The correct test issue - consideration
91 The affidavit supporting an application under s 459G(1) to set aside a statutory demand, that s 459G(3)(a) requires, 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) 184 CLR 265 at 276-277 per Gummow J with whom Brennan CJ, Dawson, Gaudron and McHugh JJ agreed. As the High Court held in that case, it is also an essential condition of the jurisdiction to set aside a statutory demand that an application under s 459G and an affidavit in support of it be filed in the Court and served on the issuer within 21 days after service of the demand on the company. Gummow J set out some passages from the Explanatory Memorandum that the Minister published when proposing the 1992 Bill containing the amendments that introduced the (identical) analogue of Pt 5.4 into the then Corporations Law, including [688] which read:
The provisions in relation to the setting aside of a statutory demand are intended to be a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies. In particular it is intended to remove the present difficulties which are experienced where difficulties in estimating the extent of the debt may lead to an invalidating of the statutory demand on the basis of a minor overstatement of the amount due … (emphasis added)
92 Gummow J said that the provisions of Pt 5.4 (184 CLR at 270):
… constitute a legislative scheme for the quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised properly. (emphasis added)
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)
96 In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601 at 613 [54]-[55], Beazley P, AJ Meagher and Gleeson JJA concluded, after a careful examination of the authorities, that the procedure for challenging a statutory demand was intended to be an essentially summary one. They said that for the purposes of s 459H (at [55]):
Thus, even though the courts may allow evidence to be supplemented beyond what is raised in the initial affidavit containing the grounds upon which the application is made, care must be taken not to elevate the requirements of the evidence necessary to establish that there is a basis to set aside a statutory demand beyond what we have stated it to be. For example, it would set too high a standard to require that the evidence "prove" the facts that raise the ground in the initial affidavit. Whether in the initial affidavit, or by a combination of that evidence and other evidence filed or adduced at the hearing, a party seeking to set aside a statutory demand must establish that there was a plausible contention requiring investigation: see the discussion at [30]-[31] above. (emphasis added)
97 They said that it was settled law that, in order to establish the existence of a genuine dispute for the purposes of s 459H, the Court had to be satisfied that there is a "serious question to be tried" or "an issue deserving of a hearing" or, which was much the same, "involved a plausible contention requiring investigation", (Britten-Norman 85 NSWLR at 608 [30]-[31], 609 [36]). They also observed that, whether proceedings under s 459G are characterised as final or interlocutory, "the issue in such proceedings is not whether a debt to which the statutory demand relates is owed" (85 NSWLR at 609 [38]) and, so, evidence that may be inadmissible as hearsay or opinion to establish a fact relevant to indebtedness would not necessarily be inadmissible to establish a fact relevant to the existence of a genuine dispute about indebtedness. They referred, without expressing any disagreement, to Barrett J having used the same reasoning in Saferack 214 FLR 393 at 399-400 [25], a case under s 459J(1)(b), as Sundberg J had used in Graywinter 70 FCR 452. Barrett J had held that the affidavit under s 459G(3)(a) must reveal a genuine dispute for the purposes of s 459J(1)(b) and that it had to contain a statement of the material facts on which the company intends to rely to show such a dispute (Britten-Norman 85 NSWLR at 611 [44]-[45]).
98 A "genuine dispute" must, first, be bona fide and truly exist in fact and, secondly, the grounds for asserting its existence must be real and not spurious, hypothetical, illusory or misconceived: Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452 at 464F; applied in Equuscorp 80 FCR at 301F-G.
99 Moreover, s 459J(1)(a) and (2) operate together as a code for dealing with defects in a statutory demand. Those provisions authorise the Court to set a demand aside only if substantial injustice will be caused because of a defect in it: Equuscorp 80 FCR at 299G-300A per French, Kiefel and Sundberg JJ applying what Northrop, Merkel and Goldberg JJ had held in Spencer 76 FCR at 460G-461B.
100 Importantly, French, Kiefel and Sundberg JJ explained that the "some other reason" ground in s 459J(1)(b) was not qualified by s 459J(1)(a) or (2): Equuscorp 80 FCR at 299G-300A. Indeed, Northrop, Merkel and Goldberg JJ had held that s 459J(1)(a) and (b) were mutually exclusive (Spencer 76 FCR at 460D-E). French, Kiefel and Sundberg JJ said that the discretion to set aside the demand for "some other reason" could be enlivened by the absence of good faith or some abuse of process on the part of the creditor: Equuscorp 80 FCR at 300F) see too Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317G-318A per Black CJ, Einfeld and Sackville JJ who also suggested there that the power under s 459J(1)(b) might be enlivened if the issuer unreasonably refused the company's offer to meet the debt or, possibly, referring to the Re Norper Investments Pty Ltd (1977) 33 FLR 87, was seeking to use the demand oppressively: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22 at 26 [27] per Crispin P, Gray and Marshall JJ; Infratel 297 ALR at 381 [66].
101 An evident purpose of Pt 5.4 is the speedy resolution of applications to wind up companies in insolvency: Aussie Vic 232 CLR at 323 [14], 324-325 [18] per Gleeson CJ, Hayne, Crennan and Kiefel JJ; Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at 485 [15] per Gummow A-CJ, Heydon, Crennan and Kiefel JJ. In Meehan 53 ACSR at 239-240 [52], Santow JA, with whom Tobias JA and Young CJ in Eq agreed, said that in considering the exercise of the discretion to set aside a statutory demand under s 459J(1)(b), the Court looks at the relative position of both parties against the objectives of Pt 5.4 and continued:
That is why the more general formulation of Bryson J in Portrait Express [(Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 at 757] is to be preferred as an approach; that is, setting aside a statutory demand under s 459J(1)(b) where there is proper reason viewed in the circumstances of the parties taking into account the purposes of Pt 5.4. (emphasis added)
102 Bryson J had explained his approach to s 459J(1)(b) in Portait Express 20 ACSR at 757, to which Santow JA referred, as follows:
The court should not act under para (b), which is discretionary, 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.
… A judicial decision to set a demand aside must be obtained by a prescribed procedure invoked in a limited time, and this regime of itself indicates that there must be grounds of appropriate seriousness. (emphasis added)
103 In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 at [24]-[25], Barrett JA, with whom Beazley P and Gleeson JA agreed, held that s 459J(1)(b) was not confined to cases coming within established categories and that it applied "whenever there is a need to counter some attempted subversion of the intended operation of Part 5.4". He held it to be a remedial provision that enabled the Court to deal with cases not within ss 459H or 459J(1)(a) "in a way that is just, having regard to the purpose of the legislation". He accepted what Black CJ, Einfeld and Sackville JJ had said in Hoare Bros 62 FCR at 317F-G that it would be unwise to mark out the limits of the discretion conferred by s 459J(1)(b).
104 In NT Resorts 153 ALR at 365 Finkelstein J said that an application to set aside a statutory demand, "being a summary process with evidence on affidavit, is hardly an appropriate vehicle for a trial of substantive issues". In obiter comments, he said that he inclined to the view that, in a case where the issue was whether a debt was, at the time of the demand, due and payable, the standard of proof in an application under s 459J(1)(b) was the same as that under s 459H. He mused that, to justify an order under s 459J(1)(b), the Court would have to be "satisfied that there was a genuine dispute about whether the debt to which the demand relates was due and payable" (153 ALR at 367).
105 In Hotncold Pty Ltd v Hawk Construction Services Pty Ltd [2006] WASCA 45 at [24] and [33] McLure JA, with whom Steytler P and Murray AJA agreed, referred, without needing to decide its correctness, to Finkelstein J having applied the genuine dispute test by way of analogy to s 459J(1)(b), in a situation involving a dispute concerning whether the debt was due and payable. However, as McLure JA noted ([2006] WASCA 45 at [24]) differing judicial views existed as to whether an argument that a debt claimed in a statutory demand was not due and payable amounted to a "defect" within the meaning of s 459J(1)(a), or amounted to "some other reason" within the meaning of s 459J(1)(b). Bryson J had held in Portrait Express 20 ACSR at 756 that the issue whether a debt was due and payable did not arise under s 459H, because s 459H(1)(a) did not relate to "the existence or amount of a debt to which the demand relates". He preferred the view that the issue of whether the debt was due and payable related to whether there was a defect in the demand that had to be decided under s 459J(1)(a) and (2) (20 ACSR at 757).
106 Finkelstein J disagreed with Bryson J's view: NT Resorts 153 ALR at 365-367. He observed that the parties before Bryson J had appeared to accept that, once it was established that the debt was not due for payment at the date of the demand, there was a defect in the demand (153 ALR at 366). Finkelstein J considered that it was not clear that s 459H(1)(a) could be construed to cover a case where the debt was alleged not to be due and payable and, so, inclined to the view that this issue should be considered under s 459J(1)(b) (153 ALR at 367).
107 In In the matter of Tuffrock Pty Ltd [2015] NSWSC 738 at [12]-[15], [18], Black J considered the judicial debate at first instance as to which provision in Div 3 of Pt 5.4 applied where the company disputed that a debt was due and payable at the time of service on it of a statutory demand. He made an order setting a demand aside under s 459J(1)(b) because the authorities indicated that "a genuine dispute as to whether the debt is due and payable can provide a sufficient basis to set aside a creditor's statutory demand under s 459J(1)(b)" (see at [15]).
108 There is a distinction between the question whether, under s 459H(1)(a), there is a genuine dispute about the existence and amount of a debt and the question whether the debt has the characteristics required by s 459E(1) and (3)(a), namely that it is due and payable. Importantly, s 459E(3)(a) requires the affidavit that must accompany a statutory demand, which is not based on a judgment debt, to verify that the debt is due and payable by the company. It is a commonplace that a debt can exist but not be due and payable. A debt can be "due" in the sense of "owing", but not payable until sometime in the future: Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 8 per Gibbs CJ, 15 per Mason J with whom Aickin and Wilson JJ agreed; Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 153 per Isaacs J, 157 per Starke J, 160 per Dixon J; HJ Wigmore & Co Ltd v Rundle (1930) 44 CLR 222 at 228 per Gavan Duffy, Rich, Starke and Dixon JJ; O'Connor v Quinn (1911) 12 CLR 239 at 252 per Griffith CJ with whom Barton and O'Connor JJ agreed. Indeed, a debtor and creditor can make an arrangement with each other that allows the debtor time to pay a debt that is due. Such arrangements are a commonplace.
109 If the issue of whether a debt claimed in a statutory demand is due and payable at the time of the demand is not justiciable under s 459H(1), then it must be justiciable under s 459J(1)(b). There is no reason why the Court would apply a different onus of proof, when deciding if it was satisfied that a demand should be set aside "for some other reason" under s 459J(1)(b), being that the debt is not due and payable, to the onus that the Court would apply when deciding whether there is a genuine dispute under s 459H: Saferack 214 FLR at 399-400 [25]; Tuffrock [2015] NSWSC 738 at [15], [18].
110 Indeed, such an approach is consistent with the purposes of Pt 5.4. Those purposes include the quick resolution of the issue of solvency and the determination of whether the company should be wound up, without interposing disputes about debts, unless they are raised properly: David Grant 184 CLR at 270; Aussie Vic 232 CLR at 323 [14], 324-325 [16], [18]; Broadbeach 237 CLR at 485 [15]; Meehan 53 ACSR at 239-240 [52]; Kisimul [2014] NSWCA 262 [24]-[25]. The Parliament intended that a genuine dispute as to the existence and amount of a debt the subject of a contested statutory demand under s 459G should be decided in separate, substantive proceedings from those under Pt 5.4.
111 In some cases, the issue of whether a part of a debt claimed in a statutory demand was due and payable at the time of its service may be justiciable under s 459H. That is because, while the debt claimed in the demand may exist, the full amount may not have been due and payable at the date of service. In such a case the Court could calculate a lesser substantiated amount under s 459H(2). For example, a person may have given a company credit terms for a purchase of goods or services that required payment of two sums one each after, say, 30 and 60 days. If the person served a statutory demand for both sums, after the company failed to pay the first instalment, but before the 60th day (and assuming that the contract did not make the whole amount due in such an event), then the Court could determine that the substantiated amount was the first instalment and vary the demand to require payment of that lesser sum under s 459H(4).
112 Since s 459H(6) makes s 459H subject to s 459J, a genuine dispute about a demand for a debt, that raises the issue that it was not due and payable at the time of service, is capable of amounting to "some other reason" to set the demand aside under s 459J(1)(b). Thus, a genuine dispute that, for example, the debtor and creditor had made an arrangement for the payment of the debt claimed at a time later than the creditor asserted, could create "some other reason why the demand should be set aside" for the purposes of s 459J(1)(b). The construction of s 459J(1)(b) must be approached consistently with the principles of statutory construction identified by McHugh, Gummow, Kirby and Hayne JJ in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381 [69], namely:
The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute [See Taylor v Public Service Board (NSW) (1976) 137 CLR 208 at 213, per Barwick CJ.]. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole" [Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320, per Mason and Wilson JJ. See also South West Water Authority v Rumble's [1985] AC 609 at 617, per Lord Scarman, "in the context of the legislation read as a whole"]. In Commissioner for Railways (NSW) v Agalianos [(1955) 92 CLR 390 at 397], Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed [Toronto Suburban Railway Co v Toronto Corporation [1915] AC 590 at 597; Minister for Lands (NSW) v Jeremias (1917) 23 CLR 322 at 332; K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 at 312, per Gibbs CJ; at 315, per Mason J; at 321, per Deane J.] (emphasis added)
113 The conditions for a valid statutory demand appear in s 459E(1) and (2). Critically, s 459E(1)(a) requires that the demand must relate to:
a single debt that the company owes to the issuer (the person serving the demand);
that is due and payable; and
whose amount is at least the statutory minimum.
114 If the amount of the debt claimed in a demand were less than the statutory minimum, the demand would be invalid. Likewise, if, as a matter of fact, the debt or some part of it were not due and payable at the time of making the affidavit required under s 459E(3)(a) to verify the demand (which must precede service of the demand on the company), then the demand would also be invalid. It follows that if there were a genuine dispute as to whether the debt or part of it were due and payable at the time of making of the affidavit, Div 3 of Pt 5.4 must be construed to permit the company to apply to set the demand aside on that ground.
115 As explained above, each of ss 459H and 459J(1)(b) can apply to an issue about whether a debt to which a demand relates was due and payable at the time that it was served. The Explanatory Memorandum explained (at [688]) that the use of the expression "some other reason" in Pt 5.4, including s 459J(1)(b), was to ensure that the Court had power to set a demand aside "on the basis of the commercial justice of the matter, rather than on the basis of technical difficulties".
116 In my opinion, s 459G(1) gives a company a right to apply to the Court for an order to set a statutory demand aside on the basis of the facts and circumstances revealed expressly or by necessary implication in the affidavit supporting the application that must be filed and served under s 459G(3). If the affidavit reveals a ground that the Court is satisfied falls within ss 459H(1) and 459J, the Court has jurisdiction to determine the application.
117 Importantly, s 459G does not require the application or affidavit supporting it to identify a legal category, to plead a statutory provision or to nominate a cause of action: cf Agar v Hyde (2000) 201 CLR 552 at 577-578 [64] per Gaudron, McHugh, Gummow and Hayne JJ. The jurisdiction of the Court to make an order setting the demand aside is enlivened if, at the hearing, the material facts and circumstances originally revealed in the initial affidavit under s 459G(3)(a) fall within the provisions of ss 459H(1) or 459J(1). As I have noted above the evidence and circumstances at the hearing can supplement the material facts and circumstances expressed or necessarily implied in the initial affidavit, including putting evidence into admissible form, but cannot expand the field of issues.
118 Moreover, s 459H(6) provides that the governing provision is s 459J. Ordinarily, s 459H will allow an efficient summary process to identify whether a genuine dispute exists as to the existence or amount of a debt (including the impact of any offsetting claim) and s 459J(1)(a) and (2) will allow a similar process to identify whether there is a defect in a demand that will cause substantial injustice, unless the demand is set aside. The power to set a demand aside for "some other reason" under s 459J(1)(b) will be enlivened where it would be contrary to the purposes of Pt 5.4 to create a presumption of insolvency were the company to fail to comply with it.
119 A defect in a demand ordinarily will be evident on its face or simply because some requirement in s 459C, that is readily ascertainable, has not been satisfied. The Court will then be able to determine whether it is satisfied that the established defect will cause substantial injustice, again without a substantive trial.
120 If the question of whether a debt were both due and payable at the time of issue or service of a statutory demand had to be proved on the balance of probabilities, the otherwise summary procedure envisaged in Div 3 of Pt 5.4 for the determination of an application under s 459G would be turned into a substantive final hearing as to the legal status of that issue. The consequence of such a construction is highly likely to promote delay rather than speed in considering an application under s 459G that raises such an issue. The provisions of s 459J(1)(a) and (2) are consistent with this conclusion and in any event they do not qualify the Court's power under s 459J(1)(b): Equuscorp 80 FCR at 299G-300A; Owners of "Shin Kobe Maru" v Empire Shipping Inc (1994) 181 CLR 404 at 421 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ.
121 Nonetheless, the operation of provisions in taxation laws, such as the then s 177 of the ITAA 1936, creating debts and providing for their recovery by the Commissioner, cannot be sidestepped in an application by the taxpayer under s 459G of the Corporations Act to set aside a statutory demand that the Commissioner served: Broadbeach 237 CLR at 495-496 [57]; see too at 488 [26]ff; 493 [49].
122 Gummow A-CJ, Heydon, Crennan and Kiefel JJ held that the Commissioner was entitled to use the statutory demand procedure in aid of a winding up application in the course of recovery of a debt due to the Commonwealth (Broadbeach 237 CLR at 496 [58]). They said (at 497 [61]) that a material consideration that the Court had to take into account on an application under s 459G was the legislative policy of provisions, such as ss 14ZZM and 14ZZR of the TAA 1953, to allow actions for recovery of tax while the taxpayer's application to review or appeal against the Commissioner's decision to assess the tax as due and payable was pending. (Those sections provided that the pendency of a review, or an appeal against an assessment, in respectively the Administrative Appeals Tribunal and this Court, does not interfere with or affect the Commissioner's decision and the tax may be recovered as if no review or appeal were pending.) Moreover, their Honours had held that the pendency of a review of or an appeal against an assessment under ss 14ZZM or 14ZZR did not create a "genuine dispute" for the purposes of s 459H(1) (at 496 [60]) of the Corporations Act because the taxation legislation allowed the Commissioner to take recovery proceedings despite the taxpayer's pending administrative review or appeal to the Court in respect of the assessment.
123 The generality of the discretionary power conferred on the Court by s 459J(1)(b) to order that a statutory demand be set aside because "there is some other reason" should not be "hedged about by implied limitations": cf Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 361 [178] per Gummow, Hayne, Heydon and Kiefel JJ; Mansfield v Director of Public Prosecutions (WA) (2006) 226 CLR 486 at 492 [10] per Gleeson CJ, Gummow, Kirby, Hayne and Crennan JJ. In Shin Kobe Maru 181 CLR at 421, Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ said:
It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words.
124 Section 459J(1)(b) gives the Court a discretion, that must be exercised judicially, to set aside a statutory demand if it is satisfied that there is some other reason, than on the basis of ss 459H or 459J(1)(a), to do so. The discretion is unconfined except by reference to the subject matter, scope and purpose of Pt 5.4 in the more general context of the Corporations Act: The Queen v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd (1979) 144 CLR 45 at 50 per Stephen, Mason, Murphy, Aickin and Wilson JJ. And, as the Court in Broadbeach 237 CLR at 497 [61] held, a relevant consideration that must be considered, in a case where the Commissioner is seeking to recover a taxation debt, is that the debt is made due, payable and recoverable under the taxation laws and the demand is served in aid of a winding up application.