Re Tabtill Pty Limited[2012] QSC 204

SUPREME COURT OF QUEENSLAND

[1] This application for the winding up of the respondent company is an offshoot of the extensive litigation between members of the Creswick family.  After a 23 day trial, a successful appeal against the judgment of the trial judge and the refusal of special leave to appeal to the High Court, it can be said that the successful party was Mr Felix Creswick.  He was represented by Hopgood Ganim and it is that firm which is the applicant for the winding up of the respondent company (“Tabtill”), which was and remains a party against which Felix Creswick successfully counterclaimed.  The applicant’s basis for claiming to be a creditor of Tabtill is a Deed Poll which was executed by Tabtill in 2008 (“the deed”). 

[2] By that document, Tabtill, John Creswick and William Creswick each guaranteed the due and punctual payment by Felix Creswick of any reasonable legal expenses incurred by him in respect of the proceedings between the Creswick family to which I have referred.  Their guarantee was expressly limited to a maximum of $100,000.  It was also qualified by a term which made the guarantor’s obligation to pay any sum under the document one which should commence upon “discontinuance, dismissal or determination by judgment (in the case of the latter, only after the relevant period has expired and all avenues of appeal have been exhausted) in respect of the whole of the Proceedings, which includes the Claim and the Counterclaim” (cl 1.2).  The applicant’s case is that “the whole of the Proceedings” have now been determined, ultimately by the High Court’s refusal of special leave to appeal. 

[3] The applicant served Tabtill with a statutory demand on 10 April 2012.  Tabtill failed to satisfy the demand or apply to the Court to set it aside within the statutory period of 21 days.  This application is resisted by Tabtill and, through different legal representatives, John Creswick as a member of Tabtill.  He was until very recently a director of the company.  The arguments for Tabtill and John Creswick have several variations, but the principal argument is to the effect that there is no debt presently due by Tabtill to the applicant.  Of course that contention could have been made by Tabtill on an application to set aside the statutory demand.  Therefore Tabtill is precluded from making it unless it is granted leave under s 459S of the Corporations Act.  It applies for that leave.  The same impediment does not apply to John Creswick, so that the argument must be considered anyway. 

[4] There is no attempt by Tabtill or John Creswick to prove that Tabtill is solvent.  By s 459C(2), the Court must presume that Tabtill is insolvent because the company failed to comply with that statutory demand.  The arguments for Tabtill and John Creswick go to whether Hopgood Ganim is a competent applicant and, if so, whether an order for winding up should be refused upon the suggested basis that this application involves an abuse of process. 

[5] I go then to the arguments about whether the applicant is a creditor to which Tabtill is presently indebted.  There are two arguments made against the applicant in that respect.  The first is that the “whole of the Proceedings” have not been determined, because part of Felix Creswick’s Counterclaim remains to be litigated.  The second is that by reason of the Legal Profession Act 2007 (Qld), Tabtill need not pay the legal costs claimed by Hopgood Ganim unless they have been assessed under that Act, which has not occurred.  If either of those arguments is correct, then the applicant is nevertheless a contingent or prospective creditor, so that it would remain a competent applicant for winding up if granted the leave of the Court under s 459P(2). 

[6] In my view, the terms of the deed are unambiguous.  But it is necessary to say something of the background to the execution of that document having regard to some of the submissions.  The deed was executed in consequence of an interlocutory hearing before White J on 28 February 2008.  Her Honour then declined to order the removal of a caveat over land owned by Felix Creswick.  He was in financial difficulty and the caveat was preventing him from using the land to raise money for his living expenses and legal fees for the Creswick proceedings.  The respondents, including John and William Creswick and Tabtill had submitted that the caveat should remain but subject to certain conditions which were designed to limit that prejudice.  Her Honour imposed those conditions, including one that “John Francis Creswick and William Gerard Creswick and Tabtill Pty Ltd guarantee the reasonable legal fees incurred by [Felix Creswick] at the conclusion of the proceedings in respect of defending the claim and prosecuting the counterclaim up to a maximum amount of $100,000, such guarantee to be provided in writing to the applicant’s solicitors by 7 March 2008”. 

[7] On 7 March 2008, the deed was executed in consequence of that order.  The deed recited that order and that it was executed in consequence of it.  On the first page, under the heading “Parties”, it was stated to be executed “in favour of Felix’s Solicitor”.  Similarly, by cl 1.20, the deed was stated to be “intended by the Guarantors to be, and intends to operate as, a deed poll in favour of Felix’s Solicitor”.  The term “Felix’s Solicitor” was defined to mean “the present or any future Solicitor on the record acting for Felix in the Proceedings”. 

[8] The term “Proceedings” was defined to mean those in this Court numbered 10963 of 2007, to which I have referred as the Creswick litigation.  The term “Claim” was defined to mean the claim, together with any amendments to it, filed in the Proceedings.  Similarly, the term “Counterclaim” was defined to mean the counterclaim and any amendments to it filed in the Proceedings. 

[9] A submission was made for John Creswick (at least in writing) to the effect that the deed was not executed for the benefit of Hopgood Ganim, as distinct from Felix Creswick, so that Hopgood Ganim could never become a creditor pursuant to it.  But that is contrary to its plain terms to which I have referred and I did not understand the argument ultimately to be pressed. 

[10] What was pressed was the submission that in consequence of an order made by the Court of Appeal, it cannot be said that the whole of the Proceedings, more particularly the counterclaim, has been determined.  The relevant order was made in these circumstances.  A substantial part of the counterclaim by Felix Creswick against Tabtill, John and William Creswick and others was that Felix’s signature had been forged upon some 105 documents.  He alleged that defendants to his counterclaim, including Tabtill and John Creswick, had benefited from that fraud.  He claimed relief in the form of declarations that the defendants to the counterclaim had benefited in certain respects from the fraud and that they held or should be made to hold certain property on trust for him.  He further claimed an order for “all necessary accounts and enquiries …”.  The trial judge was not persuaded that these documents were forgeries and found it unnecessary then to consider the benefits which had resulted from those documents being carried into effect.  The Court of Appeal disagreed, and found that there had been forgeries as Felix Creswick had claimed.  The Court of Appeal declared that the purported signature of Felix Creswick on the 105 documents was affixed by John Creswick without the authority of Felix Creswick.  It then made an order in these terms:

“Remit the Proceedings to the Trial Division for Felix Antonio Creswick to trace any benefits obtained by Tabtill Pty Ltd and the respondents as a result of the purported affixing of Felix Antonio Creswick’s signature by John Francis Creswick on the documents …”.[1]

Subsequently the Court of Appeal varied that order by adding the words “and for the purpose of taking such accounts and making such further ancillary orders as are appropriate and consistent with these orders”.[2] 

[11] The matters remitted to the Trial Division have been the subject of some interlocutory orders but they are far from being concluded.  On 21 June 2012, Martin J made freezing orders against, amongst others, Tabtill and John Creswick, by which they must not remove from Australia or dispose of, deal with or diminish the value of any of their assets in Australia up to an unencumbered value of AUD$9.6 million. 

[12] In essence, what remains to be litigated within proceedings numbered 10963 of 2007 are questions which were litigated before but not determined by the original trial judge.  Counsel for the applicant confirmed that at that trial, Felix Creswick sought certain findings as to benefits which had been obtained in consequence of the forged instruments and relief on the basis of those findings.  This confirms what in my view was already clear, which is that Felix’s counterclaim has not been wholly determined. 

[13] However, the applicant submitted that what remains to be litigated is something in the nature of the process of execution of a judgment.  This argument was made upon the suggested basis of what Lord Millett said about the process of tracing property in Foskett v McKeown,[3] and, to the same effect, what Spigelman CJ said in Robb Evans of Robb Evans & Associates v European Bank Ltd.[4]  Particular reliance was placed upon this passage from the speech of Lord Millett:

“Tracing is thus neither a claim nor a remedy.  It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.  Tracing is also distinct from claiming.  It identifies the traceable proceeds of the claimant’s property.  It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim.  But it does not affect or establish his claim.”[5]

His Lordship was distinguishing between the claim by these plaintiffs to the traceable proceeds of property which had been held on trust for them and a claim for something other than a proprietary interest for which particular discretionary considerations could have been relevant.[6]  The applicant here sought to draw from that passage a proposition that a claim by a defrauded beneficiary, which employs the process of tracing, is determined once the fraud is established, so that the litigation of issues about what should be the proprietary or financial consequences of the defendant’s fraud would be simply part of the execution of a judgment.  That proposition is hardly established by the passage relied upon.  In any event, the question here is one of the proper interpretation of the deed, and what is meant by the determination by judgment of the whole of the counterclaim.  As matters presently stand, the whole of the counterclaim, defined by the pleaded terms of the relief claimed, has not been determined and another judgment of a judge in the trial division will be necessary. 

[14] Should it matter, I see no difference between the terms of the deed and those of the order from which it resulted.  In my view, it is clear that the whole of the proceedings have not yet been determined by a judgment.  It follows that there is no present debt due to the applicant and that at least for that reason the applicant is only a prospective or perhaps a contingent creditor. 

[15] As to the Legal Professional Act 2007 (Qld), Tabtill is a “third party payer” as that term is defined in s 301(1) of that Act, because it is not the client of the applicant but is under a legal obligation to pay all or any part of the legal costs for legal services provided to the applicant’s client.  In particular, it is an “associated third party payer”, as defined in s 302(2).  Section 316(1) of that Act provides, in part, as follows:

“(1)If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, the client or associated third party payer, as the case may be, need not pay the legal costs unless they have been assessed under division 7.

(2)A law practice that does not disclose to a client or an associated third party payer anything required by this division to be disclosed may not maintain proceedings against the client or associated third party, as the case may be, for the recovery of legal costs unless the costs have been assessed under division 7.”

[16] Section 318 provides in part as follows:

“(1)If a law practice is required to make a disclosure to a client of the practice under this division, the law practice must, under subsections (2) and (3), also make the same disclosure to any associated third party payer for the client, but only to the extent that the details or matters disclosed are relevant to the associated third party payer and relate to costs that are payable by the associated third party payer in relation to legal services provided to the client.

(2)A disclosure under subsection (1) must be made in writing -

(a)at the time the disclosure to the client is required under this division; or

(b)if the law practice only afterwards becomes aware of the legal obligation of the associated third party payer to pay legal costs of the client - as soon as practicable after the law practice became aware of the obligation.”

[17] Because of my conclusion that the applicant is a prospective creditor because the whole of the Creswick proceedings have not yet been determined, it is unnecessary to make a finding about whether the applicant here was required to make disclosure to Tabtill and did so according to s 318.  But assuming for present purposes that the applicant did not comply with s 318, the consequence would not be to deny the applicant any standing to make this application, because it would be still a contingent or prospective creditor.  Its right to be paid would relevantly depend upon the assessment of its costs.  There is unchallenged evidence that the applicant has issued invoices to Felix Creswick totalling $158,287.51, comprised of $108,927.76 for costs and the balance for disbursements.  Inevitably, the costs as assessed would be a substantial sum.  One of the arguments seemed to suggest that it was relevant that the amount as assessed might be less than $100,000, but that is irrelevant because the applicant would still be a creditor.

[18] Next it was submitted for the respondents that s 316(2) of that Act affected this application.  This was coupled with a submission referring to s 329(1), which provides that a law practice must not “start legal proceedings to recover legal costs from a person until at least 30 days after the law practice has given a bill to the person under ss 330 and 331 …”.  The answer to each of those submissions is that the present application is not a legal proceeding to recover legal costs.  It may be assumed that this is the applicant’s motive for bringing these proceedings, but it is not the nature of the proceedings, which is defined by the relief which is claimed.  This is not an action for a debt and neither s 316(2) nor s 329(1) is relevant.  Nor are they relevant to the exercise of a discretion to order a winding up.  They are impediments to the recovery of the debt by an action, by prescribing an element of the lawyer’s cause of action (an assessment of the costs or the rendering of a bill as the case may be).  But a contingent or prospective creditor, who by definition does not have an accrued cause of action for the debt, is a competent applicant (subject to the grant of leave) for a winding up order.

[19] Section 459P of the Corporations Act (the Act) provides in part as follows:

“(1)Any one or more of the following may apply to the Court for a company to be wound up in insolvency:

(a)…

(b)a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor) …

(2)An application by any of the following, or by persons including any of the following, may only be made with the leave of the Court;

(a)a person who is a creditor only because of a contingent or prospective debt …

(3)The Court may give leave if satisfied that there is a prima facie case that the company is insolvent, but not otherwise.”

[20] The applicant submitted in the alternative that it should be granted leave to make this application, as a contingent or prospective creditor, under s 459P(2).  Tabtill and John Creswick opposed the grant of leave, but without reference to any relevant consideration in the circumstances of the present case. 

[21] Section 459C of the Act provides as follows:

“Presumptions to be made in certain proceedings

(1)This section has effect for the purposes of:

(a)an application under section 234, 459P, 462 or 464; or …

(2)The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:

(a)the company failed (as defined by section 459F) to comply with a statutory demand; or …

(3)A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.”

[22] As already noted, Tabtill failed to comply with the statutory demand, so that the Court must presume that Tabtill is insolvent unless the contrary is proved and no attempt was made to prove that matter.  And it was not suggested that the existence or otherwise of the debt claimed by the applicant, either as a debt presently due or as a contingent or prospective debt, was relevant to whether Tabtill is solvent. 

[23] Section 459P(3) requires that there be a prima facie case that the company is insolvent.  That reference to a prima facie case is because, ordinarily, the application for leave would precede the hearing of the application to wind up the company.  However, it was not suggested that the applicant is now out of time to seek leave, and such a suggestion would be inconsistent with authority:  see eg Masri Apartments Pty Ltd (in liq) and Anor v Perpetual Nominees Ltd.[7]  In that case, Beazley JA (with Spigelman CJ and Mason P agreed) also discussed the relevance of the company’s insolvency to this question of leave being granted to a prospective or contingent creditor.  Her Honour said:

“[49]In my opinion, this also follows from the policy that underlies the need for a specified group of eligible applicants to obtain the leave of the court.  Liquidation is a serious, indeed fatal step, in the life of a company.  It is not a means of debt collection.  Rather, in the case of insolvency, it is a means whereby creditors and potential creditors are protected from the continued trading by a company that is unable to pay its debts as they become due.  The legislature could not have meant to allow that step to be taken by a party whose debt was not presently due as in the case of a prospective creditor, or which may not become due in the case of a contingent creditor, unless there was good reason to do so.  That ‘good reason’ is where the company is insolvent.  Thus, the court may not grant leave to an entity falling within subs (2) unless it is ‘satisfied that there is a prima facie case that the company is insolvent, but not otherwise’.

[50]There are a number of reasons why the section limits the grant of leave, not the least of which is that otherwise, a prospective or contingent creditor could use the section as a means of pressure or harassment.  The same might be said of a contributory or a director.  By requiring that these parties obtain leave, the legislature ensures a system whereby the purpose for which the section was enacted, that is, that insolvent companies not trade, is appropriately applied.”[8]

[24] It appeared to be contended for John Creswick that the application should be dismissed because the presumption of insolvency was obtained in circumstances where it was impossible for Tabtill to comply with the statutory demand because of the freezing orders made by Martin J.  But there is no evidence that this had the effect of preventing a payment in response to the demand which otherwise Tabtill would have made.

[25] Tabtill is insolvent, thereby providing a powerful reason for the grant of leave.  However, there remains some discretionary power to refuse leave as was recognised in, for example, Melbase Corp Pty Ltd v Segenhoe Ltd[9] and Dray v Trackmate Australia Pty Ltd.[10]  But in the present case there is no circumstance which provides any reason to refuse leave.  Therefore the applicant should be granted leave to make this application.

[26] At this point mention should be made of Tabtill’s application for leave under s 459S which provides as follows:

“Company may not oppose application on certain grounds

459S(1)In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a)that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b)that the company could have so relied on, but did not so rely on (whether it made such an application or not).

     (2)The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.”

Tabtill could have applied to set aside the statutory demand, upon the basis that the applicant was only a contingent or prospective creditor for the reasons discussed above.  Had it done so, it follows from these reasons that it would have succeeded.  It can raise those arguments now only with the Court’s leave under s 459S.  But leave under s 459S could not be granted, because those ground or grounds, which could have been relied on in an application to set aside the demand, were not material in this hearing to proving that Tabtill was solvent.[11]  As I have noted, there was no attempt to prove Tabtill’s solvency and no suggestion that the existence or otherwise of a debt owed to the applicant was material to its solvency.  And a grant of leave under s 459S does not affect the operation of the presumption of insolvency under s 459C:  Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers appointed).[12] 

[27] What I have said already disposes of any question as to the ground for this application.  The presumed insolvency of Tabtill has not been rebutted.

[28] What remains to be discussed are the submissions by Tabtill and John Creswick which are to the effect that the application should be dismissed upon some discretionary ground.  Undoubtedly, there is a power to dismiss an application, although a ground has been proved on which the Court may order the company to be wound up:  s 467(1)(a).  There is also a power to stay the application notwithstanding the proof of that ground. 

[29] Some of the submissions to that effect, which were made especially for John Creswick, seemed to rely upon a principle which predated the current Pt 5.4 of the Corporations Act.  As was discussed in ASIC v Lanepoint Enterprises Pty Ltd, prior to Pt 5.4, the Court would not, as a general principle, order winding up where a debt was bona fide disputed upon some substantial ground.[13]  But as the High Court there held, because the principle has no application in the case of an insolvent company, it cannot apply in the context of the current Pt 5.4, where the statutory presumption of insolvency operates.  And none of the arguments for the respondents, about the applicant not being a creditor, could deny the applicant the standing of a prospective or contingent creditor.

[30] There were submissions for John Creswick which seemed to suggest that an order for the winding up of Tabtill would unfairly advantage Felix Creswick in the litigation of the balance of his counterclaim.  I do not accept that the potential for any disadvantage in the proper conduct of a defence to the remainder of the counterclaim has been established.  Nor do I accept that it would be relevant to consider any impact upon the interests of other defendants to that counterclaim in doing so, most particularly John Creswick.  It was also suggested for John Creswick that an order for the winding up of Tabtill would affect the relationship between the respective guarantors under the deed.  The legal basis for that contention was not revealed.

[31] The outcome is that the grant for winding up has been established and no reason has been demonstrated for now refusing or staying the application.  The company will be ordered to be wound up.