Midas v Equator

CATCHWORDS : CORPORATIONS - statutory demand - judgment debt - reasonable and arguable appeal on foot - condition imposed that amount of debt be paid into Court - "some other reason why the demand should be set aside" under s 459J(1)(b) Corporations Act 2001(Cth)

Barclays Australia (Finance) Limited v Mike Gaffikin Marine Pty Limited (1996) 21 ACSR 235 Ketrim Pty Limited v AS&L Pty Limited (2005) 52 ACSR 252 Eumina Investments Pty Limited v Westpac Banking Corporation (1998) 84 FCR 454 CASES CITED : Natcraft Pty Limited v WIN Television Pty Limited [2003] 1 Qd R 196 Meehan v Glazier Holdings Pty Limited (2005) 53 ACSR 229 Sajepe Pty Limited v Lawler [2000] NSWSC 262 Fraser Henleins Pty Limited v Cody (1945) 70 CLR 100. Kirkstall Brewery Co v Furness Railway Co (1874) LR 9 QB 468

PARTIES : Midas Management Pty Ltd ACN 067 519 911 Equator Communications Pty Ltd ACN 082 576 976

R. N. Winfield 2nd & 3rd July (Plaintiff) COUNSEL : P. A. Hill 4th & 12th July (Plaintiff) A.D. Crossland 2nd, 3rd & 4th July (Defendant) J. O'Connor 12th July (Defendant)

SOLICITORS : Griffin Lawyers (Plaintiff) Robinson Legal (Defendant)

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

2901/2007 MIDAS MANAGMENT PTY LTD ACN 067 519 911 v EQUATOR COMMUNICATIONS PTY LTD ACN 082 576 976 EX TEMPORE JUDGMENT 1 HIS HONOUR: This is an application by the plaintiff ("Midas") under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 7 May 2007 made on it by the defendant ("Equator").

2 On 5 February 2007 in the Local Court at Sydney Magistrate Dillon gave judgment in proceedings instituted by Equator against Midas and one Anthony Mead. The learned Magistrate brought down a verdict in favour of Equator against Midas for $35,507.01 plus interest to be calculated from 14 June 2005. This is the debt of which the statutory demand requires payment.

3 Equator had earlier obtained default judgment against Mr Mead, which judgment was set aside when judgment against Midas was given.

4 The proceedings in the Local Court were commenced by ordinary statement of claim dated 15 November 2005. Midas pleaded to it in an amended defence dated 2 March 2006. The cause of action was an agreement between them made in April 2005, under which (it was alleged) Equator agreed to provide advertising services to Midas for which it agreed to pay. The agreement was alleged to be partly written and partly oral and entered into pursuant to dealings, including conversations between Messrs Stobart and Anderson, on behalf of Equator, and the second defendant (that is Mr Mead) on behalf of Midas. Midas was at all material times acting as trustee for the Sydney Christmas Parade Trust. 5 In the alternative to its claim in contract Equator brought a Trade Practices claim alleging misrepresentations made by Midas relied upon by Equator and by which it suffered loss and damage. A claim was also brought against Mr Mead, in the alternative, on the basis that he had represented that he was authorised by Midas to bind it as trustee of the Sydney Christmas Parade Trust and that if that representation were found to be incorrect on the basis that he did not have such authority, Equator in reliance upon it was misled and suffered damage. 6 By its amended defence Midas pleaded, amongst others, that Equator at all times knew that Mr Mead lacked the requisite authority to enter into any agreement on behalf of the respondent trustee (sic). 7 Midas has appealed the judgment. An appeal lies to a single judge of this Court. There is a lengthy notice of appeal setting out extensive grounds. 8 Midas applied, unsuccessfully, for a stay of the judgment. 9 The present position is thus that there is a judgment of a court of competent jurisdiction in favour of Equator against Midas, no stay of that judgment has been granted, but there is presently on foot an appeal to this Court from it. Against those circumstances this application is made. 10 Under the provisions of the Corporations Act 2001 (Cth) there are three routes to the setting aside of a statutory demand: a where the court is satisfied that there is a genuine dispute about the existence or amount of a debt to which the demand relates or that the company has an offsetting claim, or both (ss 459H(1)(a) and (b)); b if the court is satisfied that because of a defect in the demand, substantial injustice will be caused unless the demand is set aside (s 459J(1)(a));

c if the court is satisfied that there is some other reason why the demand should be set aside (s 459J(1)(b)).

11 No offsetting claim is alleged. 12 In Barclays Australia (Finance) Limited v Mike Gaffikin Marine Pty Limited (1996) 21 ACSR 235 McLelland CJ in Eq held that the fact that there was an appeal on foot did not create a genuine dispute with respect to a debt which was the subject of a judgment of a court of competent jurisdiction. The reasoning is that absent any stay, even pending an appeal, there can be no genuine dispute as to the existence of the judgment debt because the fact of the debt is res judicata between the parties. In the present case there is a judgment debt and no stay. 13 It follows that the genuine dispute route is not open to Midas.

14 A feint submission was made on behalf of Midas that the demand was defective because it was not, as required by s 459E(2)(e) in the prescribed form (Form 509H) in that it did not provide an address for service of an application and affidavit in the State in which the demand was served on Midas, namely Queensland. Instead it specified as the address for service, the offices of solicitors in Sydney. Counsel for Midas accepted that no difficulty had been encountered in serving the present proceedings on those solicitors. The proceedings are being heard in Sydney. The defect accordingly occasioned no injustice let alone substantial injustice; Ketrim Pty Limited v AS&L Pty Limited (2005) 52 ACSR 252 at 257. 15 It follows that the defect in the demand route is not open to Midas.

16 Turning then to whether there is some other reason why the demand should be set aside. 17 Section 459J(1)(b) confers upon the Court a wide discretion. 18 In Eumina Investments Pty Limited v Westpac Banking Corporation (1998) 84 FCR 454 at 459 Emmett J held as follows: "One circumstance where it may be unjust for a demand to stand, in my opinion, is where there is a judgment or order which precludes a contention that there is a genuine dispute or an offsetting claim, but there is on foot a bona fide appeal from that judgment or order. In those circumstances the Court may, if Justice requires, and subject to the possibility of imposing conditions as contemplated by section 459 M, set aside a demand which is based on the judgment or order which is subject to appeal, or in respect of which if an appeal succeeds there would be an offsetting claim." 19 Emmett J went on to hold that: "It is, in my opinion, appropriate for a court to exercise the discretion conferred by section 459J(1)(b) where the Court is satisfied that there is an appeal based on reasonable and arguable grounds which, if successful, would result in the existence of an offsetting claim. The expression "reasonable and arguable grounds" is suggested by the decision of the Full Court in Ahern v Deputy Commissioner of Taxation (Qld)(1987) 76 ALR 137 at 148."

20 Section 459M provides that an order under section 459H or 459J (setting aside a demand) may be made subject to conditions. The Court has the power to order that a statutory demand be set aside on condition that the recipient pay into Court the amount of the alleged debt: Natcraft Pty Limited v WIN Television Pty Limited [2003] 1 Qd R 196. 21 The facts in Eumina Investments Pty Limited v Westpac Banking Corporation were that the statutory demand was based on an order of the Federal Court that the applicant pay the respondent's costs. That order was neither appealed nor subject to any stay. Separately, there were proceedings brought by the applicant against the respondent in the Supreme Court of New South Wales, which also had been dismissed and an appeal lodged, but there was an application pending to the High Court for special leave to appeal. 22 It was put by Mr Crossland of counsel for Equator that the reasoning of Emmett J and the basis for his Honour's decision was restricted to a situation where there were on foot proceedings subject to an appeal which, if successful, would result in an offsetting claim by the debtor against the creditor, as opposed to impeaching the primary debt. 23 There is, in my view, no substance in that submission. A reading of the judgment does not disclose any reasoning to justify it. 24 If the debt demanded is a judgment debt and there is an appeal based on reasonable and arguable grounds, which if successful would result in the non-existence of the debt, the reasoning of Emmett J has as much, if not more, force than if there were to be an offsetting claim the existence of which depends upon a successful appeal. The existence of an appeal based on reasonable and arguable grounds in respect of the primary claim is a fortiori within His Honour's reasoning. 25 In Meehan v Glazier Holdings Pty Limited (2005) 53 ACSR 229 at par 51 Santow JA - expressing the view of the Court of Appeal said: "The position is analogous to the case where the judgment the basis of the demand was being appealed. That fact was held not to constitute some other reason within section 459J(1)(b) whereby the statutory demand should be set aside, unless the Court of Appeal were actually to stay enforcement of the judgment." 26 His Honour cited Barclays Australia Finance v Mike Gaffikin Marine and Sajepe Pty Limited v Lawler [2000] NSWSC 262. 27 His Honour's statement was obiter. It does not, and was not, it seems to me, intended by His Honour to extend to where there is on foot an appeal which the Court considers has reasonable and arguable grounds, as was considered by Emmett J in Eumina Investments Pty Limited v Westpac Banking Corporation. 28 In both Barclays Australia Finance v Mike Gaffikin Marine and Sajepe Pty Limited v Lawler the question was whether there was a genuine dispute, not whether there was "some other reason why the demand should be set aside". 29 McLelland CJ in Eq in Barclays Australia Finance v Mike Gaffikin Marine held that pendency of an appeal did not of itself provide sufficient reason for setting aside the demand under section 459J(1)(b). That is undoubtedly correct. The mere pendency of an appeal (without a stay) will never provide sufficient reason for setting aside a demand. 30 Santow JA made no criticism of the approach of Emmett J to the circumstances which were under consideration in Eumina Investments Pty Limited v Westpac Banking Corporation. Those circumstances are effectively on all fours with the circumstances here. I consider the approach of Emmett J to be correct and I intend to follow it. 31 In my view, the Court being satisfied that an appeal which has been lodged has a sufficient degree of merit that to allow the creditor to proceed to a winding up on the basis of an unsatisfied statutory demand whilst that appeal is on foot, but relying on the judgment appealed from, can be sufficient "other reason" why the demand should be set aside. 32 This may particularly be so where there are conditions attached to an order setting a demand aside which will protect the creditor's position in the event that the appeal is unsuccessful.

33 In this case it is neither appropriate nor feasible to express any definitive view on the prospects of Midas' appeal, suffice it to refer to paragraphs 72 and 73 of the judgment of the learned Magistrate where His Honour dealt with his findings of authority on the part of Mr Mead to bind Midas. So far as paragraph 72 is concerned it seems to be the case that at least some of the factors cited by the learned Magistrate in coming to the conclusion that at the time Mr Mead signed the letter of authority, he had actual authority to bind the trust, appear to be based on admissions of Mr Mead or conduct in the nature of admissions which would not have bound Midas, unless Mr Mead had had authority to bind it in the first place. Those factors may not be admissible in support of the conclusion which the Magistrate reached, at least in part reliance upon them. The applicable principles in that regard have been settled at least since Fraser Henleins Pty Limited v Cody (1945) 70 CLR 100. They go back as far as Kirkstall Brewery Co v Furness Railway Co (1874) LR 9 QB 468. 34 The learned Magistrate also found that Mr Mead had "the trust's ostensible authority". An initial difficulty with this finding is that the pleadings disclose that whereas Midas put in issue Mr Mead's actual authority, Equator did not reply by alleging ostensible authority or authority by estoppel. It is well-established, and also in accordance with the rules in the Local Court, that a pleading, whether it be in a statement of claim, defence or subsequent pleading, must specifically plead a matter which may take the opposite party by surprise or which raises matters of fact not arising out of the preceding pleading. This is undoubtedly the position with regard to the pleading of ostensible authority or an estoppel. 35 I am satisfied, without in any way pre-empting the possible outcome of the appeal (amongst others because factors concerning how the trial was run may be relevant), that there are reasonable and arguable grounds for it. If it is successful, it would result in the non-existence of or at least a genuine dispute as to the existence of the claim, for example, were the matter to be remitted back to the Magistrate for rehearing. 36 That, however, is not the end of the matter. Equator has the benefit of its judgment. There is no stay. This is a case where I consider it to be appropriate that an order setting aside the demand should only be made on condition that the amount of the judgment debt, together with interest calculated in accordance with it, should be paid into court within seven days of today's date. There will need to be a calculation of the amount to be embodied in the short minutes of order which I will make. 37 The orders which I propose to make are that conditional upon Midas paying into court within seven days, that is by 10 July 2007, the amount of $35,507.01, plus interest calculated from 14 June 2005 to 10 July 2007, the statutory demand dated 7 May 2007 will be set aside. 38 I will reserve the question of costs until it is known whether the condition is met. 39 I will stand the matter over to 9.45 tomorrow morning to enable the parties to bring in short minutes. 4 JULY 2007 40 I order that conditional upon the plaintiff paying into court within 7 days, that is by 10 July 2007, the amount of $42,320.46 that the Statutory Demand dated 7 May 2007 be set aside.

41 I reserve the question of costs for later determination and I stand the matter over to 10.00am on Thursday 12th July 2007 before me.

42 I record that the amount of $42,320.46 has been paid into court so that the statutory demand is set aside.

43 The costs of these proceedings will be costs in the appeal being 11160 of 2007. **********

13/07/2007 - Insert date of ex tempore judgment - Paragraph(s) n/a 16/07/2007 - Incorrect judgment dated recorded - Paragraph(s) heading on page 1 14/08/2007 - Amendment of case name from "Bartleys Australia (Finance) Limited v Mike Gaffikin Marine Pty Limited" to "Barclays Australia (Finance) Limited v Mike Gaffikin Marine Pty Limited"Amendment of "McClelland CJ in Eq" to "McLelland CJ in Eq" in par 29 - Paragraph(s) Coversheet, pars 12, 26, 28, and 29

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