4083/99 - EAGLE HOMES PTY LTD v LED BUILDERS PTY LTD [1999] NSWSC 1049 | Case summary

1 On 2 September this year, the defendant LED served a statutory demand under the Corporations Law on the plaintiff Eagle Homes, requiring payment of $796,645. On 22 September 1999, Eagle Homes filed a summons in this Court seeking to set aside that statutory demand pursuant to s.459G of the Corporations Law. This summons came before me yesterday, 21 October 1999, and I heard an application by Eagle Homes for an adjournment of the summons, which was contested by LED. It is common ground that if the adjournment is refused, the summons should be dismissed. 2 I will start with a brief history of the matter. 3 On 26 August this year, LED obtained an order in the Federal Court against Eagle Homes for payment of $796,645. The statutory demand to which I have referred required payment of that judgment debt. 4 On 14 September 1999, Eagle Homes filed a notice of appeal from the Federal Court order, and on 22 September 1999 filed the summons in this Court, made returnable on 22 October 1999. 5 On 27 September 1999, LED filed a notice of motion in these proceedings, returnable on 11 October 1999, to have the summons heard on that day. 6 On 6 October 1999, Eagle Homes filed a notice of motion in the Federal Court, returnable on 14 October seeking a stay of the Federal Court order. 7 On 11 October 1999, the summons in these proceedings was adjourned by consent to 18 October, pending the outcome of the stay application. 8 On 14 October 1999, the stay application came before Beaumont J in the Federal Court. It was conceded by LED that the appeal raised substantial questions. However, Beaumont J did not grant a stay, but stood the stay application over to 19 October 1999, the day after the adjourned date of the summons in this Court. It appears that the main factors influencing his Honour were that in his view, the fate of steps being taken to wind up Eagle Homes should be determined by the Supreme Court, and that as a matter of comity the Federal Court should not interfere in that process. His Honour may also have been influenced by the consideration that there was no occasion to grant a stay when no enforcement of the order in the Federal Court was in contemplation. 9 On 18 October in this Court, Deputy Registrar Howe stood over the summons in these proceedings to 21 October, giving reasons to the effect that he did not see judicial comity as preventing the Federal Court deciding the stay application. 10 On 19 October 1999, the stay application was again before Beaumont J. He adhered to his previous approach, stood the application over generally, and granted leave to Eagle Homes to appeal from his order of that day and his order of 14 October 1999. Pursuant to that leave, on 21 October 1999 Eagle Homes filed a notice of appeal to the Full Federal Court from those orders. 11 The matter came before me pursuant to the adjournment ordered by Deputy Registrar Howe. 12 Mr Wood for Eagle Homes submitted that I should adjourn the proceedings until the appeal from the orders made by Beaumont J had been heard by the Full Federal Court, or at least for sufficient time to allow an urgent application to be brought in the Federal Court for a stay pending determination of that appeal. 13 He submitted that three questions of principle were involved. First, that applications for the stay of an order should be heard and determined by the court which made the order. Secondly, that it was not a ground for refusal of an application for a stay that no enforcement procedure was threatened in the particular court that had made the order, where the order was causing detriment to the applicant in other ways. Thirdly, that in cases such as this, the failure to grant a stay for all practical purposes determined the fate of winding up proceedings. 14 He submitted that, in the absence of a stay, it was not really left in the control of the Supreme Court to determine whether the winding up should proceed. In the absence of a stay, it was clearly established that there could be no genuine dispute within the meaning of s.459H of the Corporations Law, so that any summons to set aside the statutory demand would have to be dismissed: see Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 22 ACSR 235. Likewise, there would be no possible defence to consequent winding up proceedings. 15 Mr Leeming for LED submitted that this application involved calling into question a judgment of the Federal Court. He submitted that this Court should give full faith and credit to the Federal Court decision not to grant a stay. He submitted that it was plain that there was no genuine dispute as to the existence or amount of the debt, either at the time of the notice, or at the time of expiry of the notice, or today: the adjournment was sought merely in the hope that it may come about some time in the future that there will be a genuine dispute about the debt. He submitted that that was not a ground on which to grant an adjournment. 16 Mr Leeming also submitted that there had been delay in the matter by Eagle Homes which would count against an adjournment being granted. It had not sought a stay of the Federal Court order before the statutory demand was made, or when it appealed from the order. It had left it to the last possible day to file the summons to set aside the statutory demand. It had not sought a temporary stay pending the hearing of the appeal from the orders of Beaumont J. 17 On the merits of the matter, Mr Leeming pointed to evidence concerning detriment that would be caused to LED by any further delay. The proceedings which gave rise to the Federal Court order had been commenced on 28 October 1993. An application for a Mareva injunction was brought in the Federal Court, and in that application there was evidence of a dividend of $400,000 paid to directors of Eagle Homes in the year ended 30 June 1994, recorded in company documents as having been paid on 1 July 1993. The judge hearing the application considered that there was a substantial possibility, at least, that the dividend had not in fact been paid until after the commencement of the proceedings, that is after 28 October 1993. 18 Next Thursday, 28 October 1999, would be exactly six years after the commencement of the proceedings. Depending upon exactly when the dividend was paid, a limitation period of six years would be expiring some time after 28 October 1999. Just when, it was impossible to say; but any delay plainly involved steadily increasing risk to the plaintiff that any claim that might be brought by a liquidator of the company in relation to that dividend would be statute-barred. Mr Leeming also indicated that LED would agree to withdraw the winding up process if the amount of the judgment was appropriately secured. 19 In my opinion, it would not be appropriate to express a view as to whether or not Beaumont J was correct in the decision he made. However, it does seem to me that there are some matters which were apparently not put to him in argument, and which are not discussed in his reasons. 20 First, it does appear that cases such as Barclays have the consequence that where the Federal Court has given a judgment for a money sum against a company, and that company does not pay or appropriately secure that sum, the obtaining or failure to obtain a stay from the Federal Court will for all practical purposes determine the fate of moves to wind up that company. Barclays shows that, without a stay, there cannot be a genuine dispute as to the existence or amount of the debt within s.459H of the Corporations Law; and also I think that the existence of an appeal against an unstayed judgment cannot be "some other reason why the demand should be set aside" within the meaning of s.459J of the Corporations Law. Furthermore, it seems clear that, if a summons to wind up is filed following failure to comply with a statutory demand, the existence of an appeal against an unstayed judgment could not possibly prevent the making of a winding up order. For that reason, it does seem that, for all practical purposes, declining to grant a stay in the Federal Court would determine the result in the Supreme Court, no less than would the grant of a stay. 21 The second matter not explicitly discussed by Beaumont J is that the only substantial discretion the Supreme Court would have would be to adjourn either the summons to set aside the statutory notice, or the winding up proceedings. However, for the Supreme Court to adjourn either proceedings until after determination of the appeal from the Federal Court judgment would I think be plainly wrong, for two reasons. It would have the effect of precluding the successful party in the Federal Court proceedings from perhaps the most effective means of enforcing its judgment, and thus would in substance amount to a stay of the Federal Court judgment granted by another court. In addition, it would involve the indefinite adjournment of proceedings in which, at the time of commencement and at the time of adjournment, the judgment creditor was plainly entitled to succeed, based purely on the possibility that there might in the future be a change of circumstances which would take away that entitlement. 22 On the other hand, in deciding whether or not to stay its own judgment, the Federal Court has a complete discretion and can take into account all circumstances including the pros and cons of the company being wound up, including the possibility that this might put an end to the appeal. 23 Those consideration would seem to support the view that, in cases such as this, the Federal Court should normally hear and determine a stay application, and that the lack of any threat of enforcement by the processes of the Federal Court itself may not be a sufficient reason to decline to consider or grant a stay. In this regard I would mention that there are other circumstances in which a stay might be granted, even though there is no threat of enforcement through the processes of the court making the order, as for example in cases where an injunction has been granted. 24 Although for reasons I have given it would, in my opinion, be wrong to stand these proceedings over until the appeal from the money judgment has been determined, there is a question whether I should grant a short adjournment until the appeal from Beaumont J has been determined, or at least until Eagle Homes can apply in the Federal Court for a stay pending determination of that appeal. 25 If I grant any adjournment, it could prejudice LED in relation to the expiry of a limitations period. On its case, the risk begins on 28 October 1999. The risk might be considered slight at first, but it would steadily increase. 26 It seems to me that Eagle Homes could provide some protection against that risk if the recipients of the $400,000 entered into a binding agreement that, if the company was wound up and proceedings later commenced against them, they would not take the benefit in support of any limitation defence of any lapse of time between now and the winding up order. There may be a question whether limitation protection, particularly that given by the Corporations Law itself, can be waived; but it seems to me that a binding contractual agreement could be made that would put the plaintiff in any such proceedings in the position it would have been if that time had not elapsed. No such agreement is offered, nor is any security for the debt or any part of it offered. 27 If I do not grant an adjournment and the winding up proceeds, then this could plainly cause prejudice to Eagle Homes, in that the liquidator may not pursue the appeal against the Federal Court money judgment, and also it may not pursue another case in the Federal Court in which Eagle Homes has obtained a judgment which still needs to be quantified. Against this, there is the consideration that, if the liquidator is appropriately funded and protected against any liability for costs, and if the appeal and the other proceedings have merit, it could be expected that a liquidator acting reasonably would pursue those matters. 28 If I refuse the adjournment and proceed to dismiss the summons, then under s.459F (2) (a) (ii) Eagle Homes would have another seven days before failure to comply with the statutory demand occurred. It would be open to Eagle Homes within that seven days to seek from the Federal Court a stay of the judgment, either as a fresh application based on the fresh circumstances constituted by this judgment, or alternatively pending hearing the appeal from Beaumont J. In my opinion, if the plaintiff did obtain a stay of the judgment during that seven days, then, notwithstanding that there would follow, if the amount is not paid, failure to comply with a statutory notice and the consequent deemed insolvency, it would be an abuse of process for LED then to seek to wind up Eagle Homes on the basis of the judgment debt that had been stayed. 29 Section 459S of the Corporations Law prevents the company without the leave of the court opposing an application to wind up the company, based on failure to comply with a statutory demand, on any ground relied on for the purpose of an application for the demand to be set aside, or on which the company could have relied in such an application. There is an exception in cases where the leave of the court is obtained, but leave can only be granted on a ground material to proving that the company is solvent. 30 In my opinion, a stay of a judgment obtained after an application to set aside a statutory demand has been dismissed, but before winding up proceedings are commenced, would not be a ground either relied on by the company in the application or a ground on which the company could have relied. It would in my opinion be an abuse of process for the creditor to commence winding up proceedings on the basis of that judgment debt and the non compliance with the statutory demand, when the judgment had been stayed. 31 There is also the consideration that the current time constraints are to some extent due to delays by Eagle Homes, although it cannot be said that those delays are very great. 32 Taking all these considerations into account, in my opinion the appropriate course is to refuse the adjournment and to dismiss the summons. I will however give consideration to whether either that order should be itself stayed for a very short period, or whether the period of seven days for compliance should be extended for a short period, to make certain that Eagle Homes does have sufficient time to make a further application for a stay in the Federal Court. ************

4083/99 - EAGLE HOMES PTY LTD v LED BUILDERS PTY LTD

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