Judgment
1HER HONOUR: Listed before me for hearing on 9 September 2011 was an application by Kay Investment Holdings under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 25 January 2011 and served on it on 31 January 2011 by the defendant (North East Developments), a company which is in liquidation and to the assets and undertaking of which a receiver/manager was appointed in 2008. Kay Investment was the lessee of shopping centre premises owned by North East Developments at Toongabbie under a lease commencing on 1 January 2010 with an initial five-year term.
2The debt claimed in the statutory demand was in the amount of $74,245.20 and described in the schedule thereto as:
Debt owing by the Company as lessee pursuant to a lease between the Company and the Creditor registered with the Land and Property Management Authority and allocated Registration Number AF62812 for the period 1 January 2010 to 31 December 2014
3The affidavit accompanying and verifying the statutory demand was sworn by Mr Craig Gallie, who has deposed that he is the Centre Manager employed by North East Developments and that in his position as such he is authorised by North East Developments and the Receiver and Manager of the company (Mr Brian Silvia) to make the affidavit on the creditor's behalf.
4On 15 February 2011, Kay Investment commenced these proceedings seeking an order setting aside the statutory demand. That application was accompanied by an affidavit sworn by Mr Andrew Kathestides, the director of Kay Investment. In that affidavit, Mr Kathestides deposed to various pre-lease representations that he said were made to him and had induced Kay Investment to enter into the lease of the premises and to expend approximately $400,000 on the fitout of the premises. At [17] of his affidavit he deposes that he does not know how the sum claimed in the demand has been calculated. At [18] he deposes that:
Kay Investment disputes its liability to pay to North East the sum of $74,245 or any other sum and is to institute proceedings under the Retail Leases Act based upon the facts matters and circumstances referred to in this affidavit seeking an order that its lease of the Demised Premises be set aside de novo and that all rents and other moneys paid to North East be refunded
5The bases on which Kay Investment now seeks to set aside the statutory demand are, first, that it does not comply with s 459E(2)(a) and is thus defective and, secondly, that there is a genuine dispute as to the basis of the debt on which the statutory demand is based and Kay Investment has an off-setting claim which exceeds the debt claimed in the statutory demand.
6On 1 April 2011, Kay Investment commenced proceedings in the Administrative Decisions Tribunal (as had been foreshadowed in Mr Kathestides' affidavit). (Counsel for North East Developments, Mr de Robillard, concedes that the existence of those proceedings, which I am told have been listed for hearing in October this year, is indicative of a dispute between the parties but submits that this dispute only crystallised after the statutory demand was issued.)
7Kay Investment's application to set aside the statutory demand (to which I will refer as the statutory demand application) was first listed for hearing on 7 June 2011 before Windeyer AJ. North East Developments had at that stage filed a submitting appearance. On that occasion, there was no appearance on behalf of Kay Investment and the statutory demand application was dismissed (whether or not at the instance of North East Developments is unclear). Mr de Robillard accepts that on that occasion there was no attempt made by North East Developments or its representatives to contact the representatives of Kay Investment to ascertain the reason for its non-attendance in court on the hearing of its own application for relief. I was informed by Mr de Robillard that he could put it no higher than that there was the basis for an assumption that Kay Investment did not intend to proceed on the statutory demand application due to a perceived non-compliance by Kay Investment with directions for the service of documents in the Tribunal proceedings. (I say "perceived non-compliance" because Mr de Robillard informed me that his instructing solicitors had subsequently discovered that such material had indeed been served at their offices. A similar misunderstanding seems to have been the basis on which evidence was put before me to support one of the grounds initially relied upon by North East Developments on its present stay application - that being in relation to the alleged lack of service of the initial originating process on North East Developments, though this complaint was not pressed after the document was located in the solicitors' offices.)
8Kay Investment's ignorance of the matter having been listed for hearing did not come to light until after the statutory demand application had been dismissed. In part, this was due to the failure of North East Developments to comply with the requirements of Practice Note Eq 1 for the service of outlines of submissions and the like within a specified time prior to the hearing (since if that had occurred then Kay Investment's legal representatives would have been alerted to the listing). In part it may be said to be due to a failure by Kay Investment's representatives to make any enquiry as to the listing of the matter, although there was no obligation as such on them to do so. Not surprisingly, Kay Investment failed to comply with the Practice Note, since it was not aware of the listing. (Mr de Robillard suggested that the defendant's non-compliance with the practice note may have been that it was waiting for documents to be served by the plaintiff in that regard - though the practice note does not provide for the sequential service of such documents.)
9On 15 July 2011, Kay Investment brought an application to set aside the orders dismissing its statutory demand application on the basis of denial of procedural fairness as it said that it had not been aware that the matter had been listed for hearing on 7 June 2011. Its solicitor filed an affidavit deposing to the fact that notification had not been received by him and (on information and belief) that notification had not been received by Mr Gray of Counsel who was briefed to appear in the matter. (Mr Gray submits that to apply to vacate the order made by Windeyer AJ was the correct procedure for Kay Investment to adopt (as opposed to seeking to appeal against the order), citing Re Rick Wilson & Co Pty Ltd (1982) 7 ACLR 354 at [356] per McLelland J, as his Honour then was.)
10Meanwhile, however, North East Developments had filed a winding up application invoking the statutory presumption of insolvency which arose (having regard to s 459F(2)(a)(ii)) seven days after the determination of Kay Investment's statutory demand application (i.e. on 14 June 2011).
11The application by Kay Investment to set aside Windeyer AJ's orders, together with the winding up application filed by North East Developments, came before White J on 12 August 2011. His Honour heard the former application and delivered ex tempore reasons for judgment on 15 August 2011, setting aside the orders made by Windeyer AJ (with retrospective effect as from 7 June 2011) and his Honour listed the application to set aside the statutory demand for hearing, together with the winding up application for mention, on 9 September 2011. His Honour expressly drew the parties' attention to the requirements of the then recently amended Practice Note in relation to the service of documents prior to the hearing (with which North East Developments again failed to comply in a timely fashion - Mr de Robillard stated that this was because he was working on the stay application to which I refer below and which, if successful, would render documents in relation to the statutory demand application otiose at this stage).
12When the matter came before me, Mr de Robillard, pressed an application by his client (filed on 5 September 2011) for a stay of the statutory demand application on the basis that his client had (on 2 September 2011) filed a notice of intention to appeal from the judgment of White J. That stay application was opposed by Kay Investment.
13In the interests of the just, quick and cheap determination of the real issues in dispute, I took the view that I should hear both the stay application and then (it being my preliminary view that a stay should not be granted) the statutory demand application before reserving judgment on both applications. I now publish my reasons.
Issues
14The issues before me are, first, whether to grant a stay of the application by Kay Investment to set aside the statutory demand (pending the foreshadowed appeal by North East Developments) and, secondly, if no such stay is granted, whether the statutory demand should be set aside either because it is defective or because there is a genuine dispute or off-setting claim.
Summary
15For the reasons set out below, I am of the view that a stay should not be granted and that the statutory demand should be set aside pursuant to s 459G of the Corporations Act (on the basis that there is a genuine dispute or off-setting claim). The statutory demand procedure under Part 5.4 of the Act is not a debt collection mechanism and, technical though the process is acknowledged to be, it operates on the basis that a party on whom a statutory demand will have an opportunity (should it bring an application within the specified time) to have determined at an early stage the issue as to whether the statutory demand should be set aside (so as to leave winding up cases to those properly before the Court). In the present case, that opportunity (for reasons due to what seems to have been an administrative error, whether on the part of Kay Investment's legal representatives or on the part of the court) was not made available to Kay Investment.
16It does not seem to me to be inconsistent with the policy underlying the statutory demand procedure explained in Switz Pty Ltd v Glowbind Pty Ltd; Glowbind Pty Ltd v Switz Pty Ltd [2000] NSWCA 37 (to which I refer later in these reasons) to afford Kay Investment the opportunity to present its case on the statutory demand application. Nor, in my view, would it be consistent with the modern-day (no-ambush) approach to litigation recognised by Allsop J (as his Honour then was) in White v Overland [2001] FCA 1333 (albeit in a different context) to prevent it from so doing simply in order to enable North East Developments to preserve a presumption of insolvency (that, if the challenge to the statutory demand is unsuccessful, may shortly arise in any event).
17I set out below the reasons for the conclusions I have reached, on the issues before me.
(i) Stay application
18Mr de Robillard identified the principal reason for the stay that is now sought as being that the appeal foreshadowed against the interlocutory judgment of White J will be rendered nugatory if the stay is not granted because by then North East Developments will have lost the benefit of the statutory presumption invoked in its winding up process. He submitted that, on the balance of convenience, the position of Kay Investment is not prejudiced by a stay of its (revived) statutory demand application because it remains open to it to argue on the winding up application the issues that it seeks now to argue on the statutory demand application (ie that there was a genuine dispute in relation to the debt claimed in the statutory demand). (Mr de Robillard did, however, concede that the means to argue such matters might be reduced having regard to s 459S of the Act.) In other words, what North East Developments is seeking to do is to pursue an appeal from the decision of White J (in which his Honour ex debito justitiae set aside the orders that had been made dismissing the statutory demand application) so that, if that appeal is successful, it can rely on the statutory presumption of insolvency in its current winding up proceedings (though conceding that there is presently a dispute between the parties as to the existence of the debt claimed in the statutory demand or the existence of an off-setting claim, which will be heard by the Tribunal shortly).
19Mr de Robillard further submitted that, insofar as one of the issues that would be determined on the statutory demand application is whether there was a genuine dispute, that will shortly be resolved in any event because the Tribunal proceedings have been set down for hearing on or about 17 October 2011. (Pausing there, the fact that the Tribunal might dismiss the claim by Kay Investment would not of itself mean that the dispute had not been a genuine one - which seems to be what is suggested by this submission. Dismissal of the Tribunal proceedings would be consistent simply with a finding on the balance of probabilities that Kay Investment had failed to establish its claims not as to the genuineness of the claims having been brought in the first place.)
Background Facts
20I have briefly summarised the background to the present dispute above. Insofar as Mr Kathestides deposed as at February 2011 that he was unaware as to the how the sum claimed in the statutory demand had been calculated, Mr de Robillard submits that this is inconsistent with the fact that, by letter dated 7 December 2010, the solicitors acting for North East Developments had written to the solicitor acting for Kay Investment (referring to the vacation of the premises by Kay Investment on 4 December 2010 and removal of the fitout therefrom), in which they had asserted that the conduct of Kay Investment amounted to a repudiation of the lease and that, in accordance with clause 2.4 of the lease, the benefit of the rent-free period (from 1 January to 17 August 2010) had been lost and the amount of $114,741.81 was due and owing for immediate payment). On my reading of this letter, it seems clear that the monetary amount there specified (ie $114,741.81) was the amount that would, but for the rent-free period, have been payable by way of rent for the 8 month rent-free period. However, the letter did also assert that costs incurred in re-letting the premises would be payable "together with any resultant shortfall in rent and other charges" and foreshadowed the commencement of proceedings seeking damages for misleading and deceptive conduct in relation to the negotiation of the lease "and subsequent conduct" (which leaves open the possibility that there might be additional components of the debt claimed than just the 8 months' rent).
21By letter dated 3 February 2011, Kay Investment's solicitors responded (noting their instructions to commence proceedings to set aside the demand and to commence proceedings in the Retail Tenancy Tribunal and requesting a comprehensive breakdown of the calculation of the amount claimed). In that letter they asked whether the amount took into consideration the bank guarantee and whether the amount claimed was in full and final payment of all the lease obligations.
22Presumably in recognition of the availability of the bank guarantee to meet the debt claimed in the statutory demand, a call was then made on the guarantee and the statutory demand was then issued for the lesser amount (of approximately $74,000).
23By affidavit sworn 5 September 2011, Mr Kathestides has deposed that the bank guarantee was for a sum of $40,837.50 and has reiterated that when he received the demand he did not know exactly what the figure represented, how it had been calculated or what it comprised (deposing to his understanding from reading the 7 December letter that the lessor intended to claim the cost of re-letting; any resultant shortfall in rent and other charges and $114,841.81 as the loss of the benefit of the rent-free period; less the amount of the bank guarantee, in respect of a period to 31 December 2014). (There does not appear to be an exact mathematical correlation between the respective amounts.)
24The background to the present dispute also includes the fact that there was an earlier dispute between the parties in relation to the premises that was referred to mediation on the application of Kay Investment in May 2010. The nature of that dispute (as set out in the application for mediation) was that the lessee disputed the entitlement of the lessor to have issued a Notice of Default and Notice of Intention to draw on Bank Guarantee - those notices apparently relating to a delay in the lessee having opened for business in the shopping centre. In its application for mediation, Kay Investment sought the withdrawal of those notices and that the lessor both honour the rent-free period and extend it "for the time of delay contributed by the Landlord". The subject matter of this dispute thus appears to be removed from that foreshadowed in Mr Kathestides' affidavit in support of the application to set aside the statutory demand and apparently the subject of the present Tribunal proceedings.
25This dispute was resolved at mediation by entry into a Deed on 23 June 2011 under which Kay Investment undertook various obligations in relation to the opening of the pharmacy premises, including the provision of a substitute bank guarantee by 17 August 2010, and North East Developments agreed (subject to compliance by the lessee with its obligations under the deed) to withdraw the notices it had issued. North East Developments also agreed not to call upon the bank guarantee and to take steps to inform the relevant bank that it no longer wished to call upon the bank guarantee.
26Clearly, the measure of agreement reached between the parties in June 2010 did not last long, given that the premises were vacated by Kay Investment in early December 2010 (just over 3 months after rent first became payable under the terms of the lease, under the operation of the rent-free provision).
Judgment of White J
27The application before White J was brought under r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005, that rule (applicable to the proceedings by virtue of r 1.3 of the Supreme Court (Corporation) Rules 1999) permitting the Court to set aside or vary a judgment or order after it has been entered if it was given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order.
28The circumstances in which the matter came initially to be listed for hearing before Windeyer AJ are set out in his Honour's judgment and I do not need to repeat them other than to note that the allocation of the hearing date was made in chambers by the Corporations List judge and the parties' representatives were to be notified by email of that listing. Email notification of the hearing date (and of the making of the usual order for hearing in accordance with Practice Note SC Eq 1, noting the requirements of Practice Note SC Eq 2) was sent on 12 April 2011. However, apparently due to an error in the email addresses given or used for that purpose, Kay Investment's legal representatives did not receive notification of the listing. (North East Developments' representatives did but, as noted earlier, did not comply with the usual rule for hearing.) Therefore, the problem did not come to light prior the date fixed for hearing (7 June 2011). Kay Investment's representatives apparently did not query the delay in notification of a listing date in the 2 month period from 11 April 2011 (when the matter had been before the Court for the allocation of a hearing date), a matter to which Mr de Robillard points as indicating a degree of fault on the part of Kay Investment.
29Part 29 rule 7 of the Uniform Civil Procedure Rules applies when a party is absent at the time the trial is called on for hearing. There is power to dismiss the proceedings (where a plaintiff is absent), the effect of which is to dismiss the application on its merits (see Ritchie's commentary [29.7.15]. (The authors go on to cite Magjarraj v Asteron Life Ltd [2009] NSWSC 1433 as authority for the proposition that a party fails to appear for the purpose of that rule if it fails to provide an apparently credible reason for its absence. Here, of course, no explanation was proffered at the time for the very reason of the non-attendance - namely, that Kay Investment had no notice of the listing.) Ritchie's commentary goes on to note that the Court has a discretion to refuse an application to set aside a verdict or judgment made under this rule (noting that the Court will not set aside a judgment regularly obtained unless the defendant is able to show prima facie that there is a good defence on the merits - there citing Vacuum Oil Co Pty Ltd v Stockdale (1942) (NSW) 239 at 243 - but not addressing the position where the plaintiff's claim has been similarly dismissed).
30In his reasons for judgment, White J noted at [12]) that in Cameron v Cole [1994] HCA 5; (1944) 68 CLR 571, Rich J said at [589]:
It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person affected is entitled, ex debito justitiae, to have any determination which affects him set aside ... The setting aside of the invalid determination lays the ghost of the simulacrum of a trial, and leaves the field open for a real trial. (my emphasis)
31White J was not satisfied in the circumstances of the case that Kay Investment had been given a reasonable opportunity of appearing and presenting its case. His Honour observed that the fact that the failure to do so was a result of administrative error did not make it less fundamental. His Honour considered that, having regard to what was said in Cameron v Cole , Kay Investment was entitled ex debito justitiae to have the orders of 7 June 2007 set aside. (His Honour added that if it were necessary for Kay Investment also to establish that there were reasonably arguable grounds for its claim, that requirement would, in any event, be satisfied on the material read on the present application; the tests for establishing a genuine dispute or an offsetting claim not being demanding.)
32White J went on to consider the question as to the effect of setting aside the orders made on 7 June 2011 and noted, having regard to s 459F(2), that although the effect of such an order would be that the originating process would not be treated as having been dismissed, a presumption of insolvency would have arisen in accordance with s 459F(2)(a)(ii) on 14 June 2011 (that being 7 days after the application under section 459G had been finally determined or otherwise disposed of); his Honour noting that an order of a superior court is not a nullity.
33His Honour referred to Buckland Products Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [2003] VSCA 85, where (at [9]) Phillips JA, with whom Chernov and Eames JJ agreed, held that an application was "finally determined" within the meaning of s 459F(2)(a)(ii) when the Master's order was made notwithstanding that the determination was subject to appeal.
34His Honour also referred to Jem Developments v Hansen Yuncken [2006] NSWSC 1378; (2006) 60 ACSR 393, where Austin J noted the case law to the effect hat an application under s 459G is "finally determined or otherwise disposed of" for the purposes of s 459F(2)(a)(ii) when the judicial officer hearing the case at first instance makes final orders after hearing the application.
35White J said:
In this case there was no substantive hearing of the application. The case is obviously different from one in which a plaintiff has been heard but wishes to appeal. It is open to such a plaintiff to seek an order extending the period for compliance with the demand. In the present case the plaintiff had no such ability. It did not know that the orders had been made setting aside its originating process. Hence it did not have the opportunity to seek any extension of the period for compliance with the demand in order so that its application to set aside the orders of 7 June 2011 could be determined.
36His Honour went on to refer to rule 36.4(3), which provides that the court may order that a judgment or order is to take effect as of a date earlier or later than the date fixed by those sub rules, noting that in the commentary to Ritchie's (at [36.16.90]) the view was expressed that where an order is set aside or varied under r 36.16, the Court should make an order under rule 36.4(3) specifying the date the new order takes effect, and that it will usually be appropriate to order that the new order take effect as at the date of the original order (referring to Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559).
37White J concluded that:
In my view there would be utility in making an order setting aside the orders of 7 June 2011 with retrospective effect. Although I am aware of no authority on the question, it seems to me that if an order were made that the orders of 7 June 2011 be set aside by an order expressed to take effect on 7 June 2011, it could not then be said that the application under s 459G had been finally determined or otherwise disposed of.
38His Honour noted that this left North East Developments in an invidious position, having filed an originating process on 1 July 2011 seeking an order that Kay Investment be wound up in insolvency, in reliance on the service of the statutory demand and dismissal of the application on 7 June 2011 for the setting aside of the statutory demand (since the effect of the order he was proposing to make would be "that the presumption of insolvency had not arisen when the originating process for winding-up was filed, even though as at 1 July 2011 it could properly be said, as matters then obtained, that the presumption of insolvency had arisen") but observed that this was a necessary consequence of making the order with retrospective effect. In that regard, White J said:
I do not think that any hardship to the defendant in this regard outweighs the injustice that would otherwise obtain if the plaintiff's application to set aside the statutory demand remains undetermined without a proper hearing. To a certain extent the defendant is not without fault. Had the defendant complied with the usual order for hearing, its service of the pre-trial documents would have alerted the plaintiff's legal representatives to the pending hearing date. But even without that consideration, the interests of justice require that the plaintiff have the reasonable opportunity for its claim to be determined on its merits.
If the order were not set aside, the plaintiff would not necessarily be wholly without remedy. It could seek leave in the winding-up proceedings pursuant to s 459S of the Corporations Act to oppose the winding-up application on a ground on which it could have relied for the purposes of the application to set aside statutory demand. However, it would have to establish that the grounds on which it sought to set aside the statutory demand were material to proving solvency. Moreover, if it were successful in an application under s 459S, that would not mean that the presumption of insolvency was removed. The possibility of an application under s 459S is not a sufficient reason not to make an order under r 35.16(2)(b) with retrospective effect . (my emphasis)
39His Honour proceeded to set aside the orders made on 7 June 2011 and did so with retrospective effect such that those orders were to operate from 7 June 2011.
Grounds of Appeal
40It is not disputed that White J's decision was interlocutory in nature and not final. That being the case, pursuant to s 101(2) of the Act, leave would be necessary from the Court of Appeal for an appeal against that decision to be brought. In Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45], Heydon JA, then sitting in the Court of Appeal, (with the agreement of Sheller JA and Studdert J) noted what must be demonstrated for an appeal against an interlocutory order to succeed (namely, that there had been an error of legal principle; a material error of fact; some irrelevant matter had been taken into account; a failure to take into account, or gave insufficient weight to, some relevant matter, or the result was so unreasonable or unjust as to suggest that one of the foregoing categories of error had occurred, even though the error in question did not explicitly appear on the face of the reasoning.)
41In Warragamba Winery Pty Ltd v State of NS W [2010] NSWCA 174 at [6], confirmed the principles stated in Micallef and said that it was "well established that parties who seek to challenge a discretionary interlocutory decision on a matter of practice and procedure ... face a difficult task".
42In the present case, the Notice of Intention to Appeal was filed on 2 September 2011 (at which stage a certified copy of his Honour's ex tempore reasons was not available). Annexed marked "C" to the affidavit affirmed 2 September 2011 of North East Developments' solicitor (Ms Catherine Treweeke) is a copy of the draft notice of appeal. The appeal grounds are there stated as follows: that his Honour erred in law when he applied the ex debito justitiae principles to the facts of the case; that his Honour did not at law have the power to make his order retrospective to 7 June 2011; and that the exercise of his Honour's discretion miscarried.
43As to the first ground, two particulars are given: first, that North East Developments had already served a summons for winding up (a matter to which his Honour had adverted in his reasons); and, secondly, that the failure to have the statutory demand set aside did no more than define "where the burden of proof lies in winding up proceedings"; neither matter on its face seemingly going to why, as a matter of law, it is said that his Honour erred in applying the ex debito justitiae principles.
44Mr de Robillard informed me that the essence of the appeal will be the extent of the power exercised by White J under the ex debito justitiae principles in circumstances where the application to be heard before Windeyer AJ was an application by Kay Investment (ie this was not a situation where a defendant was deprived of an opportunity to be heard; rather, it was a case where the plaintiff simply did not appear to prosecute its claim). Mr de Robillard submitted that the ex debito justitiae principles arise where there is a substantial right to be heard (as the concept of a "right" is defined in Osborn's Concise Legal Dictionary (11 th edn)) not where there is a claim sought to be made by the party who failed to appear. Mr de Robillard also foreshadowed an argument that the Rules (under which the Court has power to set aside judgments and to make orders with retrospective effect) cannot displace the strict procedures and time schedules imposed by s 459F of the Corporations Act . He maintains that there is only a very limited 'right' to challenge a statutory demand under the statutory scheme.
45Reference was made by Mr de Robillard to the analysis of the principles in Cameron v Cole by the Court of Appeal in Hoskins v Van Den-Braak and ors [1998] NSWSC 80, ( Mason P, Priestley JA, Beazley JA at page 6), where the case before their Honours was one where neither the appellant nor anyone acting on his behalf was served with the cross claim on which judgment was given against him and it was said that since he was not properly joined in the proceedings they were a nullity so far as he was concerned. Their Honours cited Rich J's judgment in Cameron v Cole and went on to note Craig v Kanssen [1943] 1 KB 256 at [262] where reference was made to the inherent jurisdiction to set aside a determination made where there has been a failure to observe the principle that a person against whom a charge or claim is made must be given a reasonable opportunity of appearing and presenting his or her case. Their Honours noted that in Taylor v Taylor (1979) 143 CLR 1, Gibbs J said (at 8) that "It is clear that the majority of the Court in Cameron v Cole accepted that a court, whether superior or inferior, has inherent power to set aside an order made against a person who did not have a reasonable opportunity to appear and present his case."
46In Taylor, Mason J said (at 16):
Although the Family Court is a court created by statute it none the less possesses an inherent jurisdiction to set aside a judgment obtained by default. ... A jurisdiction to set aside its orders is inherent in every court unless displaced by statute. In my opinion the jurisdiction extends not only to the setting aside of judgments which have been obtained without service or notice to a party ( Craig v Kanssen [1943] KB 256 at 262-263) but to the setting aside of a default or ex parte judgment obtained when the absence of the party is due to no fault on his part. I can find no indication in the Family Law Act of an intention to displace this inherent jurisdiction.
47(His Honour's comments did not there suggest that the inherent jurisdiction was restricted to judgments entered against defendants.)
48Mr de Robillard relied on the above authority for the submission that insufficient weight was placed by White J on the question of fault when his Honour set aside the orders made on 7 June 2011 (emphasising that the ex debito justitiae principles were invoked in Cameron v Cole in circumstances where the party had been denied a hearing with no fault on its part).
49As to the particulars put forward in relation to the first ground of appeal, Mr de Robillard explained this as raised "in the context of delay in finding out about it being complete", by which I understood him to be submitting that it will be argued that his Honour had not given sufficient weight, when applying the ex debito justitiae principles, to the disadvantage that would be suffered by North East Developments by reason of the loss of the statutory presumption of insolvency having regard to the fact that there were by then insolvency proceedings on foot and that these were predicated on the presumption of insolvency. As to the second particular, it is submitted that this goes to the argument that to the extent that it would be open to Kay Investment to raise on the winding up application issues of the kind on which it relies to set aside the statutory demand, namely that this is relevant to whether or not there was a substantial right affected by the failure to afford Kay Investment a hearing on 7 June 2011.
50Mr Gray submits that the first of the particulars relied upon for the first proposed ground of appeal is not an error of law but, at most, a discretionary factor and amenable to recompense in costs if, in the exercise of the Court's discretion, it were considered just to make the order now sought by Kay Investment. As to the s 459S contention, it is submitted that (contrary to Mr de Robillard's submission) the failure to have the statutory demand set aside does have the effect potentially of denying Kay Investment the ability to defend the winding up proceedings on a number of grounds, which I consider in due course.
51As to the second ground of appeal (namely that there was not power to make the order retrospective), Mr Gray submits that this is plainly wrong in law (having regard to Part 36 Rule 16 and referring to Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559 at 563D per McLelland CJ in Eq; and Onefone Australia Pty Ltd v One Tel Ltd [2007] NSWSC 268 at [37] per Barrett J).
52As to the third ground of appeal, namely that there was a miscarriage in the exercise of his Honour's discretion, Mr Gray submits that the matters articulated in the particulars to paragraph 3 of the draft notice of appeal are, at best, discretionary matters the weight to be attributed to each, in the matrix of circumstances, being a matter for the trial judge. Reliance is placed in this regard on the principles espoused in Micallef . Mr Gray emphasises that in that factual matrix one must also take into account the evidence that Kay Investment had no knowledge that a date had been fixed for the hearing of its application. Thus it is submitted that Kay Investment cannot be criticised for non-appearance on 7 June 2011 or for not complying with procedural requirements based upon that date (by way of example), when it was ignorant of that date. It is further noted that the situation where a party is ignorant of the trial date is one of the very situations contemplated by Part 36 Rule 16(2)(b).
53It is submitted by Mr Gray that it cannot be said that White J's decision was so unreasonable or unjust as to suggest that any of the errors of the kind considered in Micallef must have occurred. He submits that the critical issue between the parties for present purposes is whether Kay Investment had a legal obligation to comply with the statutory demand (referring to Re Fratelli 's Fresh Pasta Pty Ltd [2011] NSWSC 576).
54It is further submitted that for White J not to have set aside Windeyer AJ's order (where Kay Investment had an arguable case which ought to be heard and had been ignorant of the original trial date allocated for the hearing of the matter) would itself have been a manifest miscarriage of justice.
55Pausing there, although his Honour concluded that Kay Investment was entitled ex debito justitiae to have the orders set aside, he also expressed the view that had it been necessary for it to have established that there were reasonably arguable grounds for its claim (in order to seek to have the orders set aside under Part 36 r 16), then that requirement was met on the material before him. Therefore, whether or not, as Mr de Robillard contends, the ex debito justitiae principles were applicable as a matter of law, to a case in which it was the plaintiff's application that was dismissed, it seems clear from his Honour's reasons that the same result would have been reached.
56I turn then to the issues now to be determined.
(i) Stay
57In Adeels Palace Pty Ltd v Moubarah; Adeels Palace Pty Ltd v Najeem (No 2) [2009] NSWCA 130, Hodgson JA affirmed that the principles on which a stay of a judgment or order may be granted are those set out in Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685 (namely that, prima facie, the successful party is entitled to the benefit of a judgment but a stay may be granted where the applicant demonstrates an appropriate case to warrant the exercise of discretion in its favour) but said that even where the usual requirements for a stay are met (there speaking of the requirements in the context of a stay in connection with an application for special leave to appeal to the High Court) the onus remains on an applicant to demonstrate "a proper basis for a stay that will be fair to all parties".
58As to the fairness of the stay sought by North East Developments, Mr Gray submits that this is an application in which it seeks to retain the benefit of an order made in the absence of its opponent (which had no knowledge of the hearing date having been fixed) where, had North East Developments complied with its obligations under the Usual Order For Hearing under Practice Note Eq 1 (to provide written outline submissions at least five working days prior to the allotted hearing date) the original situation would never have arisen.
59Mr Gray submits that where an appeal is brought against a final judgment or order, then in order to justify a stay of the order, it must be shown that there is an arguable case that the appeal will be successful (relying upon Trad v Harbour Radio Pty Ltd [2010] NSWCA 41 at [48] per Tobias JA). In Trad, Tobias JA said (from [46]):
The relevant principles applicable to a stay application were referred to by this Court (Kirby P, Hope and McHugh JJA) in Alexander v Cambridge Credit Corporation Ltd (Receivers appointed) (1985) 2 NSWLR 685 at 693-695. Particular reliance was placed by the defendant upon the following passage from the joint judgment at 695:
"Secondly, although courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case. This consideration is protective of the position of a judgment creditor where it may be plain that an appeal, which does not require leave, has been lodged without any real prospect of success and simply in the hope of gaining a respite against immediate execution upon the judgment."
In Chen v Lym International; Chen v Marcolongo [20091 NSWCA 121, Beazley JA, sitting as the referrals judge, observed (at [15]) that the comment by the Court in the passage which I have recorded above, indicates that there is no necessary requirement that the Court determine whether there is an arguable case on the appeal although it may be relevant in determining whether it is appropriate to grant a stay. Her Honour then remarked:
"In the present climate, where legal practitioners have a statutory obligation not to bring proceedings that do not have reasonable prospects of success: the Legal Profession Act 2004 s 347, this particular consideration may be one that the courts can approach with less scrutiny. It will depend upon the circumstances of the particular case. The court will always be concerned to ensure that its processes are not used inappropriately, for example, by permitting a defendant from keeping a successful plaintiff out of the fruits of his/her litigation victory by seeking a stay in respect of a hopeless appeal. ... The primary consideration in the court's determination will be whether the applicant for the stay has discharged the onus of demonstrating that there is a proper basis for the stay."
I respectfully agree with her Honour's remarks. In particular, the relevance of whether the appellant has an arguable case may well turn on whether the appeal is merely for the purpose of keeping a successful plaintiff out of the fruits of his/her victory by seeking a stay in respect of what is a hopeless appeal ...
60As the discussion in Trad makes clear, whether there is an arguable case for appeal is of relevance (though may not be necessary to be shown in all cases) where a stay is sought.
61Where, as here, the appeal is sought to be brought against an interlocutory order, Mr Gray submits that a stay will not normally be ordered against an interlocutory decision where the trial of the substantive issues will be delayed (referring to Partnership Pacific Ltd v Killen (NSWCA unreported 112/79 - Ritchie's [456,165). In Partnership Pacific, Moffitt P, Reynolds and Hutley JJA dismissed an ex parte application for expedition of an appeal in respect of an interlocutory decision given by the trial judge in proceedings then about to commence on an application to set aside a subpoena to produce documents. Moffitt P noted that there had been no claim for a stay of the proceedings and said that had there been it would have been refused, expressing concern at the interruption or attempted interruption of the proceedings by applications of the kind there sought to be invoked.
62I doubt that the circumstances in Partnership Pacific are directly analogous (as here there was not a lengthy proceeding about to begin which was threatened to be interrupted by the application for a stay). Nevertheless, Mr Gray submits that where the hearing of the (reinstated) application to set aside the statutory demand was listed on 15 August 2011 by White J to be heard on 9 September 2011 (and submissions in support of the application to set aside the statutory demand were served by Kay Investment on 26 August 2011) but the stay application was not served until 5 September 2011 in reliance upon a notice of intention to appeal filed on 2 September 2011 in which the stated intention is to commence appeal proceedings on or before 14 November 2011, this is inconsistent with s 56 of the Civil Procedure Act and Practice Note Eq 4 (Corporations List) at [29].
63It is submitted that the filing of a notice of intention to appeal one week before the date fixed for the hearing of the statutory demand application and the application for a stay of the present proceedings until the appeal is heard and determined (which may not be until some time in 2012) brings this case within the principle in Aon Risk Services v Australian National University (2009) 239 CLR 175 (though it is conceded that, unlike Aon , this is not an amendment application), since the effect of a stay would be to defer the hearing of the statutory demand application for months.
64On the application for a stay, while I cannot say that there is not an arguable case for appeal on the issue as to whether, as a matter of law, the ex debito justitiae principles were applicable in the circumstances of the present case, it seems to me that it is relevant to take into account that even had those principles not applied his Honour appeared to be minded to grant the relief under the power contained in Part 36 r 16 (and made it clear that, to the extent that it were necessary to consider whether there was an arguable case for the setting aside of the statutory demand, he was satisfied that there was). Similarly, while I cannot exclude the possibility that there is an arguable case as to the exercise of the power to set aside the June 2011 orders with retrospective effect, there seems to have been recognition that an extension of time for compliance could be obtained in appropriate cases to preserve the position pending an appeal from a decision not to set aside a statutory demand in Buckland and that may also be an order of a kind which, under the Rules, might be able to be given retrospective effect.
65It is therefore by no means clear that even if an appeal on the grounds presently contemplated were to succeed this would have the effect of preserving the presumption of insolvency for all purposes. (There is also the prospect that the Court of Appeal might come to a different view on, say, the retrospective operation of the order setting aside the June 2011 orders but not the applicability of the ex debito justitiae principles per se, which would leave the parties back in the invidious position to which His Honour referred in his judgment.)
66I accept that the refusal to grant a stay may to an extent operate to render the appeal nugatory in that if the stay is not granted and the application to set aside the statutory demand succeeds, then the basis for the present presumption of insolvency would fall away. However, I cannot agree that to grant the stay would cause no unfairness to Kay Investment (or that the balance of convenience lies in favour of a stay for that reason).
67While the presumption of insolvency remains, there is doubt as to whether Kay Investment can rely (to resist a winding up application) on matters on which it has (through an administrative error and the fact that North East Developments apparently chose to capitalise on that error by proceeding on an assumption that Kay Investment was not intending to pursue the proceedings) been unable to raise in challenge to the statutory demand.
68The thrust of Part 5.4 of the Corporations Act is to make, as far as possible, the procedure of applying under s 459G the only avenue for a company's objections to a statutory demand. Thus, it is recognised that a company receiving a statutory demand that has a reason for objecting to the demand cannot procrastinate or defer its objections until the hearing of the winding up application ( Ford's Principles of Corporations Law at [27.062]).
69North East Developments' application for winding up, as noted, is based upon a failure to comply with a statutory demand served on Kay Investment. Under s 459C(2) the court must presume in those circumstances that the company was insolvent and that presumption operates except so far as the contrary is proved for the purposes of the application.
70Under s 459S of the Corporations Act , for Kay Investment to oppose the winding up application on a ground on which it could have relied for the purposes of an application by it for the demand to be set aside but did not so rely on (whether it made such an application or not), leave of the Court is necessary and subs 2 provides that such leave is not to be granted unless the Court is satisfied that the ground is material to proving that the company is solvent.
71The essential issues for consideration in determining an application for leave under s 459S were outlined by Austin J in Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179 at [49] and adopted by Brereton J in DAG International Pty Ltd v DAG International Group [2005] NSWSC 1036 as being, in summary:
(i) whether there is a serious question to be tried on the ground sought now to be raised;
(ii) the sufficiency of any explanation as to why that ground was not raised in an application to set aside the statutory demand (involving an evaluation of the reasonableness of the conduct of the debtor at the time when the application was or might have been made); and
(iii) whether the court is satisfied that the relevant ground is material to proving that the debtor is solvent.
(see also Austin & Black's Annotations to the Corporations Act at [5.459S] and Guardian Group Australia Pty Ltd v Alice Lu and Anor [2005] NSWSC 1299). The discretion conferred by s 459S is one which it has been said should be exercised cautiously and sparingly (see Switz and Paliflex ).
72In the present case, I accept that Kay Investment may be in no worse position in establishing, in resistance to a winding up application, the first of those matters than it would be if it were now to be permitted to move on its statutory demand application (since in Guardian Group (at [69]) and DAG International (at [5]) , where the ground sought to be raised related to the existence of a dispute as to the claimed debt, Brereton J stated that this first issue "involves a preliminary consideration of the company's basis for contending that the debt is the subject of a bona fide dispute, though it does not require decision at this stage, whether there is, in fact, a bona fide dispute").
73As to the second, while it may be difficult for North East Developments later to argue that there is not a sufficient explanation as to why the ground sought to be raised was not previously raised (when it has so forcefully sought to preclude the argument being run at this stage), there is authority where a failure of the company's solicitor to deal adequately with the demand has been held not to be an adequate explanation for the purposes of an application for leave under s 459S ( Re Satellite Group Ltd [2000] NSWSC 984; (2000) 35 ACSR 565) and therefore, to the extent that Mr de Robillard suggests that there was fault on the part of Kay Investment (or its representatives) in not checking whether and if so when the matter was listed for hearing, then this factor may prove problematic if Kay Investment later seeks to raise matters that it could have raised on its statutory demand application. Certainly, the reasonableness of a debtor's conduct seems to be able to be taken into account in considering the sufficiency of the reason why the ground was not raised earlier (as indicated in Perpetual Nominees Ltd v Masri Apartments Pty Ltd [2004] NSWSC 551; (2004) 49 ACSR 719); see also Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777; Willard King Organisation (1978) Pty Ltd v CT Franchises Pty Ltd [2009] NSWSC 97; (2009) 69 ACSR 612.)
74Be that as it may, the real scope for uncertainty seems likely to arise in relation to the requirement in sub-s (2) as to whether the ground later sought to be relied upon is material to proving that the company is solvent . This is a mandatory requirement. It has received considerable attention in the context of s 459S cases (see, among others, Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226; 12 ACSR 381; Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298; (1993) 11 ACSR 535; Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 193 LSJS 1; 15 ACLC 1025).
75There have been both 'narrow' and 'broad' approaches to the question of whether the ground sought to be relied upon is material to proving solvency, as summarised in the discussion in Austin & Black's Annotations to the Corporations Act, which I do not now repeat.
76The weight of recent authority appears to lean towards the stricter (or narrower) construction to s 459S(2) (on which approach, for a ground to be 'material', it is must be 'pivotal', 'crucial' or determinative of solvency), as in Grant Thornton Services; Switz v Glowbind; HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 ; Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376 at [43] - [45]).
77Therefore, I do not consider that it can be said that the present stay application will not result in Kay Investment being in a worse position when it comes to defending a winding up application than it would have been had it been in a position to challenge the debt claimed in the statutory demand at the s 459G stage.
78When balancing those factors against the prejudice suffered by North East Developments if its application for leave to appeal is rendered nugatory and it is unable to rely upon a presumption of insolvency obtained at a time when Kay Investment was not aware that the hearing was about to be determined in its absence (and North East Developments chose not to enlighten it of that situation), I consider that the proper exercise of discretion in this case is not to grant the application for a stay.
(ii) Application to set aside the statutory demand
79Turning then to the application to set aside the statutory demand, as noted earlier Kay Investment relies on two main grounds: first, that the statutory demand does not comply with s 459E(2)(a) and is thus defective and, secondly, that there is a genuine dispute as to the basis of the debt on which the statutory demand is based and an off-setting claim which exceeds the debt claimed by North East Developments.
- Alleged Defects
80Mr Gray points to a number of alleged defects in the statutory demand.
81First, though (deservedly) little weight was placed on this in oral argument, it is noted that the description of the debt on which the demand is based incorrectly specifies the registration number of the lease (stating that it is AF62812, when in fact it is AF628126). That can hardly be a defect likely to cause substantial injustice if the demand is not set aside. There is only one relevant lease and Kay Investment was well aware of it - hence, there is no room for confusion on this aspect of the matter.
82Secondly, Mr Gray contends that the demand is defective because it fails unambiguously to specify the debt on which the demand is based (referring to the requirement in s 459E(2)(a) in this regard).
83It is submitted that the description of the debt is ambiguous in that it is capable of referring to multiple different debts or possible debts and therefore that the actual debt has not been specified as required by the Act. Reliance is placed in this regard on Topfelt Pty Ltd ; Spencer Constructions v D&M Aldridge Pty Ltd (1997) 76 FCR 452; LSI Australia Pty Ltd v LSI Holdings [2007] NSWSC 1406; (2007) 25 ACLC 1602; and J Canon Australia Pty Ltd v Young Bros Pty Ltd [2009] NSWSC 842 at [10] - [11].
84As support for the proposition that the present statutory demand fails unambiguously to specify the debt, reference was made to the fact that in Business To All Australia Pty Ltd v North East Developments Pty Ltd (receivers and managers appointed) [2011] NSWSC 668, a debt claimed in a statutory demand (issued by the very same entity as issued the present demand) in the very same words as that presently in dispute was submitted to refer to a claim for "... rent for the balance of the term of the lease subject to [the landlord's] obligation to mitigate its losses" and reference was there also made to a claim damages arising from the tenant's alleged repudiation of the lease.
85In Business To All , Hammerschlag J considered to be well-founded the complaints made by the plaintiff in that case that the statutory demand was defective because: it did not specify the nature of the amount claimed under the lease by identifying any provision which gives rise to the claimed debt or otherwise; purported to claim as a debt an amount referable to the entire period of the lease which would (had it not been terminated earlier) have ended some five years away; and described the claim as a debt referable to a period of some years after termination of the lease. His Honour commented at [11] that the demand did not provide a clue as to the source of the obligation asserted.
86Mr de Robillard submitted that no reliance could be placed on what another court had said as to another statutory demand in a different factual context but Mr Gray does not rely on the Business to All case as authoritative on the construction of the statutory demand in this case. Rather, he refers to that case as illustrative of the scope for uncertainty - in other words, if the very same words as those used in the present statutory demand have elsewhere been asserted (by the very same defendant) as referable to a claim of a different kind as the debt now claimed against Kay Investment, he submits that this reveals the ambiguity of such a description.
87Relevantly, in the present case, although the debt referred to in the correspondence of December 2010 was fairly clearly a debt comprised by rent payable under the lease for the rent-free period (following the repudiation of the lease), the statutory demand itself refers to the period from 1 January 2010 to 31 December 2014, well beyond the end of the rent-free period.
88In Topfelt Pty limited , albeit in a case where the defective description lay in the inability for the debtor to know how much it would have to pay in order to avoid the presumption of insolvency, Lockhart J said (at 396):
It is not asking too much that creditors who issue statutory demands under the Corporations Law should ensure that the demands are expressed in clear, correct and unambiguous terms. If the creditors wish to have the benefit of the presumption of insolvency, the least they can do is to tell the debtor companies in clear terms what amounts are due, whether they include interest or not, and, if so, the amount.
89His Honour went on later to say :
... it is not the obligation of a debtor company to calculate the interest which the creditor calls upon him to pay; to make certain and specific something which the creditor has left uncertain and unspecified. Also, in winding up proceedings the court acts not merely inter partes, but in the public interest. An order for winding up operates in rem. It is in the public interest that provisions of the Corporations Law which require a statutory demand to state the amount of a debt that is due and payable, should be observed.
90In Sultana Investments Pty Ltd v Cellcom Pty Ltd [2009] NSWSC 392, the Court approached the question by reference to whether there was room for doubt as to what the party issuing the demand required.
91The present case is not one in which there is in reality any doubt on the face of the demand as to the amount that is required to be paid in order to avoid the presumption of insolvency. However, there is doubt as to what the debt there claimed comprises and I think there is room for confusion in that regard having reference to the specification of lease obligations for the whole of the 5 year term of the lease (which seems to go beyond any amount referable to the rent-free period). T he enquiry made in early February makes clear the concern as to precisely what was comprised by the debt as claimed in the statutory demand and I accept that there is room for confusion in that regard even though the December correspondence had referred to an amount in relation to the rent-free period. Therefore I consider that there is a defect in the demand in this regard and it is one that would warrant the demand being set aside (though, ultimately, I do not need to rely on this ground as the existence of a genuine dispute and off-setting claim seems to me to be beyond doubt).
92The next alleged defect turns upon the verification of the statutory demand. The debt claimed in the statutory demand is not a judgment debt. Therefore, it is necessary, pursuant to s 459E(3), for the demand to be verified by an affidavit that complies with the rules. The requirement for an affidavit verifying the demand which satisfies the statutory requirements is a critical element of a valid demand ( B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Ltd (1994) 15 ACSR 433 at [435] - [436]; Fitness First Aust Pty Ltd v Dubow [2011] NSWSC 531 at [94]).
93Mr Gray notes that the Corporations Regulations Schedule 2 Form 509H prescribe that an affidavit verifying a statutory demand made by a corporation is to be made by "a director or by the secretary or an executive officer of the corporation". Mr Gray submits that where, as here, a receiver has been appointed to a corporation, any statutory demand issued in the name of the corporation must be verified by an affidavit made either by the receiver or by an executive officer of the corporation. There is no evidence, beyond Mr Gallie's assertion, that he is authorised to represent the receiver in this fashion.
94In the present case, the verifying affidavit was made by Mr Gallie, the Centre Manager employed by North East Developments. Mr Gallie is not a director or the secretary of the company. Is he an "executive officer" for the purposes of the section? In s 9 of the Act, the term "officer" is defined, relevantly, as meaning a person "who makes, or participates in making, decisions that affect the whole or a substantial part of the business of the corporation" or "who has the capacity to affect significantly the corporation's financial standing" or "in accordance with whose instructions or wishes the directors of the corporation are accustomed to act".
95There is evidence from Mr Kathestides that Mr Gallie told him that he worked for himself. There is no evidence as to the role carried out in this regard by Mr Gallie. Mr Gray submits that there is no evidence that he occupies the position of executive officer of North East Developments and therefore submits that there is no evidence that the statutory demand was verified as required by s 459E(3) (and that, in the absence of evidence that the issue of the statutory demand was authorised by the receiver, the statutory demand must be set aside, citing Gain Rural Holdings Pty Ltd v Commonwealth Development Bank of Australia Ltd (1997) 141 FLR 238).
96The former definition of "executive officer" in s 9 was repealed by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth), effective 1 July 2004 and replaced by the concept of a "senior manager" (see Ford's discussion at [1.2.0803]).
97The former term focussed attention on whether or not the person was concerned in or took part in the management of a body (having regard to the extent of the person's authority, the significance of the matters within that person's authority to the body corporate's overall activities, the scope of any discretion exercised by that person, and whether that person was responsible to management or directly to the board) ( Corporate Affairs Commission (Vic) v Bracht [1989] VR 821; (1988) 14 ACLR 728; Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; 6 ACSR 488; Sycotex Pty Ltd v Baseler (1994) 122 ALR 531; 13 ACSR 766 at 782 per Gummow J). The present definition focuses on whether the person makes or participates in making decisions that affect the whole, or a substantial part, of the entity's business or who has the capacity to affect substantially the entity's financial standing.
98It is suggested in Ford's that the factors relevant to determining whether a person participates in making decisions that affect the whole, or a substantial part, of the entity's business or has the capacity to affect substantially the entity's financial standing, are likely to be similar to those relevant to determining whether a person is concerned in, or takes part in, the management of a body (including the extent of the person's authority, the significance of the matters within that person's authority to the body corporate's overall activities, the scope of any discretion exercised by that person, and whether that person was responsible to management or directly to the board (referring to the authorities cited above).
99In Bracht , Ormiston J (considering the former definition of executive officer) interpreted this as covering a wide range of activities relating to the management of a corporation, where there is an involvement of some kind in the decision making process. His Honour said (ACLR at 733-4) that the provision pointed to:
... activities which involve policy and decision making, related to the business affairs of the corporation, affecting the corporation as a whole or a substantial part of that corporation, to the extent that the consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs.
100His Honour, in obiter , was inclined to think that an officer whose responsibility included negotiating matters of financial importance, such as the rent of the company's premises or the terms of its borrowings from bankers, might well be concerned in management, while an officer who merely communicated instructions prepared by someone else was not. (A narrower view was taken in Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; 105 ALR 421; 6 ACSR 488; 10 ACLC 64 where Burchett J held that a person does not take part in the management of the company unless he or she has a management role similar to that of a director.)
101In Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617; 23 ACLC 1387; [2005] NSWSC 738 at ACSR 851-56, the court considered that the wider interpretation of management in Bracht was to be preferred to the narrower interpretation in Holpitt in relation to the statutory directors' and officers' duties in former s 232 in relation to the duties to act honestly and with reasonable care and diligence, and the duties not to make improper use of information or position.
102In Hornet Aviation Pty Ltd v Ansett Australia Ltd (1995) 16 ACSR 445, an appeal was dismissed against the refusal of the primary judge to set aside a statutory demand, inter alia, on the grounds that it was formally defective because the affidavit in support was sworn by the credit controller of the respondent company and it was said that he was not an executive officer within the meaning of the then applicable Corporations Law . Northrop J at first instance had noted that the credit controller in question had very wide powers as an officer of the respondent and had deposed to his responsibility in that role for processing credit applications, collecting outstanding accounts and instituting legal proceedings to collect outstanding accounts and to his personal knowledge of the state of the indebtedness.
103There is no such indication in the present case to suggest that the role of Mr Gallie within the North East Developments organisation involved the participation in or making of decisions as to a substantial part of the business of the affairs of the company (although that might conceivably be the case as centre manager if this was the only shopping centre owned or operated by North East Developments). However, on the evidence before me I am not satisfied that Mr Gallie was an executive officer of the company and I have nothing other than his assertion to establish that he was authorised by the Receiver to swear the affidavit verifying the statutory demand. I therefore consider that the objection as to the validity of the demand has force (but again, it is not necessary for me to determine the case on this basis having regard to the matters considered below).