Chief Commissioner of State Revenue v Boss Constructions

Judgment

1. BATHURST CJ: This is an appeal from a decision of a judge of the Equity Division of the Supreme Court (the primary judge) in which he declared that the Chief Commissioner of State Revenue (the appellant) was estopped from denying that an application made by Boss Constructions (NSW) Pty Ltd (the respondent) to set aside a statutory demand was made within the time provided by s 459G(2) of the Corporations Act 2001 (Cth) (the Act).

Factual background to the decision of the primary judge

1. The appellant contended that the respondent was indebted to it in an amount of $489,069 for unpaid payroll tax and interest thereupon. At some time near the end of June 2017, the appellant served a statutory demand on the respondent pursuant to s 459E(1) of the Act requiring payment of that amount. On 20 July 2017, the respondent sought an order that the statutory demand be set aside under s 459G(1) of the Act.
2. The appellant contended that the statutory demand was served on 27 June 2017. If that was the case, then the application to set aside the statutory demand would have been filed outside the period prescribed by s 459G(2). Conversely, the respondent contended that the statutory demand was served on 29 June 2017, in which case the application would have been made within time.
3. In the circumstances, the primary judge ordered that the following questions be tried as separate questions: "(a) Was [the respondent's] Originating Process and affidavit of Nicholas Bobos sworn 20 July 2017 supporting the application to set aside the statutory demand dated 15 May 2017 (Statutory Demand) served on the [the appellant] within the 21 day period after service on [the respondent] of the Statutory Demand, as required by section 459G of the Corporations Act 2001 (Cth)? (b) Does the Court have jurisdiction to determine [the respondent's] application to set aside the Statutory Demand?"
4. The primary judge concluded that the statutory demand was served on 27 June 2017, and thus, that the application to set it aside was not made within the prescribed time of 21 days. That finding is not disputed on this appeal.
5. However, the primary judge also found that the parties had proceeded upon the assumption that the statutory demand was served on 29 June 2017 and that it would be "unconscionable" for the appellant to depart from that assumption. He concluded that the appellant was estopped from denying that service of the demand took place on 29 June 2017 and thus that the application to set it aside was made within the prescribed time of 21 days. Because of the nature of the issues raised on the appeal, it is unnecessary to deal with the reasoning of the primary judge in relation to this conclusion.
6. In the circumstances, the primary judge made the following orders: "THE COURT ORDERS THAT the separate question to be determined pursuant to the order made on 11 September 2017 be answered as follows: Answer: The application was made within time, and the court has jurisdiction, because [the appellant] is estopped from disputing: a) that the demand was not served before 29 June 2017; and b) that the time for compliance with the demand did not expire until 20 July 2017."

The appeal

1. The appeal is brought pursuant to leave granted by this Court on 14 March 2018: see Chief Commissioner of State Revenue v Boss Constructions (NSW) Pty Ltd [2018] NSWCA 51. The appellant relied initially on two grounds: first, that no estoppel could "operate on the 21 day period in which an application under section 459 of the Corporations Act 2001 (Cth) must be made"; and second, that, as the estoppel question was not raised by the respondent or the primary judge at the hearing in the Court below, the appellant was denied procedural fairness.
2. However, during the course of the hearing of the appeal, counsel for the appellant, faced with the prospect that, if the procedural fairness ground was made out, a rehearing would be necessary, abandoned the second ground and relied only on the proposition that no estoppel could lie against the provisions of s 459G of the Act.

The relevant statutory provisions

1. Part 5.4 of the Act deals with winding up a company in insolvency. Section 459A empowers the court, on an application under s 459P, to wind up an insolvent company. Section 459C provides for circumstances in which a court must presume insolvency for the purposes of several types of application, including an application under s 459P. Section 459C(2) provides that such a presumption must be made when a company has "failed (as defined by s 459F) to comply" with a statutory demand. It is in the following terms: "459C Presumptions to be made in certain proceedings … (2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made: (a) the company failed (as defined by section 459F) to comply with a statutory demand; or (b) execution or other process issued on a judgment, decree or order of an Australian court in favour of a creditor of the company was returned wholly or partly unsatisfied; or (c) a receiver, or receiver and manager, of property of the company was appointed under a power contained in an instrument relating to a circulating security interest in such property; or (d) an order was made for the appointment of such a receiver, or receiver and manager, for the purpose of enforcing such a security interest; or (e) a person entered into possession, or assumed control, of such property for such a purpose; or (f) a person was appointed so to enter into possession or assume control (whether as agent for the secured party or for the company)."
2. Section 459E(1) of the Act confers on a creditor an entitlement to serve a statutory demand and s 459E(2) prescribes the form of the demand. It relevantly provides that such a demand must "require the company to pay the amount of the debt … within 21 days after the demand is served on the company".
3. Section 459F deals with the time in which a company is taken to have "failed to comply" with a statutory demand. It provides as follows: "459F When company taken to fail to comply with statutory demand (1) If, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period. (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 (b) otherwise - 21 days after the demand is served."
4. Section 459G provides for applications to set aside a statutory demand. It is in the following terms: "459G Company may apply (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."
5. Section 459H deals with the setting aside of a statutory demand in circumstances where there is a dispute as to the existence or amount of the debt or where an offsetting claim exists. So far as it is relevant, it provides as follows: "459H Determination of application where there is a dispute or offsetting claim (1) 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. (2) The Court must calculate the substantiated amount of the demand in accordance with the formula: Admitted total - Offsetting total where: admitted total means: (a) the admitted amount of the debt; or (b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates. offsetting total means: (a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim; or (b) if the Court is satisfied that the company has 2 or more offsetting claims - the total of the amounts of those claims; or (c) otherwise - a nil amount. (3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand. (4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order: (a) varying the demand as specified in the order; and (b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company. (5) In this section: admitted amount, in relation to a debt, means: (a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt - a nil amount; or (b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt - so much of that amount as the Court is satisfied is not the subject of such a dispute; or (c) otherwise - the amount of the debt. offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set‑off or cross‑demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates). respondent means the person who served the demand on the company. (6) This section has effect subject to section 459J."
6. Section 459J empowers the court to set aside a statutory demand on an application under s 459G on certain other grounds. It is unnecessary to set out this provision.
7. Section 459Q deals with applications to wind up a company in insolvency for a failure to comply with a statutory demand, s 459R limits the time in which such an application is to be determined, while s 459S limits the bases on which such an application can be opposed by the company. The provisions are in the following terms: "459Q Application relying on failure to comply with statutory demand If an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the application: (a) must set out particulars of service of the demand on the company and of the failure to comply with the demand; and (b) must have attached to it: (i) a copy of the demand; and (ii) if the demand has been varied by an order under subsection 459H(4) - a copy of the order; and (c) unless the debt, or each of the debts, to which the demand relates is a judgment debt - must be accompanied by an affidavit that: (i) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (ii) complies with the rules." 459R Period within which application must be determined (1) An application for a company to be wound up in insolvency is to be determined within 6 months after it is made. (2) The Court may by order extend the period within which an application must be determined, but only if: (a) the Court is satisfied that special circumstances justify the extension; and (b) the order is made within that period as prescribed by subsection (1), or as last extended under this subsection, as the case requires. (3) An application is, because of this subsection, dismissed if it is not determined as required by this section. (4) An order under subsection (2) may be made subject to conditions. 459S Company may not oppose application on certain grounds (1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). (2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent."
8. The practical effect of these provisions is that, where a statutory demand has been served, a company which has not availed itself of the procedure in s 459G to set aside the statutory demand is not entitled to oppose the winding up application on a ground which could have been raised to set aside the demand, such as by disputing the existence of the debt, unless a court grants leave to do so. The power to grant such leave was described by Hayne J in Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298 at 300 as "a safety net" in the sense that there are "cases in which a dispute as to the existence of the debt may be litigated at the time of the application for winding up in insolvency, even if there has been no application under s 459G".
9. The statutory demand regime to which I have referred was described by Spigelman CJ, with whom Hodgson and Macfarlan JJA agreed, in TQM Design & Construct Pty Ltd v Golden Plantation Pty Ltd [2011] NSWCA 7 at [29] as constituting "a carefully formulated series of interlocked steps which have substantial consequences and the objects of which require precise compliance for their attainment". I would respectfully adopt that description. It is neither necessary nor desirable to describe the provisions relating to statutory demands as a "code", as distinct from focusing on the actual statutory provisions and what they are intended to achieve.
10. The provisions were inserted into the Act by the Corporate Law Reform Act 1992 (Cth). This followed the Australian Law Reform Commission, General Insolvency Inquiry, Report No 45 (1988) (the Harmer Report). Paragraphs 685, 688, 689 and 690 of the Explanatory Memorandum to the Bill for the Corporate Law Reform Act 1992 (Cth) explained the purpose of the introduction of the provisions in the following terms: "685. This Division will implement the Harmer Report's recommendations in connection with the setting aside of statutory demands. The Harmer Report considered that the existing, largely unregulated, procedure in relation to notices of demand too often produces disputes about the debt at the hearing of a winding up application. The Report further noted that companies presently often need to bring injunction proceedings where a debt claimed in a demand is disputed. The Report took the view that the legislation should specifically provide for the determination of disputed debt issues and other disputes in respect of a statutory demand. … 688. The provisions in relation to the setting aside of a statutory demand are intended to be a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies. In particular it is intended to remove the present difficulties which are experienced where difficulties in estimating the extent of the debt may lead to an invalidating of the statutory demand on the basis of a minor overstatement of the amount due … 689. This proposed Division [ss 459G-459N], together with proposed Division 4 [ss 459P-459T], also provides a means of dealing with statutory demand disputes in such a way that an alleged defect in the statutory demand does not have the effect of prolonging proceedings leading to the commencement of a winding up, by requiring debtor companies to raise genuine disputes (about, for example, whether a debt is owed) at an early stage, rather than after winding up proceedings have commenced. Proposed section 459G - Company may apply 690. A company may apply to the Court for an order setting aside a statutory demand served on the company (proposed subsection (1)). The application may only be made within 21 days after the demand is served (proposed subsection (2)). For the application to be effective, an affidavit supporting the application must be filed with the Court within those 21 days, and a copy of the application and the supporting affidavit served on the person who originally served the demand on the company (proposed subsection (3))."
11. In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 270; [1995] HCA 43 (David Grant), Gummow J, with whom the other members of the Court agreed, after referring to these paragraphs from the Explanatory Memorandum, described the provisions relating to statutory demands as constituting "a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts unless they are raised promptly".

Consideration

1. The proposition that a court could extend the time prescribed in s 459G(2) of the Act by an order under s 1322(4)(d) was rejected in David Grant. In David Grant at 277, Gummow J described the time limitations and the other requirements in s 459G as "a limitation or condition upon the authority of the court to set aside the demand", indicating that the "force of the term 'may only' is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G".
2. Subsequent authorities have adopted a similar approach. In Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314; [2008] HCA 9, the majority held that an order could not be made under s 459F(2)(a) extending the time for compliance with a statutory demand after the period for compliance had expired. The majority stated at [14] that the "evident purposes of [Part 5.4 of the Act] include speedy resolution of applications to wind up companies in insolvency". Their Honours stated at [19] that it would be "sharply at odds with the purposes revealed by the provisions of [Part 5.4] to read the power to extend time for compliance with a statutory demand as capable of exercise after the time has expired". Their Honours also emphasised at [26] that the provisions did no more than create a presumption of insolvency and that "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".
3. In Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1; [2011] HCA 18 at [27], the Court again pointed out that the "evident policy of [Part 5.4 of the Act] is that there be a speedy resolution of applications to wind up in insolvency" and, to that end, "a challenge to a statutory demand is to be made promptly".
4. As Basten JA pointed out in Tudor Developments Pty Ltd v Makeig (2008) 72 NSWLR 624; [2008] NSWCA 263 at [71], the question of whether an estoppel can arise in the face of a statutory provision is ultimately "a question of statutory construction". His Honour, with respect, also correctly pointed out at [51] that what was described by Viscount Radcliffe in considering this issue in Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 as the "general social policy" of a statute might today "be encompassed within the principle of purposive construction".
5. In the present case, it seems to me plain that an estoppel cannot operate to effectively extend the time limitation imposed by s 459G(2). This is for a number of reasons. First, as was pointed out in David Grant at 277, the requirement as to time defines "the jurisdiction of the court" by imposing the requirement as "an essential condition of the new right conferred by s 459G". Just as the time could not be extended by an order under s 1322(4)(d) of the Act so as to confer jurisdiction, it cannot be extended either by agreement of the parties or by the operation of an estoppel.
6. Second, the text of the legislation supports this conclusion. The expression "may only" in s 459G(2) tells against any variation in the time limit as a result of an agreement of the parties or an estoppel. Further, the other detailed requirements in Part 5.4 of the Act relating to the form of the application to set aside a demand under s 459G and the limited power to extend the time in s 459F(2)(a)(i), coupled with the wording of s 459G itself, suggest that the statutory time limits cannot be varied.
7. Third, the policy behind Part 5.4 of the Act tends against the suggestion that time limits can be varied as a result of the operation of an estoppel. I have already set out the history of the legislation and what has been said by the High Court concerning the policy behind it. In summary, the object of the legislation was to provide a mechanism by which applications to wind up potentially insolvent companies could be dealt with promptly, with an application required to be finally determined within 6 months in accordance with s 459R(1). It did this, in the case of the statutory demand procedure, by providing detailed steps to be taken with precise time limits. It can readily be seen why the legislature regarded this policy to be in the public interest, and this provides a further powerful reason why the time limits should not be able to be varied by the application of doctrines such as estoppel.
8. To the extent that such a conclusion may produce harsh results, this must be balanced against the public interest in determining applications to wind up insolvent companies promptly and avoid injustices that may be caused by the continued trading of such companies: see David Grant at 279; Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661; [2000] NSWCA 37 at [50]. Further, the provisions of s 459S, which confer on a court the power to grant leave to raise matters which could have been raised in an application under s 459G if relevant to the question of solvency, can alleviate any hard result: see MGM Bailey Enterprises v Austin Australia [2002] NSWSC 259 at [15]-[16], in which Austin J held, in factual circumstances somewhat similar to the present case, that to allow an estoppel to operate would be contrary to the legislative policy behind Part 5.4 of the Act.
9. The respondent, while not appearing to dispute the proposition that an estoppel could not operate to extend the 21-day period in s 459G(2), submitted that the effect of the conclusion of the primary judge was that the appellant was estopped from denying that the 21-day period expired on 29 June 2017 rather than 27 June 2017.
10. I do not think that this formulation of the estoppel affects the position. Regardless of how the estoppel is expressed, its effect is to prevent the appellant from asserting that the time limit imposed by s 459G(2) has expired, and thus, to confer jurisdiction on a court to hear an application which it otherwise would not have. Both the text of the relevant legislative provisions and the policy issues to which I have referred lead to the rejection of that proposition.
11. In addition, the proposition fails to take account of the provisions of s 459F(1), which provides that a company has "failed to comply" with a statutory demand if the demand is still in effect and the company has not complied with it within the defined period, which is, relevantly, 21 days after the demand has been served, and the provisions of s 459Q(a), which provides that a creditor who seeks to rely on a demand is to set out the "particulars of service of the demand". These subsections provide further support for the conclusion that the estoppel contended for cannot operate in the face of the legislative scheme of Part 5.4 of the Act.

Conclusion

1. It follows that the primary judge erred in his answers to the separate questions, and that each of them should have been answered "No". Normally, this result would lead to the appeal being allowed and the application filed by the respondent being dismissed.
2. However, at the time that leave to appeal was granted, the Court's attention was not drawn to s 459C(2) of the Act, which provides that the presumption of insolvency arises if the company has "failed (as defined by s 459F) to comply" with the statutory demand during or after the 3 months ending on the day the application [for a winding up order] was made".
3. It follows that, in the present case, the statutory demand would have only given rise to the presumption of insolvency if an application for winding up was brought within 3 months after 12 July 2017. There is no evidence that such an application was made. If no application had been made within the three-month time period, then the provisions of s 459C(2) should have been brought to the attention of the Court at the hearing of the leave application, and for that matter, at the hearing of the appeal. The effect of s 459C(2) is that the proceedings are entirely hypothetical.
4. Further, if in fact an application for winding up had been made within the time prescribed by s 459C(2), then it would have fallen to be determined within the 6-month period provided for by s 459R(1), which expired well before the time at which this appeal was heard.
5. In these circumstances, although I have dealt with the substantive issue on the appeal, I am presently of the view that the only order which should be made is that leave to appeal should be revoked. However, it is appropriate to hear from the parties prior to making that order. Therefore, the only order I would make at the present time is to direct the parties to provide submissions within 10 days on whether leave to appeal should be revoked.
6. LEEMING JA: I agree with the Chief Justice.
7. SACKVILLE AJA: I agree with the orders proposed by the Chief Justice and with his Honour's reasons.

Amendments 16 November 2018 - [14] Formatting correction 14 June 2019 - [19] change "459M" to "459N" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 June 2019