By Originating Process filed on 16 May 2019 the Plaintiff, LDW Constructions Pty Ltd ("Company") applies to set aside a creditor's statutory demand served at its registered office on 18 April 2019 ("Demand") under s 459G, or alternatively s 459J of the Corporations Act 2001 (Cth), or alternatively seeks an order varying the Demand under s 459H of the Act. I pause to note two matters about that application. First, it is common ground that, subject to the issues that I will note below, if the service of the Demand at the Company's registered office was properly effected, then the application to set aside the Demand was filed outside the 21 day period specified in s 459G of the Act. Second, the framing of the Originating Process treats s 459J of the Corporations Act as a separate basis to set aside the Demand, separate from any application to set it aside under s 459G of the Act, rather than a ground to set aside the Demand under s 459G of the Act. That ultimately is of some significance to the application.
Chief Commissioner of State Revenue v Boss Constructions [2019] NSWSC 1159 | Case summary | Zoe
When the issue as to whether the application to set aside the Demand was within time, and the Court had jurisdiction to deal with it emerged, I made orders in the Corporations Directions List on 24 June 2019 that the question whether the application to set aside the Demand was filed within time, and whether the Court had jurisdiction, be determined as a preliminary question.
The Company relies on the affidavit dated 16 May 2019 of its accounts manager, Ms Dou. Parts of Ms Dou's affidavit are directed to establishing an offsetting claim. Paragraph 7 refers to the date on which the Demand was "received" by the Company, and says the Demand was not "received" prior to 26 April 2019. Where it is common ground that the Demand was delivered to the Company's registered office on 23 April 2019, it appears that Ms Dou is referring to the date on which the Demand came to her attention, several days after the date on which it was delivered to the Company's registered office, and the paragraph was admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) on that basis.
The Defendant in turn relies on an affidavit of a process server, Mr Ng-Saad, dated 29 April 2019, which refers to delivery of the Demand to the Company's registered office, at the address which Ms Dou accepts is its registered office, on 23 April 2019. He reports a conversation with a person named Lucy who said that, first, she was authorised to accept the Demand, by responding "yes" to a question asking whether that was the case; and also said that "we have nothing to do with [the Company]" but she would accept the Demand and tried to pass it on. The proposition that the occupants of that address had nothing to do with the Company has the difficulty that it was the Company's registered office. The occupants plainly had contact with the Company since the Demand was in fact passed on, because it came to Ms Dou's attention by 26 April 2019.
[3]
Whether the Court has jurisdiction to deal with the application
I have had regard to the written submissions of Mr Blackman, who appears for the Company, and to his oral submissions which were fair and balanced in putting the relevant arguments. I have had regard to Mr Gee's written submissions in opposition to jurisdiction, although I ultimately did not need to call on him, other than for brief oral submissions, in respect of the issues.
Mr Blackman fairly accepts the jurisdiction does not exist under s 459G of the Act, so far as the application was not brought within 21 days of the service of the Demand at the Company's registered office. That service was compliant service for the purposes of s 109X of the Act. Mr Blackman in effect submits that there is a freestanding jurisdiction to set aside the Demand, where an application is not within time for the purposes of s 459G of the Act, arising under s 459J of the Act.
Mr Blackman relies on four cases for that submission. The first, which should not be treated as authority for that proposition, is the decision of Barrett J in Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd [2009] NSWSC 180 ("Faji"). His Honour there observed that the grounds for setting aside a creditor's statutory demand exist quite independently under s 459J of the Act of whether a genuine dispute as to the debt has been shown. That proposition is plainly correct, and the authorities demonstrate that a creditor's statutory demand can be set aside for some other reason although no genuine dispute is established. That case is not, however, authority that s 459J is available when an application is outside time under s 459G of the Act because, as Mr Blackman fairly accepts, that was not the position in Faji. His Honour was doing no more than observing that, where an application to set aside a creditor's statutory demand was filed within time, and jurisdiction was established under s 459G of the Act, s 459J could be relied on although a genuine dispute was not established.
In a subsequent decision of Palmer J, that proposition seems to have been somewhat expanded, to permit an application to set aside a creditor's statutory demand to be brought under s 459J of the Act, where there was a lack of "fair notice" of the demand, even in circumstances that the application to set aside the demand was out of time: Mangraviti Pty Ltd v Lumley Finance Ltd [2010] NSWSC 61 ("Mangraviti"); note also Woodgate v Garard Pty Ltd [2010] NSWSC 508, to which Mr Blackman referred, but to which I was not taken in submissions. That case was applied in the Supreme Court of the Australian Capital Territory by Master Harper in Piast Enterprises Pty Ltd v Toorallie Holdings Pty Ltd [2010] ACTSC 116, where Master Harper observed at [16] that:
"Notwithstanding the apparent inconsistency with s 459G as to the essential requirement of an application to set aside a statutory demand that it be made within twenty-one days of service of the demand, I take the view that as a Master I should follow the decision of Palmer J. I am accordingly persuaded that the court has the power to set aside the demand under s 459J despite the fact that application was not made within twenty-one days of service of the demand."
Plainly, Master Harper was there not necessarily approving the reasoning of Palmer J, so far as the introductory words of his observation pointed to a potential difficulty with it, but fairly following that decision where it was a decision of a Judge of this Court.
Subsequently, the Court of Appeal has had occasion to consider the scope of s 459G of the Act, and the policies which it serves, in Chief Commissioner of State Revenue v Boss Constructions (NSW) Pty Ltd [2018] NSWCA 270. Bathurst CJ, with whom Leeming JA and Sackville AJA agreed, there referred to the observations of the Court of Appeal in TQM Design & Construct Pty Ltd v KCL Developments Pty Ltd [2011] NSWCA 7 at [29] as to the structure of the creditor's statutory demand regime, as constituting "a carefully formulated series of interlocked steps which have substantial consequences and the objects of which require precise compliance for their attainment." His Honour also there referred to David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 at 270, where Gummow J, with whom other members of the High Court agreed, described the provisions relating to creditor's 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". As the Court of Appeal recognised in Boss Constructions above, David Grant above is in turn authority that the time limit in s 459G of the Act cannot be extended by the Court.
The decision in Boss Constructions is in turn authority, as Mr Blackman fairly accepted, that that time limit cannot be sidestepped by reason of an estoppel, and Bathurst CJ there observed at [27] that that reflected not only the history of the legislation, what was said by David Grant above as to its policy, but also the need for the determination of applications to set aside creditor's statutory demands within precisely established time limits. The Court of Appeal also there recognised that that conclusion may produce harsh results, but that that is to 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. It should also be recognised, of course, that a party that has been unable to raise a matter in an application to set aside a creditor's statutory demand may be able to raise that matter in opposition to a winding up application, under s 459S of the Corporations Act, with leave if necessary, or as a matter going to the exercise of the Court's discretion as to whether to wind up a company.
In the present case, it is not apparent to me that there is any basis on which it could be said that the Company did not have fair notice of the Demand by service of the Demand at its registered office. That, after all, is the structure for service contemplated by s 109X of the Act, and the Company, by nominating the address of its registered office, provides an address at which documents of significance, including creditor's statutory demands, may be served. Even assuming in the Company's favour that any question of lack of fair notice arises on the facts, I am satisfied I should not follow the reasoning of Palmer J in Mangraviti to which I have referred above. It seems to me that that reasoning finds no support from the decision in Faji, to which Palmer J referred, because that was not a case where the application to set aside the creditor's statutory demand had been served out of time.
It also seems to me that that reasoning is inconsistent with the terms of the relevant statutory provisions. Section 459G of the Act specifies when a company may apply to the Court for an order setting aside a creditor's statutory demand, and provides that application may only be made within 21 days after the demand is so served. Section 459J in turn provides that, on an application under s 459G, the Court may only set aside the demand if it is satisfied of the matters set out in that section (emphasis added). With the greatest of respect to his Honour's reasoning, I am unable to see that s 459J can apply, or the grounds to which it refers can be raised, where no application under s 459G is available, because the application was not brought within time.
This conclusion is consistent with the reasoning of the Court of Appeal in Boss Constructions, although I recognise that the Court of Appeal did not there have to deal with the question of whether the scope of s 459J extended outside the scope of s 459G of the Act. Notwithstanding Mangraviti, for the reasons I have indicated, I am satisfied that such an application of s 459J is not available and that I should not follow those earlier decisions which have taken a contrary view.
[4]
Determination and costs
For these reasons, the application to set aside the Demand must be dismissed and the Plaintiff must pay the Defendant's costs of the application on an ordinary basis, as agreed or as assessed. As I noted above, the matters on which the Company seeks to rely may potentially be raised, if the Demand is not complied with, in opposition to an application to wind up the Company based on noncompliance with the Demand, subject to obtaining any necessary leave under s 459S of the Act.
After delivery of my judgment, Mr Gee indicated that he was instructed to make an application for indemnity costs. It seems to me that that application would face the formidable obstacle, and I use that language with what seems to me to be a significant degree of understatement, that the earlier approach of a distinguished Judge of this Court appeared to have supported the position which the Company advanced. I have departed from that approach, for reasons that I have set out. Subject to any further submissions which Mr Gee may wish to advance, I am presently unable to see that it was unreasonable for the Company to advance an argument that Palmer J had previously accepted. In these circumstances, I do not propose to deal with the application for indemnity costs now, but to give the Defendant an opportunity to further consider whether its investment of time and costs in such an application would be soundly based.
I grant leave to the Defendant to relist the matter, on two business days' notice given within seven days, should it seek to pursue an application for indemnity costs. I note that the effect of my order is that, if the matter is not relisted within seven days, then the orders I have made as to costs will have final effect, such that costs will be ordered on an ordinary basis.
[5]
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Decision last updated: 04 September 2019