Solicitors:
Balmain Lawyers (Plaintiff)
Team Legal Group (Defendant)
File Number(s): 2015/204305
[2]
Judgment - ex tempore
By application filed on 13 July 2015, the Plaintiff, DCT Projects Pty Limited ("DCT"), seeks orders setting aside a creditor's statutory demand served by the Defendant, Champion Homes Sales Pty Limited ("Champion Homes"). The creditor's statutory demand relates to a judgment debt in the amount of $119,117.95 entered against DCT following a judgment of this Court on 26 May 2015.
DCT relies on an affidavit of its solicitor, Mr Warren Wells, dated 8 July 2015, in support of the application to set aside the creditor's statutory demand. Mr Wells' evidence is that the relevant proceedings occupied six hearing days of oral evidence and one hearing day of closing submissions, and that the evidence comprised 39 affidavits and seven volumes of electronic court book materials, so they were not proceedings in a narrow scope. Mr Wells identifies two primary complaints in respect of the substance of the judgment.
Mr Wells' first complaint, which he submits provides a strong ground of appeal, relates to the trial judge's approach to the question of extensions of time. Mr Wells' affidavit indicates that, in effect, the entirety of the judgment in favour of Champion results from the treatment of extensions of time since, if no extensions of time had been permitted, the amount of the judgment would have been reduced to nil and interest on it would also have been reduced to nil.
Mr Wells complains that there was no claim by Champion Homes in the proceedings in respect of an extension of time, and Mr Douglas-Baker, who appears for DCT, refers to various points at which it is said that Champion Homes proceeded on that basis. It is contended that Champion Homes did not lead expert evidence in respect of that matter, by reason of the absence of such a claim, and that the issue was raised only in closing written submissions. There is also a complaint that, in effect, the trial judge identified claims for extension of time that had not been specifically identified or tested at the trial.
There is a second ground of appeal relating to whether DCT was entitled to terminate the contract, at general law, in circumstances that the trial judge had found that, if such an entitlement existed, DCT would be entitled to a significant amount for costs to complete on termination.
Mr Wells submits that, if the appeal was allowed on those grounds, that would alter the outcome of the litigation in favour of DCT. DCT has also tendered its notice of appeal (MFI 1) which includes those grounds, and several other grounds, which involve issues of some complexity, and seem to canvass a range of issues that had been raised at the trial.
Mr Douglas-Baker, in written and oral submissions, placed primary weight upon the suggested strength of the grounds of appeal. Mr Stomo, who appears for Champion Homes, contested the relevance of that matter in written submissions, although it has not been necessary to hear him in oral submissions, for reasons that I will subsequently note.
DCT relies upon s 459J(1)(b) of the Corporations Act 2001 (Cth) to seek to set aside the creditor's statutory demand, on the basis that there is some other reason to set aside the demand, for the purposes of that section. Mr Douglas-Baker submits that the appeal is bona fide and has arguable grounds, but also recognises that the usual position, in that case, is that the debt claimed would need to be secured by payment into Court or other means, in order to establish some other reason to set aside the creditor's statutory demand. A submission initially made by DCT that a requirement for payment into court would frustrate the appeal was ultimately not pressed.
It seems to me that there are two difficulties with DCT's submission, so far as it seeks to put that the existence of an appeal, even an appeal which it contends has strong grounds is sufficient to support the application to set aside the creditor's statutory demand without more. The first difficulty is that, in the ordinary course, it would have been open to DCT to seek a stay of the judgment from the Court of Appeal. In that case an appellate court, which would ultimately consider the substance of the appeal, would evaluate the strength of the grounds of the appeal, by reference to the materials necessary to do so. Those materials are not before me. For example, the opening submissions, to which Mr Douglas-Baker referred, were not in evidence, and the transcript was not in evidence. Even if that material had been in evidence, it seems to me that the jurisdiction to consider appeals, and stays of appeals, properly rests in the Court of Appeal. To the extent that DCT sought to agitate the claim that it had strong prospects of appeal, it seems to me that the proper way in which to agitate that claim was to seek a stay from the Court of Appeal and, if such a stay had been granted, that would plainly have been of relevance to the position in respect of the creditor's statutory demand. Mr Douglas-Baker fairly acknowledged in submissions that his client could make no submissions in explanation of why that course had not been taken.
Second, and fundamentally, it seems to me that the scope of s 459J(1)(b) of the Corporations Act does not support an application to set aside a creditor's statutory demand, even on the assumption that there are strong grounds of appeal, without more. There are several reasons for that proposition. 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 will be generally used to counter an attempted subversion of the statutory scheme: see, for example, Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited (1996) 20 ACSR 746; Timberland Property Holdings Pty Limited v Schindler Lifts Australia Pty Limited [2011] NSWSC 466 at [16]. The authorities indicate, as Mr Douglas-Baker has fairly accepted, that a demand would not generally be set aside without payment of the amount of the judgment debt into Court: Cranney Farm Pty Limited v Corowa Fertilizers Pty Limited [2011] NSWSC 9; Timberland Property Holdings Pty Limited v Schindler Lifts Australia Pty Limited above at [26].
The difficulty with the approach adopted by DCT is that, in principle, it is not inconsistent with the structure of Part 5.4 of the Corporations Act for a party that has the benefit of a judgment debt, which has not been stayed by an appellate court, to rely on it for the presumption of insolvency that arises from service of a statutory demand and the failure to make payment in response to that demand. As Ward J recognised in Cranney Farm, the additional factor which is necessary to give rise to an inconsistency with the statutory regime is that the party who has served the statutory demand has been otherwise secured, so that no need for a presumption of insolvency or an earlier relation back date arising from the failure to comply with the demand exists.
There is also a second reason why, as a matter of discretion, it is unlikely that the Court would set aside a creditor's statutory demand, by reason of the existence of an appeal, even an appeal with strong prospects, without such a payment into Court. It is well established that, even if a presumption of insolvency arises from non-compliance with the creditor's statutory demand, the Court may adjourn a winding up application rather than proceed to make a winding up order if an appeal on arguable grounds against the judgment founding the claim for demand is on foot: Adamopoulos v Olympic Airways SA (1990) 95 ALR 525; Handberg v MIG Property Services Pty Limited [2012] VSCA 126; Re Amy Holdings Pty Ltd; Re Land Enviro Corp Pty Limited [2014] NSWSC 1176. There is no need to set aside the statutory demand on the basis of the appeal, where DCT can rely on that matter in seeking to adjourn the winding up application.
In these circumstances, as matters stand today, it seems to me that the application to set aside the creditor's statutory demand would not have succeeded. It does not follow, of course, that Champion Homes would necessarily have been successful in respect of a later winding up application, based on a presumption of insolvency arising from the demand, because of the possibility of adjournment which I noted above.
However, DCT has indicated, in the course of the hearing, that if the Court were against it in respect of its ability to set aside the creditor's statutory demand by reason of the existence of an appeal alone, or the existence of an appeal suggested to have strong prospects alone, then its directors would cause it to pay the relevant amount of the judgment into Court, in respect of the proceedings in the Court of Appeal, within 28 days. Once that payment was made, DCT would be in the territory noted above, that the fact that Champion Homes had been secured would give rise to some other reason to set aside the creditor's statutory demand. It seemed to me that, in the present circumstances, there is little utility in determining the application today, without affording DCT the opportunity to make that payment into Court. In particular, DCT would be exposed to the prejudice of a presumption of insolvency, while deprived of the opportunity to make that payment within a relatively short time, and Champion Homes would gain little from that result, so far as a winding up application based on a presumption of insolvency might later have been adjourned. In the circumstances, it seemed to me preferable, and neither counsel ultimately resisted, an adjournment of this application for a period of a little longer than 28 days, on the basis that DCT will be allowed the opportunity to make that payment into Court.
Whether or not that payment is made is ultimately likely to be determinative of the fate of this application. If it is not made, then the matters which I have noted in this judgment indicate that DCT's application to set aside the creditor's statutory demand would almost inevitably be dismissed, and all arguments that could have been put against that result have been put by Mr Douglas-Baker today. Conversely, if that payment has been made into Court then, as Mr Stomo fairly accepted in the course of submissions, it is very likely that the Court would then set aside the creditor's statutory demand by application of well-established principles. It is therefore highly unlikely that any substantive argument will be required on the next occasion, because it is difficult to see anything that could then be sensibly said, other than that money has either been paid into Court or that it has not, and that the demand should be set aside or not in consequence.
I note that, in the relevant circumstances, it seems to me that, at the least, an order would likely be made that DCT pay Champion's costs of and incidental to the application. That position arises because, as matters stand today, the application would have been dismissed, and the course which I have adopted in allowing DCT a further opportunity to pay moneys into Court is an indulgence to it. I noted, in an exchange with Mr Douglas-Baker, that it was difficult to see that DCT could be in a better position as to costs, because it was granted that indulgence, than if its application had simply been dismissed. Mr Douglas-Baker fairly accepted that DCT did not wish to be heard further as to questions of costs. In those circumstances, subject to hearing from Mr Stomo, who has indicated that he will wish to rely on some correspondence that will be drawn to the Court's attention, it is likely that an order for costs will be made against DCT in respect of the costs of and incidental to this application. I will defer the making of final orders until I have heard from Mr Stomo in respect to the question of costs.
[3]
Costs
Further to the preliminary view which I had expressed as to costs, Mr Stomo has drawn attention to a letter that was sent, without prejudice except as to costs, by Champion Homes' solicitors to DCT's solicitors on 22 July 2015, about 10 days after these proceedings had been initiated.
That letter submitted an offer that, within 28 days, DCT could pay the relevant amount into Court, and pay Champion's Homes costs as agreed or assessed up to the date of the offer, which would then, one might have expected, have been relatively modest. The offer was expressly stated to be based upon the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333. Although the letter did not state, in terms, that Champion Homes would consent to the creditor's statutory demand being set aside, if that offer was accepted, it seems to me that that was the necessary implication of the letter, and that matter could readily have been clarified by a letter from DCT's solicitors seeking to confirm that implication. In the event, DCT's solicitors responded on the same day in a manner that pressed the application to set aside the creditor's statutory demand, without a payment into Court.
Mr Douglas-Baker did not seek to advance further submissions as to that matter. It seems to me that it was unreasonable, within the authorities as to the circumstances in which indemnity costs would be awarded, for DCT not to accept the offer that was made by Champion Homes, having regard to the state of the authorities. In the event, Champion Homes has secured the same result, by the outcome of these proceedings, as it would have secured had that offer been accepted, and in circumstances that that result is itself an indulgence to DCT, not the result to which it was entitled as a matter of right. In these circumstances, it seems to me that DCT should be ordered to pay Champion Homes' costs on an indemnity basis, albeit not from the date of the letter, but from the period of seven days after the date of the letter, being a reasonable time that should be permitted for DCT's consideration of the offer made in it.
Accordingly I note the following undertaking, and make the following orders:
Note the undertaking of the Plaintiff, DCT Projects Pty Limited, that it will pay into Court in the appeal proceedings, 2015/178979 within 28 days, the amount of $119,117.95, being the amount of the judgment against it.
Order that DCT Projects Pty Ltd pay the costs of this application, on an ordinary basis up to and including 29 July 2015, and from that date to today on an indemnity basis, as assessed or as agreed.
Stand over the proceedings to 9.30am on 13 October 2015 before Black J, to make final orders disposing of the proceedings, with liberty to the parties to submit consent orders to Black J in Chambers, if such orders can be agreed between them.
[4]
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Decision last updated: 13 November 2015