Quitstar Pty. Ltd. v. Cooline Pacific Pty. Ltd. [2003] NSWCA 359

CATCHWORDS : CORPORATIONS - Statutory demand - Reference to repealed statute - Whether a valid demand - PRACTICE - APPEALS - Appeal from appeal to single judge - Whether as of right. Acts Interpretation Act 1901 (Cth) s.25C LEGISLATION CITED : Bankruptcy Act 1966 (Cth) s.306(1) Corporations Act 2001 (Cth) ss.9, 459E, 459G, 459J, 1370, 1407 Supreme Court Act 1970 (NSW) s.101 Australian Steel Co. v. Lewis (2000) 109 FCR 33 Bendigo Bank v. Williams 92000) 98 FCR 377 CASES CITED : Deputy Commissioner of Taxation v. Clark (2003) 45 ACSR 332 James v. Federal Commissioner of Taxation (1955) 93 CLR 631 Kleinwort Benson Australia Ltd. v. Crowl (1988) 165 CLR 71 Minister for Immigration and Ethnic Affairs v. Mayer (1985) 157 CLR 290 PARTIES : Quitstar Pty. Limited - appellant Cooline Pacific Pty. Limited - respondent FILE NUMBER(S) : CA 40432/02 COUNSEL : Mr. D. Knaggs, Solicitor, for appellant Mr. B.J. Burke for respondent SOLICITORS : Douglas Knaggs, Potts Point for appellant Corporations Group Counsel, North Sydney for respondent

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT ED 1886/02 FILE NUMBER(S) : LOWER COURT Barrett J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40432/02 ED 1886/02

SHELLER JA HODGSON JA McCOLL JA

Monday 8 December 2003 QUITSTAR PTY. LTD. V. COOLINE PACIFIC PTY. LTD. Judgment 1 SHELLER JA: I agree with Hodgson JA. 2 HODGSON JA: On 30 September 2002, the Court of Appeal dismissed an application brought by the appellant (Quitstar) against the respondent (Cooline) for leave to appeal from a decision of Barrett J in the Equity Division, the effect of which was to uphold the validity of a statutory demand served by Cooline on Quitstar. However, Quitstar had also brought an appeal said to be as of right from that same decision, and that appeal was not then disposed of. The present court has now heard the appeal. 3 The application for leave to appeal was brought because there was some doubt as to whether Quitstar did have an appeal as of right. The relevant provisions are ss.101(1) and 101(2)(p) and (r) of the Supreme Court Act, which are as follows: 101. Appeal in proceedings before the Court (1) Subject to this and any other Act and subject to the rules, an appeal shall lie to the Court of Appeal from: (a) any judgment or order of the Court in a Division, and (b) without limiting the generality of paragraph (a): (i) any opinion, decision, direction or determination of the Court in a Division on a stated case, (ii) any exercise of a power to which section 24 applies, and (iii) any determination of the Court in a Division in proceedings remitted under subsection (4) of section 51. (2) An appeal shall not lie to the Court of Appeal, except by leave of the Court of Appeal, from: … (p) a judgment or order of the court on an application under section 459G of the Corporations Law or section 459G of the Corporations Act 2001 of the Commonwealth, … (r) a final judgment or order in proceedings of the Court, other than an appeal: (i) that involves a matter at issue amounting to or of the value of $100,000 or more, or (ii) that involves (directly or indirectly) any claim, demand or question to or respecting any property or civil right amounting to or of the value of $100,000 or more. 4 The proceedings before Barrett J were themselves an appeal from Master Macready, so par.(r) of s.101(2) has no application. The proceedings before Master Macready and Barrett J were not proceedings under s.459G of the Corporations Act, but were proceedings for a declaration that there was no valid statutory demand at all, so par.(p) of s.101(2) has no application. Accordingly, the better view appears to be that there is an appeal as of right, and I will proceed on that basis. 5 Although the application for leave to appeal was dismissed inter alia because the Court considered the decision of Barrett J correct, I do not think that such an interlocutory judgment could give rise to issue estoppel between the parties. Also, I do not think it can be considered a decision of the Court of Appeal such as would require leave to argue the contrary. I will approach the matter on the basis that Quitstar is entitled to a determination by this Court as to the merits of its appeal, albeit giving appropriate weight to the views expressed in the leading judgment of 30 September 2002, that of Young CJ in Eq., with which I then agreed. 6 The main point in the appeal arises in this way. The statutory demand was dated 19 February 2002, when the applicable legislation had since 15 July 2001 been the Corporations Act 2001, a Commonwealth Act. The form of the demand followed the form prescribed under that Act, except that where the words "Corporation Act 2001" should have appeared, there were in fact the words "Corporations Law". The appellant's argument depends essentially on two provisions of the Corporations Act. 7 First, there is the definition of "statutory demand" in s.9 of that Act, which is as follows: "statutory demand" means: (a) a document that is, or purports to be, a demand served under section 459E; or (b) such a document as varied by an order under subsection 459H(4). 8 Next, there is s.459E of that Act, which is as follows: 459E. Creditor may serve statutory demand on company (1) A person may serve on a company a demand relating to: (a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or (b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum. (2) The demand: (a) if it relates to a single debt---must specify the debt and its amount; and (b) if it relates to 2 or more debts---must specify the total of the amounts of the debts; and (c) must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and (d) must be in writing; and (e) must be in the prescribed form (if any); and (f) must be signed by or on behalf of the creditor. (3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that: (a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (b) complies with the rules. (4) A person may make a demand under this section relating to a debt even if the debt is owed to the person as assignee. (5) A demand under this section may relate to a liability under any of the following provisions of the Income Tax Assessment Act 1936 : (aa) section 220AAE, 220AAM or 220AAR; (a) section 221F (except subsection 221F(12)), section 221G (except subsection 221G(4A)) or section 221P; (b) subsection 221YHDC(2); (c) subsection 221YHZD(1) or (1A); (d) subsection 221YN(1); (e) section 222AHA; and any of the provisions of Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953, even if the liability arose before 1 January 1991. (6) Subsection (5) is to avoid doubt and is not intended to limit the generality of a reference in this Act to a debt. 9 The fundamental submission was that the document in this case was not a "statutory demand" under the Corporations Act, because it was not served under, and did not purport to be served under, s.459E of the Corporations Act: rather, it was and purported to be served under the Corporations Law, a New South Wales statute which ceased to have effect on 15 July 2001. Further, it was not in the prescribed form under the Corporations Act, as required by s.459E of that Act, because the prescribed form required reference to the Corporations Act 2001. 10 In support of that submission, Mr. Knaggs, solicitor for Quitstar, referred to a number of decisions relating to bankruptcy notices, in particular James v. Federal Commissioner of Taxation (1955) 93 CLR 631; Kleinwort Benson Australia Ltd. v. Crowl (1988) 165 CLR 71; Bendigo Bank v. Williams (2000) 98 FCR 377; Australian Steel Co. v. Lewis (2000) 109 FCR 33. He submitted that these cases established that strict compliance with mandatory prescribed forms, especially forms with penal consequences, was required; and that meant compliance as to the prescribed wording and all prescribed insertions. He submitted that the courts were required to give all matters of wording and insertions equal weight, in the sense that they are not at liberty to hold that some mandatory elements are essential and some are not. 11 Mr. Knaggs submitted there was no relevant difference between the provisions of the Bankruptcy Act concerning bankruptcy notices and those of the Corporations Act concerning statutory demands. He accepted there was some difference between the provisions dealing with non-compliance, namely ss.306(1) of the Bankruptcy Act and s.459J of the Corporations Act. The former section is in the following terms: 306. Formal defect not to invalidate proceedings (1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court. … 12 The latter section is in the following terms: 459J. 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; or (b) there is some other reason why the demand should be set aside. (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

The word "defect" is defined in s.9 of the Corporations 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. 13 Mr. Knaggs submitted that decisions under the Bankruptcy Act showed that it was not a formal defect or irregularity within s.306 if an essential requirement of the form prescribed by the Act was not met; and he submitted that the same must apply to s.459J of the Corporations Act. 14 Mr. Knaggs also referred to s.25C of the Acts Interpretation Act, which is in the following terms: 25C. Compliance with forms Where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient.

He submitted that this applies equally to the Bankruptcy Act and the Corporations Act, and was not sufficient to save a statutory notice when mandatory requirements were not complied with. 15 Mr. Knaggs referred to the transitional provisions in the Corporations Act, and in particular s.1370(1) and (2) and s.1407(1). Those provisions are in the following terms: 1370. Object of Part (1) Subject to subsection (3), the object of this Part is to provide for a smooth transition from the regime provided for in the old corporations legislation of the States and Territories in this jurisdiction to the regime provided for in the new corporations legislation, so that individuals, bodies corporate and other bodies are, to the greatest extent possible, put in the same position immediately after the commencement as they would have been if: (a) that old corporations legislation had, from time to time when it was in force, been valid Commonwealth legislation applying throughout those States and Territories; and (b) the new corporations legislation (to the extent it contains provisions that correspond to provisions of the old corporations legislation as in force immediately before the commencement) were a continuation of that old corporations legislation as so applying. 2) In resolving any ambiguity as to the meaning of any of the other provisions of this Part, an interpretation that is consistent with the object of this Part is to be preferred to an interpretation that is not consistent with that object. …

1407. References to old corporations legislation in instruments (1) Subject to subsection (2), a reference in, or taken immediately before the commencement to be in, an instrument, other than: (a) an Act of a State, the Australian Capital Territory, the Northern Territory or Norfolk Island; or (b) an instrument made under such an Act; to: (c) an Act, or to regulations or some other instrument, that is part of the old corporations legislation (whether the reference is in general terms or in relation to a particular State or Territory in this jurisdiction); or (d) to a provision or group of provisions of such an Act, regulations or other instrument; is taken, after the commencement, to include a reference to the corresponding part, provision or provisions of the new corporations legislation (unless there is no such corresponding part, provision or provisions). 16 In relation to the latter provision, Mr. Knaggs pointed out that this occurred within Division 6 of Pt.10.1 of the Act, the heading of which is as follows: "General transitional provisions relating to other things done etc under the old corporations legislation". He pointed out that, unlike section headings, division headings are to be treated as part of the Act: see Acts Interpretation Act s.13(1). 17 Mr. Knaggs submitted that these transitional provisions dealt only with the transition from the situation immediately before the coming into force of the Corporations Act to the situation immediately after that coming into force, and not with a document first created seven months later, as in this case. 18 Mr.Knaggs also relied on a separate alleged defect in the document served in this case, namely that it did not show a proper address for service as prescribed. In my view that point was thoroughly and convincingly dealt with by Barrett J in the judgment appealed from ([2002] NSWSC 402 [3] to [18]), and by Young CJ in Eq. in the judgment of 30 September 2002 ([2002] NSWCA 329 [10]. I am content to adopt those reasons and will not further consider this point. 19 Finally, Mr. Knaggs relied on a further distinct point. He submitted that the form prescribed under the Corporations Act was in fact invalid because it was misleading. Form 509H in Schedule 2 to the Corporations Regulations required the insertion of a paragraph in the following form: The creditor may rely on a failure to comply with this demand within the period for compliance set out in subsection 459F(2) as grounds for an application to a court having jurisdiction under the Corporations Act 2001 for the winding up of the company. 20 Mr. Knaggs submitted that this was misleading, because persons other than the creditor could also rely on failure to comply with the statutory demand as grounds for an application for the winding up of the company. He submitted that the Act did not authorise the formulation of a misleading form; so that the form was invalid, and statutory demands which contained a similar paragraph were also invalid because misleading. 21 I will consider in turn (1) whether the document served on Quitstar was a statutory demand; (2) if so, what is the effect of the relevant departure from the prescribed form; and (3) whether the prescribed form itself is invalid.

WAS THE DOCUMENT A STATUTORY DEMAND? 22 I accept that "s.459E" referred to in s.9 of the Corporations Act must be s.459E of the Corporations Act; and, subject to the effect of s.1407(1) of the transitional provisions in the Corporations Act, it does not include s.459E of the Corporation Law, even though the two provisions are in the same terms. 23 So the first question is, was this document served under s.459E of the Corporations Act, or did it purport to be served under s.459E of the Corporations Act? I accept, as submitted by Mr. Knaggs, that "under" means something to the effect of under the authority of or pursuant to (Minister for Immigration and Ethnic Affairs v. Mayer (1985) 157 CLR 290 at 310), and that "purports" means something like professes or claims. 24 However, in determining whether this document either was served under s.459E of the Corporations Act, or purported to be so served, one can take into account other factors apart from the reference in the document to the Corporations Law and the absence of reference to the Corporations Act. At the time of service of the document, the only relevant legislation dealing with statutory demands on companies was the Corporations Act 2001. The document follows the form prescribed under s.459E of the Corporations Act, except that it has the words "Corporations Law" where it should have the words "Corporations Act 2001". In all respects other than that, the document was in the prescribed form and contained exactly what one would expect a statutory demand under s.459E of the Corporations Act 2001 to contain. In particular, it was addressed to an existing corporation by a creditor of that corporation; it demanded payment of a debt said to be owing by the corporation to the creditor; and it stated that the creditor may rely on failure to comply as grounds for applying for the winding up of the corporation, although in that connection it stated that such application would be to a Court having jurisdiction under the Corporations Law, not the Corporations Act. It referred to a provision identified as s.459G to the effect that a corporation served with such a demand may apply to have the demand set aside, although it identified s.459G as a section of the Corporations Law and not of the Corporations Act. 25 It was in fact the Corporations Act 2001 alone which at the relevant time provided for the issue and service of a document of that nature and containing those matters; and in my opinion this document was thus a document issued in accordance with that Act, except to the extent that it referred to the Corporations Law, whereas s.459E of the Corporations Act required the document to be in the prescribed form, which in turn required reference to the Corporations Act 2001. However, in my opinion the document does nevertheless qualify as a document served under s.459E of the Corporations Act, having regard to s.25C of the Acts Interpretation Act, which says to the effect that substantial compliance with a prescribed form is sufficient; and also to s.459J of the Corporations Act which says that a defect will invalidate a statutory demand only if "substantial injustice will be caused unless the demand is set aside". The question whether s.25C is satisfied and/or whether any defect would be cured by s.459J of the Corporations Act are matters which I consider under the second heading I have identified; and for reasons given there, I find that s.25C is satisfied, and any defect is overcome by s.459J. Accordingly, the other matters I have identified are sufficient to justify a finding that this document was a statutory demand made and served pursuant to s.459E of the Corporations Act. 26 Turning to the question whether it purported to be so served, one question is to whom it should so purport. One possibility is that it should so purport to a person with full knowledge of the material facts and the law; and another possibility is that it should so purport to its likely readership. In my opinion, it does not make very much difference which of these alternatives one chooses. The corporations legislation provides for the privilege of limited liability and at the same time imposes on persons involved in the management of companies various duties, which in turn require some familiarity with the applicable legislation: cf Deputy Commissioner of Taxation v. Clark (2003) 45 ACSR 332. Mr. Knaggs submitted that one should look at this document having regard to the possibility that a recipient may go to a library and ascertain that the Corporations Law had been repealed, and feel justified in taking the matter no further. That approach may have some merit in the context of bankruptcy legislation; but in my opinion, in the context of corporations legislation, the duties imposed on those involved in the management of corporations would be inconsistent with that approach. As shown by cases such as Clark, such persons should have a general idea at least as to applicable legislation; and if they had any notion that the Corporations Law had been repealed and was no longer applicable, they should also know that it had been replaced by the Corporations Act with, for the most part, identical provisions. 27 Having regard to those matters, in my opinion it can be seen that the document in this case manifests a clear intention that it operate as a statutory demand under the applicable law relating to corporations; and it would be plain to a person knowing that the Corporations Law was no longer in force, but that the Corporations Act with relevantly identical provisions was in force, that there was a mistake on the form by the creditor who issued the document and had it served, and it would also be plain to such a person exactly what should have been inserted to give effect to the intention manifested by that document. 28 Thus, in my opinion, the document manifested the intention to be a statutory demand under the Corporations Act 2001, and in that way purported to be such a demand. 29 In my opinion, this conclusion is confirmed by ss.1370 and 1407 of the Act. Although s.1370(1) refers to putting persons "in the same position immediately after the commencement as they would have been if the new corporations legislation were a continuation of the old corporations legislation", and to that extent may appear not to be dealing with a situation seven months later, it does display a legislative intention that the new legislation be seen as a continuation of the old legislation; and of course, if this were the case, there would be no relevant change of the name of the legislation. Similarly, in my opinion s.1407 displays a legislative intention that references in an instrument to the old corporations legislation should be taken as including a reference to the new legislation, where the new legislation is applicable and the old legislation is not. 30 For those reasons, in my opinion the document in this case was served under s.459E of the Corporations Act 2001, and purported to be so served.

EFFECT OF DEPARTURE FROM THE FORM 31 Although s.459E says that the demand must be in the form prescribed by the regulations, s.25C of the Acts Interpretation Act indicates that substantial compliance is sufficient, at least unless the contrary intention appears. It could be argued that the word "must" indicates a contrary intention; but when one has regard to s.459J of the Corporations Act, it does in my opinion follow that the legislation was not making strict compliance with the form a prerequisite for validity. 32 On the question whether there was substantial compliance in this case, in my opinion the better view is that there was. When one has regard to the considerations concerning the likely readership of the document, referred to previously, it is unlikely in the extreme that the mistake could mislead anyone. 33 Even if I am wrong on that, in my opinion the mistake would be a defect within s.459J; and by that section the legislature has manifested a clear intention that such defects should not invalidate demands but merely make them liable to be set aside if and only if "substantial injustice will be caused unless the demand is set aside". In this case, there is no suggestion that this requirement of substantial injustice is satisfied. 34 I do not question the bankruptcy cases to which Mr. Knaggs has referred the Court. However, they were dealing with different legislation, which did not contain a provision like s.459J. In my opinion, the provision in s.306(1) of the Bankruptcy Act, dealing with formal defects or irregularities, is a narrower provision. Furthermore, the considerations concerning the likely readership of the relevant documents do justify a stricter approach in the case of the Bankruptcy Act than in the case of the Corporations Act.

VALIDITY OF PRESCRIBED FORM 35 Whether or not the tendency of a form to mislead could invalidate a regulation, it is my opinion that the omission in the prescribed form to mention the possibility that persons other than the creditor might rely on non-compliance as a ground for seeking to wind up the company falls far short of being misleading in a sense that might conceivably invalidate subordinate legislation. At most, any discrepancy between the prescribed form and the Act would be a defect in the demand, and would justify the setting aside of the demand only if substantial injustice would otherwise be caused, in terms of s.459J of the Act. As mentioned earlier, there is no suggestion of that in this case. 36 In my opinion, this subsidiary submission of Mr. Knaggs should be rejected.

CONCLUSION 37 For those reasons, in my opinion the appeal should be dismissed with costs. 38 The respondent has submitted that an order should be made under Part 52A rule 43. Any application for such an order requires proper notice to the solicitor concerned, and would in this case require evidence. Accordingly, it would not be appropriate to consider such an order in this judgment. 39 McCOLL JA: I agree with Hodgson JA. **********

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