Bluechip Development Corporation (Cairns) Pty Ltd v PNP Realty Pty Ltd [2009] ACTSC 33

AND: BLUECHIP DEVELOPMENT CORPORATION (CAIRNS) PTY LIMITED (ACN 117 021 566)

1. The defendant's application made by interlocutory process dated 23 January 2009 be dismissed.

2. The defendant pay the plaintiff's costs of the application.

3. The orders of 27 January 2009 restraining advertisement of the application and publication of matters concerning the application cease to have effect.

4. Mr Mark Martin John Tiirikainen be relieved of his undertaking to the Court of 27 January 2009 not to pay any part of the sum of $39,494.87 out of his firm's trust account other than pursuant to an order of the Court.

5. The proceedings be stood over to 3 April 2009 for directions.

1. These are interlocutory applications in two related proceedings. The first proceeding is an application under section 459G of the Corporations Act 2001 to set aside a statutory demand. The second is an application under section 459P of the same Act for the winding-up of the company served with the statutory demand on the ground of insolvency. For ease of reference I shall refer to the company which made the statutory demand and applies for the winding-up order as PNP, and the company served with the statutory demand and sought to be wound up as BDC.

2. The two companies, which are unrelated, have been engaged in a construction development project in Queensland. A dispute has arisen between them about money.

3. On 4 December 2008 Mr GI Campbell, a director of PNP, swore an affidavit to accompany a statutory demand addressed to BDC, claiming a debt of $39,494,87, described as a debt relating to costs incurred by BDC for construction management services provided by PNP pursuant to a contract.

4. On the same date, Mr S Gavagna, a Canberra solicitor and principal of the solicitors acting for PNP, signed the statutory demand. On 12 December 2008 Mr Gavagna sent the demand and affidavit to BDC by express post with a covering letter. BDC received the documents on 17 December 2008.

5. The documents did not come to the attention of the managing director of BDC, Mr Knell, until 18 December 2008, the last working day for his company before the Christmas shutdown period. BDC's usual solicitors were unavailable because of the Christmas break. Mr Knell instructed Mr Gates, general manager of a related company, who lived in Canberra, to attend to the formalities of applying to have the statutory demand set aside. Mr Gates had at one time practised as a solicitor but by this time was no longer in practice. He prepared an application by way of originating process for an order setting aside the statutory demand, and affidavits to be sworn by Mr Knell and himself in support of the application. Mr Gates swore his affidavit on 5 January, and lodged the application and his affidavit for filing on that date. Mr Knell swore his affidavit in Brisbane on 6 January.

6. Section 459G of the Corporations Act relevantly provides:

(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.

(2) An application may only be made within 21 days after the demand is so served.

(3) An application is made in accordance with this section only if, within those 21 days:

(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.

7. The 21-day period prescribed by the section requires strict compliance, there being no discretion in a court to extend it: David Grant & Co Pty Limited v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265. If the application and affidavit have not been served in accordance with the requirements of the section, the Court has no jurisdiction to hear an application to set aside the statutory demand at all: Dominion Capital Pty Limited v Pico Holdings Inc [2001] VSC 458; (2001) 166 FLR 303 at [21] per Habersberger J. The copy of the application which is served must bear a court seal and show the court file number and the return date for the hearing of the application: Cooloola Dairys Pty Limited v National Food Milk Limited & Ors [2004] QSC 308; (2004) 184 FLR 86 at [34] - [35] per Chesterman J.

8. The last day for filing and service of an application to set the statutory demand aside and of a supporting affidavit was 7 January 2009.

9. The documents originally lodged by Mr Gates with the Court were not accepted for filing but were returned to him with a requisition setting out the respects in which they did not comply with the Court Procedures Rules 2006. The rules about filing of documents and rejecting of filed documents are set out in Divisions 6.3.2 and 6.3.3 (Rules 6120 - 6145) of the Court Procedures Rules. In brief, the Registrar may reject a document filed in the Court for various reasons. The Registrar must return the document to the person who filed it, with notice of the grounds for rejection. The document is taken not to have been filed: Rule 6143.

10. Rule 6145 provides:

(a) the registrar rejects the document under this division; but

(i) the registrar subsequently accepts the document; or

(ii) the court or a judicial officer subsequently directs the registrar to accept the document.

(2) The registrar must record the filing of the document in the court and, if appropriate, seal or stamp the document.

(3) If the registrar records the filing of the document, the registrar must return any copies of the document filed with the document for sealing or stamping.

(4) The document is taken to have been filed in the court on the day it would have been filed if the registrar had not rejected the document.

(5) If the document is rejected by the registrar (whether or not more than once), the document is taken to have been filed in the court on the day it was first filed.

11. The originating process was relodged by Mr Gates, and treated by the registry as having been filed on 5 January 2009. The same should have happened with Mr Gates' affidavit although the registry recorded it as having been filed on 14 January, presumably the date of its relodgement. Mr Knell's affidavit was lodged on 12 January 2009 and should be treated as having been filed on that date.

12. There is no evidence of the date of service of the originating process or of the affidavits on PNP. Mr Gates sent an email to PNP's solicitors on 5 January, informing them that the documents had been lodged in the registry and stating that sealed copies would be served when available. I infer that Mr Gates did not receive sealed copies from the registry until 14 January at the earliest.

13. On 9 January, PNP's solicitors filed an application for an order that BDC be wound up on the ground of insolvency, based on failure to comply with the statutory demand. There is no evidence as to the date of service of the originating process and supporting affidavits on BDC. On 23 January 2009, BDC filed an application for orders restraining PNP from advertising the winding-up application and restraining the solicitors on the record for PNP from acting in that capacity.

14. This application came before me on 27 January, as an urgent application during the vacation. After hearing counsel for the parties I made orders aimed at preserving the status quo until the various applications could be heard. I was informed that the solicitors for BDC held an amount equal to the amount claimed in the statutory demand in their trust account, and noted their undertaking not to pay any part of the amount out except pursuant to an order of the Court. I made an order restraining the advertisement of the winding-up application, and an order prohibiting publication about the proceedings.

15. On 3 February 2009 PNP caused the matter to be listed before me asserting breaches by BDC of the order restraining publication about the proceedings. I was not satisfied that there was any urgency about PNP's application in that regard and dismissed it.

16. On 13 February 2009 BDC lodged an application for an injunction restraining PNP from relying on the statutory demand, on the ground, inter alia, of abuse of process. It does not appear that the application was accepted for filing and I assume that it was rejected by the Registrar and returned to BDC's solicitors.

17. On 18 February 2009 BDC filed an interlocutory process which I am prepared to treat as seeking the same relief, although on its face it does not do so: crucial words seem to have been inadvertently omitted from it.

18. I heard the interlocutory applications, though not the application for winding-up of BDC, on 27 February.

19. I am satisfied on the facts that the statutory demand was validly served on BDC. It was suggested by counsel for BDC that PNP or its solicitors deliberately delayed serving the statutory demand until just before Christmas, so as to make it practically difficult or perhaps impossible for BDC to make an application to set it aside in time. I am not satisfied that there was any deliberate plan to that effect in the minds of those giving instructions on behalf of PNP, or its solicitors. The delay between 4 December, when Mr Campbell swore the affidavit supporting the statutory demand, and 12 December when it was sent by express post to BDC, is explained by the fact that Mr Campbell swore the affidavit in Brisbane and had to send it to the solicitors in Canberra to be served with the demand itself. If PNP or its solicitors had been motivated as suggested, they could have waited even later until a day or two before Christmas before effecting service.

20. I am satisfied that the application to set the statutory demand aside is to be taken as having been filed on 5 January, within the 21-day period. I am inclined to the view that the affidavit of Mr Gates should be taken to have been filed on the same date.

21. However, I am satisfied that PNP was not served with the application or affidavit until outside the 21-day period.

22. In these circumstances, the Court has no jurisdiction to entertain the application to set the statutory demand aside.

23. Nevertheless, counsel for BDC submits that the service of the statutory demand was an abuse of process and that PNP should be restrained from reliance on it. In this regard counsel submits that the demand was deliberately served at a time of year when BDC could not practically respond to it in a timely fashion. As I have explained, I am not satisfied that this allegation is made out. Counsel further submits that BDC is solvent and that PNP is well aware that BDC is solvent. Thirdly, counsel relies on evidence by Mr Gates that a company related to BDC named BDC Toowoomba Pty Limited was successful in litigation in the Supreme Court of Queensland against a family company of those controlling PNP named Ruth Campbell Pty Limited, with an order for indemnity costs in favour of BDC Toowoomba being made in that court on 4 December 2008. The inference I am asked to draw is that the service of the present statutory demand was a tit-for-tat measure, otherwise unjustified, motivated by the Queensland costs order.

24. I have been referred to decisions based upon similar factual situations. In Elite Motor Campers Australia v Leisureport Pty Limited [1996] 22 ACSR 235, Spender J refused an application by a company which had been served with a statutory demand for an injunction restraining the creditor from applying for a winding-up order. Application to set the statutory demand aside had not been served on the creditor within the 21-day prescribed period. Spender J acknowledged that the failure to serve the application in time occurred for reasons outside the control of the applicant company, being due to delay in the Court registry, but his Honour, with regret, confirmed that the requirement for service within 21 days imposed by section 459G of the Corporations Act was absolute. The applicant based the application on the fact that it was solvent and that consequently there was no basis for it to be wound up. In those circumstances, it was argued, an application to wind it up would amount to an abuse of process. Spender J did not accept this argument. As his Honour noted, failure by a company to comply with a statutory demand gives rise to a rebuttable presumption of insolvency: section 459C. His Honour held it was not an abuse of process for a creditor, following failure by a company to comply with a statutory demand, to commence winding-up proceedings. It would be open to the company, in the course of the winding-up proceedings, to prove that it was solvent. In those circumstances the company might have a sound argument in favour of a costs order if it could establish that the creditor had been well aware that the company was solvent. Spender J cited with approval the decision of Lindgren J in Chippendale Printing Co Pty Limited v Deputy Commission of Taxation (1995) 30 ATR 420 that a company was not entitled to have a statutory demand set aside simply by establishing that it was solvent.

25. In Redglove Holdings Pty Limited v GNE & Associates Pty Limited [2001] NSWSC 867; (2001) 165 FLR 72, Palmer J refused an application for an injunction to restrain the commencement of winding-up proceedings, in circumstances where the applicant had failed to apply in time for an order setting aside a statutory demand. His Honour quoted the reference by Gummow J in David Grant & Co Pty Limited v Westpac Banking Corporation, cited above, to making or threatening a winding-up application "for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz". As his Honour said, in Williams v Spautz [1992] HCA 34; (1991) 174 CLR 509, the majority said at 526 that an abuse of process occurs when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or for come collateral advantage beyond what the law offers. At 529, the majority said that a party alleging abuse of process bears a heavy onus of proof that the predominant purpose of the other party in commencing the legal process has been one other than that for which it has been designed.

26. Palmer J found no evidence in Reglove Holdings that the defendant issued its notice of demand for any purpose other than to have its debt paid or alternatively to have the company wound up and its debt admitted to proof in the liquidation. His Honour went on to say at [28]:

True it is that, prior to issuing the statutory demand, the defendant knew that the plaintiff disputed the debt. But at the heart of the scheme imposed by Part 5.4 is the legislative intent that debtors wishing to dispute debts should not be permitted merely to protest in general terms and for an indefinite period; they must particularise the grounds of the dispute upon affidavit and they must do so quickly. By this means, many spurious attempts to delay payment of just debts will be defeated, either because the debtor company cannot support the existence of a genuine dispute when called upon to do so on affidavit or because the grounds of the dispute, once sufficiently exposed, simply do not stand up to the Court's scrutiny.

[29] Every creditor claiming payment by a company of a disputed debt is entitled to test the genuiness of that dispute by serving a notice of demand under section 459E in order to invoke the procedures of Part 5.4. If the dispute is indeed genuine, the creditor will pay the penalty of a costs order when the debtor successfully applies to set aside the demand under section 459G. That is the risk that the creditor takes in serving the notice of demand. But if the debtor company fails to substantiate the dispute in the manner which is required by Part 5.4. and, in particular, by section 459G, then it cannot, without more, be an abuse of process for the creditor to proceed with a winding-up application in reliance upon section 459C, section 459Q and section 459S. This is the very procedure which the legislature has devised to secure either the prompt payment of just debts or else the winding-up of insolvent companies unable to pay their just debts. Where the debtor company has failed to set aside a statutory demand, it would have to establish by very cogent evidence that, despite the existence of a debt which can no longer be disputed, the creditor's purpose in seeking the winding-up is not to collect payment of its debt or, in default to have the company wound up, but is, rather, to achieve some entirely collateral end. Such a case is conceivable but would be extremely rare in reality.

27. His Honour went on to say at [33] that the solvency of the plaintiff could not be an issue at that stage of the proceedings. The plaintiff would be at liberty to seek leave under section 459S to adduce evidence directed to solvency on a subsequent winding-up application.

28. In Nasrawi Group of Companies Pty Ltd v Byrne Earthmoving & Engineering Pty Limited [2005] QSC 002 (unreported), Douglas J refused an application for declaratory relief in similar circumstances. The applicant had been served with a statutory demand but had failed to file and serve it within the 21-day time limit. The company then sought a declaration that the demand was not a statutory demand within the meaning of the Act. Douglas J, after referring to Elite Motor Campers and Redglove Holdings, concluded that the case for declaratory relief had not been made out. His Honour said at [15] that the grant of a declaration in such a situation would undermine the regime established by the Corporations Act for setting aside a statutory demand, by creating a fresh opportunity to dispute the existence of the debt, when the statutory scheme was designed to ensure that such disputes were raised within the period prescribed by the Act. His Honour noted that it would be open to the applicant to seek leave under section 459S to establish its solvency on the hearing of a subsequent winding-up application.

29. BDC has not established to my satisfaction that the service of the statutory demand should be characterised as an abuse of process. BDC had an opportunity to apply to set the statutory demand aside on the basis that the claimed debt was genuinely disputed, but failed to do so within the time provided. I am not satisfied that PNP, in serving the statutory demand, was motivated to achieve any collateral advantage, or any outcome other than the payment of the claimed debt or, failing that, the proving of that debt in the liquidation of BDC.

30. In those circumstances the application made by BDC by interlocutory process of 23 January 2009 in the winding-up proceedings will be dismissed with costs, and the application by BDC made by interlocutory process dated 18 February 2009 in the statutory demand proceedings will also be dismissed with costs. The application to set the statutory demand aside, made by originating process dated 5 January 2009, must also be dismissed with costs.

31. The orders I made on 27 January 2009 to preserve the status quo should cease to have effect, so that the winding-up application can be advertised and BDC's solicitors can deal with the sum they hold in their trust account in accordance with such instructions as they may receive from BDC.

32. I shall hear the parties as to the directions to be made for the disposal of the application that BDC be wound up, on 3 April 2009. The winding-up proceedings will be stood over to that date.

I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.