BETWEEN : ENERGY EQUITY CORPORATION LTD (ACN 009 124 994)

Procedure - Application for a stay of judgment - Application under s 459F(2)(a)(i) of Corporations Act 2001 for an extension of time to comply with a statutory demand

Corporations Act 2001, s 459E, s 459F(2)(a)(i), s 459G

AMEV-UDC Finance Ltd v Austin [1986] HCA 63; (1986) 162 CLR 170

AMEV Finance Limited v Artes Studios Thoroughbreds Pty Ltd (1989) 15 NSWLR 564

Aspermont Ltd v Robash Pty Ltd (1998) 16 ACLC 485

D&S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794

David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265

Esanda Finance Corporation Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131

Graywinter Properties Pty Ltd v Dyer (1997) 15 ACLC 302

Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452

Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd [No 1] [1986] HCA 84; (1986) 161 CLR 681

John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250

Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (In Liq) [2001] WASCA 360

Missay Pty Ltd v Seventh Cameo Nominees Pty Ltd (In Liq) [2000] VSC 397

Re Brentwood Terrace Pty Ltd [1997] QSC 222

Re Hire Works Pty Ltd; Hireworks v Elexpo (1996) 14 ACLC 111

Re Louisbridge Pty Ltd (1994) 2 Qd R 144

Valassis v Bernard [2001] FCA 477

Verte Pty Ltd v Grisbrook, unreported; SCt of WA (M Sanderson); Library No 970392; 12 August 1997

Z-Tek Computers Pty Ltd v Aus Linx International Pty Ltd (1997) 15 ACLC 1233

Zanjill Pty Ltd v Sydney Autolac Centre Pty Ltd, unreported; FCA (Hill J); Library No 1445/1997; 5 December 1997

1 PULLIN J: This is an application by the appellant for an order extending time for the appellant to comply with a statutory demand served by the respondent under s 459E of the Corporations Act. The Court has jurisdiction to make such an order under s 459F(2)(a)(i) of the Corporations Act and O 81G r 8 of the Supreme Court Rules. The background is as follows. The respondent served its statutory demand concerning two sums of money, namely $101,077 for outstanding consultancy fees and $262,167 being a termination fee, both sums being payable under a contract between the parties dated 9 February 1998. The total of those sums is $363,244.

2 An application was made by the appellant under s 459G of the Corporations Act to set aside the statutory demand. This section requires that an affidavit supporting the application must be filed and served.

3 The application was heard by a Master who dismissed the application. The appellant appealed to the Full Court and the appeal was dismissed.

4 When the Full Court dismissed the appeal it also made an order that time for compliance with the respondent's statutory demand be extended until 5.00 pm on 11 January 2002. That time was extended by an order made by consent to a time to allow the hearing of this application today.

5 The application for an extension is in the circumstances of this case, the equivalent of an application to stay the judgment of the Full Court. I will therefore proceed to apply the principles which applying when an application is made to the Full Court for a stay.

6 The appellant seeks a stay because it wishes to apply for special leave to appeal to the High Court.

7 In the appeal to the Full Court the appellant contended in one of its grounds of appeal that it had an offsetting claim which justified the setting aside of the statutory demand arising from what was called the "Vypeen" contract. The appellant argued this even though the "Vypeen" contract claim had not been raised in an affidavit in support of the application to set aside the demand filed within the 21 day period specified in the Act. It was argued that, nevertheless, this should have been treated as a genuine offsetting claim. Secondly, it was contended by the appellant, in another ground of appeal, that the termination fee was a penalty and therefore unenforceable. Both of these grounds of appeal were dismissed. The appellant wishes to run the same arguments again in the High Court, and seeks special leave to do so.

8 The Master's order and the dismissal of the appeal by the Full Court has the effect that the appellant must pay the moneys demanded or risk the respondent proceeding to wind up the appellant. I was informed on behalf of the appellant that it has the capacity to make payment of that sum. In my view, it is likely that the appellant will be forced to make payment if no stay is ordered.

9 Hamersley Iron Pty Ltd v Lovell (No 2) (1998) 20 WAR 79 sets out the relevant authorities and the principles governing an application for a stay by a party seeking special leave to appeal to the High Court. That case makes it clear that a stay is not granted simply for the asking, that it is not normal to grant a stay, and that the jurisdiction to grant a stay is an "extraordinary jurisdiction" and only to be exercised in "exceptional circumstances". As Anderson J states at p 89, one of the circumstances which will enliven the discretionary jurisdiction and which will be exceptional is if there is a real risk that it will not be possible for a successful applicant to be restored substantially to his former position if the judgment against him is executed.

10 I am satisfied that there is a real risk of that kind in this case. The respondent has net assets of only $45,000, and if the appellant pays the money to the respondent, the respondent has made it clear that some of those moneys will be paid out by way of legal fees and wages.

11 Having enlivened the jurisdiction, it is then necessary to consider two other aspects. The prospects of success which the appellant has on its application for special leave and the balance of convenience. I deal first with the prospects of the applicant gaining special leave. In relation to what I might call the Corporations Law ground, there is a line of case law which holds that an applicant to set aside a statutory demand will not succeed unless it raises all points it wishes to argue by affidavits filed within the 21-day period provided. There is, however, no High Court authority on the point and in my view there is a special leave point which is arguable. In my view, the appellant only has a slight prospect of success in relation to its point that the termination payment is a penalty.

12 The balance of convenience requires me to take into account the effect of a stay or the effect of not granting a stay, on both parties. I have already stated the potential adverse effect on the appellant if a stay is not granted.

13 However, the respondent may be prejudiced if it is held out of its judgment. The Full Court found that the appellant may have difficulty in finding sufficient cash to pay the respondents. That finding is not challenged, although I am told that the appellant can at the moment make payment. For the appellant to be in a situation where it could be said that it may have difficulty in finding sufficient cash to pay the amount in issue at the time of the hearing of the appeal, raises a real question about whether it might have that same difficulty at some time in the future. The appellant has led evidence from Mr Black, a solicitor employed by the solicitors on the record for the appellant, stating that he has been informed by a Mr Jordan, a director and the secretary of the appellant, that the appellant is solvent. No facts which allow that statement to be assessed have been produced. In my view, that evidence does not diminish the finding of the Full Court which I have referred to above.

14 Counsel for the respondent drew to my attention the affidavit of Mr Carmady which was referred to in the Full Court. That revealed that the appellant as at 30 June 2001 has accumulated losses of $124 million and that as at 30 June 2001 the appellant's total current assets were $938,000, with its total current liabilities exceeding $86 million. A report of Price Waterhouse Coopers of 26 October 2001 referred to the appellant's severe liquidity problems and that the company was facing the threat of insolvency if short-term working capital was not made available.

15 In my view, the balance of convenience requires that a stay should be ordered, in other words that time should be extended for compliance with the demand until after the hearing of any appeal or until other orders of this court or of the High Court and a stay of execution after costs have been taxed, but only on condition that the appellant pays the sum of $300,000 to the respondent at settlement (which I will define in a moment), such money to be paid into a separate bank account in the name of the respondent with the signatories to the account being two of the partners of its solicitors, and dealt with as follows.

(a) The sum of $120,000 must be paid forthwith from that account and deposited into a bank term deposit in the name of the respondent with the signatories being two of the partners of its solicitors. That sum shall be held on trust for the party which ultimately succeeds in the litigation.

(b) As to the balance, the respondent is authorised to

(i) Pay out of the account $10,000 per month to Mr P W Bridgewood by way of gross wages up to a limit of $120,000.

(iii) Pay $40,000 by way of arrears of wages to Mr P W Bridgewood.

16 At settlement (which will be a date nominated by the respondent), the respondent must deliver to the appellant in exchange for a bank cheque in the sum of $300,000:

(a) An executed registered second mortgage over 34 Willow Road, Woodlands to secure repayment of $170,000 (along with production of the duplicate certificate of title to allow such mortgage to be registered).

(b) An executed equitable mortgage over shares listed on the ASX to the value of $25,000.

(c) A valuation from a licensed valuer directed to the appellant expressing the opinion that the value of 34 Willow Road Woodlands is $350,000.

(d) A letter from the bank holding the first mortgage stating that the amount secured by the first mortgage does not exceed $170,000.

17 I direct the appellant to prepare a minute reflecting the terms of the orders suggested above. There will be liberty to apply.

18 In deciding that I should make the above orders, I have noted the respondent's undertaking to the Court, through its counsel, that it will repay the $300,000 and any interest if the appellant is granted leave to appeal and the appeal succeeds.

19 I will grant a further short extension of time to allow the terms of the minute to be settled between the parties.