Filaria Pty Limited v Carlisle & Ors [2004] ACTSC 95

4. The application is supported by an affidavit sworn by the solicitor for the company, Mr G T Brackenreg. He deposes that each of the three respondents commenced proceedings against the company and a number of other defendants in late 1999, seeking damages for misrepresentation, misleading and deceptive conduct, false representations, breach of retainer and negligence. At the same time a further fifty-six persons commenced actions against the same defendants claiming the same relief. Each of the plaintiffs in these actions had purchased a unit in the former Canberra International Hotel from the company, and the other defendants included real estate agents and solicitors. The agreements for sale were relevantly identical, and provided for a five-year lease to another company with a guaranteed rental.

5. Three of these actions were heard together over a period of twenty-eight hearing days commencing in May 2003 and concluding in February 2004. In June 2004, Crispin J entered judgment for the defendants: Whittle v Filaria Pty Limited [2004] ACTSC 45, 11 June 2004, unreported. The matters have been listed for 7 December 2004 for submissions in relation to costs. Appeals have been instituted by the unsuccessful plaintiffs.

6. Mr Brackenreg deposes that the three heard matters were run as a test case. He expresses the opinion that the costs recoverable by the applicant company in the event of a favourable costs order are likely to amount to several hundred thousand dollars. The same solicitors, Gillespie-Jones and Co, acted for the plaintiffs in the three heard matters, and act for most, perhaps all, of the plaintiffs whose actions have not yet been heard. Mr Brackenreg in his affidavit expresses the view that it is reasonable to assume that the three respondents in the present proceedings may be required to indemnify or contribute to costs orders made against the three unsuccessful plaintiffs. He does not go so far as to express an opinion based on information and belief that there exists any formal agreement between the individual plaintiff clients of Gillespie-Jones and Co to indemnify other clients in relation to costs.

7. Mr Brackenreg deposes that in December 2000, Master Connolly, as his Honour then was, made interlocutory costs orders in favour of the applicant company against the various plaintiffs, including the three present respondents, in respect of an application for leave to file a further amended statement of claim. Those costs have not been quantified. Mr Brackenreg does not express an opinion as to their likely amount.

8. Mr Brackenreg deposes that none of the three present respondents have taken any active steps in their actions as plaintiffs for more than two years, other than to have their costs (the claimed debts) taxed.

9. Mr Gillespie-Jones has sworn an affidavit in reply. He expresses the opinion that the fifty-nine actions are not related proceedings, and that the oral representations which will be relied upon by the plaintiffs are different in each case. He refers to a statement made by senior counsel for the applicant company to the Court in August 2002 in the action brought by the first respondent, in which counsel said that the defendant was not prepared to have a situation where a case or a number of cases were seen to be determinative in any way of the result of the litigation. Mr Gillespie-Jones says that the three actions which have been heard were not test cases, and that their results will not necessarily determine the outcome of any of the other fifty-six cases. He concedes that the three respondents are liable to the plaintiff for the costs occasioned by the application for leave to further amend the statement of claim, but he expresses the opinion that those costs "when quantified will be quite small".

10. There are two sections of the Corporations Act which permit the Court to entertain an application to set aside a statutory demand. Section 459H applies where the Court is satisfied either that there is a genuine dispute about the existence or amount of the debt, or that the company has an offsetting claim, or both. In the face of the certificates of taxation, I am satisfied that there is no genuine dispute about the existence or amounts of the debts. The company has raised the question of a potential offsetting claim, but the claim is unquantified. The evidence of Mr Gillespie-Jones, that the costs in relation to the amendments to the statements of claim are likely to be relatively small, has not been challenged and accords with common sense. The company has had almost four years to have those costs taxed, and has apparently taken no steps to do so. At best the company might, had the costs been taxed, have been able to establish an offset which would have reduced to some degree the amounts of the debts, but any offsets would have been modest by comparison with the amounts claimed.

11. The offset argument in relation to the costs which the applicant company will be seeking in December is even less persuasive. I accept that it is probable that a costs order will be made in favour of the company against the three plaintiffs whose matters have been heard, and I accept that the recoverable costs are likely to run into hundreds of thousands of dollars. Experience suggests that it will be a long time before bills in respect of those costs can be prepared and taxed. The appeals are likely to be heard before the costs are taxed, though I have no opinion evidence as to the prospects of the appeals succeeding. More significantly, there is no evidence that the applicant company will have any entitlement to offset any part of such costs as it may recover from the three unsuccessful plaintiffs, against the debts owing to the three respondents in the present proceedings. The existence of an arrangement between the various clients of Gillespie-Jones and Co which might be relevant to this question is no more than speculation.

12. The other section which permits the Court to entertain an application to set aside a statutory demand is s 459J. This section applies where the Court is satisfied either that because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or that there is some other reason why the demand should be set aside. No defect in any of the demands is alleged. The company relies on the ground that there is "some other reason" why the demands should be set aside. It should be pointed out that if this ground is made out, the company does not need to demonstrate substantial injustice, the latter being necessary only where reliance is placed on the defect ground. Examples of circumstances which have been held to constitute "some other reason" for setting aside the demand are failing to inform the debtor of the time for payment (Main Camp v Australian Rural (2002) 20 ACLC 226); substantial non-compliance with Court rules (Wildtown Holdings Pty Limited v Rural Traders Co Limited [2002] WASCA 196; (2002) 172 FLR 35); and serving two statutory demands in relation to two separate debts arising from the same matter (Hooker Cockram Limited v Manesco Pty Limited [2001] VSC 356; (2001) 3 VR 466).

13. The background to Divisions 2 and 3 of Part 5.4 of the Corporations Act dealing with statutory demands and applications to set them aside is set out by Gummow J in David Grant and Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265. His Honour explained that the provisions were introduced into the then Corporations Law in 1992 by way of implementation of recommendations made in Report 45 of the Australian Law Reform Commission on insolvency, referred to as the Harmer Report. As his Honour said at 270:

The provisions of the new Part 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 salient features of the scheme... are as follows.

Section 459E provides for the service by a creditor of a statutory demand on a company. Failure by the company to comply with the demand within the period for compliance may found an application that the company be wound up in insolvency. If, during or after the three months ending on the day when the application is made, the company failed to comply with the demand, the Court must presume that the company is insolvent: s 459C(2)(a).

No doubt, in some circumstances, the new Part 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process of the technical sense of that term . . . However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction.

15. Counsel for the company raised during argument the general issue of solvency. He referred in this context to Mr Brackenreg's evidence about the likelihood of an order for costs in the company's favour in the three heard matters, and his opinion as to the quantum of those costs being of the order of several hundred thousand dollars. It seems to me that there are three points to be made about that submission. In the first place, assuming in the company's favour that such orders will be made and that the appeals will be unsuccessful, there is no evidence that the plaintiffs in the heard matters will have the means to satisfy costs orders of that magnitude. Secondly, recovered costs of those proportions will do no more than provide the company with an indemnity, probably less than a complete indemnity, against its liability to its solicitors for legal costs, counsels' fees and other disbursements. Whether or not the company has already paid its solicitors, about which there is no evidence, a recovery of costs can hardly be seen as representing a capital windfall to the company.

16. Thirdly, whilst failure to comply with a statutory demand affords evidence of insolvency on a subsequent winding up petition, it is not the company's solvency which is in issue on an application to set aside a demand. It has been held that establishing solvency does not constitute "some other reason" justifying the setting aside of a demand under s 459J: Chippendale Printing Co Pty Ltd v Commissioner of Taxation (1995) 55 FCR 562. Plainly a company served with a valid statutory demand in respect of an undisputed debt cannot refuse to pay the debt and at the same time defeat the statutory demand simply by establishing that it is solvent.

17. It follows that for these reasons I am not satisfied that the company has established an adequate reason under s 459J for setting the demand aside.

18. The respondents submit that in any event the present application is doomed to failure by reason of the fact that the company has made a single application seeking to set aside three separate demands, and that this is not permitted by the legislation. The principal order sought in the originating application is framed as though there has been a single demand made by the three respondents, but it is clear that there were three separate demands and that what the company seeks is that each of those demands be set aside. I was referred to two decisions of single judges sitting in the Equity Division of the Supreme Court of New South Wales, as authority for that proposition.

19. In Help Desk Institute Pty Ltd v Adams (1999) 17 ACLC 18, Young J, as his Honour then was, refused an application to set aside two statutory demands, of the same date and prepared by the same solicitors, but on behalf of different creditors and for different amounts. The debts arose out of the same background circumstances. Young J analysed the terms of s 459G, and held that the section did not permit more than one demand to be dealt with by the same summons. Other provisions of the Corporations Law and of the NSW Supreme Court Rules designed to provide the Court with some discretion to dispense with strict compliance did not assist having regard to the status of Division II of Part 5.4 as a complete code. His Honour also held that the supporting affidavit had to deal with the particular demand sought to be set aside and with that matter only.

20. This decision was followed by Santow J, as his Honour then was, in Calquid Pty Limited v A & D R Illes Pty Limited [2000] NSWSC 558; (2000) 34 ACSR 523. In that case his Honour was dealing with a single application to set aside statutory demands by the same creditor for two separate and distinct debts, although arising out of the same contract. The demands had been served on different days, creating a practical difficulty in relation to the twenty-one day period under s 459G. His Honour dismissed the application.

21. I have not been referred to any authorities inconsistent with Help Desk and Calquid. Whilst those decisions are not binding on this Court, they are of strong persuasive force, and I propose to follow them. It has not been submitted that the facts of the present application are distinguishable from those in the NSW decisions.

22. Accordingly I am persuaded that regardless of the merits of the application, it must fail by reason of the fact that the company has joined the three statutory demands in a single application to set aside, and that such a course is inconsistent with the terms of s 459G.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Solicitor for the respondents: Gillespie-Jones and Co