14 The document was served on Island Industries on 27 September 2004.
Proceeding SC12 of 2004
15 On 19 October 2004, Island Industries filed an Originating Application which commenced SC12 of 2004. The application named the Pitchers as defendants. It identified the claimed relief as:
'Order setting aside a statutory demand dated 27 September, 2004 addressed to the Plaintiff and signed by the Defendants.'
16 The Originating Application also sought what was called 'interlocutory relief', as follows:
'An interim order, until further order, setting aside a statutory demand dated 27 September, 2004 addressed to the Plaintiff and signed by the Defendants.'
17 In a Statement of Claim filed on the same day, Island Industries said:
'1. At all material times the Plaintiff has been a company duly incorporated in the Territory of Norfolk Island and able to sue and be sued in its corporate name and style.
2. On 27 September, 2004 the Defendants served a document titled "Creditors' Statutory Demand for Payment of Debt" on the Plaintiff.
3. The Plaintiff denies the debt which is the subject of the abovementioned demand, and says that the Defendant should first seek judgement for the alleged debt in this Honourable Court.
4. The Plaintiff seeks orders as set out in the Originating Application filed this day.'
18 These documents were supported by an affidavit of John Terence Brown, a director and shareholder of Island Industries, in which he said:
'3. The Full Court of the Federal Court of Australia has made orders to the effect that the alleged debt upon which the Defendants have based the purported statutory demand is not capable of registration in this Honourable Court
4. The Plaintiff denies the alleged debt which is the subject of the purported statutory demand
5. The Plaintiff says that the proper course for the Defendants to follow is to commence proceedings in this Honourable Court seeking an order as to the amount, if any, which the Plaintiff should pay to the Defendants in relation to damages, if any, caused to the property of the Defendants by the Plaintiff
6. I say that there is genuine dispute about the existence or amount of the alleged debt which is claimed by the Defendants from the Plaintiff'
19 On 27 October 2004, the solicitor acting for the Pitchers filed a Memorandum of Appearance, but no Defence.
Proceeding SC13 of 2004
20 On 23 November 2004, the Pitchers filed an Originating Process initiating SC13 of 2004. Island Industries was named as the defendant.
21 The Originating Process made application, under s 467 of the Act, 'for the winding up of the Defendant on the grounds that the Defendant is unable to pay its debts, pursuant to Sections 468(1)(e) and 468(2)(a) of the [Act]'. Accompanying particulars showed that the plaintiffs relied on the defendant's failure to pay the money demanded in the statutory demand served on 27 September 2004. In para 11 of an affidavit sworn on 23 November 2004, Mr Pitcher deposed that the sum of $57,679.27 referred to in the statutory demand 'remains due and payable by the Defendant to the Plaintiffs'.
22 On 14 December 2004, Island Industries filed a Defence in which it said:
'1. The Plaintiffs are not creditors
2. There is no debt
3. The Defendant is solvent
4. The Plaintiffs are not entitled to issue a notice under section 468 of the Companies Act 1985
5. In general the Defendant relies on its previous submissions in matters S/C 12 and S/C 13 of 2004 and denies that it is indebted as alleged
6. The Defendant reserves the right to amend this Defence at such times as the First and Second Plaintiffs file a Statement of Claim herein
7. The Defendant seeks such Orders as the Court deems fit, including an order for costs'
The directions hearing
23 Both matters were listed before me for telephone directions on 1 December 2004. Mr J Brown, the director of Island Industries who also acts as its solicitor, objected to me hearing the matters. He said I should disqualify myself on the ground of apprehended bias, arising out of my involvement in SC4 of 2002 and SC11 of 2002. I responded that I did not think that involvement would create a reasonable apprehension of bias; in any event, I was then the sole member of the Court. In the upshot, and as no party wished to present further evidence in relation to either matter, I directed that each matter be heard by reference to written submissions. I formed the view that there was no need for further formal pleadings. I fixed a timetable for provision of the submissions. Both parties filed submissions.
The statutory provisions
24 Before dealing with the parties' submissions, it is appropriate to set out the relevant parts of ss 467 and 468 of the Act:
'467.(1) A company (whether or not it is being wound up voluntarily) may be wound up under an order of the Court on the application of any one or more of the following:
(a) the company;
(b) a creditor of the company, including a contingent or prospective creditor;
(c) a contributory;
(d) the liquidator;
(e) the executive member;
(f) the official manager of the company;
(g) a person who has been granted leave under section 448.
(2) The Court shall not hear an application made by a contingent or prospective creditor until such security for costs has been given as the Court orders and the Court is satisfied that a prima facie case for winding up has been established.
468. (1) The Court may order the winding up of a company if -
…
(e) the company is unable to pay its debts;
…
(2) For the purposes of subsection (1), if -
(a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding $1,000 then due has served on the company a demand, signed by or on behalf of the creditor, requiring the company to pay the sum so due and the company has, for 21 days after the service of the demand, failed to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor;
(b) execution or other process issued on a judgment, decree or order of a court in favour of a creditor of the company has been returned unsatisfied in whole or in part; or
(c) the Court, after taking into account any contingent and prospective liabilities of the company, is satisfied that the company is unable to pay its debts,
the company shall be deemed to be unable to pay its debts.'
Non-substantial points raised by Island Industries
(i) Apprehended bias
25 The written submissions of Island Industries filed on 7 December 2005 commence by repeating Mr Brown's contention of 1 December 2004 that I should disqualify myself on the ground of apprehended bias. Since 1 December 2004, two new judges have been appointed to the Court, including a new Chief Justice. It would, therefore, now be possible for another judge to determine these matters. However, Weinberg CJ has indicated a preference that I do so. Having given further consideration to the issue, I remain of the opinion that the circumstance that I was the primary judge in matters SC4 of 2002 and SC11 of 2002 does not give rise to a reasonable apprehension of bias. In neither of those cases was I required to form or express a view about the character of any of the parties or the credit of any witness. Nor did I do so. I am not required to do so in either of the present cases.
26 The written submissions also referred to some remarks made by me on 1 December 2004. Those remarks were directed to the desirability of resolving the dispute between the parties without further expense. I do not resile from what I said. The dispute between these parties has gone on for a long time and must have caused them substantial anxiety and expense. My comment followed on from what Gray J had said in the Full Court: see para 10 above. The significant point is that my remarks did not indicate any view about the issues that might be raised in the two proceedings then before the Court. At that time, I did not have a clear understanding as to what those issues were, still less any view about them. Nothing I said on 1 December 2004 could give risk to a reasonable apprehension of bias.
(ii) Form of the statutory demand
27 Paragraph 4 of Island Industries' submission of 7 December 2004 contains a contention that the Pitchers' statutory demand was invalid; it did not comply with the requirements of s 468 of the Act, 'as that section does not contain a provision enabling the Defendants to make the statement which is contained in clause 5 of the Statutory Demand, nor does it restrict in any way the Plaintiff from commencing the present proceedings'. This contention is repeated, in slightly different terms, in para 5 of the submission.
28 Clause 5 of the statutory demand appears at para 12 above. It states that Island Industries may apply to the Court to set aside the demand and specifies purported requirements of such an application. The justification for this statement is not apparent from either the Act or the document itself. I gather from the submissions of Mr A Cook QC, on behalf of the Pitchers, that he followed an Australian Capital Territory precedent. That was, I think, a mistake. The ACT legislation is not identical to the Act. However, the inclusion of cl 5 in the statutory demand does not lead to invalidity. The document still fulfills its purpose. Section 468(2)(a) of the Act refers to a situation where a creditor 'has served on the company a demand … requiring the company to pay the sum'. The statutory demand served in this case did contain such a requirement. It does not matter that it added some information (correct or otherwise) about applying to the Court to set aside the demand.
(iii) The arbitration proceeding
29 In further written submissions, dated 12 December 2004, Island Industries contended that '[a]t the core of the legal and factual issues are the arbitration proceedings, conducted by Ms Symons in 2002'. The submissions set out a number of arguments as to why the award is flawed or legally invalid. To a large extent, these arguments repeat arguments considered and rejected in SC4 of 2002. To the extent there is anything new, the Anshun principle prevents those arguments being now advanced.
Entitlement of the Pitchers to make the statutory demand
30 The substantial issue between the parties is whether or not the Pitchers are entitled to take advantage of the statutory demand procedure embodied in s 468(2)(a) of the Act. I put the issue in this way because it seems to me that, having regard to the terms of Ms Symons' award, they are, at least, contingent or prospective creditors; and, therefore a 'creditor of the company' within the meaning of s 467(1)(b) of the Act. That status is enough to entitle them to apply for a winding up order. However, if they are merely contingent or prospective creditors, subs (2) of s 467 would apply to any such application.
31 To issue an effective statutory demand, it is not enough for a person to be a 'creditor' within the meaning of s 467(1)(b). The person must be 'a creditor … to whom the company is indebted in a sum exceeding $1,000 then due'. There must be a present debt (exceeding $1,000) by the company to the creditor.
32 The 7 December 2004 submissions of Island Industries on this point are as follows:
'The Plaintiff says that the purported arbitration award cannot be registered in this Honorable Court, or indeed in any Court, and that it does not constitute a debt which is capable of founding a Statutory Demand or proceedings seeking a winding up order.
An issue requiring determination in the present proceedings is whether the Defendants have any right to claim against the Plaintiff pursuant to the purported Arbitration award of 25 March 2002, and if so what is the legal basis for such a claim. That legal basis is currently not articulated. To the extent that the legal basis is contract, the Plaintiff says that the licence dated 15 March 1999 was between the Plaintiff and the Administrator of Norfolk Island, that the Administrator was the person who required the arbitration (notwithstanding the participating of the Defendants and their solicitor in that arbitration) and that the Defendants do not have standing to attempt to enforce the purported arbitration award in the present proceedings or at all.'
33 Island Industries' submissions of 12 December 2004 also assume the licence provides the legal basis of Ms Symons' award. However, the Full Court said this is incorrect. The legal foundation of the award was not the licence agreement itself but the agreement between the parties made at the preliminary hearing of 15 September 2000: see per Lander J at [46]-[55]. This agreement was (correctly) identified in the Schedule to the statutory demand: see para 13 above. The licence agreement was historically important, as the genesis of the agreement of 15 September 2000, but it was not itself the source of Ms Symon's authority to arbitrate the dispute between the Pitchers and Island Industries.
34 The Administrator was not a party to the 15 September agreement. That agreement was made solely between the Pitchers and Island Industries. There was privity of contract between the present parties in respect of an agreement to submit their dispute to the arbitration of Ms Symons.
35 The substantial point raised in the submissions of Island Industries is whether Island Industries was 'indebted' to the Pitchers at the date of the statutory demand, for a sum 'then due'. On this point, Mr Cook referred me to ss 540 and 541 of the Act. Those provisions appear in Subdivision C of Division 4 of the Act and deal with proof of debts. The term 'liability' is defined by s 540 in such a way as to include a 'possible obligation to pay money … on the breach of an express or implied covenant, contract, agreement or undertaking'. Section 541 says that 'all debts and liabilities, present or future, certain or contingent' to which the company was subject at the relevant date are provable debts.
36 Section 540 and 541 are clearly wide enough to catch the present obligation of Island Industries to the Pitchers. If Island Industries were wound up, the Pitchers would be entitled to lodge a proof of debt for the balance of the money awarded by Ms Symons. However, that does not necessarily mean the present obligation was a 'debt' 'then due', within the meaning of s 468(2)(a) of the Act, at the date of the statutory demand. That question has to be resolved by reference to such authorities as may be available concerning the meaning of those particular words.
37 Section 468(2)(a) of the Act follows the form used in the uniform companies legislation enacted in the 1980s in each of the Australian States and Territories. Consequently, there are decisions from other jurisdictions helpful to the construction of the paragraph.
38 In Re Elgar Heights Pty Ltd (No 1) (1985) 3 ACLC 683, Ormiston J, of the Victorian Supreme Court, considered s 364(2)(a) of the Companies (Victoria) Code. That provision was virtually identical to s 468(2)(a) of the Act. The only difference was that the Victorian provision referred to '3 weeks' rather than '21 days'. The petitioners were a firm of solicitors who claimed to have provided legal services to the company. They had presented a bill of costs to the company, but the bill had not been itemised in the manner required by Victorian legislation. The solicitors had not recovered a judgment against the company but had served a statutory demand for a sum exceeding $1,000.
39 At 687, Ormiston J commenced a discussion of 'what class of debt can properly be made the subject of a statutory demand'. He referred to Re Bryant Investment Co Ltd (1974) 1 WLR 826 at 828 in which Plowman J, speaking of the equivalent paragraph in a United Kingdom statute, said:
'this paragraph is only consistent with the view that it is confined to the case of a debt presently payable'.
40 Ormiston J endorsed this view, noting synonyms for 'presently payable' that had been used in other cases. However, his Honour said this left the question of what liability of a company 'may properly be described as a "debt" which is "due" within the meaning of' the paragraph. After referring to many cases, he considered whether the relevant words raised an issue of enforceability; that is, 'whether a debt must be shown to be enforceable or recoverable before it can found a statutory demand' (original emphasis). At 690 he said:
'Can, therefore, a debt which is immediately payable but not recoverable be said to be "then due" within the meaning of the paragraph? The purpose and object of the paragraph must be examined with this question in mind.'
41 After examining the authorities, Ormiston J said at 691:
'This emphasis on the enforcement of a creditor's rights points to the conclusion that one of the principal objects and purposes of the statutory demand procedure, in particular, at all times has been to provide an indirect means of recovering the petitioner's debt. The ex debito justitiae rule would appear to be based on the premise that the creditor should have the assistance of a winding up order so as more effectually to enforce a debt owed to him. It would be curious if such a stringent rule had been devised to enable the enforcement or recovery of a debt which could not yet be recovered by action, such as the debt in the present case. Likewise, if one characterises the creditor's right under the various Acts since 1856 as a right to a form of statutory execution, that right must obtain only in the case of a presently enforceable debt.
It might be objected that the analogy of execution is far too loose in that the winding up provisions did not and do not now require proof of a judgment, as is the case with a bankruptcy notice based on a debt: cf. sec. 40(1)(g) of the Bankruptcy Act 1966 (Cth). Nevertheless the observations to which I have referred were made in relation to a section which has been almost unaltered since 1856.'
42 Ormiston J accepted it was not necessary for a creditor who serves a statutory demand to have already recovered a judgment against the company. However, the creditor's debt must be recoverable by action. His Honour's position emerged clearly from the following passage at 693 of his reasons:
'Because para. (a) of sec. 364(1) should be employed primarily for debts about which there is no dispute and because of the other matters which I have discussed, I consider that they all point to the conclusion that a statutory demand should not be relied upon unless it is made in respect to an ascertained debt which is not only immediately payable but which is also presently recoverable by action. If one regards the paragraph as indirectly providing a form of execution or, at least, a means of enforcement of a debt, it would be inappropriate for any debt to be relied upon unless it could be sued for in an ordinary action for recovery of the sum in question. If one regards it merely as one means of establishing inability to pay the company's debts by proving non-payment of a debt where failure or neglect to pay will lead to the deeming of insolvency, then equally the debt in question should be one about which no different inference could be drawn in the event of non-payment. If the debt is not presently recoverable, then no conclusion should be drawn that the reason for non-payment is insolvency rather than reliance on the presently unenforceable nature of the debt.'
43 As the solicitors had not complied with the statutory requirement to deliver an itemised bill of costs before embarking on recovery action, the debt they claimed was not recoverable at the date of their demand. Ormiston J dismissed their petition to wind up the company.
44 The views expressed by Ormiston J are echoed in several other reported judgments: see, Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 QdR 85 (McPherson J); Bartex Fabrics Pty Ltd v Phillips Fox (1994) 12 ACLC 462 (Young J); First Line Distribution v Whiley (1995) 13 ACLC 1216 (Cohen J); and Southern Cross Interiors Pty Ltd (In Liq) v Deputy Commissioner of Taxation (2001) ACLC 1513 (Palmer J).
45 I am not aware of any case rejecting Ormiston J's views. Consequently, I propose to adopt those views for the purpose of construing s 468(2)(a) of the Act. That means:
(i) in order for the Pitchers to have issued an effective statutory demand, it was not essential for them first to have recovered a court judgment against Island Industries;
(ii) it was, however, necessary for the demand to have been made in respect of an ascertained sum of money that was then immediately payable and recoverable by action.
46 It will be immediately apparent that the first two requirements of para (ii) are satisfied; the award made by Ms Symons quantified the sum of money to be paid by Island Industries to the Pitchers and made that sum payable by a particular date, 30 April 2002. That date having been long since passed, at the date of the statutory demand, the sum awarded by Ms Symons (less the part payment) was then immediately due and payable.
47 The remaining question is whether the sum of money awarded by Ms Symons was recoverable by action, as at the date of the statutory demand. That question must be resolved in the affirmative. Russell on Arbitration (22nd edn, edited by D S Sutton and J Gill, Sweet & Maxwell, 2003) at para 8.007 summarises what I understand to be the long accepted position. After observing that a party would now normally apply under the United Kingdom Arbitration Act 1996 for summary enforcement of an award as a judgment or order of the court, the learned editors said:
'That procedure is only available however where there is an "arbitration agreement" within the meaning of the Arbitration Act 1996. When that procedure is not available for any reason it may be possible to commence an action on the award.
If the arbitration agreement pursuant to which the award is made falls outside the broad statutory definition, the action will have to be based on the premise that the particular arbitration agreement contains an implied obligation to perform the resulting award and failure to do so is a breach of that arbitration agreement. The successful party would be entitled to bring an action in respect of such breach and to obtain a judgment in the terms of the award. The essential elements of the plaintiff's cause of action are that he must plead and prove:
• an arbitration agreement;
• that a dispute has arisen which falls within that arbitration agreement;
• the appointment of a tribunal in accordance with the arbitration agreement;
• the making of the award pursuant to the arbitration agreement; and
• failure to perform the award.' (footnotes omitted)
48 The statement made in Russell is supported by a judgment given by Lander J, when he was a member of the Supreme Court of South Australia, Eltin Open Pit Excavations Pty Ltd v Warekim Pty Ltd [2001] SASC 377 ('Eltin Open Pit'). The defendant had issued a statutory demand based on an arbitrator's award that the plaintiff pay the defendant the sum of $743,520. The award had not become a court judgment. The plaintiff applied to the Court for an order setting aside the statutory demand.
49 In a separate proceeding, the plaintiff had obtained leave to appeal to the Supreme Court against the arbitrator's determination, in respect of two grounds. If both grounds succeeded, the awarded amount would be reduced to $309,000. The Supreme Court had not made an order staying the operation of the award. No stay application was made to Lander J.
50 Lander J referred to the South Australian legislation dealing with applications to set aside statutory demands. At [36]-[37] he said:
'To succeed the plaintiff is obliged to establish that there is a genuine dispute between the plaintiff and the defendant about the existence or the amount of the debt to which the demand relates. So much was conceded by the plaintiff. Indeed the plaintiff recognised that that was the only matter that had to be decided.
There must be a genuine dispute.'
51 In considering the meaning of 'genuine dispute', Lander J cited a comment by McLelland CJ in Equity, of the New South Wales Supreme Court, in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787:
'It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs in s45OH. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be" not having "sufficient prima facie plausibility to merit further investigation as to [its] truth" (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of facts unsupported by evidence": cf South Australia v Wall (1980) 24 SASR 189 at 194."
The application does not mean that there should be a trial to determine the question of genuine dispute. The Court must simply satisfy itself that on the information before the Court there is a genuine dispute. The inquiry is as to whether a genuine dispute exists. It is not to determine the dispute.
However because a party has disputed the existence or the amount of a debt at trial does not mean that after judgment there continues to be a genuine dispute.'
52 Lander J concluded, at [47]:
'It is my opinion that where there is an arbitral award in place, where no application has been made for a stay and none granted then there is no genuine dispute between the parties about the existence or the amount of the debt. That is so even where an application for leave to appeal from that award has been made and granted in accordance with s38(5) of the Act. I am not persuaded that the criteria for granting leave to appeal under that Act if satisfied means that there is a genuine dispute as to the existence or amount of a debt.'
53 The present case is similar to Eltin Open Pit in that the statutory demand is based on an arbitrator's award that has not been converted into a judgment of a court and has not been stayed. It is a stronger case, from the creditor's point of view, in that there is here no leave to appeal against the arbitrator's award; on the contrary, a challenge to the award has already been made and has failed.
54 If they chose to sue in this Court on the award, the Pitchers would have no difficulty in pleading and proving each of the five elements identified in the passage from Russell quoted above. These elements either are (and always have been) common ground or are bindingly established by the earlier proceedings.
55 At 367, Russell refers to possible defences to an action on the award. They include that the action is statute-barred. They do not include irregularity in the award or misconduct by the arbitrator. It has never been suggested that either of these grounds arise in relation to Ms Symons' award. Even if they did, the proper course would be to apply to the Court to set aside the award.
56 Island Industries' submission includes the assertion that 'there is a genuine and substantial dispute about the alleged debt which is the subject of the Statutory Demand'. The nature of the dispute is not specified.
57 I accept that those directing the affairs of Island Industries do not agree with the findings of Ms Symons. In that sense, there is a 'dispute' about the claimed debt. However, this 'dispute' has no legal significance. Island Industries has already sought, in SC4 of 2002, to set aside Ms Symons' award. The application failed and, as the members of the Full Court pointed out, the existence and result of that proceeding would preclude any new argument attacking the validity of the award.
58 In its submissions, Island Industries mentioned the order for costs made in its favour by the Full Court. That order was made against the Administrator, as well as the Pitchers. More importantly, in the present context, the amount of the costs has not been determined, either by agreement or taxation. Consequently, no action for recovery of the costs is yet available to Island Industries. Even if it were, and the costs had been determined to be as high as the figure of $20,000 claimed by Mr Brown, that would fall well short of the amount claimed in the statutory demand. There would still be a debt exceeding $1,000.
59 The remaining question is whether s 467(2) applies to this case. In my view, it does not. I think it follows from what I have already said, in relation to the sum awarded by Ms Symons being immediately due and payable, at the date of the statutory demand, that the Pitchers were more than contingent or prospective creditors of Island Industries at the date of the statutory demand. They were 'creditors', in the normal sense of that word, although not judgment creditors.
Disposition
60 It follows that the Pitchers are entitled to rely upon the statutory demand, and Island Industries' failure to pay, secure or compound the sum claimed, as proof that Island Industries is unable to pay its debts; thus making out the winding up ground provided by s 468(1)(e) of the Act. However, in view of the time that has elapsed since Mr Pitcher made his earlier affidavit of debt, it is desirable for the Court to have up to date evidence of non-payment. If they wish to proceed with their winding up application, the Pitchers should file a further affidavit of debt, dated not earlier than 14 days from today, deposing as to the amount still owing on the award. I have inserted the requirement of 14 days in order to cover the possibility that Island Industries will reconsider its position in the light of these reasons and decide to pay out the balance owing. Were that to happen, there would be no need to make a winding-up order but, if asked to do so, I would make an order for costs in favour of the Pitchers in proceeding SC13 of 2004.
61 If the debt is not paid out, and the Pitchers decide to press their claim for a winding-up order, they should also file a consent to act as liquidator of the company signed by a person who is included on the list of approved liquidators used by the Federal Court, the Supreme Court of New South Wales or the Supreme Court of Queensland. The only formal order I will today make in proceeding SC13 of 2004 is that this proceeding be adjourned to a telephone hearing at 10.15am AEST on 17 June 2005. If I am asked to do so, and the requisite documents have then been filed, I will make a winding up order at that time.
62 For the reasons expressed above, I do not accept the claim of Island Industries that the statutory demand was invalid. Proceeding SC12 of 2004 is dismissed with costs.
I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.