Randall v Chepan

Supreme Court of NSW|2009-08-04|Before: White J, Brereton J

CITATION : Randall v Chepan [2009] NSWSC 783

DECISION : Order that the originating process be dismissed with costs. Exhibits may be returned after 28 days.

CATCHWORDS : Application to set aside statutory demand under s 459J Corporations Act 2001 (Cth) - omission of required warning constituted defect in the demand - no injustice caused by defect - failure of all joint creditors to sign the demand did not constitute a defect - application dismissed

Kallinicos & Anor v Hunt & Ors [2008] NSWSC 149 Hunt & Anor v Kallinicos & Ors [2009] NSWCA 5 David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265 Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525 Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1095 Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; CASES CITED : K Young Trading Pty Ltd v Tjoi [2009] NSWSC 260 Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1 Bentham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42 Australian Workers' Union v Bowen (1946) 72 CLR 575 Quitstar Pty Ltd v Cooline Pacific Pty Ltd [2003] NSWCA 359; (2003) 48 ACSR 222 Jacomb v Harwood (1751) 2 Ves Sen 265; (1751) 28 ER 544 Union Bank of Australia v Harrison, Jones & Devlin Ltd (1910) 11 CLR 492; [1910] HCA 44 Exception Holdings Pty Ltd (in liq) v Albarran [2005] NSWSC 677; (2005) 23 ACLC 1270 Johnson v Trotter [2006] NSWSC 67

TEXTS CITED : Farid Assaf, Statutory Demands: Law and Practice, (2008) LexisNexis Butterworths

Randall Pty Ltd PARTIES : v Chepan Pty Ltd & Anor

COUNSEL : Plaintiff: M Pesman Defendant: G Burton SC

SOLICITORS : Plaintiff: n/a Defendant: Konstan Lawyers

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

2219/09 Randall Pty Ltd v Chepan Pty Ltd & Anor JUDGMENT 1 HIS HONOUR: This is an application to set aside a statutory demand. The plaintiff does not contend that the demand should be set aside pursuant to s 459H of the Corporations Act 2001 (Cth) on the ground that there is a genuine dispute as to the debt. The application is based on s 459J which provides: " 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. " 2 The statutory demand is dated 17 March 2009. It is addressed to the plaintiff and states amongst other things: " 1. The company owes the Estate of the late Peter Kallinicos (formerly of 29 Wybalena Street, Hunters Hill in the state of New South Wales) and Chepan Pty Ltd (A.C.N 002 689 036) of 37 Shelley Street, King Street Wharf, Sydney in the state of New South Wales ('the Creditors') the amount of $450,000.00 plus interest, being the amount of the debt described in the Schedule. 2. Attached is the Affidavit of Angela Kallinicos sworn 17 March 2009 verifying that the amount is due and payable by the company. "

3 The debt was described as follows: " DESCRIPTION OF THE DEBT Monies due and owning [sic] by the company to the Creditors pursuant to the Judgment of Brereton J in the Supreme Court NSW proceeding No: 1033 of 2003 made 18 February 2008 and confirmed by the NSW Court of Appeal in proceeding No: CA 40054 of 2008 made 29 January 2009 $450,000.00 Interest for the period 18 February 2008 to 17 March 2009 (394 days) at 10% per annum ($123.28 per day) $48,572.32 Total monies due and owning [sic] (excluding party/party costs) as at 17 March 2009 $498,572.32"

The demand was signed by Mrs Angela Kallinicos as: " Executrix of the Estate of the late Peter Kallinicos pursuant to Grant of Probate issued 9 January 2009 (Creditor) Director of Chepan Pty Limited (ACN 002 689 036) (Creditor) ". 4 The form of the statutory demand followed form 509H prior to the amendment to that form introduced by the Corporations Amendment Regulations 2007 (No.13) (Cth). That regulation amended the prescribed form for statutory demands by requiring the insertion in bold type and in a box of the following warning: " A failure to respond to a statutory demand can have serious consequences for a company. In particular it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company. "

5 That warning has been required to be included in statutory demands since 1 January 2009. There was a 12-month transition period which expired on 31 December 2008. 6 Notwithstanding that the debt the subject of the demand is a judgment debt, the demand was accompanied by an affidavit by Mrs Kallinicos. She deposed: " 1. I am a Director of Chepan Pty Ltd and the beneficial owner of all shares in Chepan Pty Ltd. I am the Widow of the late Peter Kallinicos and an Executor of his Will pursuant to Grant of Probate issued in the Supreme Court of New South Wales on 9 January 2009. By reason of that standing I am competent and authorized by the Creditors to make this demand. 2. The source of my knowledge of the matters stated in this Affidavit concerning the debt to which the demand relates is contained in the Judgment of Mr Justice Brereton of the Supreme Court of NSW made 18 February 2008 and the Judgment of the New South Wales Court of Appeal delivered 29 January 2009 ('the proceedings') referred to in the demand. Annexed hereto and marked 'A' is a true copy of the Reasons for Judgment of Brereton J in Supreme Court NSW proceeding No: 1033 of 2003 dated 18 February 2008. Annexed hereto and marked 'B' is a true copy of the Judgment of the NSW Court of Appeal delivered 29 January 2009. 3. The sum of $450,000.00 plus interest is immediately payable by the company and the debt to which this demand relates is due and payable by the company on which this demand is now made. 4. Neither the Estate of the late Peter Kallinicos nor Chepan Pty Ltd has received payment of the debt. 5. I am informed by the Creditor's Solicitor, Simon Konstantinidis who conducted the proceedings and continues to act for the Creditors, and verily believe that on 26 February 2009 Randall Pty Ltd and Another filed and served and Application for special leave to appeal to the High Court of Australia. 6. I am further informed by the said Simon Konstantinidis and verily believe that to the best of his knowledge and belief no Application to stay the Judgment giving rise to the demand has been made by the company to any Court of competent jurisdiction. "

7 On 18 February 2008, Brereton J gave judgment in proceedings brought by Mr Peter Kallinicos and Chepan Pty Ltd against Mr Peter Hunt and the present plaintiff, Randall Pty Ltd (Kallinicos & Anor v Hunt & Ors [2008] NSWSC 149). The judgment records that the parties had settled certain litigation on terms which included: " 4. Hunt and Randall shall pay the sum of $900,000 to Kallinicos, payable as follows: (a) the sum of $450,000 by close of business on 4 February 2008; (b) the sum of $450,000 by close of business on 7 September 2009. ... 14. In the event that payment is not made within 3 business days of the due date, the plaintiffs may enter judgment for the sum of $900,000 or such balance is at that time outstanding and the first and third defendant consent to entry of such judgment. "

8 Brereton J rejected the contention of Mr Hunt and Randall Pty Limited that clause 14 was void as a penalty. His Honour gave judgment that "the first and third defendants pay the plaintiffs the sum of $900,000". A stay was refused. The appeal was dismissed on 29 January 2009 (Hunt & Anor v Kallinicos & Ors [2009] NSWCA 5). Whilst an application for special leave to appeal to the High Court has been filed, there is no stay of the judgment. 9 Counsel for the plaintiff accepted that there is no genuine dispute that the judgment debt is due and payable. It was not submitted that the existence of the application for special leave to appeal to the High Court is a reason why the demand should be set aside under s 459J(1)(b). 10 Mr Peter Kallinicos died on 3 November 2008. On 9 January 2009, probate of his will was granted to Mrs Kallinicos, Mr Christian Donnelly and Mr Menio Papaklonaris. It was common ground that the judgment entered pursuant to the orders of Brereton J against the plaintiff was a judgment in favour of Chepan Pty Ltd and Mr Peter Kallinicos jointly. 11 The plaintiff says that the demand was defective because at the time the demand was served the judgment debt was owed to Chepan Pty Ltd and all three of the executors. The demand was made by Chepan Pty Ltd and Mrs Kallinicos as executrix of the estate of the late Mr Peter Kallinicos, and not by Chepan Pty Ltd and all three executors. Mrs Kallinicos had the permission and the authority of the other two executors to make the demand on behalf of the estate, but they did not join in in signing the demand. 12 Thus the plaintiff's application under s 459J to set aside the statutory demand is made on two grounds. First, is the omission of the form of warning required to be inserted in the prescribed form (see s 459E(2)(e)). The second ground is that the demand was not signed by all of the executors of the estate of Mr Peter Kallinicos who, together with Chepan Pty Ltd, are jointly entitled to the judgment debt.

Omission of Required Warning 13 As to the first ground, there was no question but that the omission of the required warning was a defect in the demand. But the demand is not liable to be set aside on that account unless failure to do so would cause substantial injustice. There was no evidence that the omission of the required warning had any impact on the plaintiff. That is to say, there is no evidence that the plaintiff omitted to do anything it would have done, or that it did anything it would not have done had the required warning been included. 14 In Farid Assaf, Statutory Demands: Law and Practice, (2008) LexisNexis Butterworths, the learned author says (at [7.18]) that "substantial injustice" in s 459J(1)(a) requires that the defect in the demand "have some significant effect or ramification upon the recipients of the demand" or be "causative of significant and considerable unfairness" and (at [7.19]) that "the common thread within the case law in determining whether a defect records substantial injustice is an examination of the likely effect the defect will have upon the recipient of the demand". I agree. 15 Counsel for the plaintiff did not dispute this was an accurate summary of the effect of the authorities on s 459J(1)(a). However, counsel submitted that a different approach is required in the case of a defect in the demand through omission of the warning required by the Corporations Amendment Regulations 2007 (No.13). That is because the purpose of the amendment to the form was to alert the recipient of a statutory demand of its significance. If the warning were omitted with the result that the officers of the recipient company did not take steps within 21 days to satisfy the demand or applied to have it set aside, it would be too late to do so (David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265). No amendment was made to the Act to permit a company to apply to have a statutory demand set aside after 21 days after service on the ground that the required warning was omitted. But, counsel submitted, in every case where the application to set aside the demand is made within time, the applicant company will not have been prejudiced by the omission of the required warning. Counsel submitted that to ignore the defect because no substantial injustice was occasioned to the recipient would be to make the amendment a dead letter. That is, so counsel submitted, the creditor serving the demand could safely ignore the requirement of the amended form. If the company failed to apply to set aside the demand within 21 days it would be too late for it to do so later, even if it would have acted promptly had the warnings been made as required. But if the company moved within the required period, it could always be said that there was no substantial injustice if the need to prove substantial injustice required proving that the recipient of the demand was adversely affected by the omission. 16 In my view, this submission overstates the position. If a company which receives a statutory demand genuinely disputes the claimed debt, and if the claimed debt is material to proving the company's solvency, then the company may seek leave of the Court to oppose a winding-up application on a ground on which the company could have relied to set aside the demand had the application been made within time (s 459S). 17 It is true, as counsel for the plaintiff submitted, that it will be difficult for the company to show that the absence of the required warning was itself a sufficient ground on which it could have relied on an application to set aside the statutory demand had the application been made within time, because of the difficulty of proving in a case brought within time that the defect through the omission of the warning would occasion substantial injustice if the demand were not set aside. But where the company would have been entitled, had the application been made in time, to have the statutory demand set aside on the ground there was genuine dispute as to the debt, the absence of the prescribed warning might well be significant in persuading the court to exercise its discretion under s 459S to grant leave. One of the issues required to be taken into account in exercising the discretion to grant leave under s 459S(1) is the reason the issue of indebtedness was not raised in an application to set aside the demand (Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179). 18 It is also possible to envisage other instances where a recipient company which applies within time to set aside a statutory demand that omits the required warning, could establish substantial injustice within s 459J(1)(a) if the demand were not set aside. Thus, if the omission of the warning caused the officers or directors of the company to delay in obtaining legal advice such that a rushed application to set aside the statutory demand within time had to be made, and the supporting affidavit omitted grounds of genuine dispute such that the company was thereafter precluded from raising those grounds on the principle in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, then it might well be found that the omission of the required warning was a basis for setting aside the demand pursuant to s 459J(1)(a). 19 Thus, I do not accept that there would be no effective sanction against non-compliance with the 2007 Regulation if an applicant relying upon such a defect were required to prove that the defect had some effect, adverse to it, on the way it acted or omitted to act. However, even if there were no effective sanction against non-compliance with the form, it would not follow that the requirements of s 459J(1)(a) for establishing substantial injustice could be ignored. Whilst counsel for the plaintiff submitted that a different approach to assessing what is substantial injustice was required in the case of such a defect, I do not understand counsel to have identified with any particularity what injustice would be occasioned to the plaintiff if the demand were not set aside. 20 Here, no injustice was occasioned by the defect, substantial or otherwise, and I do not see that any injustice will be caused to the plaintiff if the demand is not set aside. 21 I should note that counsel for the plaintiff accepted that s 459J(1)(a) and s 459J(1)(b) have discrete fields of operation and that as the omission of the required warning was a defect in the demand, the matter came within s 459J(1)(a) (Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525 at 529; Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1095 at 1104). In any case, as Bryson J (as his Honour then was) said in Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd at 1104: " 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. "

(See also Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24 at [52]; (2005) 53 ACSR 229; and K Young Trading Pty Ltd v Tjoi [2009] NSWSC 260 at [9], [11], [15] and [18].) That is to say, the plaintiff did not rely on s 459J(1)(b) in relation to this ground; but even if the paragraph were available, the omission of the warning would not provide " some other reason " why the demand should be set aside. Signing by One of the Co-Executors 22 I turn then to the second ground of challenge to the demand. The question whether all creditors must join in signing a statutory demand for a debt owed to them jointly is unsettled (Farid Assaf, Statutory Demands: Law and Practice at [2.14]; Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1 at 7-8; Bentham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42 at [28]). Each joint owner of property held on a joint tenancy has title to the whole of the property. Payment of a joint debt to one creditor discharges the debt. On the other hand, all joint creditors were required to be joined in an action at law to recover a joint debt. But, one joint creditor could compel the others to lend their names to the action on being indemnified against liability for costs; and they could be joined as defendants (Australian Workers' Union v Bowen (1946) 72 CLR 575 at 589,593). Proceedings are not defeated merely because of the non-joinder of a person as a party (Uniform Civil Procedure Rules (2005), r 16.23). 23 In Manzo v 555/255 Pitt Street Pty Ltd, Hodgson J (as his Honour then was) said that because payment to one of a number of joint creditors discharges a joint debt "it could be argued that it must be open to one joint creditor to demand payment of a joint debt". His Honour said if the debt were not a joint debt in equity as well as at law, all creditors should join in the demand (at 8). 24 In Bentham Management Pty Ltd v Union Finance Pty Ltd, Debelle J, with whom Doyle CJ and Perry J agreed, said [28]: " [28] Given this conclusion, it is unnecessary to examine the question whether the statutory demand should have been signed by or on behalf of both the appellant and Sanville Property. In Manzo v 555/255 Pitt Street Pty Ltd at 7, Hodgson J noted the common law rule that a payment to one of a number of joint creditors discharges a joint debt: see Chitty On Contracts: General Principles , 24th ed (1977) para 192, Halsbury's Laws of England , 3rd ed, Vol 8, para 357; Wallace v Kelsall (1840) 7 M & W 264 ; 151 ER 765; Steeds v Steeds (1889) 22 QBD 537 and Powell v Brodhurst [1901] 2 Ch 160. He expressed the view that it was arguable that one joint creditor could demand payment of a joint debt. I respectfully suggest that there is a real question whether that is the correct view. The principle that a payment to one of a number of joint creditors discharged the debt jointly due to all of them does not necessarily lead to the conclusion that one joint creditor can demand payment of the whole of the joint debt without the consent of the other lenders. The other lender or lenders might not consent to the demand. They might, say, have reasons which justify giving the debtor time to pay. That might apply a fortiori in the case of a statutory demand upon a company which is capable of leading to the winding up of the company. The lenders may prefer to give the borrower time to pay rather than liquidate the company. The question whether both lenders must execute the statutory demand is an issue for later determination. In any event, even if both lenders had to sign the statutory demand, it would be necessary to consider whether the failure to do so caused substantial injustice and so required the statutory demand to be set aside: see s 459J of the Corporations Act . That too is a question which need not now be considered."

25 In Australian Workers' Union v Bowen, the majority of the High Court held that where a number of parties were joint creditors entitled to a judgment debt, all joint creditors were required to authorise the service of a bankruptcy notice founded on the debt. Latham CJ succinctly said (at 583) that: " Only one writ of execution can be issued for the one judgment debt to which joint judgment creditors are entitled, and a bankruptcy notice in the case of such creditors can be effective only when issued by or on behalf of all the judgment creditors. " 26 In that case two of the judgment creditors had not authorised the issue of a bankruptcy notice. 27 I do not think that Australian Workers' Union v Bowen dictates the outcome of the present issue. That is so for a number of reasons. First, in this case all of the executors did authorise Mrs Kallinicos to sign the statutory demand. Secondly, in serving the statutory demand, the defendants were not executing the judgment. Thirdly, as the Court of Appeal observed in Quitstar Pty Ltd v Cooline Pacific Pty Ltd [2003] NSWCA 359; (2003) 48 ACSR 222 at [34], cases on bankruptcy notices cannot be simply transcribed to the law on statutory demands. 28 In Bentham Management Pty Ltd v Union Finance Pty Ltd, Debelle J said that the principle that a payment to one of a number of joint creditors discharges a debt jointly due to all of them does not "necessarily lead to the conclusion" that one joint creditor can demand payment of the whole of the joint debt without the consent of the other lenders. However, in the case of a debt owed to a testator which becomes owed to executors of an estate, I think it clear that one co-executor can demand payment of the debt and that the demand will bind the estate. Subject to contrary provision made by statute (see Conveyancing Act 1919 (NSW), s 153) each executor has the entire control of the testator's estate and can release or demand payment of a debt owed to the estate or pay a debt owed by the estate, without the concurrence of the other executors (Jacomb v Harwood (1751) 2 Ves Sen 265; (1751) 28 ER 544; Union Bank of Australia v Harrison, Jones & Devlin Ltd (1910) 11 CLR 492; [1910] HCA 44; Exception Holdings Pty Ltd (in liq) v Albarran [2005] NSWSC 677; (2005) 23 ACLC 1270 at [26]; and Johnson v Trotter [2006] NSWSC 67 at [20]-[21]). 29 In Union Bank of Australia v Harrison, Jones & Devlin Ltd, Issacs J said (at 516, 518): " The office is one and indivisible, no matter whether it is executable by one or several. When it is said that co-executors are to be regarded as an individual person, it is not meant that all must unite in the performance of each act, but that their official personality is not divisible or distinguishable, and that they have individually and collectively all the rights and duties of the office they undertake. ...

... whether an official act be done by one or some or all of the executors, it is equally binding upon all, because in each case the office is discharged, and the testator is fully represented. "

30 In my view Mrs Kallinicos, by virtue of her office as one of the executors, was entitled to act so as to bind the estate with the consequences of service of the demand. She did not need the concurrence of her co-executors to the demand and therefore the absence of their signatures on the demand was not a defect. Even if that conclusion be wrong, and Mrs Kallinicos did not have the right to sign the demand without the concurrence of her co-executors, she had their concurrence and authority to do so. If, which I do not accept, there were a defect by reason of the other executors not signing the demand, it is not a defect which would occasion substantial injustice. Nor would it provide some other reason for setting aside the demand. For these reasons the second ground of challenge to the demand also fails. 31 For these reasons, I order that the originating process be dismissed with costs. The exhibits may be returned after 28 days.

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