Milo Projects Pty Ltd v JK Smales Properties Pty Ltd, in the matter of Milo Projects Pty Ltd

Federal Court of Australia|2022-03-01|Before: Mr J, Goodman J

The Originating Process dated 24 September 2021 is dismissed.
The plaintiff is to pay the defendant's costs of and incidental to the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 By an originating process dated 24 September 2021, the plaintiff seeks an order setting aside a statutory demand dated 31 August 2021 served upon it by the defendant. 2 The application was heard on 9 February 2022. At the commencement of the hearing, counsel for the plaintiff sought an order for the adjournment of the hearing. Following argument on that application, I refused it and then heard the application to set aside the statutory demand. 3 Set out below are my reasons for refusing the application for an adjournment and for dismissing the application to set aside the statutory demand.

THE APPLICATION FOR AN ADJOURNMENT 28 The plaintiff moved upon an interlocutory process dated 4 February 2022. In support of that application, the plaintiff read the affidavit of Mr Georges, affirmed on 4 February 2022. The defendant did not rely upon any affidavit evidence but tendered some correspondence to supplement the correspondence exhibited to Mr Georges's affidavit. Whilst Ms Hubbard's affidavits were not formally before the Court on the adjournment application, both parties referred to them without objection.

Plaintiff's submissions 29 The essence of the plaintiff's submissions was that following the plaintiff's change of solicitor it became necessary for the plaintiff to obtain all of the documents relevant to the application and that only partial access had been obtained as at 4 February 2022 when Ms Hubbard fell ill with COVID-19, with the consequence that the plaintiff's legal representatives had not had an opportunity to take instructions on all of the documents and in particular on parts of the exhibits to Ms Hubbard's second affidavit, thus prejudicing the plaintiff. The plaintiff also submitted that there would be little prejudice to the defendant from an adjournment of the hearing for several weeks.

Defendant's submissions 30 Senior counsel for the defendant submitted that the absence of instructions concerning the exhibit was a problem of the plaintiff's making; that the plaintiff had had a more than sufficient opportunity to identify a genuine dispute; that the evidence concerning the suggested inability to obtain instructions was inadequate; and that in any event an adjournment would be futile because Ms Hubbard's first affidavit did not raise a genuine dispute.

Consideration 31 The Court's discretion to adjourn a proceeding is to be exercised in a manner which best promotes the overarching purpose of facilitating the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: s 37M(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The overarching purpose includes the objectives described in s 37M(2) of the FCA Act which provides: Without limiting the generality of subsection (1), the overarching purpose includes the following objectives: (a) the just determination of all proceedings before the Court; (b) the efficient use of the judicial and administrative resources available for the purposes of the Court; (c) the efficient disposal of the Court's overall caseload; (d) the disposal of all proceedings in a timely manner; (e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. 32 Section 37N of the FCA Act requires the parties to conduct litigation consistently with the overarching purpose. 33 In Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75, the Full Court (Collier, Griffiths and Mortimer JJ) said at [42] - [46]: 42 In considering an application for an adjournment, issues particular to the parties and the circumstances of the case must be considered. The Court must also determine how the grant or refusal of an adjournment will promote the overarching purpose of the civil practice and procedure provisions governing the exercise of its jurisdiction, here its appellate jurisdiction, including the objectives in s 37M(2) of the FCA Act, to which we have referred earlier in these reasons in summary form. 43 These objectives set out in statutory form some of the considerations earlier expressed as conditioning a discretion to adjourn a hearing. In Sali v SPC Ltd (1993) 116 ALR 625 at 629, Brennan, Deane and McHugh JJ said the Court is entitled to be conscious of the "effect of an adjournment on court resources and the competing claims by litigants in other cases awaiting hearing in the court as well as the interests of the parties". 44 In Aon Risk Services Australia Pty Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27, the plurality of the High Court recognised four matters which should, in the circumstances of that particular case, have been taken into account by the Court when exercising its discretion whether to grant an adjournment so as to allow substantial amendments to be made to the statement of claim. Those factors were: the explanation for the adjournment sought (at [108]), the parties' choices to date in the litigation (and the consequences of those choices) (at [112]), the detriment to other parties, and the detriment to other litigants in the Court (at [114]). 45 In Aon at [5], French CJ referred to the broader considerations at work in considering an adjournment application: In the proper exercise of the primary judge's discretion, the applications for adjournment and amendment were not to be considered solely by reference to whether any prejudice to Aon could be compensated by costs. Both the primary judge and the Court of Appeal should have taken into account that, whatever costs are ordered, there is an irreparable element of unfair prejudice in unnecessarily delaying proceedings. Moreover, the time of the court is a publicly funded resource. Inefficiencies in the use of that resource, arising from the vacation or adjournment of trials, are to be taken into account. So too is the need to maintain public confidence in the judicial system. 46 The plurality in Aon expressed a similar opinion at [93]: [T]he rules concerning civil litigation no longer are to be considered as directed only to the resolution of the dispute between the parties to a proceeding. The achievement of a just but timely and cost-effective resolution of a dispute has an effect upon the court and upon other litigants. 34 It is convenient to consider the application by reference to the factors identified in paragraph [44] of Luck.

The explanation for the adjournment sought and the plaintiff's choices to date

The position prior to 4 February 2022 35 As noted above, the plaintiff submitted that prior to 4 February 2022 it had been unable to obtain all relevant documents and in particular all of the exhibits to Ms Hubbard's second affidavit. 36 However, Ms Hubbard was aware since at least on or about 17 January 2022 (when she retained the plaintiff's current solicitors) and perhaps as early as 11 January 2022 (when the plaintiff's former solicitors filed a Notice of Intention to Cease to Act) that the plaintiff's former solicitors had proposed to cease to act for it. In other words, she was aware of that position at least two weeks prior to the date on which the plaintiff's outline of submissions were due (3 February 2022) and three weeks before the scheduled hearing date (9 February 2022). Ms Hubbard was also aware from 24 January 2022 that the defendant was opposed to any application for an adjournment. 37 There is no evidence of what steps, if any, Ms Hubbard took to obtain the exhibits to her second affidavit between on or about 17 January 2022 and 1 February 2022. The first step, on the evidence before the Court, was taken on 1 February 2022, two days before the submissions were due and eight days before the scheduled hearing date. 38 There is also no evidence of what steps, if any, Mr Georges took to obtain any relevant documents from the date of his retainer (on or about 17 January 2022) until 3 February 2022, on which day he sought documents from the defendant's solicitors. The first step, on the evidence before the Court, was taken on 3 February 2022, the day the plaintiff's submissions were due. 39 When requests were made for documents they were promptly answered. Ms Hubbard's request to the Court Registry on 1 February 2022 was answered in just over one hour. Mr Georges's request to the defendant's solicitor at 4:30pm on 3 February 2022 was answered before 7:00pm that evening and the defendant's solicitors thereafter responded promptly to each of Mr Georges's further requests. Further, as noted above, the defendant's solicitor went to the trouble of providing documents as a .pdf file on Saturday, 5 February 2022. There is no reason to believe that an earlier request by Ms Hubbard or Mr Georges would not have also been the subject of a quick response. Had this occurred, there would have been ample time in which to obtain instructions. In these circumstances, any difficulties of access to relevant documents are a function of the choices made by the plaintiff and its solicitor in not actively seeking such documents until the eleventh hour.

The position since 4 February 2022 40 As noted above, the plaintiff submitted that it was prejudiced from 4 February 2022 because of an inability of the plaintiff's solicitor and counsel to obtain instructions from Ms Hubbard. It is thus necessary to consider the nature of the instructions said to be necessary and the extent of any inability to provide those instructions. 41 The central issue for determination on the originating process is whether the Court is satisfied that there is a genuine dispute as to the existence of the debt. That issue falls for determination principally by reference to Ms Hubbard's first affidavit being the affidavit filed within the statutory period referred to in s 459G of the Act. 42 As noted above Ms Hubbard, in her first affidavit, stated: I say that there is a genuine dispute as to the debt as a result of discussions between the parties between 2019 and 2020. 43 Ms Hubbard's second affidavit contains no reference to verbal discussions between representative(s) of the plaintiff and representative(s) of the defendant but exhibits written correspondence. 44 It follows, on the assumptions most favourable to the plaintiff as to the admissibility of Ms Hubbard's second affidavit, that a genuine dispute "as a result of discussions between the parties between 2019 and 2020", if it is to exist, must be found in the correspondence exhibited to that affidavit. Counsel for the plaintiff, most fairly and candidly, indicated that nothing in the nature of a subsequent agreement which overtook the Deed or evidence that the defendant committed not to enforce the Deed, was apparent on the face of that correspondence. 45 Nevertheless, counsel for the plaintiff submitted that, as a matter of procedural fairness an opportunity ought be given to enable instructions to be obtained from Ms Hubbard that might reveal a construction of that correspondence which evidences a genuine dispute. Counsel referred to the observations of Deane J in Kioa v West (1985) 159 CLR 550 at 633 that the requirements of procedural fairness may be of added importance with respect to matters that are not already obvious. 46 Whilst there is a clear obligation on the court to afford procedural fairness, the content of that obligation is a function of the particular circumstances and the present circumstances are quite different to those in Kioa. 47 The plaintiff has had a more than ample opportunity to identify a genuine dispute in the correspondence (or otherwise). Ms Hubbard had ample opportunity to explain to the plaintiff's former solicitors the nature of any genuine dispute and there was ample opportunity for that explanation to have been included in each of her affidavits, which were affirmed in September and November 2021. Ms Hubbard also had ample opportunity, between 17 January and 4 February 2022 to identify for Mr Georges the nature of the genuine dispute. Indeed, it might have been expected that such information was of central importance in the giving and taking of elementary instructions. Further, the possibility that further instructions would have assisted seemed remote when regard was had to the concession made by the plaintiff's counsel, and to the fact that Ms Hubbard did not in her second affidavit describe the nature of the suggested dispute or identify it by reference to any particular item of correspondence. 48 Thus, I was not satisfied that procedural fairness required an opportunity to seek further instructions. 49 In any event, I was not satisfied that such instructions were unobtainable between 4 and 9 February 2022. The evidence establishes that Ms Hubbard had COVID-19 as at 4 February 2022. Mr Georges's evidence was that Ms Hubbard was too unwell to speak with him with any clarity on 4 February 2022. His email of 7 February 2022 to the defendant's solicitor stated, without elaboration, that Ms Hubbard was "too unwell" to instruct him. Such evidence is insufficient and leaves unanswered at least the following questions: (1) what symptoms did Ms Hubbard have during the period from 4 to 9 February 2022?; (2) how did those symptoms affect her inability to provide instructions?; and (3) why was Ms Hubbard unable to respond to a request (by email, telephone or audio - visual means) that she identify within the correspondence where the genuine dispute may be found? 50 The evidence provided was thus unpersuasive particularly when, as the plaintiff's counsel acknowledged, COVID-19 affects different persons in different ways. The desirability of verified evidence from a medical professional as to the condition of a person said to be ill and how that condition affects them in their preparation for a hearing has previously been noted by the Full Court in Luck at [48]-[50] and Kennedy v Secretary, Department of Industry (No 3) [2016] FCAFC 149 at [34(3)].

Detriment to other parties and to other litigants in the Court 51 The plaintiff submitted that the defendant would suffer little prejudice if the proceeding were to be adjourned for several weeks and offered to submit to a costs order that would require it to pay the plaintiff's costs thrown away prior to the commencement of the adjourned hearing. 52 The defendant submitted that there is presumptive prejudice arising from any adjournment. 53 I accepted that the prejudice to the defendant would have been relatively minor. 54 I also considered the effect of an adjournment on other litigants in the Court. An adjournment would have had the result that two separate court days were allocated to this proceeding when one of them could otherwise have been allocated to other litigants. 55 Taking all of the above into account, but in particular the absence of a satisfactory explanation, I formed the view that the appropriate exercise of the discretion was to refuse the application.

ORIGINATING PROCESS 56 I turn now to the originating process.

Introduction 57 The plaintiff seeks to set aside the statutory demand on the basis that there is either or both: (1) a genuine dispute as to the existence of the debt (s 459H(1)(a)); (2) a defect in the statutory demand which would cause substantial injustice if not set aside (s 459J(1)(a)). 58 The plaintiff read both of Ms Hubbard's affidavits in support of the originating process. Objection was taken to Ms Hubbard's second affidavit on the basis that it was filed after the expiry of the statutory period and as such can only supplement evidence as to a genuine dispute raised in Ms Hubbard's first affidavit, and no such dispute was raised. 59 Subsequently, counsel for the plaintiff indicated that the only part of Ms Hubbard's second affidavit upon which the plaintiff relied was the Deed which was one of the exhibits.

Section 459H 60 Section 459H(1)(a) provides: … (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; … 61 Section 459G of the Act provides: Company may apply (1) A company may apply to the Court for an order setting aside a statutory demand served on the company. (2) An application may only be made within the statutory period after the demand is so served. (3) An application is made in accordance with this section only if, within that period: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company. 62 It is common ground that the plaintiff was served with the statutory demand (s 459G(1)); that service occurred on 8 September 2021; and that the originating application was filed on 24 September 2021 and thus within the "statutory period" of 21 days as defined in s 9 of the Act (s 459G(2)). 63 It is also common ground, for the purposes of s 459G(3), that Ms Hubbard's first affidavit was filed with the Court within the statutory period; and that a copy of the originating process and a copy of Ms Hubbard's first affidavit were served on the defendant within the statutory period. 64 The parties are at issue as to whether Ms Hubbard's first affidavit was an affidavit "supporting the application" within the meaning of s 459G(3)(a). This requirement is an essential condition of a company's invocation of a right to apply to set aside the demand: David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 at 276-277 (per Gummow J with whom Brennan CJ, Dawson, Gaudron and McHugh JJ agreed); MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154; (2017) 250 FCR 381 at 402 [91] (Rares J). 65 The features of an affidavit supporting an application to set aside a statutory demand were described by Rares J in MNWA at [93]-[95] (emphasis in original): 93 In order to comply with s 459G(3)(a), an affidavit "supporting the application" to set aside the demand must be filed and served within 21 days of service of the statutory demand. Many cases have considered the meaning of the expression "an affidavit supporting the application" in s 459G(3)(a). Sundberg J gave an early formation saying that it "must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute - it might read more like a pleading than a story": Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 459G. In Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 at 182-183 [17]-[18] and 185 [29], Wallwork J, with whom Steytler J and Olsson AUJ agreed, in the Full Court of the Supreme Court of Western Australia, applied the approach of Sundberg J and held that an affidavit could not raise a new ground on which to seek that a statutory demand be set aside, if it were filed outside the 21 day period specified in s 459G: Sinedie 166 FLR at 185 [29]: Graywinter 70 FCR at 460C-E. 94 However, although the initial affidavit must "support" the application, the company can supplement that material later. The initial affidavit does not have to deploy the, or all of the, evidence, or be in admissible form and the company can file supplementary evidence so that on the hearing it will be able to rely on admissible evidence, including evidence to quantify an offsetting claim: see too Pravenkav 46 WAR 483 at 494-495 [43], 497-500 [52]-[64] per Newnes JA, Murphy JA and Edelman J. 95 The precise nature of the application under s 459G will determine whether the initial affidavit(s) filed and served in accordance with s 459G(3)(a) "support" it: Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306 at 316-317 [34] per Parker J with whom Anderson and Scott JJ agreed; Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 297 ALR 372 at 377 [29]-[32] per Young JA with whom Hoeben JA and Ward J agreed. They approved what Ward J said in Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2011) 286 ALR 768 at 776 [36] namely: There need not be an explicit articulation in the supporting affidavit of the ground(s) on which the application to set aside is to be raised, provided the ground is raised expressly or by necessary or a reasonably available inference. (emphasis added) 66 The requisite features of an affidavit supporting an application to set aside a statutory demand were also considered in some detail recently by the Full Court of the Supreme Court of Victoria in Sceam Construction Pty Ltd v Clyne [2021] VSCA 270. The Court (Ferguson CJ, Sifris and Walker JJA) undertook an extensive analysis of the case law in this area and said at [38]: 38 Standing back from all that has been written in the authorities, it is important to bear firmly in mind that what is critical is the language in the legislation. It requires an affidavit supporting the application to be filed with the Court within the statutory period. In the context of a claim to set aside the statutory demand on the basis that there is a genuine dispute as to the existence or amount of the demand, pursuant to s 459H(1)(a), the affidavit must support the application by providing the basis for establishing that there is a genuine dispute. Establishing the genuineness of the dispute requires material showing, or from which it can be inferred, that there is a real dispute. Most commonly this will be done by the deponent describing the dispute. That description will delineate the scope of the dispute which may be relied upon to set the demand aside. Where the dispute is based purely on the construction of a written agreement between the parties, the support requirement may be satisfied by exhibiting the agreement without more. But, for example and without being prescriptive, if something beyond the written terms is to be relied upon, then it is highly likely that this will need to be raised in the affidavit and more than mere assertion will be necessary. Ultimately, what is required to satisfy the support requirement must be assessed in the context of the particular application that is made. (footnotes omitted; bold emphasis in original; underline emphasis added) 67 Thus to qualify as an affidavit in support of the application, Ms Hubbard's first affidavit must raise a genuine dispute either expressly or by a necessary or reasonably available inference. 68 Ms Hubbard's first affidavit does not do so. In paragraph 4 of that affidavit Ms Hubbard deposed that "… there is a genuine dispute as to the debt as a result of discussions between the parties between 2019 and 2020". Ms Hubbard then indicated that the consent of the defendant was being sought for the tender of without prejudice communications and that she would file a further affidavit after a response had been received from the defendant. This does not rise above a level of assertion of the existence of a genuine dispute. There is no express reference to a particular genuine dispute. It does not arise by necessary inference. Nor is the existence of a genuine dispute a reasonably available inference. 69 Counsel for the plaintiff did not ultimately contend that there was a genuine dispute as a result of discussions between the parties between 2019 and 2020. Instead, he submitted that there was a genuine dispute as to whether the defendant's right to recover the debt survived the purported termination of the Deed referred to in paragraph 9 of Ms Smales's affidavit. It was submitted that this dispute was raised by Ms Hubbard's first affidavit because that affidavit attached the affidavit of Ms Smales which referred to the Deed and paragraph 9 of Ms Smales's affidavit referred to the defendant having given the plaintiff notice of the termination of the Deed. From this information, it was submitted, it could be inferred that there was a dispute as to whether the defendant's right to recover the debt survived the purported termination of the Deed. 70 That submission is not accepted. The existence of such a dispute cannot fairly be inferred from Ms Hubbard's first affidavit. At its highest, Ms Hubbard's first affidavit refers to the termination of the Deed and to the Deed itself, but this is insufficient as the dispute is not raised either expressly or by inference. Further obstacles are that the Deed is not itself an annexure to Ms Hubbard's first affidavit; and that the affidavit expressly asserted that there was a genuine dispute based upon inter partes discussions but made no reference to the different genuine dispute now suggested. 71 As Ms Hubbard's first affidavit was not an affidavit "supporting the application", the plaintiff has not invoked the Court's jurisdiction under s 459G and the application must be dismissed in so far as it is founded upon that section.

Section 459J 72 The originating process also sought an order that the statutory demand be set aside pursuant to s 459J of the Act. Section 459J(1)(a) provides: Setting aside demand on other grounds (1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; … 73 "Defect" is defined in s 9 of the Act as follows: defect, in relation to a statutory demand, includes: (a) an irregularity; and (b) a misstatement of an amount or total; and (c) a misdescription of a debt or other matter; and (d) a misdescription of a person or entity. 74 Counsel for the plaintiff submitted that there was a defect in the demand by reason of the matters relied upon and discussed above as the basis for there being a genuine dispute. 75 Whilst the definition of defect is inclusive, it would unduly strain the ordinary meaning of that term to include within it the matters submitted by the plaintiff to give rise to a genuine dispute in the present case. In any event, I am not satisfied that substantial injustice would be caused unless the statutory demand is set aside. It follows that the application must be dismissed insofar as it is founded upon s 459J and thus must be dismissed in its entirety. I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.

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