Benson Communications Pty Limited v Carroll

REASONS FOR JUDGMENT 1 Proceeding NSD 1249 of 2007 was commenced in this Court on 3 July 2007. In that proceeding the first applicant, Peter Michael Benson (Mr Benson) and the second applicant, Benson Communications Pty Limited as trustee for The Grantham Project (Trust), sue the first respondent, Andrew Michael Carroll (Mr Carroll) and the second respondent, Hobbs & Carroll Partnership Pty Limited as trustee for the Hobbs & Carroll Property Trust. The current form of the pleading in that proceeding is found in an amended statement of claim filed on 18 May 2009. 2 In general terms, in that proceeding the applicants sue the respondents for damages for misleading and deceptive conduct and on other causes of action in connection with a joint venture or partnership in respect of a proposed development of a site at 1 Grantham Street, Potts Point. The building project was known as "The Grantham Project". For want of a better name I will call that proceeding "the Misrepresentation Proceeding". 3 The pleading in the Misrepresentation Proceeding is detailed and refers to representations and contractual arrangements made in 2004. 4 On 30 September 2005 there was, it seems, pursuant to a Deed of Variation, a change of trustee of the Hobbs & Carroll Property Trust from Hobbs & Carroll Partnership Pty Limited to Mr Carroll. 5 The question of the precise time when Mr Benson became aware of the change is apparently a matter of some dispute. Mr Benson says that he was not aware of it until he read a copy of the Deed of Variation in connection with a Supreme Court proceeding, to which I will refer below, in August 2007. There is other evidence, however, that he became aware of it earlier. The question is not presently material. 6 In proceeding 4111 of 2006 in the Equity Division of the Supreme Court of New South Wales (the Supreme Court Proceeding), Mr Carroll as trustee for the Hobbs & Carroll Property Trust sought against Benson Communications Pty Limited as trustee for the Grantham Project (Trust), amongst other things a taking of accounts to determine what amount, if any, was owed by one partner/joint venturer to the other. 7 On 24 September 2008 or 7 October 2008 (the evidence is confusing), judgment was entered for the plaintiff in that proceeding, that is, for Mr Carroll as trustee for the Hobbs & Carroll Property Trust against Benson Communications Pty Limited as trustee for the Grantham Project (Trust). The terms of the judgment were as follows: (1) Upon the taking of accounts pursuant to the order of the Court made on 23 February 2007 the amount owed by the Defendant to the Plaintiff is $446,314.14; (2) The Defendant pay to the Plaintiff the sum of $446,314.14; (3) Each party pay its own costs. 8 On 7 October 2008, the solicitor for Mr Carroll as trustee for the Hobbs & Carroll Property Trust signed a statutory demand addressed to Benson Communications Pty Limited as trustee for the Grantham Project (Trust) for the said sum of $446,314.14. 9 This led to the commencement of this present proceeding (the Statutory Demand Proceeding) by which Benson Communications Pty Limited as trustee for The Grantham Project (Trust) applies for an order setting aside the statutory demand. The originating process (it was wrongly headed "Application") named as respondent (the parties should have been called plaintiff and defendant and I have so designated them in the above heading) Andrew Carroll as trustee for the Hobbs & Carroll Property Trust. An affidavit by Mr Benson sworn on 23 October 2008 was filed and served with the application (originating process). That affidavit, but no other, was filed and served within the 21 day period referred to in s 459G(3) of the Corporations Act 2001 (Cth) (the Act) (see below). 10 The issue for decision is whether this supporting affidavit of Mr Benson satisfied the requirements of Div 3(ss 459G-459N) of Pt 5.4 of the Act. 11 Section 459G provides that a company may apply to the Court for an order setting aside a statutory demand served on the company. The application may be made only within 21 days after service of the demand. An application is made in accordance with s 459G only if, within the 21-day period: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company. 12 Section 459H(1) provides: This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. These grounds may be referred to as the "existence of the debt" and "offsetting claim" grounds. 13 Section 459J(1) provides: On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. These grounds may be referred to as the "defect in the demand" and "other reason" grounds. 14 I turn now to Mr Benson's affidavit sworn 23 October 2008 in support of the application to set aside. In that affidavit, Mr Benson explained that "the debt," referred to in the statutory demand, had arisen from the partnership to which I referred. He stated that the two trusts were members of a partnership known as "The Grantham Development Partnership" which was formed to develop the Grantham Project. 15 In para 4 of his affidavit Mr Benson referred to the Misrepresentation Proceeding. He described the claims made in that proceeding as being for breaches of contract, negligence and misleading or deceptive conduct. He also referred to the Supreme Court Proceeding. 16 Paragraph 6 of Mr Benson's affidavit was as follows: On 9 August 2007, a Deed of Variation dated 30 September 2005, appointing Mr Carroll as trustee, and retiring the Hobbs and Carroll Partnership Pty Ltd as trustee, was annexed to an affidavit of Mr Carroll filed in the Supreme Court proceedings. … I was previously unaware of the change of trustee. 17 In para 7 of his affidavit Mr Benson referred to the final judgment that had been entered in the Supreme Court Proceeding in favour of Mr Carroll in his capacity as trustee. 18 Mr Benson continued by referring to the anticipated net profit from the Grantham Project, according to several feasibility studies that had been commissioned by both partners between 2004 and 2006, as ranging from $4 million to $7 million. Exhibited to his affidavit were copies of the reports. He stated that the project had since been conducted by others in substantially the same way as was intended by the partnership and was due for completion in March 2009. 19 Mr Benson's affidavit was generally consistent with the pleading in the Misrepresentation Proceeding which was to the effect that Mr Carroll had represented to him that Mr Carroll was in a position to obtain certain funding for the Grantham Project and that in reliance on that representation Mr Benson had refrained from seeking any other partner/joint venturer for the project. A substantial element of Mr Benson's claim as made in the Misrepresentation Proceeding, and confirmed in para 9 of his affidavit, was that he (or more precisely Benson Communications Pty Limited as trustee for The Grantham Project (Trust)) had foregone the profit that would have been available from the Grantham Project because of his reliance on the assurances given by Mr Carroll. 20 The final paragraph in Mr Benson's affidavit, paragraph 11, was as follows: I am advised by my solicitor that the Federal Court proceedings [a reference to the Misrepresentation Proceeding] have reasonable prospects of success and that, if successful, the damages representing the loss of profits and/or the loss of opportunity to earn profits should exceed the sum demanded. The Applicant accordingly seeks an order that the statutory demand be set aside. 21 To my mind the straightforward purport of Mr Benson's affidavit was that he was asserting an offsetting claim for unliquidated damages that exceeded the judgment debt of $446,314.14. He was relying on the offsetting claim ground (see [12] above). The problem, however, is that the judgment obtained in the Supreme Court Proceeding was not obtained by Hobbs & Carroll Partnership Pty Limited but by Mr Carroll personally. When I say "personally", of course I mean Mr Carroll as distinct from Hobbs & Carroll Partnership Pty Limited, in each case as trustee for the Hobbs & Carroll Property Trust. 22 In the Supreme Court Proceeding the final judgment was, in fact, consented to by Benson Communications Pty Limited. I do not mean to say that the preceding taking of accounts was consented to but the formulation of the judgment in favour of Mr Carroll was. Notwithstanding this, Benson Communications Pty Limited has appealed the Supreme Court decision on the basis that it was not aware of or overlooked the fact that it was consenting to a judgment in favour of Mr Carroll as trustee of the Hobbs & Carroll Property Trust. In substance, and perhaps understandably, it wishes to achieve the position that its creditor is Hobbs & Carroll Partnership Pty Limited as trustee of the Hobbs & Carroll Property Trust, so that it can set off against the judgment in the Supreme Court Proceeding its own claim in the Misrepresentation Proceeding. It accepts that while its creditor is Mr Carroll as trustee of the Hobbs & Carroll Property Trust it cannot do so. In substance, the present application to set aside is now based on the other reason ground (see [13] above). 23 The difficulty confronting Benson Communications Pty Limited in applying for an order setting aside the statutory demand, is that the nature of its case for setting aside the demand as it has now emerged was in no way disclosed in the affidavit that was filed within the 21-day period. The authorities establish that while supplementary affidavit material may be filed and served outside that period, the further affidavit or affidavits must be limited to filling out or supporting a ground that was set out in an affidavit or affidavits filed within that period. For this proposition, many cases could be referred to, including Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179; [2001] WASCA 419; Jian Xing Knitting Factory v Scasa Pty Ltd [2004] SASC 152 at [18]; Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130; [2004] NSWSC 527; Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22; Tatlers.com.au Pty Ltd v Davis (2007) 213 FLR 109; [2007] NSWSC 835 at [19], [28], [29]. 24 Mr Evans, counsel for Benson Communications Pty Limited, has referred to Tatlers.com.au Pty Ltd v Davis (2007) 213 FLR 109; [2007] NSWSC 835 at [19]. In that case, White J in the Supreme Court of New South Wales rejected a contention that the purpose of s 459G was to enable the defendant to understand, to test and to respond to the material on which the plaintiff relies. His Honour considered that that aspect of case management and natural justice could be met, even though the plaintiff company might be permitted to file and serve further affidavits outside the 21 day period. White J observed that all that s 459G required was that the application and supporting affidavit be filed and served within the 21 day period, and that the question of how the application was dealt with subsequently was a matter for the ordinary pre-trial procedures directed to ensuring a fair hearing. However, his Honour also acknowledged as follows (at [19]): The courts have implied from the requirement that there be a supporting affidavit that the affidavit filed in support of the application must raise the grounds to be relied upon to set aside the demand, and have further implied that the plaintiff is restricted to the grounds so raised. 25 White J accepted that the stringency of the 21-day period reflects the legislative purpose of the quick resolution of the issue of solvency and the determination of whether a company should be wound up without the interposition of disputes about debts, unless they are raised promptly. 26 I do not think that anything said by White J detracts from the line of authority that insists that the ground relied on for the setting aside of the statutory demand be identified in the affidavit or affidavits supporting the application that is or are filed within the 21-day period. 27 The most that can be said of Mr Benson's affidavit is that in para 6 he accepts that there was a change of trustee. One might reason along the lines that by some unidentified mechanism his claim is that the identity of the trustee from time to time does not matter. Apparently, however, it is accepted that the identity of the trustee does matter. Indeed, the case to be put in support of the appeal is that if the Court of Appeal will allow evidence of the trust deed and Deed of Variation to be admitted, it will find that the change of trustee was invalid. This, however, is in no way remotely suggested in Mr Benson's affidavit. 28 Another approach might be to say that since the affidavit was filed in support of an application to set aside and refers to an offsetting claim in excess of the judgment debt of $446,314.14, one should read the affidavit as somehow proposing as the "other reason" referred to in s 459J(1)(b), that Mr Carroll brought about the change of trustee in a fraudulent or otherwise sinister manner. However, this would be mere speculation and is not suggested in the affidavit or in submissions. 29 No matter how I read Mr Benson's affidavit, I can see it only as raising the offsetting claim ground. 30 It is common ground that Benson Communications Pty Limited as trustee for The Grantham Project (Trust) does not have an offsetting claim against Andrew Carroll as trustee for the Hobbs & Carroll Property Trust. 31 Having regard to the line of authorities to which I referred, I do not think that the requirements of s 459G are met. 32 For the above reasons, the application to set aside should be dismissed with costs. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.