Grocon Constructors (Vic) Pty Ltd v Dexus Funds Management Limited as - [2019] FCA 1283 - FCA 2019 case summary — Zoe

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Grocon Constructors (Vic) Pty Ltd v Dexus Funds Management Limited as

[2019] FCA 1283

Federal Court of Australia|2019-08-19|Before: Anderson J

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Court

Federal Court of Australia

Decision date

2019-08-19

Before

Anderson J

Source

Original judgment source is linked above.

Judgment (23 paragraphs)

[1]

The applicant's application for leave to appeal against part of the judgment and order of the primary judge dated 22 July 2019 is granted.
The costs of and incidental to the application for leave to appeal are reserved, pending determination of the appeal by the Full Court. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

[2]

Introduction and summary 1 The applicant, Grocon Constructors (Vic) Pty Ltd (Grocon (Vic)), seeks leave to appeal from a decision of a single judge of this Court. The learned primary judge dismissed an application by Grocon (Vic) for the setting aside of a statutory demand issued to Grocon (Vic) by the respondent, Dexus Funds Management Limited as Trustee for the Dexus 480Q Trust (Dexus). The primary judge instead varied the amount of the demand, as explained further below. That decision was interlocutory in nature and, in this case, requires leave from a single judge of this Court before an appeal of that decision may be heard by the Full Court. 2 For the reasons below, Grocon (Vic)'s application for leave to appeal is granted. The decision to not set aside the statutory demand, while interlocutory in nature, has significant practical consequences for Grocon (Vic). Supposing the decision of the primary judge to be wrong, Grocon (Vic) would suffer substantial injustice should leave to appeal be refused. Moreover, the grounds of appeal that Grocon (Vic) seeks to advance before a Full Court raises questions about the circumstances in which a court may draw an inference that a statutory demand was issued for an improper purpose. In light of these questions, my view, with respect to the primary judge, is that the decision under appeal is attended by sufficient doubt such as to warrant reconsideration by the Full Court.

[3]

Background 3 The matter before the primary judge involved two proceedings in which applications were made to set aside distinct statutory demands, which are referred to below as the Current Statutory Demands. The plaintiff in the first proceeding was Grocon Constructors (Qld) Pty Ltd (Grocon (Qld)). The plaintiff in the second proceeding was Grocon (Vic). Grocon (Vic) and Grocon (Qld) are referred to below collectively as the Grocon entities. 4 The primary judge summarised the relevant factual background in his Honour's reasons for judgment in Grocon Constructors (Qld) Pty Ltd v Dexus Funds Management Limited as Trustee for the Dexus 480Q Trust (No. 2) [2019] FCA 1117 (Trial Reasons) as follows: 2 In March 2016, Grocon (Qld) and Grocon (Vic) entered into leases and licences of various parts of a building at 480 Queen Street, Brisbane (the Building). Dexus was the landlord in relation to the leases and licences. The leases and licences ran for 7 to 10 years. 3 On 1 May 2018, the Grocon entities and Dexus entered into a deed of surrender in relation to the leases and licences (the Deed of Surrender). Under the Deed of Surrender, Dexus agreed to release Grocon (Qld) and Grocon (Vic) from their obligations under the leases and licences for the remainder of the terms, in consideration for certain payments. The Current Statutory Demands relate to amounts that are claimed to be due and payable by the Grocon entities to Dexus pursuant to the terms of the Deed of Surrender. … 19 In about September 2017, the Grocon entities entered into discussions with representatives from the Department of Veterans' Affairs (the DVA) in relation to DVA leasing parts of the Building which had been leased to Grocon (Vic). During these discussions, the DVA stated that it preferred to enter into leases directly with Dexus rather than subleases with Grocon (Vic). 20 In November and December 2017, the Grocon entities and Dexus entered into discussions in relation to the DVA entering into lease arrangements with Dexus directly and the surrender of the various leases and licences between Grocon (Qld) and Grocon (Vic) and Dexus. … 22 On 3 January 2019, Dexus served on both Grocon (Qld) and Grocon (Vic) statutory demands dated 2 January 2019 (the Previous Statutory Demands). 23 On 21 January 2019, the then solicitors for the Grocon entities sent correspondence to the solicitors for Dexus outlining various grounds of objection to the Previous Statutory Demands. 24 On 22 January 2019, the solicitors for Dexus confirmed that the Previous Statutory Demands would be withdrawn. 25 On 24 January 2019, the Grocon entities received letters from the solicitors for Dexus enclosing invoices issued to Grocon (Qld) (the Grocon (Qld) Invoice) and Grocon (Vic) (the Grocon (Vic) Invoice). The Grocon (Qld) Invoice and the Grocon (Vic) Invoice stated that the amounts claimed were due on the date that the invoices were issued (i.e. 24 January 2019). 26 On 25 January 2019, the then solicitors for the Grocon entities sent a letter to the solicitors for Dexus "disputing the liability for the amounts … as set out in your client's invoices including for the reasons previously articulated to you" and noting there was a "genuine dispute in respect of the matters claimed". 27 On 29 January 2019, the solicitors for Dexus sent an email to the then solicitors for the Grocon entities attaching a copy of the Current Statutory Demands. 28 On 8 February 2019, the then solicitors for the Grocon entities sent a letter to the solicitors for Dexus objecting to the Current Statutory Demands on the basis set out in previous correspondence. 29 On 15 February 2019, the current solicitors for the Grocon entities sent a letter to the solicitors for Dexus providing further details in relation to the grounds upon which the Grocon entities dispute the amounts claimed in the Current Statutory Demands. 30 During the course of the hearing, senior counsel for Dexus handed up an 'aide memoire' that itemised the component parts of the amounts claimed in each of the Current Statutory Demands. The aide memoire was to the following effect: COMPARISON OF AMOUNTS CLAIMED IN VIC AND QLD DEMANDS Claim Description VIC Demand QLD Demand Disputed amounts Initial Amount (joint liability) $13,970,000.00 $13,970,000.00 Interest on Initial Amount (joint liability) $656,538.60 $656,538.60 Special Rent $10,263,000.00 Outgoings - Prior yr adjustments $25,362.55 Undisputed amounts Base Rent - Level 6 $1,144,793.03 Base Rent - Level 7 $1,144,973.03 Base Rent - Part Level 8 $364,084.40 Outgoings - Level 6 $236,228.30 Outgoings - Level 7 $236,228.30 Outgoings - Part Level 8 $75,128.90 Parking - 44 Bays $266,982.14 Cleaning Recharges - Level 6 $30,218.82 Cleaning Recharges - Level 7 $30,218.82 Cleaning Recharges - Part Level 8 $9,610.65 Interest on Car Parking Payment $4,281.69 Interest on late lease payments $104,440.91 $28,561,910.14 $14,626,538.60

[4]

Application for setting aside of statutory demands 5 On 19 February 2019, Grocon (Vic) and Grocon (Qld) applied pursuant to s 459G of the Corporations Act 2001 (Cth) (Act) in separate proceedings for the setting aside of the Current Statutory Demands. The substantive orders sought by the Grocon entities were as follows: 1 An order under s 459H of the Corporations Act that the statutory demand dated 29 January 2019, served on the Plaintiff by the Defendant, be set aside. 2 Further or alternatively, and order under s 459J of the Corporations Act that the statutory demand be set aside. 6 It is convenient to set out the provisions referred to in these orders sought for reference. First, s 459H of the Act provides as follows: Determination of application where there is a dispute or offsetting claim (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) 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; (b) that the company has an offsetting claim. (2) The Court must calculate the substantiated amount of the demand in accordance with the formula: Admitted total - Offsetting total where: admitted total means: (a) the admitted amount of the debt; or (b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates. offsetting total means: (a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim; or (b) if the Court is satisfied that the company has 2 or more offsetting claims - the total of the amounts of those claims; or (c) otherwise - a nil amount. (3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand. (4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order: (a) varying the demand as specified in the order; and (b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company. (5) In this section: admitted amount, in relation to a debt, means: (a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt - a nil amount; or (b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt - so much of that amount as the Court is satisfied is not the subject of such a dispute; or (c) otherwise - the amount of the debt. offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates). respondent means the person who served the demand on the company. (6) This section has effect subject to section 459J. 7 Second, s 459J of the Act provides as follows: Setting aside demand on other grounds (1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect. 8 Returning to the chronology, on 7 May 2019, a judge of this Court, other than the primary judge, made an evidential ruling pursuant to s 192A of the Evidence Act 1995 (Cth) in relation to aspects of affidavits filed by Dexus in the proceedings: Grocon Constructors (QLD) Pty Ltd v Dexus Funds Management Limited as Trustee for the Dexus 480Q Trust [2019] FCA 601. 9 On 15 July 2019, the matter was heard by the primary judge. The three main contentions advanced orally on behalf of the Grocon entities in support of their argument that the Current Statutory Demands should be set aside were that: (a) the Current Statutory Demands were an abuse of process (abuse of process contention); (b) the amounts (or certain amounts) claimed in the Current Statutory Demands were not due and payable at the date of the demands (due and payable contention); and (c) there was a genuine dispute about certain amounts that were the subject of the Current Statutory Demands (genuine dispute contention).

[6]

Abuse of process contention 11 The primary judge addressed the Grocon entities' abuse of process contention concisely. His Honour noted at [32] that the Grocon entities had submitted that, on the evidence before the Court, "the "only inference available" is that the Current Statutory Demands were issued for the collateral or improper purpose of putting pressure on the Grocon entities to make payment of the amounts claimed in the Current Statutory Demands". His Honour stated at [33] that the Grocon entities relied on the following facts and matters in support of that submission: 33 … (a) The Previous Statutory Demands were served by Dexus on 3 January 2019, during the New Year holiday period. (b) The Current Statutory Demands were issued in circumstances where Dexus knew that the Grocon entities disputed the amounts sought to be claimed and had already issued and withdrawn the Previous Statutory Demands. (c) The Current Statutory Demands were issued without Dexus providing any substantive response to the matters raised by the Grocon entities in relation to why there was a genuine dispute about the existence of the claimed debts. (d) The Current Statutory Demands were issued on 29 January 2019, only two business days after the issue of the Grocon (Qld) Invoice and the Grocon (Vic) Invoice, meaning that none (or at least a significant proportion) of the amounts claimed in the Current Statutory demands were due or payable. (e) The total amount claimed in the Current Statutory Demands is $43.2 million, far exceeding the maximum total amount payable under the Deed of Surrender. This is apt to mislead and should be viewed as conduct designed to place commercial pressure on the Grocon entities. (f) Dexus has other options available to it. For example, it holds a $3.1 million bank guarantee which has not been called upon and remains outstanding. (g) There is no evidence before the Court that Grocon (Qld) or Grocon (Vic) is insolvent. 12 His Honour then considered and rejected the abuse of process contention at [34]-[35] as follows: 34 I am not persuaded that the "only inference available" is that the Current Statutory Demands were issued for the collateral or improper purpose of putting pressure on the Grocon entities to make payment of the amounts claimed. In the circumstances, which included that the Grocon entities had not paid amounts outstanding for rent for a considerable period of time, it may be inferred that Dexus issued the Current Statutory Demands as a means of testing the solvency of the Grocon entities. Under the Deed of Surrender, Base Rent of $537,733.50 was due each month during the period July 2018 to December 2018. There is no dispute that those amounts were payable. None of those amounts has been paid. 35 I therefore reject the Grocon entities' first contention.

[10]

Extension of time for compliance 18 On the same day as the filing of its application for leave to appeal, Grocon (Vic) issued an interlocutory application for an order under s 459F(2)(a)(i) of the Act that the time for compliance with the Statutory Demand be extended. 19 On 26 July 2019, the primary judge heard an interlocutory application and extended the time for compliance with the Statutory Demand until the day that is 21 days after 22 July 2019, or such other period as the Court orders: Grocon Constructors (Vic) Pty Ltd v Dexus Funds Management Limited as Trustee for the Dexus 480Q Trust [2019] FCA 1168. In determining this application, his Honour made, relevantly, the following observations: 11 The total of the remaining amounts in the statutory demand is $13,910.008.99. This is the amount to which the statutory demand issued to Grocon (Vic) as varied. 12 At the hearing before me on the previous occasion, there was no issue that the amounts totalling $13,910,008.99 were due and payable under the Deed of Surrender. The only contentions that were raised in relation to this amount were: a contention that, although these amounts were due and payable under the Deed of Surrender, Grocon (Vic) should have been, and was not, provided with a reasonable period of time to make payment (see [37] of the 22 July Reasons); and a contention that there was a genuine dispute that liability was several rather than joint and several (see [49] of the 22 July Reasons). I rejected both of these contentions: see [44] and [49] of the 22 July Reasons. 13 It is convenient to note at this point that Grocon (Vic) does not challenge those aspects of the 22 July Reasons in its application for leave to appeal. At the hearing today, counsel for Grocon accepted that the amounts totalling $13,910,008.99 are due and payable by Grocon (Vic) under the Deed of Surrender. Moreover, he accepted that these amounts were due and payable by (at the latest) 31 December 2018. 20 In addition, at the end of the hearing of Grocon (Vic)'s application for leave to appeal on 9 August 2019, I made orders extending the time for compliance with the Statutory Demand until 23 August 2019, or such other period as the Court orders.

[11]

Supporting affidavits 21 Grocon (Vic)'s application for leave to appeal was supported by two affidavits affirmed by Asia Laurel Lenard on 25 July 2019 (First Lenard affidavit) and 8 August 2019 (Second Lenard affidavit). 22 The First Lenard affidavit relevantly deposed to the following at paragraph 8: I am instructed by Carmen Hollingsworth, General Counsel of Grocon, and believe, that the orders of [the primary judge] will have a significant impact upon Grocon. In particular, Grocon will suffer substantial injustice if leave to appeal is refused as the statutory presumption of insolvency would arise as result of the operation of section 459C(2)(a) of the Act. Further, that presumption would have serious implications on the financing and contractual arrangements of Grocon and the broader corporate group of which it forms part. I am instructed by Ms Hollingsworth and believe, that the presumption of insolvency may trigger defaults in various contracts to which Grocon, and other entities in the Grocon group are parties. 23 The Second Lenard affidavit relevantly deposed to the following at paragraph 4: In paragraph 8 of my first affidavit, I referred to the substantial injustice that will be caused to Grocon if leave to appeal is refused. I am further informed by Carmen Hollingsworth, General Counsel of Grocon, and believe that: (a) Grocon's financial and contractual arrangements are commercially-sensitive and contain confidentiality obligations that prevent their disclosure and disclosure of their terms; (b) some of those facilities contain broad insolvency event and default provisions which could be triggered by a statutory presumption of insolvency arising in respect of Grocon; and (c) if a presumption of insolvency arises and a winding up application (which must be publicly advertised) is commenced, Grocon's reputation (and the reputation of the Grocon group) in the market will be negatively impacted, which may negatively impact: (i) its relationships with current clients and subcontractors; (ii) its ability to procure new clients and enter into advantageous subcontracting arrangements in respect of that work; and (iii) its ability to obtain necessary finance on optimal terms. 24 Grocon (Vic) also relied upon an affidavit of Matthew Adam Leyshon affirmed 18 February 2019 (Leyshon affidavit), which was tendered into evidence at trial before the primary judge. That affidavit exhibited correspondence passing between the parties and the parties' solicitors together with other documents including the Previous Statutory Demands and the Current Statutory Demands. 25 In opposition to Grocon (Vic)'s application, Dexus filed an affidavit of Andrew Vella sworn on 7 August 2019 (Vella affidavit) to which was annexed: (a) a copy of the plaintiff's trial submissions; (b) a copy of the defendant's trial submissions; (c) a copy of the Transcript of the trial; and (d) a copy of the Deed of Surrender, being exhibit MAL-11 to the Leyshon affidavit.

[12]

Proposed grounds of appeal 26 The grounds of appeal initially listed in Grocon (Vic)'s application for leave to appeal were as follows: 1 The Applicant seeks leave to appeal the order of [the primary judge] varying the statutory demand dated 29 January 2019, served on the Applicant by the Respondent. 2 The judgment and orders of [the primary judge] in VID 139 of 2019 is attended with sufficient doubt to warrant being reconsidered. The Applicant relies on the grounds to appeal set out in the draft notice of appeal accompanying this application. 3 Although the orders of [the primary judge] are interlocutory in nature as they do not technically determine the rights of the parties to VID 139 of 2019, the orders will have a final and lasting impact upon the Applicant. 4 The Applicant would suffer substantial injustice if leave to appeal were refused, as a statutory presumption of insolvency would arise by operation of section 459C(2)(a) of the Corporations Act 2001 (Cth). 27 At the completion of the hearing of the application for leave to appeal, counsel for Grocon (Vic) indicated that, should leave to appeal be granted, Grocon (Vic) would further amend its notice of appeal. On 12 August 2019, the first business day after the hearing, Grocon (Vic) provided to my chambers a copy of the amended draft notice of appeal, which set out the following grounds of appeal (amended proposed grounds of appeal): 1 The primary judge erred in not setting aside the statutory demand dated 29 January 2019 served on the Appellant by the Respondent in full on the grounds that it was issued by the Respondent for an improper purpose, its issue was in all the circumstances an abuse of process, and/or its issue was inconsistent with the scheme established by and purposes of Part 5.4 of the Corporations Act 2001 (Cth). 2 The primary judge erred by failing to conclude that the statutory demand was issued for a collateral or improper purpose in circumstances where: (a) there was no evidence in relation to solvency of the Appellant before the primary judge; (b) the Respondent was, or ought to have been, aware at the date of issue of the statutory demand that there was a genuine dispute in relation to some or all of the debts the subject of the statutory demand; and/or (c) the Respondent had failed to establish that it had reason to believe that the Appellant was, or might be, insolvent at the date of issue of the statutory demand. 3 The primary judge erred in finding (at [34]) of judgment) that it may be inferred that the Respondent issued the statutory demand as a means of testing the solvency of the Appellant in circumstances where: (a) there was no evidence in relation to the solvency of the Appellant before the primary judge; (b) the Respondent was, or ought to have been, aware at the date of issue of the statutory demand that there was a genuine dispute in relation to some or all of the debts the subject of the statutory demand; and/or (c) the Respondent had failed to establish that it had reason to believe that the Appellant was, or might be, insolvent at the date of issue of the statutory demand. 4 The primary judge erred in finding (at [34] and [35]) of judgment) that the issue of the statutory demand "as a means of testing the solvency of the Appellant" was a proper and permissible use of the statutory demand procedure. 5 The primary judge otherwise erred in failing to have due regard to the matters set out in [33] of the judgment. 6 The primary judge erred in varying the statutory demand, rather than setting it aside.

[14]

Grocon (Vic)'s submissions 29 Grocon (Vic) submitted that, having regard to the variety of forms of interlocutory decisions which may be made, the approach to the exercise of the court's discretion whether to grant or refuse leave to appeal is not to be applied in a rigid way. Leave to appeal will be more readily granted in the case where a decision, if allowed to stand, will have "the practical effect" of determining a claim of an applicant to be entitled to an order, than in a case concerning practice and procedure only. Accordingly, a prima facie case exists for the granting of leave if an order, although interlocutory in effect, has the practical operation of finally determining the rights of parties. 30 Grocon (Vic) submitted that the correct approach to the evaluation of the prospects of a party's success on appeal is to consider its proposed grounds of appeal at a "reasonably impressionistic level" and enquire whether a ground is "sufficiently arguable" or "has reasonable prospects of success". 31 Grocon (Vic) submitted that the identified grounds of appeal, which at the time of hearing were those set out above at [26] but are now in the form of the amended proposed grounds of appeal set out above at [27], are sufficiently arguable, and have reasonable prospects of success. In its submission, the Statutory Demand should have been set aside on the basis of having been issued for an improper purpose. This was so, in its submission, because: (a) the issue of the Statutory Demand was not for the purpose of winding up Grocon (Vic) on the grounds of insolvency, but as a means to use the statutory demand process in Part 5.4 of the Act to enforce payment by Grocon (Vic) of a debt which Dexus knew, by correspondence passing between the parties, to be genuinely disputed. The proper procedure for determining an entitlement to an amount claimed but generally disputed is to take proceedings for recovery of the alleged debt where defences may be raised and a decision may be made by the court; (b) the amount of $28,561,910.14 claimed in the Statutory Demand was substantially higher than the amount due and payable such that the issuing of the demand constituted an abuse of process and "some other reason" for setting aside the statutory demand under s 459J(1)(b) of the Act. In any event, even if part of the amount demanded is not in dispute, the statutory demand may still be set aside under s 459J(1)(b) of the Act if the circumstances surrounding the demand and the demand itself demonstrate a lack of bona fides on the part of the creditor or there has been an abuse of the process; (c) Dexus was aware at the date of issue of the Statutory Demand - 29 January 2019 - that there was a genuine dispute in relation to some or all of the debts the subject of the statutory demand; and (d) Dexus had failed to establish that it had reason to believe that Grocon (Vic) was, or might be, insolvent at the date of issue of the statutory demand, there being no evidence in relation to the solvency of Grocon (Vic) before the primary judge. 32 In the submission of Grocon (Vic), the presence of these factors provided a basis to set aside a statutory demand as an abuse of process. Counsel for Grocon (Vic) cited the following authorities in support of that proposition: Createc Pty Ltd (ACN 094 263 537) v Design Signs Pty Ltd (ACN 084 384 798) [2009] WASCA 85; 71 ACSR 602 at [56]-[59] per Martin CJ, with Owen and Miller JJA agreeing); Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd [1996] FCA 1391; 19 ACSR 523 at 526-527 per Heerey J and Lifese Pty Ltd v Lee Crane Hire Pty Ltd [2012] FCA 302 at [17]-[20] per Edmonds J. Grocon (Vic) submitted that, given the findings apparently accepted by the primary judge at [33] of the Trial Reasons, as extracted at [11] above, the authorities above could not relevantly be distinguished from the present case. 33 Grocon (Vic) further submitted that: (a) the authorities that have considered whether a statutory demand will be set aside as an abuse of process do not stand for the proposition that the statutory demand procedure can be used as a "means of testing insolvency" in circumstances where the issuer was aware that a genuine dispute exists about the debts or debts the subject of the statutory demand; (b) thus, to the extent that the primary judge suggested at [34] of the Trial Reasons, as extracted above at [12], that Dexus was entitled to issue the Statutory Demand as a means of testing insolvency in these circumstances, his Honour fell into error; (c) the judgment and orders of the primary judge had the practical effect of determining its claims to have the statutory demand set aside. A prima facie case, it submitted, therefore exists for the granting of leave to appeal; (d) it is self-evident that it will suffer substantial injustice if leave to appeal is refused. This, it is submitted, will result if a presumption of insolvency arises as it will imperil various financing and contractual arrangements of the Grocon Group of companies and may trigger default provisions; and (e) the vice in Dexus' submissions was that they wrongly focused on the amount of $13,910,008.99, which Grocon (Vic) accepts is due and payable, rather than focusing on the use by Dexus of the statutory demand process under Part 5.4 of the Act as a debt recovery mechanism. Counsel for Grocon (Vic) submitted that, if the Statutory Demand was, when issued on 29 January 2019, an abuse of process, then the fact that part of the amount demanded was not in dispute does not alter the characterisation of the demand as an abuse of process.

[15]

Dexus' submissions 34 Dexus submitted that, in the circumstances where an amount of $13,910,008.99 was accepted as due and payable since 31 December 2018, the Statutory Demand, as varied by the primary judge, cannot be an abuse of process and is not liable to be set aside. 35 Dexus moreover submitted that Grocon (Vic) would not suffer any prejudice if leave to appeal was denied. (I note in passing that Dexus' written submissions were expressed as addressing the question whether Grocon (Vic) would suffer any "prejudice" rather than any "substantial injustice" as a result of leave to appeal being denied. However, "substantial injustice" is the correct test in Decor. I have continued to adopt "prejudice" in this section, which outlines Dexus' submissions, but return to the language of "substantial injustice" when considering the parties' submissions). 36 Dexus submitted that Grocon (Vic) would not suffer any prejudice if leave to appeal was denied for the following two reasons. First, a presumption of insolvency under s 459C(2)(a) of the Act is not caused by, nor an inevitable consequence of, leave to appeal being denied. Grocon (Vic) can avoid the presumption of insolvency by complying with the Statutory Demand (as varied by the primary judge). Grocon (Vic) cannot, in Dexus' submission, argue that complying with the varied statutory demand would cause it injustice, because it does not deny its liability to pay the debts which remain the subject of that varied demand. And the payment of the debts the subject of the Statutory Demand (as varied) cannot constitute any relevant injustice because payment of those amounts is no more than complying with a long standing legal obligation. Further, Grocon (Vic) had not led evidence to suggest that it is incapable of complying with the Statutory Demand or unwilling to do so. 37 The second reason, in the submission of Dexus why Grocon (Vic) would not suffer any prejudice if leave to appeal was denied is that, even if the statutory presumption of insolvency were to arise, that in itself would not cause material prejudice. All the presumption does is reverse the onus of proving insolvency in the event that a creditor applies to wind up the debtor. The presumption of insolvency could not cause Grocon (Vic) prejudice in these circumstances because: (a) if Grocon (Vic) was solvent, then it would be able to prove as much; and (b) if Grocon (Vic) was not solvent, then it is the company's existing inability to pay its debts, and not the statutory presumption of insolvency, which would be the source of its prejudice. 38 Dexus submitted that it was unsurprising that the Grocon entities' abuse of process contention, which was founded on circumstantial evidence, was rejected by the primary judge in the face of the evidence that: (a) at the time that the Statutory Demand was issued, Grocon (Vic) had failed to pay a series of undisputed debts (for the Base Rent) totalling more than $3.6 million; (b) those debts had fallen due over a period commencing more than five months before the statutory demand was made; and (c) Grocon (Vic) had never disputed those debts or explain its failure to pay for them. 39 In relation to the draft first ground of appeal advanced by Grocon (Vic) at the hearing, Dexus submitted that this ground was founded on the incorrect premise that the primary judge held at [38] of the Trial Reasons that it was necessary for Grocon (Vic) to establish that an improper purpose was the "only inference available". This was simply the recitation of a submission made by the Grocon entities, as noted by the primary judge at [32] of the Trial Reasons. 40 In relation to the draft second and third ground of appeal advanced by Grocon (Vic) at the hearing, Dexus submitted that the presence of direct evidence of insolvency is not a pre-condition to the drawing of an inference that a statutory demand was issued to test the recipient's solvency. There existed substantial circumstantial evidence to suggest that Grocon (Vic) was unable to pay its debts as and when they fell due. 41 Finally, Dexus submitted that Grocon (Vic) had no reasonable prospect of overcoming the findings made by the primary judge at [34] of the Trial Reasons and that it was open to the primary judge to infer that Dexus issued the demand to test Grocon (Vic)'s solvency.

[16]

Relevant principles - leave to appeal 42 An order dismissing an application under s 459G of the Act is interlocutory and not final in nature: MNWA Pty Ltd v Federal Commissioner of Taxation [2016] FCAFC 154; 250 FCR 381 (MWNA) at [68]-[88] per Rares J, with Farrell and Davies JJ agreeing at [164]. The reason for this, in essence, is that such an application "does not determine rights nor does it create a status": ibid at [73] per Rares J, citing Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2008] HCA 9; 232 CLR 314 at [26] per Gleeson CJ, Hayne, Crennan and Kiefel JJ. As such, an appeal can not be brought from such an order unless the Court or a Judge of the Court grants leave: ss 24(1A) and 25(2) of the Federal Court of Australia Act 1976 (Cth). 43 The Court has a wide discretion whether or not to grant leave to appeal: SZLSI v Minister for Immigration & Citizenship [2008] FCA 1052 at [12] per Flick J. However, the discretion is not unfettered; regard must be had to the statutory requirement in s 37M(3) of the Federal Court of Australia Act 1976 (Cth) that the discretion must be exercised or carried out in the way that best promotes the overarching purpose, being the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: Nationwide News Pty Ltd v Rush [2018] FCAFC 70 at [2] per Lee J. Consistent with this principle, both parties accepted that to succeed, Grocon (Vic) must satisfy the criteria identified by the Full Court in Decor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 655; 33 FCR 397 at 398 (Decor), namely that: (a) in all the circumstances, the decision of first instance is attended by sufficient doubt to warrant reconsideration by the Full Court; and (b) substantial injustice would result if leave were refused, supposing the decision to be wrong. 44 For the purposes of assessing whether the decision at first instance is attended by sufficient doubt, the Court is to consider the proposed appeal at a "reasonably impressionistic level" and assess whether the proposed appeal is "sufficiently arguable" or has "reasonable prospects of success": EBT17 v Minister for Home Affairs [2019] FCA 200 at [4] per Burley J and Olson v Keefe [2019] FCA 339 at [9] per Lee J, both citing MZABP v Minister for Immigration and Border Protection [2015] FCA 1391; 242 FCR 585 at [62]-[63] per Mortimer J. 45 Leave to appeal will be more readily granted in the case where a decision, if allowed to stand, will have "the practical effect" of determining a claim of an applicant to be entitled to an order, than in a case concerning practice and procedure only: DMO17 v Minister for Immigration and Border Protection [2019] FCA 906 at [23] per Murphy J, citing Johnston v Cameron [2002] FCAFC 251; 124 FCR 160 at [8] per Branson J and Rivera v United States of America [2004] FCAFC 154 at [12] per Heerey, Sundberg and Crennan JJ. As such, if an order, while interlocutory in its legal effect, has the practical operation of finally determining the rights of the parties, a prima facie case exists for granting leave to appeal: Smith v Aircraft Maintenance Services Australia (AMSA) Pty Ltd [2018] FCA 264 at [24] per Rangiah J, citing Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2000] FCA 1572; 104 FCR 564 at [43] per French J, with Beaumont and Finkelstein JJ agreeing. 46 Similarly, in Samsung Electronics Co. Limited v Apple Inc. [2013] FCAFC 138 at [19], the Full Court comprised of Jacobson, Flick and Griffiths JJ spoke of the need for flexibility in considering whether to grant or refuse leave to appeal from interlocutory decisions: The very width of the discretion and the prudence in not seeking to confine the manner in which it is to be exercised is a necessarily corollary of the myriad of interlocutory decisions which may be made - ranging from interlocutory decisions affecting the substantive rights of parties (and effectively being final orders) to matters of practice and procedure (including decisions to extend time, the granting or refusal of adjournments and the filing of evidence). The different character of interlocutory decisions which may be made and the different factual and forensic circumstances in play when such decisions are made nevertheless have occasioned a different emphasis from one judgment to another upon one particular factor or factors rather than others.

[20]

Correspondence prior to the issuing of the Statutory Demand 54 The statutory demand initially issued to Grocon (Vic) - dated 2 January 2019 and served on 3 January 2019 - was for an amount of $24,889,538.60 (Previous Statutory Demand). That demand annexed a tax invoice dated 1 January 2019, with a due date also stated to be 1 January 2019, in the sum of $24,889,538.60. A brief affidavit sworn on 2 January 2019 by Richard Garing (Mr Garing), the Head of Office Portfolio at Dexus, was served with the Previous Statutory Demand in which he deposed to the following: 4. The total $24,889,538.60 on the debts mentioned in the statutory demand is due and payable by the debtor company. 5. I believe that there is no genuine dispute about the existence or amount of any of the debts. 55 On 21 January 2019, Grocon (Vic)'s then solicitors wrote to Dexus' solicitors asserting that a genuine dispute existed as to the amount claimed in the Previous Statutory Demands. The letter also asserted that no debt was due or payable under the terms of the relevant lease documents or Deed of Surrender. Finally, the letter asserted that there were irregularities as to the name of the creditor in the demands and irregularities in the invoice attached to the demands. The letter invited Dexus to withdraw the demands failing which Grocon (Vic) would have to file an application to seek the setting aside of the demands set aside on the basis that they were irregular and that there was a genuine dispute in respect of the debts claimed. 56 The next day, 22 January 2019, Dexus' solicitors replied via email to Grocon (Vic)'s solicitors advising as follows: Our client does not accept that all of the matters you raise are correct, let alone form a basis to set aside the demands. That said, we are instructed to withdraw both statutory demands. We are further instructed to immediately prepare, and expect to receive imminent instructions to issue, revised statutory demands. (Emphasis added.) 57 On 24 January 2019, Dexus' solicitors wrote to the company secretary of Grocon (Vic) expressing the following: Pursuant to your obligations under the Deed of Surrender and those "Lease Documents" (as defined in the Deed of Surrender) to which Grocon Constructors (Vic) Pty Ltd was a party, the amounts set out in the enclosed invoice are immediately due and payable. Our client reserves its rights, particularly in relation to any additional amounts owing but not yet claimed. 58 The invoice attached to that letter - dated 24 January 2019 - was for an amount of $28,561,910.14 and had a due date for payment of 24 January 2019. The amount claimed in this invoice was $3,672,371.54 greater than the amount initially claimed in the Previous Statutory Demand. The increase appeared to relate to further lease payments and interest relating to the half year period ending 31 December 2018. 59 On 25 January 2019, Grocon (Vic)'s solicitors wrote to Dexus' solicitors and relevantly stated the following: In each of the GC (Vic) and GC (Qld) invoices, your client asserts that GC (Vic) and GC (Qld) are liable for certain amounts under the Deed of Surrender. Our clients dispute the liability for the amounts which may be owing to Dexus under the lease documents or Deed of Surrender on the basis set out in your client's invoices (including for the reasons previously articulated to you). We note that your client has failed to provide any substantive response to the matters raised in our letter before issuing the GC (Vic) and GC (Qld) invoices. There is clearly a genuine dispute in respect of the matters claimed in the GC (Vic) invoice and the GC (Qld) invoice. On that basis, if your client is proposing to issue statutory demands, it would in our view be inappropriate and an abuse of process for your client to do so on the basis of the GC (Vic) invoice and the FC (Qld) invoice. Our clients otherwise reserve all of their rights including in relation to the other deficiencies in the GC (Vic) and the GC (Qld) invoices. 60 On 29 January 2019, Dexus served the Current Statutory Demands on Grocon (Vic). The Statutory Demand attached the invoice from Dexus dated 24 January 2019. The Statutory Demand was served with an affidavit sworn on 29 January 2019 by Mr Garing, in which he deposed to the following: 4. The total $28,561,910.14 of the debts mentioned in the statutory demand is due and payable by the debtor. 5. I believe that there is no genuine dispute about the existence or amount of any of the debts. 61 An email of the same date from Dexus' solicitors to Grocon (Vic)'s solicitors responded to the letter dated 25 January 2019: With respect, we disagree with the assertions made in your letter. Notwithstanding the fact that our client did not agree with the majority of your clients' allegations, our client has substantively responded to all of the matters raised in your letter dated 21 January 2019. That substantive response is evident on the face of our client's invoices and the statutory demands that were issued today. As a consequence the matters that you have previously raised are no longer capable for constituting a "dispute" in relation to the debts the subject of the revised invoices and the statutory demands issued on 29 January 2019. (Emphasis added.) 62 In circumstances where the revised Statutory Demand increased the amount demanded by more than $3,672,372, it is not clear how it could be asserted by Dexus' solicitors in this email that their client had responded to all of the matters raised in the letter from Grocon (Vic)'s solicitors dated 21 January 2019. There were substantive matters raised in that letter asserting disputes in respect of the debt. And, this was not a case where the issuer of the statutory demand had removed any disputed amount and issued a fresh statutory demand for the undisputed amount. It is also not apparent how Mr Garing could depose in his affidavit sworn on 29 January 2019 that he believed that "there was no genuine dispute about the existence or amount of any of the debts". 63 On 8 February 2019, Grocon (Vic)'s solicitors wrote to Dexus' solicitors and relevantly stated the following: Our clients object to the Statutory Demands issued by your client and continue to dispute the amounts claimed in the Statutory Demands including on the grounds set out in our previous correspondence. On that basis, our clients intend to apply to the Court for orders to set aside the Statutory Demands. Our clients are in the process of retaining counsel and will respond more substantively in due course. Our clients reserve all of their rights. 64 Grocon (Vic) subsequently retained new solicitors who, on 15 February 2019, wrote to Dexus' solicitors setting out the basis upon which Grocon (Vic) disputed the amount of $13,970,000, being the Initial Amount under the Deed of Surrender plus GST, and interest on that amount of $656,538.60 being due and payable under the Deed of Surrender. The letter also set out the basis upon which it was said that the amount of $10,263,000, being the Special Rent under the Deed of Surrender plus GST, was not due and payable. The letter also asserted that an amount of $23,056.86 for "Outgoings - Prior yr adjustments" was not due and payable as those amounts were not due and payable until the end of the financial year once actual outgoings were known. 65 The letter from Grocon (Vic)'s solicitors also set out the basis on which it was asserted that the statutory demand was liable to be set aside pursuant to s 459J(1)(b) of the Act: The invoices which are the subject of the Statutory Demands were issued on 24 January 2019, with payment due on the same date. Subsequently, the Statutory Demands were made on 29 January 2019, only 5 days later. On that basis, none of the amount were due and payable on 24 January 2019 or by 29 January 2019 as the recipient of an invoice has a reasonable period of time which to make payment. Furthermore, the conduct of Dexus in issuing a statutory demand only 5 days after issuing an invoice indicated a collateral and improper purpose in issuing the Statutory Demands, which amounts to an abuse of process. As set out by the Court in Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602, the purpose of a statutory demand is "not to provide a means whereby those claiming a genuinely disputed debt can avoid the obligation of establishing their entitlement to that debt in a court of appropriate jurisdiction by placing commercial pressure on the party resisting payment". By reason of the matters set out above, there is a genuine dispute about the amounts claimed in the Statutory Demands.

[21]

Purpose of the Statutory Demand - a sufficiently arguable case 66 In the circumstances traced above, where: (a) Grocon (Vic) had, since their solicitors' letter dated 21 January 2019, asserted that there was a genuine dispute in respect of the amount claimed and provided details of what was disputed; (b) Dexus withdrew the Previous Statutory Demand in the sum of $24,889,538.60 and the issued the revised Statutory Demand for an increased amount in the sum of $28,561,910.14; (c) Dexus did not provide any substantive response to the matters raised by Grocon (Vic) in relation to why there was a genuine dispute about the existence of the claimed debts; and (d) the primary judge held that there was a genuine dispute in respect to the Initial Amount of $13,970,000 and interest on that amount of $656,538.60, and Dexus otherwise conceded that the amount of $25,362.55 was due and owing, it is, in my view, sufficiently arguable that the Statutory Demand was issued by Dexus for the improper purpose of seeking to exert commercial pressure on Grocon (Vic) to pay the amount demanded in circumstances where Dexus knew that Grocon (Vic) disputed all or a substantial amount of the amount demanded in the Statutory Demand. 67 If the Court reached that view, the consequent inquiry would be whether the demand was "so grossly inflated as almost exclusively to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served" such that an order under s 459J(1)(b) of the Act setting aside the demand is required "to prevent such an abuse of the regime under Part 5.4": First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939 at 951 per Santow J, quoted in Equuscorp Pty Ltd v Perpetual Trustees WA Ltd [1997] FCA 1366; 80 FCR 295 at 300; 25 ACSR 675 at 694 per French, Kiefel and Sundberg JJ; see also In the matter of UGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [43] per Black J. Such an order would nullify any consideration of the variation of the amount demanded: s 459H(6) of the Act. This is because the issuing of a statutory demand cannot be partly abusive for the purposes of s 459J(1)(b) of the Act; the issuing of a statutory demand is either an abuse of process or it is not. 68 For these reasons, my view is that grounds 1, 2, 3, 5 and 6 of the amended proposed grounds of appeal, which centre on the purposes for which Dexus issued the Statutory Demand, are sufficiently arguable so as to conclude that the primary judge's decision is attended by sufficient doubt such as to warrant reconsideration by the Full Court. 69 Ground 4 of the amended proposed grounds of appeal is of a different nature to these grounds. It does not relate to the characterisation of the purposes for which Dexus issued the Statutory Demand, but instead posits a question of law: whether the testing of the solvency of a company is a proper purpose under Part 5.4 of the Act for issuing a statutory demand to the company. 70 Neither counsel for Grocon (Vic) nor counsel for Dexus identified any authorities that expressly support the conclusion that the "testing of solvency" of a company, in that form of words, is a permissible purpose. However, counsel for Dexus submitted that the "testing the solvency of the debtor is the raison d'être of statutory demands". 71 Upon preliminary consideration, I tentatively prefer the submission made by Dexus. It is clear that the statutory demand process should not be used as a mechanism to recover debts from a plainly solvent company. But, where the solvency of the company is less clear, the mere existence of uncertainty of a creditor as to the solvency of the company cannot, by itself, constitute a reason for setting aside a statutory demand. The creditor ordinarily may not have access to material necessary to determine whether the company can pay its debts as and when they become due and payable. As such, a proper issuing of a statutory demand will often be capable of being characterised as the testing of the company's solvency. 72 Regardless, given that I have already formed the view that the other grounds in the amended proposed grounds of appeal are sufficiently arguable, my view is that I should also grant leave to appeal in respect of ground 4. In particular, ground 4 is, on one view, inextricably linked with ground 3, which contends that the primary judge erred in finding that it may be inferred that Dexus issued the Statutory Demand as a means of testing the solvency of Grocon (Vic). If the Full Court were to conclude in relation to ground 3 that it was open for the primary judge to infer that Dexus issued the Statutory Demand as a means of testing Grocon (Vic)'s solvency, the ensuing question would be whether that constituted a proper purpose for issuing the demand. In these circumstances, my view is that ground 4 of the amended proposed grounds of appeal warrants consideration by the Full Court in combination with the other grounds discussed above.