defendant will suffer an adverse
judgment.
In relation to waiver, Finkelstein J
accepted that the penalty privilege and the self-incrimination
privilege could be waived by conduct (such as by filing a
positive pleading) but took the view that any such waiver, in
the circumstances, was limited to the "facts" admitted or
asserted in the defences.
On the discovery
point, Finkelstein J noted his preference for the view that
regulatory bodies that bring civil penalty proceedings ought
to be under a duty of disclosure similar to that owed by a
prosecutor to an accused. He accepted, however, that the
authority was against him on this point. Draft witness
statements are 'confidential communications' for the purposes
of section 117 of the
Evidence Act 1995 No. 2 (Cth) and thus
subject to legal professional privilege under section 119 of
the Evidence Act.
5.6 Enforcement of
undertakings given to the ACCC(By Alex
Dunlop, Blake Dawson)
Australian Competition and
Consumer Commission v StoresOnline International, Inc [2007]
FCA 1597, Federal Court of Australia, Tamberlin J, 19 October
2007
The full text of this judgment is available
at
http://cclsr.law.unimelb.edu.au/judgments/states/federal/2007/october/2007fca1597.htmor
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp (a)
Summary This case involved an
application for relief by the Australian Competition and
Consumer Commission (ACCC) against StoresOnline International
Inc (StoresOnline).
StoresOnline was made
up of two companies incorporated in America that sold computer
software packages that allowed purchasers to set up and
operate online stores, and conducted seminars and workshops in
Australia to promote the software packages. The ACCC
commenced proceedings against StoresOnline in the Federal
Court in 2005, alleging that StoresOnline had, through its
seminars and workshops, engaged in misleading and deceptive
conduct in breach of the
Trade Practices Act 1974 No. 51 (Cth)
(TPA). In settlement of those proceedings, StoresOnline
gave an undertaking on 24 April 2006 under section 87 of the
TPA (undertaking), whereby it agreed not to conduct seminars
and workshops in Australia without complying with certain
conditions imposed by the ACCC.
The present
matter arose because the ACCC alleged that StoresOnline had
breached the terms of the undertaking, and so the ACCC sought
injunctive relief preventing any further breaches of the
undertaking and orders placing further conditions upon any
further seminars or workshops conducted by StoresOnline in
Australia.
(b)
Facts Section 87B(4) of the TPA provides
that if the court is satisfied that a person has breached a
term of an undertaking given under section 87, the court may
make a range of orders, including (a) an order directing the
person to comply with that term of the undertaking; and (b)
any other order that the court considers appropriate.
The ACCC alleged that StoresOnline had breached
terms of its undertaking, and was likely to continue to breach
the undertaking in future presentations. The ACCC
considered that its application (heard on 16 October 2007) was
urgent on the basis that StoresOnline representatives were
scheduled to arrive in Australia on 22 October 2007 to make
further presentations.
StoresOnline
conceded that it had breached some terms of the undertaking,
but submitted that these breaches were minor and that it had
taken measures to ensure it did not commit further breaches.
(c) Decision His
Honour Tamberlin J considered that there were three issues to
be determined in this case.
(i) The
jurisdiction of the Federal Court to grant
relief The ACCC submitted that section
23 of the
Federal Court of Australia Act 1976 No. 156
(Cth) (FCA Act), which gives the court "power, in relation
to matters in which it has jurisdiction, to make orders of
such kinds, including interlocutory orders.as the court thinks
appropriate", gave the court power to grant interlocutory
relief in the present case.
In contrast,
StoresOnline relied on the decision of Brennan CJ, McHugh,
Gummow, Kirby and Hayne JJ in Patrick Stevedores Operations No
2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1,
where their Honours held (at 29) that the court's power under
section 23 of the FCA Act "cannot be invoked to grant an
injunction where the court acquires its jurisdiction under a
statute which provides an exhaustive code of the available
remedies and that code does not authorise the grant of an
injunction". StoresOnline argued that section 80 of the
TPA was such a code, relying on the judgment of Gibbs CJ,
Stephen, Mason and Wilson JJ in Thomson Australia Holdings Pty
Ltd v Trade Practices Commission (1981) 148 CLR 150 (Thomson),
where their Honours noted (at 162) that section 80 of the TPA
"proceeds upon the footing that it constitutes the Federal
Court's exclusive charter to grant injunctions restraining, or
relating to, contraventions of the Trade Practices Act".
This argument was rejected by his Honour, who
noted that section 87B was inserted into the TPA in 1992,
after the court's decision in Thomson. His Honour also
rejected the suggestion by StoresOnline that Parliament must
have inserted section 87B into the TPA with the decision in
Thomson in mind, as such an inference was not supported by any
other evidence. Instead, his Honour preferred the view
that the inclusion of section 87B in the TPA was to "enhance
the enforcement by the ACCC by increasing the scope and
flexibility of the powers of the Court to provide effective
means of dealing with breaches or apprehended breaches of the
TPA" (at [13]).
(ii) Whether
StoresOnline had breached the
undertaking StoresOnline conceded that
it had breached the terms of the undertaking that required it
to ensure that testimonials used in presentations contained
certain information and to notify the ACCC of the dates and
locations of presentations to be given in Australia. His
Honour noted (at [19]) that these breaches were themselves
sufficient to warrant the court exercising its power under
section 87B(4)(a) of the TPA to make orders requiring
StoresOnline to comply with the relevant provisions of the
undertaking.
StoresOnline denied that it had
committed any of the additional breaches of the undertaking
alleged by the ACCC. However, his Honour found that, at
the least, StoresOnline had breached paragraph 14 of the
undertaking, which required StoresOnline to make known to
purchasers of its software packages that they had a three
business day cooling off period for their purchases. In
so finding, his Honour noted that some of the disclaimers
relied upon by StoresOnline were "manifestly inadequate on
their face", and accepted evidence from purchasers of
StoresOnline's packages that on some occasions, StoresOnline
either failed to notify purchasers of the cooling-off period
or provided notification "in a manner which was not readily
brought to the purchasers' attention and not easy to
understand, so that it could not be said to have been 'made
known' as required". This breach also justified the use
of section 87B(4)(a) to order StoresOnline to comply with this
term of the undertaking.
Finally, while his
Honour did not make findings as to whether any of the other
breaches of the undertaking alleged by the ACCC in fact
occurred, he was nonetheless satisfied that in light of the
conceded breaches and the breach that had been found to have
occurred, it was appropriate to exercise the court's
discretionary jurisdiction pursuant to section 87B(4)(d) of
the TPA to make orders that StoresOnline comply with the
others terms of the undertaking.
(iii) Whether the balance of convenience
favoured granting or refusing to grant the relief sought by
the ACCC The ACCC submitted that the
balance of convenience in granting the relief sought was in
its favour, as it argued there was a "very strong public
interest" in ensuring StoresOnline complied with its
undertaking, which the ACCC had originally agreed to for the
purpose of protecting Australian consumers. In response,
StoresOnline argued that neither the ACCC nor purchasers of
its product had suffered any material harm or prejudice, and
that reliance on the public interest was not a decisive factor
in deciding whether or not to grant injunctive relief.
His Honour agreed with the ACCC's submission on
this point, and noted granting the relief sought by the ACCC
would not prevent StoresOnline from conducting workshops and
presentations in Australia, only that doing so would serve to
discourage it from breaching the terms of its original
undertakings. His Honour commented that allowing the
relief sought struck an appropriate balance between the ACCC's
desire to protect Australian consumers and StoresOnline's
commercial interest in promoting its product in Australia.
5.7 Judicial accord on
Graywinter principle relating to statutory
demands (By Stephen
Magee)
Saferack Pty Ltd v Marketing Heads
Australia Pty Ltd [2007] NSWSC 1143, Supreme Court of New
South Wales, Barrett J, 16 October 2007
The full
text of this judgment is available at:
http://cclsr.law.unimelb.edu.au/judgments/states/nsw/2007/october/2007nswsc1143.htm
or
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp
(a) Summary "There
are nine and sixty ways of constructing tribal lays, And every
single one of them is right!" (Rudyard
Kipling)
The many and unusual methods of serving
statutory demands have probably passed "nine and sixty" by
now. This case adds another to the list and, according to the
Supreme Court of NSW, it is definitely right.
The
case also sees Barrett J modify his stance on the application
of the Graywinter principle.
The Graywinter
principle is that, when a company is applying to set aside a
statutory demand, it can only rely on grounds raised in
affidavits filed within the 21 days allowed by section 459G.
Until now, there has been disagreement among NSW
judges about how explicitly a ground has to be raised in the
affidavit.
Most judges have taken the view that
the ground simply has to be an "available inference" from the
affidavit. Barrett J, on the other hand, hitherto took the
view that the ground must be identified expressly or by
necessary inference in the affidavit itself. This issue can
arise where, for example, a document (such as a contract) is
annexed to the affidavit and, although the affidavit doesn't
mention it, the ground is obvious from the
document.
In this case, Barrett J reviews the
authorities and changes his position. In the case before him,
a copy of the statutory demand and the affidavit in support of
the statutory demand were annexed to the affidavit in support
of the set-aside application. He says that the set-aside
application could therefore rely on three defects that were
obvious on the face of the affidavit in support of the
statutory demand. Two of those defects were held to be
sufficient to warrant setting aside the
demand.
(b) Facts
According to ASIC records, the
registered office of Saferack Pty Ltd was "c/- Stratford
Fisher & Associates, Level 4, 44 Miller Street, North
Sydney".
In fact, although Stratford Fisher had
apparently once occupied Suite 17 on Level 44, it had
subsequently moved to another part of Sydney. Its principal
still occasionally used another firm's office in Suite 15 of
Level 4.
A creditor's solicitor went to 44
Miller Street, with a statutory demand. The ground floor
directory still showed Stratford Fisher as being present on
Level 4. The solicitor went to Level 4 and went into the
reception area of Suite 15. There, a man accepted delivery of
the demand. A desk in the reception area had a in-tray bearing
the name of Stratford Fisher.
Saferack applied to
have the demand set aside, on a number of grounds. These
included a contention that the demand had not been served on
it.
(c) Decision
(i) Service of
demand Saferack appeared to argue that,
once Stratford Fisher moved out of Suite 17, its registered
office became Level 4, rather than a particular suite on that
floor. The court rejected this argument, on the grounds that,
by keeping its name on the in-tray and on the ground floor
directory, Stratford Fisher had held out Suite 15 as a place
through which it could be contacted.
(ii)
Section 459J(1)(b)
At trial, Saferack
argued that the demand should be set aside under section
459J(1)(b), because there were three alleged defects in the
affidavit served with the demand:
- it did not state that the debt the subject of the demand
was "due and payable";
- it did not state a belief of the deponent as to the
absence of genuine dispute about the existence and amount of
the debt; and
- it did not state the source of the deponent's knowledge
of the matters stated in the affidavit.
The creditor
argued that these alleged deficiencies could not be raised by
way of challenge under section 459J(1)(b) because they were
not identified in either of the affidavits supporting the
set-aside section 459G application. This required Barrett J to
consider the correct approach to applying the Graywinter
principle.
In earlier cases, his Honour had said
that the ground of challenge must be raised expressly in, or
appear by necessary inference from, the supporting affidavit.
However, he noted that there were a number of authorities
which took a more liberal view and, on the basis of those
authorities, concluded that his earlier approach had been "too
strict". Accordingly, he was now of the view that a ground is
"raised" (for the purposes of Graywinter) if it is evident
from the supporting affidavit, even if only because it can be
"discerned from some annexed document the content of which
`reveals' it".
In the present case, Saferack's
three grounds of objection were evident on the face of the
affidavit accompanying the statutory demand, which itself was
annexed to the affidavit in support of the set-aside
application.
He then went on to deal with the
effect of those three defects, applying his interpretation of
section 459J(1)(b) as a provision to be used "to counter some
attempted subversion of the statutory scheme":
- failure to state that the debt was "due and payable" -
this was "a material departure from the statutory demand
process envisaged by section 459E";
- failure to state a belief that there was no genuine
dispute about the debt - which constituted the creditor's
"using the demand for a purpose and in a way not
contemplated by the provisions under which a creditor may
obtain the benefit of [the statutory presumption of
insolvency]"; and
- failure of the person swearing the affidavit to state
the source of their knowledge - this was not a major
issue if the person was a director of the creditor (as in
this case).
On the basis of the first two defects,
the demand was ordered to be set aside. In obiter, his Honour
also said that there was a genuine dispute about the debt the
subject of the demand.
5.8 Duty of a liquidator
and trustee in bankruptcy to realise true value and avoid
causing pure economic loss when selling
assets(By Tom McGregor, Mallesons Stephen
Jaques)
Mills v Sheahan [2007] SASC 365, Supreme
Court of South Australia, Full Court, Debelle, Sulan &
Layton JJ, 16 October 2007
The full text of this
judgment is available at:
http://cclsr.law.unimelb.edu.au/judgments/states/sa/2007/october/2007sasc365.htmor
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp (a)
Summary This case examines the duty owed
by a liquidator and trustee in bankruptcy to a third party
indemnifier to avoid causing pure economic loss. In
determining whether there could exist a duty to a person in
the position of the plaintiffs, the court examined the
"salient features" of the relationship between the
parties. It was found that the imposition of a duty on a
liquidator and trustee in bankruptcy may not be inconsistent
with the duties owed to company shareholders and creditors,
although the court was inclined to reserve the issue for full
exploration at trial. For the purposes of the
application, it was determined that the plaintiffs' statement
of claim disclosed a reasonably arguable cause of action
sufficient to warrant further examination of the issues at
trial.
(b)
Facts Rothmore Farms Pty Ltd
("RFPL") was trustee of the Jillian Cooper Trust ("the
trust"). The trust conducted a farming business.
The trust deed provided the trustee with a right of indemnity
out of the trust assets. RFPL borrowed funds from
various banks but was unable to service the loans. To
protect the trust assets from claim by the banks, RFPL
transferred the trust assets to Belgravia Pty Ltd
("Belgravia"), which was subsequently appointed trustee of the
trust. Belgravia and its directors are the plaintiffs in
the action.
In 1998 RFPL was placed into
liquidation and in 1999 orders were made for winding up.
The defendant, Sheahan, was appointed liquidator. The
Federal Court later declared that RFPL was entitled to be
indemnified out of the assets of the trust to the extent of
its indebtedness to the banks. The court also declared
that RFPL had a lien over the trust assets to the full value
of its indemnity which was enforceable against third parties
(including Belgravia) who from time to time held title to the
trust assets. As liquidator, Sheahan sold the trust's
plant and equipment.
In addition, the trust's
farming business was conducted on land owned by members of the
Cooper family and a company called Rothmore Pty Ltd.
Three members of the Cooper family agreed to act as guarantors
of the bank loans to RFPL. Following RFPL's default on
the bank loans, the banks enforced the guarantees.
Sequestration orders were then entered against the guarantors
and Sheahan was appointed trustee in bankruptcy of each
estate. Sheahan then obtained orders permitting
partition and sale of the land.
The plaintiffs
allege that Sheahan sold the trust assets for amounts
substantially less than their market values. It was
alleged that Sheahan, in his capacity as liquidator and
trustee in bankruptcy, breached his duty of care to third
party indemnifiers to realise the true value of the trust
assets and avoid pure economic loss.
This is an
appeal from the decision of Besanko J who struck out the
plaintiffs' statement of claim for failing to disclose a
reasonable cause of action.
(c)
Decision (i) Duty owed to the
plaintiffsThe court framed the main issue
before it as "whether the plaintiffs' claim discloses no
reasonable cause of action such that a duty could be said,
with certainty, not to exist."
In relation
to cases for pure economic loss, the court noted that:
.it is well established that a mere
foreseeability of loss by the plaintiff is insufficient to
establish a duty of care on the part of the defendant. In
Perre v Apand (1999) 198 CLR 180, the High Court considered
relevant whether the defendant's actual foresight of the
likelihood of harm, whether the activities which caused the
loss were within the control of the defendant, whether the
defendant knew or could have known of the existence of an
ascertainable class of vulnerable persons who were unable to
prevent themselves from harm, and whether the imposition of
a duty would impair the defendant's legitimate pursuit of
his or her own commercial interests.
Sulan J
rejected the defendant's claim that the plaintiffs had not
pleaded anything more than mere foreseeability. To the
contrary, his Honour (with whom Layton J agreed) found that
the plaintiffs pleaded that the defendant knew that the
proceeds of the sale of the assets would affect the quantum of
the indemnity of RFPL, and that, accordingly, any variation in
the proceeds of the sale of the assets would affect the
quantum of the judgment debt owed by the plaintiffs.
The court endorsed the plaintiffs' adoption of
the "salient features" framework (as propounded in Caltex Oil
(Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR
529) in relation to the circumstances which meant that the
relationship between the plaintiffs and the defendant was
sufficiently close for there to be a duty of care. The
salient features present in the circumstances connoting the
possibility of a duty to the plaintiffs include:
- the existing relationships between the plaintiffs, the
bankrupts, and RFPL, both generally and in the sense that
all had or would have some responsibility in various ways
for the bank debt. According to Debelle J, although no
longer being indicative of a duty in this country, there was
a real proximity between the defendant and the plaintiffs,
since the defendant knew that the amount recovered from the
sale of the assets would directly affect the amount payable
by the plaintiffs;
- the defendant's intention to sue the plaintiffs for the
loss suffered by RFPL (which ultimately materialised); and
- the vulnerability of the plaintiffs to the defendant in
relation to the sale of the assets. Citing the case of
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216
CLR 515, it was found that the plaintiffs' vulnerability
arose by virtue of their inability to protect themselves
from the consequences of the defendant's want of reasonable
care. In particular, the quantum of the plaintiffs'
indemnity was directly affected by the amount recovered from
the sale of the trust assets.
Debelle J's judgment
explored in detail the issue of whether the defendant, acting
in the capacity of a liquidator or trustee in bankruptcy,
actually owed a duty of care to the plaintiffs. Sulan
and Layton JJ noted that although Debelle J's decision
contained persuasive reasons in favour of imposing a duty of
care, it was unnecessary for the purposes of the present
application to explore the merits of those arguments.
The majority judges also acknowledged that
although a court ought to be cautious before interfering with
a liquidator's conduct of a liquidation, this reluctance is
merely one factor to be considered in determining the
existence of a duty of care. Accordingly, in the absence
of clear principles from previous cases on pure economic loss,
the court found it "inappropriate to preclude the plaintiffs
from bringing their case".
(ii) No
conflict of dutyThe defendant submitted that
the imposition of a duty on a liquidator to a third party
indemnifier would be inconsistent with the duty a liquidator
owes to the creditors and shareholders of the company.
Sulan J (with whom Layton J agreed) rejected
this approach, finding that the position of the plaintiffs was
analogous to an ordinary creditor. In this regard, the
court noted that:
...the plaintiffs' financial liability arose
from a Federal Court judgment, in which it was determined
that the plaintiffs were required to indemnify the companies
as a consequence of the plaintiffs' breach of fiduciary
duty.
His Honour found that the fact that there
may exist other parties to whom a liquidator owes a duty is
not determinative of whether a duty exists towards the
plaintiffs. Relying on the dicta from Sullivan v Moody (2001)
207 CLR 562, it was noted that:
...the circumstance that a defendant owes a duty
of care to a third party.does not of itself rule out the
possibility that a duty of care is owed to the plaintiff.
People may be subject to a number of duties, at least
provided they are not irreconcilable.
In this
regard, Debelle J found that the duties owed by a liquidator
and trustee in bankruptcy were consistent with the other
duties owed by the defendant. His Honour noted:
...the duty to take care to secure a fair price
is entirely consistent with the duties of a liquidator and
of a trustee in bankruptcy when realising assets. The duties
are entirely compatible. The duty which the plaintiffs seek
to enforce is a duty to secure the best price reasonably
obtainable in the circumstances for the assets which have
been sold. If the liquidator or trustee in bankruptcy has
discharged that duty, there is no impairment to the rights
of creditors.
The majority judges, however,
decided that the issue of a potential conflict of duties, and
the consequences of such a conflict, were ultimately matters
to be explored at trial. As Sulan and Layton JJ noted,
the compatibility of duties "turns on the nature of the duties
and the nature of the duties claimed," those issues being best
reserved for determination at trial. It was resolved
that for the purposes of the present application, the mere
possibility of there being a conflict of duties should not, by
itself, preclude the plaintiffs from bringing a claim.
The court found that the plaintiffs' statement
of claim disclosed a reasonable cause of action which, if
established, would entitle the plaintiffs to relief.
Leave to appeal was granted.
5.9 Highly questionable
whether a "doctrine" of caretaker directors exists in
Australian law (By Felicity Saxon,
Clayton Utz)
Chimaera Capital Ltd v Pharmaust Ltd
[2007] FCA 1539, Federal Court of Australia, French J, 9
October 2007
The full text of this judgment is
available at:
http://cclsr.law.unimelb.edu.au/judgments/states/federal/2007/october/2007fca1539.htm
or
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp
(a) Summary This
case concerned an application by Chimaera Capital Limited
("Chimaera") for interlocutory relief to restrain the
allotment of shares on a rights issue by Pharmaust Limited
("Pharmaust").
On 12 September 2007 Pharmaust
lodged with the Australian Securities and Investments
Commission a prospectus for a 1:1 entitlement rights issue at
3 cents per share with a view to raising $3,550,618. At
the time an extraordinary general meeting ("EGM") of members
of the company had been requisitioned by disaffected
shareholders seeking the removal of the existing board of
directors. The EGM had been fixed by the directors for
22 October 2007 which was the last date upon which it could
have been held after the notices requisitioning it.
Chimaera applied for an interlocutory injunction
to restrain the allotment of shares under the rights issue. It
argued that the directors of Pharmaust:
- were acting beyond power in making the rights issue,
because they were caretaker directors pending the outcome of
the EGM requisitioned by the aggrieved shareholders;
- had breached their duty under section 181 of the Corporations Act 2001 No. 50 (Cth) in
making the rights issue for an improper purpose; and
- were acting contrary to the interest of the shareholders
as a whole or in a way that was oppressive or unfairly
prejudicial to Chimaera and other shareholders.
French J held that even if the "doctrine" of
caretaker directors existed, which he considered was "highly
questionable", it could not be relied on to restrict the
directors' power to embark upon the rights issue simply
because of the requisitioned EGM.
The
evidence outlined that the board had endeavoured to find a
solution to pressing difficulties facing the company in both
the short and the long term.
French J
considered that the timing of the EGM, which effectively
allowed the rights issue to proceed, did not of itself support
the proposition that the rights issue was for an improper
purpose protective of the directors. However French J
considered that might be so if it was clear that the rights
issue would lead to a changed majority, which was not the case
here.
French J held that the evidence did not
point to a persuasive conclusion that the rights issues was
anything other than a bona fide judgment by the directors of
what was in Pharmaust's best interests The balance of
convenience did not favour the restraining of the rights
issue.
(b) Facts
In July 2007 the cash position of Pharmaust was poor and
getting worse. At this time Pharmaust had secured
finance from the National Australia Bank ("NAB") by way of a
facility in the amount of approximately $1,350,000 which was
due to expire at the end of July. The managing director
of Pharmaust had also resigned.
From July 2007 to
September 2007 Pharmaust received various conditional
proposals to raise interim working capital and refinance the
NAB facility. These proposals were, in the opinion of
the directors, unsuitable for a number of reasons, including
being conditional upon the lender's taking control of
Pharmaust and providing insufficient funds. Entities
associated with disaffected shareholders of Pharmaust had also
made proposals to Pharmaust which were in part driven out of
concerns over the falling share price, having dropped from
around 20 cents in 2006 to 3.5 cents by August 2007 and
dissatisfaction with the board of directors. Pharmaust
did not accept any of these proposals.
On or
about 20 August 2007 shareholders of Pharmaust holding
approximately 15% of the issued shares issued notices
requisitioning an EGM to remove the directors and to appoint a
new board. The directors fixed the shareholder
requisitioned EGM for the last date upon which it could have
been called, 22 October 2007.
On 28 August 2007
Pharmaust entered into a formal loan agreement with Mr
Vassileff. This was conditional upon Pharmaust's instigating a
rights issue to repay the capital. On 13 September 2007
Pharmaust announced to ASX a 1:1 entitlement rights issue at 3
cents per share with a view to raising
$3,550,618.
Chimaera, the parent of some
Pharmaust shareholders, then instituted proceedings. Among
other things, it sought an interlocutory injunction preventing
the allotment of shares under the rights issue until there had
been a vote on the directors'
positions.
(c) Decision
To obtain the interlocutory injunctive
relief, Chimaera was required to demonstrate a serious
question to be tried and that the balance of convenience
favoured the grant of the injunction.
Chimaera
relied on the following 3 propositions to support its claim
for interlocutory relief:
- the directors were acting beyond power in making the
rights issue because they were caretaker directors pending
the outcome of the EGM requisitioned by the aggrieved
shareholders;
- the directors were in breach of their duty under section
181 of the Act in making the rights issue for an improper
purpose; and
- the directors were acting contrary to the interest of
the shareholders as a whole or in a way that was oppressive
or unfairly prejudicial to Chimaera and other
shareholders.
(i) Caretaker
directors French J held that the
directors' power to effect rights issues is constrained by
their statutory and fiduciary obligations, including the
obligation to act in good faith in the best interests of the
corporation and for a proper purpose.
He held
that the term "caretaker" is a metaphorical adjective which
did not define a doctrine and at best might be regarded as a
shorthand reference to the kinds of duties that may constrain
the exercise of directors' powers in particular situations
including circumstances in which an extraordinary general
meeting for the removal of directors has been
requisitioned.
French J held that even if
the "doctrine" of caretaker directors existed, which he
considered was "highly questionable", it could not be relied
on to restrict the directors' power to embark upon the rights
issue simply because of the requisitioned EGM.
(ii) Acting for a proper
purpose The history of the matter
outlined that the board had endeavoured to find a solution to
the pressing difficulties facing the company in both the short
and the long term. The two most pressing issues were the
need to discharge or renegotiate the NAB facility and to
obtain ongoing working capital.
French J held
that the evidence did not point to a positive conclusion that
the board's acceptance of Mr Vassileff's proposal was anything
other than a bona fide judgment of what was in the company's
best interests as this proposal dealt with the NAB facility
problem and also with the requirement for ongoing working
capital. It was noted that the acceptance of this
proposal did not solve the long term issues facing Pharmaust.
However, the directors could reasonably conclude that none of
the other alternatives would resolve those issues as
well.
(iii) Balance of
convenience The balance of convenience
assessment disclosed factors on both sides of the
argument. The existing shareholders might face dilution
of their shares, but the evidence did not allow any
conclusions on that point. On the other hand, blocking the
allotment of shares pending the EGM might have effects on
third parties and result in a delay in raising the necessary
funding for the company.
While it may be
said that there was an arguable case raised against the
directors, it was, on the materials before the court, a weak
case.
Having regard to the weakness of the case,
the balance of convenience was not sufficiently weighted in
favour of Chimaera or disaffected shareholders to justify the
grant of the interlocutory relief which was sought.
5.10 Schemes of
arrangement - convening a meeting under section
411(1)
(By Trent Duffield, DLA Phillips
Fox)
In the matter of Coles Group Ltd [2007] VSC
389, Supreme Court of Victoria, Robson J, 27 September
2007
The full text of this judgment is available
at:
http://cclsr.law.unimelb.edu.au/judgments/states/vic/2007/september/2007vsc389.htm
or
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp
(a) Summary In
accordance with section 411(1) of the
Corporations Act 2001 No. 50 (Cth) ("the
Act"), Coles Group Limited ("Coles") sought and was granted an
order to convene a meeting of a class of its shareholders in
order to consider a scheme of arrangement proposed by
Wesfarmers Limited and Wesfarmers Retail Holdings Pty Ltd
("Wesfarmers").
(b)
Facts Coles sought an order under
section 411(1) of the Act which would enable Coles to convene
a meeting of a class of its shareholders for the purpose of
considering a scheme of arrangement ("Scheme"). The
Scheme related to the proposed acquisition of Coles by
Wesfarmers.
The Scheme, as proposed, was between Coles
and its members (other than Wesfarmers and persons holding
shares on Wesfarmers' behalf) ("Scheme
Shareholders").
Coles not only sought an order pursuant
section 411(1) of the Act to convene the meeting, but sought
further orders as to the manner in which the meeting should be
convened and conducted, including its time and place and the
person authorised to act as its Chairman. Also pursuant to
section 411(1), Coles sought approval of the explanatory
statement that was before court that related to the Scheme
setting out it nature and terms.
There was no
defendant in the application and no appearance by
ASIC.
(i) Should the meeting be
ordered?In considering whether a meeting
should be ordered, Robson J cited the judgment of Street J in
F.T. Eastman & Sons Pty Ltd v Metal Roof Decking Supplies
Pty Ltd (1977) 3 ACLR 69 where it was observed that the court
will not ordinarily summon a meeting unless the scheme
proposed is of such terms that, if it achieved the relevant
majority at the meeting, the court would be likely to approve
it on hearing of a petition which was unopposed. Robson
J noted that the approach by Street J was supported in the
High Court decision of Australian Securities Commission v
Marlborough Goldmines Ltd (1977) 3 ACLR 6 and also by
Hayne J in Re Sonodyne International Ltd (2003) 45 ACSR
34 where Hayne J stated that: "In the end the question as
presented at this stage of the process of a company
propounding and implementing a scheme of arrangement is
whether the scheme is such that it could reasonably be
supposed by sensible business people to be for the benefit of
the clients concerned. That is, the test is... whether
it is reasonable to suppose that sensible business people
might consider the arrangement proposed by the company is of
benefit to its members".
(ii) What were
the relevant factors? To determine if it
were reasonable to suppose that sensible business people might
consider the arrangement proposed by Coles was of benefit to
its members, Robson J focused on those factors that had been
considered relevant by Lindgren J in Re APN News & Media
Ltd (2001) 36 ACSR 758, in particular those which came under
the headings of performance risk, 'no-shop' restriction, break
fee and deemed warranty.
(iii) 'No-shop'
restriction In respect of the 'no shop'
restriction within the Scheme Implementation Agreement (where
Coles would agree to terminate discussions with parties other
than Wesfarmers regarding competing transactions), Robson J
observed that any such restriction should:
- be limited to a reasonable period capable of precise
ascertainment;
- be framed such that it is subject to the overriding
fiduciary duties of directors; and
- be highlighted adequately in the explanatory statement.
Robson J held that the restriction in this instance
satisfied these requirements and did not contain anything
which should prevent the Scheme going forward for
consideration by the Scheme Shareholders. In particular, it
was highlighted that the restriction included an express
"fiduciary carve out" for the directors of Coles and expired
on 31 December 2007. Robson J considered that the period to 31
December 2007 was a reasonable time given the size and
complexity of the proposed transaction.
(iv) Performance
risk Robson J accepted the submissions
of Coles that adequate provision had been made for performance
risk as under the Scheme the shares were not to be transferred
until consideration had been provided.
(v) Break fee It
was emphasised that any break fee under a scheme of
arrangement should be a consequence of normal commercial
negotiation, and not the result of any pressure or influence
from one of the parties involved. It was accepted that Coles
and Wesfarmers both considered that it was appropriate and
reasonable to have agreed to the payment of the break fee to
secure the benefits available to each of them from their
participation in the Scheme. Moreover, it was accepted by
Robson J that the break fee was not likely to significantly
deter any other serious competing offer by a company or
companies other than Wesfarmers, given the percentage of the
break fee against the total value of the offer. The break fee
of $150 million only represented 0.81% of the low end of an
assessment received by the court of the value of the
Wesfarmers' offer.
It was also noted that the
break fee would not be payable where the Scheme failed to
attract support of the requisite majorities at the meeting.
Accordingly, it could not be suggested that the provision of
payment of the break fee would operate to coerce Scheme
Shareholders to vote in favour of the
offer.
(vi) Deemed
warranty The Scheme provided that each
Scheme Shareholder was deemed to have warranted to Coles that
all of their ordinary shares would, at the date of transfer,
be fully paid and free from all encumbrances. Further to this,
each Scheme Shareholder would be deemed to have warranted that
they had full capacity and power to sell and transfer those
shares. Robson J observed that the purpose of a deemed
warranty should be to prevent a shareholder whose shares are
subject to encumbrances from receiving the same consideration
as that to be received by a shareholder whose shares are free
from encumbrances without obligation to refund the amount
required to be discharged under the encumbrance. As the
deemed warranty in the present circumstances did no more than
to operate as a device to ensure this outcome, Robson J
considered the deemed warranty reasonable and acceptable in
the circumstances.
(vii) Explanatory
statement His Honour directed that
references in the explanatory statement to "directors'
fiduciary duties" should be amended to refer more broadly to
"directors' duties". It was considered that the
limitation of the duties to fiduciary duties may mean that the
prescriptive duties of directors, such as the duty to act bona
fide in the best interests of the company and the duty to
exercise reasonable skill and care, may not be included.
(c) Decision
Robson J held that it was reasonable to suppose that
sensible business people might consider the arrangement
proposed could be of benefit to members of Coles and
accordingly made the orders sought by Coles, which included an
order to convene a meeting of Scheme Shareholders to consider
the Scheme and approval of the explanatory statement before
the court that related to the Scheme.
5.11 The requirements of
section 459G are essential conditions of the right to make an
application for an order setting aside a statutory
demand (by Kathryn Finlayson, Minter
Ellison)
Pearlburst Pty Ltd v Summers Resort
Group Pty Ltd; Landmark Leisure Group Pty Ltd v Summers Resort
Group Pty Ltd [2007] NSWSC 1126, Supreme Court of New South
Wales, Barrett J, 11 October 2007
The full text
of this judgment is available at:
http://cclsr.law.unimelb.edu.au/judgments/states/nsw/2007/october/2007nswsc1126.htmor
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp (a)
Summary The requirements of section 459G
are essential conditions of the right to make an application
for an order setting aside a statutory demand. As the time
requirement was not observed, the court had no jurisdiction to
order that the statutory demands be set
aside.
Rule 35.8 of the Uniform Civil Procedure
Rules does not restrict fulfilment of the section 459G
conditions.
(b) Facts
On or about 15 August 2007, the
defendants served statutory demands on the plaintiff. On 5
September 2007, the plaintiff filed two applications under
sections 459G and 459J of the
Corporations Act 2001 No. 50 (Cth) for
orders setting aside the statutory demands served by the
respective defendants.
On 27 September
2007, the defendants each filed a notice of motion seeking an
order that the respective proceedings be dismissed pursuant to
Rule 13.4 of the
Uniform Civil Procedure Rules 2005 No. 418
(NSW). The defendants submitted that no cause of
action existed or, alternatively, that the proceedings
represented an abuse of process. In reply, the plaintiff
submitted that the defendants had not proved service of the
statutory demands and that summary dismissal should not be
ordered.
As the circumstances in each proceeding
were identical, the proceedings were heard together and the
Supreme Court delivered one set of reasons.
The
main issue before the court was whether the plaintiff had
properly invoked the jurisdiction of the court under section
459G.
(c) Decision
His Honour Justice Barrett held that
the plaintiff had not complied with the requirements of
section 459G in respect of both applications. In particular,
the plaintiff had not filed and served affidavits in support
of its applications within the required time limit as
specified by section 459G(3). As the time requirement was an
essential condition of the right to make the application, the
court had no jurisdiction to order that the statutory demands
be set aside.
His Honour dismissed the
plaintiff's submission that Rule 35.8 of the Uniform Civil
Procedure Rules restricted the plaintiff's ability to fulfil
the section 459G conditions. Section 459G created a condition
of jurisdiction dependent upon the filing of an affidavit and
as a Commonwealth statute, did so in a way which caused any
prohibition under state law to be invalid to the extent of the
inconsistency.
In response to the plaintiff's
submission that the defendants had not proved service of the
statutory demands, his Honour held that although the
procedures in section 109X of the
Corporations Act 2001 No. 50 (Cth) were not
shown to have been followed, the principles of 'informal
service' meant that the evidence before the court about the
plaintiff's receipt of and dealings with the statutory demand
could and did establish that the statutory demand was served
on the plaintiff on or after 15 August 2007.
5.12 Judge considers Evans
& Tate winery won't get better with age - application to
extend second meeting of creditors in an administration
(By Duncan Longstaff, Blake
Dawson)
Re Evans & Tate Ltd (Administrators
Appointed) (Receivers and Managers Appointed); ex parte Jones
[2007] WASC 235, Supreme Court of Western Australia,
EM Heenan J, 7 September 2007
The full text of this
judgment is available at:
http://cclsr.law.unimelb.edu.au/judgments/states/wa/2007/september/2007wasc235.htmor
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp(a)
SummaryThe plaintiff administrators sought ex
parte orders for an extension of three months to hold the
second meeting of creditors required by section 439A of
the
Corporations Act 2001 No. 50 (Cth) ("Act")
so that further information could be gathered in order to
develop a viable scheme of arrangement. His Honour EM
Heenan J considered it inappropriate to order such an
extension on an ex parte basis, especially given the potential
prejudice to some creditors if the costly administration was
prolonged. His Honour also noted that, because the
companies were effectively controlled by receivers with
substantial secured debts, there was no real prospect of the
administrators assuming control and accessing the necessary
information before a significant proportion of the asset pool
available to creditors had been consumed by the expenses of
administration. In the circumstances, his Honour found
it appropriate to order a reduced extension of 30 days in
which to convene the second creditors meeting, with liberty to
apply for a further extension should it be thought
necessary.
(b) Facts
The case concerns the group of companies
headed by Evans & Tate Ltd, the esteemed vineyard operator
and winemaker from Western Australia's famous Margaret River
region. The group was treated as one for the purposes of
this decision, because each of the twenty wholly‑owned
Australian companies was under external administration and
had, along with three wholly‑owned UK subsidiaries and one
partly‑owned US company, entered into a deed of cross
guarantee which made them jointly and severally liable for the
debts of each other. After a sustained period of
financial difficulties, administrations across the group were
catalysed by the appointment of receivers by the group's
principal secured creditor, ANZ, on 21 August 2007.
Pursuant to section 436E of the Act, the
first meeting of the companies' creditors after the
administrators were appointed had to be held on or before
27 August 2007, and the meetings for each company were
held concurrently on that day. According to the
timetable specified by section 439A, the second meeting
would ordinarily need to have been convened by
10 September 2007 and to have been held on or before
17 September 2007. The application was made on
6 September 2007 and heard the next day, which happened
to be a Friday and therefore the last business day for
convening a second meeting of creditors, making the urgency of
the application extreme.
The application for an
extension of time was brought by the administrators, who could
not access sufficient information to comply with their
obligations under section 439A(4) of the Act to report to
creditors detailing the companies' businesses, property,
affairs and financial circumstances before convening the
second creditors' meeting. This was because ANZ's
receivers and managers controlled the assets and operations of
almost all of the companies in the Evans & Tate
group. The receivers' task was itself considerable, as
it was submitted by counsel (albeit without substantiating
evidence due to the administrators' access problems) that the
aggregate liabilities of the group amounted to approximately
$185 million, nearly $100 million of which was owed to
ANZ. Consequently, the receivers were likely to
take up to three months to finalise any sale of assets to
satisfy the secured debt, particularly as they were attempting
to sell the group of companies as a going concern. Only
after this, it was submitted, could the administrators gain
sufficient control of the companies to meaningfully assess any
remaining assets and trading advantages which might then be
sold or integrated into a reduced, but profitable, operation
for the companies in the group under a suitably designed
scheme of arrangement.
(c)
Decision His Honour EM Heenan J began
his analysis by observing that the effect of granting the
orders sought by the administrators would be to allow them to
render charges for conducting the administration for a longer
period than contemplated by the scheme of the Act. These
increased fee liabilities would be secured by a lien over all
of the companies' assets in favour of the administrators,
further reducing the pool from which creditors will be able to
recover outstanding debt amounts. EM Heenan J's
reluctance to bring about this situation was reflected in his
rejection of the administrators' application for an order
under section 447A of the Act permitting them to have
access to the 'pooled assets' of all the companies as security
for payment of their remuneration and expenses, which His
Honour considered to be artificial and unfairly
disadvantageous for other creditors competing for liquidated
assets to satisfy their debts.
His Honour
further explained that extending an administration not only
prejudiced creditors by reducing the assets that will
ultimately be allocated to each debt, but also had more
immediate impacts on creditors' cashflow. An immediate
effect of entering external administration is the suspension
of the rights of the creditors, lessors, and any other party
seeking to recover debts, to be determined and prioritised by
the administrators, with the effect that debt repayments cease
in the interim. In light of this circumstance, his
Honour noted that:
...an action or proceeding in a court against
the company under administration (section 440D of the
Act), should be for no longer than is reasonably necessary
for an informed decision to be made about whether or not to
approve a deed of company arrangement, or, otherwise, to end
the administration or to proceed to a winding up . There may
well be cases, such as the present, where the usual period
of 28 days contemplated by the Act is insufficient for
these purposes. However, it should not, in my view, be
open‑ended . the starting point for any application for an
extension of these time limits must be that, generally, the
court will expect that administrators adhere to the
specified time limits.
His Honour then considered
whether to deviate from this general position, noting that
there does not need to be special grounds for granting an
extension and that no single ground will be
determinative. However, the court will consider whether
the extension is necessary to enable the administrator to
report pursuant to section 439(4) and also take account of
creditors' wishes. The plaintiff administrators pointed
to the size and complex nature of the companies' operations,
the fact that receivers retained effective control, the
absence of apparent prejudice to any creditor or company
member, the passive acceptance of creditors at their first
meeting and the need to wait until the secured debts were
satisfied as factors favouring an extension of time. His
Honour acknowledged the benefits to the administrators
motivating their push for an extension of time, but noted that
their position was based on a "latent assumption" that should
not be ignored:
In a metaphorical sense, this application by the
administrators assumes that there is some light at the end
of the tunnel and that, if time is extended to allow a
series of sales or realisations to be proposed and effected
by the secured creditor and then for the administrators to
formulate a scheme of arrangement in relation to the residue
of the available assets, some meaningful proposal can be
designed and put to the creditors. Such an approach
is, no doubt, admirable. However, there is no tangible
evidence of the financial position of the companies or the
extent of the indebtedness to the principal creditor put
before the court to allow the conclusion to be drawn that
there is, indeed, light at the end of the
tunnel.
It could not be said whether there is in
fact any 'light at the end of the tunnel' in terms of assets
to satisfy unsecured debts (including administration fees), as
EM Heenan J found there was no tangible evidence of the
companies' financial position or the extent of their
indebtedness to ANZ, the principal creditor. Taking into
account all of these circumstances, his Honour considered it
appropriate to extend the time for convening the second
meeting of creditors by 30 days (until 10 October 2007),
giving the administrators the opportunity to put more to the
creditors, members and court (if necessary) in the nature of
financial information than was presently available.
5.13 Whether section 459S
precludes an allegation of abuse of process upon hearing of a
winding up application (By Katrina
Sleiman and David Ellenby, Corrs Chambers
Westgarth)
TS Recoveries Pty Ltd v Sea-Slip
Marinas (Aust) Pty Ltd [2007] NSWSC 1074, New South Wales
Supreme Court, Barrett J, 25 September 2007
The
full text of this judgment is available at:
http://cclsr.law.unimelb.edu.au/judgments/states/nsw/2007/september/2007nswsc1074.htmor
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp(a)
Summary TS Recoveries Pty Ltd (TS
Recoveries) commenced winding up proceedings against Sea-Slip
Marinas (Aust) Pty Ltd (Sea-Slip) on the basis of insolvency
arising from the failure of Sea-Slip to comply with a
statutory demand served by TS Recoveries. Sea-Slip
conceded the insolvency but argued that the court should
either dismiss the application or adjourn it for a period on
the ground that the pursuit of the application was an abuse of
process.
The court concluded that section 459S of the
Corporations Act 2001 No. 50 (Cth) (the
Act) did not preclude Sea-Slip from advancing an argument that
the conduct engaged in by TS Recoveries caused the pursuit of
the application to be an abuse of process. This was so
even though some of the relevant facts could have been
advanced by Sea-Slip to oppose the statutory demand under
section 459J(1)(b) of the Act on the grounds of abuse of
process.
(b) Facts
TS Recoveries sued for a winding up
order solely on the ground of insolvency. It had the
benefit of a presumption of insolvency under section
459C(2)(a) of the Act due to Sea-Slip's failure to comply with
a statutory demand filed by TS
Recoveries.
Sea-Slip conceded insolvency, however
it applied under section 467(1)(a) of the Act for the court to
dismiss the application or adjourn it for a period.
Sea-Slip alleged that pursuit of the winding up application
was an abuse of process. Sea-Slip contended that TS
Recoveries embarked on and followed a course of conduct
calculated to stifle or make more difficult attempts by
Sea-Slip to obtain financial benefits properly obtainable by
it under contracts that it had with an associate of TS
Recoveries. This course of conduct, it was alleged,
began before the statutory demand was served and continued
through to the filing of the winding up summons and up to the
time of the hearing (the pursuit of the winding up application
being part of the conduct).
TS Recoveries argued
that the objections of improper purpose and abuse of process
were available in relation to the statutory demand.
Therefore, it was argued that section 459S of the Act
prevented Sea-Slip from relying on the abuse of process
allegation in relation to the winding up application.
The effect of section 459S of the Act is to preclude a company
the subject of a winding application from opposing that
application on a ground that the company could have relied on,
but did not rely, to oppose the statutory
demand.
(c) Decision
The court noted that abuse of process
can be a ground on which the court may decline to make a
winding up order, citing the New South Wales Court of Appeal's
recent decision in Australian Beverage Distributions Pty Ltd v
Evans and Tate Premium Wines Pty Ltd (2007) 61 ACSR 441.
The court focused on whether reliance on the
abuse of process ground was precluded by section 459S(1) of
the Act. The court examined the timing and facts
available to challenge a statutory demand and oppose a winding
up application. A statutory demand can only be
challenged by reference to circumstances existing before the
end of the 21 day time limit specified in section 459G(2) of
the Act. Conversely, the position with regard to a
winding up application must be examined in light of the
circumstances existing when those proceedings are pursued and
prosecuted.
In relation to a winding up
application, the court held that the implication of the facts
must be judged as a whole. Although the ground emerging
from the whole of the facts is not available at the section
459G stage, even if some of the facts could have been relied
on to oppose the statutory demand, that was not a barrier to a
consideration of the whole of the facts. Accordingly,
the court held that section 459S did not preclude the
application.
Further, the court noted that abuse
of process is concerned predominately with propriety of
purpose. The primary purpose of service of a statutory
demand is to obtain payment of a debt. With the present
facts, a winding up application is designed to secure the
imposition of a scheme of insolvent administration aimed at,
among other things, ending the company's activities, rather
than payment of a debt. Accordingly, the court held that
these differences in purpose emphasised the separateness of
application of abuse of process principles in relation to
service of a statutory demand and application of the same
principles in relation to a creditor's pursuit of winding up
proceedings. This is the case at least where insolvency
is conceded, the defendant consciously decides to defend the
winding up application and the alleged abuse is not really a
collateral allegation of dispute about the existence of the
debt grounding the statutory demand.
The court
concluded that Sea-Slip was not precluded by section 459S from
raising abuse of process in opposition to a winding up
application even though some of the relevant facts could have
been raised had it challenged the statutory demand on the
ground of abuse of process.
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