Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd

The statutory demand and application to set it aside

1. On 21 June 2019, Drama Unit filed and served an originating process seeking orders setting aside the statutory demand. That application was supported by two affidavits. One was sworn by a director of Drama Unit, Mr Michael Gerace, on 21 June 2019 and asserted that there was a genuine dispute about the existence of the judgment debts and in support of that claim, relied on the appeal which had been filed that day. This affidavit may be put aside as Drama Unit did not place any reliance on a genuine dispute at the hearing of the s 459G application.
2. The other affidavit was sworn by Drama Unit's solicitor, Mr Damian Phair, on 27 June 2019 and asserted an offsetting claim that exceeded the amount claimed in the statutory demand. Mr Phair deposed: 1. I am the solicitor for the Plaintiff and I am authorised to make this affidavit on its behalf. 2. I am advised which I verily believe to be true that: (a) the Plaintiff will be filing a statement of claim in the Supreme Court of NSW, a draft of which is annexed hereto and marked "A". (b) the amount claimed in the said statement of claim will offset and exceed the amount claimed in the creditor's statutory demand dated 7 June 2019. 3. The Plaintiff respectfully seeks that the said statutory demand be set aside under ss 459G, 459H of the Corporations Act 2001 (Cth), on the basis that the Plaintiff has an offsetting claim.
3. The draft statement of claim annexed to that affidavit was unsigned, undated and unverified. In summary, the draft pleading asserted that:

• Fearndale had made representations to Drama Unit that there was a mining lease in place in respect of the Luddenham land when there was not;
• in reliance upon those representations, Drama Unit entered into a lease dated 23 March 2017 and incurred expenses which it otherwise would not have incurred;
• the previous lessee, Epic Mining Pty Limited, had remained in possession of the Luddenham land and operated the mine until April 2018, that Drama Unit sought to take possession of the land in May 2018 but Fearndale had denied that the lease to Drama Unit was valid or in force, and that Drama Unit was unable to obtain possession;
• Fearndale had engaged in misleading and deceptive conduct in breach of s 18 of Australian Consumer Law by holding itself out as having a mining lease and making representations that there was a mining lease in respect of the Luddenham land; and
• Drama Unit has or is likely to suffer loss or damage because of that misleading conduct in that it entered into the lease on terms that it would be required to have in place a mining lease and in reliance upon that term, the administrator of Fearndale had refused to allow Drama Unit to take possession of the land.

1. The relief sought in the draft pleading included: … [38] In the further alternative, the Lessee: (a) seeks pursuant to s 236 of the Australian Consumer Law: (i) the amount of rent that would otherwise be payable under the Lease; and (ii) the expenses it has incurred in connection with the Lease, as loss or damage that is has suffered because of the misleading and deceptive conduct of the Lessor as pleaded in paragraph 30 above; (b) claims damages in the amount of the rent that would otherwise be payable for breaches of the Lease as a result of the Lessor taking the actions pleaded in paragraphs 24, 25, 26 and 29 above; and (c) claims a set off of the amounts set out above against the amount of rent otherwise payable under the Lease.
2. Drama Unit sought to rely upon two further affidavits which were filed and served outside the 21-day period after the demand was served. One was an affidavit of Mr Gerace sworn 9 August 2019 which verified the statement of claim ultimately filed in the Equity Division on 9 August 2019. This affidavit was read below and admitted provisionally, "subject to [Fearndale's] objection on the basis of the Graywinter principle".
3. The other was a further affidavit of Mr Gerace sworn 22 August 2019 in which he quantified the damages sought against Fearndale as exceeding $3,864,487. This affidavit was also read provisionally subject to Fearndale's objection by reference to the Graywinter principle. The most substantial item of the damages claim was an amount of $2,800,000-$3,500,000 calculated as loss of profits of between $200,000 and $250,000 per month in respect of the lost opportunity to carry out mining operations on the Luddenham land from 29 May 2018 by reason of the mining lease being invalid.

The primary judge's reasons

1. The primary judge identified two issues for determination; first, whether the affidavits filed within 21 days after the demand was served fulfil the requirements of s 459G(3)(a) of the Corporations Act such that the Court has jurisdiction; and second, if so, whether these and subsequent affidavits establish an offsetting claim to the requisite standard.
2. The primary judge referred to the well-known authorities on what constitutes "an affidavit supporting the application" for the purposes of s 459G(3)(a), commencing with the statement in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 concerning the minimum requirements for an affidavit to qualify as a supporting affidavit. Reference was also made to later authorities modifying the so-called Graywinter principle, including Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51; Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393; and Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60.
3. Her Honour proceeded on the basis that the affidavit filed within 21 days must raise the grounds on which the applicant seeks to have the demand set aside and those grounds may be raised expressly, or by inference, from the affidavit or documents annexed to it: Judgment at [27].
4. Her Honour noted that the draft statement of claim was unsigned, undated and unverified and otherwise did not contain any evidence that Drama Unit was entitled to the amounts claimed in the statement of claim, or the basis upon which those amounts could be claimed, or the facts contained in the statement of claim were correct or were within Mr Phair's knowledge: Judgment at [37].
5. Her Honour continued at Judgment [37]: … Although the affidavit contained a conclusory statement of sorts along the lines of Infratel, the solicitor did not squarely assert, on information and belief or at all, that Drama Unit was entitled to the amounts that would be claimed in such proceedings, nor on what basis. The fact that the annexed Statement of Claim was in draft, unsigned and unverified by a director of Drama Unit may not have been fatal if, consistently with the authorities to which I have referred, the solicitor had in the body of his affidavit set out the material facts on which Drama Unit intended to advance that claim, on information and belief or at all. The solicitor did not depose, for example, that he had been informed by an identified person (ideally a director of Drama Unit likely to know first-hand) that the facts in the draft Statement of Claim were correct. (Emphasis in original.)
6. Her Honour concluded that the draft statement of claim was merely "a series of draft assertions rather than anything concrete" and that the Phair affidavit did not raise the grounds nor state the material facts supporting the alleged offsetting claim: Judgment [38], [39].

Proposed grounds of appeal

1. In its draft notice of appeal, Drama Unit relies on four grounds. Ground 1 contends that the primary judge erred in holding that Drama Unit had not satisfied the jurisdictional criterion in s 459G by not having "raised" an offsetting claim within 21 days after service of the statutory demand. Grounds 2 and 3 challenge the primary judge's approach to the affidavit evidence of Mr Phair. Ground 4 asserts that the primary judge's decision was erroneous, but does not identify any error beyond that stated in the earlier grounds.

Disposition of application

1. The principles governing the grant of leave to appeal are well established. As stated in Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28]: Only if the decision is attended with sufficient doubt to warrant its reconsideration on appeal will leave be granted: Sharpe v Heywood [2013] NSWCA 192 at [34]; McMahon v Permanent Custodians Ltd [2013] NSWCA 275 at [57]. Ordinarily, it is only appropriate to grant leave where there is an issue of principle, a question of general public importance, or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]. It is well established that it is not sufficient merely to show that the trial judge was arguably wrong: Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32].
2. In the present case, there is no issue of principle or question of general public importance. Counsel for Drama Unit acknowledged that there was no challenge to her Honour's statement of legal principles; rather the challenge was to the application of those principles in the present case.
3. Importantly, there is no challenge to her Honour's acceptance (at Judgment [23]) of the remarks of Parker J in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd at [34] (Anderson and Scott JJ agreeing), that there is no: [34] … settled and universal principle, which must be satisfied by an affidavit before it can be accepted as "supporting the application" within the meaning of s 459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires.
4. This statement by Parker J was cited by this Court with approval in Infratel Networks Pty Ltd v Gundry's and Telco Rigging Pty Ltd at [29] (Young AJA, Hoeben JA and Ward J agreeing).
5. As to whether there is an injustice which is reasonably clear in the sense of more than merely arguable, Drama Unit submitted that the proposed appeal raised a "not … unimportant issue" of "the evidentiary threshold requirement in the circumstances of this particular affidavit". The submission went so far as to suggest that the minimum requirements of a supporting affidavit can be stated in prescriptive terms. That is not so. As the remarks of Parker J in Financial Solutions at [34] serve to emphasise, the precise nature of the application may well influence what is required for a supporting affidavit.
6. The word "affidavit" in s 459G(3)(a) connotes evidence and the affidavit must be one that supports the s 459G application. The requirements of a supporting affidavit will depend on the precise nature of the application, that is, whether the plaintiff asserts a genuine dispute or an offsetting claim (s 459H(1)), or a defect in the demand or some other reason why the demand should be set aside (s 459J).
7. Here Drama Unit relied upon an offsetting claim. The expression "offsetting claim" is defined to mean a genuine claim that the company has against the respondent by way of counter-claim, setoff or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates): s 459H(5). The reference in that definition to the "respondent" means the person who served the demand on the company: s 459H(5).
8. There was no issue before the primary judge that the draft pleading identified the grounds of the offsetting claim relied upon by Drama Unit. For this reason, the authorities on whether the grounds of the application to set aside the demand must be raised by the supporting affidavit to permit further affidavit evidence after the 21-day period referred to in s 459G(1) were not directly engaged: see, for example, Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd at [26]-[27].
9. The question before her Honour was whether the Phair affidavit was an affidavit supporting the s 459G application on the ground that Drama Unit has an offsetting claim: s 459H(1)(b). The proposed appeal seeks to challenge her Honour's factual finding that the affidavit did not answer that description. That finding involved an evaluative judgment as to whether the Phair affidavit provided evidentiary support for the asserted offsetting claim.
10. The Phair affidavit did not verify any of the material facts asserted in the draft pleading. The affidavit said no more than that Drama Unit would be filing a statement of claim and the amount claimed would "offset and exceed" the judgment debts. But the mere foreshadowing of an intention to make a claim did not give those allegations in the draft pleading any evidentiary value.
11. In my view, Drama Unit has not demonstrated an injustice which is reasonably clear in the sense of going beyond what is merely arguable. Accordingly, leave to appeal should be refused.

The date for compliance with the statutory demand has expired

1. There is an additional reason for refusing leave. Section 459F provides: 459F When company taken to fail to comply with statutory demand (1) If, as at the end of the period for compliance with a statutory demand, 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 at the end of that period. (2) The period for compliance with a statutory demand is: (a) if the company applies in accordance with section 459G for an order setting aside the demand: (i) if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand - the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or (ii) otherwise - the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or (b) otherwise - 21 days after the demand is served.
2. Where the company fails to comply with a statutory demand, s 459C(2) relevantly provides: 459C Presumptions to be made in certain proceedings (2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made: (a) the company failed (as defined by section 459F) to comply with a statutory demand; or …
3. As Brereton J explained in Leveraged Capital Pty Ltd v Modena Imports Pty Ltd [2009] NSWSC 509 at [5], the automatic extension provided by s 459F(2)(a)(ii) applies only where "the company applies in accordance with s 459G for an order setting aside the demand". Those words reflect the meaning of s 459G(3)(a) which provides: 459G Company may apply (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.
4. Brereton J continued in Leveraged Capital Pty Ltd v Modena Imports Pty Ltd at [8]: Comparison of the words used in s 459F(2) and those in s 459G(3) makes abundantly clear that the automatic extension provided for by s 459F(2)(a) is triggered only by a valid application made in accordance with s 459G, that is to say, one that complies with the requirements of s 459G(3).
5. It is well established that an application is not validly made for the purposes of s 459G(3) unless there is a sufficient supporting affidavit: Graywinter Properties Pty Ltd v Gas & Fuel Corporations Superannuation Fund; Pacific Islands Express Pty Ltd v Empire Building Development Pty Ltd [2008] NSWSC 576 at [7] (Austin J); Modena Imports Pty Ltd v Leveraged Capital Pty Ltd (in liq) [2009] NSWSC 20 at [13] (Barrett J); Leveraged Capital Pty Ltd v Modena Imports Pty Ltd at [8] (Brereton J), upheld on appeal in TQM Design & Construct Pty Ltd v KCL Developments Pty Ltd & Golden Plantation Pty Ltd [2011] NSWCA 7 at [20]-[21] (Spigelman CJ, Macfarlan JA agreeing); at [41] (Hodgson JA).
6. If the period for compliance with a statutory demand has expired, s 459F(2) does not permit the making of an order extending the period for compliance: Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd (2008) 232 CLR 314; [2008] HCA 9 at [27] (Gleeson CJ, Hayne, Crennan and Kiefel JJ).
7. In the present case, the statutory demand was served on Drama Unit on 7 June 2019. It is common ground that the demand has not been satisfied. Absent any extension of the period for compliance, Drama Unit is taken to have failed to comply with that demand on 28 June 2019 by reason of the operation of s 459F(2)(b), that is, 21 days after service.
8. As Fearndale correctly submitted, given that no order extending the time for compliance was made under s 459F(2)(a)(i), either: 1. the application by Drama Unit was not made "in accordance with s 459G", as the primary judge found, so that s 459F(2)(b) applies and the period for compliance expired 21 days after service of the demand, that is, on 28 June 2019; or 2. the application filed by Drama unit was brought in accordance with s 459G, as contended for by Drama Unit, and was "finally determined" on 6 September 2019: Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85 at [9] (Phillips JA, Chernov and Eames JJA agreeing); Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 at [63]-[64] (Young CJ in Eq). On this hypothesis, the period for compliance with the statutory demand would have expired on 13 September 2019, by operation of s 459F(2)(a)(ii).
9. On either view, when the summons seeking leave to appeal was filed on 3 October 2019, the period for compliance with the statutory demand had expired. That occurred either on 28 June 2019 or on 13 September 2019 and no order can now be made extending the time for compliance. There is no point in Drama Unit attempting to have the statutory demand set aside because the appeal can have no purpose in either situation: Ketrim Pty Ltd v Jaeger Corporation Pty Ltd [2002] NSWSC 871; (2003) 21 ACLC 8 at [23] (Campbell J); Tony Long & Co Pty Ltd v Jadeja [2011] VSC 582 at [5] (Ferguson J).
10. Surprisingly, given that it opposed the relief sought on appeal, Fearndale submitted that there is "some" utility in the appeal. This submission was directed to the circumstance that Fearndale filed an application under s 459P for the winding up of Drama Unit on 10 December 2019, and the availability of the presumption under s 459C(2)(a) in respect of those winding up proceedings depends on whether the date for compliance with the statutory demand is 28 June 2019 or 13 September 2019.
11. Fearndale accepted that if the decision of the primary judge stands, the consequence is that the statutory demand is stale and the presumption under s 459C(2)(a) will not apply in respect of those winding up proceedings.
12. Against this, Fearndale pointed to the possibility that if, as Drama Unit contends, the application was validly made under s 459G, then the presumption under s 459C(2)(a) will apply in respect of those winding up proceedings. But that is contrary to the argument on which Fearndale succeeded below and maintains on any appeal.
13. Fearndale did not submit that it would be prejudiced if leave to appeal was refused because it could not rely upon the presumption under s 459C(2)(a) in the winding up proceedings. Fearndale could not properly advance that submission whilst at the same time opposing the relief sought on appeal.
14. As indicated, there is no point in Drama Unit attempting to have the statutory demand set aside, an outcome which Fearndale opposes. That is a further reason warranting refusal of a grant of leave to appeal.

Costs

1. Drama Unit accepted in its summary of argument that there is no reason why it ought not be ordered to pay Fearndale's costs if leave to appeal is not granted.

Conclusion and Orders

1. Drama Unit has failed to demonstrate that the primary judge's decision is attended with sufficient doubt to warrant its reconsideration on appeal. Accordingly, I propose the following orders: 1. Summons seeking leave to appeal is dismissed. 2. The applicant to pay the respondent's costs in this Court.
2. PAYNE JA: I agree with Gleeson JA.

Amendments 30 January 2020 - Typographical errors in Catchwords 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: 30 January 2020