Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd [2004] NSWSC 877 | Case summary

1 In the present proceedings, 2021/04, Master Macready made an order on 10 September 2004 that a statutory demand served by the defendant on the plaintiff on 26 February 2004 be varied by reducing the amount of the demand from $242,312.21 to $158,051.21. This order was made under s.459H(4) of the Corporations Act 2001 (Cth) in consequence of a finding that offsetting claims existed as to $84,261. The offsetting claims were advanced under seven headings set out at paragraph 14 of the Master's judgment. Some, but not all, of the offsetting claims were found to have been established. 2 The plaintiff has now taken steps to appeal from the Master's decision. The contention upon appeal will be that others of the alleged offsetting claims should also have been found to be established. A notice of appeal was filed in the Equity Division on 17 September 2004 but a substituted notice of appeal was today filed in the Court of Appeal on the view that Part 60 rule 17(k) of the Supreme Court Rules, as it has stood since 27 August 2004, causes the particular appeal to lie to the Court of Appeal rather than to the court constituted by a judge. Part 60 rule 17(k) in its new and current form refers to the case: "where the decision of the master is a final decision other than: (i) a decision on an application for a summary judgment, or (ii) a decision on an application for a summary dismissal of proceedings." 3 Having regard to the terms of s.459H of the Corporations Act and the nature of an order under that section, I am satisfied that I am dealing here with what Part 60 rule 17(k) calls "a final decision" which, of course, is not within either of the excluded descriptions in subparagraphs (1) and (ii). 4 By an interlocutory process (styled notice of motion) filed on 17 September 2004, the plaintiff sought an order under s.459F(2)(a)(i) extending the time for compliance with the statutory demand until seven days after judgment is delivered on the appeal. Although at the time the interlocutory process was filed the only appeal on foot was that initiated by the notice of appeal filed on 17 September 2004, the application was argued before me on the basis that the appeal referred to should be understood to be the appeal to the Court of Appeal initiated by the notice of appeal filed today. As an interim measure, Windeyer J made an order on 17 September 2004 extending the period for compliance with the statutory demand up to and including today. 5 It is not, I think, contentious that there are three matters to be addressed upon the present application: first, the general question of the prospects of success in the appeal and whether an arguable case has been shown; second, whether the appeal will be rendered nugatory unless the extension is granted; and third, as to the prejudice the respective parties will suffer in the alternative eventualities. Indeed, the application before me should, I think, be approached by close analogy with the case where a stay of execution is sought pending appeal. In that connection I refer to what was said by the Court of Appeal in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737 at paragraph 18: "Thus the relevant principles are analogous to those which govern the grant of interlocutory relief before trial to protect the status quo. The appellant must show that the appeal raises serious issues for the determination of the appellate court, and that there is a real risk that he will suffer prejudice or damage, if a stay is not granted, which will not be redressed by a successful appeal. This requirement will be satisfied if the appeal will be rendered abortive or nugatory unless a stay is granted. If these pre-conditions are established the Court will then consider the balance of convenience." 6 The relevant inquiry must, of course, be made in context. The present dispute is not about whether the plaintiff should be wound up, nor is it as to the amount the plaintiff owes the defendant. Indeed, the plaintiff does not say that there is any dispute as to the existence or amount of the debt of $242,312.21 claimed in the statutory demand. Rather, its original contention was that it had offsetting claims that exceeded that sum by about $1,300, that being something that was relevant to the application of the statutory formula under s.459H. That absolute proposition is no longer pressed as the plaintiff now does not assert an offsetting claim in respect of "Labels for Bay Hill" amounting to $8,750. As a result, the plaintiff accepts that the statutory demand will eventually stand as a demand for some amount of money, albeit a sum very substantially less than the $158,051.21 emerging from the Master's decision, assuming that the plaintiff is successful in all its contentions. 7 The appeal is thus about the sum that the plaintiff is required to pay in order to forestall the creation of a presumption of insolvency on which a winding up application may be based. As things now stand, and assuming the order sought is not made, a presumption of insolvency will arise after the end of today unless, in the meantime, the plaintiff pays $158,051.21 to the defendant. 8 The major item with which the plaintiff will take issue on appeal is the alleged offsetting claim for "Cranswick stock" in the sum of $114,312. That claim arises from an alleged agreement arising from correspondence and conversations set out at paragraphs 6 and following of the Master's judgment. The existence and terms of any such agreement depend upon the evidence and analysis of the correspondence and conversations. Bearing in mind that the question is not as to the definitive effect of any such agreement but rather whether sufficient can be seen to conclude that a genuine claim exists, I am satisfied, having regard to the relevant parts of the Master's decision and the evidence to which he refers, that it is at least arguable that, upon an appeal by way of re-hearing, the plaintiff's contentions on this point should carry the day. 9 The next aspect concerns $8,085 for "Storage". That claim was said by the Master to arise, if it arose at all, wholly from the conversation referred to at paragraph 22 of his judgment. He held that it did not so arise. The plaintiff says, however, that the claim is also capable of being grounded, in relation to some stock but perhaps not all, in conversations referred to in paragraphs 9 and 10 of the judgment. That contention has a sufficient degree of cogency to be regarded as arguable on appeal. 10 The third aspect to be dealt with is the supposed claim for $7,244 for the "Primo Promotion Deal". An appeal in respect of that is contemplated on the basis that the Master did not deal with it at all. On the face of the judgment, that appears to be so. 11 I am of the opinion that the appeal initiated by the plaintiff is of a sufficiently arguable quality, on a prima facie basis, to warrant consideration of the other matters relevant to s.459F(2)(a)(i) extension by application of the analogy with a stay pending appeal. 12 The first of these involves the question whether the appeal will be rendered nugatory unless the extension is granted. The answer is clearly in the affirmative and I refer, in that connection, to the decision in the Victorian Court of Appeal in Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85 where the consequences of appeal against a s.459H order in the absence of a s.459F(2)(a)(i) extension of time are starkly illustrated (see also Marthas T Market Pty Ltd v Reliance Financial Services Pty Ltd [2002] NSWSC 931). 13 That leads to the implications for the parties on what might be generally termed balance of convenience grounds. From the defendant's point of view, the only apparent prejudice is delay in its ability to initiate a winding up application until the appeal is dealt with, assuming that the plaintiff does not pay whatever balance is ultimately found to be the proper amount of the statutory demand. Provided the appeal is pursued diligently and promptly, that cannot be a particularly compelling consideration, in the light of the matters concerning the viability of the appeal to which I have referred. 14 The plaintiff, by contrast, is in a position where it faces the imposition of a presumption of insolvency unless it pays some amount or other, with the amount properly payable being uncertain until the outcome of the appeal is known. The structure of the statutory demand provisions is such that such a presumption should not be allowed to arise while there remain cogently articulated and unresolved disputes as to the state of indebtedness between the company concerned and the party serving a statutory demand. That philosophy would not be accommodated in this case if the plaintiff were compelled to pay the full $158,051.21 in order to avoid the statutory presumption. The balance of convenience favours the plaintiff. 15 I am satisfied that an extension of time for compliance with the statutory demand should be granted in order to accommodate the appeal. The extension should, however, be on terms. 16 The defendant says that the plaintiff should be required to pay into court, to abide the outcome of the appeal, the full sum of $158,051.21 to which the Master reduced the statutory demand. The plaintiff says that the defendant should not be given the form of priority or security that that would entail. I accept the plaintiff's submission. This is, after all, not a debt recovery action. A company on which a statutory demand is served is in no sense required to comply with it. It may, if it wishes, allow the statutory presumption of insolvency to arise (by not paying the demanded sum) and, if a winding up application follows, seek to show that it is in fact in a solvent state so that a winding up order is not justified. The statutory demand process is no more than a process that defines where the burden of proof lies in winding up proceedings. 17 There should, however, be terms as to the due prosecution of the appeal. I understand the plaintiff to have no objection to this. The plaintiff should be required to seek expedited hearing of its appeal and to prosecute with diligence both the expedition application and the appeal itself. It should be given seven days to initiate and bring before the Court of Appeal an application for expedited hearing and there should be, at this point, an extension under s.459F(2)(a)(i) for a fixed period of one month. The matter will then be one of which the Court of Appeal is in possession so that further extensions, if warranted, can be dealt with there, as in the case of a stay pending appeal. 18 The course I have outlined accords with the approach taken by Warren J in Spacorp Australia Pty Ltd v Myer Stores Ltd (No 2) [2000] VSC 484 and has the added advantage, as her Honour pointed out, of avoiding the undesirable situation of an extension of undetermined duration. It is preferable that the extension be sufficient to put the matter into the Court of Appeal where it can be case managed appropriately. That approach was taken not only by Warren J in the case I have mentioned but also by Hansen J in Deputy Commissioner of Taxation v Burwood Retail Pty Ltd [2002] VSC 417. 19 The substantive order I make is accordingly that the time for compliance with the defendant's statutory demand dated 26 February 2004 be extended until 20 October 2004 on condition that the plaintiff make, within seven days, an application for expedited hearing by the Court of Appeal of the appeal instituted by notice of appeal filed on 20 September 2004 in Court of Appeal proceedings 40793/04 and diligently prosecute both that appeal and the application for expedited hearing in accordance with the rules. 20 With respect to the notice of appeal filed by the plaintiff on 17 September 2004, being appeal to the court constituted by a judge, the appeal is, on the plaintiff's own application, dismissed with no order as to costs. 21 I order that the costs of the notice of motion which I have determined today follow the costs of the appeal to the Court of Appeal. **********

Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd

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Judgment (7 paragraphs)

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