Complete Windscreen Service Nominees Pty Limited v Nielsen & Moller Windscreens Pty Ltd

Supreme Court of NSW|2019-05-02|Before: Rees J, Brereton J

Solicitors: Stewart & Associates (Plaintiffs) ECLS Pty Ltd (Defendant) File Number(s): 2018/381746

Ex Tempore Judgment (Revised)

HER HONOUR: This is an application to set aside a statutory demand by reason of an offsetting claim said to render the substantiated amount of the debt to nil. The application is brought by the first plaintiff (Boss Constructions) and its sole director, Nicholas Bobos, against the Council of the City of Broken Hill (the Council). The undisputed debt is a default judgment obtained by the Council against Boss Constructions in 2016 for unpaid rates, being $11,885.02 inclusive of costs. The offsetting claim is said to be a claim "for unjust enrichments" in respect of advertising revenue said to have been received by the Council from local businesses for advertising on a tourist information sign located on land purchased by Boss Constructions from the Council in 2012.
The affidavits served by the Council included one by the Council's solicitor putting in issue whether the originating process had been filed within the 21 days required by section 459G of the Corporations Act 2001 (Cth). At the hearing, however, Council's counsel did not take this point or propose to read those portions of the solicitor's affidavit. The reason for this became apparent: if the originating process was dismissed by reason of the absence of jurisdiction of the Court, then the Court may also lack power to make an order under section 459F extending time for compliance with this statutory demand, that power being an incident to a valid application under section 459G: Leveridge Capital Limited v Modena Imports Pty Limited [2009] NSWSC 509 at [8] per Brereton J; TQN Design and Construct Pty Limited v KCL Developments Pty Limited [2011] NSWCA 7 at [21]. More than three months has now passed since the presumption of insolvency arose by reason of Boss Construction's failure to comply with the statutory demand. The Council has not filed an application to wind up Boss Constructions on the presumption of insolvency, and the presumption no longer operates.

Facts

As the substantive hearing of Boss Construction's application did not proceed, neither party read their affidavits, but it may be helpful to set out some factual background which emerges from the court book. I do so not as findings of fact based upon affidavits read following rulings on objections to the contents of those affidavits, but rather to give a context to this judgment.
In 2007, Mr Bobos submitted an expression of interest to the Council to purchase land for the purpose of establishing a 24 hour roadhouse on Adelaide Road, Broken Hill. Council advised by letter that was agreeable to selling the property on certain terms, noting: The Council also re-affirms the following agreements regarding the purchase of the land: that the tourist information bay and headframe site will be formally excised from the remainder of the land by Council, and at full cost to Council. Should you wish to lease the headframe site at a future date, Council will consider entering into an "agreement" on mutually acceptable terms and conditions.
In 2011, contracts were exchanged for Boss Constructions to buy 524-638 Barrier Highway (which I take to be another name for Adelaide Road), Broken Hill for $231,000 (the property). Boss Constructions paid a 10% deposit. The balance of the purchase price was provided by way of vendor finance secured by a mortgage registered over the property.
A tourist information bay with a tourist information sign, apparently comprising some 525 square metres of land, was located on the property. It appears that the Council agreed to either excise the tourist information bay from the property sold to Boss Constructions, or remove and relocate the tourist information sign to other land but, due to an oversight, neither occurred. Nor, according to the Council, did Boss Constructions request the Council to relocate the sign or excise the land after completion of the sale.
In March 2012, the purchase of the property was completed.
In November 2016, the Council obtained default judgment against Boss Constructions for unpaid rates. The default judgment formed the basis of the statutory demand sought to be set aside in these proceedings.
In September 2017, the Council commenced proceedings against Boss Constructions in the Local Court of New South Wales at Parramatta seeking unpaid interest in respect of the vendor finance in the amount of $17,215.
On 1 October 2017, Mr Bobos became aware of the Local Court proceedings when he discovered the statement of claim on the reception desk in his company's office.
On 23 October 2017, Boss Constructions issued an invoice to the Council for rent for the tourist sign. The rent was charged from 2012 until 20 November 2017 at $200 per week plus GST. The total rent invoiced was $59,000 plus GST, being $64,900.
On 27 October 2017, Boss Constructions filed a defence the Local Court proceedings and also a cross-claim including a claim for unpaid rent for the visitor sign. In its defence to the cross-claim, the Council admitted that there was a sign on the property but denied that Boss Constructions was entitled to rent.
On 5 November 2018, the Local Court at Parramatta heard the Council's claim and Boss Constructions' cross-claim. The Council succeeded after a hearing on the merits and the cross-claim was dismissed. Boss Constructions was ordered to pay the Council's costs of the claim and cross-claim on an ordinary basis up to 4 July 2018 and on an indemnity basis thereafter.

Service of statutory demand

On 20 November 2018, the Council served the statutory demand on Boss Constructions. Mr Bobos accepts that Boss Constructions was served on that date. The statutory demand set out the obligation of Boss Constructions to either pay the debt or serve an application to set aside the demand within 21 days, and further: The address of the creditor for service of copies of any application and affidavit is Executive Collections Legal Services Pty Limited, Suite 2, Level 3, 410 Church Street, North Parramatta, NSW, 2151, Tel: 02 9890 2788, Fax: 02 9890 1511.
Section 459G provides: 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.
The method of calculating when the 21 days expires is helpfully described by Barrett J in Autumn Solar Installations Pty Ltd v Solar Magic Australia Pty Ltd [2010] NSWSC 463 at [5], [6] and [11]. Applying his Honour's analysis to this case, one excludes the date on which the statutory demand was served, being 20 November 2018, and the result is that the time in which to file an application to set aside the creditor's statutory demand expired at midnight on 11 December 2018.
The originating process was filed at 9.50 pm on 11 December 2018 and an email was sent by Mr Bobos to the Council's solicitor at 9.59 pm attaching the originating process. According to the email, and the file name of the PDF attachment, only the originating process was served but not the affidavit supporting the application. An application under section 459G will not be validly made if either the application or affidavit in support are not served within the 21 day period: Complete Windscreen Service Nominees Pty Limited v Nielsen & Moller Windscreens Pty Ltd (1995) 121 FLR 178; (1995) 18 ACSR 320; Centurian Constructions Pty Limited v Beca Developments Pty Limited (in liq) (1996) 129 FLR 364; (1996) 14 ACLC 312.
Even if the attachment did include the affidavit in support, this is not the end of the matter. Section 459G does not define what is meant by "serving" the application and affidavit. This is determined by other applicable laws and rules of court: Austar Finance Pty Ltd v Campbell (2007) 215 FLR 464; [2007] NSWSC 1493 at [32]-[33] per Austin J.
Rule 3.7 of the Uniform Civil Procedure Rules 2005 (NSW) provides: Electronic service of a document A party to any proceedings before the court may use electronic mail to serve a document on any other party to proceedings, whether by means of Online Registry or otherwise, but only with the consent of the other party. In circumstances where the statutory demand did not include an email address for the Council's solicitor, it cannot be inferred that the Council consented to being served by email with an application to set aside the statutory demand.
That aside, the originating process may still have been served by email if it had actually come to the attention of the Council by that means: Howship Holdings Pty Ltd v Leslie (No 2) (1996) 41 NSWLR 542 at 544-5; (1996) 21 ACSR 440 at 443-4 per Young J. But the Council's solicitor deposed, unsurprisingly, that he usually left his offices at 5.30pm and thus did not read the email until he arrived at work at about 9am the next day, 12 December 2018.
Emails are transmitted to and electronically stored on a server and positive action is needed on the part of the receiver to access the email through their computer and read it. As such, service by email does not constitute service under section 459G(3) unless the email has actually been accessed on the receiver's computer: Austar Finance Pty Ltd v Campbell at [48]-[50]; Opensoft Australia Pty Ltd v Miller Street Pty Ltd [2011] FCA 653 at [54]-[55] per Jagot J. As Banks-Smith J put it in Sheraz Pty Ltd v Rumsley [2019] FCA 493 at [33]: In this case the address for service that was provided by Mr Rumsley was a physical address. There was no provision in the statutory demand for email service of any application. Further, there is no evidence that the email came to the actual attention of Mr Rumsley within the 21 day period. There is no evidence that the email sent by Ms Kiel was opened at the physical address until 25 February 2019. There is no evidence of any other agreement or consent on the part of Mr Rumsley to service by email. There is clearly a risk in purporting to serve such an application by email late in the day on the last day for service, and in circumstances where email is not the given address for service and the movements of the email recipient, and so the prospects that the recipient will check emails, are unknown.
It seems to me that Boss Constructions did not comply with section 459G(2) because a copy of the application and the supporting affidavit were not served on the person who served the demand on the company within 21 days of the demand being served.

Jurisdiction

The timing requirement imposed by section 459G has not been met by the plaintiff. In those circumstances, as the authors of Ford's Principles of Corporations Law (LexisNexis, looseleaf) explain at [27.062.6], "[t]here is no application under Pt 5.4 Div 3 before the court and the court's jurisdiction is not enlivened". As the High Court made clear in David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265 per Gummow J for the Court at 276-7 (footnotes omitted): In providing that an application to the court for an order setting aside a statutory demand "may only" be made within the 21 day period there specified and that an application is made in accordance with s 459G only if, within those 21 days, a supporting affidavit is filed and a copy thereof and of the applications are served, subss (2) and (3) of s 459G attach a limitation or condition upon the authority of the court to set aside the demand. In this setting, the use in s 459G(2) of the term "may" does not give rise to the considerations which apply where legislation confers upon a decision-maker an authority of a discretionary kind and the issue is whether "may" is used in a facultative and permissive sense or an imperative sense. Here, the phrase "[a]n application may only be made within 21 days" should be read as a whole. 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. An integer or element of the right created by s 459G is its exercise by application made within the time specified. To adapt what was said by Isaacs J in R v McNeil, it is a condition of the gift in subs (1) of s 459G that subs (2) be observed and, unless this is so, the gift can never take effect. The same is true of subs (3).
Similarly, in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581, Sundberg J noted at 587: It seems to me that s 459G(3) makes plain that the court can entertain an application to set aside only if within the prescribed period an affidavit supporting the application is filed and copies of the application and affidavit are served. The High Court in Grant said that compliance with the subsection is a limitation or condition upon the authority of the court to set aside a demand; it is a condition of the jurisdiction that subs (3) be observed; if the condition is not observed there is no application before the court.
The Court does not have power to make an order setting aside the statutory demand and, as such, the proceedings must be dismissed with costs.

ORDERS

For these reasons, I make the following orders: 1. The Originating Process dated 11 December 2018 is dismissed. 2. Vacate the directions made earlier today in respect of an application for leave to extend time under section 459F(2)(a)(i) of the Corporations Act 2001 (Cth). 3. Direct the defendant to serve, by 5:00PM Friday 3 May 2019, any submissions and affidavits in respect of a special costs order. 4. Direct the plaintiffs to serve, by 5:00PM Wednesday 8 May 2019, any submissions and affidavits in reply in respect of a special costs order. 5. Note that the parties consent to the Court determining the special costs application on the papers.

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: 13 May 2019

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