K Young Trading Pty Ltd v Tjoi

CATCHWORDS : CORPORATIONS - winding up - statutory demand - application for order setting aside - plaintiff alleges demand not served - that is not a ground for setting aside - by resorting to s 459G, plaintiff accepts that statutory demand was served - plaintiff alleges statutory demand is an abuse of process - where another demand for same judgment debt and unassessed costs previously served - that demand withdrawn three day service of this demand - no abuse of process

LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.4, ss 459G, 459H, 459J(1)(a). (b)

Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22 Emhill Pty Ltd v Bonsoc Pty Ltd [2004] VSC 322; (2004) 185 FLR 389 Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd [2004] FCA 1466; (2004) 51 ACSR 578 CASES CITED : Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 K W & K M Quinn Investments Pty Ltd v Deputy Commissioner of Taxation [2004] QCA 91 McKay Computer Services Pty Ltd v Wi-Man Pty Ltd [2008] QFC 221 Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290

PARTIES : K Young Trading Pty Limited - Plaintiff Ken Tjong Tjoi - Defendant

COUNSEL : Mr C J Hockey, Solicitor - Plaintiff Mr J Wong/Mr L L Lin, Solicitors - Defendant

SOLICITORS : Charles J Hockey - Plaintiff Accentro Legal - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

1009/09 K YOUNG TRADING PTY LIMITED v KEN TJONG TJOI

1 By originating process filed on 5 January 2009, the plaintiff applies under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendant on 19 December 2008. The debt to which the statutory demand relates is a judgment debt. The plaintiff does not suggest that there is any dispute about the existence or amount of the debt or that it has an off-setting claim. 2 The s 459G application is advanced on two grounds: first, that the statutory demand was not served on the plaintiff, having been forwarded only by facsimile; and, second, that the statutory demand was an abuse of process. In approaching the matter I should quote in full the substantive part of the originating process: "This application is made under section 459G of the Corporations Act 2001 Application by the plaintiff for an order setting aside a statutory demand served on it by the defendant On the facts stated in the supporting affidavit(s), the plaintiff claims: 1. An order that the statutory demand dated 19 December 2008 served by the defendant on the plaintiff be set aside. 2. An order that the defendant pay the plaintiff's costs. Date: 2 January 2009." 3 The plaintiff thus accepts that the statutory demand was served. It has invoked the jurisdiction of the court under a provision enabling a company to apply for "an order setting aside a statutory demand served on the company". I emphasise the words "served on the company". By resorting to s 459G the plaintiff accepts the conditions precedent to the availability of the jurisdiction, one of which is that a statutory demand has been served on it. It cannot, upon such an application, seek to deny a jurisdictional fact essential to the entitlement to the relief claimed. 4 It has been pointed out more than once that a company contending that a statutory demand was not served on it and that the statutory consequence of non-compliance has not arisen, must do so in proceedings other than s 459G proceedings. Typically, such a company will initiate proceedings in which declaratory relief is sought: see, for example, Emhill Pty Ltd v Bonsoc Pty Ltd [2004] VSC 322; (2004) 185 FLR 389. 5 I pass to the second matter raised by the plaintiff, namely, that the statutory demand is an abuse of process. This is, in essence, a contention that s 459J(1)(b) warrants an order setting aside the statutory demand. 6 It is necessary to go to the factual background. The statutory demand is dated 19 December 2008. As I have said, it relates to a judgment debt. As at 19 December 2008 there was already outstanding an earlier statutory demand dated 12 December 2008 that had been served by the defendant on the plaintiff. That demand related to the same judgment debt plus costs of the action in which the judgment had been recovered, which costs had been neither assessed nor agreed. 7 An application for an order under s 459G in respect of that earlier statutory demand was filed on 19 December 2008 and served on the same day. Very soon after receipt of the second statutory demand by facsimile, the plaintiff, through its solicitors, complained to the defendant by letter dated 22 December 2008 that the first statutory demand was, as it were, still operative and said that "it is an abuse of process to issue a further statutory demand before the determination of the application already before the court", that is, the application for an order setting aside the first demand. 8 By letter of the same date, 22 December 2008, the defendant's solicitors informed the solicitors for the plaintiff that the first demand was withdrawn. I was told from the bar table that the s 459G application in respect of that first demand came before Senior Deputy Registrar Musgrave last week and that the demand was set aside by consent. Looking at matters today, therefore, and looking at them also at all points during the period since 22 December 2008, the position is that the defendant abandoned the first statutory demand and proceeded with the second statutory demand. And that position was clear to the plaintiff. 9 The question posed by s 459J(1)(b) is whether there is some good reason beyond and separate from those with which s 459H and s 459J(1)(a) are concerned for setting aside a statutory demand. Section 459J(1)(b) confers a remedial jurisdiction. The Court of Appeal of the Australian Capital Territory described the provision in these terms in Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22 at [27]: "What is contemplated by s 459J(1)(b) is a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice: Hoare Bros Pty Ltd v Cmr of Taxation (1996) 62 FCR 302 at 317-18 ; 135 ALR 677 at 691-2." 10 In that case, the creditor had agreed to withdraw the statutory demand, but later reneged on its agreement. Those circumstances were seen as coming within the relevant concept of unconscionability. 11 Section 459J(1)(b) will operate where the person serving a statutory demand has engaged in conduct that was unconscionable or an abuse of process or had given rise to substantial injustice, these being the words of Black CJ, Einfeld J and Sackville J in Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317-318 which were also applied by the Queensland Court of Appeal in K W & K M Quinn Investments Pty Ltd v Deputy Commissioner of Taxation [2004] QCA 91. 12 In Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229, the New South Wales Court of Appeal observed that substantial injustice has been confirmed by case law as a criterion for setting aside a statutory demand. It was emphasised, however, that injustice must be judged by reference to the purpose that Part 5.4 is intended to serve. Thus, Santow JA observed at [35]: "There being no defect in the demand, reliance was placed upon whether there be 'some other reason' as would satisfy s 459J(1)(b). The claimants contend that such reason cannot be based simply on some need to bring to the relationship between the parties some broad form of perceived fairness or reasonableness. Rather there must be 'sound or positive ground or good reason' to set aside the statutory demand for 'some other reason', which was consistent with the legislative intent of Pt 5.4 of the Act: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd at 757 per Bryson J; Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 18 per Austin J. It is the claimants' contention that the reasons given by the trial judge do not satisfy the latter requirements but are indeed based upon some broad form of perceived fairness or reasonableness." 13 Also pertinent are the observations of Young CJ in Eq at [57] to [61]: "[57] I agree with Santow JA and with his reasons. I merely wish to add one or two observations.

[58] Although the wording of s 459J(1)(b) of the Corporations Act appears wide, its context and history requires reading it down to encompass in general terms only cases where the Court is satisfied that injustice will be caused unless the demand is set aside because of a defect relating to, but not in, the demand, see Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 18.

[59] In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746, 757, Bryson J truly said that the discretionary power under s 459J(1)(b) should not be activated 'unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists'.

[60] It is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so. 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.

[61] 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."

14 It was noted in McKay Computer Services Pty Ltd v Wi-Man Pty Ltd [2008] QFC 221 that the issue of a statutory demand may be an abuse of process where the issuing party knows that the demand is foredoomed to failure. 15 In Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, Hayne J accepted that principles generally similar to those about abuse of process might be applied under s 459J(1)(b) if, for example, a statutory demand is made for a purpose other than that contemplated by the legislation. In Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd [2004] FCA 1466; (2004) 51 ACSR 578, Heerey J stated that s 459J(1)(b) is sufficiently wide to prevent the statutory demand procedure being used for some ulterior purpose such as manoeuvring for corporate control. 16 I accept that, generally speaking, it is, in the litigation context, an abuse of process to have two claims before the court for the same relief. So too, it might be an abuse of process for a creditor to allow two statutory demands to remain on foot covering the same alleged debt. But that is not the position here. 17 Two demands were, on 19 December 2008, outstanding in respect of the same debt, being the judgment debt. The plaintiff understandably and properly complained. The defendant promptly responded by withdrawing the first demand, leaving the second alone outstanding. That was the position at all times after 22 December 2008; a position which the defendant validated when it consented last week to an order setting aside the first demand. That action of the defendant was consistent with the withdrawal of the first demand on 22 December 2008 and there is nothing to suggest that the defendant has, at any time since 22 December 2008, sought to rely on or assert the viability of the demand that it withdrew on that day. 18 The s 459J(1)(b) jurisdiction is typically exercised where it would be unjust, in the light of the purposes for which Part 5.4 exists, to allow to stand a statutory demand not otherwise liable to be set aside. No such injustice appears in this case. 19 For the period of more than three months since 22 December 2008 the plaintiff has known that it has to contend only with the second demand now before the court. The debt is undisputed. It is, in no sense, unconscionable for the defendant to rely on that second demand. The factor that might originally have made such a stand unconscionable has been absent for the last three months. 20 If we go back to the litigation analogy, it is as if one action was commenced while another raising the same issues was still on foot, but the earlier action was then discontinued. It could not be said, in those circumstances, that continuation of the second after the first had been discontinued was an abuse of process. 21 I order that the originating process be dismissed.

[Submissions on costs] 22 The defendant seeks not only an order for costs, but an order for costs to be assessed on the indemnity basis. There is no reason why costs should not follow the event in the ordinary way. I am not persuaded, however, that there has been any form of delinquency on the part of the plaintiff warranting an award of indemnity costs. 23 I therefore order that the plaintiff pay the defendant's costs of the proceedings.

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