Appellant v Respondent

1 The question for determination is whether the period for compliance with a statutory demand that the respondent ("BM2008") served on the appellant ("PFL") has expired. If the period for compliance with the statutory demand has not expired, an appeal lodged by PFL against the orders of Efthim AsJ made 12 July 2010 on an application by PFL under ss 459G and 459J of the Corporations Act 2001 (Cth) ("the Act') to set aside the statutory demand will have utility. BM2008, however, contends that the time for compliance has expired and that appeal is redundant and must be dismissed.

2 BM2008 served the statutory demand on PFL on 22 December 2009, requiring payment of a judgment debt in the amount of $2,577,072.49. Within the 21 day period from service PFL applied under ss 459G and 459J of the Act to set aside the statutory demand.[1] In consequence, the period for compliance with the statutory demand was extended by operation of s 459F(2)(ii) of the Act to end 7 days after the application to set aside was "finally determined or otherwise disposed of".[2] Efthim AsJ heard the application on 27 April and 3 June 2010 and delivered judgment on 12 July 2010. His Honour held that PFL had an offsetting claim against BM2008 in the sum of $628,555.95. The orders made by Efthim AsJ that day on the Court record are:

1. The demand be varied to claim $1,948,516.54.
2. Declare the demand to have had effect as so varied from when the demand was served on the company.
3. The period for compliance with the demand is extended to 2 August 2010.
4. The Plaintiff pay 70% of the Defendant's costs.

3 On 16 July 2010, PFL lodged an appeal against those orders. The appeal came before the Court for directions on 23 July 2010 when it was ordered that the appeal would be heard on a date to be fixed. In due course the appeal was listed for hearing on 25 August 2010.

4 On 24 August 2010, BM2008 filed a written outline of submissions. In the outline, it was submitted that the period for compliance with the demand, as extended by Efthim AsJ, had expired on 2 August 2010 without PFL either complying with the demand as varied or applying for a further extension of time. It was submitted there is now no power in the Court to extend the time for compliance. This submission was based on Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation[3] in which the High Court held that an order cannot be made extending the time for compliance with a statutory demand after the period for compliance has expired. The plurality said:

[24] An order made after the time for compliance had expired, but which sought to extend the period for compliance, would not, in its terms, alter the fact that a failure to comply with the demand had then occurred. But that conclusion depends upon identifying that there was a failure to comply. Whether there has been a failure depends upon identifying the end of the period of compliance and the period of compliance is to be fixed in accordance with s 459F(2). The appellant's argument that an order extending the time for compliance with a statutory demand can be made after the period has expired can find no textual footing in s 459F(2). Although s 459F(2)(a)(i) refers to "the last such order" extending the time for compliance with a statutory demand, that cannot include an order made after the period has expired.

[25] To read "the last such order" as including an order made after the period for compliance has expired would focus attention upon the state of affairs at either the date of commencement of the winding up application or the date of the hearing of that application. But s 459C neither requires nor permits that focus. It directs attention to what has happened at any time during a period, not upon a state of affairs at either of the particular times just nominated (commencement or hearing of the winding up application).

[26] Further, it is of fundamental importance to recognise that the provisions which are now in question do no more than create a presumption about the ultimate issue that arises in an application to wind up in insolvency: is the company insolvent? Denying the power of a Court to extend time for compliance with a statutory demand after the time has already expired determines no right or liability of the company or of the party that has made the demand. And contrary to much of the argument advanced in this case on the appellant's behalf, denying the power to extend time after its expiry does not cut down the utility, or impede the exercise, of rights of appeal. The principles governing orders preserving the utility of the exercise of rights of appeal are well established. If there is a right of appeal and those principles are engaged, orders will be made to preserve the subject matter of the appeal. Thus if, as in the present case, the appellant had an appeal as of right from the orders of the Master who heard the matter at first instance it was open to the appellant to seek orders preserving the utility of that right.[4] (references omitted)

Accordingly, the appeal in the present case is nugatory if the consequence provided for by s 459F(1) of the Act has already attached. Section 459C(2) of the Act will have operated to require the Court to presume, in any application to wind up PFL, that PFL is insolvent. That presumption is rebuttable,[5] but the Court has no power after the time for compliance with the statutory demand has expired to extend that time to avoid the rebuttable presumption applying to PFL.

5 At the commencement of the appeal on 25 August 2010, Senior Counsel for PFL asked for the matter to be stood over to enable "clarification" of the order of Efthim AsJ with respect to extending the time for compliance. The Court was informed that PFL had understood that Efthim AsJ had made an order in the following terms:

The time for compliance with the varied demand is extended by 21 days and in the event that an appeal is lodged, until the hearing and determination of that appeal.

BM2008 disputed that an order was made in terms extending time until the hearing and determination of any appeal, in the event that an appeal was lodged. Certainly the Court record did not accord with PFL's understanding but those orders had not been authenticated, despite requests for authentication having been made on 12 July 2010. The actual terms of the orders that were made are thus critical as, by operation of the Act, PFL is already taken to have failed to comply with the demand, if the time for compliance with the demand expired on 2 August 2010. Accordingly PFL was given the indulgence of a short adjournment.

6 On 26 August 2010, the parties again appeared before Efthim AsJ. The Court record of the appearance is that His Honour made orders that day in the following terms:

1. The demand be varied to claim $1,948,516.54.
2. Declare the demand to have had effect as so varied from when the demand was served on the company.
3. The period for compliance with the demand is extended to 4.00 pm on 27 August.
4. The Plaintiff pay 70% of the Defendant's costs.
5. The Plaintiff pay the costs of this day.

The order of 12 July 2010 was not authenticated and was recalled. It was the intention of the Court when the order was made that the Plaintiff have right (sic). The Court is of the view that it would be unfair for the Plaintiff to lose that when it appears that a contributing factor was the non-authentication of the order and a misunderstanding by the Plaintiff of the order of 12 July 2010. The Court did not require affidavits to be filed this day as the Court was of the view that they were not necessary.

7 There is no mention of the power that His Honour exercised in "recalling" the 12 July 2010 orders or, specifically, in extending the time for compliance with the demand to 27 August 2010.

8 Shortly afterwards the appeal came back on for hearing before this Court. On the basis of the order of Efthim AsJ made on 26 August 2010, Senior Counsel for PFL submitted that the time for compliance had not expired as the time had been extended to 27 August 2010 and thus that the appeal was not nugatory. Following argument about whether Efthim AsJ had the power to extend the time for compliance and about whether His Honour's order of 26 August 2010 was effective, Senior Counsel for PFL sought another short adjournment to put evidence before the Court and submissions in support of his contention that the order of Efthim AsJ on 26 August 2010 was effective. A short adjournment was granted. An order was made extending time for compliance with the statutory demand until 4:00pm on 1 September 2010[6] so as to preserve PFL's rights in the event that Efthim AsJ's order was found to be effective. It follows that the efficacy of this order and any further order extending time depends on whether Efthim AsJ's order on 26 August 2010 was effective.[7]

9 PFL filed an affidavit of David Arthur Rewell, solicitor for PFL, sworn on 27 August 2010. Mr Rewell deposed that the following exchange occurred between Senior Counsel for PFL and Efthim AsJ on 12 July 2010:

5. Mr Denton, S.C. responded that the Plaintiffs were most likely to appeal to which His Honour said he had anticipated that without any criticism of any party. His Honour then asked Mr Denton how long the plaintiffs were asking within in which to comply with the demand as varied. Mr Harrison, counsel for the Defendant interposed that it was possible that the Plaintiffs would choose not to appeal. Mr Denton requested the court to extend time to the hearing and determination of the substantive dispute in the Federal Court proceeding in Western Australia. Mr Denton resumed his seat.

6. Mr Harrison addressed the court and stated that there should be no extension of time for compliance at all and that the Plaintiff's application to make amendments to the Statement of Claim in WAD229/2008 was listed for hearing on 20 August 2010 and that that proceeding would determine the level of the cross-claim. He stated that there was some ambiguity surrounding the hearing on 20 August 2010 and that it had been put off a few times. Mr Harrison resumed his seat.

7. His Honour then decided to refuse the application to extend time for compliance with the demand until the hearing and determination of the Federal Court proceeding in Perth and instead stated that as the Plaintiff was to appeal this decision that once the appeal was lodged then time for compliance would (sic) with the statutory demand would be extended to the hearing and determination of the appeal. He then addressed Mr Harrison directly and asked him whether "Mr Harrison do you take any issue with that?" to which Mr Harrison stated "we do not Your Honour". His Honour did not address Mr Denton on the matter of the time for compliance with the varied demand again.

8. His Honour then said that he would grant an extension of 21 days which was the maximum extension he had ever granted anyone because that would give the Plaintiff enough time to get the appeal underway and it would take that long anyway to get together the amount of money required by the demand as varied if it was decided not to appeal.

10 Senior counsel for PFL did not rely on this evidence for the purpose of establishing that Efthim AsJ had ordered on 12 July 2010 that the period for time for compliance was extended to the hearing and determination of the appeal, in the event that an appeal was lodged. Rather, Senior Counsel for PFL said that evidence was relied on to show that it was plainly intended that Efthim AsJ, on 12 July 2010, extended time for compliance so that PFL could appeal.

11 Senior counsel for PFL submitted that Efthim AsJ had the power on 26 August 2010 to extend time for compliance to 27 August 2010.

12 First it was argued that there are, and never were, orders of 12 July 2010 because Efthim AsJ recalled those orders before they were authenticated.

13 Next it was submitted that the relevant order for the purposes of s 459F(2)(a) of the Act[8] is the authenticated order of Efthim AsJ made on 26 August 2010, being the "last such order". In consequence there was no need for the Court to consider whether an order extending time to the hearing and determination of an appeal, if any, was made or not on 12 July 2010.

14 Next it was submitted, in the alternative, that the authenticated 26 August 2010 orders "finally determined" the application to set aside the statutory demand for the purposes of s 459F(2)(a)(ii) of the Act. It was argued that the period was extended under and by operation of s 459F(2)(a)(ii) of the Act by reason of the authenticated 26 August 2010 order. This submission was based on the proposition that the 12 July 2010 orders had provisional effect only because they had not been authenticated.

15 I have concluded that Efthim AsJ did not have the power on 26 August 2010 to extend time for compliance to 27 August 2010 and that the order is ineffective.

16 The proposition that the Court has the power to recall orders that have not been authenticated must be accepted. There is a long and clear line of authority to that effect.[9] However, the question is whether the recall brings about the result that the relevant order for the purposes of s 459F(2)(a) is the 26 August 2010 order. In my view it does not.

17 First, the order extending time made on 12 July 2010 was, when made, binding on the parties and effective as at that date. Authentication of that order was not necessary for the order to take effect.[10] That order remained effective as at 2 August 2010 when the time for compliance expired.

18 Secondly, on expiry of the time for compliance without the demand being complied with, certain statutory consequences attached. PFL, by operation of the Act, was taken to fail to comply with the demand[11] and presumed to be insolvent for the purposes of an application to wind up the company in insolvency.[12]

19 Thirdly, those statutory consequences occurred before the recall of the 12 July 2010 orders. In other words, by 26 August 2010, the time for compliance pursuant to the 12 July 2010 order had expired and PFL had failed (as defined by s 459F of the Act) to comply with the statutory demand. In my view, the statutory consequences could not be overcome retrospectively by the recall of the 12 July 2010 orders. Such consequences had attached already. The recall could not, in my view, undo those statutory consequences.[13]

20 Fourthly by 26 August 2010 it was too late to extend time. It is now settled law following the High Court decision in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation[14] that a Court has no power to extend time for compliance with a statutory demand once the time has expired.[15] The High Court in the plurality judgment expressly rejected the contention that "the last order" extending the time for compliance with a statutory demand includes an order after the period has expired.[16] As the plurality stated:

[Section 459C] directs attention to what has happened at any time during a period.[17]

The time expired on 2 August 2010. The recall on 26 August 2010 did not alter that fact. In the circumstance, there was no power capable of exercise to extend time for compliance after the time had expired.

21 Next, I reject the submission that the authenticated 26 August 2010 orders, not the unauthenticated 12 July 2010 orders, "finally determined" the application to set aside the statutory demand for the purposes of s 459F(2)(a)(ii) of the Act. In my view the application was "finally determined" on delivery of the judgment of Efthim AsJ and the orders made that same day which took effect from that date and bound the parties from the moment they were given.[18] The fact that those orders were capable of reconsideration and alteration until authenticated does not carry with it the consequence the application was not "finally determined". The sense in which the authorities have described an unauthenticated order as effective provisionally is that there is power in the Court to reconsider such an order.[19] However, as the authorities also recognise, it does not follow that a judgment or order during that period does not have effect.[20] An unauthenticated order is final, binding and effective unless it is withdrawn or amended. In this case, there was nothing provisional about Efthim AsJ's determination of the application to set aside the demand or the orders that were made accordingly on 12 July 2010.

22 For the above reasons, I have concluded that the period for compliance expired on 2 August 2010 and that the order made by Efthim AsJ on 26 August 2010 extending the time for compliance to 27 August 2010 was ineffective. It is unnecessary in the circumstances to consider BM2008's submissions that the 26 August 2010 orders extending time was an improper exercise of power and I express no view on this submission.

[1] Corporations Act 2001 (Cth) s 459G(3).

[2] Corporations Act 2001 (Cth) s 459F(2)(a)(ii).

[3] [2008] HCA 9; (2008) 232 CLR 314.

[5] Corporations Act 2001 (Cth) s 459C(3).

[6] The time was further extended on 1 September 2010 to 4:00pm on 2 September 2010

[7] Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation [2008] HCA 9; (2008) 232 CLR 314.

[8] Corporations Act 2001 (Cth) s 459F(2)(a)

(2) The period for compliance with a statutory demand is:

(a) if the company applies in accordance with section 459G for an order setting aside the demand:

(i) if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand - the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or

(ii) otherwise - the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or

[9] Re St Nazaire Co (1879) 12 Ch D 88, 91; Re Suffield & Watts; Ex parte Brown (1888) 20 QBD 693, 697, 698; Re Crown Bank (1890) 44 Ch D 634; Re Spencer (deeased) [1892] VicLawRp 51; (1892) 18 VLR 280; Shepherd v Robinson [1919] 1 KB 474; Millensted v Grosvenor House (Park Lane) Limited [1937] 1 KB 717; Texas Co (Austalasia) Limited v Federal Commissioner of Taxation [1940] HCA 9; (1940) 63 CLR 382, 457; Harvey v Phillips [1956] HCA 27; (1956) 95 CLR 235, 242; Arnett v Holloway [1960] VicRp 6; [1960] VR 22, 28 - 29; Carroll v Price [1960] VicRp 101; [1960] VR 651, 657 - 658; Permanent Trustee Co (Canberra) Ltd (Executor estate of Andrews) v Stocks & Holdings (Canberra) Pty Ltd (1976) 15 ACTR 45, 47 - 48; R v Billington [1980] VicRp 58; [1980] VR 625, 628; R v Cripps; Ex parte Muldoon [1984] 2 All ER 705; Norman v Norman (1992) 6 WAR 372; Hoad v Nationwide News Pty Ltd (1997) 37 IPR 407; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 2) [1998] NSWSC 578; (1998) 29 ACSR 290, 293.

[10] Supreme Court (General Civil Procedure) Rules 2005 r 59.02(1).

[11] Corporations Act 2001 (Cth) s 459F(1).

[12] Corporations Act 2001 (Cth) s 459C(2)(a).

[13] John Tarrant_, Amending Final Judgments and Orders_ (2010) 193-201.

[14] [2008] HCA 9; (2008) 232 CLR 314.

[18] Supreme Court (General Civil Procedure) Rules 2005 r 59.02(1).

[19] Church of the New faith Inc v Bower & Australian Broadcasting Commission (No 2) (1979) 21 SASR 161; Cavanaugh v Bank of New Zealand (1990) 22 FCR 124.

[20] Holtby v Hodgson (1889) 24 QBD 103; Cavanaugh v Bank of New Zealand (1990) 22 FCR 124.