David Grant & Co Pty Limited (Receiver Appointed) v Westpac Banking Corporation

REASONS FOR JUDGMENT This application to wind up the respondent company under s 459P of the Corporations Law was dismissed by consent on 9 June 1998, the issue of costs being reserved. On that issue, the parties were directed to file written submissions. Each party maintains that its costs of the application should be paid by the other - the respondent claiming a costs order on an indemnity basis. In order to understand the respective contentions, it is necessary to set out the history of the matter. On 2 October 1997, the applicant obtained a default judgment in the District Court of New South Wales against the respondent for the sum of $231,606.060. Subsequently, on 30 October 1997, the applicant posted to the respondent a statutory demand under s 459E of the Corporations Law for payment of the judgment debt. In accordance with the scheme under Part 5.4 of Chapter 5, the time for compliance with the demand was21 days after its service (s 459F(2)(b)). A company on which such a demand is served may, within 21 days, apply to the court for an order setting it aside (s 459G). The court may set aside a statutory demand (inter alia) if satisfied that "there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates" (s 459H(1)(a)). Where an application is made under s 459G, the time for compliance with the demand may be extended by the court (s 459F(2)(a)). If, at the end of the period for compliance, the demand is still in effect and the company has not complied with it, the company "is taken to fail to comply with the demand" (s 459F(1)). In proceedings seeking the winding up of a company in insolvency, such a failure gives rise to a presumption that the company is insolvent, provided that the failure occurs "during or after the 3 months ending on the day when the application [to wind up the company] was made" (s 459C(2)(a)). The presumption thus created applies "except so far as the contrary is proved" (s 459C(3)). Where a company opposes the making of a winding up order, but did not apply to have thea statutory demand set aside, that company requires the leave of the court to raise a ground on which it could have placed reliance had it so applied (s459S). Under subs 459S(2), the court "is not to grant leave … unless it is satisfied that the ground is material to proving that the company is solvent." The effect of the statutory scheme, therefore, is that in such an application under s 459P the key issue is the solvency of the company sought to be wound up; any dispute as to the existence of the debt will not be heard unless it goes to the question of solvency. As Gummow J (with whom the rest of the High Court agreed) stated in David Grant & Co Pty Limited (rReceiver aAppointed) v Westpac Banking Corporation (1995) 184 CLR 265 at 270: "The provisions of the new Pt 5.4 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." The respondent did not make an application under s 459G; nor did it comply with the statutory demand within the period specified in the Corporations Law. That period expired on 21 November 1997. Two months later, on 21 January 1998, the applicant filed, but did not serve, the present application to wind up the respondent company. The application was in fact not served on the respondent until 27 January. In the meantime, however, on 22 January, the respondent had filed a notice of motion to set aside the District Court judgment. There is no evidence to indicate what, if any, communication occurred between the parties following the service of the statutory demand, or as to what efforts were made to obtain payment of the judgment debt prior to that demand being served, as it was served, within less than one month of after the entry of the default judgment. On 5 February 1998, the respondent filed its notice of intention to appear in the Federal Court, asserting one ground of opposition to the application to wind the company up, namely, that "the company is solvent". An affidavit filed simultaneously in support of that notice, sworn by a director of the company, stated simply: "I believe the statements of fact in the notice are true". The next day, 6 February 1998, the default judgment which had been the basis for the statutory demand was set aside in the District Court;. On the and same day, the respondent's solicitor sent to the solicitor for the applicant a facsimile "Wwithout pPrejudice (Ssave as to cCosts)". That facsimile contained the following: "We are instructed that the respondent is solvent and it will be defending the Application on this basis. In the circumstances, where the subject matter of the alleged debt is, and remains, disputed in the District Court of New South Wales, it is an abuse of process for your client to continue with its Application for the winding up of the respondent where it is a clearly solvent company. In order to save further unnecessary legal costs and to litigate the real issues between the parties in the District Court of New South Wales, we are instructed to make the following "Without Prejudice" offer in full and final settlement of the Federal Court proceedings: