Re Bond Corporation Holdings Ltd
(1990) 1 ACSR 350(1990) 8 ACLC 153
(1990) 1 WAR 465
(Judgment by: Ipp J)
Bond Corporation Holdings Ltd; Re
Court:
Judge:
Ipp J
Subject References:
Winding up
Application
Standing
Abuse of process
Absence of standing
Debt genuinely disputed on substantial grounds
Dismissal or stay of petition
Solicitor and client costs
Judgment date: 18 January 1990
Perth
Judgment by:
Ipp J
Bond Corporation Holdings Ltd (BCH) is the holding company of a number of subsidiaries. BCH, its subsidiaries and related companies form a large and well-known group of companies that carry on business throughout Australia and internationally.
The State Government Insurance Commission (SGIC) is a body corporate established by s 4 of the State Government Insurance Commission Act 1986 (WA) (the SGIC Act). The principal function of the SGIC is to issue and undertake liability under certain policies of insurance.
At 4 pm on Friday 29 December 1989 the SGIC filed a petition for the winding up of BCH on the grounds that it was insolvent. On 3 January 1990 BCH applied to have the petition dismissed, or, alternatively, stayed. At the conclusion of argument on 5 January 1990 I ordered that the petition be dismissed and gave a summary of my reasons for my decision. I stated that I would give full reasons at a later stage. These are those reasons.
After senior counsel for BCH had completed his opening submissions, senior counsel for the SGIC stated that the SGIC accepted that the petition should be stayed but submitted that it should not be dismissed.
Accordingly, by the time I gave my decision, the sole issue before me was whether the petition should be dismissed or stayed.
BCH contended that the claim of the SGIC upon which the petition was based, was to the knowledge of the SGIC genuinely disputed on substantial grounds, was an abuse of the process of the court and should be dismissed. The SGIC denied that the filing of the petition was an abuse.
Senior counsel for the SGIC submitted that there was a significant distinction between a case where the filing of a winding up petition is an abuse of the process of the court (which could result in the dismissal of the petition), and a case where, according to the ordinary test for the grant of an interlocutory injunction, an injunction should be granted staying the petition until the determination of the petitioner's claim in other proceedings. He submitted that the present case fell within the latter category.
It is essential in the present case to determine whether an abuse of the process of the court has occurred. Before doing that I propose to consider the legal principles involved.
As long ago as in Re The Imperial Silver Quarries Co Ltd (1868) 16 WR 1220 Malins VC said at 1221:
It is against the principles of this court to wind up a company either:
(1) upon a disputed debt; or
(2) if it is clear that on the debt being established it will be paid.
But as to the first point, the dispute must be one in which the court feels that there is substance, so that it cannot be decided on an interlocutory application.
In Australia, in Re KL Tractors Ltd [1954] VLR 505, O'Bryan J, at 509 and 512, accepted the general proposition that a winding up order would not be made on a debt that was bona fide disputed, subject to the dispute being based on substantial grounds. This approach has consistently been followed.
It has also been the law for many years that where there is a threat of winding up proceedings being launched, and the proceedings have no prospect of success, because the petitioner's claim is bona fide disputed, the would-be petitioner will be restrained from presenting his petition. Niger Merchants Company v Capper [1877] 18 Ch D 557 n at 559.
In my view there is no material distinction to be drawn between restraining the presentation of a petition and dismissing a petition that has already been presented. CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 7 ACLC 1,218 at 1,224. Relief of this kind differs from allowing the petition to stand and staying further proceedings pending the determination of the disputed debt. In the latter event the filing of the petition is still capable of fixing the date of winding up (s 451 of the Companies (WA) Code (the Code)) and the potential consequences of s 368(1) of the Code loom large for those who continue to deal with the company sought to be wound up.
In Mann v Goldstein [1968] 2 All ER 769 ; 1 WLR 1091 Ungoed-Thomas J at 1096 referred to the statement by Sir George Jessel MR in Niger Merchants Company v Capper that "when a company is solvent, the right course is to bring an action for the debt" and concluded that "[s]o, to pursue a winding up petition in such circumstances is an abuse of the process of the court". After a full consideration of whether an abuse would arise in the same circumstances when a company was insolvent Ungoed-Thomas J said at 1099:
So, in my view, when a petitioning creditor's debt is disputed on some such substantial ground this court should restrain the prosecution of the petition as an abuse of the process of the court even though it should appear to the court that the company is insolvent.
Earlier he had said at 1098--9 that the court's jurisdiction to restrain the petitioner from proceeding with the petition was rested:
... directly on the comparatively simple propositions that a creditor's petition can only be presented by a creditor, that winding up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds), since, until a creditor is established as a creditor he is not entitled to present the petition and has no locus standi in the Companies Court; and that, therefore, to invoke the winding up jurisdiction when the debt is disputed (that is, on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of the court.
Ungoed-Thomas J did not dismiss the petitions. However, it appears from the report that he was only asked to restrain the petitioners from taking further steps in the prosecution of the petitions that had already been presented.
The last passage from the judgment of Ungoed-Thomas J to which I have referred, was quoted by Buckley LJ in Stonegate Securities v Gregory [1980] 1 Ch 576 who then said at 580:
I gratefully adopt the whole of that statement, although I think it could equally well have ended at the reference to want of locus standi. In my opinion a petition founded on a debt which is disputed in good faith and on substantial ground is demurrable for the reason that the petitioner is not a creditor of the company within the meaning of s 224(1) at all, and the question whether he is or is not a creditor of the company is not appropriate for adjudication in winding up proceedings.
The remark that the passage "could equally well have ended at the reference to want of locus standi", suggests that Buckley LJ thought that the bringing of winding up proceedings on a genuinely disputed debt on substantial grounds would not necessarily in every case be an abuse of process. However, it is plain that he considered that such circumstances could well give rise to an abuse. Moreover, Buckley LJ made it plain that irrespective of whether there was an abuse of process, where a debt was genuinely disputed on substantial grounds, the petitioner has no standing to bring the petition and should be restrained from doing so. Goff LJ and Sir David Cairns were of similar views. Those views echoed the remarks of Megarry in Re Lympne Investments [1972] 1 WLR 523 at 527:
A real dispute, turning to a substantial extent on disputed questions of fact which require viva voce evidence, and involving charges of fraud or near fraud, cannot properly be decided on petition. Nor is it right, or in accordance with the modern practice, to stand over the petition in order that the disputed issues may be resolved in other proceedings. That practice, I may say, seems to stem from Re London & Paris Banking Corporation [1874] LR 19 Eq 444. The Companies Court must not be used as a debt-collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a company of the presentation of a winding up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company's head while litigation is fought out. Further, Mann v Goldstein [1968] 1 WLR 1091, cited with approval in the New Zealand Court of Appeal in Bateman Television Ltd v Coleridge Finance Company Ltd [1969] NZLR 794, provides authority for saying that when a petition is based on a debt which is disputed on substantial grounds, the petitioner is not a 'creditor' within s 224(1) of the Act of 1948 who has the locus standi requisite for the presentation of the petition, even if the company is in fact insolvent.
Stonegate Securities Ltd v Gregory was followed by Mervyn Davies J in Re A Company [1984] 1 WLR 1090. He held that as the debt was disputed in good faith on substantial grounds the petition should be dismissed.
In Australia the courts have adopted a similar approach. In Re QBS Pty Ltd [1967] Qd R 218 Gibbs J, as he then was, said at 224:
There is a clear rule that a winding up order will not be made on a debt which is bona fide disputed by the company.
In the circumstances of that case, where the debt was disputed on substantial grounds, and where on the material he could not say that the dispute was not bona fide, his Honour considered that it was within his discretion either to dismiss the petition, or to stay it.
In Fortuna Holdings v Deputy Commissioner of Taxation [1978] VR 83 McGarvie J said at 87:
When a court restrains the presentation of a petition to that court it exercises part of its inherent jurisdiction to prevent abuse of its process: Mann v Goldstein .
See also, at 95-6.
The same passage from Mann v Goldstein that I have cited was approved in Re Glenbawn Park Pty Ltd [1977] 2 ACLR 288 at 292-3. Yeldham J found that there was a bona fide dispute based on reasonable grounds and dismissed the petition.
In L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180 ; 1 ACLC 536 McLelland J, at 538, said that:
Proceedings by a person as creditor for the winding up of a company on the ground that it is unable to pay its debts will ordinarily be held to be an abuse of process;
(1)...
(2)...
(3) if issues will arise in the winding up proceedings of a kind inappropriate for determination in such proceedings eg a substantial contest as to the existence or enforceability of a debt relied on by the applicant, which should properly be resolved in separate proceedings brought for that purpose.
In Ron Pritchard Pty Ltd v Horwitz Grahame Pty Ltd (1988) 6 ACLC 258 Smart J agreed with those views. Accordingly he dismissed the summons to wind up.
In Australian Mid-Eastern Club Ltd v Elbakht (1988) 14 ACLR 234 ; 6 ACLC 958 Kirby P said at 963:
As many cases have explained the court's jurisdiction to provide the relief sought in this case derives from its jurisdiction to prevent an abuse of process.
Rogers AJA at 969 made a similar remark based on the authority of Mann v Goldstein .
In CVC Investments Pty Ltd v & T Aviation Pty Ltd Cohen J after a full review of the authorities said at 1,323:
The authorities seem almost unanimously to agree that where a claimed debt is bona fide disputed on substantial grounds and there is no basis for regarding the claimant as a contingent or prospect creditor then that claimant has no standing to bring proceedings to wind up the company, if he does to the bringing of those proceedings is an abuse of process.
Senior counsel for the SGIC submitted that in many of the decisions the expression "abuse of process" was not used to convey its ordinary meaning but was used in an extended way, simply to denote the situation that arises when a creditor attempts to commence winding up proceedings upon a debt that is genuinely disputed on substantial grounds. He submitted that where there was no "abuse" in the ordinary sense the ordinary rules relating to the grant of an interlocutory injunction applied and a stay, and not a dismissal, should be ordered. He referred to Bryanston Finance Ltd v De Vries (No 2 ) [1976] 1 Ch 63 where Stephenson LJ said at 79 that the following were two distinct things:
(1) the court's jurisdiction to prevent a would-be litigant from abusing its process;
(2) the court's jurisdiction to help a would-be litigant by preventing another from taking some action which is alleged to be in violation of the litigant's legal right until the court has decided whether he has that right and whether it has been or will be violated.
Stephenson LJ went on to say at 79:
Completely different considerations apply to the two cases. In the first it is for the plaintiff to prove that the defendant's exercise of his right to bring legal proceedings is in fact an abuse of process. In the second it is for the plaintiff to prove that there is a serious issue to be tried in his action, not the defendant's, and it is convenient that the court should intervene to restrain the defendant before it is tried.
I accept, as seems to be implicit in Buckley LJ's comments in Stonegate Securities v Gregory at 580 (to which I have already referred), that an abuse of process does not occur in every case where a debt is bona fide disputed on substantial grounds.
However, the authorities are clear that irrespective of the existence of an abuse of process in the ordinary sense, a petitioner, who attempts to wind up a company upon a debt that is genuinely disputed on substantial grounds, will not be allowed to proceed. That is because winding up proceedings are not appropriate for the establishment of a debt of that kind. Accordingly a petitioner, in such circumstances, is not able to prove satisfactorily that he is a creditor and he therefore does not have standing. He must first establish his claim in different and more appropriate proceedings: Re The Imperial Silver Quarries Co Ltd ; Re Lympne Investments Stonegate Securities v Gregory ; Re A Company ; Ron Pritchard Pty Ltd v Horwitz Grahame Pty Ltd ; CVC Investments Pty Ltd v P & T Aviation Pty Ltd .
The absence of standing in this sense is in my respectful view the rationale for the remarks of O'Bryan J in Re K L Tractors at 509 and 512 and decisions such as Re QBS Pty Ltd ; Re Horizon Pacific Ltd (1977) 2 ACLR 495 ; ACLC 29, 422 and G B White v Taylor Railtrack (1978) ACLC 40-443.
In my opinion, both in cases of abuse of process and lack of standing, the solvency of the debtor company is not an element necessary to be established before the court will exercise its jurisdiction to dismiss or stay the petition. I expressed the reasons for this in Mine Exc Ltd v Henderson Drilling Services Pty Ltd (in liq ) (1989) 1 ACSR 118: see also Investments Pty Ltd v P & T Aviation Pty Ltd . Senior counsel for the defendant accepted this proposition.
In cases where it is found that a petitioner does not have standing the court has a discretion to restrain the filing of a petition or to dismiss the petition (as the case may be) on the one hand, or to stay further proceedings on the other. However, the usual order is to dismiss the petition (as the case may be) on the one hand, or to stay further proceedings on the other. However, the usual order is to dismiss the petition: Re QBS Pty Ltd ; Re Glenbawn Park Pty Ltd .
I accept that even in cases of true abuse of process the court has a discretion to dismiss or stay the petition. In my view, in such circumstances, the court would only rarely not dismiss the petition.
Where neither a true abuse of process nor an absence of standing is proved, but the debtor company establishes that it is entitled to an interlocutory injunction because there is a serious issue to be tried as to whether the winding up process is in violation of the debtor company's legal right, and the balance of convenience is in the debtor company's favour, then the petition would not be dismissed, but would be stayed.
I now turn to the facts of the present case.
The petition alleges that BCH owes the SGIC $852,755 made up of $750,000 that was due and payable on 6 December 1989 under a deed of 9 March 1989 (the variation deed) and $102,755 due and payable under an agreement of 3 June 1988 (the indemnity agreement) as amended by the variation deed.
BCH argued, principally, that the indemnity agreement is void because the SGIC entered into it for an extraneous and unlawful purpose. Alternatively, it is argued that the entry into of the indemnity agreement contravenes s 8 of the SGIC Act which requires the SGIC to perform its functions and exercise its powers in an efficient and economic manner. Further alternatively, it is alleged that by virtue of a collateral agreement between BCH and SGIC no amounts are owing under the variation deed.
These contentions of BCH were made in a statement of claim issued by BCH and filed by it on 1 December 1989. By the statement of claim BCH claims that the indemnity agreement and the deed of variation are void and also claims repayment of some $4,500,000, paid by it to the SGIC thereunder.
Other alternative contentions are made by BCH but it is not necessary for me to deal with them.
As regards the contention that the SGIC acted outside its powers BCH alleges that:
- (a)
- the SGIC entered into the indemnity agreement to procure the making of a loan of $100 million by BCH to Rothwells Ltd;
- (b)
- the indemnity agreement was subject to a condition that the Rothwells loan be made and the indemnity agreement was a device for achieving that loan;
- (c)
- the purpose of the loan, and the indemnity agreement, was to save the State Government of Western Australia from political embarrassment that would arise by reason of the Government's financial commitment to Rothwells.
Evidence by way affidavit was produced by BCH in support of these allegations. No evidence in refutation was tendered by the SGIC although senior counsel for the SGIC stated from the Bar that these allegations were "hotly disputed" by the SGIC. In a defence to be BCH's statement of claim, filed on 15 December 1989, the SGIC denied BCH's allegations in this regard.
Some point was made during argument on the SGIC's behalf that the allegations of extraneous purpose related to the indemnity agreement and the deed of variation was independent of the indemnity agreement and stood alone. Whether the deed of variation rescinded or varied the indemnity agreement depends on the intention of the parties. TALL ERman & Company Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 at 112-13. On the face of the deed of variation itself, the argument that the parties intended to rescind the indemnity agreement (and not merely to vary it) is not without real obstacles. There is no suggestion of rescission in the expressed terms of variation. The very title of the deed is contrary to the concept of rescission. The argument that rescission occurred may be successful at the trial. However, at this stage it does not assist the SGIC in refuting the contention that the debt is disputed on substantial grounds.
Should BCH prove its factual allegations at the trial (on which I express no opinion), then in my view it should succeed on the grounds that the SGIC acted outside its powers. Kathleen Investments (Aust) Ltd v Australian Atomic Energy Commission (1977) 39 CLR 117; Council of the Shire of Werribee v Kerr (1928) 42 CLR 1.
In the circumstances, on this ground alone, I have no doubt that the debt is disputed on substantial grounds.
On 29 September 1989 BCH gave notice to the SGIC of its claim under the Crown Suits Act. The bases of its claim were set out and fully particularised in the statement of claim filed almost a month before the petition was lodged. Affidavit evidence in support of its claim has been produced. I have no doubt that the debt is genuinely disputed.
In the circumstances it is not necessary to consider the other grounds on which BCH disputes the debt. It is however not without relevance that they are complex and will require a great deal of evidence at the trial (as will the issue as to whether the SGIC acted outside its powers) at the trial.
In Re Lympne Investments Megarry J at 527 pointed out (in the passage to which I have already referred) that a dispute turning on factual conflicts, requiring oral evidence, and involving charges of fraud or near fraud cannot properly be decided on petition. BCH's allegations involve charges of improper purpose and abuse of power by persons in high public office; they involve charges that a public corporation failed to exercise its powers in an economic manner -- thereby requiring a vast amount of circumstances surrounding the transactions to have to be scrutinised by the court; they involve allegations as to the existence of a collateral agreement based on several disputed oral discussions. All these matters are, I repeat, "hotly disputed". Clearly the issues will have to be formulated with precision in pleadings; interlocutory steps will have to be taken; in particular a very substantial discovery will have to be made on both sides; weeks, and probably months of evidence will be needed to resolve the questions that arise.
It would be difficult to conceive of issues less suitable for determination by way of a winding up petition. It was, accordingly, not surprising that senior counsel for the SGIC during the course of his submissions, conceded that by reason of the complexity of the matter it was desirable that it be resolved by trial proceedings and that it be subject to pleadings and the ordinary interlocutory processes.
In some cases, such as Re Horizon Pacific Ltd , the fact that the debt was disputed was only discovered after the petition had been filed. That is a factor that could well lead to a finding that there was no abuse of process and that the petition should be stayed and not dismissed. In the present case, however, the debt has been disputed, to the knowledge of the SGIC, since September 1988. I have already pointed to the filing of the statement of claim nearly a month before the filing of the petition.
I now turn to the question of the solvency of BCH.
In CVC Investments Pty Ltd v P & T aviation Pty Ltd Cohen J, at 1,223, referred to the principle that if a debt is genuinely disputed on substantial grounds the prospective creditor lacks standing to apply to wind up. He then, in the context of the company sought to be wound up being insolvent, said:
The fact that there is a ground for winding up in existence does not give that claimant any greater standing. ... It is an abuse of process if a person in bringing proceedings assumes a standing which it does not have and seeks orders to which it is not entitled.
It is implicit in his Honour's judgment that the solvency or otherwise of the debtor company is irrelevant to standing and the existence of an abuse of process. With great respect, I do not consider that the mere bringing of proceedings without standing is an abuse of process. I accept that insolvency is irrelevant to standing: Mine Exc Pty Ltd v Henderson Drilling Services Pty Ltd (in liq ). However, it may be relevant to abuse of process. It also may be relevant to the exercise of a discretion to dismiss or stay a petition.
In considering the question of BCH's solvency I bear in mind as Barwick CJ said in Sandell v Porter (1966) 115 CLR 666 that:
It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.
In Re Tweeds Garages Ltd [1962] Ch 406 Plowman J quoted Buckley on the Companies Acts , 13th ed, Butterworths, London, (1957), p 60 where the following was said concerning commercial insolvency:
... that is, the company being unable to meet current demands upon it. In such a case it is useless to say that if its assets are realised there will be ample to pay 20 shillings in the pound: this is not the test. A company may be at the same time insolvent and wealthy. It may have wealth locked in investments not presently realisable; but although this be so, yet if it have not assets available to meet its current liabilities, it is commercially insolvent and may be wound up.
I have to determine whether BCH is able to meet its current liabilities as they fall due. It is not part of my task to determine now whether the probabilities are that circumstances will arise at some future time which will then cause BCH to be in a position whereby it will not be able to meet its liabilities which will then exist.
BCH has produced affidavit evidence from Mr Oates, the senior executive responsible for its finance and administration. This was supplemented by BCH's financial statements for the year ended 30 June 1989.
The total creditors of BCH as at 30 June 1989 amounted to $1,328.9 million. Of this sum $1,230.6 million comprised loans from subsidiaries. Since 30 June 1989 the amounts owing to external creditors have changed to an extent. A loan of $20.4 million will be repaid in full on the sale of the security for the loan which is expected to be completed by the end of January 1990. Approximately $28.8 million is owing to two banks; these loans are secured and are not currently due. $50 million has been borrowed from another bank, which loan is secured and not currently due. Less than $1 million is currently owing to trade creditors and in respect of unpaid dividends.
Mr Oates asserted that trade creditors were being paid on normal commercial terms.
In relation to the outstanding loans to the banks (which I have already mentioned, and which are all secured) Mr Oates said that if it notionally became necessary to pay the full amount of the loans as well as trade creditors it would be possible to generate at short notice a sum sufficient to cover that amount from the non-current assets of BCH.
As regards the claims of subsidiaries they are shown in the financial statements as non-current liabilities.
It is significant that no attempt was made to cross-examine Mr Oates on any of these allegations and no direct evidence specifically to the contrary was produced by the SGIC.
The SGIC relied substantially on affidavit evidence by Mr Nicholl, a chartered accountant. I wish to make some general comments about Mr Nicholl's evidence. He expressed opinions concerning the solvency of BCH. I did not regard them as admissible. See Sandell v Porter at 670-1 where Barwick CJ said that whether insolvency "has arrived is a question for the court and not one to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due".
Mr Nicholl expressed opinions as to matters without setting out the process of his reasoning. In those instances I did not attach a great deal of weight to those opinions. He expressed opinions as to the likely behaviour of other persons, for example the likely behaviour of holders of securities. I disallowed the evidence of such views as being not a matter for expert evidence but rather for the evidence of the persons themselves. Mr Nicholl expressed views as to the behaviour of prudent lenders. I did not consider that Mr Nicholl had established that he was an expert in this field. Being a chartered accountant and administrator of insolvent estates and a receiver and manager of considerable experience (as he is) does not in my view necessarily qualify him as an expert in the money market, particularly in relation to the provision of vast sums of money.
Mr Nicholl expressed the opinion, in effect, that it is unlikely that the operating revenue of BCH for the year ended 30 June 1990 will be as high as it was for the year ended 30 June 1989. In particular he said that he believed that interest from subsidiaries, management fees and loan procurement fees will be substantially reduced. He did not say precisely when this reduction will occur and to what precise extent. His opinion was based on "the financial position of the group of companies of which [BCH] is the holding company". In a later affidavit he gave further details of the facts on which his opinion was formed. Those facts related principally to the inferred withdrawal of support by the bankers of BCH. I regard this evidence as speculative to a degree. It is also vague because of the absence of particularity as to time and amount. Furthermore, it is not directed to the essential question whether, at the present time, BCH is able to meet its current liabilities. On the basis of Mr Oates' evidence operating revenue is not presently of relevance to the payment of current liabilities. I have already mentioned the evidence as to the funds and sources from which it is said that current liabilities can be met. On that evidence operating revenue is not a necessary part of those funds and sources. Moreover BCH is in the process of conducting an assets disposal program from which in the near future it is expected that additional funds should become available. For example, reference was made to the disposal of a property in Rome which is the subject of current negotiations for its sale at $US135 million.
It may well be that at some time in the future Mr Nicholl's pessimistic forecasts will be found to have been accurate. That might entitle some creditor to wind up BCH at that stage. I do not consider however that opinions of the kind I have mentioned are presently helpful.
An important part of Mr Nicholl's evidence relates to a deposit of $1200 million previously paid by Bell Resources Ltd (BRL) to BCH for certain brewery assets. It is the SGIC's case that this deposit has to be repaid by BCH to BRL and represents a current liability to BCH.
The sale of the brewery assets and the deposit of $1200 million have been the subject of a number of agreements. The latest agreement was produced. It contains a complex set of provisions. In summary form the $1200 million deposit is dealt with in the following way. The purchase price for the brewery assets is $2 billion less the "indemnified debt" (which is defined). Mr Nicholl said that the indemnified debt is $1733.7 million. The balance of the purchase price payable by BRL to BCH would then be $266.3 million ($2 billion less $1733.7 million). Mr Nicholl, however, said that if certain other conditions of the agreement are satisfied the balance payable could be as high as $580 million. That balance, whatever it be, is in terms of the agreement to be deducted from the deposit of $1200 million repayable by BCH to BRL. The portion not deducted is to be regarded as a loan by BRL to BCH. By the agreement BRL undertakes to indemnify BCH in respect of the indemnified debt. Part of the indemnified debt is an amount of about $800 million owing by BCH to National Australia Bank Ltd (NAB). The agreement is conditional on the consent of NAB thereto. NAB has appointed receivers and managers to Bond Brewing Holdings Ltd, a subsidiary of BCH, and, together with other banks and financial institutions, is embroiled in litigation in that connection. That, in my view, does not necessarily mean that NAB will not consent to the agreement. After all, if BRL pays out NAB, as is contemplated by the agreement, there would be good reason for NAB to consent. For similar reasons the other banks and financial institutions may consent to various matters referred to in the agreement. Their consent is a condition of the agreement. Mr Nicholl expresses the opinion that because of the existing litigation there is no prospect of their consent being obtained. I regard this opinion evidence as inadmissible. In any event there is no basis for it other than the fact that the bank and other financial institutions have caused receivers and managers to be appointed to Bond Brewing Holdings Ltd and are involved in litigation in that connection. I have already explained why that does not necessarily mean that the consents in question will not be forthcoming. In any event the determination of whether these conditions and others contained in the agreement will be met can only be determined with any reliability at some uncertain time in the future. It is not presently possible to say that any degree of probability what the position will be at the time that the conditions are due to be fulfilled. The matters referred to by Mr Nicholl do not in my view convert the $1200 million deposit into a concurrent liability.
Senior counsel for the SGIC applied during the course of the hearing to cross-examine Mr Oates with a view to establishing that the agreement between BRL and BCH was subject to a number of conditions which, he submitted, were never likely to be fulfilled. I refused that application on the grounds that whether or not the conditions were likely to be fulfilled in the future was not relevant to the question whether BCH is presently able to pay its debts, and, moreover, the matter was speculative. In my view the agreement speaks for itself. Its present relevance is simply whether the $1.2 billion deposit is to be regarded as a current liability or not. I have explained why, on the basis of the provisions of the agreement, I do not consider it to be a current liability.
It is relevant that there is no evidence of any creditor not being paid his entitlement. On the other hand, there is evidence as I have mentioned, that current liabilities are presently being paid. That is to be contrasted with the speculative nature of the evidence tendered by the SGIC.
Mr Oates has testified in his affidavit that the reason BCH has not paid the debt alleged by SGIC is not because BCH is unable to do so, but because it disputes the debt. Mr Oates has stated that BCH, presently, has sufficient assets to pay that particular debt. No attempt was made to cross-examine Mr Oates on this evidence or to refute it by other evidence.
It is apparent that BCH's financial future depends upon a number of uncertain factors. However it is not now helpful to speculate upon, whether, at some time in the future, those factors will be resolved adversely to BCH's financial position. I am presently concerned with BCH's ability at the present time, to pay particularly its current liabilities. The SGIC has not satisfied me that BCH will not be able to meet those liabilities. A winding up should not be allowed to proceed on the speculative basis that a company may possibly at a future date experience severe financial difficulties.
I now turn to other matters relevant to whether there has been an abuse of process. As was said by Hunt J in Packer v Meagher [1984] 3 NSWLR 486 at 492.
... (t)he legal process of a court is being abused when it is being used to exert pressure to effect an object within the scope of the process: Grainger v Hill (1838) 4 Bing (NC) 212 at 221 ; 132 ER 769 at 733; or where it is used for a purpose other than that for which the proceedings are properly designed and exist: Re Majory [1955] Ch 600 at 623 or where plaintiff in those proceedings is seeking some collateral advantage beyond what the law offers: Castanho v Brown & Root (UK) Ltd [1981 AC 557.
It is apparent that for some months prior to the filing of the petition the parties were in regular communication through their solicitors. Nevertheless there was no evidence of any notice or warning of any kind having been given by the SGIC to the BCH of its intention to file its petition. That petition was filed virtually at the close of court business on the Friday before the New Year weekend. BCH is well-known throughout Australia and elsewhere. It has been the subject of widespread and intense media scrutiny and speculation in recent months. By filing its petition without warning the SGIC prevented BCH from attempting to obtain an injunction restraining the presentation of the petition. By filing the petition when it did the SGIC effectively presented BCH for some days from taking steps to protect its position.
Why did the SGIC present its petition when it did?
Senior counsel for the SGIC submitted that the purpose was "so that there would be a six month period of relation back for the purpose of avoiding undue preferences which began at a date before the last balance date". He referred to s 451 of the Code. I do not accept that submission. The SGIC's petition alleged that on 4 August 1989 BCH created charges in favour of a certain bank and on 10 November 1989 in favour of a certain other company. The petition suggests that these charges conferred preferences. However as the petition itself says the charge of 4 August 1989 would be void against a liquidator appointed on a petition filed not later than 4 February 1990 and the charge of 10 November 1989 would be void against a liquidator appointed on a petition filed not later than 10 May 1990. These facts do not explain the date and time of the filing of the petition, nor the absence of notice.
Senior counsel for the SGIC also submitted that "it was feared that there would be a substantial depletion of funds". No such fear is alleged in the SGIC's affidavits. Moreover no facts are alleged which justify such fear arising.
The filing of the petition, without notice, at the last possible moment before the New Year's weekend, has to be seen in context. That context is the following:
1. Solicitors had been acting for both parties for months -- it is unusual for steps of this kind to be taken, in such circumstances, without the solicitors for the one party advising the other.
2. It had been known since September 1989 that the debt on which the petition was based was disputed on substantial grounds.
3. The statement of claim had been filed on 1 December 1989 with sufficient particularity to make it plain that the nature of the dispute made it totally inappropriate for the winding up process to be employed. This should have been known to the SGIC -- I refer to the concession made by senior counsel for the SGIC in this regard, a concession that was clearly correctly made.
4. It was obvious that the fact of the filing of the petition would result in widespread publicity and would cause BCH incalculable harm, both to BCH's trading reputation and by reason of debts becoming due by cross-default provisions in other agreements with other parties.
5. That harm would be compounded the longer BCH was not able to utilise the court process to retrieve its position.
6. By filing the petition when it did, and without notice, the SGIC ensured that BCH would not be able to utilise the court process for at least three to four days.
7. The petition did not allege facts establishing that BCH was not able to meet its current liabilities; the petition provided no evidence that creditors' claims were not being met in the ordinary course; there was no convincing evidence of insolvency.
8. The petition did not disclose any urgent need for the filing thereof without notice at the time and date in question and provided no explanation therefor.
9. The petition did not disclose any evidence that BCH intended to dissipate its assets without proper consideration to the detriment of the general body of its creditors.
In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Woodward J, when dealing with the considerations applicable to the award of solicitor client costs said that such an award would be considered:
... whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.
In my view, with respect, those remarks apply, also, to considerations applicable to the determination of whether an abuse of the process of the court has been committed.
In my view, for the reasons that I have expressed, the SGIC had no chance of successfully obtaining a winding up order. The known facts were that the debt was genuinely disputed on substantial grounds. The clearly established law is that a winding up order will not be granted in such circumstances. The presumption referred to by Woodward J applies.
It seems to me, in any event, that the filing of the petition in the circumstances I have outlined constituted a deliberate tactical manipulation of the winding up process by the SGIC for the purposes of bringing very substantial pressure to bear on BCH.
In these circumstances I conclude that the filing of the petition was an abuse of the process of the court in the true sense of that expression.
The usual rule is that in a case of abuse of process the petition should be dismissed.
The court however has, as I have said, a discretion to stay the petition. I turn now to the question of the exercise of that discretion.
The existence of the petition, even if stayed, will cause BCH serious harm. It will be extremely difficult for BCH to be able to conduct its business normally if the petition is not dismissed. Section 368 of the Code is an ever-present deterrent to persons who wish to do business in the ordinary way. The prejudice to a company if a petition is not dismissed is, with great respect, well described by Megarry J in Re Lympne Investments at 527 in the passage to which I have already referred. See also Re Glenbawn Park Pty Ltd at 294 where Yeldham J said:
I am of the view that the petition should be dismissed in accordance with what is said to be the modern practice. It has, of course, already been stayed but I consider the company is entitled to its dismissal to permit it to borrow and to continue trading.
The possible harm to the SGIC if BCH is subsequently wound up in consequence of some other petition will in my opinion be relatively far less.
Further, I take into account the nature of the abuse of process by the SGIC.
For the reasons I have expressed I do not consider that I should depart from the usual rule. The petition will be dismissed.
I now turn to the question of costs. BCH sought costs on a solicitor client basis. The SGIC opposed this. By consent this issue was left over to enable both parties to make submissions in writing.
It has often been said that the court's discretion in regard to costs is absolute and unfettered but must be exercised judicially: see, for example, Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd at 400. I have already referred to the criteria, mentioned by Woodward J in the latter case, calling for the consideration of the award of solicitor and client costs: see also Packer v Meagher .
In my view, an abuse of process having been established in the circumstances outlined, justice requires the award of solicitor and client, or, rather, "indemnity" costs. I propose to adopt the form of words used by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants at 410, that is, the SGIC should be ordered to pay all the costs incurred by BCH except in so far as they are of an unreasonable amount or have been unreasonably incurred, so that, subject to the above exceptions, BCH be completely indemnified by the SGIC for its costs.
The SGIC sought leave to appeal against my decision. As this is a matter of public importance, in so far as it may be necessary, I granted leave.
Finally, I ordered expedition of the action between BCH and the SGIC.