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Judgment - ex tempore (revised 15 december 2016)

1. By Amended Interlocutory Process filed on 21 November 2016 the applicant, Rosecell Pty Ltd (in liq) ("Company") applies under rules 36.15 and 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) and s 482 of the Corporations Act 2001 (Cth) to set aside winding up orders made by the Court on 19 October 2016 and entered on 24 October 2016. That application is made with consent of the liquidator appointed to the Company. Although substantial evidence has been led in support of the application, to which I will briefly refer, and detailed submissions have been made by Mr Finnane, who appears for the Company, it seems to me that the application can and should be determined on a narrow basis, which will not require that I review a substantial part of the detail of that affidavit evidence, or that I make findings that are more adverse than are necessary for the determination of the application.
2. The Company relies on an affidavit of its solicitor, Mr Buchanan, dated 8 November 2016, which anticipated evidence that will be led by Mr Doughty in the proceedings and, in particular, set out the background of a wider dispute between the Company and Reliance Finance Services (NSW) Pty Ltd ("Reliance") in respect of liabilities arising under a deed of retainer and loan dated 30 April 2011. It will not be necessary to deal with the nature of that dispute given the findings that I have reached on other grounds. Mr Buchanan also points out that the winding up order was based on a failure to comply with a creditor's statutory demand dated 17 August 2016 ("Demand"), and the evidence in support of a winding up application included evidence that the Demand was served by posting it to the registered office of the Company. It is not necessary to address the question whether that address was properly recorded as the registered office address of the Company, because it is sufficient for present purposes to note that that address was the address of Armstrong Scalisi Holdings Pty Ltd ("ASH"), the accounting firm that was the creditor which brought the winding up application, so that the creditor's statutory demand was served by ASH serving it at its own address. There is no evidence that any step was then taken to bring the Demand to the attention of the Company to which it was directed, in any practically effective way. Mr Buchanan also notes that the evidence in support of the winding up application included evidence that the winding up petition was then served by ASH by posting it to the registered office address of the Company, which was again at ASH's offices, so that it again served the winding up petition, at least initially, by serving it to its own address.
3. The Company also relies on the affidavit of Mr Doughty dated 19 November 2016, which refers to circumstances in which correspondence was sent to Mr Doughty, and, in particular, to the fact that Mr Doughty has not lived at an address in Cornubia, Queensland, for some time, to which ASH claims to have posted the winding up application, sometime after the winding up proceedings had been commenced. Mr Doughty also there refers to evidence of other forms of communication between ASH and Mr Doughty, including to Mr Doughty's email address and his post office box address, which were not adopted for service of the Demand (which, as I noted above, was not served other than by delivery to the Company at its registered office, the address of ASH) or in respect of the originating process for the winding up application. A further affidavit of Mr Doughty deals with similar matters.
4. ASH tenders the evidence led in the winding up application, which is significant for one matter that it proves, and one matter that it does not include. The one matter it proves, repeatedly, is that the Demand and, subsequently, the originating process commencing the winding up application were served at the Company's registered office, namely ASH's address. The one matter that is notable by omission is the absence of any explanation that would have drawn the attention of the Registrar who was determining the winding up application to the fact that the address of the petitioning creditor, ASH and the address of the Company's registered office was the same, so that ASH had served the application on the Company's registered office by serving it upon its own address.
5. An affidavit of Mr Cassaniti dated 9 December 2016, led on behalf of ACH, confirms Mr Cassaniti's earlier evidence that he had posted the originating process that commenced the winding up proceedings (but not the Demand) to an address at Cornubia, Queensland. It appears to be contended that that is an address that is, rightly or wrongly, recorded for Mr Doughty in the records of the Australian Securities and Investments Commission. Mr Cassaniti does not say that he made any inquiry of Mr Doughty, whether by email or otherwise, to confirm that posting the originating process to that address, some weeks after it had been filed, would bring it to Mr Doughty's attention.
6. Mr Corbett, who appears for ASH, refers to the general principle that non-receipt of a creditor's statutory demand or winding up application does not displace service of that application, for the purposes of s 109X of the Corporations Act. That proposition is plainly well-established, but it does not seem to be directed to the situation, which can scarcely be a common one, where a creditor goes about serving a creditor's statutory demand or winding up application by serving it at the registered office which is at the creditor's own address, without taking any, or at least any effective, step also to ensure that that matter was promptly brought to the attention of the company to which it is directed. In the present case, there is no evidence that the Demand was brought to the Company's attention, and any attempt to bring the originating process to the Company's attention, whether or not it was sent to the correct address, took place some considerable period after it had been filed.
7. It seems to me that this is a plain case for the application of the approach adopted by White J in Double Bay Newspapers Pty Ltd v Fitness Lounge Pty Ltd [2006] NSWSC 226; (2006) 57 ACSR 131. His Honour there noted that, where a winding up order was obtained through a fundamental irregularity, such as a default judgment entered in a party's absence and without fault on its part, that winding up order could be set aside under rules 36.15 or 36.16 of the Uniform Civil Procedure Rules. Rule 36.15 allows the Court to set aside a judgment or order of the Court if it was made, inter alia, irregularly and rule 36.16 allows the Court to set aside a judgment or order after it has been entered if it was made in the absence of a party, whether or not the absent party had notice of the relevant hearing or the application for the judgment or order. These provisions are directed to protecting the fundamental right of a party to proceedings before the Court to be heard and to protecting the integrity of the Court's processes: Cameron v Cole [1944] HCA 5; (1994) CLR 571 at 589: Nabraga v Pomfret [2005] NSWSC 654; Double Bay Newspapers above at [36]. His Honour also noted that, where a judgment is obtained through a fundamental irregularity, it should be set aside ex debito justitiae, in order to protect the integrity of the Court's processes. I agree with, and would follow, the view expressed by White J in Double Bay Newspapers above that such an order can and should be made without requiring proof of solvency in that situation. I note that, on the other hand, where an order if regularly obtained, although in the absence of a party, proof of solvency would ordinarily be required to set it aside: Labraga v Pomfret above at [44]; Workers' Compensation Nominal Insurer v Tinca Pty Ltd [2011] NSWSC 686.
8. Mr Corbett seeks to distinguish the judgment of White J in Double Bay Newspapers Pty Ltd v Fitness Lounge Pty Ltd above, on the basis that that judgment concerned a position where an arrangement had been reached between the relevant creditor and the relevant debtor. While that proposition is undoubtedly correct, it does not seem to me to be a relevant distinction, so far as his Honour was there addressing the circumstances of irregularity in obtaining a winding up order, and such irregularity can take many forms. It does not seem to me that the general principles to which his Honour referred were restricted to any one form of irregularity, rather than extending to any irregularity which would potentially affect the integrity of the Court's exercise of its jurisdiction.
9. Mr Corbett also points to the fact that the evidence of solvency led by the Company may not be sufficient, at least for the purposes of an application under s 482 of the Corporations Act. It is ultimately not necessary to determine that question, because I am satisfied that, in an application made under rule 36.15 or rule 36.16 of the Uniform Civil Procedure Rules, arising from a fundamental irregularity in the exercise of the Court's jurisdiction, it is not necessary to establish solvency.
10. It seems to me that there were several irregularities in the present matter, which were fundamental in character and which strike at both the Company's right to be heard in the proceedings and the integrity of the Court's processes. The first was the Demand had not itself been served, other than by ASH at the Company's registered office address which was its own address and, perhaps more significantly for present purposes, that matter had not been squarely drawn to the Registrar's attention in the hearing of the winding up application. The second was that, whether or not the address to which the originating process was posted, sometime after it was filed, was an address that was then used by Mr Doughty, and whether or not Mr Cassiniti was aware of the fact that it was or was not then used by Mr Doughty, Mr Cassiniti had not adopted means that would bring the matter promptly to Mr Doughty's attention, and had not taken any step to confirm the address to which that document should be posted, so as to ensure that it was in fact brought to Mr Doughty's attention. In circumstances that a creditor, which also serves as the registered office of the debtor, is to bring winding up proceedings, and to rely on a statutory presumption of service that arises from service of the proceedings upon the Company's registered office, at its own address, then it seems to me that fairness, and the proper exercise of the Court's process, requires that party to ensure that that presumption is not abused and that the application is in fact brought to the attention of the Company, by delivering it to its directors or officers. That could be done, in a straightforward way, by making an inquiry to confirm how the document can be brought to the attention of the Company, by delivering it to its directors or otherwise, and that step could readily have been, but was not taken, in this case.
11. It seems to me that these matters are sufficient to require that the winding up order be set aside, so as to ensure that the winding up application can be determined in proceedings where the Company has a proper opportunity to be heard, and the matter is determined by a hearing on the merits, rather than a hearing in the absence of a party, where steps of doubtful adequacy have been taken to bring that hearing to that party's attention.
12. It was common ground between the parties that if, as I have, I set the winding up application aside, then I should also make an order under s 459S of the Corporations Act that the Company be granted leave to oppose the application on the ground that it disputes the debt claimed in the Demand. It seems to me that that agreement between the parties was plainly properly reached. Where the evidence is that the Company had not been served with the Demand, other than by delivery at its registered office, the office of its creditor, in a manner that was unlikely to bring it to its attention, then the Company has had no previous opportunity to dispute the Demand by any application to set it aside. Whether or not leave is strictly required under s 459S of the Corporations Act in that situation, it plainly should be granted.
13. The applicant seeks an order for costs on an indemnity basis. ASH, fairly, did not oppose the making of that order.
14. Accordingly, I make the following orders:
15. The orders of the Court being 1, 2 and 3 made on 19 October 2016 and entered on 24 October 2016 be set aside.
16. Order under s 459S of the Corporations Act 2001 (Cth) that, in relation to the Plaintiff's application to wind up the Defendant in insolvency, the Defendant be granted leave to oppose the application on the ground that it disputes the debt claimed in the statutory demand relied upon by the Plaintiff and on all grounds raised by the Company in connection with that dispute.
17. The Plaintiff pay the costs of the Defendant, and Mr Trent Doughty, of and incidental to this application, such costs to be assessed on the indemnity basis.
18. Stand over the winding up application for further directions to 10am on 30 January 2017.
19. Reserve liberty to the Plaintiff to apply, on two business days' notice specifying the relief sought, including as to the question of costs of the liquidator and as to any application to restrain any further proceedings in reliance on the creditor's statutory demand.