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Judgment - ex tempore

1. Objection is taken to paragraph 20 of the affidavit of Mr Kenneth Henderson dated 17 February 2017, which the Plaintiff Creata (Aust) Pty Limited ("Creata") seeks to read in support of an application to set aside a creditor's statutory demand ("Demand") issued by the Defendant, Mr Faull. That objection raises issues of some complexity. I have heard both Ms Foda, who appears for the Plaintiff, and Mr Sulan, who appears for the Defendant and opposes the admission of the paragraph, in respect of the objection. I have also had the benefit of written submissions and a comprehensive review of the authorities as to this relevant question.
2. In paragraph 20 of Mr Henderson's affidavit he says that, during a conversation with another person, Mr Saunders, in respect of another creditor's statutory demand for payment issued to an entity with which Mr Saunders must be associated, Mr Saunders said words to the effect that: "Then let me put it to you this way. We understand from Gary (Faull) that the McDonald's contract is coming up for renewal. It's an important part of your business. He's (Gary Faull) shared certain information with me about Creata's and Norma's tax and business and affairs..."
3. Several observations should be made about that conversation. First, as I noted above, Mr Faull has issued the Demand which Creata seeks to set aside. Second, Creata seeks to establish that there is a genuine dispute as to the debt claimed in that Demand on the basis, inter alia, that Mr Faull had breached obligations of confidentiality under an agreement on which that Demand relies, and the right to payment on which he relies is extinguished by that breach. Third, the reference to "Norma" is to a person associated with Creata. Fourth, Ms Foda has confirmed that Creata reads paragraph 20 of Mr Henderson's affidavit to prove the fact that Mr Faull provided information to Mr Saunders about the subject matter of Creata's and its associates' tax and business and affairs, and, by extension, that he breached a duty of confidentiality under the relevant agreement in doing so.
4. Two questions which arise are, first, whether that paragraph is admissible, so far as Ms Foda seeks to read it for a hearsay purpose and, second, whether that paragraph is admissible, so far as Ms Foda, as I understand it, also seeks to read it for a non-hearsay purpose. The first question raises issues of some complexity, which I should address because they were the subject of comprehensive submissions before me. However, I will ultimately determine this application on the second and narrower basis that Ms Foda seeks to read the paragraph for a non-hearsay purpose, and it is admissible for that non-hearsay purpose, consistent with appellate authority to which I refer below.
5. I should first address the question whether the paragraph is admissible for the hearsay purpose for which Ms Foda first seeks to read it. It is, as Mr Sulan points out, an example of second-hand hearsay, so far as Mr Henderson gives evidence of what Mr Saunders said to Mr Henderson about what Mr Faull said to Mr Saunders. Mr Henderson has given affidavit evidence in the proceedings, and Mr Saunders does not give evidence in the proceedings. So far as Ms Foda seeks to read the paragraph for a hearsay purpose, that is to prove the asserted fact, I understand it to be common ground, or at least not to be contested, that the evidence would be excluded by s 59 of the Evidence Act 1995 (NSW) unless it fell within a relevant exception. The exception on which Ms Foda relies is s 75 of the Evidence Act, which provides that, in interlocutory proceedings, the hearsay rule does not apply to evidence if the party who adduces it also adduces evidence of its source. In this case, the paragraph identifies the source of the relevant hearsay statement, namely Mr Saunders.
6. The question which then arises is whether an application to set aside a creditor's statutory demand is interlocutory in character. That question has received sustained attention in the case law, and it may not yet be fully resolved. My attention was drawn to the decision of the Court of Appeal of the Supreme Court of New South Wales in A-Pak Plastics Pty Ltd v Merhone Pty Ltd (1995) 17 ACSR 176 ("A-Pak"), where Sheller JA (with whom Kirby P and Priestly JA agreed) observed that a determination to set aside a creditor's statutory demand amounted to a final determination of the rights of the claimant concerning the statutory demand, with the qualification that the question may not have been finally determined if conditions had been imposed. The determination by the Court of Appeal that the decision had a final character plainly depended, in its terms, on the result that the creditor's statutory demand was set aside, and left open the possibility that such an application would not be final in character if a creditor's statutory demand had not been set aside, such that further steps may or may not follow under the process set out in the Corporations Act where a creditor's statutory demand remained on foot.
7. In Infact Consulting Pty Ltd v Kyle House Pty Ltd [2005] NSWSC 1092 ("Infact"), in determining the question whether an appeal could be brought from the decision of an Associate Judge to a judge sitting at first instance, rather than to the Court of Appeal, Barrett J followed A-Pak in holding that an order setting aside a creditor's statutory command was a final order, but extended that decision also to treat an order dismissing an application for an order setting aside a creditor's statutory demand as a final order, with the implication that either of the most common results of an application to set aside a creditor's statutory demand would be final in character.
8. That question has, however, also been considered in other courts in other jurisdictions. In Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Pty Ltd [2007] VSCA 121; (2007) 63 ACSR 300 ("Aussie Vic"), the question was considered by a Court of Appeal, comprising five judges of the Supreme Court of Victoria. Nettle JA there agreed with the view expressed in A-Pak that an order setting aside a creditor's statutory demand was final in character, although possibly for different reasons from those by which the New South Wales Court of Appeal had reached that result, but disagreed with the view expressed by Barrett J in Infact above that an order refusing to set aside a creditor's statutory demand was a final order. If that position were correct, as Mr Sulan fairly acknowledges, the Court would have to treat an application for a creditor's statutory demand as of uncertain character at the time it was heard, because it would not then be known whether it would lead to an order setting aside the demand which would be final or an order refusing to set aside the demand which would be interlocutory in character. I am presently in the position where it is not yet known what the results of the proceeding will be, as is inevitably the case in determining a question of admissibility in a hearing of this kind prior to judgment.
9. In a further decision of the Full Court of the Federal Court of Australia in MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154; (2015) 117 ACSR 446 ("MNWA"), their Honours referred to A-Pak, several other decisions in other State Supreme Courts, and the decision of the Court of Appeal of the Supreme Court of Victoria in Aussie Vic and treated Aussie Vic as inconsistent with the decision in A-Pak. As Mr Sulan pointed out, that view may not be correct given Nettle JA's approval of the result in A-Pak in Aussie Vic. Their Honours also observed (at [68]) that, to the extent that A-Pak (and also Infact) had established that an application to set aside a creditor's statutory demand was final rather than interlocutory in character, the position in New South Wales changed subsequently because the Supreme Court Act 1970 (NSW) was amended to introduce a requirement to obtain leave to appeal from a decision in an application to set aside a creditor's statutory demand under s 459G of the Corporations Act 2001 (Cth). Mr Sulan questions that reasoning, and submits, with some force, that the legislature could choose to introduce a requirement for leave to appeal from a decision at first instance in an application to set aside a creditor's statutory demand, without necessarily changing the characterisation of that application as final or interlocutory. It is not necessary to determine that question, given the conclusions that I reach on other grounds below.
10. The Full Court of the Federal Court also referred in MNWA to several other decisions of several other State Courts which also held that applications to set aside a creditor's statutory demand are interlocutory in character, and expressed the view that the Court should follow those decisions, unless it was persuaded that those other decisions were plainly wrong, adopting, at least by way of analogy, the approach taken in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 492.
11. It seems to me that, on two alternative bases, I should treat this application as interlocutory in character, in dealing with the question of admissibility of paragraph 20 of Mr Henderson's affidavit. The first basis on which I should take that approach is that there is a real importance in uniformity in decision-making in questions in respect of the Corporations Act, and the matters which led the Full Court of the Federal Court to prefer uniformity as to this matter in MNWA above apply with equal, or possibly greater, force to the approach a first instance judge should take in a matter of this character.
12. Second, and independent of that approach, I would take the same view on the basis that there is force in the distinction between the position where, on the one hand, a creditor's statutory demand is set aside and the decision is arguably final in character, and the position where it is not, but that result will not be known until the proceedings are determined. On that basis, and if the position now needs to be treated as uncertain, and the application not capable of characterisation as either interlocutory or final at this stage, then the Court ought to admit evidence which would in fact have been admissible, if the proceedings were characterised as interlocutory once they were concluded, rather than excluding it so that its ruling as to admissibility of the evidence would have miscarried in that outcome.
13. Mr Sulan also relied on s 135 of the Evidence Act to exclude the relevant paragraph of Mr Henderson's affidavit. There is plainly a question as to the cogency of evidence to the effect that Mr Saunders said to Mr Henderson that Mr Faull had shared certain unidentified information about a particular subject matter with Mr Saunders. However, this does not seem to me to support exclusion of the evidence under s 135 of the Evidence Act, on the basis of any lack of cogency of the evidence. It does not seem to me that that evidence can either be unfairly prejudicial to Mr Faull or be misleading or confusing in a trial by judge alone. As I noted in the course of submissions, there is no logical inconsistency in the Court admitting the evidence and later treating it as lacking cogency or lacking weight in reaching a decision on the merits. That reflects the difference between a trial by judge, where evidence can readily be given little or no weight, and a trial by jury where a jury may give inappropriate weight to such evidence. There is no suggestion that the admission of the evidence would cause or result in undue waste of time, although some time has been spent in ruling on its admissibility.
14. It seems to me that, in any event, the evidence would be admitted for another purpose, which is sufficient to support its admissibility. Ms Foda points out that Creata seeks to establish that there is a genuine dispute about the debt claimed in the Demand. In order to do so, she seeks to establish that there is a dispute in respect of Mr Faull's entitlement to payment under the relevant agreement. In effect, this aspect of Creata's case can be summarised as being that, because Mr Saunders had told Mr Henderson that Mr Faull had shared information with Mr Saunders, and Mr Henderson had apparently given weight to that statement, then there is a matter worthy of investigation such that the Demand should be set aside. That proposition may be right or wrong, so far as it raises an issue as to the extent of a "genuine dispute" that is required to set aside a creditor's statutory demand. However, where that proposition is put, it is in issue, and it does not depend on establishing the fact of the asserted breach, but on whether the suggestion by a third party that conduct that may amount to a breach of the relevant agreement has occurred gives rise to a genuine dispute as to the debt claimed. On that basis, the paragraph is admissible to prove the fact of the conversation, and what Mr Saunders asserted to Mr Henderson, irrespective of the truth of what Mr Saunders asserted to Mr Henderson.
15. It seems to me that that approach is consistent with the observation of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 that, regardless of whether proceedings to set aside a creditor's statutory demand are treated as final or interlocutory, the issue in the proceedings is not whether a debt to which a creditor's statutory demand relates is owed, but whether there is a genuine dispute about whether that debt is owed or there is an offsetting claim. Their Honours also there referred, with approval, to the observation of White J in Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130 that evidence which may be inadmissible as hearsay or opinion to establish a fact relevant to indebtedness would not on that account be inadmissible to establish a fact relevant to whether there was a genuine dispute as to that indebtedness. By analogy, in this case, it seems to me that evidence relevant to whether there is an assertion, by a third party, suggesting a breach of confidentiality, on which Creata relies to set aside the Demand, is admissible to prove the basis of its application to set aside the Demand. That result can follow, notwithstanding that the Court may ultimately find that the mere fact that a third party asserts a fact is not sufficient basis to establish either a genuine dispute as to a debt or a reason to set aside the Demand.
16. For these reasons, I admit paragraph 20 of the affidavit of Mr Henderson dated 17 February 2017, without any limiting order under s 136 of the Evidence Act.