Adamopoulos v Olympic Airways SA

Judgment 1By originating process dated 15 April 2013, Land Enviro Corp Pty Limited ("LEC") seeks to set aside a creditor's statutory demand ("Demand") served by HTT Huntley Heritage Pty Limited ("HTT") on 11 April 2013. The basis on which that application is brought includes at least applications under ss 459H(1)(a) and 459J(1)(b) of the Corporations Act 2001 (Cth); whether it also includes an application under section 459H(1)(b) of the Corporations Act on the basis that LEC has an offsetting claim to the debt is a matter that will need to be addressed below. 2The application is supported by an affidavit of Mr Zdrilic, a director of LEC, who has also appeared (with leave) on LEC's behalf to pursue the application. The Demand is for the amount of $138,019.63 which is the amount of a judgment entered in the District Court of New South Wales arising out of a costs order made in proceedings in this court relating to the removal of a caveat lodged by LEC over HTT's property ("2006 proceedings"). The costs order in the 2006 proceedings was not made until 2012, on the completion of further proceedings between the parties ("2007 proceedings"). 3Mr Zdrilic's affidavit seeks to establish a genuine dispute as to the relevant debt on the basis that LEC has sought to vary an order previously made by Allsop P declining an extension of time for LEC to appeal from the decision in the 2007 proceedings, and that LEC believes that, if that extension of time is granted, it has good prospects of the appeal. It is implicit in LEC's case that it also contends that it has good prospects of that extension of time being granted, by way of variation of Allsop P's order. Mr Zdrilic's further affidavit dated 7 May 2013 attaches a folder of documents in respect of the 2007 proceedings and the appeal. In substance, LEC contends that the primary judge erred in dismissing LEC's claims in the 2007 proceedings and Allsop P also erred in not extending the time to appeal. 4HTT in turn relies on affidavits of Mr Mark Easton dated 1 May 2013 and 13 May 2013. Mr Easton's second affidavit sets out the background to the 2006 proceedings in which, as I noted above, HTT sought orders for the removal of the caveat lodged by LEC and was successful in obtaining those orders and a subsequent order that LEC pay its costs of the proceedings. Those costs were thereafter assessed and the certificate of determination of costs registered in the District Court to take effect as a judgment. That judgment in turn founds the Demand. Mr Easton also refers to the 2007 proceedings, in which LEC was one of the plaintiffs and HTT was one of the defendants, which were dismissed on 20 April 2012. Costs in respect of the 2007 proceedings are not relied upon in the Demand. A notice of appeal and application for extension of time to appeal were filed on 8 November 2012 and, on 21 February 2013, Allsop P dismissed the extension of time and dismissed the appeal. On 6 May 2013, LEC filed a motion to "vary" Allsop P's judgment by, in effect, reversing it to extend the time for the filing of an appeal. 5The first basis for the application to set aside the Demand is brought under s 459H(1)(a) of the Corporations Act, which provides that a creditor's statutory demand may be set aside where the court is satisfied there is a genuine dispute about the existence or amount to which that statutory demand relates. That basis for the application is specifically identified in paragraph 1 of the Originating Process and addressed under the heading "Genuine dispute about the existence of a debt to which the Demand relates" in Mr Zdrilic's affidavit filed 15 April 2013, within the 21-day period specified in section 459G of the Corporations Act. 6I cannot accept LEC's submission that it has established a genuine, or any, dispute as to the costs order in the 2006 proceedings. No challenge has been brought, in any appropriate forum, to the costs order made against LEC in the 2006 proceedings; those costs were assessed; the costs as assessed were registered as a judgment in the District Court; and the District Court has declined to stay that judgment, although I was informed from the bar table that it took that course because it considered it did not have power to do so. In these circumstances, it seems to me there is no room for dispute as to the costs order, which is binding upon LEC, irrespective of LEC's view as to whether that order was justified on its merits. 7Even if an appeal had been brought against that costs order, or the judgment arising from it, that would not in fact have established a genuine dispute as to the debt for the purposes of section 459H(1)(a) of the Corporations Act. Mr Zdrilic rightly points to authority that the threshold for establishing a genuine dispute is relatively low. However, it is well established that, even if an appeal is pending as to a judgment (here, the judgment arising from registration of the costs order in the 2006 proceedings), that would not itself give rise to a genuine dispute as a judgment debt: Barclays Australia (Finance) Ltd v Mike Gaff kin Marine Pty Ltd (1996) 21 ACSR 235; Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759; (2007) 25 ACL 1038; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [11], where Barrett J observed it was "well established" that the fact a judgment may be liable to be set aside as a result of a successful appeal does not mean there is a "genuine dispute" as to the existence of the judgment debt. No point was taken in submissions before me as to any distinction between a judgment from registration of a costs assessment and any other judgment in this regard. 8In the present case, in summary, there is in fact no live contest as to the costs order, which could establish a dispute in respect of the debt arising from it, and such a dispute (if it existed) would not establish a genuine dispute, where that costs order has taken effect as a judgment of the District Court and remains in effect. For these reasons, the application, so far as it is founded on section 459H(1)(a) of the Corporations Act cannot succeed. 9Second, LEC seeks to contend that it has an offsetting claim for the purposes of section 459H(1)(b) of the Corporations Act, arising from the appeal which it would bring, if the order refusing it an extension of time to do so were varied or set aside so as to permit it to do so. There is, however, a fundamental threshold difficulty with this contention. The originating process referred, in its first sentence, to an application under ss 459G, 459H and 459J of the Corporations Act but then went on to refer, in paragraph 1, to a claim for an order "pursuant to section 459H(1)(a) and/or section 459J(1)(b) of the Act that the Demand be set aside." Mr Zdrilic's supporting affidavit filed 15 April 2013 summarised the application as an application to set aside the demand on the basis that "there is a genuine dispute between [LEC] and [HTT] about the existence of the debt to which the Demand relates." As I noted above, the substance of the dispute was then identified under the heading "Genuine Dispute about the existence of a debt to which the Demand relates." Mr Zdrilic's affidavit did not go further to identify, or expand upon, any facts that might support an offsetting claim arising from a successful extension of time and successful appeal. 10Even assuming, in LEC's favour, as Mr Zdrilic contends, that the single reference to section 459H in the first sentence of the Originating Process could be read as a reference to section 459H(1)(b), notwithstanding the specific identification of a claim under section 459H(1)(a) which followed, the affidavit evidence led within the 21-day period specified under section 459G of the Corporations Act provided no factual basis to establish an offsetting claim. That matter is of considerable significance, because s 459G of the Corporations Act has the result that, before a ground of opposition may be relied on in a statutory demand, it must be identified in the affidavit supporting the application to set aside that demand filed within the 21-day period specified under s 459G of the Act: Graywinter Properties Pty Ltd v Gas and Fuel Corp Superannuation Fund (1996) 70 FCR 452; (1996) 21 ACSR 581 at 587; King Furniture Australia Pty Ltd v Higgs [2011] NSWSC 234; Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419; (2001) 166 FLR 179. The strictness of that approach has been qualified to some extent, so far as an initial affidavit will sufficiently raise a dispute if it is raised by a necessary or reasonably available inference, including from documents exhibited to that affidavit: POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533. The Court of Appeal has recently observed that the proper approach to this issue is to treat it as raising a fact specific inquiry as to whether the affidavit in support of the application to set aside the demand in fact supports the application and whether, expressly or by reasonably available inference, a ground of challenge of the demand is sufficiently identified in that affidavit: Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [27]ff. 11Mr Zdrilic's affidavit filed within that 21-day period did not, whether expressly or by any available inference, identify a basis of challenge to the statutory demand arising from an offsetting claim. Even if I have not formed that view, it also does not seem to me that it would be open to me to find, even with the assistance of the extensive material relied on by LEC to advance the merits of its appeal, that its appeal could in fact be treated as raising a seriously arguable offsetting claim, since that course would give insufficient weight to the fact that the Court of Appeal had not extended the time in which to bring that appeal so as to permit it to be brought. I appreciate that LEC has applied to vary that position, but the Court of Appeal has not to date varied that judgment. 12Next, LEC seeks to set aside the Demand under section 459J(1)(b) of the Corporations Act. That section permits the court to set aside a statutory demand if it is satisfied that, inter alia, there is some other reason that the demand should be set aside. The Court's power under that section exists to maintain the integrity of the process provided under Part 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but not by reference to subjective motions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; CP York Holdings Pty Ltd v Food Improvers Pty Ltd [2009] NSWSC 409; On-time Nurses Agency Pty Ltd v Deputy Commissioner of Taxation [2010] VSC 573 at [7]-[8]; Timberland Property Holdings Pty Ltd v Schindler Lifts (Australia) Pty Ltd above at [16]. 13Here, it does not seem to me that a genuine dispute or offsetting claim can establish any other reason referred to in section 459J(1)(b) for the reasons I have noted above. Such other reason can also not be established by an appeal against the costs order, which has taken effect as a judgment of the District Court, since no such appeal has been brought. Even if such an appeal had been brought, another reason to set aside the demand would not generally be established without payment of the amount of the judgment debt into Court: Cranney Farm Pty Limited v Corowa Fertilisers Pty Ltd [2011] NSWSC 9; Timberland Property Holdings Pty Ltd v Schindler Lifts (Australia) Pty Ltd above at [26]. Mr Zdrilic fairly concedes that there would be no point in making an order setting aside the Demand, even if otherwise available, on the basis that the relevant moneys be paid into Court, because LEC does not have moneys available to comply with that condition. 14A final basis raised by LEC in submissions requires further consideration and might, if its premise were correct, provide another reason for an order setting aside the demand under section 459J(1)(b) of the Corporations Act. LEC contends that, if the Court does not set aside the Demand, it will inevitably be wound up and deprived of the opportunity to pursue the application to vary Allsop P's judgment and, if successful in that application, to pursue its appeal. I accept it is unlikely a liquidator appointed to LEC would pursue the appeal, at least unless he were funded to do so. Mr Zdrilic also points out, with some force, that that result would sidestep an order made by McCallum J staying a costs order against LEC in favour of other defendants in the 2007 proceedings, on condition that LEC pay specified moneys into Court. That order and the associated stay did not extend to the costs order in favour of HTT in the 2006 proceedings. 15The substance of LEC's argument was put on the basis that the refusal to set aside the Demand would inevitably lead to the winding up of LEC. That premise is incorrect, and it seems to me it does not establish some other reason to set aside the Demand, because LEC would in fact have open to it an avenue to resist a winding up, notwithstanding that the Demand is not set aside. Mr Zdrilic has pointed to evidence that the 2006 and 2007 proceedings were at least intertwined, and that proposition is supported by the fact that orders were not made for costs in the 2006 proceedings until after the 2007 proceedings were determined. It is well established that, even if a presumption of insolvency arises, the court may adjourn a winding-up application rather than proceed to making a winding-up order if an appeal on arguable grounds against the judgment founding the claimed debt is on foot: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137; Adamopoulos v Olympic Airways SA (1990) 95 ALR 525; Jaekos Holdings Pty Ltd v Australian Horticultural Finance Pty Ltd [1996] FCA 1611; Shmee Pty Ltd v Bresam Investments Pty Ltd [2009] VSC 657; Handberg v MIG Property Services Pty Ltd [2012] VSCA 126. 16Admittedly, it would require some extension of that proposition for LEC to contend that the Court should adjourn a winding-up application, notwithstanding that the Demand had not been complied with, rather than proceed to make a winding-up order, because an application to extend time for an appeal in respect of the 2007 proceedings was pending, which, if successful, would allow an appeal to be brought which, if successful, would restore the company's solvency. It is plain there is a degree of contingency involved in that argument. Nonetheless, it is open to LEC to advance that argument so as to seek to adjourn a winding-up application, if one is brought in reliance on a presumption of insolvency arising from the Demand. If that application is successful on its merits, then it avoids the prejudice to LEC of frustrating its application to extend time, and any consequential appeal, which LEC has identified as the basis of the risk that faces it. 17It seems to me some other basis to set aside the Demand is also not established for this reason, because LEC can rely on the same matters to seek to adjourn a winding-up application, if HTT goes ahead to bring one notwithstanding the pendency of LEC's application to extend time to bring an appeal and the possibility that appeal will proceed. In other words, it seems to me no other reason to set aside the Demand is established, at this point, because the prejudice which LEC fears can be avoided, if it should be avoided, by an application to adjourn a winding-up application if one is brought. Conversely, it seems to me preferable that the winding-up application not be set aside, where to do so would interfere with the relation-back period which would otherwise arise from the filing of any winding-up application. 18I should note, for completeness, that LEC did not seek an adjournment of this application, nor did I invite LEC to raise that matter. I did not do so because, in my view, the court would not have granted such an adjournment, for the reasons noted by Kerry J in Liew v JNS Technologies (M) SDN BHN [1999] FCA 1428 at [13]-[15], namely that it would not be appropriate to adjourn the application to set aside the Demand in a manner that would prevent the relation-back day arising from filing of a winding-up application if that Demand is not complied with. 19Accordingly, the Originating Process should be dismissed. I should emphasise the dismissal of that Originating Process does not, as I have noted, prevent LEC relying on the same matters to seek to adjourn a winding-up application, if such an application is ultimately brought on the basis that a presumption of insolvency has arisen from non-compliance with the Demand. 20After I have delivered my judgment, Mr Harding, who appears for HTT, fairly raised the proposition that he had made a submission that the question of any frustration of the appellate process was not a matter that could be raised by LEC in this application, because it was not a matter that was squarely raised within Mr Zdrilic's affidavit dated 15 April 2013 in support of LEC's application to set aside the Demand. I should note that, in submissions, HTT had taken a somewhat narrower view of the scope of the Graywinter principle than appears to be established by the decision in Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd to which I referred above. 21It seems to me at least arguable that the question of frustration for the appeal process is raised by a reasonably available inference from Mr Zdrilic's first affidavit, so far as it emphasises the process of the appeal and LEC's belief that it has good prospects of the appeal being successful. However, it was not necessary for me to determine that matter, and I have not determined that matter. I have in any event held that, on its merits, the question of frustration with the appeal does not give rise to some other reason to set aside the Demand, because that risk is one that would properly be addressed, if at all, by an adjournment of the winding up application, rather than by setting aside the Demand under s 459J(1)(b) of the Corporations Act. Extension of time for compliance with the Demand 22Also after delivery of judgment, I indicated to the parties that, unless some further order were made by the Court, the effect of s 459F of the Corporations Act would be that the time for compliance with the Demand would end seven days after the delivery of my judgment. I indicated that I was inclined to extend that period from 7 days to 21 days. I am inclined to take that course not because it appears that LEC will in fact comply with the Demand in this extended period, since it seems likely from its submissions that it does not have the capacity to do so, but because complex issues are raised where a party such as LEC seeks leave to appeal from an application to set aside a creditor's statutory demand which is unsuccessful. In particular, as I pointed out to Mr Zdrilic, it would be necessary in that situation to seek to further extend the time for compliance with the Demand until after such an appeal is determined, or the prospects of a successful appeal might be lost by default: Aussie Vic Plant Hire v Esanda [2008] HCA 9; (2008) 232 CLR 314; NA Investment Holdings Pty Limited v Perpetual Nominees Ltd [2010] NSWSC 2073. 23Mr Harding, who appeared for HTT, did not make submissions in opposition to such an order. Such an order seems to me to be desirable, so as to allow the opportunity for LEC to consider whether it seeks leave to appeal from my decision and, if so, whether it wishes to make an application to extend the time to comply with the Demand while such an appeal is on foot. I note that such an application may be made either in the Corporations List or in the Court of Appeal, and where it is made is a matter for LEC. 24In the absence of opposition, I also make an order under s 459F(2) extending the time for compliance with the Demand for 21 days from today. Costs 25HTT seeks its costs of the proceedings as against LEC. HTT has, responsibly in my view, not sought a costs order against Mr Zdrilic personally. Mr Zdrilic has acknowledged the ordinary principle that costs follow the event, although he has also indicated his preference that costs not be awarded against LEC. 26Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that, subject to the rules of Court and to the Civil Procedure Act and any other Act, costs are in the Court's discretion. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) in turn provides that, if an order is made as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. In the present case, it seems to me that HTT has been successful in substance, and that there is no reason to depart from the usual principle that costs should follow the event. 27Accordingly, in addition to the orders which I have already made that the proceedings be dismissed, and extending the time for compliance with the Demand, I make a third order that the Plaintiff pay the Defendants' costs of the proceedings as agreed or as assessed.