Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd

Background Facts 4Bryson AJ, in his reasons for judgment in what I will call the subrogation proceedings set out the background to the proceedings then before him. His Honour noted that Corowa Fertilizers had obtained judgment in the District Court in Albury on 8 February 2008 against Rohan and Geoffrey Cranney ("the former trustees") in relation to a debt incurred in 2002 for the supply of fertiliser; that later in 2008 the former trustees had resigned as trustees; and that Cranney Farm then became the trustee of the Cranney Family Trust. 5In September 2009, Corowa Fertilizers commenced the subrogation proceedings by way of summons in this Court seeking, among other things, a declaration that it was entitled to be subrogated to the rights of the former trustees to be indemnified out of the Trust assets for the amount of the District Court judgment debt plus costs and interest (on the basis that the judgment debt was in respect of debts incurred in the proper administration of the trust) and a declaration that it was entitled to be subrogated to the rights of the former trustees under an equitable charge or lien over the assets of the Trust said to have vested in the former trustees for the purpose of securing and enforcing their right of indemnity. As Bryson AJ noted, essentially the relief claimed in the summons was directed at the (District Court) judgment debt being paid out of the trust assets. At the hearing before his Honour, Corowa Fertilizers apparently pressed its claim for relief against Cranney Farm based only on its claim to be subrogated to the former trustees' right of indemnity out of trust assets. 6The main issue in the subrogation proceedings related to the effect on the claim by Corowa Fertilizers of the fact that on 9 September 2010, not long before the hearing of the subrogation proceedings by Bryson AJ commenced, each of the former trustees had executed a Personal Insolvency Agreement pursuant to Part X of the Bankruptcy Act 1966 (Cth), as amended. Copies of those Personal Insolvency Agreements were annexed to Mr Cranney's affidavit in these proceedings. Each Agreement contained recitals to the effect that the former trustee in question had signed an authority to the Trustee (Mr Chris Chamberlain) on 2 August 2010 to call a meeting of his creditors and to take control of his property; and that, at a meeting of creditors held on 6 September 2010, there was a special resolution passed to accept the Personal Insolvency Agreement. 7Pursuant to clause 11.1 of the respective agreements, creditors' rights were converted into an entitlement to lodge a proof of debt with the Trustee for determination in accordance with the Bankruptcy Act and for the creditor to be paid a dividend from the fund of money paid under the terms of the agreement. 8Section 229 of the Bankruptcy Act provides that such an agreement is binding on all of the debtor's creditors. Bryson AJ read clause 11.1 of the agreements as a provision for the release of the former trustees (the debtors) as contemplated by s 230 of the Act (although in its terms the clause released the 'creditors' not the 'debtors' from their respective Debts, as defined). 9Each of the Personal Insolvency Agreements contained a provision that permitted the agreement to "be pleaded by the Debtor against any Creditor bound by this Deed in bar of any debt whether the Creditor's Debt is or is not admitted or established under this Personal Insolvency Agreement" (clause 18.1). Counsel for Cranney Farm, Mr King, noted also that the respective agreements, in clause 12.1(c), bar the taking of "any further step whatsoever in any proceedings pending against or in relation to the Debtor in respect of a debt" and, in clause 13.1, provide that "The Creditors will accept the Creditor entitlement in full satisfaction and complete discharge of all Debts following which they and each of them will, if called upon to do so, execute and deliver to the Debtor such release of any debt as the Trustee requires". 10Cranney Farm contended in the subrogation proceedings that Corowa Fertilizers was bound by the former trustees' Personal Insolvency Agreements; that the agreements imposed a moratorium on debt recovery by the creditors of the former trustees; and that there was no right (on the part of Corowa Fertilizers) to recover the debts owed to it by the former trustees otherwise than in accordance with their respective Personal Insolvency Agreements. 11As I understand it, it was common ground in the subrogation proceedings that Corowa Fertilizers was entitled to the relief it sought against Cranney Farm unless that relief was precluded by the relevant provisions of the bankruptcy legislation and the operation of the Personal Insolvency Agreements. 12Bryson AJ found for Corowa Fertilizers and ordered that Cranney Farm pay it the sum of $201,703.78 out of the assets of the trust, plus the costs of the subrogation proceedings. His Honour was of the view that the former trustees' entitlement to indemnification out of the assets of the trust crystallised (if it did not exist earlier) into a proprietary right when they retired as trustees and control of the assets of the trust passed out of their hands. His Honour saw this as a property right "subject to the ordinary qualifications when rights are enforceable, in equity are conceived of as property rights" (at [5]). 13His Honour, having earlier (at [10]) observed that it is not usually the case that proceedings under bankruptcy legislation are found to have any impact on the rights of persons interested in a trust of which the bankrupt was trustee, was of the opinion that "the events which have happened including the relatively early release for which s 230(1) and clause 11.1 appear to provide have no impact on the rights of the plaintiff now claimed, which conceived as they should be as equitable proprietary rights, were in the plaintiff's hands long before there was any Personal Insolvency Agreement or s 230(1) release" (at [13]. 14In the grounds of appeal specified in their Notice of Appeal, the former trustees broadly say that Bryson AJ erred in holding that the personal insolvency agreements did not bar Corowa Fertilizers from proceeding with its claim and in holding that Corowa Fertilizers had a proprietary interest in the trust property; and that his Honour erred in failing to hold that the effect of s 229 of the Bankruptcy Act was that, while the personal insolvency agreements remained valid, Corowa Fertilizers had no right to recover the debt alleged to be owed to it by the former trustees other than in accordance with their Personal Insolvency Agreements and was bound to accept the creditor entitlement provided for in those agreements in full satisfaction and discharge of the debt. 15Mr King submits that the success of Cranney Farm's appeal rests on the proper construction and operation of the bankruptcy legislation and the Personal Insolvency Agreements; and, in particular, on whether at least one of the following questions is answered in favour of his client: (a) Is the creditor's claim for subrogation to the former trustees' rights to be indemnified for the judgment debt a proceeding for a debt or "in relation to the Debtor in respect of a debt"? (b) While the Personal Insolvency Agreements are in force, do the former trustees continue to possess rights to be indemnified out of the trust assets for the judgment debt? (c) While the Personal Insolvency Agreements are in force, does the creditor continue to possess a right to be subrogated to the rights of the former trustees instead of accepting the creditor entitlement provided for by the agreements? 16Mr King submits that Cranney Farm's appeal has reasonable prospects of success or at least cannot be dismissed as being "so implausible as to be rejected as beyond reasonable contention" (to use the words of Austin J in Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd (2006) 60 ACSR 393 at 396 [10]). In that regard, Counsel for Corowa Fertilizers (Mr Gunning) did not seek to persuade me that there were no reasonably arguable grounds of appeal but, rather, submitted that even on the assumption that there were reasonable prospects of success on the appeal, the case was not one in which the statutory demand should be set aside by reason of the existence of an appeal (having regard to the fact that there had been no application for a stay of Bryson AJ's judgment and no undertaking had been proffered for the payment into court of the judgment debt). 17With the above in mind, I turn to the two bases on which Cranney Farm seeks to have the statutory demand set aside. (i) s 459J(1)(b) - existence of "some other reason" 18As noted in my introduction, there are two 'other reasons' put forward as enlivening the jurisdiction under s 459J(1)(b) (each said to be supported by a distinct line of authority) - the first being the existence of an appeal that has reasonable prospects of success and the second (perhaps somewhat disingenuously put in circumstances where in fact no stay has been sought) being that if a stay were to be sought then it would be likely to be granted. Although it is conceded that these two reasons are related, the submission as I understand it is that either reason on its own would be sufficient to warrant the setting aside of the statutory demand. 19In relation to the power under s 459J(1)(b), Mr King noted that in CP York Holdings Pty Ltd v The Food Improvers Pty Ltd [2009] NSWSC 409, Barrett J (there referring to the decision of the Court of Appeal in Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24) said (at [21]): As was made clear by both Santow JA, with whom Tobias JA agreed and Young CJ in Eq, the touchstone is that identified by Bryson J in Portrait Express (Sales) Pty Ltd v Kodak (A'asia) Pty Ltd (1996) 132 FLR 300. Bryson J said that the court should not act under s 459J(1)(b) in the absence of "some sound or positive ground or good reason which is relevant to the purposes for which the power exists". The power exists to maintain the integrity of the Pt 5.4 process. It should be used as necessary and appropriate to counter attempted subversion of the statutory scheme. And as Young CJ in Eq said, subjective notions of what is fair play no part. (my emphasis) 20The jurisdiction is a remedial one ( Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143 per Barrett J). In circumstances where the jurisdiction is enlivened the court has a discretion to set aside a statutory demand when the justice of the case demands that a company otherwise likely to become deemed to be insolvent should be relieved of that possibility ( Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302; 135 ALR 677, per Olney J). 21The exercise of the jurisdiction under s 459J(1)(b) was considered by Emmett J in Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 at 457-458, on which case Cranney Farm relies on its present application. Emmett J, having rejected the argument that the company there seeking to set aside a statutory demand had a genuine offsetting claim that exceeded the amount claimed in the demand - on the basis that the doctrine of res judicata precluded a contention to the contrary of the judgment against the company, turned then to consider the application of s 459J(1)(b) and said (at [458G]): However, s 459J(1)(b) appears to me to have relevance in the present context. It may be that "some other reason" within the meaning of s 459J(1)(b) is something other than defect in a demand, the existence of a genuine dispute or the existence of an offsetting claim. The language of s 459J(1)(a) indicates that s 459J is concerned with the possibility of injustice if a statutory demand is permitted to stand with the consequence of the presumption of insolvency which is then compelled by s 459C(2). though noting that the discretion under s 459J(1) may be exercised even without showing that substantial injustice would be caused (citing Hoare Bros ). It was in that context (namely considering what might amount to substantial injustice) that his Honour observed that: One circumstance where it may be unjust for a demand to stand, ... is where there is a judgment or order which precludes a contention that there is a genuine dispute or an offsetting claim but there is on foot a bona fide appeal from that judgment or order. In those circumstances, the Court may, if justice requires, and subject to the possibility of imposing conditions as required by s 459M, set aside a demand which is based on the judgment or order which is subject to appeal or in respect of which, if an appeal succeeds there would be an offsetting claim. (my emphasis) 22In Eumina , Emmett J considered that it was appropriate for the court to exercise the discretion conferred by s 459J(1)(b) "where the Court is satisfied that there is an appeal based on reasonable and arguable grounds which, if successful, would result in the existence of an offsetting claim" (at 459E) (not following Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235 and distinguishing Hoare Bros ). His Honour considered the competing summaries of argument that had been filed with the court and concluded that the application for special leave for appeal then on foot was based on reasonable and arguable grounds and was disposed to concluded that there was in that case "some other reason" why the demand should be set aside. 23Eumina was followed in Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759 by Hammerschlag J in circumstances where the appeal was in relation to the existence of the debt claimed (and not as to an offsetting claim, as had been the case in Eumina ), his Honour saying (at [24]): If the debt demanded is a judgment debt and there is an appeal based on reasonable and arguable grounds, which if successful would result in the non-existence of the debt, the reasoning of Emmett J has as much, if not more, force than if there were to be an offsetting claim the existence of which depends upon a successful appeal. The existence of an appeal based on reasonable and arguable grounds in respect of the primary claim is a fortiori within His Honour's reasoning. 24Similarly, White J, in ACN 001 891 103 Pty Ltd v Reiby St Apartments Pty Ltd [2007] NSWSC 1345, was prepared to accept that the existence of an appeal on fairly arguable grounds may provide some other reason why the demand should be set aside "where the Court asked to set aside the demand can see that there are reasonable and arguable grounds for the appeal" (at [8] and [10]) though his Honour did not in fact accede to the application to set aside the statutory demand in that case, for reasons which I consider shortly. 25In the present case, relying on the above authorities, Mr King submits that the demand should be set aside on the basis that there is an appeal on foot that has reasonable prospects of success. 26As to those prospects, it is submitted by Mr King that there is an analogy to be drawn between personal insolvency agreements under Part X of the Bankruptcy Act (those replacing the old forms of deeds of assignment, arrangement and composition) and deeds of company arrangement under Part 5.3A of the Corporations Act (referring to what was said in MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 by Gleeson CJ, Gaudron, Gummow and Hayne JJ (at 644 [13]). 27Reliance is placed by Cranney Farm in what was said in Lerinda Pty Ltd v Laertes Investments Pty Ltd [2009] QSC 251 by McMurdo J (there in the context of a corporate trustee which had become insolvent and had entered into a deed of company arrangement) in holding that the applicant's right to subrogation was precluded by the deed of company arrangement. McMurdo J said (at [8]): The applicant's case assumes that the equitable remedy of subrogation would be granted in its case, and on terms which would have its debt paid in full. But unless and until that remedy is granted, the applicant has no equitable interest in the trust assets or equity which appears to have priority over those of other creditors of the trustee. 28His Honour held (at [14]) that there was no proprietary interest derived by the commencement of proceedings for subrogation and that unless and until some order were to be made for the application of property held by the trustee specifically in favour of the applicant, it would enjoy no priority over other creditors of the company. 29Mr King notes that Lerinda was applied in Adams v Zen 28 Pty Ltd [2010] QSC 36, again in the context of an insolvent corporate trustee which had entered into a deed of company arrangement, by Daubney J who said that at the highest what the applicant, there seeking the remedy of subrogation, had at the date of execution of the deed of company arrangement was an inchoate right to seek to be subrogated to the trustee's right of indemnity and the lien or charge which the trustee enjoys over trust assets. At [28], Daubney J said: It follows that the applicant was an unsecured creditor when the DOCA was executed and, by application of cl 7.1 of the DOCA, the debt owed by Zen 28 to the applicant as an unsecured creditor was extinguished by law. It also follows that the correlative indemnity which Zen 28 would otherwise have had from the trust assets was also extinguished because that indemnity clearly only exists while the trustee is personally liable for the debt incurred as a trustee. 30Cranney Farm had relied, at the hearing before Bryson AJ, on the decision of Daubney J in Zen 28 and the passages there quoted with approval from Lerinda. I have noted above the findings made by Bryson AJ. His Honour considered that there had been no advertence in Zen 28 to the principles of which the High Court spoke in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367 and declined to follow Zen 28 . (Mr King points out that Daubney J had approved and applied (at [23]) the passage from Lerinda in which McMurdo J had twice cited and applied (at [4] and [12]) the Octavo decision.) 31Cranney Farm's submission is that the principles in Octavo speak only to the position of a bankrupt trustee, and not to the position of a trustee who has invoked a statutory regime in order to avoid bankruptcy and has entered into a personal insolvency agreement which is binding upon creditors. (Reference is also made to the recognition by Barrett J in HIH Casualty and General Insurance Ltd (in liq) v Building Insurers' Guarantee Corporation & Anor (2003) 202 ALR 610 at [132]-[133] that what would otherwise be an equity of subrogation may be displaced by the existence of a statutory provision which evinces an intention to substitute another right or remedy.) 32Mr King's submission is that if a creditor considers the effect of a personal insolvency agreement to be unduly prejudicial, then the appropriate course is for the creditor to apply to a federal court for an order that the agreement be set aside pursuant to s 222 of the Bankruptcy Act (a course that Corowa Fertilizers had apparently considered but not pursued). 33As noted above, it was not suggested by Mr Gunning that the grounds of appeal raised in the Notice of Appeal filed by Cranney Farm on 13 December 2010 were not fairly arguable (though the grounds themselves had only been articulated by provision of a copy of the Notice of Appeal during the course of argument before me), nor was there any suggestion that the appeal was not bona fide (though it had been filed only after the statutory demand had been issued). Rather, the arguments put for Corowa Fertilizers in resisting the present application were premised on the assumption that there were reasonable grounds for appeal. It seems to me that this is an appropriate stance. The written submissions of Mr King in my view disclose a reasonably arguable basis for the appeal. 34However, the question is whether the subsistence of a bona fide appeal against a judgment debt claimed in the statutory demand, on reasonably arguable grounds, of itself amounts to "some other reason" why, in the interests of justice , a statutory demand should be set aside. Although Mr King submits in effect that this is sufficient to warrant the exercise of the discretion under s 459J(1)(b) in his client's favour, and it seemed to be accepted in Midas and Reiby St that it was not necessary for the exercise of discretion under this subsection that there have been an actual stay of the enforcement of the judgment on which the demand is founded, the cases do suggest that the position in relation to a stay (or otherwise) of the judgment the subject of the relevant appeal is a factor to take into account in determining where the interests of justice lie on an application such as this. (Indeed, as White J noted in Reiby St , while McLelland CJ in Eq in Barclays said that the pendency of an appeal would not of itself provide sufficient reason to set aside a demand under s 459J(1)(b), a stay was there ordered on condition that the judgment debtor undertake to pay into court the whole amount of the judgment debt.) A factor to take into account on the present application is therefore that the setting aside of the statutory demand would have the effect of a de facto stay, without Cranney Farm having sought and actually established an entitlement to such relief. 35That brings me to Mr King's alternate ground under s 459J(1)(b), namely that Cranney Farm would be entitled to a stay of execution in relation to the judgment of Bryson AJ (which might be thought to beg the question as to why, if that be the position, it has not sought one). In that regard, Mr King submits that a stay would not have prevented Corowa Fertilizers from serving a statutory demand, as service of the demand is not a means of executing the relevant judgment (citing Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055 at [25] per Barrett J). 36Mr Gunning submits that in the absence of any application for a stay (and in the absence of any undertaking to secure or pay into court the full amount of the judgment debt), the demand should not be set aside. 37In Eumina , Emmett J (having referred to the decision in Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1039 where Master Adams considered that the application to set aside the statutory demand was in effect asking for a stay and that there was a proper way in which to make such an application that had not been taken) said (at [460F): However, in an application under s 459J(i)(b), it may be appropriate to draw a distinction between the relevance of an appeal to a genuine dispute and the relevance of an appeal to an offsetting claim. Where there is an appeal against a judgment debt which gives rise to the statutory demand and there is no stay, whether or not the stay has been sought, there may be some substance in the conclusion that setting aside the statutory demand is a de facto stay. The appropriate course, in such a case, may be for the company to apply for a stay in the court which entered judgment. (my emphasis) 38There, his Honour seems to have placed weight on the fact that there was no mechanism available to the company other than s 459J(1) to prevent the consequences of the presumed insolvency that would follow from non-compliance with the statutory demand. The same could not be said in the present case, as it would have been open to Cranney Farm to seek a stay of execution of the judgment. 39In Scope Data Systems Pty Ltd v BDO Nelson Parkhill (2003) 199 ALR 56 at [25]-[26], on which authority Mr King relies for the proposition that where a debtor is entitled to a stay the consequences of allowing the demand to stand would ordinarily be oppressive, Barrett J considered the nature of the jurisdiction created by s 459J(1)(b) in the context of a statutory demand based upon a debt comprised by a local court judgment and it was asserted that there was a stay of execution of that order in force by the operation of s 107 of the Justices Act. (His Honour found that there was no such stay.) Barrett J considered Moutere Pty Ltd v Deputy Commissioner of Taxation [2000] NSWSC 379; (2000) 34 ACSR 533 and Re Softex Industries Pty Ltd [2001] QSC 377; (2001) 187 ALR 448 as examples of circumstances in which the court may exercise the power given by s 459J(1)(b), noting that in Moutere Austin J had explained the policy underlying s 459H as follows: The policy underlying s 459H is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. A statutory demand is not an instrument of debt collection. By analogy, the commissioner should not use the statutory demand procedure to apply coercive pressure to a taxpayer who genuinely objects to the commissioner's decision. To do so would be to take advantage of those provisions of the taxation legislation ... which say that an amount owing in consequence of the commissioner's decision is recoverable, notwithstanding that an objection has been lodged against the decision. ...If the court forms the view that the commissioner has acted oppressively or unfairly by issuing a statutory demand in such circumstances, the appropriate course is for the court to set aside the demand under s 459J(1)(b). By so doing the court does not deny that the debt is recoverable although an objection has been made, but it thereby insists that the statutory demand procedure should not be used to apply pressure for payment of an amount which might ultimately be found not to be payable. 40It was in that context that Barrett J in Scope Data considered that the issue of a statutory demand relying on the mere existence of a judgment debt would be oppressive if inconsistent with a statutory regime whereby the judgment creditor was not allowed to execute ordinary judgment creditor remedies in relation to that debt (at [26]). However, his Honour, having there found that there was no stay of execution in force pursuant to s 107 in relation to the local court judgment, said that the considerations that had influenced Austin J in Moutere and Mullins J in Softex in relation to s 459J(1)(b) (ie that there was oppressive conduct in issuing a statutory demand in the circumstances) had no part to play in the case before him and dismissed the application for an order setting aside the statutory demand. 41In Reiby St , White J noted that the observations of Emmett J in Eumina in relation to what might have been the appropriate course in relation to the application for a stay had particular force in circumstances where an application for a stay had been made and there had been non-compliance with the terms on which it was granted (at [16]). His Honour recognised that if he were to vary the statutory demand by reducing the amount in contest on the appeal, without imposing a condition which provided security for the payment of that amount, then such an order would operate as a de facto stay of the judgment (in circumstances where the Court of Appeal had ordered the stay only on condition that it be secured by way of an unconditional bank guarantee) and that if he were to do so on terms that the amount was to be secured then he would in substance be extending the time allowed by the Court of Appeal for provision of such security. His Honour dismissed the application to set aside the statutory demand. 42Here, no application has been made for a stay. The above authorities suggest that the effect of setting aside the statutory demand will be to operate as a de facto stay. In those circumstances is it oppressive (so as to require the setting aside of the statutory demand in the interests of justice) for Corowa Fertilizers to remain in a position where it can rely for a presumption of insolvency upon a statutory demand issued at a time when it had the benefit of a judgment in its favour (and hence there could be no genuine dispute as to the existence of the debt while that judgment remained on foot) and no appeal or application for stay of the judgment had been lodged? 43It cannot be said, in my view, that it was oppressive for the statutory demand to have been issued at that time. Nor in those circumstances do I think it could be inferred that its issue was an attempt to use the demand as an instrument of debt collection. Not even a Notice of Intention to appeal had been served by the time the demand was issued. There had been found to be a debt owing and there could have been no basis for there to be a dispute as to its existence. In those circumstances there does not seem to me to have been anything improper in the judgment creditor issuing a statutory demand so as to put itself in the position where it could rely upon the statutory presumption of insolvency if the debt was not paid within the time specified in the statutory demand. (It seems to me that a distinction can be drawn between a situation where, as here, there is no suggestion of a stay at the time the demand is issued and where a demand is issued after circumstances have arisen in which there was a stay of the underlying judgment on which the demand was predicated.) 44Does it then become oppressive or unfair for Corowa Fertilizers, having issued a statutory demand prior to any commencement of (and, seemingly, prior to notification of an intention to commence) appeal proceedings, to be able to maintain an ability to rely upon the statutory demand once a Notice of Appeal has been lodged (but in circumstances where there was no application for a stay of the judgment in question)? (I say 'maintain an ability to rely' upon the demand because at this stage all that Corowa Fertilizers has done is to resist the application to set aside the demand. For it to rely on the statutory presumption of insolvency that will arise if it is not set aside and there is no compliance with the demand, it would be necessary for Corowa Fertilizers to commence winding up proceedings and it would be open at that stage for Cranney Farm to prove its solvency (and, perhaps, if its solvency depended on the prior determination of the appeal in the subrogation proceedings, to seek a stay of the winding up proceedings until such a determination had been made).) 45It does not seem to me to be oppressive in the sense considered in Moutere and Scope Data for Corowa Fertilizers to maintain such a position. Similarly, it is not the case that the s 459J procedure is the only mechanism available to Cranney Farm to seek to avoid a presumption of insolvency arising - since it was open to it to seek a stay of execution of Bryson AJ's judgment and then to rely on the existence of a stay (assuming it was granted) as making reliance on the statutory demand oppressive. 46Cranney Farm's submission, in effect, seems to be that because it would be 'entitled' to a stay if it chose to apply for one, that provides sufficient 'other reason' for the statutory demand to be set aside either of itself or in conjunction with the institution of a reasonably arguable appeal in relation to the judgment debt (and it should not have to put to the test the question whether a stay would actually be granted and, if so, on what terms). 47In that regard, Mr King submits that Cranney Farm satisfies the relevant requirements for the grant of a stay and that it would be an exercise of futility for it to be required to make such an application. In particular, it is said that the appeal has reasonable prospects of success (a point that Corowa Fertilizers seemed prepared to assume for the purposes of this application only); that the appeal will be rendered nugatory if Cranney Farm is wound up; and that Cranney Farm will suffer minimal prejudice by awaiting the outcome of the appeal. 48As to the appeal being rendered nugatory, Mr King seeks to draw an analogy with the position in Jem (where Austin J said that an appeal would be rendered nugatory unless an extension of the compliance period were to be obtained before the compliance period had expired), in submitting that the appeal from Bryson AJ's decision would be rendered nugatory if in the interim Cranney Farm were to be wound up. That submission seems to be predicated on the assumption that if the presumption of solvency does arise then Cranney Farm would not be in a position to rebut the presumption and to establish solvency on a winding up application brought and heard before the appellate court's decision. 49As to prejudice, Mr King refers to the analysis of Austin J in Jem (at 399 [25]-[26]): Upon proper analysis, therefore, the making of the extension order sought by the plaintiffs does not keep the defendant out of the money to which I have held it to be entitled, but merely deprives the defendant of the benefit of the statutory presumption of insolvency arising under s 459C in any subsequent winding-up proceeding. On the other hand, unless an extension order is made, the plaintiffs will have to choose between paying $500,000 to the defendant by next Monday, and allowing their failure to comply with the demand to create, probably against each of them ... a presumption that they are insolvent, unless the contrary is proved. ... These disadvantages will apply to the plaintiffs even if they succeed in their appeal, because under s 459C(2)(a) the presumption of insolvency arises if, during the defined period, the company fails "as defined by s 459F" to comply with a statutory demand, and under s 459F(1) the company is taken to fail to comply with the demand at the end of the compliance period if the demand is still in effect and the company has not complied with it. 50The difficulty I have with the submission based on the availability of (or, in Mr King's words, entitlement to) a stay is that it remains hypothetical - no application for a stay has been made. It is not possible in my opinion to conclude that if an application had been made a stay would inevitably have been granted (bearing mind that the grant of a stay is a matter ultimately within the discretion of the court) or upon what conditions it might have been granted. Although there were submissions made as to the entitlement to a stay, I cannot be confident that on an actual stay application Corowa Fertilizers might not have raised other arguments in defence of such an application - it was an application that was not in any real sense before me. 51In Adeels Palace Pty Ltd v Moubarah; Adeels Palace Pty Ltd v Najeem (No 2) [2009] NSWCA 130, Hodgson JA affirmed that the principles on which a stay may be granted are those set out in Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685 (namely that, prima facie, the successful party is entitled to the benefit of a judgment but a stay may be granted where the applicant demonstrates an appropriate case to warrant the exercise of discretion in its favour) but that even where the usual requirements for a stay are met (there speaking of the requirements in the context of a stay in connection with an application for special leave to appeal to the High Court), the onus remains on an applicant to demonstrate "a proper basis for a stay that will be fair to all parties". 52Hodgson JA considered that the onus referred to in Alexander meant that "unless the circumstances make it reasonably clear that delay will not involve a risk of diminished ability to pay, there is an onus on an applicant to show that there is no such risk of this kind as to justify refusing a stay or imposing conditions to minimise the risk". 53Thus his Honour considered that it may be necessary for an applicant for a stay to bring evidence excluding the risk of a diminished ability to pay or showing it is small (though not in terms suggesting that it was fatal to an application for a stay if the applicant did not do so). In the absence of evidence of this kind, this would be a factor tending towards the imposition of security for the grant of a stay. 54Issues of this kind were not debated on the application before me but may well have arisen had an application for a stay of execution of Bryson AJ's judgment been made. As recognised in Adeels the balance to be struck is for any stay to be on a basis fair to all the parties. 55As noted above, the grant of a stay and the terms on which it might be granted would involve an exercise of discretion on which competing submissions might well have been made and a consideration of the terms on which any such stay was to be granted would have been relevant. As it is, the question whether and on what terms a stay should be granted did not arise for determination; the assertion simply being that there would be an entitlement to a stay. 56As to the fact that no undertaking to secure the payment of the debt had been proffered, Mr King submits that no such security should be required, invoking the decision of Barrett J in Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd (2004) 50 ACSR 544. There, his Honour declined to require that the full amount of the statutory demand be paid into court on the basis that the defendant should not be given the form of priority or security that would be entailed by such a requirement, referring to the fact that a statutory demand is not an instrument for recovery of a debt but is, rather, a process that defines where the burden of proof lies in winding-up proceedings. 57Nevertheless, as White J observed in Reiby St , typically where a statutory demand is set aside on the ground of the pendency of an appeal based on reasonable and arguable grounds then the demand is set aside on condition that the debt claimed is paid into court or secured by some other means (his Honour referring to Barclays , Eumina and Midas ). 58Mr King submits that to require the provision of security in this case would operate to prefer Corowa Fertilizers over other creditors. Any such priority could relevantly only be over any other creditors of Cranney Farm (against whom the judgment debt lies) in its capacity as trustee (or any other creditors of the former trustees who might be entitled to subrogation out of the assets held by Cranney Farm as trustee) since the order made by Bryson AJ was expressed to be for payment out of the assets of the trust. (It may well be that some or all of the other creditors of the former trustees are creditors of them in their personal capacity.) I am not in a position to make an assessment as to the effect on other creditors of a payment into court or provision of security as a condition of any stay or of the setting aside of the statutory demand. 59I am thus left with the situation where no stay has been sought by Cranney Farm of the execution of the judgment of Bryson AJ; the setting aside of the statutory demand could be seen as operating as a de facto stay of that judgment in circumstances where there was an alternative mechanism open to Cranney Farm to seek to avoid the statutory presumption of insolvency arising; there is an appeal on foot against that judgment for which there appear to be reasonable and arguable grounds in the sense considered in Eumina (though I am not satisfied that, if successful, the appeal will necessarily be rendered nugatory if the demand is not set aside, since that depends on whether in the interim steps were successfully taken to have Cranney Farm wound up); and if the statutory demand is set aside Corowa Fertilizers will be deprived of the statutory presumption of insolvency that would otherwise arise from non-compliance with the demand. I am not in a position to conclude that prejudice would be occasioned to other creditors who may have rights as against trust assets if there were to be a condition imposed on any setting aside of the statutory demand whereby the judgment debt is required to be secured by some means (since I do not know whether tho other creditors of the former trustees have sought or would be entitled to be subrogated to trust assets or otherwise have a claim against Cranney Farm in its position as trustee). 60In the circumstances, notwithstanding the existence of an appeal accepted to be based on reasonable and arguable grounds, I am not satisfied that the interests of justice require that the statutory demand be set aside in the absence of an arrangement whereby the judgment debt will be secured . No undertaking as to the securing of the judgment debt was proffered (and, as noted, it was argued that such security should not be required). 61That said, it does not seem to me to be in the interests of the just, quick and cheap resolution of the real matters in dispute between the parties (in circumstances where there is now on foot an appeal based on grounds that cannot be said to be so implausible as to be beyond reasonable contention and which, if successful, would expunge the judgment debt) for the parties to be left in the situation where further litigation (such as a belated application for a stay of Bryson AJ's judgment pending the appeal or, if winding up proceedings were to be instituted based on non-compliance with the demand, for a stay of those proceedings pending determination of the appeal) may be necessary if Cranney Farm is to avoid the situation where a statutory presumption of insolvency would otherwise arise. 62Had there been a stay of Bryson AJ's judgment or had an undertaking been proffered to secure the judgment debt in an appropriate fashion, then I would have been satisfied that the institution of the appeal (albeit after the issue of the statutory demand) based on reasonable and arguable grounds would constitute an 'other reason' for the setting aside of the statutory demand in the interests of justice, following the reasoning in Eumina , Midas and Reiby St . This is not a case, as in Reiby St , where the imposition of a condition in relation to the setting aside or variation of the statutory demand would be inconsistent with, or a variation of, orders made in relation to the grant of a stay of the underlying judgment already made by a higher court. In Barclays , his Honour having determined that the pendency of an appeal was not sufficient reason to set aside the statutory demand nevertheless did so with the imposition of a condition in relation to the payment into court of the judgment debt. 63It seems to me that in all the circumstances the appropriate exercise of my discretion in the present case would (as was in effect done in Barclays ), be to make a conditional order for the setting aside of the statutory demand under s 459J(1)(b) (on the basis that there has been an appeal instituted on reasonable and arguable grounds which, if successful, would result in the non-existence of the debt claimed in the demand and that, if the judgment debt is paid into court, then this would bring about the situation where I could be satisfied that it would be oppressive for Corowa Fertilizers to rely upon the statutory demand). The condition to be satisfied for the order setting aside the statutory demand to become operative (and hence for the demand to be set aside) should in my view be the payment into Court of the full amount of the judgment debt (or provision of security for the judgment debt in some other form acceptable to Corowa Fertilizers) within a reasonable period of time (to be determined after I hear submissions from Counsel in that regard, though I am inclined to think that 14 days would be a reasonable time having regard to the fact that the demand was issued in October 2010). Failing satisfaction of such a condition within the specified time would then result in the automatic dismissal of the application for the setting aside of the statutory demand. 64I set out at the conclusion of this judgment the orders that, subject to any submissions Counsel may wish to make in that regard, I propose to make. 65In view of the above, it may not strictly be necessary to consider the second ground on which the application is made (although if it would have resulted in an unconditional setting aside of the statutory demand, then it might be that Cranney Farm would wish to elect to proceed on that basis alone). In any event, that is a moot point since, for the reasons set out below, I am not satisfied that the statutory demand is so defective as to warrant it being set aside under s 459J(1)(a) of the Act.

(ii) s 459J(1)(a) - defects causing substantial injustice 66Section s 459J(1)(a) provides that the court may set aside a statutory demand if it is satisfied that, because of a defect in the demand, substantial injustice will be caused unless the demand is set aside. 67The schedule to the statutory demand particularises the debts claimed as follows:

1. $161,500.74, being a judgment debt recovered by the creditor against the company in the Supreme Court of New South Wales pursuant to Order dated 1 October 2010.
2. $40,202.84, being interest on the aforementioned judgment to the date of judgment pursuant to section 101 of the Civil Procedure Act 2005 (NSW). 68The following defects were identified by Cranney Farm in the demand: (a) Paragraph 1 of the schedule misstates the amount of the judgment debt [which, assuming this to be a reference to the District Court judgment or the principal sum, excluding interest, comprised in the award made by Bryson AJ in the subrogation proceedings, should have been stated to be $161,500.94 not $161,500.74]; and (b) Both paragraphs of the schedule are said to misdescribe the debt and to be ambiguous. 69Mr King submits that it is a fundamental requirement of a statutory demand that the debt and the amount of the debt be stated correctly and without ambiguity; and that substantial injustice will arise in this case if the demand were not to be set aside because Cranney Farm is unable by reason of the above defects to determine, with sufficient certainty and without making enquiries, whether the demand is for a debt that is due and payable or a debt that is not. 70As to the first of the alleged defects, it is conceded by Corowa Fertilizers that paragraph 1 of the schedule contains a typographical error, in that the amount of the (District Court) judgment debt was $161,500.94 not $161,500.74. Therefore, if paragraph 1 refers to the debt the subject of the initial District Court judgment, then it is understated by 20c. (If, on the other hand, as it refers to the principal component of the order made by Bryson AJ, namely the amount of the District Cout judgment debt, and not the interest payable on that District Court judgment debt, the same understatement is made.) That error of itself is minor and could not in my view be productive of substantial (or any) injustice. 71As to the second basis for the objection to the statutory demand, the ambiguity, if any, arises out of the description in paragraph 1 of the claimed debt of $161,500.74 as the judgment recovered by Corowa Fertilizers against "the company" (ie Cranney Farm) in the Supreme Court , when the amount in fact ordered to be paid, and hence the judgment debt in this Court, instead is the greater sum of $201,703.78. 72There is no doubt (and it is conceded by Cranney Farm) that there are two judgment debts in Corowa Fertilizers' favour in relation to the outstanding debt in respect of the fertiliser supplied back in 2001 to the former trustees: first, the judgment debt obtained against the former trustees (and not against Cranney Farm) in the District Court in Albury in February 2008 (in the sum of $161,500.94, on which interest was to accrue pursuant to s 101 of the Civil Procedure Act ); and, secondly, the judgment debt obtained against Cranney Farm in this Court in October last year (in the sum of $201,703.78). 73The amount awarded by way of judgment in this Court presumably included the interest payable on the District Court judgment debt as at the date the orders were made (and perhaps a costs component), though the manner in which the ultimate figure was comprised is not explained in the reasons for judgment. This seems to be because his Honour had been provided with short minutes of order handed up by Senior Counsel then appearing for Corowa Fertilizer and his judgment understandably addressed the content of those orders (and in particular the amendment his Honour made in order to make clear that the judgment debt was to be paid out of the assets of the trust and was not a personal liability of Cranney Farm). The summons before his Honour had sought, inter alia, an order for the payment by Cranney Farm of the amount of the District Court judgment debt plus legal costs and interest accrued to date - para 11 Summons. 74The amounts appearing in the schedule to the demand (leaving aside the typographical error in paragraph 1), when added together, accord with the figure specified in the order made by his Honour on 1 October 2010, as to the quantum of which the transcript records Counsel for Cranney Farm on that occasion as having no objection. 75Mr King notes, and it seems to be the case, that there is no judgment debt from this Court in either the amount of $161,500.74 or in the corrected amount of $161,500.94. Rather, the amount formally entered by way of judgment in accordance with the orders made by Bryson AJ was the sum of $201,703.78. 76What is clear, however, is that there was a judgment debt of more than the sum specified in paragraph 1 of the schedule obtained against Cranney Farm pursuant to the order dated 1 October 2010. It seems to have been awarded in effect as a lump sum of the components of the claim. 77It seems to me difficult to suggest that paragraph 1 should be read as referring to anything other than the debt payable pursuant to the order made by Bryson AJ against Cranney Farm. 78It is further said by Mr King that if, as I think on its face it must, paragraph 1 of the schedule refers to the judgment in this Court, then the second paragraph is defective because the amount of interest demanded as "being interest on the aforementioned judgment" (my emphasis) has been grossly overstated. In that regard, it seemed to be accepted before Bryson AJ (at least by reference to the transcript tendered before me and marked Exhibit B) that the quantum of the amount to be ordered in accordance with his Honour's reasons was accurate. Therefore, as I apprehend it, Mr King's submission is that interest on the amount payable from October 2010 (ie interest on the $201,703.78) cannot be $40,000 odd, yet paragraph 2 refers to the "aforementioned judgment" and hence the gross overstatement. 79Mr King submits that the manner in which the debts have been particularised in this demand precludes the conclusion that the demand is for debts that are due and payable as required (referring to Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196 at [38]). In Wildtown , it was said that if a creditor provides an analysis of the debt, "in a way which demonstrates the inadequacy of the information, he cannot be heard to complain about the consequences" (at [41]). 80Mr King submits, and I accept, that there can be no doubt that a demand which expressly claimed the amount of the District Court judgment entered against the former trustees and which relied only on that judgment could not permissibly be served by Corowa Fertilizers on Cranney Farm and that any such demand would be liable to be set aside. Mr King accepts that a demand which expressly claimed the amount of the order made in this Court and relied only on that order could not (other than if the s 459J(1)(b) ground succeeds) be resisted by Cranney Farm. 81The nub of Cranney Farm's complaint is that the demand served by Corowa Fertilizers is confusing in seemingly referring to both judgments. 82In Cranney Farm's submission, by reason of the defects in the demand, it is not possible for it to determine whether this demand impermissibly demands the judgment debt of the District Court entered against the former trustees plus post-judgment interest accruing pursuant to s 101; or permissibly demands the indemnity ordered to be paid by the plaintiff by this Court without any component of post-judgment interest. Mr King submits that it is no answer to say that the total amount is the same in both cases because one debt can permissibly be demanded and the other cannot. 83That seems to me to a triumph of form over substance. I accept that in Topfelt Pty limited v State Bank of New South Wales Limited (1993) 12 ACSR 381, Lockhart J said (at 396): It is not asking too much that creditors who issue statutory demands under the Corporations Law should ensure that the demands are expressed in clear, correct and unambiguous terms. If the creditors wish to have the benefit of the presumption of insolvency, the least they can do is to tell the debtor companies in clear terms what amounts are due, whether they include interest or not, and, if so, the amount. 84In that case, his Honour set aside the statutory demand, noting that: The demand is erroneous because it cannot be complied with on its face even allowing for misstatements. The applicant must make enquiries of one kind or another in order to ascertain the amount of interest that is said to be payable, whether he makes the enquiries from his solicitor or from the Supreme Court or others. ... ... it is not the obligation of a debtor company to calculate the interest which the creditor calls upon him to pay; to make certain and specific something which the creditor has left uncertain and unspecified. Also, in winding up proceedings the court acts not merely inter partes, but in the public interest. An order for winding up operates in rem. It is in the public interest that provisions of the Corporations Law which require a statutory demand to state the amount of a debt that is due and payable, should be observed. In all the circumstances I am satisfied that the defects in the statutory demand in this case are of such a kind and magnitude that they constitute good reasons why the demand should be set aside under s459 j (1)(b). 85Here, I am not satisfied that the identified defects are of the same magnitude as those considered in Topfelt . The amount of the principal judgment debt (obtained in the District Court proceedings) and the amount of the interest component of the debt are both clearly stated. The directors of Cranney Farm are well aware of the principal debt to which the demand relates. There is no need for Cranney Farm to make any arithmetical calculation of interest as that has been done for it (and indeed it accepted the quantum of the amounts in question when the orders were made in October 2010, so that any suggestion that Cranney Farm could not satisfy itself that the total amount claimed and payable accorded with the amount ordered to be paid out of the assets of the trust seems to me to be implausible). The infelicitous wording of the schedule is not in my opinion likely to be productive of such confusion so as to fall within the category of case contemplated by Lockhart J as one where the public interest would require the statutory demand to be set aside because it did not state the amount of the debt due and payable 86In Sultana Investments Pty Ltd v Cellcom Pty Ltd [2009] NSWSC 392, reference was made to Topfelt (from [33]): Because, in the Topfelt case, the demand did not specify as applicable to the fixed sum of $179,782.73 either an amount of interest or a rate of interest (or an accruing daily figure), the recipient of the demand was left in a position where it simply did not know how much it was expected to pay to comply with the demand and thereby to avoid the creation of a presumption of insolvency against it. That, it was said, amounted to a defect of the kind with which s 459J(1)(a) is concerned. The demand was set aside on that basis. This case is different. The statutory demand refers to a specific sum of $152,095.34. The recipient of the demand is informed in unambiguous terms that it must, according to the issuer, pay $152,095.34 in order to comply with the demand. There is no inability to calculate. There is no room for doubt about what the issuer requires. There is accordingly no defect of the kind dealt with in the Topfelt case. This case is, in this respect, the same as Oakland Property Holdings Pty Ltd v J P Morgan Trust Australia Ltd [2008] NSWCA 360; (2008) 69 ACSR 485. 87I consider the present case to be one in which there is in reality no room for doubt on the part of Cranney Farm as to what is required to be paid in order to avoid the presumption of insolvency. I find it hard to accept that the directors of Cranney Farm were likely to be misled as to the amount of the debt which it was claimed as due and payable and which it would need to pay in order to avoid a presumption of insolvency arising (and a simple enquiry could have been made to confirm that this was the case without occasioning any 'substantial injustice' in my view). 88There might be a question as to whether Cranney Farm could reasonably have been misled into thinking that what is being claimed (by reference to the description of the interest component as being interest "on the aforementioned judgment" of $40,202.84) was interest for the 2 week period between the 1 October judgment and the statutory demand. In circumstances where the amount specified as the judgment debt is what I have referred to as the principal component of the amount ordered to be paid on 1 October 2010, it seems to me that the demand could only sensibly have been understood by Cranney Farm to relate to the two components of the sum ordered to be paid on 1 October 2010. (Paragraph 2 itself refers to interest "to the date of judgment". That date must surely be 1 October 2010. On no construction of those words could it be suggested that the interest claimed includes a post-1 October 2010 interest component.) 89I therefore do not accept that the defects identified are such that substantial injustice would be likely to be caused if the demand were not set aside and I would not set it aside on this basis.

Conclusion 90For the reasons set out above I am not satisfied that the statutory demand issued on 15 October 2010 should be set aside on the basis that there is a defect of the kind contemplated by s 459J(1)(a). 91In the absence of a stay of Bryson AJ's judgment and any undertaking to secure the judgment debt, I am not satisfied that the existence of an appeal on reasonable and arguable grounds of itself provides a sufficient 'other reason' why it is in the interests of justice that the statutory demand be set aside, as provided for under s 459J(1)(b). (Had I been so satisfied, I would still, in the exercise of my discretion and having regard to the fact that this would operate as a de facto stay, and that any actual stay would have been granted only on terms considered to be fair to all the parties, have imposed as a condition on the setting aside of the statutory demand that security be provided for the judgment debt.) 92Nor am I satisfied that it is a sufficient 'other reason' simply to assert (without actually putting it to the test and thereby, intentionally or otherwise, avoiding a consideration of what conditions should be imposed on such a stay) an 'entitlement' to a stay of Bryson AJ's decision. 93However, I consider that if there were to be a condition imposed on the setting aside of the statutory demand (in effect to make it operative only on the provision of security for the judgment debt), then the existence of the appeal on reasonable and arguable grounds (which, if successful, would expunge the debt claimed in the statutory demand) would provide a sufficient other reason to set aside the statutory demand. 94Accordingly, I propose to make the following orders: 1.If Cranney Farm Pty Limited within 14 days makes payment into Court of the amount of $201,703.78 (or otherwise secures that sum to the reasonable satisfaction of Corowa Fertilizers Pty Limited) then the statutory demand dated 15 October 2010 is set aside pursuant to s 459J(1)(b) of the Corporations Act with effect from the date of payment into Court or provision of the security for that sum. 2.If Cranney Farm Pty Limited does not within 14 days make payment into Court of the amount of $201,703.78 (or otherwise secure that sum to the reasonable satisfaction of Corowa Fertilizers Pty Limited) then this application is dismissed with costs. 95I will hear submissions from Counsel as to the most efficient way to frame orders to give effect to my reasons (including as to the time period for payment or provision of security) and any submissions as to costs at a time convenient to Counsel.

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: 03 February 2011