Chief Commissioner Stamp Duties v Paliflex [1999] NSWSC 15 | Case summary

JUDGMENT 1 By a summons filed on 19 June 1998 the plaintiff seeks orders for winding up the defendant, relying on a statutory demand served under s.459E of the Corporations Law. The defendant contests the application. 2 The Corporations Law requires that unless the leave of the Court is obtained, a person may not oppose an application to wind a company up in insolvency unless a notice of grounds is filed and served within the period prescribed by the Rules: s.465C; Supreme Court Rules Part 80A rule 17. The defendant did not comply with this requirement prior to the hearing, but at the beginning of the hearing it applied for leave to oppose the application for winding up on the following grounds: (a) the statutory demand dated 7 May 1998 was not properly served; (b) the plaintiff is not a creditor of the defendant; (c) the defendant is solvent and, accordingly, leave should be granted under s.459S of the Corporations Law. Since it was clear from earlier mentions of this matter before me that the plaintiff had ample notice of the defendant's intention to oppose the application, and the grounds of opposition, I granted leave as sought. 3 When the matter first came before me for mention in September 1998 it was contemplated that it may be necessary to formulate and settle questions for determination. The reason was that the defendant's contentions about whether the debt is owing may raise a matter arising under the Constitution or involving its interpretation, which cannot be determined by the Court unless notices are given to the Attorneys-General of the Commonwealth and the States under s.78B of the Judiciary Act 1903 (Cth). In an effort to contain the litigation the parties had not given the requisite notices, and wished to have the Court determine as separate questions those aspects of the case which would not raise constitutional issues. Pursuant to directions which I gave in September, the parties filed separate questions for determination, but at the hearing it did not seem to be necessary to proceed in that fashion, and no order for the determination of separate questions under Supreme Court Rules Pt 31 was made. The judgment which I shall now deliver will, in effect, cover the issues which were put forward as separate questions for determination under Pt 31. 4 My decision is that the statutory demand and supporting affidavit have been properly served on the defendant, and that the defendant should be granted leave under s.459S of the Corporations Law to oppose the plaintiff's winding up application on the ground that the debt claimed by the plaintiff is not due and payable. My resolution of the issues in this way means that the question whether the defendant is indebted to the plaintiff must be considered and resolved as part of the next step in the litigation, the other part being whether the defendant can prove that it is solvent in an over-all sense. The question of indebtedness gives rise to a constitutional issue and so it will be necessary for s.78B notices to be given before that issue is heard and determined. I shall return to these matters later in my reasons for judgment. Facts 5 Prior to 31 January 1998 Mr Barry Anstee, the sole director of the defendant, lived at 61 Mulga Road, Oatley. Mr Anstee's daughter lived with Rory McCann at 59 Mulga Road. Those two properties are in a row of four houses owned by Balbabe Pty Ltd, a company related to Mr Anstee. From about March 1997 to 4 February 1998, the basement garage at 59 Mulga Road was used as an office for several of Mr Anstee's companies including the defendant. On 5 September 1997 a notification of change of address (Form 203) was lodged for the defendant with the Australian Securities Commission, recording that the registered office of the defendant was changed on 2 September 1997 to 59 Mulga Road, Oatley. 6 By a contract dated 5 September 1997 the defendant purchased the property at 97 Elizabeth Bay Road, Elizabeth Bay from the Commonwealth of Australia for $9 million. Mr Anstee attended at the Office of State Revenue in Parramatta on 5 November 1997 and lodged the contract with a 'Non-Urgent Application for Impressed Stamping'. His evidence is that he had a conversation with an officer of the plaintiff in which he said that the contract was lodged for stamping on the basis that it was not dutiable. He says that the Office of State Revenue took the document and provided a receipt which recorded a nil amount. The defendant then required that the transfer in its favour be stamped, believing that the duty would be $2.00. However, by a letter dated 21 November 1997 the plaintiff informed the defendant that stamp duty had been assessed at $480,490. Additionally, a fine of $96,098 had been imposed, and the fine would increase to $120,122.50 if not paid by 5 December 1997, and $480,490 if not paid by 5 January 1998. 7 The defendant arranged with the plaintiff that the stamped transfer would be released if it provided an undertaking in an appropriate form. The defendant accordingly wrote to the plaintiff on 26 November 1997, enclosing an undertaking under seal whereby the defendant undertook to pay the 'assessed duty and any additional interest' in respect of the contract. The covering letter recorded the defendant's understanding that the duty payable was $480,494 and explained that the money to pay stamp duty formed part of the funding arrangements for the purchase. The letter requested that an interest charge for late payment be imposed, rather than a fine. 8 Mr Anstee had several telephone conversations with Mr Cunneen of the Office of State Revenue in the early part of 1998. There is conflicting evidence as to precisely what was said, but the flavour of the conversations was that Mr Anstee was seeking to negotiate an interest payment rather than a fine, and was endeavouring to assemble funds for payment. 9 On 31 January 1998 Mr Anstee, his wife and daughter moved from Oatley to 97 Elizabeth Bay Road, Elizabeth Bay. The relationship between Mr Anstee's daughter and Rory McCann had come to an end, but Mr McCann remained in occupation at 59 Mulga Road as a tenant. It appears that there were some other occupants with Mr McCann. He remained in occupation until 12 June 1998. 10 Mr Anstee says that on 4 February 1998 he returned to Oatley and prepared notices of change of registered office for a number of his companies including the defendant. He says he posted the notices to the Australian Securities Commission from Oatley. The plaintiff tendered extracts from the Commission's records taken on 19 June 1998, 8 September 1998 and 9 December 1998, which all showed 59 Mulga Road, Oatley as the address of the current registered office of the defendant. I do not accept Mr Anstee's evidence that he posted the notices of change of registered office. He gave evidence that he had left it in the hands of his accountant to attend to corporate records but his evidence also suggests that some of the corporate records for his companies are in disarray. It would be puzzling that, if the notices had been posted, no action appears to have been taken by him or on his behalf to follow up the alleged lodgment, to ensure that the Commission's records had properly been adjusted. In any event, it is clear from the extracts from the Commission's records which are in evidence that no change of registered office has been recorded for the defendant, and I find on the balance of probabilities that this is because no such notice was lodged with the Commission. 11 In telephone conversations on about 27 March and 20 April 1998, Mr Anstee informed Mr Cunneen of the Office of State Revenue that the defendant had changed its address from 59 Mulga Road, Oatley to 97 Elizabeth Bay Road, Elizabeth Bay. Mr Anstee's evidence is that he used the words 'registered office' but I regard that as unlikely. Mr Cunneen made a handwritten note on the defendant's letter of 26 November 1997 that 'Mr Anstee advised new address is 97 Elizabeth Bay Road, Elizabeth Bay', and in two later handwritten notes Mr Cunneen used the word 'address' rather than 'registered office'. While I do not accept Mr Anstee's evidence that he used the words 'registered office', I accept that Mr Cunneen orally agreed to note the change of address and to act upon it in correspondence; but in fact the change of address was not recorded in the plaintiff's computerised records until about 10 September 1998, the date of a handwritten note by Mr Cunneen confirming that the address on the system had been changed. Mr Cunneen also spoke by telephone with Mr Jordon of Elliott Tuthill & Co, the defendant's solicitors, to discuss payment of the duty, but there is no evidence that they discussed the defendant's address. 12 The evidence indicates that the defendant's request in his letter of 26 November 1997 to pay interest rather than a fine was acceded to by Mr Cunneen on the plaintiff's part in telephone conversations in March 1998. But the accounts given by Mr Anstee and Mr Cunneen are sharply divergent. Mr Anstee says that he had a conversation with Mr Cunneen on 30 March in which Mr Cunneen gave him a calculation of interest up to Friday 3 April 1998 and when he told Mr Cunneen that he could not pay by Friday, Mr Cunneen said: 'That will be alright but please contact me when you are ready to pay the duty so that I can calculate the precise amount of interest you will have pay.' Mr Cunneen denies having said this. He says he asked Mr Anstee when the duty and interest, which he called a fine, would be paid, and Mr Anstee promised to phone back. He says he spoke to Mr Anstee again on 3 April 1998, when Mr Anstee said he would see his solicitor that day and that the illness of his partner and his secretary had taken up some of his time that week. A letter was written by the plaintiff to the defendant on 6 April 1998 demanding payment of $960,976.40, rather than the smaller amount of $480,490 plus a fine or interest of $55,289.26. The plaintiff says that this letter and a subsequent reminder of 1 May 1998 made it clear that any offer by the plaintiff to accept a lesser fine had been withdrawn and the full debt of duty and a 100% fine was required to be paid. Mr Anstee says there were further telephone conversations with Mr Cunneen after the letter of 6 April 1998, in which Mr Cunneen concluded by saying: 'Could you please let me know as soon as you know what date you will be able to pay so that I can calculate the interest that you will owe on the stamp duty.' Mr Cunneen denies having said this. He says that such a statement would be inconsistent with the instructions which he had received. 13 On these matters I prefer the evidence of Mr Cunneen to Mr Anstee. I find it inherently implausible that in all the circumstances Mr Cunneen would have made such accommodating statements as Mr Anstee attributes to him. That conclusion is reinforced by the fact that (as noted below) on 21 April 1998 Mr Cunneen referred the matter for legal debt recovery action, and the computer record of his notes of telephone conversations which was tendered by the defendant (rather than the plaintiff) is consistent with Mr Cunneen's evidence. In summary, I find that the plaintiff had resiled from accepting a smaller amount of interest rather than the full 100% fine by the time it wrote to the defendant on 6 April 1998, and that it communicated its new attitude to the defendant by that letter and in subsequent telephone conversations between Mr Anstee and Mr Cunneen. 14 Having spoken to Mr Anstee on 20 April 1998, when Mr Anstee referred to settlement of sale of another property, Mr Cunneen filled out a form entitled 'Referral for legal debt recovery action stamp duties (impressed)', which is dated 21 April 1998. In that document he drew attention to the change of address advised by Mr Anstee and recorded the defendant's address as the Elizabeth Bay address with the word 'note' next to the address, in capitals and doubly underlined. This is consistent with Mr Anstee's evidence, which I accept, that he drew Mr Cunneen's attention to the change of address in telephone conversations on at least three occasions, namely on about 27 March 1998, 20 April 1998 and in early May 1998. I also accept that Mr Cunneen assured Mr Anstee on each occasion that the change of address would be recorded and that correspondence would not thereafter go to the Oatley address, but I find those conversations were about the 'address' rather than the 'registered office' of the company, and in particular there was no undertaking by Mr Cunneen to treat the Elizabeth Bay address as the address of the registered office of the defendant. 15 By facsimile letter dated 12 May 1998, the Crown Solicitor's Office wrote to Elliott Tuthill & Co, saying that 'a section 459E Creditor's Statutory Demand was recently served on your client company'. The amount of the demand was not specified in the letter, though by that time the defendants had received several letters making a demand for stamp duty of $480,490 and a fine of the same amount. The letter of 12 May 1998 expressed a concern that the defendant may be attempting to divest itself of the property without paying stamp duty and stated that unless certain undertakings were received, this Court would be approached for orders preventing disposal of the property. 16 Mr Anstee's evidence, which I accept, is that he was in his solicitor's office when this letter was received. He responded by making inquiries with his family and occupants of 59 Mulga Road, Oatley to ascertain whether the documents had been received. Mr Anstee's evidence is that he made the inquiries by telephone at about 3.45pm on 13 May 1998, in preparation for a response by Elliott Tuthill to the Crown Solicitor's letter, which required a response by 5pm on that day. Having made those inquiries, he instructed Elliott Tuthill & Co to write their letter to the Crown Solicitor of 13 May 1998, in which they said 'we advise that no Section 459E Creditor's Statutory Demand has been served.' The letter also indicated that there was no proposal to sell the Elizabeth Bay property. 17 In fact the statutory demand was not served on 12 May 1998, as asserted by the Crown Solicitor. While I accept Mr Anstee's evidence that he did not see a copy of the demand until one was forwarded to Elliott Tuthill & Co with the Crown Solicitor's letter of 1 July 1998, I find that the statutory demand and the accompanying affidavit were left at the house at 59 Mulga Road, Oatley on the afternoon of 13 May 1998. 18 The evidence to this effect is not completely satisfactory. The process server who says he left the documents at 59 Mulga Road, Mr Hewer, swore two affidavits and gave oral evidence. His evidence changed substantially over time. He initially said that he handed the documents to a female employee at the registered office, that he asked her whether the premises were the registered office of Paliflex, and whether she was authorised to accept service of the demand on their behalf, and she answered in the affirmative. Eventually his evidence was that the person to whom he handed the documents was not an employee, he did not use the words 'registered office', and he did not ask her whether she was authorised to accept service, but only whether she could take the documents. I am satisfied, however, that he was at 59 Mulga Road, Oatley on 13 May 1998 and that he left the statutory demand and affidavit with a female person at the door of the premises there. His second affidavit annexes a copy of an 'Agent Work Sheet' which is a contemporaneous record, and his account of the house numbering of numbers 47 and 61 is consistent with Mr Anstee's affidavit. According to the work sheet he spoke to a female at the address who said 'yes, it's downstairs and is just a garage, we'll pass it on'. This is also consistent with Mr Anstee's evidence that the office was in a basement garage. The evidence does not indicate the identity of the person who took the documents from Mr Hewer, nor what happened to the documents afterwards. 19 Mr Hewer's first affidavit of service was dated 18 May 1998 and was received by Mr Staka, the member of the plaintiff's legal debt recovery team who was handling the defendant's file, on 21 May 1998. Mr Staka acknowledged in evidence that he had access to Mr Cunneen's notes about the correct address of the defendant at all relevant times. He also acknowledged that the Crown Solicitor had forwarded to him a copy of Elliott Tuthill's letter of 13 May 1998 in which Elliott Tuthill denied that a statutory demand had been served. He did not respond to Elliott Tuthill, or cause a response to be given, until 11 June 1998, after the expiry of the period for compliance with the statutory demand. By his letter of that date to Elliott Tuthill & Co, he stated that the statutory demand and accompanying affidavit had been served on the company's registered office on 13 May 1998, and that further steps to wind the company up would be taken if full payment of the stamp duty and fine was not received by 18 June 1998. Elliott Tuthill replied on 19 June 1998, stating that Mulga Road Oatley was not the registered office of the defendant, the defendant was not in occupation, and that no mail should be directed there. The letter recorded that no reply had been made to the earlier letter of 13 May, and re-asserted that no notice had been served. It stated that loan funds would shortly be available to enable payment of the duty to be made. 20 The plaintiff's summons for the winding up of the defendant, and the accompanying affidavit, were left at 59 Mulga Road, Oatley on 25 June 1998. On 1 July 1998 the Crown Solicitor wrote to Elliott Tuthill & Co asserting that the statutory demand and summons had been served at the registered office of the company as recorded in the Commission's records. Photocopies of the affidavits of service of the summons and demand, with annexed copies of the documents which were served, were enclosed. 21 Mr Anstee says the summons and supporting affidavit which were left at 59 Mulga Road, Oatley were not received by him, notwithstanding that he has made inquiries of all the occupants. It is curious that according to Mr Anstee, neither the summons nor the demand was received by him although they were both physically at the premises at 59 Mulga Road, Oatley, while letters to the defendant at that address dated 29 May and 19 June 1998 were received Mr Anstee and are annexed to his affidavit in these proceedings. However, on balance I accept Mr Anstee's evidence that the summons, like the demand, was not received by him, although little turns on this because copies of all of the documents were forwarded to the defendant's solicitors on 1 July 1998. Service of statutory demand 22 The defendant's claim that the statutory demand was not properly served is made on two grounds. First it is said that the demand was not in fact served in the manner required by the Corporations Law. Secondly, it is said that the plaintiff is estopped from asserting that service has been validly effected. Service under the Corporations Law 23 Prior to the amendments to the Corporations Law which took effect on 1 July 1998, the requirement of s.459E(1) to 'serve on the company a demand' was explained by s.220. According to s.220(1), a document may be served on a company by (inter alia) leaving it at the registered office of the company. Section 220(2) says (relevantly) that the situation of the registered office of the company, where a notice of change of situation of the registered office has been lodged as required by s.218, is the place the address of which is specified in the notice, the new address taking effect seven days after the notice was lodged. This is deemed to be true irrespective of whether the address of a different place is shown as the address of the registered office the company in a return or other document (other than a notice of change of address) lodged afterwards. 24 Literally, these provisions mean that if the demand is left at the address which is the registered office of the company according to the Commission's records (the last notification of change of address having been lodged more than seven days previously), then the demand has been effectively served on the company. As far as effective service is concerned, this is the result regardless of whether the registered office has in fact been changed though not notified to the Commission, and of whether the creditor is aware that the company no longer has an office there at the time when service is effected. 25 However, there are suggestions in cases that this literal construction needs to be qualified. I believe those cases should be treated with caution. Some of the cases deal with service by post. Section 109Y of the Corporations Law, which follows similar provisions in Commonwealth and State interpretation statutes, says that service is taken to be effected 'unless the contrary is proved'. This permits the company to prove non-delivery, though proof of non-receipt is not sufficient, as the High Court of Australia explained in Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87; see also F P Leonard Advertising Pty Ltd v K D Travel Service Pty Ltd (1993) 12 ACSR 136; Re Rustic Homes Pty Ltd (1988) 13 ACLR 105; Re Gasbourne Pty Ltd (1984) 8 ACLR 618. 26 Where service is effected by leaving the demand at the place recorded as the registered office, rather than by posting it, the statutory provisions to which I have referred are conclusive and without qualification. However, the courts have recognised that in some circumstances it would an abuse of process to allow the creditor to take advantage of the company by relying on literal compliance with the statutory provisions for service. In Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559 McLelland CJ in Eq agreed with Santow J in the F P Leonard Advertising case that the earlier case law is best explained by reference to the principle of abuse of process. In the Future Life case the registered office of the company was the office of a firm of accountants. In fact the accountants had had no contact with the company for several years. Mail for the company had been passed on by the accountants to an address which they had been given for the company, but had been returned unclaimed. His Honour found no possible basis for suggesting an abuse of process because the solicitors for the creditor had done all they reasonably could to ensure that fair notice of the statutory demand was given to those in control of the affairs of the company. Similarly in Cornick v Brains Master Corporation (1996) 14 ACLC 269 Whitlam J held that service was effective when the creditor's agent left the documents under the door at the recorded registered office after normal office hours, and it transpired that the company no longer occupied that address, though it was also relevant in that case that the creditor's solicitors had sent a copy of the demand to the business address of the company. 27 Conversely in Deputy Commissioner of Taxation v Abberwood Pty Ltd (1990) 2 ACSR 91 a statement of claim in proceedings was served at the address recorded as the defendant's registered office, which had been the address of the defendant's accountants until they moved two years previously. Although the statement of claim was returned to the plaintiff's office by the current occupants of the address, with a note explaining that the defendant was no longer there, the plaintiff proceeded to sign judgment in default of appearance. The judgment was set aside on the ground that the statement of claim had not been properly served. The issue of abuse of process was not argued, and the principles enunciated by Waddell CJ in Eq may not be directly applicable to service of a statutory demand at the company's registered office. However, as Santow J pointed out in the F P Leonard Advertising case (at 139), Abberwood was a clear case of abuse of process, since the evidence indicated that the plaintiff knew that the documents had not come to the defendant's attention, and was aware of the address of the defendant's place of business and the identity of its accountants and solicitors but had not brought the statement of claim to their attention, and had made no reference to the proceedings in discussions with the defendant's representatives. 28 In Duwina Trading SDN Bhd v Ion International Pty Ltd (1996) 14 ACLC 1603 a statutory demand was served by leaving it at the company's registered office, which was the office of the company's former accountants. The accountants told the solicitors who served the demand that the company's registered office was no longer there. This was not correct. But the creditor and its solicitors did not communicate with the company during the period for compliance with the statutory demand. When the company did not comply with the demand, the creditor applied to wind it up in insolvency. The company's attempt to set the winding up proceedings aside as an abuse of process was unsuccessful. There was no evidence that the creditor's solicitors were aware that the address of the registered office was of a firm of accountants who had ceased to act for the company. They subsequently became aware that the accountant who received the demand asserted that his office was not the registered office of the company, but that assertion was incorrect according to the Commission's records. Moore J held that even if it had been demonstrated that the creditor's solicitors knew the demand was unlikely to come to the company's attention, that fact would have been insufficient to establish an abuse of process. In his Honour's opinion, for an abuse of process to arise there must other matters which demonstrate that the application is made for an improper purpose - for example, where a creditor who knows that the demand is not likely to come to the attention of the company allows the period for compliance to pass and then seeks to press the company to undertake some act for the creditor's benefit, making an application to wind up the company as part of that process. 29 In my opinion, it is clear in the present case that the statutory demand and supporting affidavit have been effectively served under the Corporations Law. They were left at the address recorded in the Commission's records. They were left there with a person who said she knew the company and would pass the documents on to them (compare Golden Orchid Pty Ltd v Comax Pty Ltd (1995) 58 FCR 113). I reject the defendant's submission that it should have been obvious to Mr Hewer that the garage at Oatley was not the registered office of the company because of the requirement of s.217 of the Corporations Law that the registered office must be open for not less than five hours between 10am and 4pm each business day. The recorded address of the registered office was 59 Mulga Road, not the garage at that address, and Mr Hewer's evidence is that he did not closely observe the garage. 30 Before the demand was served the plaintiff was told, more than once, that the defendant's address had changed, but I have found that the words 'registered office' were not used in those communications. Even if the words 'registered office' had been used, the Commission's records had not changed. Moreover, the fact that they were aware of a new address or registered office did not mean that the plaintiff's officers knew that the demand was unlikely to come to the company's attention. Mr Cunneen was aware, prior to 13 May 1998, that correspondence written to the defendant at the Oatley address had been received by Mr Anstee, for Mr Anstee himself deposes to conversations with Mr Cunneen in which he acknowledged receipt of the plaintiff's letters of 6 April and 1 May 1998. Mr Cunneen was entitled to infer that Mr Anstee had arrangements in place for passing on correspondence and documents addressed to the defendant at the Oatley address. 31 It is true that the defendant's solicitors informed the plaintiff on 13 May 1998 that no demand had been served. However, that letter was written on the day of service, and it was open to the plaintiff to infer that, service having been effected at the registered office, the demand would shortly come to the attention of the defendant. 32 The plaintiff could have sent a copy of the demand and affidavit to the Elizabeth Bay address, and also to the defendant's solicitors. It could have sent them a copy of Mr Hewer's first affidavit of service dated 18 May 1998. But I do not believe its failure to take these steps, though they may well have been a prudent precaution, amounts to an abuse of process in the sense discussed in the cases. I do not accept that there was any intentional suppression of the demand until the expiry of the period for compliance, for the purpose of preventing the defendant from applying to set it aside. While the plaintiff was aware that the defendant initially claimed that no stamp duty was payable on the contract and transfer, apart from a nominal sum, the defendant had subsequently undertaken to pay the assessed duty and interest and Mr Anstee and Mr Cunneen had several discussions about payment. That being so, it is unlikely in my opinion that the plaintiff would have expected any challenge to the demand. My impression from Mr Staka's evidence is that he is inexperienced and not especially cautious but was not improperly motivated. The estoppel argument 33 The defendant asserts that the plaintiff was estopped from denying that the defendant's registered office was the Elizabeth Bay address because the plaintiff was notified of the change of registered office to the Elizabeth Bay address on 27 March 1998 and in subsequent telephone conversations. I have found that while Mr Anstee told Mr Cunneen that the defendant's address had changed, he did not use the words 'registered office'. But even if he did, my opinion is that the facts would not support the asserted estoppel. At most, Mr Cunneen agreed to note the new address on the plaintiff's file and send correspondence to that address. The facts do not support an interference that he represented that any documents to be served on the defendant would be served only at the new address, regardless of any legal advice the defendant may subsequently receive as to the proper method of service. Further, if (contrary to my finding) Mr Anstee had said that the registered office had changed to the Elizabeth Bay address, that statement would have implied that all necessary steps had been taken to make the change effective, and any representation made by Mr Cunneen would have been made on the assumption that that was true. When it appeared, over six weeks after the first conversation, that no notice of change of registered office had been lodged with the Commission, the plaintiff would have been entitled to resile from any representation that it would serve documents on the new address, if such a representation had been made. 34 The plaintiff's course of conduct in not responding to Elliott Tuthill & Co's letter of 13 May 1998, and in not forwarding Mr Hewer's affidavit of service of 18 May 1998 to the defendant, does not assist the defendant to patch up the factual deficiencies of the estoppel argument. It would have been reasonable for officers of the plaintiff to assume that the statutory demand had been passed on to the defendants shortly after the letter of 13 May was written, just as other correspondence had been passed on. In those circumstances the plaintiff had no duty to send copies of the demand to the new address or the solicitors. The defendant says that a letter from the plaintiff to the defendant dated 29 May 1998 supported the defendant's belief that no statutory demand had been served. The letter was marked to the attention of Mr Anstee and said 'Please inform me whether you are still acting in this matter and, if so, what action is being taken to satisfy the outstanding requisitions. In the absence of any reply from you within 14 days from the date of this letter, all persons primarily liable for the duty will be contacted and requested to pay the outstanding amount.' In the circumstances which obtained on 29 May 1998, by which time a statutory demand had been served on the person primarily liable for the duty, this letter was nonsensical. It cannot be relied on by the defendant as a justification for any assumption. Defendant's claim that plaintiff is not a creditor 35 The defendant contends that the debt for stamp duty is not owing having regard to the Commonwealth Places (Mirror Taxes) Act 1998 (Cth), and consequently the plaintiff is not a creditor of the defendant. That being so, the plaintiff has no standing under s.459P to apply to the Court for the defendant to be wound up in insolvency. 36 In my opinion it is not open to the defendant to make this argument unless the Court grants leave under s.459S. Section 459S(1) applies where an application for a company to be wound up in insolvency relies on failure by the company to comply with a statutory demand. The plaintiff's application in the present proceedings relies solely on the defendant's failure to comply with the statutory demand which was served on 13 May 1998. According to s.459S(1), the defendant may not, without the leave of the Court, oppose the plaintiff's application on a ground that the company could have relied on for the purposes of an application to set the demand aside. A challenge to the plaintiff's application on the ground that the plaintiff is not a creditor and therefore has no standing, is a method of opposing the application, and therefore falls within the ambit of s.459S(1). The ground of opposition is that the defendant is not indebted to the plaintiff, and therefore the plaintiff is not a creditor of the defendant, and therefore the plaintiff has no standing under s.459P. That ground of opposition could have been relied on in an application to set aside the statutory demand, had an application been made in time. In such an application, the company would assert that the debt was not owing, and therefore there is a genuine dispute between the company and the respondent about the existence of the debt to which the demand relates: see s.459H(1)(a). It is true that formally speaking, the ground for challenging standing under s.459P asserts that there is no debt, while the ground for challenging a statutory demand merely asserts that there is a genuine dispute about the existence of the debt. But the subject matter of the contention is the same. 37 Were it possible to raise the issue of indebtedness by challenging standing under s. 459P after it had become too late to set the demand aside by claiming a genuine dispute about the existence of the debt, the policy underlying the reform of the law of statutory demands made by the Corporate Law Reform Act 1992 would be undermined. As Gummow J noted in David Grant & Co Pty Ltd (rec apptd) v Westpac Banking Corporation (1995) 18 ACSR 225, 227 the provisions of Pt 5.4 now constitute 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. 38 In my opinion, the scheme contemplates that disputes about the existence of debts are to be resolved through the process of applying to set aside the statutory demand which relies on the debt. The purpose of the reform was to reduce the occasions when disputes would arise about the debt at the hearing of the winding up application: Explanatory Memorandum to the Corporate Law Review Bill 1992, para 685. To that end, 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: Explanatory Memorandum, para 688. The scheme '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 up 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': Explanatory Memorandum para 689. The construction for which the defendant contends would fly in the teeth of the legislative intention so revealed. This was the conclusion reached by Brownie J in House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 14 ACLC 1536. 39 Section 459S therefore precludes an argument that the applicant for winding up on the ground of non-compliance with the a statutory demand is not a creditor under s.459P. This was recognised by Master Sanderson in Zann Holdings Pty Ltd v Bay View Pty Ltd (1997) 15 ACLC 1238, 1240. A variation of the argument, in which it was asserted that it was an abuse of process for an applicant to seek winding up in reliance on a statutory demand, because it was not a creditor, was considered by Brownie J in House of Tan Pty Ltd v Beachiris Pty Ltd. His Honour said (14 ACLC at 1538-9): 'In my judgment, the defendant does require the leave of the Court under s.459S, if it is to litigate the issue. Part 5.4 was enacted to change a branch of the law that was perceived to be unsatisfactory. That branch of the law included a multitude of cases that proceeded on the basis that a company, faced with winding up proceedings, might effectively defend itself by asserting that the alleged creditor was not in truth a creditor, in that the supposed debt was disputed, so that the supposed creditor had no standing to bring the winding up proceedings. The plain intention of the drafters of the legislation, and of the Parliament, was to replace that body of law with the new procedure provided for in Part 5.4…. The defendant contended that its application to restrain the plaintiff from proceeding with the winding up proceedings was outside the scope of the Part, in that the application was brought under the Court's general powers. In a sense, this is correct, but … I conclude that this general power has been limited by the enactment of the Part. This conclusion carries with it the consequence that, if a company facing a winding up summons wishes to assert that the plaintiff lacks the standing of a creditor, the company must now take that point by way of applying to set aside the statutory demand, or must obtain leave under s.459S'. I respectfully agree with these observations. I must therefore consider whether this is an appropriate case in which to grant leave under s.459S. Leave under s.459S 40 As I have already mentioned, s.459S applies, in the circumstances of the present case, to prevent the defendant without the leave of the Court from opposing the plaintiff's application for winding up on a ground that the defendant could have relied on for the purposes of an application to set the demand aside. In the David Grant case (at 229) Gummow J acknowledged the Court's statutory discretion under this provision, but in a context which implied that the discretion under s.459S should be used cautiously and even sparingly given the overall policy of Part 5.4. Nevertheless, as Hayne J observed in Texel Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 535, 537, the discretion under s.459S is there as a 'safety net' in the sense that there are special 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. 41 The Court's task, therefore, is to identify circumstances in which it is appropriate to provide a safety net for the company in winding up proceedings, without softening the legal policy of Part 5.4. There are some semantic problems created by s.459S, principally by use of the word 'ground', as Young J noted in Ketatos v Holmark Construction Co Pty Ltd (1995) 18 ACSR 199. Nevertheless, the section has comprehensible field of operation. In my opinion, s.459S operates by allowing the Court to grant leave to the company to oppose the application to wind it up on a ground relevant to the winding up application. It does not permit the company to litigate, at the winding up stage, an application to set aside the statutory demand. Where the question of indebtedness is raised in the winding up proceedings, the question is not whether there is a genuine dispute about the existence of the debt, but rather whether the dispute about the debt affects the plaintiff's standing or the ultimate question whether the company is solvent. The matter must be addressed in three stages: the first is whether leave should be granted to permit the company to dispute the debt upon which the demand was based, and the second (which arises if leave is granted) is whether the plaintiff has standing as a creditor under s.459P; and the third is whether the company is solvent, taking into account the dispute about the debt. 42 The Court is precluded from granting leave under s.459S(2) unless it is satisfied that the ground is material to proving that the company is solvent: s.459S(2). Properly understood, subs.(2) is simply a corollary of the basic proposition that the Court's order to wind the company up is made only where the company is an insolvent company (either in fact or because of a presumption under s.459C): s.459A. In Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025, 1032 the Court observed that if the debt in the statutory demand is small and the company's assets far exceed its liabilities and it is able to pay its debts as and when they become due and payable, then the existence or otherwise of the debt will not be material to the company's solvency and leave will not be granted. That is a safe proposition, as long as both the 'balance sheet' and 'cashflow' criteria are satisfied. It does not follow, of course, that the debt will not be material to solvency simply because it is small in comparison with the excess of assets over liabilities, since the assets may be unrealisable or illiquid. 43 In Zann Holdings Pty Ltd v Bay View Holdings Pty Ltd (1997) 15 ACLC 1238, 1241, Master Sanderson remarked that 'it is necessary for a corporation to show that the debt upon which the statutory demand is based is the difference between actual solvency and insolvency before leave under subs.(1) can be granted'. He continued: 'In effect, if by ignoring the debt upon which the statutory demand is based, the company might be found to be solvent, then, and only then, the existence of a bona fide dispute would be a relevant consideration…. In circumstances where existence of the debt on which the statutory demand is based is pivotal to a decision on solvency, then the existence of the debt is a relevant consideration. What the section seems designed to avoid is companies against which an application for winding up based on the statutory demand is pending, challenging the standing of the applicant late in the day.' 44 With respect, those observations seem to set the materiality threshold too high. The Court considers the materiality question before deciding whether to grant leave to the company to dispute the debt. It has not, at that stage, reached a conclusion about the company's overall solvency, and may not have heard all the relevant evidence. It is not in a position to decide, at that stage, whether the debt in question is the difference between solvency and insolvency. Further, Master Sanderson's formulation tends to substitute 'decisive' for 'material' in subs.(2). In other contexts, 'material' is taken to refer to a likelihood or significant propensity to affect an outcome, or even a mere possibility of doing so: see Ford's Principles of Corporations Law (looseleaf) para [23.371] and cases there cited. 45 The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 20 ACSR 108 shows that an application may be made on general equitable principles of abuse of process where an applicant to wind the company up on the ground of actual insolvency relies on a disputed debt to provide standing to apply. The case does not raise the question whether proceedings for abuse of process are limited by s.459S because there was no statutory demand involved in that case. 46 In Gradfan Pty Ltd (in liq) v Miling Nominees Pty Ltd (1995) 19 ACSC 466 Master Ng dismissed applications to wind up the defendants on the ground of insolvency, based on statutory demands, for two reasons. First, he found that the debts relied upon in the demands could not have been owed to the plaintiff, since they were debts due to a trust of which the plaintiff was no longer the trustee. It followed, in his view, that the plaintiff had no standing as a creditor to apply for winding up orders. In my respectful opinion there is a flaw in this reasoning, in the assertion that the question of indebtedness can be considered under s.459P without regard to s.459S. I prefer the reasoning of Brownie J in the House of Tan case. 47 Master Ng's second ground was that leave should be granted to permit the question of indebtedness to be raised because the defendants had behaved reasonably in thinking that the plaintiff would not proceed once they acknowledged indebtedness to the trust rather than its former trustee. To that extent, the case is a useful indication of matters relevant to the exercise of the discretion under s.459S. 48 The exercise of the Court's discretion under s.459S(1) does not lead to the setting aside of the statutory demand and therefore does not remove the presumption of insolvency which arises under s.459C(2)(a). Having granted leave, the Court's task is to deal with the proceedings for winding up, rather than cutting away the demand which is their substratum. The overall question of solvency is the critical issue. If it emerges that the debt upon which the applicant has relied is not owing, the Court may grant leave to a creditor to be substituted as applicant, and if that happens the new applicant may be able to take advantage of the presumption of insolvency which arose out of non-compliance with the initial demand. As Gummow J said in the David Grant case (at 234), Part 5.4 may appear to operate harshly, but that is consequence of the legislative scheme which has been adopted, and in an appropriate case the applicant for winding up may be restrained on the ground of abuse of process. 49 In my opinion the exercise of the discretion to grant leave under s.459S(1) involves three considerations, namely: (i) a preliminary consideration of the defendant's basis for disputing the debt which was the subject of the demand; (ii) an examination of the reason why the issue of indebtedness was not raised in an application to set aside the demand, and the reasonableness of the party's conduct at that time; and (iii) an investigation of whether the dispute about the debt is material to proving that the company is solvent. The dispute about the debt 50 In argument before me the plaintiff relied on a construction of the Commonwealth Places (Mirror Taxes) Act 1998 (Cth) to demonstrate that no debt was owing for stamp duty. The plaintiff relies on s.7 of the Act, which provides: '7(1) An applied law does not have effect in relation to an amount that would (apart from this sub-section) have become due for payment before 6 October 1997 under the applied law. (2) In determining whether an amount is or was payable under an applied law, it must be assumed that all obligations of any relevant person that arose before 6 October 1997 had been fully and promptly complied with. (3) An applied law does not have effect in relation to an amount that would (apart from this sub-section) have become due for payment as stamp duty on an instrument made before 6 October 1997. (4) In determining whether an amount is or was payable under an applied law relating to stamp duty, it must be assumed that: (a) all relevant instruments made before 6 October 1997 were lodged for assessment at stamp duty; and (b) the stamp duty (if any) on those instruments was assessed and paid.' 51 In the present case the contract for sale between the Commonwealth of Australia and the defendant was made on 5 September 1997. The defendant says that the effect of s.7 is that no NSW stamp duty is payable on the contract. The contract is a relevant instrument made before 6 October 1997, and under s.7 it must be assumed it was lodged for assessment of stamp duty and that stamp duty was assessed and paid. 52 In my opinion there is a simple answer to this contention. Section 7 only applies to an 'applied law'. An applied law is defined in s.3 to mean the provisions of a State taxing law that apply in relation to a Commonwealth place in accordance with this Act (emphasis supplied). If a State stamp duty law applies of its own force to an instrument, s.7 is irrelevant. Section 7 only comes into play when the State stamp duty law does not apply of its own force because the instrument relates to a Commonwealth place and paragraph 52(i) of the Constitution prevents the State law from applying to that place. In such a case, s.6 of the Act provides in part: '6(1) In this section: Excluded provisions, in relation to a State taxing law, means provisions of that law to the extent that they are excluded by paragraph 52(i) of the Constitution. (2) Subject to this Act, the excluded provisions of a State taxing law, as in force at any time before or after the commencement of this Act, apply, or are taken to have applied, according to their tenure, at that time, in relation to each place in the State that is or was a Commonwealth place at that time.' 53 In Allders International Pty Ltd v Commissioner of State Revenue (1996) 140 ALR 189 the High Court held that a lease of a duty free store at an airport, which was a Commonwealth place for the purposes of paragraph 52(i) of the Constitution, was exempt from State stamp duty. According to the explanatory memorandum to the Bill for the Act, the Bill was part of a package which represented the Government's legislative response to the Allders International case. The purpose of the provisions of the Bill is to ensure that taxes which mirror State taxes such as stamp duties (inter alia) apply in relation to Commonwealth places in the same State: explanation memorandum, paragraph 1.2. 54 Thus, s.6 of the Act, exercising the exclusive power of the Commonwealth to legislate in respect of Commonwealth places, provides that by force of Commonwealth law the State taxing law applies to Commonwealth places in the State. It is only those 'applied laws' which fall within s.7. 55 The plaintiff says that in the present case, the Stamp Duties Act 1920 (NSW) is not an applied law because its direct application is not excluded by paragraph 52(i) of the Constitution. The defendant's submission that s.7 applies carries with it the implication that the Stamp Duties Act is an applied law, and therefore that the contract for sale in the present case would not be subject to stamp duty but for the Act, having regard to paragraph 52(i) of the Constitution. 56 Understood in this fashion, the dispute between the plaintiff and the defendant involves a matter arising under the Constitution or involving its interpretation, and it is the duty of this Court not to proceed unless and until the Court is satisfied that appropriate notice has been given to the Attorneys-General of the Commonwealth and the States: Judiciary Act 1903 (Cth), s.78B. The orders which I propose to make will ensure that this duty is discharged. For the purpose of assessing whether to grant leave under s.459S, it is sufficient for me to say that in my opinion, there is a plausible argument to be made for the defendant's contention; to put it another way, the defendant's case is not so hopeless that I should deprive it of the opportunity of developing its case for this reason alone. The reason for the company not applying to set aside the demand 57 As mentioned earlier, the Court must balance the legislative policy of preventing disputes about debts from being raised at the winding up stage, against the potentially harsh effect of the 21 day time limit for challenging a statutory demand, which was held in the David Grant case not to be capable of extension. In the present case, I have found that Mr Anstee (who for practical purposes is equivalent to the defendant) did not receive the statutory demand and supporting affidavit until after the expiration of the 21 day period. He was aware that the plaintiff claimed to have served the documents on 12 May 1998 (a claim which was clearly false). He was also aware that his solicitor had written to the plaintiff's solicitor on 13 May 1998 denying that service had taken place. In my opinion, it was reasonable for him in these circumstances to wait for a reply to the letter of 13 May, provided that he also made all reasonable inquiries to discover whether the documents had in fact been left at 59 Mulga Road, Oatley. I have accepted his evidence that he made inquiries of his own family and the occupants of 59 Mulga Road and I regard those inquiries as reasonable. While whatever he might have done had not led to the lodgment of a notice of change of registered office from Oatley to Elizabeth Bay, he had at least informed Mr Cunneen several times that the defendant's address had changed to the Elizabeth Bay address. 58 It is also relevant to the exercise of my discretion that the plaintiff might have taken steps to provide a copy of the demand and supporting affidavit to the defendant, either by sending them to Elizabeth Bay or to the defendant's solicitors, but they did neither. While their conduct did not fall to the level of the creditor's conduct in the Abberwood case, and did not otherwise provide the basis for a case of abuse of process, it did not live up to the punctilious standard observed in Re Future Life Enterprises. Materiality of the dispute about the debt to proof of insolvency 59 The evidence relating to the company's solvency is quite thin at the present time. The defendant foreshadowed that it would seek leave to adduce further evidence on the issue of solvency once the question of leave under s.459S was determined. 60 The evidence before me is that the defendant owns the property at 97 Elizabeth Bay Road, Elizabeth Bay, which was valued by the Valuer General at $12.5 million. That appears to be the only substantial asset of the defendant. According to Mr Anstee's affidavit in the proceedings, the defendant has debts of approximately $9.5 million. The debts are not specified, but there is affidavit evidence that Elliott & Tuthill (Mortgages) Pty Ltd is the first registered mortgagee over the property. The amount advanced is $6.6 million and the term of the mortgage expires on 8 October 1999. According to that evidence, the first mortgagee is able and prepared to advance a further $1 million subject to the consent of the other mortgagees registered on the title and to the valuation of the property being not less than $11,516,000. 61 Further affidavit evidence is that there is a second mortgage to Presland Properties Pty Ltd to secure an amount of $900,000, and a third mortgage to Southern Finance and Investment Pty Ltd to secure an advance of $1,780,450. The total amount secured by the three mortgages is $9,280,450. The third mortgage falls due on 10 June 1999 but there is no information about the due date of the second mortgage. There is no information about the interest rates charged by the mortgagees, nor about the cash flow of the mortgagor. 62 Apart from its secured debts, the company has current council, water and electricity accounts which may be outstanding. It is has a bank account with the National Australia Bank at Hurstville. During the period from 19 June to 9 September 1998 the maximum credit was $55,452.22 and the maximum debit was $10,934.82. During that period the company was charged a reference fee for permitting overdrawings on five occasions. 63 If the question of standing is overcome, the defendant will need to adduce clear evidence of solvency in order to overcome the statutory presumption of insolvency which currently operates against it under s.459C(2)(a). Given the relative illiquidity of company's sole substantial asset, the excess in value of that asset over liabilities may not be of any real significance. If the defendant is required to pay the whole of the debt claimed by the plaintiff, the evidence suggests that that amount can be obtained wholly from the first mortgagee if the other mortgagees consent, but it is unclear whether they will do so. There is also an undrawn facility in the third mortgage of a little over $200,000. 64 In these circumstances, it cannot be seriously doubted that the argument as to the existence of the debt claimed by the plaintiff is material to proving the solvency of the defendant, even in the absence of evidence of cashflow. If the second and third mortgagees refuse to consent to a further loan by the first mortgagee, or the first mortgagee's valuation does not meet the threshold amount which it requires, it will not be possible to raise funds to pay the plaintiff's claim without selling the property, and so the company will be unable to pay the debt to the plaintiff (if there is one) which will have already fallen due. If the plaintiff's claim does not have to be paid, then the question will be whether the plaintiff is solvent in the normal sense, and that will largely depend on e`vidence about cashflow which has not yet been tendered. Conclusion 65 Although • the statutory demand and supporting affidavit have been validly served on the defendant and there is no abuse of process involved in relying on that valid service; and • no estoppel operates against the plaintiff to prevent it from relying on valid service; and • the defendant cannot challenge the standing of the plaintiff as creditor under s.459P without first obtaining leave under s.459S(1); I have come to the conclusion in the exercise of my discretion that this is an appropriate case in which to grant leave to the defendant under s.459S(1) to contest the question whether it is indebted the plaintiff at all. The contest as to whether there is such a debt is wholly or substantially a matter arising under the Constitution or involving its interpretation. Therefore I propose to direct the defendant to give s.78B notices to the Commonwealth and State Attorneys-General so that the matter may proceed to a determination. 66 Given that that process will involve a certain amount of time, I believe it is appropriate to grant leave to the parties to provide further evidence on the question of solvency in the meantime. I have considered whether I should make my orders conditional the defendant paying some money into court or otherwise securing the indebtedness which it may eventually be found to have. I have decided that it is not appropriate to impose such a requirement as a condition of granting the relief which has been sought. This is because the relief is specifically intended to permit the defendant to argue that it is not indebted to the plaintiff; and to require it to pay out the whole or a significant part of that amount pending the resolution of the dispute may impose some hardship on the defendant which proves in the end to have been totally unjustified. 67 I therefore propose to make orders along the following lines: (a) to grant leave to the defendant under s.459S(1) to oppose the plaintiff's application for orders for the winding up of the defendant on the ground that the amount claimed in the statutory demand served by the plaintiff on the defendant on 13 May 1998 is not a debt due and payable by the defendant to the plaintiff; (b) to direct the defendant to give notice of this cause under section 78B of the Judiciary Act 1903 (Cth) to the Attorneys-General of the Commonwealth and of the States, within seven days of the making of my orders; (c) to direct that the defendant file and serve on the plaintiff within seven days any further affidavit evidence upon which it proposes to rely on the question of the defendant's solvency; (d) to direct that the plaintiff file and serve on the within 14 days any affidavit evidence upon which it proposes to rely on the question of the defendant's solvency; (e) to direct that the defendant file and serve on the plaintiff within 21 days any further affidavit evidence on which it proposes to rely in reply to the plaintiff's affidavits on the question of the defendant's solvency. 68 On 18 December 1998 I made an order pursuant to s.459R(2) that the period within which the plaintiff's application in the summons must be determined is extended up to and including Monday 8 February 1999, and I stood the matter over to the Company List before me on that day. I propose to make orders on that day and I direct the plaintiff to prepare draft short minutes of order for that purpose. I shall hear submissions as to costs at that time.

Chief Commissioner Stamp Duties v Paliflex

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Judgment (8 paragraphs)

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