Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd

Judgment

1. HER HONOUR: On 19 December 2018, I ordered that the time for compliance with a statutory demand served on the applicant, Grandview Ausbuilder Pty Ltd (Grandview), by the respondent, Budget Demolitions Pty Ltd (Budget), on 31 January 2018 be extended until seven days after judgment is delivered on Grandview's summons seeking leave to appeal from the judgment of Parker J, in which his Honour dismissed Grandview's application to set aside the statutory demand: Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2018] NSWCA 336.
2. Following delivery of judgment, counsel for Budget, in an email to the Court, drew the Court's attention to what appeared to be a misapprehension in my reasons, at [39], as to the existence of certain court proceedings. Budget sought, therefore, that the Court's judgment be reviewed pursuant to the Uniform Civil Procedure Rules 2005 (NSW), r 36.16(3A).
3. In that judgment, I stated: "[38] I am of the opinion that there is at least a sufficient argument for Grandview to advance in support of its application for leave to appeal. As Grandview has pointed out, there are authorities that support its position that it is sufficient for an offsetting claim to be in existence as at the date of the hearing to set aside the statutory demand. It is also arguable that the primary judge's calculation of its claim may not be accurate. Further, there can be no doubt that if an extension of time to comply with the demand is not granted, the application seeking leave to appeal and any appeal will be rendered nugatory. In addition, Grandview's position in any subsequent winding up proceedings would be governed by the provisions of the Corporations Act, including the presumption of insolvency: see s 459C. [39] These are all considerations that point in favour of a grant of an extension of time. Of particular concern, however, has been the delay in the matter to the present time and the fact that, when the primary judge heard the matter, Grandview had not commenced proceedings to vindicate its claim. However, those proceedings have now been commenced. Had it not been for that, I would have dismissed the application for an extension of time. Whilst that would have resulted in some prejudice to Grandview, there would have been a significant prejudice to Budget, who would have been kept out of its admitted entitlement to the two progress claims for over 12 months. Another matter that I have taken into consideration is that the Court is able to allocate an early hearing date of the summons seeking leave to appeal. In that regard, I will direct that the summons seeking leave to appeal and, if leave be granted, the appeal, be heard concurrently."
4. The reference to the commencement of proceedings by Grandview was, as counsel for Budget pointed out, an error. By way of explanation, it was due to an error in reading the parties' submissions. As will be apparent, from what I said at [39], it was a material factor in my decision to grant an extension of time. The matter having been drawn to my attention, the parties were invited to file further short submissions addressing the error.
5. Grandview submitted that Budget had not argued at the hearing of Grandview's application for an extension of time on 3 December 2018 that the fact that it had not commenced proceedings to 'vindicate' its claim was a basis for rejecting Grandview's application. Grandview submitted that had that been argued, it would have emphasised the submission it had made at para (12) of its written submissions that Budget had not taken any recovery action, having chosen instead to issue a statutory demand. It would also have emphasised that Budget is not now precluded from seeking recovery through other means.
6. Grandview reiterated the point it had made at the hearing on 3 December 2018 that Budget had been responsible for a delay of approximately three months in responding to Grandview's expert evidence on the application before Parker J.
7. Budget, for its part, submitted that if the error in my earlier judgment is corrected, the effect of my reasoning would be that I would have refused Grandview's application for an extension of time. It submitted that, for that reason, I should refuse Grandview's application.
8. Budget submitted that there was an alternative course which, although it would improve its present position, would not wholly reverse Grandview's position, namely, ordering Grandview to pay a sum of money into Court, which it suggested be one third of the admitted debt the subject of the statutory demand, as a condition of extending the time for compliance. Budget recognised that there are authorities, to which I referred in my earlier judgment, that suggest that to do so could unfairly give a creditor who had issued a statutory demand a security for what it was owed: see Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd (2004) 50 ACSR 544; [2004] NSWSC 877; Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd (2006) 60 ACSR 393; [2006] NSWSC 1378. It submitted, however, that this case could be distinguished.
9. Budget submitted that, unlike the present case, in Australian Beverage Distributors v Cranswick Premium Wines, there was no potential for significant delay. In this case, by the time that the concurrent hearing of the summons for leave to appeal and the appeal is heard and determined, some 15 to 18 months will have elapsed since the service of the statutory demand. Budget also submitted that in Australian Beverage Distributors v Cranswick Premium Wines, there was no suggestion that a creditor had been stultified. In this case, however, Budget had an admitted debt that was not paid, thus justifying the use of the statutory demand. Further, months later, Grandview had contended that it had an offsetting claim. Budget also submitted that Jem Developments v Hansen Yuncken was distinguishable, as in that case, the creditor sought to be paid directly, rather than have the funds paid into Court.
10. Budget also referred to the power contained in the Corporations Act 2001 (Cth), s 459M, which provides that a court may make an order under s 459H or s 459J subject to conditions. Those sections relate to setting aside a statutory demand.
11. The application before me is an application to extend the time for compliance with a statutory demand. However, that application has been made in the context where Grandview has contended that it has an offsetting claim greater than Budget's admitted debt. That claim is contestable, both in amount and as a matter of legal principle. Nonetheless, in my earlier judgment, I concluded that "there is a least a sufficient argument for Grandview to advance in support of its application for leave to appeal". If the Court were to grant Grandview leave to appeal and allow the appeal, it could, pursuant to s 459M, impose conditions on any orders made setting aside the statutory demand. However, it is not clear to me that it would require Grandview to pay any monies into Court.
12. It is thus necessary to return to the reasoning in Australian Beverage Distributors v Cranswick Premium Wines and Jem Developments v Hansen Yuncken to determine whether this case may be distinguished in such a way as to permit the Court to make an order that monies be paid into Court pending the determination of the appeal.
13. In Australian Beverage Distributors v Cranswick Premium Wines, Barrett J stated: "[13] … From the defendant's point of view, the only apparent prejudice is delay in its ability to initiate a winding-up application until the appeal is dealt with, assuming that the plaintiff does not pay whatever balance is ultimately found to be the proper amount of the statutory demand. Provided the appeal is pursued diligently and promptly, that cannot be a particularly compelling consideration, in the light of the matters concerning the viability of the appeal to which I have referred. [14] The plaintiff, by contrast, is in a position where it faces the imposition of a presumption of insolvency unless it pays some amount or other, with the amount properly payable being uncertain until the outcome of the appeal is known. The structure of the statutory demand provisions is such that such a presumption should not be allowed to arise while there remain cogently articulated and unresolved disputes as to the state of indebtedness between the company concerned and the party serving a statutory demand. That philosophy would not be accommodated in this case if the plaintiff were compelled to pay the full $158,051.21 in order to avoid the statutory presumption. The balance of convenience favours the plaintiff. [15] I am satisfied that an extension of time for compliance with the statutory demand should be granted in order to accommodate the appeal. The extension should, however, be on terms."
14. It is convenient that I set out again Barrett J's observations at [16], to which I referred in my earlier judgment: "[16] The defendant says that the plaintiff should be required to pay into court, to abide the outcome of the appeal, the full sum of $158,051.21 to which the master reduced the statutory demand. The plaintiff says that the defendant should not be given the form of priority or security that that would entail. I accept the plaintiff's submission. This is, after all, not a debt recovery action. A company on which a statutory demand is served is in no sense required to comply with it. It may, if it wishes, allow the statutory presumption of insolvency to arise (by not paying the demanded sum) and, if a winding-up application follows, seek to show that it is in fact in a solvent state so that a winding-up order is not justified. The statutory demand process is no more than a process that defines where the burden of proof lies in winding-up proceedings."
15. In Jem Developments v Hansen Yuncken, Austin J made a number of observations as to the cogency of the plaintiff's offsetting claim. So that his Honour's observations can be understood as a whole, I will again set out [28], referred to in my earlier judgment, as well as his Honour's observations: "[28] The position in this case is analogous to the position considered by Barrett J in the Australian Beverage Distributors case. In that case his Honour declined to require, as a term of the making of an extension order, that the full sum of the statutory demand, as varied by the master, be paid into court. He did so on the basis that the defendants should not be given the form of priority or security that would be entailed by such a term: at [16]. In my view similar reasoning is applicable in this case. Given that a statutory demand is not an instrument for recovery of a debt, but is rather, as Barrett J remarked, a process that defines where the burden of proof lies in winding-up proceedings, there is no good reason for allocating to the defendant the advantage of receipt of the amount it claims, in circumstances where the plaintiffs assert entitlements to substantially greater amounts and there is a prospect that their challenge to the statutory demand may be successful on appeal. [29] These considerations lead me to the conclusion that, weighing up as best I can the prejudice that the defendant would suffer if the extension order is made, against the prejudice that the plaintiffs would suffer if it were denied, an extension order should be made. Some additional discretionary matters reinforce that conclusion. [30] First, the plaintiffs have offered to undertake to prosecute their appeal with all due expedition. Their application for leave to appeal has already been filed. They propose the making of an extension order which will place it in the hands of the Court of Appeal to deal with any contention that the appeal is not being prosecuted with due expedition, and consequently there is a ready procedure for policing the performance of the undertaking. [31] Secondly, the grounds of appeal that have been outlined to me include some matters of significance, relating to the meaning of 'offsetting claim' under s 459H and the efficacy of contractual stipulations seeking to exclude offsetting claims, and relating to whether the court should resolve questions of construction of such provisions to the normal civil standard or merely to the level of plausible contention. [32] Thirdly, it is relevant, though not particularly weighty, that the plaintiffs have initiated a proceeding in the technology and construction list against the defendant, making a claim in the order of $2m. [33] Of rather more significance is the fact that according to the superintendent's certificate issued on 19 May 2005, the defendant is required to pay the plaintiffs $590,931.32. Clause 42.1 of the building contract states that, subject to the provisions of the contract, within a specified time the contractor (the defendant) is to pay to the principal (the plaintiffs) an amount not less than the amount shown in the certificate as due to the principal, 'subject to any set-off for deductions the principal may make in accordance with this contract or otherwise at law'. In Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1998) 14 BCL 215 Rolfe J held that a similarly worded clause, which excluded the quoted words, required payment of the certified amount without any deduction for amounts claimed by way of set-off or cross-claim. The plaintiffs in the present case submitted that the same construction is to be applied to cl 42.1, subject only to a concession in favour of the plaintiffs, but not in favour of the defendant, made by the addition of the quoted words. In other words, while, according to my judgment, the defendant is entitled to recover $500,000 from the plaintiffs without any reduction for offsetting claims, it is a relevant discretionary matter that under cl 42.1 the plaintiffs are entitled to recover approximately $590,000 from the defendant without any such reduction." (emphasis added)
16. None of the discretionary factors to which Austin J referred are present in this case. Importantly, contrary to my misapprehension that Grandview had commenced proceedings in respect of its claim, Grandview has taken no steps to do so. Rather, it has kept Budget out of its monies for nearly 12 months. Further, as I stated and as the primary judge indicated in his judgment, the quantum of Grandview's offsetting claim is "seriously contestable".
17. For those reasons, I am of the opinion that this matter is sufficiently distinguishable from Australian Beverage Distributors v Cranswick Premium Wines and Jem Developments v Hansen Yuncken such that, in the exercise of my discretion, I would order that Grandview pay an amount into Court. In doing so, I do not seek to detract from the statements of Barrett J in Australian Beverage Distributors v Cranswick Premium Wines and of Austin J in Jem Developments v Hansen Yuncken, other than to say that a payment into Court will not necessarily give Budget any priority interest, nor would it constitute Budget a secured creditor. If, during the course of the court proceedings, Grandview is wound up, the liquidator would undoubtedly have access to the monies paid into Court for the purposes of the winding up, including for distribution amongst the creditors generally. If Grandview is wound up after the monies are paid out to Budget, the monies would fall to be dealt with in accordance with the Corporations Act, Pt 5.6.
18. Accordingly, I propose to accede to Budget's alternate course and order that a portion of approximately one third of its admitted debt be paid into Court. Accordingly, I make the following orders: 1. Set aside orders (1) and (4) made on 19 December 2018. 2. Extend the time for compliance with the statutory demand served on 31 January 2018 until 7 days after judgment is delivered on the summons seeking leave to appeal and, if leave be granted, the appeal, on the condition that Grandview Ausbuilder Pty Ltd pay into Court the sum of $340,000 on or before Thursday 10 January 2019. 3. The monies paid into Court pursuant to order (2) to be paid out as the Court may direct upon determination of the summons seeking leave to appeal and, if leave be granted, the appeal. 4. Direct the parties to provide a timetable by email to the Registrar by 12 noon on Monday 24 December 2018.

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