In the matter of Longjing Pty Ltd [2017] NSWSC 1534

Whether an "other reason" to set aside the demand - s 459J(1)(b)

Whether SEPA notice was confusing or misleading?

1. Counsel for Longjing fairly accepted that Longjing was not in fact misled or confused by the SEPA notice. As I have said, Longjing filed its application under s 459G and served a copy of that application and the supporting affidavit on Hammer within the specified 21-day period. Nonetheless, counsel submitted that it was sufficient that objectively the SEPA notice was capable of causing confusion or misleading the company. The only authority referred to for this proposition was Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 17 ACSR 662. Scandon is distinguishable on the facts (it involved an alleged defect "in a demand", relevantly a failure to give an address for service in the State) and, in any event, has been relevantly disapproved by the Full Federal Court in Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452.
2. In Spencer Constructions the Full Federal Court held (at 458) that a defect "in the demand" is only to be set aside if a substantial injustice would otherwise be caused (s 459J(2)); but if there is any other defect, including a defect in relation to the demand, rather than in the demand itself, the demand may only be set aside if the Court is satisfied that there is some reason for doing so going beyond the mere defect itself: s 459J(1)(b).
3. The Court disagreed with the decision of Snr Mstr Mahoney in Scandon in two respects. Relevant to the present case was the suggestion in Scandon to read "some other reason" in s 459J(1)(b) as being a reason other than one where "substantial injustice would be caused". The Court held that an "other reason" in par (b) gives the Court a discretion, in a case which does not involve a defect in the demand, to set aside the demand if some appropriate reason is shown. That discretion may be exercised in favour of the debtor company without showing that substantial injustice would otherwise be caused.
4. Scandon (and also Beta Trading Co Pty Ltd v Specialised Laminators (1996) 15 ACLC 270) were also disapproved by Austin J in Daewoo Australia Pty Ltd v Suncorp Metway Ltd (2000) 48 NSWLR 692; [2000] NSWSC 35 at [54], where his Honour said: … These two cases were based on the incorrect proposition that a defect in a demand (including failure to give an address for service in the State) could be treated as "some other reason" for setting the demand aside under s 459E(1)(b), even if there was no substantial injustice involved. As I have indicated, the Full Federal Court disagreed with this proposition in the Spencer Constructions case. In Re Ad-A-Cab Holdings Pty Ltd (1996) 14 ACLC 1,763, the correct general principles were applied and the Court held, on the facts of the case, that failure to specify an address in the State did not cause substantial injustice and therefore was not a basis for setting aside the demand.
5. The explanatory memorandum accompanying the Corporate Law Reform Bill 1992 (Cth) explained the provisions now contained in s 459J, as follows: 686 The Harmer Report proposed that a demand may be set aside if the Court is satisfied that: • there is a substantial dispute as to whether the debt is owing; • the company appears to have a counter-claim which may exceed the amount of the debt; or • the demand ought to be set aside on other grounds. 687 This last general power would enable the Court to take account of matters such as improper or invalid services and mistakes or misstatements in the notice of demand, in circumstances where this would significantly prejudice any party.
6. The discretion given to the Court under s 459J(1)(b) is unconfined except by reference to the subject matter, scope and purpose of Pt 5.4 in the more general context of the Corporations Act: MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154; (2016) 117 ACSR 446 (MNWA) at [124] (Rares J) referring to The Queen v Australian Broadcasting Tribunal; Ex Parte No 2 HD Pty Ltd (1979) 144 CLR 45 at 50. Earlier in Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317F-G, the Full Federal Court remarked that it would be unwise to attempt to mark out the limits of the discretion conferred by s 459J(1)(b).
7. In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746, Bryson J observed (at 757) that s 459H and s 459J show that statutory demands should stand unless there are reasons of "appropriate seriousness" for setting them aside, and an application under s 459J should be approached in that way. Those observations were approved by the New South Wales Court of Appeal in Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229; [2005] NSWCA 24 at [52] (Santow JA, Tobias JA and Young CJ in Eq agreeing). After emphasising (at [60]) that it is not possible to set out fully the cases that might fall within s 459J(1)(b), Young CJ in Eq continued at [60]-[61]: … The sort of case that will be covered will include gross defects in supporting affidavits and documentation and where the alleged creditor has made statements or representations relating to the statutory demand which have reasonably induced a change of the alleged debtor's position. A judge is not at liberty to set aside a demand under s 459J(1)(b) merely because he or she subjectively considers it fair to do so.
8. In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143 (Saferack), Barrett J (as his Honour then was) remarked (at [33]) that the operation of s 459J(1)(b) is not confined to cases coming within established categories such as unconscionability or abuse of process, but that par (b) applies whenever there is a need to counter some attempted subversion of the statutory scheme.
9. Accepting that the unnecessary SEPA notice accompanying the demand contained the misstatements in relation to the demand identified above, I do not consider that in the circumstances of the present case such misstatements, either alone or collectively, warrant an order to set aside the demand under s 459J(1)(b). Whatever difficulties that the unnecessary SEPA notice might have caused, Longjing was not led into error as to how to make and serve on Hammer an application under s 459G within the specified 21- day period. That however should not to be taken as any encouragement to other parties to attach unnecessary and potentially misleading documents when serving statutory demands.
10. I reject the first ground relied upon by Longjing.

Whether the debt judgment was not presently due and payable because of the standstill agreement

1. Longjing next contended that as a result of a "standstill" agreement with Hammer, the judgment debt was not presently due and payable at the time the demand was served, and this constituted an "other reason" under s 459J(1)(b) why the Court should set aside the demand.
2. It is common ground on this application that a standstill agreement was reached between Longjing and Hammer on 29 August 2016 which precluded enforcement action by Hammer in respect of the judgment debt, provided that Longjing expeditiously pursued certain litigation against a third party and kept Hammer informed of that litigation. This was a reference to NSW proceedings commenced by Longjing against Perpetual Nominees Limited (Perpetual) claiming damages for breach of the lease agreement entered into between Longjing (as tenant) and Perpetual (as landlord) of the leased premises.
3. The parties are at issue as to whether Longjing has expeditiously pursued the litigation against Perpetual. Longjing asserts that it has done so; Hammer asserts the contrary position, and referred to Longjing's failure to file an application for an expedited hearing and delay in filing its evidence; Longjing's conduct in "appealing" against the order for security for costs; and the quantum of damages sought by Longjing.
4. An understanding of this issue is assisted by a brief summary of the course of the NSW proceedings against Perpetual and the relevant communications between Longjing and Hammer.

The NSW proceedings against Perpetual

1. The starting point is an email dated 29 August 2016 from Mr Nathan Symes, solicitor for Hammer, to Mr Ryckmans, solicitor for Longjing. After referring to advice from Mr Ryckmans that his clients (Longjing and its director, Mr Ng) would be filing proceedings against "Mirvac on Monday last week" in the New South Wales Supreme Court (the reference to "Mirvac" being a reference to Perpetual), the email continued: … As you will appreciate, our client will only consider refraining from enforcing its Judgment against your clients if it is satisfied your clients are doing everything in their power, and doing it expeditiously to recover against Mirvac. Currently our client is not convinced this is the case. Accordingly, our client has instructed our firm to provide your clients with one final opportunity to provide a copy of its NSW Supreme Court Claim filed against Mirvac and confirm it has been served on or before 4:00pm, Wednesday, 31 August 2016. In the event we do not receive a copy of the Claim and confirmation it has been filed and served, we will immediately seek our client's instructions to proceed to enforce its judgment against your clients.
2. On 7 September 2016, Mr Ryckmans sent an email to Mr Symes attaching a sealed copy of the statement of claim filed against Perpetual which was listed for directions on 6 October 2016. Mr Ryckmans indicated that he intended shortly to file and serve the evidence in support of the claim and to also prepare a motion seeking expedition on the question of liability only.
3. On 16 September 2016 Mr Symes sent an email to Mr Ryckmans enquiring whether the notice of motion seeking expedition had been filed. Mr Ryckmans replied by email that day indicating that he hoped to have the motion and affidavit finalised early the following week with a view to filing by the end of that week. Perpetual filed its defence on 27 September 2016.
4. On 6 October 2016 directions were made by consent in relation to the filing of any amended pleadings, Longjing's evidence by 10 October 2016, Perpetual's amended defence by 31 October 2016 and Perpetual's evidence by 7 November 2016. The proceedings were entered in the Real Property List and listed for directions on 11 November 2016.
5. On 1 November 2016, Perpetual filed an application for security for costs. That application was heard before Registrar Walton on 8 December 2016 and judgment was reserved. Mr Ryckmans reported to Mr Symes by email on 8 December 2016 that Perpetual had sought $100,000 by way of security and outlined the arguments relied upon by Longjing in resisting that application.
6. On 23 February 2017, Mr Symes sent an email to Mr Ryckmans demanding evidence that he had emailed the Associate to Registrar Walton seeking an update as to when the judgment would be handed down on the security for costs application. Mr Ryckmans replied to Mr Symes on that day acknowledging that whilst judgment of the security for costs application had been expected a fortnight earlier, he was very reluctant to be chasing up a judicial officer after such a short delay. Mr Ryckmans requested a further fortnight to pass before "I gently make any enquiry of the Court as to when judgment might be expected".
7. On 28 February 2017, Registrar Walton delivered judgment and ordered Longjing to provide security for costs in the amount of $90,000.
8. On 31 March 2017, Darke J made orders for the payment of security for costs in four tranches of $22,500, the first due on or before 5 May 2017. Also, on 31 March 2017, Mr Ryckmans sent an email to Mr Symes and to Mr Hallasso, a solicitor at Madison Marcus, which was itself another creditor of Longjing, suggesting a possible approach to settlement of the claim against Perpetual/Mirvac.
9. On 4 April 2017, Longjing filed a notice of motion seeking a review of Registrar Walton's decision. The hearing of that "appeal" was initially listed before Parker J in early June 2017, but was subsequently reallocated to 7 July 2017.
10. On 7 July 2017, orders were made by Parker J that Longjing pay the amount of $22,500 as security for Perpetual's costs of Longjing's notice of motion filed 4 April 2017 within 28 days and the proceedings be stayed subject to that payment. Longjing paid the sum of $22,500 into Court on 4 August 2017. As already indicated, on the same day, Hammer sent the statutory demand by post to Longjing. On 18 August 2017, Longjing's motion for review of Registrar Walton's decision was listed for hearing on 3 November 2017.

Consideration

1. Two questions arise. The first concerns the scope or ambit of an "other reason" under s 459J(1)(b). The second concerns whether an "other reason" must be established on the balance of probabilities and that a seriously arguable case is not sufficient.

Scope of an "other reason" under s 459J(1)(b)

1. As to the first question, authority supports an affirmative answer that an application to set aside a statutory demand on the ground that the debt the subject of the demand is not due and payable is a matter falling within the scope of s 459J(1)(b). Hammer did not contend otherwise. See NT Resorts Pty Ltd v Deputy Commissioner of Taxation (1998) 16 ACLC 957 at 963 (Finkelstein J); Midland Imports Pty Ltd v Asia Pacific International Pty Ltd [1999] NSWSC 12 at [27] (Austin J); Streetwise v Higgins [2005] NSWSC 535 at [15]-[19] (Master Macready); Re MK Group Phoenix Pty Ltd [2014] NSWSC 1467 at [40] (Black J); In the matter of Tuffrock Pty Ltd [2015] NSWSC 738 at [13] (Black J). In Re MK Group Phoenix Pty Ltd, Black J summarised the relevant principles at [40] as follows: The authorities make clear that a statutory demand that relies on, or includes, a debt that is not yet due for payment may be set aside, although the case law differs as to whether such an order may be made under s 459H or s 459J of the Corporations Act. In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1986) 132 FLR 300; 20 ACSR 746, Bryson J held that the inclusion of debts not yet due for payment at the date of the demand was a defect within the demand under s 459J(1)(a) of the Corporations Act, which would authorise the Court to set aside the demand if it was satisfied that subject substantial injustice would be caused unless the demand was set aside. In NT Resorts Pty Ltd v Deputy Commissioner of Taxation (1988) 153 ALR 359 at 366-367, Finkelstein J considered that the Court could set aside the demand if it was satisfied that a genuine dispute existed as to whether the debt to which the demand related was due and payable, under s 459J(1)(b) of the Corporations Act. Statutory demands have also been set aside when issued in respect of debts that were not due or payable, or where there was a genuine dispute as to whether they were due and payable, in Re Carbon Polymers Ltd [2013] NSWSC 376 and Re Forza Plumbing Systems Pty Ltd [2013] NSWSC 1234.

Onus - standard of proof of an "other reason"

1. The second question concerns the approach that the Court should take in terms of "onus" when assessing whether there is an "other reason" under s 459J(1)(b) to set aside the demand.
2. Hammer did not contend that Longjing had to prove, on the balance of probabilities, the basis for the existence of an "other reason" to set aside a demand under s 459J(1)(b): cf the Full Federal Court's decision in MNWA. Here, it is common ground that the same approach in terms of "onus" should apply under s 459J(1)(b) to the issue whether the debt the subject of the demand is not presently due and payable, as would be the case if the issue arose in the context of whether there was a "genuine dispute" in relation to the debt under s 459H(1). That is, the relevant question is whether there is a "plausible contention requiring investigation" that the debt is not presently due and payable: Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601 at [55] (Beazley P, Meagher JA and Gleeson JA).
3. In these circumstances no occasion arises to consider the majority view of the Full Federal Court in the MNWA case, that proof on the balance of probabilities applies where the company contends that the issue of the statutory demand is an abuse of process or unconscionable: at [186]-[193] (Davies and Farrell JJ); cf at [125]-[151] (Rares J dissenting). An application for special leave to appeal was refused by the High Court: Gucce Holdings Pty Ltd v Deputy Commissioner of Taxation [2017] HCASL 72.
4. Nonetheless, it should be observed that the majority view in MNWA would seem to be obiter, since the primary judge had expressly noted that it was not strictly necessary to determine the "onus" point with respect to the company's contentions because he was not satisfied that the plaintiffs had even established a plausible basis for s 459J(1)(b) to apply: see MNWA Pty Ltd v Deputy Commissioner of Taxation (No 2) [2015] FCA 1128; (2015) 109 ACSR 265 at [158] (Griffiths J).
5. Applying the "plausible contention" or seriously arguable case test, two matters should be noted. First, Hammer did not suggest that Longjing's assertion that the standstill agreement remained in force was not bona fide. Second, Hammer did not suggest that there was not a seriously arguable case that the standstill agreement remained in force. In this regard, it was common ground in oral argument that whether the NSW proceedings have been expeditiously pursued by Longjing is to be assessed objectively.
6. Accepting the approach common to the parties, I am satisfied that there is a plausible contention requiring investigation that the standstill agreement remained in force at the time the demand was served and accordingly the judgment debt was not presently due and payable. That contention raises matters not suitable for determination in the present proceeding. As Finkelstein J remarked in NT Resorts at 962, an application to set aside a statutory demand, "being a summary process with evidence on affidavit, is hardly an appropriate vehicle for a trial on substantive issues".
7. One further matter should be mentioned, although not raised by the parties. There is another way of viewing the "expeditiously" proviso or condition in the standstill agreement. It seems to me fairly arguable that, properly construed, this proviso or condition with respect to enforcement action in respect of the judgment debt turns on the opinion or state of satisfaction of Hammer. On that approach, questions may arise as to the efficacy of the opinion or state of satisfaction of Hammer as to whether the NSW proceedings have been expeditiously pursued, and whether Hammer is obliged to act reasonably in considering and determining what its opinion was: cf Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) ANZ Ins Cases 61-113.
8. I do not base my decision on this construction of the proviso or condition, which was not raised or argued by the parties, but mention it for completeness.

Conclusion and Orders

1. For the reasons given above, I am satisfied that Longjing has demonstrated that it is appropriate to set aside the demand under s 459J(1)(b).
2. As to costs, there is no reason why costs should not follow the event: Uniform Civil Procedure Rules, 2005 (NSW), r 42.1.
3. Accordingly, I make the following orders: 1. That the statutory demand dated 4 August 2017, served on the plaintiff by the defendant, be set aside. 2. Defendant to pay the plaintiff's costs.

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