Applicable principles
32NA Investment's application is made under s 459S of the Corporations Act , which provides:
459S(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.
33The 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).
34The discretion conferred by s 459S is one which it has been said should be exercised cautiously and sparingly (see Switz Pty Ltd v Glowbind Pty Ltd; Glowbind Pty Ltd v Switz Pty Ltd [2000] NSWCA 37 and Chief Commissioner of Stamp Duties v Paliflex ).
(i) Is there a serious question to be tried?
35In 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 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".
36There is no serious question to be tried as to the proper construction of clause 11.18 of the Restated Facility Agreement. That has been conclusively determined by the Court of Appeal. However, what NA Investments now seeks to do is to establish that, on the construction of this clause as so determined by the Court of Appeal, there is a shortfall which would enliven that provision.
37It seems to me that the Court of Appeal did not exclude the possibility of an argument that NA Investment might be able to establish that the limitation of liability clause was enlivened (or that it might be able to show that its indebtedness had thereby been reduced by the operation of clause 11.18).
38On the information now put before the Court, it seems to me that there is a serious question to be tried (or a seriously arguable proposition - to use the alternative formulation) that the FFA Trust Property (insofar as it comprises shares in the two companies now in liquidation) may not be realisable for an amount sufficient (taken with any other FFA Trust Property) to enable the discharge of NA Investment's debt and hence might operate to reduce the amount recoverable from NA Investment to the lesser amount of any FFA Trust Property so realisable. That issue has not previously been determined. Indeed, it seems that it was this issue that the Court of Appeal had contemplated the parties might seek to pursue in an application of the kind now made. Therefore I accept that this first criterion is satisfied.
(ii) Is there a sufficient explanation as to why the ground sought to be raised was not previously raised?
39Mr Marshall submits that the first limb of s 459S(1) is not satisfied because NA Investment has already ventilated clause 11.18 in its earlier attempt to set aside the statutory demand. He submits that although the formulation of NA Investment's argument in respect of this provision has changed, as a matter of common-sense, it is the same 'ground' that has already been considered on two previous occasions. Hence, he submits that there is no serious question to be tried on the ground now sought to be raised. It is said that there is no precedent for a debtor ventilating an issue for a second time under s 459S for no reason other than to address gaps in the evidence which were adduced on the first occasion (and of which the debtor was aware at the time).
40The reason propounded for the failure of NA Investments to adduce evidence to establish the existence or extent of any 'shortfall' between the realisable value of FFA Trust Property on the one hand, and the $7.6m debt claimed in the statutory demand on the other hand, is that it was previously relying on its "own" construction of clause 11.18 (on the advice of its solicitor), and now wishes to rely on a revised construction (its own construction twice having been held incorrect). NA Investment cannot be said to have been unaware of this alternative construction of clause 11.18, nor was it unaware of what evidence might be necessary to establish it.
41There has been little judicial attention given to what a 'sufficient explanation' would be in circumstances such as the present, where a s 459G application was earlier made (invoking the ground later sought to be raised with leave under s 459S) and dismissed (on two occasions) for failure to adduce the necessary evidence to sustain that ground at the stage of the s 459G application.
42It seems to me that an analogy might usefully be drawn with the situation where a company's solicitor had been charged with the responsibility of dealing with the demand and had failed to do so adequately. That 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).
43The fact that account may be taken of the reasonableness of a debtor's conduct in considering the sufficiency of the reason why the ground was not raised earlier (or should now be permitted to be raised again if it had been raised earlier) is indicated by the observation in Perpetual Nominees Ltd v Masri Apartments Pty Ltd [2004] NSWSC 551; (2004) 49 ACSR 719, that there was nothing there to show that the directors had acted other than reasonably in regards to the supervision of the collection of mail from the company's registered office (an observation that would not be necessary if the question of reasonableness did not arise). (I note that this was a case when s 459S leave was not necessary as the evidence established there was no ground that would have been relied on at the time, as the company's directors did not become aware of the existence of a validly-served statutory demand until after the expiration of the 21-day period but nevertheless it seems to me that some guidance can be taken from the fact that there the reasonableness of the conduct was a matter noted). (In this regard I refer also to 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.)
44This suggests that where the reason for non-reliance on a ground available to be raised at the s 459G stage is some default on the part of the company (or, perhaps, its advisers) then leave may not be granted. A fortiori , where the reason for reliance on a particular ground to set aside the statutory demand without leading the necessary evidence to sustain that ground is what seems to have been a deliberate election by the debtor. In those circumstances, one might well take the view that the debtor should be left to the consequences of that election.
45NA Investment's position in this regard seems to be that it acted reasonably in relying on its solicitors' advice (though there is no evidence of that advice, merely the assertion that NA Investment proceeded on its "own construction" of the clause) and that, it having now been made clear by the Court of Appeal what is required, as an evidentiary matter, in order to invoke and sustain a claim for limitation of liability clause 11.18, it should be allowed to do so in order to resist the winding up application.
46The real issue (on this aspect) therefore seems to me to be whether NA Investment should be left to its election (apparently consciously made, if not before then certainly when presented with the opportunity by the Court of Appeal) not to seek to adduce the evidence necessary to establish the extent of the shortfall (i.e. to establish its ground based on clause 11.18).
47Perpetual submits that re-litigation of an issue such as this should be permitted only in exceptional circumstances (see paragraphs [21 - 25] of Mr Marshall's submissions), relying upon what was said by the High Court in University of Wollongong v Metwally (1985) 60 ALR 68:
It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.
and referring to Dairy Farmers Co-op Ltd v Azar (1990) 170 CLR 293 at [305]; O'Brien v Komesaroff (1982) 150 CLR 310; Mason J at [318-319]; Bloemen v Commonwealth (1975) 49 ALJR 219, Gibbs J at [220]; and Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, at [438].
48Mr Marshall submits that this general law position should not be regarded as having been ameliorated, or varied, by s 459S(1)(a). Mr Sahade contends, on the other hand, that the application of such a principle would be to render s 459S(1)(a) in effect meaningless, since that provision contemplates the very situation that the debtor has relied upon the particular ground in question on an earlier occasion.
49The 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]). Mr Marshall submits that this purpose would not be realised by the courts allowing issues already litigated under s 459G to be re-litigated in the winding up application under s 459S. At [23], he refers to the basic principle of statutory construction that a statute should be interpreted consistently with the relevant general law doctrine unless the legislature has given a clear indication to the contrary (citing Potter v Minahan (1908) 7 CLR 277 per O'Connor J).
50Mr Marshall submits that it is inconceivable that a discretion that is meant to be used 'sparingly' should be exercised in favour of a litigant who wishes to raise issues of fact rather than construction, particularly when that litigant has previously made an election not to raise these issues.
51Mr Marshall also relies upon the general proposition in Metwally as being equally applicable where a dispute that has already been resolved by the courts and a party seeks to litigate a matter that is intimately connected to the resolution of that dispute, by reference to what was said by the High Court in Port of Melbourne Authority v Anshun (1981) 147 CLR 589:
[T]here will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiffs claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding . (my emphasis)
52The reasonableness of NA Investment's failure to adduce evidence of the shortfall between the value of the trust estate and the amount of the monies owing must, it is said, be viewed in light of the fact, first, that at the time of the hearing before Macready AsJ, NA Investment would have known that evidence could have been adduced which showed the existence of a shortfall and, secondly, that similar evidence should have been adduced in any case in support of NA Investment's own argument that a shortfall existed.
53Mr Sahade submits that s 459S must apply in this situation because if one were required to assume that matters had been dealt with perfectly the first time then s 459S (and there I understand him to be referring to s 459S(1)(a)) would have no operation at all. That subsection clearly contemplates the situation where a ground has been raised (and thus evidence adduced) at the s 459G stage and it is said that the subsection is inconsistent with the conclusion that, just because something was argued once, no leave should be granted.
54There is some tension between s 459S and any automatic preclusion of reliance on evidence that could have been tendered (or a ground raised) on an earlier occasion. Hence that some caution must be exercised in applying principles akin to those that would give rise to an Anshun estoppel in this context. The legislature itself contemplates that a ground already relied upon for a s 459G application may (albeit with leave) be raised again.
55However, it seems to me that what the Anshun principles do illustrate is the need (when considering the sufficiency of the reason not to adduce this evidence or raise this ground based on that evidence at an earlier occasion) for an assessment to be made of the reasonableness of the conduct of the debtor (here NA Investment) in not putting forward the relevant evidence when it had the opportunity to do so. This is similar to the recognition by Handley AJA in Champerslife Pty Ltd v Manojlovski & Anor [2010] NSWCA 33 at [108] that where the extended form of res judicata estoppel in Anshun is in issue "the enquiry is extended to include the reasonableness of the litigant's conduct in the earlier proceedings or the existence of an abuse of process in the later".
56Where, as here, there seems to have been a knowing election by the debtor to rest its case on its own view of the construction of the clause (and to persist in that construction even when faced with the course apparently suggested in the Court of Appeal that leave be sought at that point to deal with the issue on the basis of evidence as to the shortfall), I am of the view that the debtor's conduct fails to meet the test of reasonableness. It is not the fact that this ground was already run (and lost) at first instance; rather, it is that there seems to have been a conscious election made not to address the factual issue at all until after NA Investment had already chanced its arm at success in the appeal - thus inevitably raising the prospect (if it lost on the construction issue) of duplicated costs and wasted court time.
57On balance, I consider that a sufficient reason has not been shown for the failure to establish the "shortfall" at the stage of the earlier application and that the debtor should be left to its election; thus leave should not be granted. However, even if I had not been of that view, the present application would fail on the third issue.
(iii) Is the ground sought to be relied upon material to proving that the company is solvent?
58The requirement imposed by s 459S(2) is that the proposed ground must be material to proving that the debtor is solvent. This requirement is mandatory. 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).
59It is therefore necessary for NA Investment, in order to establish a basis for leave under s 459S, to demonstrate that the debt founding the demand is 'material to proving solvency'.
60There have been both 'narrow' and 'broad' approaches to the question of whether the ground sought to be relied upon is material to proving solvency.
61In Austin & Black's Annotations to the Corporations Act, the learned authors summarise the varied approach to the construction of this section at [5.459S]:
In New South Wales, the court will not grant leave to dispute a particular debt if the company contends it is solvent irrespective of whether that debt is due, so the status of that debt is not determinative of the company's solvency: Switz Pty Ltd v Glowbind Pty Ltd , above . A similar approach was taken by the Federal Court in HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd , above ; Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376; BC200608507 at [43]-[45] and Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777; BC200810536 at [19]-[22]. The contrary view was expressed in Bayview Holdings Pty Ltd (in liq) v Zan Holdings Pty Ltd BC9805541 and the difference in the authorities was noted in HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd , above at [53].
Another approach is that a particular debt need not be determinative of the company's solvency, and materiality would be established if the company was undoubtedly insolvent if the debt was owed, and may be solvent if the debt was not owed: Radiancy (Sales) Pty Ltd v Bimat Pty Ltd (2007) 25 ACLC 1216; [2007] NSWSC 962 at [64]. In Hanson Construction Materials Pty Ltd v FEC Civil Pty Ltd [2009] NSWSC 161 at [20], Barrett J noted, but did not need to resolve, the difference between these approaches. An application for leave under this section should ordinarily be determined before the hearing of the winding up application: Switz Pty Ltd v Glowbind Pty Ltd , above .
62In Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179, Austin J adopted the broad view to the construction of s 459S(2) and said that the materiality threshold should not be set too high. His Honour also noted that the court considers the issue of materiality before deciding whether to give leave to dispute the debt. At that point, the court has not come to a conclusion concerning the company's solvency and may not have heard all relevant evidence. Therefore, the court is not in a position to decide whether the relevant debt is the difference between solvency and insolvency. The question, according to Austin J (at [41]), is not whether there is a genuine dispute concerning the existence of the debt, but whether the dispute has any effect on the standing of the applicant as a creditor or whether the company is solvent.
63His Honour said (at [41]) that the matter must be addressed in three stages: first, whether leave should be granted to allow the company to dispute the debt; secondly, whether, if leave is granted, the applicant has standing as a creditor pursuant to s 459P and, thirdly, whether the company is solvent, taking into account the dispute about the debt.
64In Hanson Construction Materials Pty Ltd v FEC Civil Pty Ltd [2009] NSWSC 161, Barrett J considered the differing approaches to the question of materiality. Although his Honour did not need to resolve this issue, his Honour appeared to be in favour of a broader approach. At [26] - [28] his Honour stated:
"The Court of Appeal noted that a decision whether a particular ground of defence is "material" to proving that the defendant company is solvent can only be made in the light of the contentions the company proposes to make in support of the proposition that it is solvent. The principal judgment (that of Spigelman CJ) continued (at [54]):
If, as here, the company intends to prove that it is solvent whether or not a debt is payable, then with respect to a ground based on dispute about the debt, the test of materiality to it "proving" its solvency, cannot be satisfied.
In Radiancy (Sales) Pty Ltd v Bimat Pty Ltd [2007] NSWSC 962 ; (2007) 25 ACLC 1216 at [64] White J referred to the significance of the words "material to proving":
The question is not whether the debt demanded by Radiancy (Sales) is determinative of Bimat's solvency. The question is whether it is material to proving the company is solvent. If the debt is owed, the company is undoubtedly insolvent. If it is not owed, the company may be solvent if Mr Colosimo's evidence as to the payment of creditors is accepted. Accordingly, s 459S(2) is satisfied in relation to the grounds that Radiancy (Sales) is not a creditor, or that the alleged debt is genuinely disputed.
The observation that "material to proving" is not the same as "determinative of" may not sit happily with approaches under which the relevant test has been taken to be whether the ground of defence "represents the difference between solvency and insolvency" ( HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd [2002] FCA 1638 ; (2002) 44 ACSR 169 at [53] or "is pivotal to the question of solvency" ( Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777 at [19]; Deputy Commissioner of Taxation v Neo Rock Pty Ltd [2009] FCA 129 at [9]). For reasons to be mentioned presently, I do not need to reach a conclusion on any difference of emphasis or approach that may emerge from the cases, although my inclination is to think that "material to proving" is not the same as "determinative of" and that a capacity to have some influence or effect is, in general, all that is necessary to make something "material to proving" . " (my emphasis)
65The weight of recent authority appears to be leaning 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 ( Grant Thornton Services; Switz v Glowbind; HVAC Construction; Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376 at [43] - [45]).
66In Switz v Glowbind, Spigelman CJ stated (at [53]) that:
"The authorities show that "material" means that an applicant, under s 459S, must show that the debt in respect of which it is seeking leave is pivotal to the question of solvency. That is, the defendant must demonstrate that if the debt exists then the company will be insolvent and if the debt does not exist then the company will be solvent."
67In Zan Holdings Pty Ltd v Bay View Holdings Pty Ltd (1997) 15 ACLC 1238, Master Sanderson stated that:
"In effect by ignoring the debt upon which the statutory demand is based, the company might be found to be solvent, then, and only then, the existence of a bona fide dispute would be a relevant consideration ... In circumstances where existence of the debt on which the statutory demand is based is pivotal to a decision on solvency, then the existence of the debt is a relevant consideration."
(While this reasoning was disapproved in obiter comments on appeal, see Bayview Holdings Pty Ltd (in liq) v Zan Holdings Pty Ltd (unreported, Supreme Court of WA, Ipp, Wallwork and Steytler JJ, 19 October 1998) at [5], where it was considered enough if "the ground....might...be determinative of the...company's solvency", those comments were, in turn, disapproved by the New South Wales Court of Appeal in Switz v Glowbind at [36]).
68In HVAC Construction, French J (as his Honour then was) followed the narrow approach as outlined by Spigelman CJ in Switz v Glowbind . At [53] his Honour stated that:
"Leave is not to be granted under s 459S(1) unless the ground which the company seeks to advance is material to prove that the company is solvent. This requirement has been interpreted variously. It has been interpreted as requiring that the debt upon which the statutory demand is based represents the difference between solvency and insolvency: Zan Holdings Pty Ltd v BayView Holdings Pty Ltd (1997) 15 ACLC 1238, a decision of Master Sanderson not approved (albeit obiter) by the Full Court of the Supreme Court of Western Australia in BayView Holdings Pty Ltd (in liq) v Zan Holdings Pty Ltd (unreported, SC(WA), Full Court, No FUL 127 of 1997, 19 October 1998, BC9805541). The observations of the Full Court were not followed by the New South Wales Court of Appeal in Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 ; 33 ACSR 723 ; 19 ACLC 532 at 539-60. It is not necessary for present purposes, which are concerned with the grant of a stay, to address those differences of view. I do, however, accept the force of the observations by Spigelman CJ in Switz where his Honour (with whom Handley and Giles JJA agreed), referring to the balance of interests in the process adopted for resolution of disputed debts under Pt 5.4 said (at NSWLR 674; ACSR 734; ACLC 541-2):
The legislature has adopted a particular scheme which causes the balance to be drawn in a specific way. The circumstance that commercial injustices may, on some occasions, be caused to the debtor company by the operation of that scheme, may be offset by the commercial injustices that the continued operation of an insolvent company may cause to existing and, if permitted, increased or future creditors of such a company.
The chief justice characterised the 1992 reforms as intended to minimise the opportunity for delay by ensuring that disputes as to debts were determined at an early stage and would not delay or prolong the hearing of the issue of solvency. Section 459S(2) should be given a strict construction in order that the purpose of the legislative scheme could best be served. "(my emphasis)
69The meaning of s 459S(2) needs to be considered in the context of Part 5.4 of the Act and its relevant purpose. As Spigelman CJ stated in Switz v Glowbind at [42]:
"The purpose of the longstanding statutory demand procedure is to minimise the transaction costs which the law imposes on creditors seeking to enforce debts. The threat of winding up is often effective to ensure that a recalcitrant debtor does not seek to exploit the delays and costs that legal disputation may impose on commercial transactions. That threat is rendered ineffective to the degree to which such delays and costs are permitted to intrude into the statutory procedure itself.
The 1992 reforms which introduced the new Pt5.4 were designed to minimise the delay and attendant legal costs which were a common feature of the battle of tactics in insolvency practice under the pre-existing scheme.
Furthermore, the Corporate Law Reform Act of 1992 (Cth) which inserted the new Pt5.4 into the Corporations Law, also inserted the new Pt5.7B which, inter alia, reformed the law with respect to insolvent trading. The new Part made new, and in many respects more stringent, provision for civil and criminal liability in the case of directors who permit a company to incur a further debt while insolvent. It also imposed liability on a holding company which fails to prevent insolvent trading by subsidiaries. A new system was established for voidable transactions. The legislative purpose to prevent, as soon as possible, an insolvent company incurring debts, is clear."
70On the strict approach to the question of 'materiality', as was applied by Spigelman CJ in Switz v Glowbind at [674] and [56], a challenge to the debt will be material to proving that the company is solvent if the company is able to demonstrate that, if the debt does not exist, then the company will be solvent. (See also the view expressed by Perram J in Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777 at [19 - 22]).
71The broad approach to the question, in contrast, looks to the overall financial position of the company. In Deputy Commissioner of Taxation v Neo Rock Pty Ltd [2009] FCA 129, Logan J held at [10] that:
"The evidence led on behalf of Neo Rock on the application is noteworthy for its absence of reference to the overall financial position of that company. There is no evidence which touches upon the assets and liabilities of the company generally, its profit and loss, its balance sheet, or its solvency, either having regard to the debt as it presently stands (which has its origins in that which supported the statutory demand) or otherwise howsoever."
72Mr Marshall relies on the broad approach to the issue and submits (at [27]) that the ground upon NA Investment's view seeks to rely (i.e. the alternative construction of clause 11.18) does not go to the broader financial circumstances of NA Investments.
73In that regard, it is worth setting out in some detail what was said in Switz v Glowbind Pty by Spigelman CJ in this regard (from [43]):
The words are not "material to solvency" or "material to finding solvency" but "material to proving " solvency. The use of the word "proving", a present participle in the active voice, indicates that the test is to be applied to a process then under way, or in contemplation, before the Court. Subs459S(1) makes it clear that that process of "proving" is being conducted by the company.
...
The 1992 reforms were intended to minimise the opportunity for delay by ensuring that disputes as to debts are determined at an early stage and do not delay or prolong the hearing of the issue of solvency. The strict requirements of s459G are subject only to s459S, which Hayne J has called the "only safety net". (Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298 at 300-301). However, the scheme did not confer on the Court a general discretion. A mandatory precondition was introduced in s459S(2). The purpose of the legislative scheme is best served by giving that subsection a strict construction.
The Court should be slow to adopt a construction that permits the kind of spectacle to which the Court has been subjected on this occasion, in which each party seeks to rely, for tactical advantage, on the expert evidence adduced by the other party, being evidence which each intends to vigorously contest in the principal proceedings and which, in the case of the Plaintiff with respect to the report of the Defendant's expert, was only admitted into evidence over the Plaintiff's objection.
By the time an application under s459S is made, the company will be presumed to be insolvent and will have the burden of proving that it is not. In my opinion s459S(2) directs attention, in part, to what it is that the company intends to prove and how it intends to prove it. If the company is not prepared to contemplate the possibility that its assertion of solvency is subject to qualification, then the Court cannot be "satisfied" of the mandatory precondition in s459S(2). An objective element is introduced by the word "material" but that can only be determined after identifying the company's contentions ." (my emphasis)
74It seems to me that the narrow approach is the one that accords with the weight of recent authority but in any event, even on the broader approach the difficulty for NA Investment is that it has made no effort to establish its overall financial position beyond the making of assertions by Mr Magar or to establish the materiality of this evidence to proving solvency.
75On the narrow approach, when reference is made to Switz v Glowbind, the evidence does not permit a conclusion to be made as to whether the ability to rely on the limitation of liability claim is material or crucial to the company establishing solvency. (See also HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 and Sindea Trading Co Pty Ltd v Asia Pacific Glass Pty Ltd [2003] QSC 460).
76In its terms, clause 11.18 limits recourse against the Trustee (NA Investment) to FFA Trust Property. What seems to have been contemplated is that assets of NA Investment, other than those to which it, as trustee of the NA Investment Trust, could have recourse (the FFA Trust Property) should not be available to meet its liability as guarantor under the Restated Facility Agreement. It does not, as the Court of Appeal made clear, preclude recovery of the debt to the extent to which recourse may be made to the FFA Trust Property. The relevance of the extent of any shortfall is that it may then operate in general terms to reduce the amount of the debt which can be claimed against NA Investment.
77Mr Sahade submits that in circumstances where the claim is limited to FFA Trust Property and the two FFA Group companies (referred to above) are now in liquidation, then the claim against NA Investment is limited to what it may recover on the shares held by it (which cannot be determined until the outcome of the liquidation is known) (that may depend, in turn, on the outcome of the DJM dispute and/or on whether NA Investment as trustee can have recourse to those assets in any event). Mr Sahade submits that the statutory demand fails because the indebtedness is limited only to the FFA Trust Property. However, nothing in clause 11.18 precludes a claim against NA Investment for the payment (out of such assets held by it as FFA Trust Property or realisable by it out of that Trust property) of the amount to which the clause itself says recourse may be had.
78There is no dispute that NA Investment holds assets comprising FFA Trust Property (including the shares in at least two FFA companies now in liquidation for whatever they are worth) but there is a paucity of evidence as to what other FFA Trust Property is available to meet the debt (other than an assertion by Mr Magar that there is none). The definition of FFA Trust Property itself extends beyond the shares in the two FFA companies that are now in liquidation.
79If it is suggested that because winding up proceedings cannot be brought for the amount of any shortfall, this means that no winding up proceedings can be brought once a shortfall is established (which seemed to be how the issue was initially put by Mr Sahade), then that would seem to take clause 11.18 beyond its terms, since the prohibition on winding up proceedings surely only (consistent with the construction placed on the clause in the Court of Appeal) extends to proceedings relating to that part of the debt which represents the shortfall in the FFA Trust Property. The relevance of the shortfall is as to the amount of the debt that can be recovered not the mode by which it is to be recovered (and, on a liquidation, Perpetual would still only be able to have recourse to the FFA Trust Property for the amount owing to it).
80Simply putting on evidence of a valuation of some of the FFA Trust Property (the refinery) at an earlier time does not necessarily mean there is a reasonable basis for assessing what the amount of any shortfall there may ultimately be, taking into account all of the Trust Property. Mr Sahade places weight on the evidence that FFA Properties and FFA Equipment are now in liquidation. However, there is no attempt to quantify what might be the residual value of the FFA companies' shares, on whatever assumptions could reasonably be made as to the outcome of the winding up. Further, there is no evidence as to the value of FFA Oils or of the authorisation plant or equipment also falling within the definition of FFA Trust Property.
81As adverted to earlier, the fundamental difficulty I have with the present application is that there was no attempt to show the solvency of NA Investment apart from the debt it sought to dispute; there is simply an assertion as to solvency in Mr Magar's affidavit. Mr Sahade points to there being no creditors' claims against the company but of itself that would not prove solvency. At present, there is therefore a statutory presumption of insolvency and no evidence to support the solvency of NA Investment other than the assertion by Mr Magar.
82I do not consider that NA Investment has satisfied the mandatory requirement under s 459S(2) and thus it has not established a basis for the grant of leave under s 459S. The application for leave will accordingly be dismissed.