- Ahern v Deputy Commissioner of Taxation

Judgment 1By application filed on 26 July 2013, Mio Amico Pty Limited ("Company") seeks an order setting aside a creditor's statutory demand dated 1 July 2013 and served on 7 July 2013 by the Australia and New Zealand Banking Group Limited ("Bank") and an order under s 459F(2)(a)(i) of the Corporations Act 2001 (Cth) extending the time for compliance with the creditor's statutory demand until 21 days after the determination of "the Court of Appeal proceedings". I note, at this point, that the "Court of Appeal proceedings" to which reference is made in that application do not currently exist. The creditor's statutory demand claims the amount of $3,297,798.67 being the amount of a judgment obtained by the Bank in its favour in the Supreme Court of New South Wales on 13 June 2013 ("Common Law judgment"). 2The application to set aside the creditor's statutory demand is supported by an affidavit of Mr Ollie Italiano Olivieri dated 26 July 2013. In summary, Mr Olivieri gives evidence of medical conditions from which he is suffering and that, on 3 June 2013, he applied for an adjournment of the hearing date of the earlier proceedings in the Possession List of the Court ("Common Law proceedings") and that application was unsuccessful. He gives evidence that the Common Law proceedings were determined in his absence. He also gives evidence, in conclusory form, that his health problems prevented him organising appropriate legal representation and that the Company had been unrepresented in the Common Law proceedings since mid 2012. The latter statement plainly requires qualification, since it appears that the Company was in fact represented at least when it unsuccessfully sought an adjournment of the Common Law proceedings. 3Mr Olivieri refers to a cross-claim against the Bank in the Common Law proceedings and to an expert report of Mr John Sawley dated 30 June 2011, which is not in evidence in the application before me, which, Mr Olivieri says, stated the Company's loss was between $3.7 million and $4.9 million, which was the subject of its cross-claim in the Common Law proceedings and which is an amount greater than the judgment against it in the Common Law proceedings. 4Mr Olivieri gives evidence that, on the day after the Company was served with the creditor's statutory demand by the Bank, it filed and served a notice of intention to appeal from the Common Law judgment. Mr Olivieri gives evidence, without further explanation, that he believes there are prospects of success in the appeal and gives evidence that his step son is providing a loan to file the appeal proceedings in early August 2013. It is unclear from that evidence whether it was the loan that was to be provided or the appeal which was to be filed by early August 2013; there is no evidence before me that the former has taken place, and it was common ground that the latter has not yet taken place. Mr Olivieri also gives evidence that, if the creditor's statutory demand is not set aside, there would be hardship to the Company since it would be placed in liquidation and would be unable to appeal the Common Law judgment. For reasons that I will explain below, that apprehension is not necessarily well founded. 5The basis of the application to set aside the creditor's statutory demand served by the Bank was identified in detailed submissions by Mr Sahade, who appears for the Company, to which I will refer below, but in summary relates to the filing of the notice of intention to appeal and to the proposed appeal from the Common Law judgment, so far as it dismissed the cross-claim. 6I should first address a preliminary issue. The Bank contends that the Company's claim to set aside the creditor's statutory demand on the basis of its proposed appeal is not open to it, by reason of the principle in Graywinter Properties v Gas and Fuel Corp Superannuation Fund (1996) 70 FCR 452; (1996) 21 ACSR 581 at 587. That principle has effect that, before a ground of opposition may be relied upon to set aside a creditor's statutory demand, it must be identified expressly or by reasonably available inference in the affidavit supporting the application to set aside the demand filed within the 21 day period specified in the s 459G of the Corporations Act: Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [27]ff. 7Mr Sahade in turn draws attention to the decision of Brereton J in Re Saracen Holdings Pty Ltd [2013] NSWSC 1083, where his Honour held that a reference in an affidavit to an application to set aside a default judgment was sufficient to raise, by implication, an appeal from that application when it was unsuccessful. In the present case, Mr Olivieri's affidavit filed within the 21 day period refers expressly to the filing and service of a notice of intention to appeal, although it gives no hint of the grounds of the foreshadowed appeal. It seems to me that affidavit is sufficiently wide to identify that the foreshadowed appeal was the basis of the application to set aside the creditor's statutory demand, although the grounds of that appeal would then have to be elaborated by further evidence or, as has occurred, by submissions. So long as a ground is identified expressly or by implication within the 21 day period, then it can be elaborated by further material outside that period. I would, on balance, find that Mr Olivieri's affidavit sufficiently raised the proposed appeal as the basis of the application to set aside the creditor's statutory demand to permit that proposed appeal to be relied upon in the application before me. 8Mr Sahade accepted, as the authorities plainly required, that there was no basis for the Company to contend that the judgment debt was genuinely disputed or that it had an offsetting claim for the purposes of s 459H of the Corporations Act, where the judgment debt had not been stayed and its cross-claim had been dismissed in the Common Law proceedings. The Company instead relies on s 459J(1)(b) of the Corporations Act, which permits the Court to set aside a creditor's statutory demand if it is satisfied that, inter alia, there is some other reason that the demand should be set aside, and contends that its proposed appeal provides some other reasons to set aside the creditors' statutory demand. 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 notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; Timberland Property Holdings Pty Ltd v Schindler Lifts (Australia) Pty Ltd [2011] NSWSC 466; Re Land Enviro Corp Pty Ltd [2013] NSWSC 731 at [12]. 9Where an application under this section relies on an appeal from a judgment in favour of the creditor, that appeal will not generally constitute some other reason to set aside a creditor's statutory demand in the absence of a stay of that judgment, but such reason may exist if the amount of the judgment is paid into Court: Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd above at [26]. The absence of a stay is not, however, relevant in respect of an appeal against a dismissal of a cross-claim, because a stay is not available in that situation. As Mr Sahade points out, the question in that situation is that formulated by Emmett J in Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; (1998) 84 FCR 454, where his Honour observed that: "One circumstance where it may be unjust for a demand to stand, in my opinion, is where there is a judgment or order which precludes a contention that there is a genuine dispute or an offsetting claim but there is on foot a bona fide appeal from that judgment or order. In those circumstances, the Court may, if justice requires, and subject to the possibility of imposing conditions as contemplated by s 459M, set aside a demand which is based on the judgment or order which is subject to an appeal or in respect of which, if an appeal succeeds there would be an off setting claim." 10In Ryledar Pty Ltd v Euphoric Pty Ltd [2006] NSWSC 1288, Associate Justice Macready was similarly satisfied that a creditor's statutory demand should be set aside where an appeal against dismissal of a cross-claim was well advanced and a hearing date for that appeal was to occur in the near future. 11I should note that there is an open question as to the present standing of the principle in Eumina Investments, to which counsel did not refer in submissions. In Food Channel Network Pty Ltd v Television Food Network GP [2010] FCA 403 at [18]; (2010) 184 FCR 1, Logan J questioned whether reliance could continue to be placed on that principle, following the decision of the High Court of Australia in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473. In Collendina Pty Ltd v ClarkeKann (NSW) Pty Ltd (No 2) [2010] FCA 949, Jacobson J noted that issue but found it unnecessary to decide it in the particular case, where no appeal was then on foot. In Remote Camps Australia v Hazeldine Pty Ltd [2012] FCA 130 at [32], Barker J assumed, without deciding, that the principle in Eumina continued to be good law. I would be inclined to the view that the decision of the High Court of Australia in Broadbeach is directed to the particular statutory and policy context of statutory demands served by the Commissioner of Taxation and does not question the application of the principal in Eumina in other contexts. However, for reasons that will emerge below, it is not necessary for me to express a final view as to that issue. 12Mr Sahade acknowledges in submissions that the Company has filed only a notice of intention to appeal from the Common Law judgment by which the cross-claim was dismissed, but contends that the Company has grounds for an appeal from the Common Law judgment which is to be pursued. In written submissions Mr Sahade identified those grounds as a denial of procedural fairness and apprehended bias. In oral separations, Mr Sahade made clear that the Company relied on the latter, namely apprehended bias, rather than the former. Mr Sahade submitted that the reasons delivered by the Judge who heard the Common Law proceedings for refusing an adjournment application by the Company and Mr Olivieri, would have lead a fair minded observer to conclude that he might not have brought an impartial mind to bear to the resolution of the substantive matters determined in the Common Law judgment. 13Mr Sahade refers to the test of apprehended bias articulated by the High Court in Ebnar v Official Trustee in Bankruptcy [2000] HCA 63; (2001) CLR 337 at [6], where the plurality of the High Court emphasised that a judge is disqualified if a fair minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide. Their Honours also emphasised that that question was one of real and not remote possibility, not probability, and that it did not depend on what matters in fact actually influenced the judge. 14Mr Sahade refers to an observation in the Common Law judgment that Mr Olivieri had alleged to his solicitor that his signature had been forged on documents, and that an allegation of forgery made, not in an affidavit, some three years after the proceedings were commenced and in other specified circumstances caused the judge "to have some suspicions about the Defendants' motives in seeking the present adjournment". Mr Sahade accepts that such an observation was fairly open to the Judge, but contends that, once made, a fair minded observer might have apprehended that he had formed a view that Mr Olivieri, who was the Company's sole director, had lied to his solicitor in asserting a forgery. Mr Sahade contends that such a view, formed at the point the adjournment application was decided but recorded in the judgment delivered in respect of the substantive issues, was logically connected with the Judge's observations as to matters communicated by Mr Olivieri to officers of the Bank and recorded in their file notes, which were relevant to the determination of thee substantive issues in the proceedings. I note, without it being necessary for me to decide, that that submission seems to me to be questionable, because the Judge was not in fact referring to any question of the accuracy of what Mr Olivieri had said to the Bank's officers, but instead to the significance of other matters that he had not said. 15Mr Sahade also identifies a second suggested source of apprehended bias, namely a view expressed by the Judge that there was "reasonably compelling evidence" that the Company and Mr Olivieri could not meet any costs order made against them if an adjournment was granted. Mr Sahade submits that, where a costs order was ordinarily payable at the conclusion of the proceedings, a fair minded lay observer might form the view that the judge had already formed a view as to the merits of the cross-claim, namely that it was doomed to be dismissed so its proceeds would not be available to meet a costs order. More obvious explanations for that observation are, of course, that the Judge was addressing the ability of the Company and Mr Olivieri to pay costs at that point in time (where the Court has the power to make orders that costs be payable forthwith) or was addressing that question, perfectly sensibly, without regard to the prospective results of a cross-claim that was yet to be determined. 16Mr Warwick, solicitor, who appears for the Bank, contends that the matters on which the Company relies do not support the setting aside of the creditor's statutory demand, or alternatively that demand should only be set aside on condition that the Company pay into Court an amount sufficient to cover the judgment in favour of the Bank. Mr Sahade in turn makes clear that there is no utility in the Court imposing such a condition, since the Company could not comply with it, so the question is therefore whether the demand should be set aside unconditionally (or subject only to a condition as to the filing and pursuit of an appeal) or not at all. The Bank also contends that a notice of intention to appeal is not sufficient to give rise to the application to the principle in Eumina, which was, it contends, directed to the position where a bona fide appeal is on foot, and also contends that there is no basis for the suggestion of apprehended bias in respect of the Common Law judgment. 17I have set out the submissions made by the parties in respect of apprehended bias at some length, in deference to the extent of argument as to those matters before me. I do not consider that it is necessary for me to assess the prospects of that argument for reasons that will emerge below and it is preferable that I do not do so where it is not necessary to do so and that issue will have to be determined by the Court of Appeal if an appeal is ultimately brought by the Company. 18I am comfortably satisfied that some other reason to set aside the creditor's statutory demand is not established, on a rather narrower basis, for several reasons. 19First, if an appeal was successful, its outcome would, in practical terms, only be that the Court of Appeal would itself determine the Company's cross-claim or, more likely, would remit the cross-claim to another judge for determination. The Company made no serious attempt to establish its prospects of success in the cross-claim, if that occurred, still less that it had any real prospect of recovering damages in that cross-claim in excess of the judgment in favour of the Bank of $3,297,798.67 which, as I noted above, has not been stayed. The Company tendered the First Cross-Claim Statement of Cross-Claim in evidence in the application before me, but Mr Olivieri gave no evidence in his affidavit to seek to support the matters alleged in it. Mr Olivieri's affidavit also referred, as I noted above, to an expert report of Mr Sawley which "stated that the [Company's] economic loss is between $3.7 million and $4.9 million, which is greater than the judgment amount in the Supreme Court proceedings". However, that report was not tendered in this application; the assumptions made by Mr Sawley were not identified; and no evidence was lead by Mr Olivieri to support them, whatever they were. 20Whatever the prospects of an appeal from the Common Law judgment, it seems to me that Company has not established that, if that appeal were successful, the cross-claim itself is seriously arguable so as to give rise to any realistic prospect of recovery in an amount exceeding the debt. The position here is quite different to an appeal which, if successful, would deliver judgment in a money amount in the Company's favour, where the proposed appeal is here merely anterior to an opportunity for determination of the Company's cross-claim, and any money recovery depends on the prospects of cross-claim which were not sought to be established by the Company. The position is also quite different from that in Ryledar, where Associate Justice Macready observed at [35] that each of the alternative outcomes of success on the appeal would exceed the amount of the demand. There is no basis for making such an assumption in this case. 21Second, by contrast with Eumina and Ryledar, the appeal had not been commenced at the time the application to set aside the demand is determined. It is not necessary for me to determine the Bank's submission that the principles identified in those cases cannot apply in this situation; even if they do apply, the fact that the appeal has not been commenced is plainly relevant to the determination where whether some other reason exists to set aside the demand. No appeal has been brought in over two months since the entry of judgment, notwithstanding Mr Olivieri's evidence that his stepson was providing him a loan "to file appeal proceedings in early August 2013". As I noted above, there is no evidence that that loan has been provided, and the appeal has not in fact been commenced. 22Mr Sahade submits that the Court could make an order setting aside the demand, subject to a condition that the appeal be pursued. I do not consider that I could properly impose that condition. Mr Olivieri's evidence makes clear that he has medical conditions, which, he says, meant that he was unable properly to prepare the case at first instance or organise legal representation at first instance and which could well have the same result on appeal. Second, his ability to conduct the appeal also depends on a loan from his stepson which was to be made to allow the appeal to be commenced in early August, but either or both of those steps have not now occurred by the end of August. Third, the Court should be reluctant to take a step which would require the Company to commence the appeal, success in which would only permit the cross-claim to be pursued, where the evidence as to the prospects of the ultimate cross-claim has the difficulties that I have noted above. Fourth, there is no obvious mechanism to address the detriment to the Bank, including the deferral of the relation back date, if the demand is now set aside subject to that condition but the Company cannot or does not comply with that condition. 23Finally, it seems to me that the concern identified in Mr Olivieri's affidavit that a refusal to set aside the creditor's statutory demand would have the result that the Company will go into liquidation and would be unable to appeal the Supreme Court proceedings, and that he would be adversely affected as a guarantor of the Company's liability, is not necessarily well founded. Even if a presumption of insolvency arises, the Court may adjourn a winding up application rather than proceed to make a winding order if an appeal on arguable grounds against the judgment founding the claimed insolvency is on foot: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137; Handberg v MIG Property Services Pty Ltd [2012] VSCA 126; Re Land Enviro Corp above at [15]. It seems to me that the same principle would be applicable in respect of the Company's suggested cross-claim, if an appeal is in fact brought, its prospects are established and the prospects of the cross-claim are also established, prior to any application made by the Bank to wind up the Company relying on a presumption of insolvency arising from its failure to satisfy the creditor's statutory demand. 24For these reasons, I am satisfied that the application to set aside the creditor's statutory demand should be dismissed. In the ordinary course, costs will follow the event. 25I have heard the parties in respect of costs. Mr Muir, who appeared for the Company, made no submission in opposition to an order for costs against it. In these circumstances, I also order that the Company pay the Bank's costs of the application, as agreed or as assessed.